Rare Earth, Rare Opportunity?
The World Trade Organization is stepping up the pressure on China to open its spigot on raw materials. On Tuesday, the WTO announced China is violating global rules by restricting rare earth exports, giving its domestic manufacturers an unfair advantage.
The ruling sets the stage for the U.S. and the EU to challenge China over similar restrictions on rare earths, which are used to power everything from hybrid cars to smartphones.
What will the ruling mean for the rare earths market? Anthony Young, Director of Metals & Mining at Dahlman Rose, said the news “doesn’t impact rare earths directly.” But rather he said it “gives countries some precedent to work with going forward."
Outside of the WTO news, Japan has discovered large deposits of rare-earth minerals on the floor of the Pacific Ocean, according to Natural Geoscience. But the difficulty of extracting the minerals from the sea floor presents a big challenge.
Jon Hykawy, Head of Global Research at Byron Capital Markets, said “the discovery is not going to do anything for solving near-term shortages of rare earths outside China” and “it doesn’t do anything to solve the lack of downstream technology and knowledge that allows you to process the rare earths and make them ready for final use that exists outside China.”
Challenges aside, rare earths may still be a bright spot for investors. Dahlman’s Young remains bullish on the stocks and expects “a lot of upside from here, particularly Molycorp.” Byron Capital’s Hykawy also says he’s finding value in Great Western Minerals.
Hykawy said the stock “has gone unnoticed by U.S. investors, in spite of signing agreements to supply the U.S. defense industry through Electron Energy and to supply Toyota Group through Aichi Steel.”
Hykawy: We have participated in banking transactions for GWG, and as publicly disclosed, Byron’s investment banking group had an advisory mandate with the company.
Young: Molycorp is an investment banking client.
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