Thursday, February 17, 2011

Rare Earth Elements Update

The fact remains that you can do all the analytical work you want but there is a huge macro trend in place. China is at war with the US. They fired the missile off the California coast as a press release that if we like having subs in their harbors they can do the same. They don't appreciate being called a currency manipulator by the biggest currency manipulator of all.

Here is why this is important. The world used roughly 100kt of REEs last year. China is slashing export quotas we know that. In the war this is one of their best weapons as the US, Canada and Australia might get 20kt of material online before the end of 2012 and literally their life as they know it depends on REEs.

If this is your biggest tool in a war then you must crack down on things that weaken it. The news last fall of the fishing boat skirmish off the Chinese coast was not as it was reported. The Japanese mafia has been an active smuggler of REEs out of China for several years. The price of these materials has risen roughly 500-800% on a blended basis. These leaks of material must be stopped.

The attached article is another step in controlling these supplies. It is a smart move by the Chinese.

Here is how you pick the proper REE stocks.
  • What is in the deposit? You need to see "heavy" REEs
  • What is the cost per kg of extraction? Be sure you get the NET cost as other materials can be sold to lower it
  • Pick mines that will produce before 12-31-15 remembering that 100kt-150kt depending on growth of demand needs to be replaced before supply issues emerge
  • Share structure, use your own judgement but make sure you are getting an appropriate slice of the pie
Best of luck, you will need it.

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