A rare opportunity in mining stocks

By Jim Jubak

Lanthanum. Neodymium. Dysprosium. Terbium.

The names don't exactly roll off the tongue, but these are four of the 17 rare-earth elements. You can't build a Prius, an accurate missile or a wind turbine without them.

And thanks to the threat of an export boycott by China, which controls about 95% of the current global supply of rare-earth elements, the stocks of the few non-Chinese companies with rare-earth mines under construction are some of the hottest stocks on the world's most speculative stock markets:

• Great Western Minerals Group (GWMGF, news, msgs), a company developing four rare-earth projects, is up 948%, to 33 cents a share, in 2009.

• That's a sluggish performance compared with Ucore Uranium (UURAF, news, msgs), which is developing a rare-earth mine in southeastern Alaska. Shares of Ucore are up 4,181% in 2009, to 83 cents a share.

My advice, at this point, is to stand back and let the rockets cool. The speculators will move on to some other sector fairly soon. Use the time to separate the mining stories from the real mining companies.

Because behind all this speculative smoke, there is a story of global demand that's real enough to make a few of these companies very profitable long-term investments.

Here's the story in a nutshell:

In my Sept. 9 column, "Plug into electric-car batteries," I explained how the growing need for batteries used in hybrid and electric cars would cause demand for lithium, the key ingredient in the next generation of batteries, to surge from a projected 11,000 metric tons in 2012 to almost 90,000 metric tons in 2020.

Well, the same need to develop less-polluting, more-energy-efficient cars is driving demand for the rare-earth elements. And so is the growing market for wind turbines. And the ever-present market for military guidance and control systems.

A little goes a long way

Adding a bit of one of the 17 rare-earth elements to a magnet in the engine of an electric or hybrid car increases the power and efficiency of the engine, because rare-earth magnets are the strongest type of permanent magnets now made. Rare earths -- Nos. 57 to 71 on the periodic table of elements -- improve the color in TV screens and in lasers. You'll also find rare-earth elements in tunable microwave resonators, and terbium, No. 65, is a key ingredient in low-energy light bulbs.

And we're not talking about trace amounts of these elements either. The electric motor in a Toyota Prius uses about 2 pounds of neodymium in its permanent magnets. Each Prius battery also uses 20 to 30 pounds of another rare-earth element, lanthanum.

Video: Problems in the mining industry

Because the magnets in wind turbines are so huge -- you need big magnets to maximize the amount of electricity generated from each revolution of the relatively slow-moving blades -- these generators need large amounts of rare-earth elements. It takes about a ton of neodymium for every megawatt of generating capacity from wind turbines.

Fortunately, despite their name, rare-earth elements aren't especially rare. They're found in relatively high concentrations in the Earth's crust. One, cerium, is the 25th-most-abundant element in the crust.

Global production came to about 140,000 metric tons of refined rare earths in 2008. Compare that with projected lithium production of 11,000 metric tons by 2012.

But supplies of the rare earths that can be profitably mined aren't distributed evenly across the globe. Partly, that's the luck of the geologic draw. But mostly, it's a function of the huge environmental costs of mining these rare earths. The traditional method has been to bore holes into promising rock formations, pump acid down the holes to dissolve some of the rare earths and then pump the slurry into holding ponds for extraction of the rare earths. That extraction leaves behind a lake of water mixed with acid and various and sundry dissolved minerals.

Mom-and-pop mining

It's much, much cheaper if a company can get away with spending just about nothing on controlling and treating the resulting sludge. The world's low-cost producers of rare-earth elements are not huge and efficient open-pit mines but small, completely unregulated mom-and-pop mining companies in China.

Continued: A speculator's dream come true

 1 | 2 | next >