As owner of the largest US based deposit of rare earth metals, Molycorp (MCP) has benefited big from China’s control of these important metals as prices skyrocket due to limited supply and increasing demand. CEO of Molycorp Mark Smith doesn’t see the recent surge as a bubble due to China’s restriction on exporting according to Bloomberg. In July China announced plans to reduce its 2nd half export quota of rare earth metals by 72% and stopped shipments to Japan completely on Sept 21st.
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UPDATE:
As I write this, I noticed news hit the wires that China has abruptly resumed shipments of rare earth metals to Japan, Europe and the US and the rare earth stocks are getting hit hard, down about 20% in the past hour or so.
The best play in this space is the one that is rarely mentioned.
Alkane Resources in Australia.
They will be third into the space after Molycorp and Lynas
and Alkane have the real deal. the worlds largest Heavy Rare
Earth deposit. 25% heavies as apposed to the usual 3-5%.
They are technically advanced, have a very experienced
and conservative team – no glossy promotions or website –
just a very solid project. They set to become
the worlds largest producer of Heavy Rare Earths outside China. There is real value. The value of their gold reserves is less than
the current market cap and the Rare Earth / Zirconium project is a
100% subsidiary, so they are uniquely positioned to be able to
finance their project from existing assets without diluting shareholder value ( borrow against their gold reserves or sell the gold reserves and spin off the Rare Earth project).
They, uniquely, can get into the game of supplying heavy rare
earths 2013- 2020 without killing the goose that will be laying the golden eggs.
No one talks about them – they are off the radar – but at current
market valuation the best Heavy Rare Earth project in the world outside of China is a FREE OPTION on their share price.
Very few commentaries mentions Alkane – when dollar for dollar
they have the best story in the entire space.
They have an excellent model for distributed incomes from the
Zirconium that underpins the Rare Earth Production.
The Zirconium mine was planned to go ahead as a profitable
venture in its own right before the prices of rare earths took off,
so downside risk is limited.
Dollar for dollar the best story with the lowest overall risk.
Interested commentators should look at an analysis done by Fat Prophets a few months back that lays our the picture –
Search — “Fat Prophets – A free call option on the Dubbo Zirconia Project (rare earths)”
There is a reasonable case in arguing that stocks in the rare earth space are overvalued.
Alkane is the only stock in the space where a reasonable case can be made
that it is undervalued.