NEW YORK (TheStreet) - The rare earth metals industry, the current focus of the metals and mining industry, is gaining global attention from the controversy over China's export quota decisions.Molycorp ( MCP), a rare earth metal producer, provides an attractive buying opportunity. Rare earth elements/metals are a combination of 17 chemical elements, namely scandium, yttrium, and the fifteen lanthanides. These rare earth metals find application in the auto industry, petroleum refining, color television and flat panel displays, hybrid and electric vehicles, medical devices, and defense applications. Rare earth metals are critical to emerging technologies. Toyota Motor's ( TM - Get Report) Prius Hybrid cars, Research In Motion's ( RIMM) Blackberry, among others, depend on the unique properties of rare earth elements. During January-August 2010, on an average, prices of rare earth metals surged by a staggering 300%, with individual metals ranging from 22% to as much as 720%. Global demand for rare earth metals is estimated to rise to 180,000 tons annually by 2012, with a likely capacity shortfall of 40,000 tons per year. Until 2014, availability will be restricted as China cuts its supply, and until new production lines from Lynas and Molycorp ( MCP) come on stream, according to a research study by Industrial Minerals Company Of Australia (IMCOA). Demand from existing technologies is expected to grow organically to almost 200,000 tonnes per annum of rare earth oxides worth $2 billion to $3 billion by 2014. The United States Geological Survey (USGS) estimates that China produces only 59.3% of total global supply, with a reserve of almost 89 million metric tonnes. For 2010, China has cut export quotas by almost 40% until now from 2009 levels, citing problems like excessive exploitation, rampant smuggling, and serious environmental pollution. In July, it had revealed that it plans to cut its export quota by almost 72% due to limited resources of the metal. However, on Nov. 1, the Chinese Ministry of Commerce said that there would be no significant rare earth export quotas for 2011, after a large Chinese consumer of rare earths agreed to a mining partnership in Vietnam. Opportunities Beyond China The USGS believes that opportunities outside China are growing and Australia-based Lynas will be the first off the block with a mine-to-market pipeline in place by the third quarter of 2011. Molycorp has recently completed a $390 million initial public offering to restart mining operations for producing 20,000 tonnes per annum by 2012. Similarly, new projects are being developed in Canada, South Africa, Vietnam, and Greenland with most of them being coming on-stream after 2014.
The U.S. is seeking to re-launch a domestic supply chain to ensure adequate availability of these vital metals. After discontinuing mining rare earths in 2002 on environmental concerns, the U.S. is now evincing interest in rare earth metals, with Molycorp coming into production. New Rare Earth Metals ETF Van Eck Global launched the first U.S.-listed Market Vectors Rare Earth/Strategic Metals ETF ( REMX - Get Report), which tracks the performance of rare earths and strategic metals, on October 28, 2010. The ETF, limited to equities available to foreign investors, comprises of 30 publicly traded companies that either generate or have the potential to generate at least 50% of their revenues from minor metals/minerals or rare earth metals/minerals. As of Nov. 1, the ETF closed at $20.43 with a net expense ratio of 0.57 and assets under management of $37.8 million. Iluka Resources has an 8.1% holding in the ETF, while others like Titanium Metals ( TIE), RTI International Metals ( RTI), Molycorp, and Rare Element Resources ( REE) have 6.07%, 5.47%, 4.68%, and 2.93% respectively. Only a few rare earth metals companies are listed on the Nasdaq and NYSE, as many of them are based out of Australia or Canada. We chose Molycorp as our attractive pick for the season. During the past month, the stock has gained 11.8% and has further room for buying opportunities. Molycorp is a rare earth oxide (REO) producer in the U.S. and owns a fully-developed rare earth project outside China. The company estimates its total proven and probable reserves of rare earths at 2.21 billion pounds. The company will report its third-quarter financial results on November 15, after the markets close. Late July, the company launched its first initial public offering in order to restart mines in California, which is the world's largest source of rare earth metals. The company has vast, high-grade reserves, a 30-year mine plan and permit, and an environmental impact report issued in 2004. With rare earth metals prices soaring and export demand from China continuing to rise, the growth story of Molycorp is likely to continue. In fact, rare earth metals find extensive application in solar panels/electric vehicles, the rapidly growing industry. A rally in rare earth metal prices raised concerns of a bubble forming. However, Molycorp allayed fears and assured that the surge in prices is sustainable because of production and export cuts by China vis-à-vis the supply-demand scenario. Molycorp CEO Mark Smith said, "The Chinese are only exporting 30,000 tons of material to the rest of the world right now and the rest of the world needs 50,000 tons of this material a year."