Man's search for minerals

Is China playing games with its rare-earth reserves? The move says a lot about the future of rare earth.

By Jim J. Jubak Oct 20, 2010 4:40PM

Jim JubakChina's Ministry of Commerce said Saturday that the country could run out of medium and heavy rare-earth reserves in 15 to 20 years at the current rate of production.


Could this be true? Or is it simply justification for China's decision to cut export quotas by 72% in the second half of 2010 -- and slap a de facto ban on rare earth exports to Japan to protest the seizure of a Chinese fishing boat? A New York Times story today says that Chinese customs officials are also stopping rare earth shipments destined for Europe and the U.S.


I vote both are true.


China is using its current near-monopoly in rare earth production to throw its weight around. It's no coincidence that the clampdown on shipments to the U.S. comes just days after the U.S. announced it would investigate charges that China is dumping alternative energy products at below cost. Saying "We're running out" is great cover.


But I think there's likely some truth to this announcement, too. Look carefully at the language the Ministry of Commerce is using. It's not saying China is running out of all rare earth elements. That would clearly be untrue, given the extent of China's supply of the more common light earths. 


China's emphasis on medium and heavy rare earths gives the Ministry's statement some credibility given what we know of the relative abundance of different types of rare earth minerals in the earth's crust.


Yes, Virginia, there are different kinds of rare earths; they have very different uses; and they're not interchangeable.


Here, for example, is the distribution of rare earths in the huge Mt. Weld rare earth deposit owned by Australia's Lynas Corp. (LYSCF)

  • Cerium Oxide (47% of rare earths at Mt. Weld)
  • Lanthanum Oxide (26% of rare earths at Mt. Weld)
  • Neodymium Oxide (19%)
  • Praseodymium Oxide (5%) 
  • Samarium Oxide (2%) 
  • Europium Oxide (0.44%) 
  • Dysprosium Oxide (0.12%) 
  • Terbium Oxide (0.07%). -- Data from Lynas

Not surprisingly, the price of these rare earth elements tracks their relative abundance very closely (although I should note that not every rare earth deposit has the same distribution as Mt. Weld.) For example, on Monday, Cerium Oxide, relatively abundant at Mt. Weld and elsewhere, was selling for $40 a kilo. Dysprosium, relatively rare at Mt. Weld, went for $286 a kilo. Terbium, extremely rare at Mt. Weld, sold for $65.


In general, the lighter rare earth elements down near Lanthanum (atomic weight 57) and Cerium (atomic weight 58) are more abundant in most deposits than the heavier rare earth elements such as Dysprosium (atomic weight 66) and Erbium (atomic weight 68).


But price and relative distribution don't matter a whole lot to the technology companies who need these elements.


For example, cathode-ray tubes (ask your parents what those are) and liquid crystal displays (LCDs) use the rare earth Europium (atomic weight 63) as the red phosphor. No replacement is presently known. 


Because of low abundance and high demand, Europium prices have ranged between $324 and $605 a kilo between 2007 and now.


So yes, China could be running low on reserves of medium and heavy rare earths just as the Ministry claims.


What doesn't ring true -- what makes me give the Chinese statement a big "maybe" -- is that given what we know of Chinese rare earth deposits, they are relatively rich in medium and heavy rare earth elements.


Remember that “relatively.”


What that means, for example, is that China's reserves contain about ten times as much Gadolinium (atomic weight 64) as Molycorp's (MCP) Mountain Pass deposit, but in absolute terms, we're talking about a distribution of 2% versus 0.2%.


Whether the Chinese statement is true or just positioning, it does tell investors where the action will be in rare earths over the next ten years. The goal will be not just finding any deposit of rare earths, but finding a deposit particularly rich in medium and heavy rare earth elements.


Right now, the publicly-traded company with the best distribution in medium and heavy rare earths that I know is Australia's Lynas. But watch out for new finds in Canada and Namibia. (For more on rare earth stocks, see this post.) 


At the time of this writing, Jim Jubak didn't own shares of any company mentioned in this post in his personal portfolio. 
 

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

122
122 rated 1
288
288 rated 2
472
472 rated 3
638
638 rated 4
628
628 rated 5
704
704 rated 6
609
609 rated 7
489
489 rated 8
275
275 rated 9
129
129 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
CTSHCOGNIZANT TECHNOLOGY SOLUTIONS10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
ITUBITAU UNIBANCO BANCO MULTIPLO S.A.10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.