Every Toyota Prius uses 25 pounds of rare earth elements.

If it weren’t for rare earth elements, a collection of seventeen chemical elements in the periodic table that are generally found together in ore deposits, the world as we know it today would look a whole lot different. Rare earth elements are used in iPods, GPS navigation systems and plasma televisions; a single Toyota Prius uses 25 pounds.

With 97% of the world’s current supply under their control, China’s hold over this sector is making people nervous. Although China did state it will not use rare earth metals as a bargaining tool, concern about the global supply and demand imbalance of rare earths has driven their prices through the roof since China began to restrict their export. And last July, Asia’s most dominate nation announced a 72% year over year reduction in exports.

In general terms, there are two types of rare earth element deposits including those associated with carbonatites (Molycorp’s Mountain Pass; Lynas’ Mt Weld; Great Western’s Hoidas Lake) and those associated with peralkaline igneous complexes (Avalon’s Thor Lake; Quests’ Strange Lake; Greenland Mineral’s Kvanefjeld). Generally, the deposits that are associated with peralkaline complexes are relatively enriched in heavy rare earth elements. The most expensive rare earth element is terbium metal, a heavy rare earth which costs just over US$3,000 per kilogram, used in various high technology applications. For a complete rare earth price list – CLICK HERE.

This month we feature the “5 Most Interesting Rare Earth Stocks” in no particular order. These companies caught our attention for various reasons but they do share one thing in common – 2011 has been a watershed year for them all.

1. Avalon Rare Metals Inc. (TSX: AVL)

Avalon Rare Metals is best described as big and heavy. Avalon owns one of the largest rare earth element deposits outside of China and potentially the largest in North America. The company has a NI 43-101 indicated mineral resources to 57.49 million tonnes grading 1.56% TREO and an estimated inferred mineral resource of 226.88 million tonnes grading 1.30% TREO. Avalon boasts one of the highest concentrations of heavy rare earth elements in its peer group with a 20.72% HREO/TREO ratio reported within the indicated mineral resource.

According to Jon Hykawy, an analyst at Byron Capital Markets in Toronto, it’s the miners who have a favorable combination of light and heavy rare earths that have the potential to become profitable producers in the coming years. “Most investors realize that the heavy rare earth element(s) command the higher price because they are rarer. Avalon has one of the highest levels of heavies located outside China,” said Mr. Hykawy.

On December 21st, 2010, Avalon announced it would list on the NYSE Amex exchange and that’s when things got interesting. The company’s shares rose more than 20 percent after the announcement, to close the day at $4.91. The added liquidity of a U.S. listing has apparently served the company well. Shares reached an all time high of just over $9.50 in April this year. Since then, Avalon’s stock has seen some selling pressure. Affected by the overall sell-off in equities this spring, and perhaps the news that the company filed a final base-shelf prospect with the intent of raising $500 million via an equity offering in May, the company’s shares drifted to under $6.00 earlier this month. Avalon is currently trading at around $6.40.

However, Avalon Rare Metals remains a Bay Street darling and the company’s Nechalacho project has attracted the support of many analysts. On February 17th, when Avalon was trading at the $7.50 range, Mackie Research analyst Matt Gowing said he saw Avalon as undervalued and set a C$10.50 target price for its shares.  “We think that the market is not anywhere close to where the valuation of the mine should be,” said Gowing, at the time noting that the Avalon recently updated Nechalacho’s resource size and identified new higher-grade material.

2. Frontier Rare Earths Ltd. (TSX: FRO)

Drill rigs at Frontier's Zandkopsdrift Rare Earth project in South Africa.

The completion of an IPO earlier in late 2010 marked the arrival of a new late-stage player on the Canadian listed rare earths scene, Frontier Rare Earths. Frontier began trading on the TSX exchange on November 17th, 2010 after the completion of a $60 million unit financing at $3.40 concurrent with the company’s IPO. The unit offering consisted of 1 share and 1/2 share purchase warrant at $4.60 expiring after 2 years. Since then, the company’s shares have been trending down hitting a low of $1.86 earlier this month and are now trading at $1.97.

Frontier’s flagship project is the Zandkopsdrift rare earth element deposit in the Northern Cape province of South Africa. The company’s NI 43-101 technical report states that Zandkopsdrift is one of the largest known undeveloped rare earth deposits outside China. The independent report, prepared by South African consultants MSA Group in October, 2010, identifies an indicated resource of approximately 23 million tonnes at an average grade of 2.32 percent TREO, representing 532,000 tonnes of contained TREO. In addition, the report identifies an additional inferred resource of approximately 21 million tonnes at an average grade of 1.99 percent TREO, representing 415,000 tonnes of contained TREO. Frontier hopes to supply up to 20,000 tonnes per year of REO and is working on validating the production potential from the ongoing prefeasibility study projected to be completed towards the end of this year. The company is quick to point out that their Zandkopsdrift B Zone, which is contained within the overall Zandkopsdrift resource estimate, is the third highest grade rare earth deposit outside of China after Lynas and Molycorp.

Jacob Securities Analyst Luisa Moreno likes Frontier Rare Earths, she has a price target of $9.83 on the stock. In a report from June 8th, 2011, she states, “Although Molycorp’s grade at Mountain Pass deposit is 8.28% compared to Frontier’s with 2.16% TREO, Frontier’s critical heavy element grades (dysprosium, europium and terbium) are higher, which means that Frontier will be able to produce more of these critical materials (circa 370 tonnes) and generate higher sales for these elements than Molycorp (circa 80 tonnes) despite Molycorp’s overall production target being twice that of Frontier.”

The Prospecting Right for Zandkopsdrift is held by Sedex Minerals, a South African company that is 74% owned by Frontier while the remaining 26% of Sedex is held by South Africa’s Black Economic Empowerment (BEE) through which 21% ownership is extended to Namaqualand Empowerment Trust (NET). NET is a broad-based community trust established for the benefit of historically disadvantaged South Africans principally in the Namaqualand region of the Northern and Western Cape Provinces of South Africa. From the BEE Commission Report in 2002, the post-apartheid program is aimed at redressing the imbalances of the past by seeking to substantially and equitably transfer and confer ownership, management and control of South Africa’s financial and economic resources to the majority of the citizens. It seeks to ensure broader and meaningful participation in the economy by black people to achieve sustainable development and prosperity. An interesting approach that has proven to be somewhat successful in South Africa.

Although Frontier has a direct 74% interest in Zandkopsdrift, company Chief Executive James Kenny noted that the provisions of  Sedex’s shareholder agreement in fact gives Frontier an effective 95% economic interest in Zandkopsdrift when he connected with MiningFeeds.com. To find out more about Frontier’s South African project – CLICK HERE – for the exclusive interview.

For 5 Most Interesting Rare Earth Stocks – Part 2CLICK HERE.

Drilling is underway at Rare Element's Bear Lodge project in Wyoming.

