Why Investing In Rare Earth Elements?

Rare Earth In Periodic TableRare_Earth_Metals Oxide

Dear PGM Capital Blog readers,

In this weekend’s blog edition, we want to elaborate on the increasing usage of
Rare Earth Elements -REE’s- in our modern society and the best way to invest in them.

What are Rare Earth Elements:
Rare Earth Elements (“REE’s”) or Rare Earth Metals are a set of seventeen chemical elements in the periodic table, especially the fifteen Lanthanides plus Scandium and Yttrium, which are considered “Rare Earth Elements” since they tend to occur in the same ore deposits as the lanthanides and exhibit similar chemical properties.

Despite their name, rare earth elements (with the exception of the radioactive promethium) are relatively plentiful in the Earth’s crust, with “Cerium” being the 25th most abundant element.

Rare Earth Elements are not found in the ground as independent elements. Rather, they are found in minerals which must be separated chemically in order to obtain them. The minerals containing REE’s are called Rare Earth Minerals REMs-.

The Supply and Demand Picture:
The supply of rare earths is dominated by China, which provides 97% of the world’s production. However, China only has 48% of the world’s known reserves of rare earths, according to the USGS Mineral Commodity Summaries 2011. Due to industry consolidation and stricter environmental regulations, China has imposed export quotas on rare earths. Effectively this creates two separate rare earth markets, an internal one for China and one for the Rest-of-World (ROW). The Chinese export quota amount therefore defines the majority of the ROW supply.

In order to meet the forecasted global demand of approx. 175,000 metric-tons (tonnes) by 2015, the Chinese supply will have to be increased to 130,000 tonnes per year, providing ROW supply to increase from approx. 10,000 tonnes in 2012 to more than 45,000 tonnes in 2015 as can be seen from below chart.

REE_supply_demand

Applications:
The unique properties of REE’s have made them critical components in a range of green-tech and high-tech applications, as well as advanced defense systems and space-based communications systems.

Below is a breakdown of each rare earth element and its common uses:

Element Common Uses
Non-Lanthanides
Scandium Aerospace components, mercury-vapor lamps
Yttrium Lasers, microwave filters, high-temperature superconductors
Light Rare Earth Elements (LREE)
Lanthanum Camera lenses, catalytic cracking catalyst for refining oil, high refractive index glass, battery electrodes
Cerium Glass and ceramics, polishing powder, chemical oxidizing agent
Praseodymium Rare earth magnets, lasers, carbon arc lighting
Neodymium Rare earth magnets, lasers
Promethium Nuclear batteries
Samarium Rare earth magnets, lasers, masers
Heavy Rare Earth Elements (HREE)
Europium Lasers, mercury vapor lamps
Gadolinium Rare earth magnets, lasers, x-ray tubes, MRI, computer memory
Terbium Lasers, fluorescent lamps
Dysprosium Rare earth magnets, lasers
Holmium Lasers
Erbium Lasers, vanadium steel
Thulium x-ray machines
Ytterbium Lasers
Lutetium PET scanners, high refractive glass

As you can see, rare earths have many uses, and find their way also into the following everyday technologies and applications:

Green-tech applications include:

  • Hybrid cars and electric vehicles
  • Wind turbines
  • Solar photovoltaics
  • CFL light bulbs
High-tech applications include:
  • Cell phones and digital music players
  • Computer hard disk drives
  • Microphones
  • Fiber optics
  • Lasers
Defense and space applications include:
  • Global positioning systems
  • Radar and sonar
  • Major sea, land and air-based weapons systems

Advanced water treatment applications include:

  • Industrial, military, homeland security applications
  • Foreign aid applications

Below picture shows the dependency of Hybrid Technology upon Rare Earth Elements.

Rare Earth in a modern Hybrid Car

Estimated rare earth demand by application for 2010 and 2015 are shown in details in below pie-charts.

Rare Earth Applications 2010

Rare Earth Demand by Application-U.S. and World, 2010

Rare Earth Applications 2015

Rare Earth Demand by Application-U.S. and World, 2015

Investing in Rare Earth Elements:
Investors can either buy REE’s outright through a small Canadian holding company called Dacha Strategic Metals (TSX: DSM, ISIN: CA2334071057) or they can purchase mining companies or invest in a Rare Earth ETF like Market Vectors Rare Earth/Str Metals ETF (NYSE: REMX or ISIN: US57061R5366)

Some Rare Earth Mining Companies:

