Monday March 23, 2015, 4:45pm PDT
By Teresa Matich+ - Exclusive to Rare Earth Investing News
The rare earths sector was on the rise on Monday following a “60 Minutes” report on the industry.
In a segment entitled “Modern Life’s Devices Under China’s Grip?” CBS’ Lesley Stahl told the story of how China rose to dominate the industry, putting the start of it all back in 1992, when Deng Xiaoping mentioned the importance of rare earths in a speech. Stahl also touched on how rare earths are used in a range of modern technologies, from cell phones to fighter jets, and suggested that end users are still largely dependent on supply from China.
Certainly, that message seems to have resonated with the market, as both producers and juniors in the rare earths space saw their share prices rise on Monday in the wake of the broadcast.
Molycorp (NYSE:MCP) was up 26.36 percent, trading $0.455 on a trading volume about three times its daily average. As Bloomberg points out, that’s nowhere near the stock’s 2011 high of $77, and at the end of the “60 Minutes” piece it’s pointed out that the company is currently “so deeply in debt that just last week, its own auditor warned it may not be able to stay in business.”
Still, Molycorp wasn’t the only company to see gains on the market on Monday:
Meanwhile, Texas Rare Earth Resources (OTCMKTS:TRER) saw its share price receive a 4.6-percent bump on Monday to hit $0.225. Dan McGroarty, a former White House staff member and member of the company’s advisory board, was interviewed during the “60 Minutes” segment.
A monopoly that’s already broken?
Interestingly, some market commentators have said that the rare earths supply situation is less dire than is outlined in the report. Writing for Forbes, Tim Worstall argues that China’s monopoly has already been broken and that Molycorp and Australia’s Lynas (ASX:LYC) could already be producing “more than total non-China consumption” of rare earths.
According to Jon Hykawy, president and director of Stormcrow Capital, Worstall has a point. Comparing exports from China last year (as much as 36,000 tonnes in total for both legal and estimated illegal amounts) with production planned by Molycorp and Lynas (as much as 20,000 and 22,000 tonnes, respectively), Hykawy suggested that “[e]ither way, they make more gross tonnes than the world outside China apparently wants right now.”
That said, he also noted that gross tonneage isn’t everything. Since both producers put out smaller amounts of magnet materials, such as neodymium, praseodymium and dysprosium, more of those materials might be needed from elsewhere.
Still, he believes it’s misleading to suggest that a certain way of life made possible by modern technology is threatened by the loss of rare earths, and noted that it’s still possible to do what’s required without them. ”As an example, there is a view that electric cars can’t happen without rare earths,” he said. “Tesla Motors (NASDAQ:TSLA) did a pretty fair job without them.”
China releases production quotas
Amidst that commotion, China has released its first batch of rare earths production quotas for the year, setting rare earth oxide (REO) mining quotas at 52,500 tonnes and REO smelting and separating quotas at 50,050 tonnes. Both are up slightly from the first batches of quotas for last year, which were 46,900 and 45,250 tonnes, respectively. The country also stated that it plans to continue its crackdown on illegal rare earths production.
According to analysts who track the space, it’s business as usual for China, even in the wake of last year’s World Trade Organization (WTO) ruling against rare earth export quotas. Simon Moores, managing director at Benchmark Mineral Intelligence in London, predicted previously that restrictions on rare earths in China would “move upstream” following the WTO ruling. “Production quotas are quite common in China for minerals and metals. Rare earths is no different,” he said.
Similarly, Hykawy suggested that the production quotas don’t signal much of a change. He stated that end users still don’t have nearly enough information to feel completely comfortable, pointing out that there has been no breakdown of how much production will come from the north of China and how much will come from the south. The locations produce different types of rare earths.
In that light, it certainly seems like China still holds a fair bit of control over the market. Investors will certainly be keeping an eye out for any big changes in the rare earths space this year.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.