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Historic Rare Earth Discovery

Bet On the Giant Squid Instead

Written by Brian Hicks
Posted July 14, 2011

If it’s not Europe, it’s our debt ceiling. And if it’s not our debt ceiling, it’s Murdoch. And if it’s not Murdoch, it’s unemployment. And if it’s not unemployment, we’re all supposed to be shocked that debt is coming back to bite people on the ass...

And folks act as if this stuff surprises them.

For months, I’ve been saying this market makes no sense. The markets rallied 600 points the other week on the idea that unemployment figures would magically improve. But what changed?

Not a damned thing.

Just as I’ve been telling my options and energy groups, if you want to make some real money in this crapshoot of a market, go where the action is.

Go where supply doesn’t equal demand. Go where national powers are going nuts because China insists on behaving like a sniveling brat.

Because if you continue to invest in the same garbage that the media shoves down our throats every day, you’ll lose your mind — and whatever’s left of your hair. 

Want to know what’s going to happen over the next few weeks?

America will pull a rabbit out of her hat, and the debt ceiling crisis will be averted in the eleventh hour. Europe will continue to fall apart, as the press clamors over the slow death of the euro. Housing will not improve; unemployment will not improve.

Obama's threats to hold back Social Security checks won’t happen, and we’ll run up a few hundred more points on the Dow as Bernanke teases QE3.

And here's another likelihood for 2011...

Rare Earth Prices Will Continue to Rocket

We can all agree that rare earth prices are exploding. And we can all agree that we still have no alternatives.

Months after China cut its export quotas and began hoarding this group of chemical elements we so desperately need comes word that Japan has found the rare earth discovery of a lifetime — enough minerals to supply the world.

But was this news nothing more than a political ploy, intent on forcing China to ease its restrictions? No one knows for sure.

The discovery, as it turns out, isn’t even large enough to impact China’s hold. 

That means prices will continue to go up — bad news for America, Japan, and anyone else with their sights set on a green future.

(Consider that fifty pounds of rare earth minerals are required to build a single Toyota Prius, and dysprosium is used to reduce the weight of magnets in electric motors.)

Swimming with the Fishes

Somewhere out over the Pacific, Japan found more than 100 billion tons of rare earth minerals. The sea mud 20,000 feet below the surface is said to be rich with rare earths that should be quite easy to extract.

According to University of Tokyo Professor Yasuhiro Kato, “Sea mud can be brought up to ships and we can extract rare earths right there using simple acid leaching.”

If they can actually get to it, this take would undercut China's dominance and help lower the cost of the precious commodities.

One Small Problem

But don't sell your on-land rare earth stocks just yet...

As you've already read, the minerals are sitting in the mud, 20,000 feet under water. And while Japanese officials say it's only a matter of pumping up material from the ocean floor and using acid to extract the metals, other analysts — including myself — aren't quite so optimistic.

Not only are rare earths tough to process commercially, but the actual development of deposits found miles under water would be quite costly. The project would require years and quite a bit of money.

And since the cost of underwater mining would be high, the value of the rare earths must also be high enough to make it worth the dig. That's not the case here. It's not as if we're mining gold.

“The technology you would need, with the pressure and the corrosive factors that are there. I think this one falls into the camp of something that is less likely to ever be developed,” one analyst told Reuters.

The CEO of a Canadian rare earth company was quoted in the same piece, saying: “I'll wait for the giant squid and the prehistoric monsters that will come out of the bottom of the sea first before we see any rare earths.”

The Search Continues

So continues the search for a rare earth stockpile to lessen the threat of China's stranglehold on the world's supply.

But it’s not as if there’s nothing to get excited about...

Our Elissa Resources (ELI.V) trade just expanded its land position at the mining company's Thor rare earth project.

Lynas (LYSCF.PK), owner of the Mount Weld mine in Australia, has plans to produce by the end of the year, hitting 22,000 tons by 2013.

Molycorp (MCP) has plans to start up its Mountain Pass mine in California next year, ramping up to output of 40,000 tonnes a year by late 2013.

And don't forget about Rare Earth Elements (REE), the Market Vectors Rare Earth Metals ETF (REMX).

Keep an eye on the underwater rare earth story...

Just don't overlook what's happening on dry land because of it.

Stay Ahead of the Herd,

Ian L. Cooper
Analyst, Wealth Daily

P.S. There’s still no end to the NFL lockout. But with meetings underway, it can only be a matter of time. Remember, you want to own the lockout stocks (addressed here) to take advantage of a news-based trading opportunity.

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