Rare Earth – A Long Term Investment

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Rare earths are a group of at least 15 elements within the Lanthanide series (see Wikipedia for a good overview: http://en.wikipedia.org/wiki/Rare_earth_element).   These elements are relatively abundant in the earth's soil but are found in higher concentrations in certain locations.  For those of you who like chemistry – I’ve highlighted them in yellow:

Rare earth periodic table 

Demand.  The use of rare earth elements in modern technology has increased dramatically over the past years.  Rare earth elements are now incorporated into environmentally-friendly technologies (e.g. compact fluorescent lighting, hybrid cars, etc.), new digital devices (iPods, iPads, disk drives, etc.) and various military/industrial applications.


Supply.  China controls 95% of the global rare earths market, with 45% of the global supply coming from China’s Baiyun Obo mine in Inner Mongolia.  In recent years, the Chinese government has shuttered a number of other rare earth mining operations and imposed a range of export restrictions on rare earths, with the aim of ensuring domestic supply is sufficient to meet expected domestic demand (or for monopolistic control- you decide).

Given the tightness of supply and the belief that new demand has recently strained that supply, there is growing concern that the world may soon face a shortage of the rare earths.

Bubble?  The Investopedia article (linked below) notes that “although rare earth prices could stay high for a while (mines do not open overnight), new digging and new alternatives are likely to put an expiration date on this bull market.” 

My current favorite stock on this space is Lynas Corporation www.lynascorp.com (see the ZH article, below)- I believe them to be significantly undervalued medium-to-long term.  Lynas trades under the symbols (LYSCF) for the common, and (LYSDY) for the depository receipts. 


July to October this year looks a little too exponential for my taste, so I’ll be waiting for a significant pullback. 

In addition, I’m also watching a rare earth ETF that began trading today: (REMX) from http://www.vaneck.com/funds/REMX.aspx.  I like the weighting:


I might go with my eggs in the same basket philosophy and consider REMX when that time comes.

Further reading: