New teaser stocks from Byron King always get a lot of attention, both because they come boosted by the marketing might of the Agora newsletter empire, and because they come from the person who currently runs Outstanding Investments, a newsletter that has ridden the commodities boom to a very impressive record over the last six or seven years.

This ad, however, is not for Outstanding Investments — it’s for his other newsletter service, Energy and Scarcity Investor, a new service for those who wish to “upgrade” and send Byron some more money. And the special report they’ll be sending you if you subscribe is called “Breaking China’s Monopoly — The “Monazite Metals” Secret to 620% Gains”

Energy and Scarcity has teased stocks before in their ads, most prominently with the very heavily advertised “oil vacuum” stock that King then implied was going to release us from Saudi bondage by helping to produce shale oil. That stock is still teased in this new campaign as a secondary investment idea, but they’re being more realistic about it — they now tease it as what it is, a company whose microwave can recycle old tires, though they also imply that their technology will turn coal into jet fuel for the Air Force, something that’s probably a bit further away in the uncertain future.

That oil vacuum stock, by the way, was Global Resource Corp, which doubled in price following the initial Energy and Scarcity ad campaign, then fell back to half its original price, and now is right back at $2, about where it was when the ads initially started flowing back in the Spring. You can read my original writeup on that one here if you like.

But that’s not the stock for today — all weekend I was peppered with Byron’s ads that told me to buy a particular stock by Monday morning (which, if you’re quick to read your email, might be when you’re reading this as well … I’m typing as fast as my pudgy fingers will allow).

So what is it?

The ad is mostly about monazite metals, and about the Chinese push to develop a monopoly over these resources. China is rich in them the way that Saudi Arabia is rich in oil, apparently, and they’ve spent much of the past decades trying to corner the market. The ad says that this plan went by the name of the “863 Program” in China, and that there are unclassified federal documents that go into detail about how the Chinese tried to make sure that they got access to these critical commodities.

It’s even implied that the failed Chinese takeover of Unocal (through CNOOC) was scuttled by Congress because those in the know knew that Unocal wasn’t only an oil company, they owned one of those “Monazite metals” mines in California.

Byron then goes on to sort of explain what these materials are …

“Before we go any further, let’s answer this question: So what are “monazite metals,” anyway?

“They’re a class of 15 strategic minerals. They have many uses. But one of the most important is this: They help precision-guided weapons hit their targets.

“That’s what’s keeping Pentagon planners awake at night: The idea that China’s monopoly in “monazite metals” could effectively hold them hostage.

“Imagine their relief if a new, non-Chinese supplier came online.

“Imagine owning shares of that supplier.

“Imagine how they could deliver you a gain of 620% in the next year.

“As you’re about to see… all of that is starting to take shape.”

So … that doesn’t really answer the question — the phrase they’re trying to avoid using in this letter is “rare earths” — because knowing that term would make discovering the name of the company much easier. Monazite metais are rare earth metals that include the rare earth magnets you’ve probably heard of and maybe seen (these are critically important for automatic guidance systems, as for guided missiles, which is one of the reasons why this is touted as a Pentagon priority). In broad terms, the way I understand this is that Monazite is the mineral ore that is mined, rare earth elements are what is extracted from that mineral.

Rare earth metals include Lanthanum (which is one of the higher demand ones recently — used for hydrocracking in oil and gas production, and in Nickel Metal Hydride batteries), Cerium, and a dozen or so more that I can’t pronounce and will not try to spell. They are critical ingredients for many high tech gadgets and tools, and we’ve seen them hyped before as a key ingredient in batteries and control systems for hybrid cars, disk drives, LED screens, and just about any other cool high tech stuff you can think of. Rare earth minerals are almost everywhere around the world, but they’re not all that easy to find in concentrated, mine-able ore in places where people don’t mind mining.

And China is the dominant producer of these minerals, though projects are being restarted elsewhere as well. One of the projects that is furthest along is the one being run by the company being teased here … which must be our old friend …

Lynas (LYSCF on the pink sheets, LYC on their home market in Australia)

We’ve seen Lynas before, and I happen to still own some shares. For quite a long time it was the best performing teaser stock in the Gumshoe Universe, based on a teaser email from Ann Sosnowski that started circulating about two years ago — at one point it had run from about 35 cents to over $1.50, it’s currently about 65 cents a share (US).

Part of the teaser is that this company is already mining “monazite” metals, and that’s true — Lynas is mining at their Mount Weld site in Australia, which is indeed a staunch US ally (and a mining-friendly country, to say the least). Lynas essentially is building a big stockpile that’s going to have to be transported to their processing plant, since rare earth minerals have to be processed quite a bit, and often separated, before they can be used for all the gee-whiz stuff we love. Lynas is building a processing plant, too, but it will be a year or so before it’s online.

