Saturday, October 23, 2010

Rare earth elements are good investments now

Rare earth elements and lithium, usually pretty far under most investors’ radar, are making headlines lately. Because of China’s huge and growing domestic electronics and solar industries, they have needed to cut exports the keep Chinese businesses supplied. As China currently supplies more than 95% of the world’s rare earth elements, the diminishing exports are a cause for serious concern. The rest of the world is scrambling to find alternative supplies of these very important additives. Electric vehicles and the ever growing list of other battery-dependent products is driving the value of lithium.

Add to China’s reduced export quotas a growing tension about trade in general over allegations of currency manipulation and the stage is set for a lot of anxiety. That anxiety may be warranted is borne out by China’s total cut-off of exports to Japan for several weeks. There have also been rumors, denied by China, that the U.S. could be similarly cut off from rare earth supplies if they force the currency issue.

All of these recent happenings have been very good for the share prices of North America’s rare earth and lithium exploration, mining and production companies. Since rumblings of export reductions first emerged from China in the early summer, many of these U.S. and Canadian companies have watched their market values steadily climb. That climb should continue and possibly increase during the coming years as China further reduces exports and supplies of rare earth elements become even scarcer in the west.

There are many very small exploration companies, fewer mining companies and fewer still refiners for rare earth elements. Most I think of as background clutter because they are not traded on any major U.S. exchanges or as Pink Sheets. I track only a handful that are easily tradable in the U.S. with on-line software but always keep my eyes and ears open for new possibilities.

My personal favorite is Great Western Minerals Group(GWMGF). This is a very well positioned company that will probably end up being the only company outside of China to mine, grind and refine rare earths-real one stop shopping. Great Western shares have gone from $0.13 in mid-May to a new 52-week high of $0.47 this week. I expect this company to be a real player as China continues to choke off the world-wide rare earths supply.

The real rock star of the rare earth companies is Avalon Rare Metals. Shares of Avalon have risen from $1.09 in April to a new 52-week high of $4.87 this week. This is a solid, well managed company with a great track record and an established position. Its shares price should have many more new highs in the coming years.

Rare Element Resources has really seen its share price explode. REE has gone from $2.79 in August to an all-time new high of $13.71 this week. This is incredible considering what a struggle so much of the wider economy is going through.

Other companies on my personal radar are First Liberty Power(FLPC), Western Lithium USA Corp(WLCDF), American Lithium Minerals(AMLM) and Taseko Mines Ltd(TGB). Any of the much smaller and more difficult to trade exploration and mining companies could also hit a big strike at any time. Don’t be surprised if some of these rare earth and lithium specialists become buy-out target for the large multi-national mining companies looking to cash in on the coming rare earth shortage. I am watching this sector very closely.

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