Around 12 months ago I opined in this blog that Rare Earths were going to come into supply issues early in this decade. This was vigorously contested and there was a spate of articles that rubbished my view... Articles with headings such as "Rare Earths not that rare" sought to persuade investors to not invest in what was thought to be a bubble.....
But we are in a rapidly changing world and those that do not research their subject in depth can be made to look quite foolish...
Two stories in this weekend's Australian and many more in the international press confirm that the supply of Rare Earths to manufacturers outside of China is rapidly drying up... Indeed Matt Chambers headline:
China, biggest producer of rare earths, expects to import more...is based on the address given by Chinese Society of Rare Earths director Chen Zhanheng who said:
"
(There are) early signals that China is moving from sell-side to buy-side. China becomes a new market opportunity for producers outside China," he said.
Chinese exports of rare earths peaked at nearly 60,000 tonnes, but slipped to about 39,000 tonnes in 2009.
That level was still more than Chinese quotas, which have been designed to slash exports.
Mr Chen said the quota from 2011 to 2015 should be between 32,000 and 35,000 tonnes.
Now this is where it gets very interesting...
At the moment there is virtually no new supply coming into the market at the moment.. so who is filling the gap of the 28,000 ton REE deficit caused by the China export reduction?
In late 2011 Lynas Corp will be on the verge of production but as you all know LYC has signed a raft of off take agreements and will have little left of its 2012 production even with its plans to rapidly double initial production. The USA's Molycorp is due to come on stream in late 2012 and then a couple of Canadian players will enter the fray as producers if all goes well..... So where is the rather massive shortfall over the next two years to come from?
Further exacerbating the demand side problems will be the advent of the
Rare Earths Commodities Traded Funds that Nasdaq is currently evaluating. If several of these come into existence the sky could become very blue indeed for the REE investors....
Another exacerbating factor is that there is a strong demand increase due to increasing utilization of green power technologies and this hasn't really been subjected to much analysis in investment circles.
The slide below is from the US Department of Energy 2010 Critical Materials Strategy and if you spend a little bit of time studying it you will see that ASX listed companies are expected to do a lot of the heavy lifting in producing new supplies by 2015... and where we especially dominate will be in the supply of the heavy rare earths (H-REES) used to produce super strong light weight magnets that are central to the green power energy production and utilization. Alert readers/investors should have a look at the emerging Yttrium and Dysprosium suppliers as a very real ASX bargain is to be found there. The ASX "bargain" company will be in production in early 2012 and has a massive Zircon resource coupled with having the distinction of owning Australia's largest Tantalum resource and a projected two hundred year mine life.... All for a tiny $290m market cap ...