Their processing plant is going to be in Gebeng, in Malaysia, which is in part what has slowed down their development of this capacity — when the Mt. Weld project was originally conceived, they were going to use Chinese processing plants or build a plant in China, where most refining capacity for rare earths exists. But then Lynas management started to realize that a big part of their business case was the development of an alternative to China, and they didn’t want to stick their business under China’s thumb, so they made a deal and got some concessions from the Malaysian government to build a new plant there.

And there’s a bit in the teaser about the CEO, too — he knows the geopolitics of this well, according to the teaser, since he worked for Magnequench, the US rare earths company (then a GM subsidiary) that was sold to the Chinese before anyone was worried about the strategic issues, and then ran a Chinese gold mining company, so it’s no mystery why Lynas is heavily marketing itself as the rare earths alternative to China, and has a pretty slick consumer-oriented website compared to your average little Aussie miner.

So … they’re mining now, it will be at least a year or so before they can refine the stuff, and they’ll have to ship it all to Malaysia. The assumption is that the rare earths market will continue to be tight as new technologies and applications will be developed and popularized in the coming decades, and that makes sense to me. The uses are almost everywhere, if you dig deep enough — for example, using rare earths magnets to develop turbines means that windmills can be made more efficient.

Some negatives that have helped drive the price down from its highs include fund raising, with some big share offerings, and some creep on the schedule for the new plant to come online (though the delays have been relatively minor so far, it appears, and certainly bigger delays are possible since the building has barely begun, they awarded the construction contract just a couple weeks ago). It also appears that, depending on the estimates you look at, the initial mined production from Mt. Weld might be slightly lower grade than predicted — I’m not sure about that, but I’ve seen analyst estimates of 18% rare earths ore being mined during the first three years, when the best stuff is dug up, and the first mining so far has produced 15% rare earths — since it’s early on, those are not necessarily in disagreement, but it’s always possible that the ore will be lower quality than estimated. They’re also just now building up their capability to concentrate the ore before shipment from Mt. Weld, so I suppose there are probably problems that could crop up with building the concentration facility as well.

On the positive side, China cut back on its export quotas for rare earths this year, in an effort to encourage manufacturers to site their high tech manufacturing in China and make sure they have enough for their domestic industry, and prices have continued to climb as shortfalls are still foreseen in the years to come.

I don’t really know the details of the rare earths market, but everything I read does support the contention that this is an area of growing demand and, so far, limited supply, and that there is strategic concern in making sure that there is access to these minerals other than from China. It may or may not work out well for Mt. Weld and for Lynas, and this will be a critical year as the processing plant is built and brought online, and the first shipments head from Australia to Malaysia to be processed. I continue to have a small bet in with Lynas, and I think the prospects are potentially very good, but I’ve owned shares for over a year and am probably biased — I’d urge you to research it yourself if you’re interested. Lynas is not the only one trying to build up rare earths capacity, there are other Australian, US and Canadian miners that are trying to develop or re-start rare earth mining operations as well, though Lynas appears to have one of the largest projects, and one that is furthest along — and apparently they’re already past the often difficult environmental reviews for this difficult and sometimes radioactive mining process.

If I had to sum it up in one sentence, I’d say that the overall rare earths demand is almost unanimously perceived to be high far into the future, and that problems for producers would come from company-specific difficulties in mining or processing, but that the only thing that might sink the prices in the near future is if China unexpectedly floods the market. They did this many years ago, which many people think was a strategic move designed to make sure they could corner the market, but it would be much tougher to do this today since China’s own demand is coming close to catching up with their own production. It seems like the more likely future scenario is China cutting off exports due to their own domestic needs, which would be positive for other producers and probably quite negative for non-Chinese manufacturers, but I don’t really know what will happen.

The Lynas website is fairly good at Lynascorp.com, including (boosterish) explanations of the rare earths market, an older 2002 report from the US Geological Survey that predicted today’s problems is here. You can tell where I stand — I own shares and think it’s a reasonable speculation on their ability to get their processing plant online, but it’s far from guaranteed, and the evidence of this year shows that these shares certainly can go down as well as they go up. More recently, they’ve also gotten some positive press from the financial guys again, including a good article about rare earths and Lynas and their Australian competitors Alkane and Arafura, that came out last month over at Forbes.

Oh, yeah, and the teaser says that this stock has the potential to go up by 620%. Where did that number come from? That was the return enjoyed by investors in a different company founded by the Executive Chairman of Lynas, so clearly it’s slightly related but a pointless prediction — that was Sino Gold, a Chinese gold miner.

What do you think?