3. Rare Element Resources Ltd. (TSX:RES)

Rare Element Resources is an early pioneer in their sector. The company has a 100% interest in the Bear Lodge property in Wyoming, which, according to the US Geological Survey, is one of the largest disseminated rare earth deposits in North America. Along with high grade light rare earth elements the deposit contains lesser amounts of heavy rare earths and the occurrence of gold. On June 14th Rare Element Resources reported a resource update and provided an indicated mineral resource of 4.9 million tons at 3.77% REO and an inferred mineral resources of 17.81 million tons at 3.03% REO; setting the stage for the company’s upcoming summer drill program.

In May, U.S. investment bank Dahlman Rose initiated coverage on Rare Element Resources with a buy rating and $21 price target. “We like the straightforward metallurgy that is present at the company’s Bear Lodge deposit and access to infrastructure that is present at this deposit. In fact, we believe that these aspects make the company an attractive candidate to be acquired by a producing rare earth company over the medium-term.”

But not everyone agrees with Dahlman Rose research analysts Anthony Young and Anthony Rizzuto. On June 23 it was reported that the short interest in three U.S. quoted rare earth miners, including Rare Element Resources, has continued to build since April and stands just off record highs. Will Duff Gordon, research director for Data Explorers, notes “despite the recent substantial share-price correction in all three stocks, it seems that short sellers still believe them to be overvalued.”

Whether you’re bearish or bullish on the sector expect the debate on rare earth elements to rage on and, in the meantime, the one thing that both bulls and bears can be assured of is share price volatility across the board. We connected with the company’s President Donald Ranta to get his take on the price sustainability of rare earth elements and to learn more about the Bear Lodge deposit – CLICK HERE – for the interview.

4. Quest Rare Minerals Ltd. (TSX-V: QRM)

By 2015, rare earth experts say global demand could reach 200,000 tonnes, with demand outside China about 70,000 tonnes, seemingly creating a massive deficit. But within three years, the two leading rare earth element miners, Lynas and Molycorp, will have the potential to produce over 60,000 tonnes of rare earths a year between them leaving a relatively small window for rivals. “The ore grade really links into the production costs,” said Jacob Securities analyst Luisa Moreno. “A project could simply be not feasible if the grades are really small.” Quest Rare Minerals has ore grades below 2% but the Canadian miner is banking that they can make up the difference in their $ per tonne since their properties are reportedly rich in heavy rare earths.

The company is based in Montreal, Quebec and has something that many others in its peer group do not have, namely, multiple projects. Quest is developing three rare earth projects in two separate exploration areas: the Strange Lake and Misery Lake areas of northeastern Québec and the Plaster Rock area of northwestern New Brunswick.

Multiple projects focusing on heavy rare earth elements were enough to get Dundee analyst Rodney Cooper on board. Earlier this year Mr. Cooper rated Quest Rare Minerals as a buy with a 12-month price target of  $8.88. A target which will undoubtedly appeal to certain Chinese investors since the number 8 is consider lucky and three 8s are very lucky. The report, however, proved to be rather unlucky for both Quest Rare Minerals and Dundee. Quest inadvertently issued a press release announcing the details of the buy recommendation, something which is not allowed by the Investment Industry Regulatory Organization of Canada (IIROC) as it contravenes Canadian Securities regulations. Later that same day Quest issued a press release retraction in what was an interesting turn of events.

Lately, things have been going much more smoothly for Quest. On Monday, June 27th executives, directors and guests of the company rang the Opening Bell at the New York Stock Exchange in recognition that Quest Rare Minerals began trading on NYSE Amex last month. “We are delighted to celebrate this milestone for Quest,” said Peter J. Cashin, Quest’s President & Chief Executive Officer. “Listing our shares on NYSE Amex continues to facilitate trading of our shares in the United States and expanding our investor base.” The company’s shares closed today on the TSX at $6.40, up $0.16 on the day.

Dacha Strategic Metals is stockpiling rare earth elements.

5. Dacha Strategic Metals Inc. (TSX-V: DSM)

Dacha Strategic Metals is in the rare earth elements business but, interestingly enough, Dacha is not a mining company. And perhaps more interesting to Dacha’s investors, yesterday the company hit a 52 week high closing at $0.89. The company has effectively created the world’s first and only stockpile of rare earth elements and offers investors and industrial consumers the ability to participate in the physical ownership of these critical elements. Similar to a physical trust.

As of June 24, 2011, in addition to its metal inventory, which had an estimated fair market value of $96.1 million, Dacha’s equity investments had an estimated fair market value of approximately $2.7 million along with a cash position of approximately $4.7 million for a total of $103.5 million, or $1.39 per share, based on 74.4 million shares outstanding.

We recently discussed the value proposition of Dacha Strategic Metals with the company’s President & CEO, Scott Moore, and addressed the company’s normal course issuer bid share buy-back that was announced earlier this month. For the interview – CLICK HERE – to read more about Dacha Strategic Metals and the company’s unique business model.

For 5 Most Interesting Rare Earth Stocks – Part 1CLICK HERE.

CEO James Kenny believes the TSX was the perfect place to list Frontier Rare Earths.

The completion of an IPO earlier in late 2010 marked the arrival of a new late-stage player on the Canadian listed rare earths scene, Frontier Rare Earths. Frontier began trading on the TSX exchange on November 17th, 2010 after the completion of a $60 million unit financing at $3.40 concurrent with the company’s IPO. The unit offering consisted of 1 share and 1/2 share purchase warrant at $4.60 expiring after 2 years. Since then, the company’s shares have been trending down hitting a low of $1.86 earlier this month and are now trading at $1.97.

Frontier’s flagship project is the Zandkopsdrift rare earth element deposit in the Northern Cape province of South Africa. The company’s NI 43-101 technical report states that Zandkopsdrift is one of the largest known undeveloped rare earth deposits outside China. The independent report, prepared by South African consultants MSA Group in October, 2010, identifies an indicated resource of approximately 23 million tonnes at an average grade of 2.32 percent TREO, representing 532,000 tonnes of contained TREO. In addition, the report identifies an additional inferred resource of approximately 21 million tonnes at an average grade of 1.99 percent TREO, representing 415,000 tonnes of contained TREO. Frontier hopes to supply up to 20,000 tonnes per year of REO and is working on validating the production potential from the ongoing prefeasibility study projected to be completed towards the end of this year. The company is quick to point out that their Zandkopsdrift B Zone, which is contained within the overall Zandkopsdrift resource estimate, is the third highest grade rare earth deposit outside of China after Lynas and Molycorp.

Jacob Securities Analyst Luisa Moreno likes Frontier Rare Earths, she has a price target of $9.83 on the stock. In a report from June 8th, 2011, she states, “Although Molycorp’s grade at Mountain Pass deposit is 8.28% compared to Frontier’s with 2.16% TREO, Frontier’s critical heavy element grades (dysprosium, europium and terbium) are higher, which means that Frontier will be able to produce more of these critical materials (circa 370 tonnes) and generate higher sales for these elements than Molycorp (circa 80 tonnes) despite Molycorp’s overall production target being twice that of Frontier.”

