Uranium

Rare Earth Elements are not the same as Rare Industrial Metals

Rare Earth Elements

Randy Hilarski has also released a video on this article that can be watched by clicking here.

I read articles from other writers who often refer to Rare Industrial or Technical Metals as Rare Earth elements. I would like to take some time and clear up the issue. I deal with RIM’s and REE´s on a daily basis. The two might both be considered metals but that is where the similarities end.

First we have REE´s or Rare Earth Elements. These metals consist of 17 metals, the Lanthanides plus Scandium and Yttrium on the periodic table of the elements. These metals are in a powder form, making them difficult to assay and store. One important factor that is often mentioned is that they are not rare. This is very true, but finding REE´s in large deposits is difficult.

In the mining sector REE mines are standalone mines, that focus on the mining and refining of REE´s exclusively. Currently around 97% of all REE´s are mined and refined in China. Historically REE mining and refining has been a dirty business, which has affected the environment around the mines. The elements Thorium and Uranium are often found along with the REE´s in the deposits causing the slurry to be slightly radioactive when processed. The use of highly toxic acids during the processing can also have serious environmental impact. Many companies are trying to open REE mines but they are meeting headwinds, as nations and people do not want these mines in their backyard.

Over the last few years China has dramatically cut its export of REE´s. This and the increased need for REE´s have caused a meteoric rise in the value of these metals. The one area that very few people talk about is the role of the media combined with speculators in raising the value of REE ETF´s in particular. For the last couple years REE´s were the rock stars of the metals. The news has calmed as of late, but the supply and demand factors that caused the metals to soar are still in place. Recently China closed it BaoTao mine until REE prices stabilize.

Rare Earth Metal - Indium

Rare Industrial Metals, RIM´s or Technical metals are another group entirely. The RIM´s are made up of metals used in over 80% of all products we use on a daily basis. Without these metals you would not have the world of the 21st century with our mobile phones, hybrid cars, flat screen TV´s, highly efficient solar energy and computers. Some of these metals include Indium, Tellurium, Gallium, Tantalum and Hafnium. These metals really are rare compared to the Rare Earth Metals which causes a great deal of confusion. These metals are in a metallic form, stable and easy to store and ship.

RIM´s are mined as a by-product of base or common metal mining. For example Tellurium is a by-product of Copper mining and Gallium is a by-product of Aluminum and Zinc mining. The mining of the RIM´s currently are for the most part at the mercy of the markets for the base or common metal mining. If the Copper mines of the world decide to cut production due to Copper losing value, this will have a huge impact on the amount of Tellurium that can be refined. Up until now, because of the previous small size of the RIM market, many companies do not feel the need to invest money into better technology to mine and refine these metals. The RIM´s would have to be valued much higher to gain the attention of the mining industry.

When China cut exports of REE´s they also cut exports of RIM´s. This put pressure on the value of these metals. RIM´s have increased in value, but nowhere near the meteoric rise of the REE´s. Most of the metals increased in value around 47% in 2010 and 25% so far in 2011. There is still a lot of room for growth in the value of these metals (not based on speculation like REE´s) as demand is exceeding supply now and in the future.

For Example, when REE´s and the stock market recently fell sharply the RIM´s came down slightly in value but have held their own extremely well. On a further note, according to Knut Andersen of Swiss Metal Assets, ¨Even though prices of the Rare Industrial Metals continue to go up in value, consumers will eventually only see a very small increase in the price of the end products, because there is so little of each metal used to produce these products. Also if the people can´t afford a smartphone they will still buy less expensive phones that still use the same Rare Industrial Metals¨.

The need for RIM´s has risen sharply over the years and will continue to grow at astronomical rates. China, India, South America and the whole of Africa with hundreds of millions of new consumers are now buying and using computers and mobile phones to name just a few products.

The future is bright for the technologies and the Rare Industrial Metals that make them work and for anyone who participates in stockpiling these metals now to meet future increased demand.

By: Randy Hilarski - The Rare Metals Guy

How to Invest in Rare Earths

Lithium Extraction from Salt Flats in Bolvia

Exchange-traded funds are jumping on the bandwagon to invest in rare earths and other strategic metals, mainly by investing in companies that mine and use the materials. There are risks for ETF investors to weigh.

Oil, Gold…Rare Earths?
As ETFs focus on some less-known materials, there are risks to weigh

The raw-materials rally that has driven investors to load up on gold, crude and wheat is also sparking interest in funds tied to relatively obscure commodities such as lithium, uranium and rare earths.

Investors have poured hundreds of millions of dollars into a handful of exchange-traded funds linked to those materials over the past year or so. But betting on these kinds of industrial building blocks presents some unusual challenges and risks.

