China controls 97 percent of the global marketplace, but has decided it wants to keep more of it inside Chinese borders for domestic consumption. The limitation of exports—and the threat to cut even further—has led to a global mineral rush. Rare earth companies are frantically trying to locate and mine the material (an expensive endeavor), while tech companies are just as manic to make sure they lock in future supply agreements.
Another layer to the dynamic is that rare earths also have value in some defense equipment. The recent movements out of China have shown governments in Japan and the United States that over-reliance on China is a danger. The sense of urgency has been especially palpable in Japan, where companies like Sumitomo and Hitachi have recently made agreements with Molycorp.
Speaking of Molycorp, it has been a huge beneficiary of this trend. It went public over the summer and has been up well over 200 percent since then. It is one of two companies outside of China that has rich supplies of rare earths and is relatively close to bringing more capacity to market.
Molycorp is about to break ground on a $500 million dollar facility at the dormant mine in Mountain Pass, Calif. It currently produces 3000 tons of rare earths from old stockpiles, and the company expects to begin extracting new ore late in 2011.
The other major global player is Lynas in Australia, but there are other names in the space that are beginning to garner attention.
In Canada, three names are worth noting. Rare Elements Resources , Avalon and Great Western . Avalon just began trading on the NYSE AMEX, while Great Western has mining interests in Canada and South Africa.
There is also an ETF (exchange-traded fund), called the Market Vectors Rare Earths/Strategic Metals ETF , which isn't a pure play necessarily, but it does have some exposure.
Here is the key for investors: Demand will only grow in 2011, but most of the companies mentioned above aren't able to bring more rare earths to market next year. If China further limits exports, prices are expected to remain high.
But, investors in these companies are betting that by the time they are producing more rare earths in 2012 and beyond, demand/supply/price will still be bullish for them.