The Prospecting Right for Zandkopsdrift is held by Sedex Minerals, a South African company that is 74% owned by Frontier while the remaining 26% of Sedex is held by South Africa’s Black Economic Empowerment (BEE) through which 21% ownership is extended to Namaqualand Empowerment Trust (NET). NET is a broad-based community trust established for the benefit of historically disadvantaged South Africans principally in the Namaqualand region of the Northern and Western Cape Provinces of South Africa. From the BEE Commission Report in 2002, the post-apartheid program is aimed at redressing the imbalances of the past by seeking to substantially and equitably transfer and confer ownership, management and control of South Africa’s financial and economic resources to the majority of the citizens. It seeks to ensure broader and meaningful participation in the economy by black people to achieve sustainable development and prosperity. An interesting approach that has proven to be somewhat successful in South Africa.

Although Frontier has a direct 74% interest in Zandkopsdrift, company Chief Executive James Kenny noted that the provisions of  Sedex’s shareholder agreement in fact gives Frontier an effective 95% economic interest in Zandkopsdrift when he connected with MiningFeeds.com.

Frontier recently completed an IPO on the TSX raising $60 million via a unit offering at $3.40 per unit on the strength of your rare earth project in South Africa. Could you talk about the genesis of the project prior to your IPO?

I have been involved in the natural resource earth sector for many years as have other members of my family. In 1994 I travelled to South Africa for the first time, shortly after the first democratic elections which followed Nelson’s Mandela’s release from prison. Although South Africa is a country abundant in natural resources, it had virtually no junior mining industry due to the apartheid regime. With the country opening up to foreign investment I travelled to South Africa with my brother, Philip, and my father. On an early visit we were very fortunate to meet a renowned diamond exploration geologist by the name of Hugh Jenner-Clarke who had, at that time, spent over 40 years in the diamond exploration sector in South Africa and elsewhere and had some important discoveries to his name.  On a handshake we formed a partnership with Hugh and established Firestone Diamonds plc, an emerging diamond producer now with operating diamond mines in Botswana and Lesotho. Firestone Diamonds is listed on the AIM market in UK and continues to be run by my brother Philip Kenny. In 2004 we decided to look at other mineral opportunities and identified the rare earth sector as one having very significant promise due to the now very evident trends of Chinese production dominance and the anticipated growth in demand for rare earths. We strongly believed that the west coast of South Africa and, in particular, the Namaqualand region was highly prospective for rare earths. The Zandkopsdrift Project area which hosts the Zandkopsdrift rare earth deposit which we are developing was at the time ‘open ground’ and we applied for and were granted a Prospecting Right covering 60,000 hectares in the area in 2006. Between this time and our IPO in November 2010 we advanced Zandkopsdrift to the point that the NI 43-101 report confirmed it as one of the largest, highest grade code-compliant resources in the world outside of China.

The deposit is a carbonatite complex and the rare earth mineralization is principally contained in a monazite complex. What sort of challenge do you expect to face cracking the minerals in your deposit and describe the availability of the associated technologies?

Rare earths do not occur in free form and are bound up in host minerals from which they must be cracked or liberated. Up to 200 different types of mineral can host rare earths, the very large majority of which have never had a process, let alone a commercial process, for the extraction of the contained rare earths. The two most ‘conventional’ rare earth host minerals are bastnaesite and monazite with the flow sheet for the monazite having been established for decades and is widely available. The primary host mineral at Zandkopsdrift is monazite and so the challenge for Frontier will be to adapt and optimise this established flow sheet for the recovery of rare earths from the Zandkopsdrift deposit.

Which rare earth elements, in your opinion, are key to Frontier’s economic model and why?

I think that one has to look at the ‘balance’ in any rare earth deposit as all rare earth elements will be recovered together and then sequentially separated and sold. Clearly some rare earths such as cerium and lanthanum are relatively plentiful and as such I think that the medium term price is likely to be considerably below current price levels. Similarly we believe that five of the ten heavy rare earths are of very low or limited value due to the small size of the global market. We are very fortunate in that the Zandkopsdrift deposit has elevated levels of what we call the ‘Big Five’ namely neodymium and praseodymium of the light rare earths and europium, terbium and dysprosium of the heavy rare earths. I think that these five elements exhibit the most attractive supply/demand price outlook and will be key to Frontier’s economic model

Infrastructure is always a key component when putting a mine into production, please tell our readers about what is available in the area?

Our Zandkopsdrift development is located approximately 450km north of Cape Town, just off the N7 Highway in the Namaqualand region. Namaqualand is South Africa’s oldest mining province with over 150 years of gold, copper, base metals and diamond mining history. Although certain of these mines are no longer operational, there remains very good infrastructure, qualified staff and mining support services in the area. Of particular significance is the town of Bitterfontein which lies 30km from Zandkopsdrift and is the site of the nearest railhead and Saldahna Bay some 250km to the south and which is one of Southern Africa’s deepest water ports. The most capital intensive and complex part of the rare earth recovery process will be the separation stage and Frontier plans to construct a 20,000 tonne rare earth separation plant at Saldahna Bay proximate to other comparable plants and facilities. This is expected to significantly reduce Frontier capital expenditure requirement and development lead time.

What is the environmental permitting process like in South Africa and can you speak to the environmental part of the equation?

South Africa has a well-developed exploration, development and mine permitting regime. As part of the advancement of Zandkopsdrift Frontier will be required to do extensive assessment of the impacts of our current and proposed activities on, for example, the flora, fauna, wildlife, water resources of the area. Zandkopsdrift is not an area of particular environmental or other sensitivity and Frontier expects that the findings of its environmental studies will not impede the permitting and development of Zandkopsdrift. Of particular importance in the rare earth sector is the presence of the radioactive elements, specifically, of thorium (178 ppm at Zandkopsdrift) and uranium (56ppm at Zandkopsdrift) which fortunately are considered to be at very low levels in both absolute and relative terms at Zandkopsdrift.

Having completed your IPO, now that the dust has settled, what is on the horizon for Frontier Rare Earth and what key milestones do you hope to accomplish with the money you just raised?

We have a very busy 18 month program which will involve the completion of a Preliminary Economic Assessment due at the end Q3/early Q4 2011, with a Prefeasibility Study scheduled to follow 3-4 months thereafter and a Definitive Feasibility Study in Q4 2012. This work is fully funded with the proceeds of our IPO competed late last year. In addition we expect to investigate the some 30 satellite intrusions we have identified around Zandkopsdrift as well as initiating a regional scale exploration elsewhere in the Zandkopsdrift permit area.

This interview appeared in 5 Most Interesting Rare Earth Stocks – Part 1CLICK HERE for the article.

