A rare earth stockpile

Rare earth elements are necessary to build cars and other products. Lynas owns the world's richest deposit.

By Jim J. Jubak Nov 6, 2009 4:31PM

Jim JubakLanthanum. Neodymium. Dysprosium. Terbium. 


The words don’t exactly roll off the tongue. But they’re the names of four of the 17 rare earth elements. 


You can’t build a Prius, an accurate missile, or a wind turbine without them.


 And we’re not talking about trace amounts of these elements either. The electric motor in a Toyota Prius uses about two pounds of neodymium in its permanent magnets. Each Prius battery also uses 20 to 30 pounds of another rare earth: lanthanum. 


The huge magnets in wind turbines use about a ton of neodymium for every one megawatt of generating capacity. (For more on rare earth minerals see my September 11 post).


China controls about 95% of the global supply of rare earth minerals. And until September 24, China Non-ferrous Mining looked like it was going to buy 52% of Lynas (LYSCY), the Australian company that owns the world’s richest rare earths deposit. 


But Australian regulators said  no to any deal that gave Chinese investors majority control, and China Non-ferrous Mining walked away. That left Lynas scrambling to find alternative financing. 


The company finally did in early November, and now it can move ahead with construction of a concentrating plant to do initial processing of the 773,300 metric tons of ore the company has stockpiled at the site of its mine, and with the construction of an advanced processing plant in Malaysia that produces rare earth minerals ready for export. (For more on the details of that financing see my November 6 post.) 


You can buy either the Australian shares (LYSCF) that traded for 46 cents a share on Friday if your broker has a decent foreign desk and doesn’t charge too much commission for an overseas purchase or the U.S. American Depositary Receipts (LYSCY) trading at $22.25. 


That’s easier and cheaper, but the ADRs don’t trade with much volume so you need to be careful and use limits when placing an order. The shares and the ADRs are weighted, so you get the same stake of the company no matter what you buy. 


And despite the low Australian price per share, Lynas isn’t a penny stock. The company has a market capitalization of $595 million. As of November 6 I’m adding shares of Lynas to Jubak’s Picks with a target price of $29 a share by October 2010.


At the time of this writing, Jim Jubak owned shares of Lynas ADRs in his personal portfolio. He plans to buy more three days after this is posted.

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