The Market Shares Rare Earth/Strategic Metal ETF has outperformed a basket of rare earth mining stock. However, the fund is more than a pure rare earth investment. Since trading started in late October 2010, the fund is up 31 per cent and is outperforming many of Van Eck’s other ETFs.
Another major development furthers China’s grip on the rare earth market. The creation of a rare earth exchange in Inner Mongolia gives Chinese rare earth producers more leverage in price negotiations. Chinese officials also stated publicly their desire to consolidate rare earth mining firms.
Investors looking to invest in mining operations should look at the stratification of elements in the deposit and take into account the current and future demand for the various elements, be they heavy or light.
Goldman Sachs released an assessment of the rare earth market that predicts rare earth prices may fall by 2013 due to supply being brought online by the likes of Molycorp and Lynas Corp. However, many familiar with the complexity of the rare earth processing don’t share the same view.
Rare earth elements are used in a wide array of weapons systems used by the US military, however, there is currently no domestic production of the metals. This is catching the eye of congress as the US military and national defense is at the whims of Chinese trade policy.
The financing deal between Japanese trading house Sojitz Corporation, and rare earth mining company Lynas Corp of Australia recently won the approval of the country’s Foreign Investment Review Board. The deal worth $325 million will help develop the Lynas’ Mt. Weld deposit.
China has released the total mining output quota for 2011. The country has increased the level of the total by a modest 5 per cent over 2010. Along with the announcement officials stated that new permits for prospecting and mining will not be granted until June, 2012, which further exacerbates supply issues going forward.
Rare earth prices have jumped again, up nine fold from a year ago. The news of the increase in price also come at the same time that a new tax is levied on heavy and light rare earths differently, setting the stage for a potential change to export policy.
As the natural and now nuclear disaster unfolds in Japan, the number one importer of Chinese rare earth, rare earth stocks have been taking a hit. However, as an impending nuclear meltdown may increase the willingness of governments to jettison nuclear projects and move toward alternative energy, this may be a time to get into rare earth as they are essential for renewable energy, wind turbines and hybrid/electric vehicles.
The production of rare earth oxides creates radioactive waste in the form of thorium. This material is considered a liability in the processing of rare earths. However, science is quickly developing ways to use the material as nuclear fuel, either in next generation nuclear facilities, or as a substitute to uranium. There are many benefits to switching to thorium as the main fuel for nuclear power.
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