Scott Moore views his company as an alternative to mining for investors interested in rare earth elements.

Dacha Strategic Metals is in the rare earth elements business but, interestingly enough, Dacha is not a mining company. And perhaps more interesting to Dacha’s investors, yesterday the company hit a 52 week high closing at $0.89. Dacha has effectively created the world’s first and only stockpile of rare earth elements and offers investors and industrial consumers the ability to participate in the physical ownership of these critical elements. Similar to a physical trust.

As of June 24, 2011, in addition to its metal inventory, which had an estimated fair market value of $96.1 million, Dacha’s equity investments had an estimated fair market value of approximately $2.7 million along with a cash position of approximately $4.7 million for a total of $103.5 million, or $1.39 per share, based on 74.4 million shares outstanding.

We recently discussed the value proposition of Dacha Strategic Metals with the company’s President & CEO, Scott Moore, and addressed the company’s normal course issuer bid share buy-back that was announced earlier this month.

Dacha Strategic Metals is not a mining company but operates in the rare earth element sector. Please tell our readers about your business model and the history of the company?

We have a unique, but very simple business model which provides an investment alternative for investors interested in gaining exposure to rare earth elements without the risks inherent to mining companies. Quite simply, Dacha’s objective is to achieve, long-term capital appreciation through the buying, holding and selling of rare earth elements, which are predominantly supplied by China.

Just over a year ago, anticipating that the prices of rare earth elements would begin to appreciate quite rapidly, we began working with this model and started accumulating a stockpile of the particular physical rare earth elements that we perceived had the greatest potential to gain value.

Since we began, we have acquired approximately 300 tonnes of rare earth elements from within China – most of which we acquired when Chinese export quotas were at their lowest – and have proven the liquidity of our inventory through making, selective, opportunistic sales to downstream customers. We began implementing our business model in April 2010 with an equity raise of $22 million which we deployed into an inventory of approximately $20 million, and we recently announced that as of June 24, 2011 that our inventory is worth over C$96 million. Each week we update the inventory chart on our website (CLICK HERE to view) and on a monthly basis we put out a press release announcing our Asset Value, which is inclusive of our metal inventory, marketable securities, and cash. If a substantially material change has occurred with our inventory we would also press release that change in a timely manner.

Are there comparable companies to Dacha in the marketplace or did you conceptualize this business model?

At present there are no companies in the rare earth market with a similar business model to Dacha. The majority of rare earth element companies in the market are exploration and development projects – as you mentioned earlier, we are not a mining company. In actuality, we can be more closely compared to a physically backed ETF – such as a gold bullion fund. But there are obvious differences, we trade on the TSX-V as a corporation and do not have the associated “management” or “commission” fees as a traditional fund would.  The Central Fund of Canada (TSX-CEF) and the Uranium Participation Corp. (TSX-U) are two similar companies except that Dacha has the ability to hold multiple metals and trade in and out of their positions.

Shortly after you went public you announced that Dacha acquired an operating license in the People’s Republic of China for rare earth elements through the acquisition of a trading company in China. Could you explain the nature of that license and what terms are associated with it, if any?

Our China license allows Dacha to buy, hold and sell rare earth elements within the Chinese market. It does not allow us to have export quotas but does allow us to import rare earths, such as concentrate.  However, I should note that Dacha is more tax effective outside of China and as such we are focusing our inventory to be held outside China.  As Dacha operates out of Barbados, our effective tax rate on income is 2.5%, therefore providing an investor with almost the full upside on the metal price.  This is one area where the market may be discounting us as they may not realize the tax effectiveness of the model.

Rare earth elements is a relatively new sector of the mining investment community, what are the key demand drivers that are shaping the industry and what is the price sensitivity of the marketplace?

I think that probably most of the investing public has rushed into rare earth equities without really understanding the industry – it is a complex and opaque market. Rare earths are a relatively small, but important group of minor metals that allow our modern world to function more efficiently; for instance, they make our everyday electronics smaller, faster and more efficient and make your compact fluorescent bulb work. Each element has different special properties, so demand drivers are actually different for each specific element and in most cases price is in-elastic to the finished product – such small quantities of these materials are used in most products, appreciation in pricing has very little impact on the price of the overall end product, up to a certain point, of course.  As many of these materials are un-substitutable and irreplaceable, prices can still experience an upward trend from here. Rare earths are really a specialty chemical business not a mining business as the mining part of the chain may only represent 10% of the actual costs of processing the material into a “finished” saleable commodity.

Some rare earth elements are actually not that rare and heavy rare earth elements are generally considered to be the more sought after elements for miners. Could you give our readers an overview of the sector and highlight some of the key elements that Dacha is focusing on and why?

We have chosen to focus mainly on the heavy rare earth elements (like dysprosium and terbium). This is another key factor of our model: rather unlike an exploration or mining company who is restricted to the elements of a specific deposit, our business model allows us to diversify across the spectrum, to “cherry-pick” the elements that we feel have the most potential upside as the market conditions continue to develop. Likewise, when we feel certain elements have reached their peak, we are able to liquidate those particular elements and focus on others.

When we set out to purchase our inventory we felt that the heavy rare earth elements had the most potential upside over both the short and long term – and in fact, as I mentioned previously, we have seen tremendous appreciation in our inventory over the past year and we feel that there is lots of upwards momentum still to come. Additionally, with recent announcements out of China that they intend to temporarily shut down some of their heavy rare earth operations in the south, we see lots of upside for the heavy rare earths in the short-term as well.

Conversely, we believe that with the small handful of mines set to produce the light rare earths like cerium and lanthanum in the next few years the light rare earths could see a marked decline in value as these projects move closer to production.

Dacha recently announced a normal course issuer bid, what are your corporate plans as we head into 2012?

Our plans are to keep doing what we have been doing. The next few months promise to be an active time in the rare earth market and we are going to be watching it carefully. We are expecting to see continued increases in our metal inventory which may offer potential opportunities to make opportunistic trades to realize profit from our inventory. Like I mentioned, we update our inventory and asset value regularly, and I would encourage anyone interested in the rare earth space to monitor the progress of our inventory on a regular basis. We expect to have an exciting and profitable year.

This interview appeared in 5 Most Interesting Rare Earth Stocks – Part 2 – CLICK HERE for the article.

Rare earth elements are comprised of the lanthanoids plus scandium and yttrium.

From the research report entitled “Rare Earth – Our Top Picks” by analyst Luisa Moreno at Jacob Securities Inc.

The rare earth sector is fairly new to investors and it is experiencing a great deal of growth and volatility driven mainly by the dramatic cuts in export quotas from China. This has led to periodic frenzies in stock prices of rare earth companies that tend to track and respond to news related to the Chinese rare earth policies. While constraints in the supply of these materials would certainly have significant effects on the price of these elements and share prices, there are several other factors that should be taken into consideration in a going concern valuation of rare earth mining companies, as listed below.

