Rare Earth Prices Double on China, Industrial Minerals Says
The cost of dysprosium oxide, used in magnets, lasers and nuclear reactors, has risen to about $1,470 a kilogram from $700 to $740 at the start of the month, Industrial Minerals said in an e-mailed statement. Europium oxide, used in plasma TVs and energy-saving light bulbs, has more than doubled.
China, supplier of 95 percent of the 17 elements known as rare earths, has clamped down on rare-earth mining and cut export quotas, boosting prices and sparking concern among overseas users such as Japan about access to supplies. The government may further reduce export quotas, pushing prices higher, Goldman Sachs & Partners Australia Pty said last month.
"China has long said it will consolidate the industry but it's moving more rapidly than many observers anticipated," said Dudley Kingsnorth, a former rare earths project manager and now chief executive officer of Perth-based advisory Industrial Minerals Co. of Australia. "There might be an element of speculation but I think the price rises have been driven by people who are desperate for the product."
This article by Dorithy Kosich for Mineweb carries much greater detail on the consolidation of the Chinese rare earth metal industry and how supply is likely to be focused with only three companies. Here is a section:
Late in May, China's Minister of Land and Resources Xu Shaoshi revealed government plans to maintain tight control over the rare earth sector. The first of its kind in more than a decade, the guideline is designed to enhance industrial consolidation, crack down on smuggling and illegal mining practices, and set up a national strategic stockpile system for heavy rare earth metals.
At the time, the State Council said it would let the three largest companies control 80% of the heavy rare earths in the south of the country within two years. Minmetals is expected to be one of the three conglomerates. China Daily said the other two companies might be Chinalco and Ganzhou Rare Earth Co. Chinalco already has rare earth smelting capacity as well as rare-earth mining and smelting joint ventures in Guangxi Zhuang autonomous province and the provinces of Jiangxi and Guangdong in southern China.
Eoin Treacy's view Chinese
officials appear to fully expect countries such as the USA, Australia and Canada
to ramp up production of rare earth metals over the next decade which should
help to ease supply constraints if and when that is achieved. However, as this
article by Richard Mills, which was also posted in Mineweb today, explains due
diligence is required to ensure that reserves are all that they are claimed
to be. This article
could also be used as a primer for those who want to learn more about the different
uses for various rare earth metals. Here is a section:
When I evaluate a REE junior's project I want to see one mineral hosting as much of the REE as possible, not three or more. I want that mineralization large grained and non-interlocking and I want road, rail and access to the power grid close.
Each deposit will have its own unique mineralogy - this has to be determined. A company has to concentrate its recovery efforts on the REE's - whether LREE or HREE - that are going to be easy to recover in an inexpensive uncomplicated circuit, they have to work with what nature has given them in order to be competitive in the market. Watch for how many different types of minerals the REE are hosted in.
Rare earth metals companies have been among some of the better performers in the small cap sector over the last year as an increasing number of investors have learned of the compelling bullish story and profited from the sharp advance in prices. Most shares in the sector hit medium-term peaks in March or April and remain in corrective phases.
Since a defining characteristic of many rare earth metal shares is that they are relatively small cap, with little or no earnings I thought it might be instructive to create a table displaying Market Cap, P/E, P/Book, EPS and Estimated P/E for the Current Year and Next Year sorted by domicile. As can be discerned from the table, the majority of the shares can be classed as speculative. There are some exceptions which already have positive earnings and are genuinely close to production.
Lynas Corp is one of the larger companies in the sector with a market cap of more than $3 billion. It currently trades at a Price/Book of 5.4 and its Estimated P/E for Next Year is 17.36. This week's sharp decline broke the medium-term progression of higher reaction lows and the price has returned to an area of potential support in the region of the 200-day MA. Smaller companies such as Arafura Resources and Greenland Minerals hit medium peaks earlier and have fallen more. Alkane Resources has bucked the trend of deterioration and rallied impressively over the last month. However, it remains susceptible to a pause and consolidation of recent gains against the background of weakness in the rest of the sector.
To the best of my knowledge Molycorp remains the only US listed rare earth metal company. It announced today that its plans to reopen the Mountain Pass mine are fully funded, but this has not insulated the share from recent selling pressure. It has also pulled back to test the almost yearlong progression of higher reaction lows and the 200-day MA.
Of the dozen Canadian rare earth companies in the above table only Neo Material Technologies and 5N Plus have earnings. They are also the two largest companies in the Canadian sector. Neo Material Technologies has a similar pattern to Lynas above. 5N Plus peaked in March and has had a more orderly process of reversion towards the mean where it appears to have found at least short-term support. A sustained move above C$9 would confirm more than near-term support in this area. The remaining 10 companies have all experienced sharp declines which are beginning to look climactic.
Mainland China listed Inner Mongolia Baotou Steel Rare-Earth Hi-Tech hit at least a short-term and potentially medium-term peak last week from quite an overextended position relative to the 200-day MA. The odds have increased that a reversion towards the mean is beginning and a sustained move to new highs would be required to question this view. Other major Chinese rare earth metal producers such as Jiangxi Copper and Aluminium Corp of China are too diversified to reflect the bull market in rare earth metals. China Rare Earth Holdings, listed in Hong Kong has a P/E of 28.86 which is expected to come down to 17.64 this year and 11.76 next year. The share has pulled back sharply in sympathy with the wider sector.
With the exceptions of Alkane Resources and Baotou Steel Rare-Earth the rest of the rare earth metals sector has been in a corrective phase for a number of months. The pace of decline has picked up somewhat in the last few weeks. This article from Reuters suggests consumers in Japan are beginning to become pickier about supply as prices rise. The economic slowdown following the tsunami may also have contributed to less demand in the short term. Over the medium-term not a great deal has changed regarding rare earth metals bullish story.
They are still in increasingly short supply which is putting upward pressure on metal prices. Countries such as the USA, Australia and Canada are still scrambling to reopen mothballed capacity and bring new supply online. Considering the varied uses for these metals and how essential they are for modern life, demand growth is likely to remain on a secular upward trajectory. Since this is the case, while there is little evidence yet that the current selling pressure has ended, prices are considerably lower and beginning to look attractive once more from an investment perspective. This is a highly volatile sector with promising medium to long-term upside potential. Upward dynamics, particularly if they are posted across a whole range of shares simultaneously, would help to indicate the return of demand dominance.