  • Lynas Corporation Ltd (ASX: LYC or ISIN: AU000000LYC6)
    The company has two major operations: a mining and concentration plant at Mount Weld, Western Australia, and a refining facility now under construction at Kuantan, Malaysia. Mount Weld contains one of the largest and highest grade known deposits of rare earths. The deposit is additionally unusual because it contains very low levels of thorium, a radioactive contaminant commonly found together with rare earth elements. The combination of large resource, high grades and low thorium contamination make it a particularly attractive commercial proposition. The ore produced at Mount Weld is concentrated onsite and is intended to then be shipped to the Lynas Advanced Materials Plant (LAMP) in Malaysia for refining.
  • Ucore Rare Metals (TSX: UCU or ISIN: CA90348V1031)
    The company has a large project in Alaska, Bokan Mountain, that focuses on dysprosium, they also have exposure to several other REE’s as well as uranium. Most importantly, however, Ucore is the only REE company that we have researched where there is an explicit statement in their 43-101 for Bokan Mountain that there is a significant xenotime finding.Ucore plans to produce approximately 120 tons of dysprosium and 20 tons of terbium when Bokan Mountain commences production in (hopefully) 2016.
  • Avalon Rare Metals. (TSX: AVL, ISIN: CA0534701002)
    The company’s most developed resource is the Nechalacho Rare Earth Elements Deposit, located 100 km southeast of Yellowknife in the Northwest Territories, Canada. The Nechalacho Deposit contains the more valuable HREE such as Europium, Terbium, and Dysprosium, along with Neodymium. Avalon completed a Feasibility Study in April 2013, focused on defining high-grade, HREE-rich resources in the large Basal Zone of the deposit. Nechalacho is the first HREE project outside of China to have reached this milestone.
  • Tasman Metals Ltd. (TSX: TSM or ISIN: CA87652B1031)
    The company potentially has an enormous dysprosium and terbium resources at their Nora Karr project in Sweden.
  • Great Western Minerals Group (TSX: GWG or CA39141Y1034)
    The company has a project, the Steemkampskraal mine, in South Africa that is anticipated to produce 34 tons of dysprosium.
  • Molycorp Inc (NYSE: MCP or ISIN: US6087531090)
    In 2010 and 2011 investing in REE’s was almost synonymous with investing in Molycorp.
    Now that the shares are down 90% from their peak I think that a lot of people have realized that a significant amount of their revenues comes from cerium, which has poor supply-demand fundamentals, especially relative to dysprosium, yttrium and terbium. Molycorp does have some dysprosium resources, however by 2015 they estimate that they will be producing only seven tons, which is minuscule compared to what Tasman may produce.
  • Greenland minerals & Energy Ltd ASX: GGG or ISIN: AU000000GGG4)
    The Kvanefjeld project has a resource base of 10.3Mt of rare earth oxide (REO) making it the world’s largest JORC‐code or NI43‐101 compliant REO resource, as well as containing 575Mlb’s of U3O8. Feasibility studies on Kvanefjeld are well advanced, demonstrating a long‐life, cost‐competitive project. Kvanefjeld is slated to be a polymetallic operation that produces uranium, zinc and rare earth concentrates, with the clear potential to be a globally significant producer of the critical, high‐value rare earths for which the demand outlook is strong.

PGM Capital Comments:
To summarize:

  • REE’s are essential in the production of many modern-day products and applications, including advanced defence systems.
  • Almost all current REE production occurs in China.
  • Cerium is the most common REE and consequently it has poor supply-demand fundamentals and makes for a poor investment relative to other REEs.
  • Dysprosium and terbium are extremely rare and make for excellent investments relative to other REEs.
  • Yttrium is not so rare, but it has particular usages that make it an attractive investment.
  • Almost all RARE Earth Elements mining company as well as DACHA Strategic Metals, which has RARE Earth Elements stored in warehouses in South Korea, are now near or at 52 weeks low.

In two recent USGS and European Union studies of mineral supply risk, REE’s rank highest as mineral raw materials of critical concern, given uncertain future supplies and their importance to advanced industrial economies.

Below short and long-term supply risk matrix, from 2010, give an overview for Rare Earth needed for the production of clean energy.

REEs-green-criticality short term

REEs-critical-long term

 

The above clearly shows how critical the supply of Rare Earth Metals will become starting 2015, for which reason it is important to know which countries outside of China have significant Rare Earth Resources Deposits.

Below chart gives the distribution of Rare Earth Resources by Country (Excluding China) and an overview of the Heavy Rare Earths that are vital components for the powerful magnets required for wind turbines, hybrid and electric cars etc.

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Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that:

  • That the REE’s stocks  are extremely volatile, and investing in them is not for the faint of heart.
  • Unless you decide to make REE investing your area of expertise, do not allocate more than a small percentage of your assets to these companies.
  • Be patient. If you are excited and emotional and end up allocating all or most of your REE investment capital all at once don’t be surprised to see losses of 50% or more. If you are patient you will be in a position to take advantage of these enormous price swings.
  • In accordance with some analysts based on fundamental analysis some REE investments may be undervalued by a minimum of 80%, 90%.

Yours Sincerely,

Eric Panneflek

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