Mineralogy

There are approximately 200 minerals that host rare earth elements and only about10% of these have the potential to be economically mineable. Most of the extractable resources, however, are associated with only three types of minerals: bastnasite, monazite and xenotime. The type of mineral is very important as it ultimately determines which elements will be extracted – that is, which REE group is to be extracted, light rare earth elements (LREE) or heavy rare earth elements (HREE) – the mining and milling method (surface or underground mining and the separation of the minerals from the waste rock), the complexity of the extraction of the elements from the minerals, processing costs, environmental implications, and reclamation costs and liability.

Ore Grade

The grade or concentration of an ore mineral has a direct impact on production costs. Higher grades generally mean a higher percentage of elements can be extracted, which normally translates into lower unit costs and better margins. The costs associated with the extraction and the processing of the rare earth elements (generally higher than those of major industrial metals, e.g. copper) are weighted against the value of the contained elements to determine the cut-off grade (i.e. the grade of material below which mining is not economical). High grades usually favour the success of feasibility studies. Furthermore, if the deposit has a disorderly ore quality distribution, there is a simple rule of thumb that applies to the cut-off grade — if the price of resources increases (decreases) in a sustainable fashion, the cut-off grade should decrease (increase). Hence, mines with higher ore grades have a better chance of staying in production when prices fall.

Metal Equivalent Approach

The Metal Equivalent Approach is commonly used when assessing deposits with multiple elements. Given that the individual rare earths have dramatic differences in prices and some are used in completely different applications, they are in essence different materials. We think that security regulators should mandate that REE prospectors and miners use the Metal Equivalent Approach when disclosing grades and other mining parameters. The drawback of a metal equivalent grade calculation is that it implies a constant relationship between metals, which is often not the case, but this approach is the most commonly used when assessing deposits with multiple elements.

Infrastructure

Projects with limited or no infrastructure generally require more funding. Infrastructure costs usually include the costs of building roads and/or railways and airstrips, installing sources of energy and water supply, building warehouses to store raw materials and costs associated with the development of separation and refining facilities, if not outsourced. Companies with vast infrastructure needs also tend to be further away from production, as they not only have to raise the funds, which could be delayed by poor market conditions, but if the project site is in a remote location and difficult to access, it would also likely limit the speed of the construction process.

Metallurgical Process

This is a major valuation factor. Rare earths are typically found in the company of other elements and metals and most commonly mined as co- or by-products; as such, extraction techniques vary. Since every deposit is unique, the concentration, separation and refining processes have to be assessed for economic viability and then reproduced in a large scale. The separation and refining of rare earth elements, in particular, has always been a major challenge. Extracting gold from ore, for example, is relatively easy. Mixing the gold ore with a cyanide solution is a common method of extracting gold. The separation of individual REE, on the other hand, is extremely complex and involves many steps because elements have similar chemical properties.

Environmental Impact

Rare earths are crucial for the development of green technologies but their mining has environmental issues. Rare earth deposits often contain radioactive materials, such as uranium and thorium, and, in such cases, the separation process results in radioactive tailings that could be expensive to safely store or dispose of (if the radioactive materials are not commercially extractable). Mines with high concentrations of radioactive elements may have difficulty obtaining the necessary environmental approvals or may be subjected to heavy regulations which can cause delays. Furthermore, the refining process often involves several acid-baths that also need to be safely disposed of. Thus, understanding the impact of the mining activities to local and surrounding environment is extremely important.

Timing

Projects that are feasible when markets are favourable may not be when demand and metal prices are low. Commodities usually follow cycles, and the possibility of a downturn should always be considered. China has started consolidating its rare earth industry, which may set a global trend, leaving small players that emerge later with limited growth possibilities.

Political Climate, Country Risk

Projects or mines in politically unstable countries could be disrupted by war, acts of terrorism, or violation and/or manipulation of contracts by local government. Politically unstable countries also tend to have highly volatile economic conditions, often with high inflation and unstable currencies. Higher discount rates are usually applied in the valuation of companies with high geopolitical risk, and macroeconomic data should be included in the forecast of the company‘s operations.

Vertical Integration

Companies that are capable of producing finished products could generate higher margins. The majority of value comes late in the value chain, thus the ability to process high-end products is a key value driver.

End-use Market

Rare earths constitute 16 distinct elements that are used in a variety of applications — they are used extensively in the renewable energy sector and in the automotive and defence industries with mostly different economic drivers. As China cuts exports, it is believed to be affecting the supply of all 16 elements; however, as the supply side stabilizes, greater attention will be paid to the demand side of the equation. Understanding which materials a company supplies, and the main market for its products, is of major importance.

Summary

A sound investment will include a company with an experienced management team, a project that has good infrastructure, has achieved significant milestones, has a good resource grade and material content, and has the ability to fund the project development until its online date.

Luisa Moreno, Ph.D, Analyst

Jacob Securities Inc.

www.jacobsecurities.com

The information provided herein has been provided to MiningFeeds.com by the author and, as such, is subject to our disclaimer: CLICK HERE.

 

China controls 97% of the rare earth element market.

China mines REEs from bastnasite ore in the provinces of Gansu and Sichuan. In Inner Mongolia REEs are obtained as a by-product from iron making.

HREE extraction, based on ion absorption clays, occurs in the states of Guangdong, Hunan, Jiangxi and Jiangsu. These clays have very low cerium content and as a consequence the other REEs, in particular the HREEs, comprise a much larger share of the ore than is found elsewhere.

Currently Chinese ion absorption ore is the main source for HREE and resources are not published. There may be the possibility of discovering new ion absorption deposits in Southeast Asia, however high costs for labor, lack of infrastructure and environmental restrictions may render these new deposits uneconomical when competing in the market place with Chinese output.

China has 36 to 53 percent of the world’s REE deposits (industry figures differ) and supplies 97 percent (this number is constant) of the global demand for rare earth elements. The low cost and unregulated production from China’s large deposits forced the closure of almost every rare earth mine outside of China.

Tighter limits on production and lowered export quotas are being put in place to ensure China has the necessary supply for its own technological and economic needs – in 2006 volume dropped to 48,000 tonnes. In 2007 volume dropped to 43,574 tonnes, in 2008 volume dropped to 40,987 tonnes and in 2009 to 33,300 tonnes. In 2010 China dropped its annual REE export quota by 37% and then announced an additional 35% drop in its H1 2011 export quota.

In a hunt to secure jobs, and access to advanced technologies, the Chinese have forced manufacturers needing access to REEs to make their products in China. These manufacturers must either cut back production or build their factories/products in China –  recently major producers of the magnet material Neodymium-Iron-Boron have transferred their operations to China.

Demand for Rare Earths is forecasted to grow at 8-11% per year between 2011 and 2014. Many experts are predicting that the Chinese, and those end users who moved to China for security of supply, will be internally consuming most of the countries rare earth production by about 2014 (forecast demand, source: IMCOA presentation).