Trying to replicate the price swings in underlying materials through an ETF is challenging because there are typically no futures markets for these substances, as there are for more commonplace materials. Holding the physical goods is often impractical as well. As a result, many funds instead concentrate rare-earth and other exotic-metals plays on related stocks, which can rise or fall independently of the commodities.

The fortunes of some of these materials—and the companies that work with them—can change suddenly. After Japan’s nuclear disaster in March, two ETFs that hold uranium-related stocks plunged amid a clouded outlook for nuclear energy and haven’t recovered to date. In addition, uncertainty about the global economy has caused prices of some rare earths to fall by double-digits in percentage terms in recent months, according to market participants.

Investors who accept the risks are generally buying into a thesis that’s been applied to a broad range of commodities in recent years—that rapid economic growth in emerging markets is pushing up demand and suppliers are struggling to keep up. Indeed, some basic commodities have leaped in price, but some of the biggest increases are related to lesser-known materials.

While oil costs a little more than twice what it did at the low point in 2009, for instance, the price of neodymium—one of a group of rare-earth elements used in high-tech products and advanced weaponry—was recently up 23-fold over a similar period, according to American Elements, a Los Angeles manufacturer that uses rare earths.

A Step Removed

Van Eck Global last year launched Market Vectors Rare Earth/Strategic Metals. What qualifies as a “strategic” metal is “a little subjective,” says marketing director Edward Lopez. But instead of buying the metals, the fund buys shares in companies that get at least half their revenues—or have that potential—from rare earths or materials such as titanium and tungsten.

Despite their name, rare earths are common in the Earth’s crust. But about 90% of rare-earth supplies currently comes from China, which has started to limit exports, saying it needs the materials at home. Likewise, foreign investors face restrictions on holding shares of major Chinese rare-earth producers, Mr. Lopez says.

Mining companies in the U.S. and elsewhere are trying to ramp up production to replace lost supplies. Investing in such companies carries distinct risks, Mr. Lopez says, including the hurdles of moving from planning to production and the possibility that the market for the materials may shift in the meantime. But the Van Eck fund includes among its top holdings Molycorp Inc., in Greenwood Village, Colo., and Australia-based Lynas Corp., companies that are developing rare-earth mines in the U.S. and Australia, respectively.

Shares of the Van Eck fund are down 21% since it was launched last October, and down 36% this year through Sept. 30. The fund at the end of August had $346 million in assets, according to National Stock Exchange, a data provider and stock exchange.

Liking Lithium

Lithium is another metal that has attracted widespread interest, because of the vital role it plays in powering a proliferating array of consumer electronics, including cellphones and laptops. But, as with other such elements, it’s impractical to invest in lithium directly. It’s an often volatile material and insuring a large stock could “take so much away from the return that it wouldn’t be practical,” says Bruno del Ama, chief executive of Global X, an ETF provider.

The company’s Global X Lithium, launched in July 2010, invests in shares of companies that mine lithium and in makers of products that use lithium, such as lithium-ion batteries.

The fund’s largest single holding is Sociedad Quimica & Minera de Chile SA, a Chilean company that produces plant nutrients and iodine as well as lithium. Shares in the company made up 23% of the fund’s holdings as of Sept. 30.

The fund had $128 million in assets at the end of August, including inflows this year of $24 million, according to National Stock Exchange.

Mr. del Ama says buying stocks can give investors a boost because miners can make money even if prices for the material stay flat. “If on top of that, the price of the commodity goes up…you get a leveraged impact on the return,” he says.

Shares in the lithium fund have fallen 16.2% since the 2010 launch, and are down 41% this year through Sept. 30. Average lithium prices in 2011 through July were 2% below average prices last year, according to TRU Group Inc., a consultancy that specializes in lithium.

Uranium Plays

The recent fate of two uranium-linked funds—Global X Uranium and Market Vectors Uranium+Nuclear Energy—shows that the “leveraged play works both ways,” as Mr. del Ama puts it.

After the March 11 earthquake and tsunami in Japan crippled the Fukushima Daiichi nuclear plant, uranium prices plunged amid concern the incident would undercut support for nuclear power. In early September, weekly prices for the thinly traded fuel were 23% lower than they were on March 7, before the disaster, according to Ux Consulting Co. LLC.

But shares in Global X’s uranium fund, which focuses on uranium mining, have fallen even harder, losing more than half their value since March 10, the day before the Japanese disaster. The Market Vectors fund, which invests in both miners and other firms that work on nuclear energy, has fared somewhat better over that same period, falling 33% through Sept. 30.

By LIAM PLEVEN
Mr. Pleven is a reporter for The Wall Street Journal in New York. Email him at liam.pleven@wsj.com