Mining the Rose Garden for Rare Earth Stocks

by Jim Woods | March 14, 2012 6:00 am

On Tuesday morning, President Barack Obama took to the White House Rose Garden to announce a new get-tough stance toward China and its policies on rare earth minerals. These rare earth minerals, or simply rare earths, are used in products such as flat-screen TVs, hybrid cars and even Apple’s (NASDAQ:AAPL[1]) popular iPhone. In fact, most electronic devices these days have some trace of rare earths in them.

As providence would have it, these minerals are found in abundance in China, and that gives the country a lot of leverage when it comes to the sector. Because of the increasing demand for rare earths, there’s been an effort to increase their supply.

Well, count the Obama administration as the newest recruit into this fight.

The president said he has brought a new trade case against China with the World Trade Organization. Because China produces approximately 97% of the world’s rare earths, the United States — along with the European Union and Japan — has asked the World Trade Organization to force China to relax its export restrictions on rare earths. According to WTO procedural guidelines, China will have 10 days to respond and must hold talks with the United States, European Union and Japan within 60 days over this issue.

But don’t look for Beijing to cave in on this issue anytime soon.

Liu Weimin, a spokesman for the Chinese Ministry of Foreign Affairs, said at a news conference that “China has worked out its own policy on managing rare earths, which is in line with WTO regulations.” Weimin added, “Our policies tackle not only the export of rare earth but also its production and exploration.”

Sounds to me like China isn’t about to budge, but we’ll have to see how the political side of the equation plays out during the next two months before the real fallout, if any, begins. And make no mistake — this is all about politics and really has little to do with the trade issue.

“I think what’s going on here is a not-so-rare case of pure politics,” said Robert Hsu, editor of the China Strategy[2] and Asia Edge[3] newsletters. “The president wants to look tough on trade in this critical election year, and what better way to gin up support than to fan the flames of the Chinese boogeyman?”

I suspect this trade case will be a non-issue for the Chinese, meaning it won’t materially affect any of their rare earth mining operations.

However, the whole issue might result in an opportunity to profit from companies tied to the space, as the rare earth debate once again enters the mainstream investing consciousness.

So, what companies are most likely to surge from a renewed focus on rare earths? The short answer is the few non-Chinese rare earth miners, such as U.S.-based Molycorp (NYSE:MCP[4]), Canada’s Rare Element Resources Ltd. (AMEX:REE[5]) and Australia’s Lynas Corp. (PINK:LYSCF[6]). All three stocks surged Tuesday on the news of the new trade case action.

Smart investors might want to consider mining for profits in these rare earth stocks[7] — especially if the tough talk toward China turns into more than just election-year posturing.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

  1. AAPL:
  2. China Strategy:
  3. Asia Edge:
  4. MCP:
  5. REE:
  6. LYSCF:
  7. mining for profits in these rare earth stocks:

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