Rare earth demand is driven by several global macroeconomic trends:

  • Miniaturization
  • Environmental protection
  • Increasing demand for energy, power and fuel efficiency

The highest demand growth is expected for magnets and metal alloys – hybrid and electric vehicles along with wind turbines (also High Speed Rail) will compete for the essential materials and there are no substitutions for the REEs used in these applications. An increased use of energy efficient fluorescent lights and growing demand for LCDs, PDPs will increase the use of phosphors.

The French Bureau de Recherches Géologiques et Minières rates high tech metals as critical, or not, based on three criteria:

  • Possibility (or not) of substitution
  • Irreplaceable functionality
  • Potential supply risks

It’s very obvious REEs are critical metals and that the west is going to need a secure, long term supply of rare earth elements completely independent of Chinese control.

Drilling is underway at Rare Element's Bear Lodge project in Wyoming.

Rare Element Resources is an early pioneer in their sector. The company has a 100% interest in the Bear Lodge property in Wyoming, which, according to the US Geological Survey, is one of the largest disseminated rare earth deposits in North America. Along with high grade light rare earth elements the deposit contains lesser amounts of heavy rare earths and the occurrence of gold. On June 14th Rare Element Resources reported a resource update and provided an indicated mineral resource of 4.9 million tons at 3.77% REO and an inferred mineral resources of 17.81 million tons at 3.03% REO; setting the stage for the company’s upcoming summer drill program.

In May, U.S. investment bank Dahlman Rose initiated coverage on Rare Element Resources with a buy rating and $21 price target. “We like the straightforward metallurgy that is present at the company’s Bear Lodge deposit and access to infrastructure that is present at this deposit. In fact, we believe that these aspects make the company an attractive candidate to be acquired by a producing rare earth company over the medium-term.”

But not everyone agrees with Dahlman Rose research analysts Anthony Young and Anthony Rizzuto. On June 23 it was reported that the short interest in three U.S. quoted rare earth miners, including Rare Element Resources, has continued to build since April and stands just off record highs. Will Duff Gordon, research director for Data Explorers, noted “despite the recent substantial share-price correction in all three stocks, it seems that short sellers still believe them to be overvalued.”

Whether you’re bearish or bullish on the sector expect the debate on rare earth elements to rage on and, in the meantime, the one thing that both bulls and bears can be assured of is share price volatility across the board. We connected with the company’s President Donald Ranta to get his take on the price sustainability of rare earth elements and to learn more about the Bear Lodge deposit.

Rare earth elements have really come on to the scene since after the market crash in 2008 and over the past 10 months the sector has really exploded. To what do you attribute this monumental paradigm shift?

The shift is primarily due to China and its restriction of rare-earths exports and to an insatiable and growing worldwide demand for rare-earth products. China produces approximately 96% of the rare earths worldwide, and it has been annually reducing its exports of rare-earth concentrates, oxides (REO), and metals every year since 2004. This has been a clear message to the rest of the world, that China cannot continue expanding its production to match rising world consumption of the metals.  The recognition among the rare-earth consuming companies and countries is that there is currently a real shortage of rare earths outside China and that shortage will be exacerbated as China continues to restrict its exports of the raw materials. Reports out of China since the winter of 2008-09 have been hinting that a decreasing supply of the metals will be coming from the country. A Chinese announcement in July 2010 of a drastic reduction of rare-earth exports (70% reduction in the second half of 2010) kicked off the current frenzy.  Rare-earth prices have been rising steadily ever since then.

Do you believe the price levels for rare earth elements are sustainable?

The answer is “yes” and “no”.

Yes for some elements that will continue to be in short supply, and no for other elements that will be in oversupply. With all fifteen elements occurring in every rare-earth deposit, mining for a few critical elements will lead to oversupply of others.  The rare-earth elements that are forecast to be in continuous shortage outside of China from now through 2020 include neodymium, europium, terbium, dysprosium, erbium, and possibly praseodymium and gadolinium.  Nd, Pr, Dy, and Tb are used in rare-earth magnets that constitute the most valuable end-market and the fastest growing market with a growth rate of 10-15% per year.  Prices of these elements are expected to remain at a high level for the foreseeable future.

On the other hand, the rare-earth elements forecast to be in oversupply beginning in about 2015 include cerium, lanthanum, samarium, yttrium, and the other four minor rare earths. Prices of these four elements are expected to begin coming down in late 2013 or 2014 when both Lynas and Molycorp are expected to be in full production.

Everyone is very swept-up in the fervor around rare earth elements but you were an early mover in the sector. Please tell us about the history of the company and some of the challenges you faced focusing on a niche sector, and also about your current plans.

Rare Element’s subsidiary acquired the Bear Lodge rare-earth property in 1999-2000 and explored it slowly with a few drill holes per year beginning in 2004. The Company was drilling step-off holes from four high-grade holes drilled previously by Hecla Mining Company in the later 1980s, before the prices collapsed due to Chinese over-production of rare earths. Raising funds to conduct these programs in the 2004 through 2008 period was a challenge because the value proposition of rare-earth exploration companies and the industry was not widely known. Every meeting with potential investors required an education in what they are, how they are used, and where they are found. By 2009, there was sufficient drill-hole data to conduct an inferred mineral resource estimate of 9.8 million tons averaging 4.07% REO, which was both much larger and higher grade than we expected. The size and quality of this resource caught the attention of the rare-earth industry and its followers at a time when awareness of the rare-earth shortage was rising. At about the same time, metallurgical testing produced a break-through in the mineral processing of the oxide resource of the deposit, which consists of roughly the upper half of the resource. Further drilling expanded the resource to 17.5 million tons in 2010, and now there is an indicated resource of 4.9 million tons @ 3.77% REO plus an inferred resource of 17.8 million tons @ 3.03% REO. The total tonnage of oxide zone mineralization amenable to open pit mining and a simple mineral processing method is now at 16.5 million tons. A Scoping Study (Preliminary Economic Assessment) was completed in late 2010 indicating robust economics with a 40% IRR based on conservative inputs and three-year historic average prices, before the prices soared. The current prices are nearly 700% higher than the prices used in the Scoping Study. More drilling with a goal to double the resources, planning for pilot plant testing, and conducting a preliminary feasibility study are all in progress.

On May 27th, 2011 seventeen U.S. Senators introduced the Critical Minerals Policy Act, which seeks to “revitalize the United States critical minerals supply chain and reduce the nation’s growing dependence on foreign suppliers.” What are the implications of this Act on Rare Element Resources?

The Critical Minerals Policy Act and other similar bills could be very positive for the Bear Lodge project and Rare Element Resources. We have briefed many members of Congress and administration officials that the Company has a substantial deposit of rare-earth resources located in Wyoming.  Recent communications from them demonstrate their high interest in having the next rare earths mine in the western hemisphere coming from the Bear Lodge Mountains.  The Company does not need financial help or guarantees, but we believe the environmental permitting for rare-earth mine development needs to be streamlined without shortcutting any environmental analysis to ensure that the critical need for rare earths can be alleviated from domestic sources soon. If that provision of the law is passed and implemented, then a Bear Lodge Mine should begin producing in a few years.

