A year ago, the reasoning was air tight. Rare earth metals, that block of two rows of seventeen chemical elements at the bottom of the periodic table are used in iPods, GPS navigation systems and plasma televisions, and the Toyota Prius, which uses twenty-five pounds of the stuff. Modern needs for these ancient elements became one of the tony market narratives of 2010.
When it emerged that China, with 97% of the world’s current supply under their control, was beginning to restrict the export, the supply side story of rare earths was ripe for disruption. The prices of the metals rocketed to levels not seen in half a century, and mining exploration concerns were sent scrambling to dusty old mine sites abandoned before man set foot on the moon.
Scores of new rare earths companies were formed, many of course, without any chance (or perhaps intention) of easing the supply stranglehold of China. Gradually, however, the big picture story changed. It turns out that although they are laborious to produce, rare earth elements are not at all rare.
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As Jason Miklian, a researcher at the Peace Research Institute in Oslo, pointed out, the U.S. Geological Survey issued a report before the boom in rare earths showing that the world has a thousand year global supply of proven rare-earth reserves, sixty-three of which are outside China.
And, as Colin Johnson of Electronic Engineering times recently noted, several countries, including the United States Canada, Australia, Kazakhstan, Mongolia, and even Afghanistan all have strategic efforts underway to reopen rare earth mines, many of which will be producing ore within five years.
As the profile of rare earth metals rose, some were noting that China’s hold on the sector is a relatively new phenomenon. Until 1948, Brazil and India were world leaders. Those countries were supplanted by South Africa, where large veins were discovered through gold mining there. From the 1960′s until as late as the 1990′s The Mountain Pass Rare Earth Mine, now owned by Molycorp, was the world’s leading producer. Molycorp, which was once known as the Molybdenum Corporation of America, began small scale production in 1952 until the mine was closed in 2002 around environmental concerns. The Company, now known by its current name, repurchased the mine from Chevron in 2008.
The new reality of supply and demand in rare earths was not kind to those companies who benefited from the old one. Many junior stocks lost more than 70% of their value, as the price of rare earths declined nearly 30% from their peak. More established companies, such as Rare Element Resources fell $16.28 on January 4th and closed 2011 at $3.30.
And Molycorp, the only company in North America with a real rare earths mine, was more than halved, from over $57 in January to under $24 by year’s end. So was Taseko Mines, which fell from over $6 to under $3.
Neo Material Technologies (TSX:NEM), on the other hand, began 2011 at $7.84 and closed the year pretty much where it began, at $7.33.
Neo Material’s deep connections in China, where it has been since 1993, are starting to translate to the bottom line in a big way. The company’s recently reported quarter was its tenth consecutive of revenue increases. Neo Material earned a whopping $81.64-million (U.S.) on revenue of $248 million.
Neo Material has clearly emerged as a winner in the rare earths space, so much so that Mackie Research Capital analyst Matt Gowling says the company has become a key cog in the rare-earth value chain.
And, in what has become perhaps the ultimate barometer of a Canadian company’s success, the rumour of an acquisition by a US company, in this case Molycorp itself, has been set in motion.
Molycorp CEO Mark Smith recently made it clear that the company is looking to “acquire downstream companies that can process rare-earth oxides and produce magnets in Japan, Europe, the U.S. or Canada”. Smith also said he’s considering some companies listed on the Toronto Stock Exchange. Although he didn’t mention any names, the market made an educated guess. Shares of Neo Material rose nearly 10% the same day.
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