Rare-Earth Metals Live Up To Their Name

By Julia Johnson – Financial Post – Published: December 29, 2010

Share prices of Canadian rare earth metals companies got a boost Wednesday, following China’s announcement Tuesday that it would be cutting its exports of rare earth metals by 11% in the first half of 2011, following a 40% quota cut this year.

“It just reminds the public about the security-of-supply issue generally and how supply is diminishing and demand is going up,” said Don Bubar, president and chief executive of Avalon Rare Metals Inc., whose TSX Venture Exchange-listed shares jumped 44%. “There’s a deficit in the marketplace and there needs to be new production, and therefore companies that have the potential to do that should become more valuable.”

Avalon Rare Metals shares closed at $6.57, a gain of $2.01, after touching a high of $6.77. The Toronto-based company owns the Nechalacho rare rarth element deposit project in the Northwest Territories.

Mr. Bubar said the public awareness of rare earth metal demand helped Avalon acquire capital in the fall to move ahead with its feasibility report stage.

China produces about 97% of rare earth elements, which are used in high-technology, clean-energy and other products that exploit their properties for magnetism, luminescence and strength. The steep curb in exports by China is leaving a market gap to be filled by Canadian, U.S. and Australian mining companies.

“They have the hold on the market in terms of production, processing and consumer goods as well, magnets, powders,” said Asian Metal Ltd. analyst Phillip Arnheim in Pittsburgh. “Everything from the supply chain is made in China basically.”

Jack Lifton, founder of Carpentersville, Ill.-based Technologies Metals Research, said the 11% quota cut is China’s “last hurrah” at controlling the price and supply. He anticipates prices of earth metals to continue to rise for the next couple of years as other major mining companies outside of China race to start development.

“I’m certain that the shares of the companies that are going to produce in two to five years are going to be attractive to investors until there’s a breakthrough and somebody actually starts producing and thus reduces the need for additional production,” Mr. Lifton said.

“If you need rare earths delivered before 2014, you are going to buy them from China, so China is going to set the price. After the beginning of 2014, it’s anybody’s game,” Mr. Lifton added.

Mr. Arnheim said the share prices of North American mining companies will rise in the short term as consumers who were buying rare earths only on an as-needed basis in 2010 run low on inventories and need to replenish. But he said prices will likely level off later in 2011.

In the fall, when China decided to slice rare earth metal exports, bringing the total cut for 2010 to 40%, share prices for some of the Canadian junior miners soared temporarily, as much as 250%.

Share prices on Wednesday echoed the same effect.

Rare Element Resources Ltd.’s TSX-V shares, for example, spiked more than 42%, closing at $14.76. The Vancouver-based company was established to develop the Bear Lodge property, a rare-earth deposit in Wyoming.

Shares of Neo Material Technologies Inc. added almost 9%, closing at $7.68 after touching $7.75. Neo is a producer, processor and developer of rare earths, based in Toronto.

Quest Rare Minerals Ltd. shares jumped 16.25% on the day, finishing at $5.58. Montreal-based Quest has projects in Ontario, Quebec and New Brunswick.