What other strategic or macroeconomic focuses are on the horizon that might shape your industry?

With the current emphasis on green energy technologies, rare-earth consumption could grow much more rapidly than it has in the past. Over the past five decades, rare-earth consumption has approximately doubled every ten years. There is a possibility that this could accelerate with the widespread adoption of hybrid cars, electric cars, advanced wind turbines, and other rare-earth consuming applications. Rare earths are used in nearly all high technology applications and are essential for the proper functioning of most. At this time there are few or no substitutes for the rare earths in many applications.  Further, expansion of research in many fields is producing an accelerating number of uses for products containing rare earths. In addition, there are reports that China may become a rare-earth importer by 2015 or 2016.

Rare earth elements are a broad category – can you talk about your deposits and highlight the key value propositions for our readers?

Not only do we have one of the largest deposits within our peer group but Rare Element Resources has the second highest grade rare-earth deposit in North America, and, one of the highest value-per-ton deposits in the world. The Company uses four parameters to evaluate rare-earth deposits: grade of ore, distribution of rare-earth elements, complexity of metallurgy, and status of infrastructure. The Bear Lodge project ranks very high with every parameter. Bear Lodge ranks second in North America in the grades of Ce, La, Nd, and Pr, and first in Sm, Eu, and Gd. And it has very competitive grades of Dy, Tb and Er. These eleven rare-earth elements are the most widely used. The mineral characteristics of the resource allow a very simple, low-cost metallurgical processing method to create a rare-earth carbonate concentrate that would be the first saleable product. By producing a concentrate for sale, Rare Element will be able to limit its initial capital costs, estimated at approximately $100 million (which is much less than other competitors), begin construction more quickly, and reduce the potential financial risk of the project. Approximately 26,000 tons of concentrate containing 11,400 tons of rare-earth oxides would be produced each year during the life of the mine. This would represent approximately 5% of the world rare-earths supply.

Infrastructure in northeastern Wyoming is outstanding with excellent project access roads, an Interstate highway 12 miles away, a railroad, an industrial park and towns nearby, inexpensive power (~3 cents per kwh), and a trained labor force in the region.

A few years after production begins and capital costs are paid back, plans are in place to construct a refinery for the extraction and separation of individual rare-earth oxides, which are value-added products. Processing of rare earths is often accomplished in a region where there is low-cost power and a source of reagents for processing the ores; both are readily available in Wyoming.

Off-take agreements and partnerships are typical in the resource business for junior companies focusing on niche markets. Is the company focused on developing these types of relationships in the near term?

Rare Element has been approached by a number of major companies and is considering a variety of strategic alliances and off-take agreements. More active negotiations this coming fall will be conducted upon completion of a pilot plant test that will produce samples of the first commercial product being contemplated (rare-earth carbonate concentrate).

This interview appeared in 5 Most Interesting Rare Earth Stocks – Part 2 – CLICK HERE for the article.

Jack Lifton of Technology Metals Research says a recent report from Goldman Sachs predicting a near-term surplus of rare earth metals is "nonsense".
Jack Lifton of Technology Metals Research says a recent report from Goldman Sachs predicting a near-term surplus of rare earth metals is "nonsense".

Is rare earth metals mania another bubble that is about to pop, or a genuine shift in the supply demand curve?

That question is the crux of a heated debate this week after Goldman Sachs analyst Malcolm Southwood said the back-story on rare earths, which have rocketed to more than ten times their value in just a couple years, is about to change dramatically. Southwood says the supply deficit of rare earth metals will peak at 13.2%, or just over 141 thousand tonnes this year, but will actually reach a surplus of 3.2% as soon as 2013.

Demand for rare earth metals has risen, in part, because they are used in a variety of technologies that didn’t exist when the price of the metals was depressed, which was much of the latter half of the last century. Rare earths are used in iPods, GPS navigation systems and plasma televisions.

Economically, the importance of rare earths became a source of razor sharp public focus when China began to restrict their export. In July 2010, that country announced a 72% year over year reduction in exports. China’s hold over the rare earths -the country still controls more than 95% of the market- meant a flurry of activity in looking for new sources worldwide.

In Canada, rare earths stocks joined the global party. Canadian investors, like their counterparts worldwide, clearly see political motivation behind the lessening of China’s stranglehold on rare earth supply as a long term booster.

Toronto’s Avalon Rare Metals (TSX:AVL) has five Canadian rare earths projects underway. Encouraging results from their flagship project, the Nechalacho Rare Earth Element Project located at Thor Lake in Northwest Territories, has helped shares of the company rise from a low of $.38 cents on December 24, 2008 to a recent high of of over $9 in mid-April.

Ucore Rare Metals (TSXV:UCU), which changed its name from Ucore Uranium last summer has seen a lot more success since the name change. Drilling on the company’s Bokan-Dotson Ridge rare earth project in southeast Alaska showed what management said was “an unusually high skew in the Dotson zone toward heavy rare earths”. Ucore’s rise, although not on the scale of Avalon, was perhaps more dramatic, Ucore bottomed at just three cents in late 2008 before hitting a high of $1.10 in early March of this year.

And Great Western Minerals Group (TSXV:GWG), is a Saskatchewan based company that says its goal is to be one of the first vertically integrated rare earth producers outside China. Great Western has built up a portfolio of rare earth properties in Canada, the US and South Africa. The Steenkampskraal mine, which is located 350 km north of Cape Town, was originally operated through a subsidiary company of Anglo American Corporation from 1952 to 1963, and during that time was actually the world’s largest producer of thorium. Shares of Great Western hit a high of $1.06 on February 4th of this year, and could be had for just three cents in late 2008.

So are Canadian rare earths stocks about to come crashing back to earth? Not so fast says rare metals expert Jack Lifton of Technology Metals Research. Lifton says the Goldman Sachs report is “nonsense” because, he says, bringing rare production online is a much more complicated process than the report suggests.

Lifton doesn’t believe that “….world demand for high-purity rare-earth metals and alloys, for use outside of China, will be met by non-Chinese production by 2013” he says “because until there is a high rate of production of commercially pure separated rare-earth chemical compounds, there will simply not be enough feedstock to gamble on continuous large-scale production of these high-tech materials, by those who have never before done such high volume processing of such complex materials.”

Those investors who agree with Lifton’s take on rare earths have had the opportunity for some bargain hunting of late. Shares of Avalon Rare Metals lost more than 7% on Wednesday to close at $7.29. Great Western Minerals was also down just over 7% to $0.77. And Ucore Rare Metals gave back 5%, to close at $.74 cents.

Avalon Rare Metals President & CEO Don Bubar remains excited about his company's future despite recent setback.

