Digging Into Rare Earth Investments: Behind the Sudden Surge in Popularity

Google Trends are any indication, there’s been a surge of interest in rare earth elements lately.

Why? Probably because people came to realize China provides 97% of the world’s supply and they might have the US “over a barrel.”

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Most articles about rare earths include the obligatory assertion that “rare earths aren’t that rare,” sometimes pointing out that gold or platinum, for example, are 100 to 200 times less abundant than these rare earth elements.

But whether a substance is rare or common in mineral formations is only part of the economic picture. What does it cost to mine rare earth-rich ores and actually refine them into usable products? And if China loses its near monopoly, will rare earth prices fall?

Let’s take Molycorp (MCP) for example. This company recently went public with plans to reopen the Mountain Pass mine that once supplied most of the world’s supply for these elements.

But Chinese competition made it difficult for this mine to stay profitable – especially given the high costs to maintain environmentally friendly refining processes. In fact the Mountain Pass mine was the site of several leaks of radioactive wastewater.

A “bubble occuring”?

Higher prices, however – plus the possibility that China might crack down on its own poor environmental practices – means that Molycorp and many other companies could conceivably compete effectively as an alternative supplier, even with added costs needed to make these mines as safe as possible.

So the question about rare earth mining centers less on the mineral assets themselves and more on refining, processing, and profitability – the same as for any other mineral.

Except for one thing: Rare earths are way more complex because while many investors seem to focus on these elements as a group, the individual elements themselves vary widely in price, availability, and how they’re used.

And even Molycorp CEO Mark Smith appeared on CNBC last week to say “I don’t think short-term prices in rare earth (minerals) are prices people ought to be counting on … they are really spiked right now and there may be a bubble occurring because of all of the news and the frenzy.”

(source:seekingalpha.com)