Could Investigation Into Rare Earth Quotas Be Just What The Market Needed?

By Adam Currie — Exclusive to Rare Earth Investing News

Could Investigation into Rare Earth Quotas be Just What the Market Needed?

With the market currently fixated on Chinese rare earth export quotas, perhaps t he time is right for countries hosting rare earth element (REE) reserves to rethink legislation and production timelines to take advantage of a market on the rise.

An already tense US-China relationship took a new turn last week, as the US, EU, and Japan moved in on the World Trade Organization (WTO) to challenge China's restrictive export policies for REEs.

With some referring to the move as arguably the most notable form of market legislation conflict in a generation, the potential opportunities that many arise must also be considered.

Investigation not a foregone conclusion

According to Daniel McGroarty, principal of the American Resources Policy Network , China could very well win the case in that it has supposedly been “couching its export policies in language consistent with recognized WTO environmental exceptions.”

McGroarty , who has also served in senior positions in the White House and Department of Defense , added that China could potentially ignore the WTO's ruling. If this scenario were to play out, the market would almost certainly be looking to source supply from elsewhere, opening up an exciting realm of opportunity for junior REE producers and explorers.

This scenario seems more realistic when the financials of some of China's main REE mining entities are taken into account. The country's largest producer of rare earth, Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. (SHA: 600111), announced last week that its net profit last year quadrupled from that of 2010 to $552 million. The main reason given for the rise was the surge in rare earth prices.

In 2011, in the midst of China's crackdown on illegal REE mines, prices for the commodity skyrocketed by as much as ten times before experiencing a modest correction towards the end of the year.

Opportunities exist

Out of adversity comes opportunity, and with China currently producing 95 percent of REEs globally and controlling about half of all global reserves, some analysts are suggesting that there is a wealth of opportunity for companies willing to put in the hard yards to bring a mine to production level.

From a reserves aspect, countries such as the US and Australia hold notable deposits, yet are often held back on progressing mines to production by legislative red tape. It presently takes an average of up to ten years to obtain all the necessary permits to develop a mine in the US, while in Australia the process is swifter at two years.

Some have also argued that there is an ironic catch-22 scenario in that while populations in areas such as the US are demanding affordable services - including renewable energy, which is highly dependent on REEs - these same populations are continuing to lobby against the fast-tracking of mining permits and the legislative changes needed to make these a reality.