On December 21st, 2010,  Avalon announced it would list on the NYSE Amex exchange. The company’s shares rose more than 20 percent after the announcement, to close the day at $4.91. The added liquidity of a U.S. listing has apparently served the company well. Shares have continued to surge, closing today at $9.13, a fifty-two week high.

To investors these days, it may seem that Avalon Metals can do no wrong. Today’s record high comes on the heels of a press release that was not, at first blush, resoundingly positive. The company reported that, over all, their various metallurgical test programs were progressing close to original projected timelines but the hydrometallurgical pilot plant work was forecast to take perhaps four months longer to complete than originally estimated. Subsequently, the forecast completion date for the bankable feasibility study may be delayed until the fourth quarter of 2012.

Avalon President & CEO Don Bubar commented, “We have been pleased with the progress achieved to date on our metallurgical test program and are now implementing measures to ensure that the hydrometallurgical pilot plant work does not significantly delay the completion of the bankable feasibility study.”

In an interview last summer with Rare Metal Blog, Bubar pointed out that Avalon was interested in entering into offtake agreements with buyers, “We’ve had some expressions of interest from different parts of the world and now we are starting to move that forward,” and, “Obviously we’d like to enter into those offtakes as soon as we can, or at least have some sort of relationship in place to see that happen.” To date, however, the only agreements the company has been able to forge have been with two Native groups; the Yellowknives Dene First Nation (December 8, 2010) and the Deninu K’ue First Nation (February 8th, 2011) regarding the development of their Nechalacho rare earth elements deposit in Thor Lake, NWT.

Ucore Rare Metals Bokan property in Alaska.
Ucore Rare Metals Bokan property in Alaska

What’s in a name? A lot, apparently. When Ucore Uranium last summer changed its name to Ucore Rare Metals (TSXV:UCU) shares of the company were floundering. Today, the company’s stock is five times higher, and it’s one of the heaviest traders on the TSX Venture Exchange. But other companies thinking a name change could be a cure all tonic should note that Ucore added something else to the mix. Drilling on their Bokan-Dotson Ridge rare earth project in southeast Alaska showed, as management reported, “an unusually high skew in the Dotson zone toward heavy rare earths”.

Just last year Ucore was, to the uninitiated, in the business of looking for Uranium at their Bokan property. Today, they are looking for dysprosium and terbium. Scratch the surface a bit and you’ll find the name change is somewhat academic; uranium and rare earth metals are often found together. The bigger change is the what has happened outside of Alaska; an renewed awareness of the importance of rare earth metals that is approaching a frenzy.

Rare earth metals came to the public’s attention when China begin to restrict their export. This past July, that country announced a 72% year over year reduction in exports. With 97% of the world’s current supply under their control, China’s hold over this sector is making people nervous. Despite the fact that China says it won’t use rare earths as a bargaining tool, concern about the global supply and demand balance of rare earths has driven their prices through the roof. One report said as much as 20,000 tonnes or one third of total exports of them were smuggled out of China recently.

In the US, there is increasing concern over the supply of rare earths to the defense industry. Rare earths are critical to the production of things such as night vision goggles and guided bombs. A recent report by the U.S. Government Accountability Office says that “rebuilding an independent U.S. supply chain to wean the country off that foreign dependency could take up to 15 years”

So with a heightened awareness of the importance of rare earth metals, an increasingly political environment and a property located on US soil delivering promising results, does Ucore sound like the perfect takeover target for a major mining company? Not exactly, says John Kaiser, editor of the Bottom Fishing Report. Kaiser, who recommended the stock in 2009 thinks a more likely candidate might be defence contractor proxy for the US Department of Defence, who could see the property as “valuable from a strategic perspective.”

Great Western Mineral's Steenkampskraal rare earth metals site in South Africa
Great Western Mineral's Steenkampskraal rare earth metals site in South Africa

A cell phone the size of a shoe. A laptop that weighs more than a truck tire. If it weren’t for rare earth metals, a collection of seventeen chemical elements in the periodic table that are generally found in ore deposits, technology as we know it today would be whole lot different.

Rare earth metals are used in iPods, GPS navigation systems and plasma televisions. A single Toyota Prius uses 25 pounds of the stuff.

Rare earths came to the public attention when China begin to restrict their export. This past July, that country announced a 72% year over year reduction in exports. With 97% of the world’s current supply under their control, China’s hold over this sector is making people nervous. Despite the fact that China says it won’t use rare earths as a bargaining tool, concern about the global supply and demand balance of rare earths has driven their prices through the roof. One report said as much as 20,000 tonnes or one third of total exports were smuggled out of China recently.

Great Western Minerals Group (TSXV:GWG), is a Saskatchewan based company that says its goal is to be one of the first vertically integrated rare earth producers outside China. Until recently, investors might have thought this was a more than audacious statement, but the company’s activity of late has turned some skeptics into converts.

Great Western Group’s revenue has approximately doubled every year since 2006, from virtually nothing to nearly $12 million in fiscal 2009. With $14.66 million in revenue on the books for the first three quarters of fiscal 2010, the company appears on track to do it again.

Over the course of its long history, the company was founded in 1983, Great Western has built up a portfolio of rare earth properties in Canada, the US and South Africa. It’s the company’s recent pursuits in South Africa, however, that has ended a long losing streak for shareholders. Last year, when Great Western began to acquire its South African joint venture partner Rare Earth Extraction Company, or Rareco, a move that would allow them to take full control of the Steenkampskraal rare earths property, the company’s stock started to rise. Last June, shares of Great Western could be had for under $.16 cents. On February 3rd of this year, the stock closed at $1.14. Great Western now owns 92.6% of Rareco, and believes it has cleared the path for a 100% ownership.

Investors clearly think the property has potential. The Steenkampskraal mine, which is located 350 km north of Cape Town, was originally operated through a subsidiary company of Anglo American Corporation from 1952 to 1963, and during that time was actually the world’s largest producer of thorium. Rareco took control in 1989, but depressed prices for rare earth metals made ownership of the property a tough slog. With the current frenzy in rare earths and Great Western’s experience and financial backing -in addition to completing a $35 million raise, the run in the company’s stock meant it pocketed nearly $8 from warrants exercise- Great Western now believes it can now make full use of a corporate infrastructure that is already in place.

Great Western’s US subsidiary, Great Western Technologies, is a Troy Michigan based company that converts elemental rare earths into metal alloy castings and powders for U.S. magnet production and other manufacturing purposes. While showing the plant to Michigan Congressman Gary Peters in January, Great Western’s President and CEO Jim Engdahl said the company offers an “alternative to China in U.S.-based production capacity, for a wide range of applications such as electronics, hybrid cars, energy systems and defense networks.”

Peters tour of the plant came on the heels of an April 2010 report by the U.S. Government Accountability Office that warned of an impending rare earths crisis, especially as it relates to homeland security and national defence.

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