“The Coming Major Bull Market in Rare Earths!”

(Originally published in The Dines Letter - 17 July 2009)

Latest from “The Original Rare Earth Bug,” (DIREEBUG): How to Make a Killing in Rare Earths

It is characteristic of mankind to make as little adjustment as possible in customary ways in the face of new conditions; the process of social change is epitomized in the fact the first Packard car body delivered had a whipstock on the dashboard.

—Helen H Lynd, Middletown

In these dangerous economic times, with ghastly markets and gyrating currencies, we ponder long and hard on how to lead you through the minefields, so we have searched areas that are less vulnerable to such uncertainties. We zeroed in on “wealth in the ground” because it should be relatively more immune to governmental printing press dilutions and short-term destabilizing forces, and have especially led you to metals because the world is building its infrastructure and should need more than routine cyclical demand in coming years – which is why we called for the switch out of the Internet and into raw materials in 2001. We seek unique niches of demand because steel for example, is normally more vulnerable to nearer-term cycles, surely for the biggest consumer of raw materials – China. We narrowed our hunt to such metals as gold, silver, uranium and, indeed those metals have outperformed virtually all other commodities this decade.

Testing our mettle on metals, the all-out Crash of 08 dragged down stocks of those metals even though their commodities prices remained buoyant. Accordingly we believed that our metals stocks would recover first, and they have: for example for stock names, please subscribe has already recovered 61% of its drop from the all-time high and for stock names, please subscribe 65%. Note that their long-term trends are still up, having weathered the storm.

In our 22 May 09 TDL (The Dines Letter) we shared the next, completely brand-new field we are pioneering, so fresh to investors that many do not even know what “Rare Earths” are, much less what they are used for. We have studied Rare Earths long and hard, to figure out in which stocks to recommend to our loyal, long-term TDLrs. We burst on the scene in that TDL, calling for a “Super Major bull market” on Rare Earths. On what did we base that? The primary growth areas in the coming period, such as cell phones and the “green revolution,” including hybrid cars, windmills and solar energy sources, cannot function without Rare Earth elements, believe it or not. That alone would be enough to base our bullishness on them, but the coup de grâce is that China already has quietly accumulated 97% of the world’s Rare Earth production!

Based on that virtual monopoly we guessed that there would be a mad scramble to buy the remaining 3%, not only for economic necessity, but for inventory accumulation by nations suddenly aware of the existential necessity of a stockpile. The risk to Toyota is, to build a Prius, it might soon have to come out of China rather than Japan! Toyota has shrewdly made a deal to finance the development of an early-stage Rare Earth deposit in Vietnam. Japan is obviously aware of “The Coming Rare Earth Buying Panic” as it is already in an all-out competition with China to gobble up the world’s remaining Rare Earth deposits before the rest of the world fully awakens to them. Due to this emerging growth area we dare to make the shocking prediction that Rare Earths will soon burst into the world’s financial headlines, believe it or not. This might be an opportunity for leading-edge thinking, where the biggest stock market profits often reside – not just small percentages – to make “killings” many times your investment!

What are Rare Earths? We will be didactically sharing what our research has discovered in upcoming TDLs, but it is never easy breaking new ground. The beauty of Rare Earths is that they can’t be copied – elements cannot be switched – and either you have a commercially viable mine or you don’t, of which there are relatively few in the world. There is no major American strategic stockpile overhanging the market, sold long ago by the geniuses in Washington. Furthermore, China is already gradually cutting back on selling them, tightening the noose, and it is only a matter of time before the world’s manufacturers awaken in shock at China having a virtual monopoly on these crucial elements (see excerpt #1 at the end of this feature).

“Neodymium,” a word that we predict will be much better known to Security Analysts near its price Top, is a Rare Earth used in high-tech magnets for the health industry (MRIs), astronomy, electronics, lasers and alloys. TDL’s near-term focus will also be on lanthanum and cerium. Furthermore, these minerals are vital for using “smart bombs” so we predict that the military will suddenly awaken to their desperate need to avoid buying them from China.

It is remarkable how unaware many manufacturers are of Rare Earths in their supply chains. A very aware Toyota uses around 65 pounds of Rare Earths: neodymium in the Prius’ drive motor and lanthanum in its rechargeable battery. Rare Earth’s high growth rate derives from demand for laptop computer hard drives, voice coils for personal audio-video equipment, MRIs, and the small electric motors in luxury cars. Not even counting the solar industry’s needs. Even use of Rare Earth magnets in electric bicycles has created an important source of demand within China. When it comes to magnets, neodymium is crucial. A three-megawatt windmill contains over 700-pounds of neodymium, most of which is mined in China and there is no surplus. With plans to build more wind turbines and hybrid cars, too few seem to be asking where the neodymium is going to come from! To some extent praseodymium could be substituted, but there would be some loss of magnetic strength. Adding small amounts of terbium would improve that magnetic strength, although such use would subsequently cause shortages of that metal also. We will be going into the uses of neodymium and other Rare Earths more in future TDLs, but the above is just a foretaste of how crucial these metals are, and some of those who are planning to build wind turbines and hybrids might be oblivious to the need to immediately build up inventories, even though that in itself would trigger booming demand. This is a new industry, with evolving new uses, so demand and even hoarding will only increase, even more bullish for Rare Earths.

