In the past month or so it seemed like hardly a day when by when I dont get an email from some peanut rabitting on about Rare Earth Elements (REE’s) or I notice some shonk predicting the end of the world, so you had better buy XYZ Dodgy Rare Earth Ventures. To make matters worse some of the journals I subscribe to are carrying on about them. If I were a cynic I would be tempted to call this a bubble.
Having forgotten most of my high school chemistry and all of my uni chemistry I decided to do a bit of research to try and put the somewhat hysterical nature of the commentary into some perspective. And to be honest it is good for the old grey matter to try and work things out. Too often traders are myopic in their approach to markets and cannot see the bigger picture
The first thing to note about the elements that make up the group known as rare earths are not actually that rare. Their abundance is on a par with more well known industrial metals such as copper, zinc, lead, tin or nickel. Even the rarest of these metals thulium and lutetium are 200 times more abundant than gold. However, the problem with these elements is that unlike traditional metals they do not display a tendency to concentrate in ore bodies. As a result of this there has been little commercial or technological desire to prove up new reserves and to mine them until now. A consequence of this the majority of the world’s supply now comes from China – a situation that makes many uneasy. This disquiet has intensified with China seeking to preserve its supplies internally by introducing export quotas.
For those who have forgotten their high school chemistry REE’s are a set of seventeen elements within the periodic table. In uber technical terms they are the 15 lanthonoids plus scandium and yttrium and they do all sorts of nifty things.
The current situation has arisen because of advances in technology – most of the gadgets we use in every-day life in some way makes use of the REE’s. Everything from touch screens to sophisticated magnets to head phones are in some way reliant upon these very unfamiliar elements. New clean green technologies are dependant upon REE’s. Whilst the obvious answer to the problem of supply might be to either dig more out the ground or search for substitute materials. The problem is that finding it and digging it out of the ground is a costly and time consuming process. The mining process is also bedevilled by environmental concerns. The largest mine in the USA at Mountain Pass in California had been dormant for years due to concerns associated with the radioactive contaminants that are part of the mining process. The other alternative a search for substitutes is at this stage fairly futile. For example Europium has been used to produce the red colour in TV’s for 50 years and we are yet to find a replacement.
The issue for traders is how to trade these metals and unfortunately they are traded via private treaty which means they are not traded on a public exchange in the same manner as say gold or copper. As such it is impossible to directly take advantage of the recent extreme price spikes.
This means that the only way for local investors to gain access is via indirect investment and it is here that is gets really quite interesting.
From what I have been able to gather domestically there are eight REE associated listed vehicles.
- Lynas Corporation Ltd (LYC)
- Alkane Resources Ltd (ALK)
- Arafura Resources Ltd (ARU)
- Greenland Minerals and Energy Ltd (GGG)
- Navigator Reosurces (NAV)
- Kimberly Rare Earths (KRE)
- Krucible Metals Ltd (KRB)
- Hastings Rare Metals Ltd (HAS)
As can be seen from the table below the performance of these shares has been somewhat mixed over the past year with the stand out performing being Alkane which started the financial year at $0.23 and at the time of writing was sitting at around $2.00. Which is down from its high of $2.59.
As it would seem even indirect exposure to the REE’s can be profitable. However, this is generally the way with hyped up stocks – everyone jumps on the bandwagon. Now this is not a bad thing since as trend followers it doesn’t matter what form the underlying psychology of the run takes just so long as there is a run. The point to not is that this is a very hyped up market with all sorts of predictions as to what may or may not happen. These prognostications however worldly and educated they sound are simply guesses. Hence, they need to be treated as such. All that matters is that these issues have as a group been trending higher. Whether that trend continues as the dire predictions for REE’s unfold or whether it all ends in a bust will not be known until after the event.