Emerging Plays On Rare Earth Metals

Unless you have been living under a rock, you know that the price of gold hit a new all-time high in the last week. As the precious yellow metal surged above $1,300 per ounce it has brought along silver for the ride. Silver hit a fresh 30-year high after a dramatic one-month rally.

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The two big popular precious metals are not the only winners during the late summer metal rally. A group of 17 elements known as rare earth metals have been on a tear lately as the media has begun to pick up on the importance of the metals.

China and Rare Earth Metals
In a big move this week, the large Chinese metal company, Aluminum Corp of China (NYSE:ACH) announced it plans to take a majority stake in two rare earth metals companies totaling at least $1.5 billion. The Chinese government's role in the rare earth metal sector has been highly publicized recently because the country accounts for 97% of the production.

The rare earth metals are integral components in everything from cutting-edge technology to defense products to batteries. Because the demand for the metals is increasing as China develops more high-tech industries it has lowered the supply for the rest of the world. This led to China cutting their exports for the second half of the year by 72%. The bold action by China led to the U.S. government passing a bill at the end of September to bolster research and development for rare earth metals.

Investing in Rare Earth Metals
The one major issue with investing in rare earth metal companies is that there are not a large number that are publicly traded and only a couple traded on a major U.S. stock exchange.

Molycorp is a Colorado-based company that operates the Mountain Pass mine in California. Outside of China, the mine is the most prolific rare earth deposit and has great potential. The key word is potential because the mine currently lacks the ability to process the rare earth ore into finished products. Since going public during the last week in July the stock has more than doubled. The volatility is incredibly high and investors must be prepared for a roller coaster ride in the stock. That being said, if you believe in the rare earth metals story MCP could become a major player.

A Canadian-based miner, Rare Element Resources (TXS:C.RES), is also getting into the search for the elusive metals. The company has a 100% interest in the Bear Lodge property that is located in Wyoming. According to the US Geological Survey, the land contains one of the largest deposits of disseminated rare earth elements in North America. Similar to MCP, the stock has surged the last few months and will pullback at some point in the near future. The support/entry area is approximately $6 per share.

Medallion Resources (TSX:MDL.V) explores for rare earth metals and is currently concluding an agreement with REE to option 65% interest in a joint venture to explore the Eden Lake REE property in Manitoba. The property is considered one of North America's 10 most promising rare earth element prospects.

Bottom Line
When investing in a mining industry that is in the infancy stages in the North America there will be heavy speculation and high volatility. This sector must be viewed as a long-term play that could be a major winner or loser, all depending on the future of rare earth metals and the specific mines. (For related reading, take a look at Investing In Precious Metals.)

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