What could go wrong? The Green Movement could fizzle out, which seems unlikely. China could dump a quantity of Rare Earths to depress the prices and bankrupt the remaining producers, but Japan (also hopefully America, if we can help awaken it) would buy everything available – especially to dump its unwanted hoard of US dollars. One of our last two Interim Warning Bulletins was entitled “TDL Blows China’s Cover,” just as we had blown the whistle on America’s using an unbacked currency for the world’s reserves. On that score, Russia, China and India are now expressing reservations about having so much of their reserves in US dollars at a time when Washington is gleefully printing more, and “The Coming Gold Crisis” might no longer be far in the distance. So it is unlikely that China would sell vital Rare Earths just to accumulate more dollars.

We must confess that the magnitude of the international reaction to our “Super Major Buy” signal on Rare Earth elements did catch us off guard as it hit the industry like a bolt from the blue. We honestly had no idea of our power to affect the mining industry and were awed by the ferocity of the worldwide impact. After all, we want our TDLrs to get in on the ground floor of such major moves. With Rare Earth stocks selling for pennies, they were so used to having been ignored that the sudden glare of TDL’s spotlight had an explosive effect, sending stocks higher and other advisors scrambling to come up with recommendations.

Is it too late to buy? The biggest profits inure to those informed investors who buy earliest, when a field is relatively unknown, and who sell when the news is in the headlines, so we believe there’s plenty more room for profits and we ourselves are still buying them, putting our money where our mouths are. It’s very important to buy all of the stocks in Supervised List #6 when marked “Buy” because it is too early to be certain which is best, until we see the results of more drilling and how markets evolve, hoping that at least one of our picks is a big winner.

As we’ve apparently become the advisory epicenter of the Rare Earth elements industry, we appreciate the spontaneous, unrequested information TDLrs are sending, albeit still sparse this early in “The Coming Rare Element Boom.” We hereby call on all TDLrs to please pass on to us articles or information on Rare Earths that you might come across to share with your fellow TDLrs. We especially appreciate adding “no reply required” so that we could devote more of our time to research.

As always, risky mining stocks are not for everyone, so please invest in the High State of Appropriateness. The conservative investor should stay with a spread of recommendations in Supervised List #1. But in each of the other Supervised Lists please buy all of them only when marked “Buy” in that List as our goal of profiting on seven (or hopefully eight) out of ten should work out over the longer term. Invest only in these stocks with money you could afford to lose and take full responsibility for knowing when to sell them, whenever you are satisfied with your profit. When you have doubled your money, it is not a bad idea to sell enough to take out your original investment and speculate with the rest. Please keep these Rare Earth elements private until all TDLrs have had a chance to complete their buying programs. One possibility is to buy half of your planned purchase now, and hope for a short-term profit-taking dip to buy the remainder.

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1. China has started to tighten the exportation of its Rare Earth resources, claiming that current cheap prices could result in the loss of all of its resources within the next 20 years. Rare Earth metals are a collection of 17 different metals that occur within the same ore deposits, and are indispensable raw materials in producing semiconductors, special steels, high-temperature alloys, and sophisticated weapons. Viewed as strategic resources, the US and Japan are currently importing large quantities from China, and stockpiling them. Lu Feng, www.tcetoday.com, 13 Jul 09

Ed: With 97% of the world’s Rare Earth production, now China’s turning the screws by exporting less.

2. The Chinese Communist Party’s official People’s Daily newspaper plans to grow in page numbers and upgrade its 72 bureaus, it announced. San Francisco Chronicle, 17 Jun 09

Ed: While American newspapers are closing down? Time for us all to start learning Chinese?

3. A US clean-energy boom could force the nation to shed its addiction to foreign oil, only to develop a dependence on imported minerals and metals. Clean-energy technologies – solar photovoltaics, geothermal, compact fluorescent and light-emitting diode lighting, and wind turbines – depend on globally scarce materials, some of which are produced only in unstable nations. Solar photovoltaic technology needs cadmium, tellurium, indium, gallium, germanium and silicon. The United States depends fully on foreign gallium and indium and is 80% dependent on imported germanium. Those materials hail from central Africa, China and Russia. Batteries for storing wind- and solar-generated power, or for hybrid and electric vehicles, need vanadium, zinc, bromine, nickel, cobalt, manganese, lithium and Rare-Earth elements, a group of 17 metals that are “absolutely indispensable in the use of clean-energy technologies,” said Mark Smith, CEO of Rare-Earth miner Molycorp Minerals. Many of those must be imported. Then there are energy-efficient light bulbs, which demand the Rare-Earth metals cerium, lanthanum, and europium. Even wind turbines require neodymium, a Rare-Earth element, for magnets that produce electricity from turning blades. The United States has the planet’s second-largest concentrated Rare-Earth deposit, the US Geological Survey says. But China nonetheless produces more than 97% of the world’s Rare-Earth needs. “When you think about these dependencies – and think about hybrid vehicles as an example – is an attempt to minimize dependence on Middle Eastern crude oil,” Smith said. “But think about what we’re doing here, if that’s the purpose. We’re trading one dependence for another.” Even magnets from Rare-Earth elements are manufactured in China, despite the technology’s development in the United States. Scott Sklar, president of the clean-energy consulting firm Stella Group, touted the nation’s ability to meet its energy needs through renewables in the next 80 years. But he cautioned, “We’ve got to understand the supply chain to get there.” The nation, he suggested, should do a public inventory of its reliance on minerals and ores similar to data assembled by the Energy Department’s Energy Information Administration. Katie Howell, New York Times, 9 Jun 09

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