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Don’t be misled by the name. Rare-earth producers saw their stocks jump Tuesday as a result of the international spat over China’s decision to withhold some of the key industrial minerals from global markets. But investors hoping to profit from the trend have to confront an unpleasant reality.
Rare-earth minerals aren’t all that rare. While China provides almost all the world’s supply, that is more a factor of economics than geology.
Rare-earth elements are found around the globe. But China has managed to produce them more cheaply than other countries, and it has kept prices low for so long that it became uneconomical for mines outside the country to stay in production.
Today, however, two Western-based companies are close to bringing mines outside China to full production, a move that could weaken prices for several rare-earth minerals.
Molycorp Inc., of Greenwood Village, Colo., is restarting a mine in California that was once the world’s largest producer of rare-earth minerals before falling prices and environmental concerns forced its closing several years ago. At the same time, Australia’s Lynas Corp. hopes to get a mine in Malaysia into full production before the end of the year.
Meanwhile, a host of other miners hope to reach production some time soon after, a move that would depress prices that are already in decline.
“There’s no monopoly here,” says Jon Hykawy, an analyst with Byron Capital Markets in Toronto. “They are all going to be angling for the best cash flow that they can get.”
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