Just from that headline, experienced investors and teaser-readers might well know that we’re looking today at rare earth minerals — you might also call them rare earths, rare earth magnets, rare earth elements or lanthanides (they’re usually pulled out of the period table and grouped separately on the bottom if you want the actual names and symbols), but whatever term you use these are the rare elements and powerful magnets that are present on the earth’s crust almost everywhere in trace amounts, and that are critically important to all kinds of high tech products.
Including missile guidance systems and other high-tech military applications, which may be why this teaser from Michael Robinson gets the “Panic at the Pentagon” title. You see, for those who haven’t been around for our half-dozen investigations of other rare earth teasers, the core argument for investing in most rare earth explorers, producers and miners is that China has the market locked up, and those who either have access to China or who have non-Chinese assets that are of strategic value to Western governments and companies will see the value of their resources skyrocket as prices for these rare elements climb.
And the argument certainly makes logical sense — China did intentionally go about taking control of the rare earth market starting decades ago, acknowledging that they had great resources at home and perhaps presciently seeing a huge upside in the market for these minerals in the future. They effectively kept prices low and drove other producers out of business, and bought up a few rare earths companies in other countries and more or less shut down their local production and moved it to China.
So now that the market for these elements is much larger — huge hybrid car batteries, flat screen TVs, hard disk drives, all kinds of products require more and more of these rare earths of various kinds — China is really in a prime position with control of the vast majority of producing rare earth mines, and, perhaps more importantly, essentially all of the global refinery capacity for the processing of these minerals. China has had export quotas for years for their rare earth output, largely in order to encourage their customers to move the manufacturing and research operations to China, and they’re now in the process of cutting those quotas — which has most of the rest of the world a little bit worried, and investors everywhere sniffing out rare earth investments for what they think will be a big price boost when supplies get really constrained.
So that’s the backdrop, a story with which I know many of you are familiar. We’ve seen teases recently coming through for these “rare earths” and “technology metals” from Stephen Leeb again, too, but the ad that caught my eye today was from Michael Robinson for his American Wealth Underground, which is the new(ish) name for the old Breakaway Investor newsletter. So that’s where the “Panic at the Pentagon” bit comes from — what are the stocks he’s teasing for us today?
First he’s got to throw out a few opening pitches to get us warmed up:
“Forget About Laptops and ‘Clean Tech’… Our National Security Depends on Technology Metals
“Technology metals are not just vital to our economy. They are 100% mission critical to our military. So forget about your flat-screen TV for a moment.
“The supply of these resources is VITAL to national security.
“Without technology metals, military contractors could not make radar, sonar or night-vision equipment. We couldn’t manufacture jet engines or the guidance systems for weapons.
“Even worse, we could not make the systems that detect and defend against attack.”
And a bit more …
“The United States currently has zero production capacity. That leaves us 100% dependent on foreign suppliers for our own national defense!
“It’s hard to believe that this is even possible. But it gets even worse…
“Why Our Dependence on Technology Metals Is Far More Troubling Than Our Dependence on Oil…
“Oil is crucial to modern civilization and the Middle East is clearly in control.
“But OPEC produces only about 40% of the world’s supply. And there are also more than 150 types and grades of crude oil. When it comes to oil, choice is abundant.
“But there are NO substitutes when it comes to technology metals. As for supply, there is only one source — CHINA!
“And China doesn’t just have control… it has a monopoly!”
So that’s all more or less true — though, of course, not everyone would use as many capital letters and exclamation points in the description of the current marketplace for rare earths. And heck, we’re also dependent on China and a few other suppliers for essentially all textiles and manufactured consumer goods these days. Which is more important, a monopoly on the supply of precise navigation instruments, or a monopoly on underwear? I do sometimes wonder.
The key chokehold point is coming, according to Robinson (and others) — Chinese domestic demand for rare earths is expected to match or exceed domestic production within the next two years, so we are fast approaching the key time for development of both new mines and processing capacity (and yes, these explorers and miners have an eye on this timeline, too, and have been mentioning the 2010-2015 timeframe for years.
But anyway, here’s the last bit of preliminary exposition before we start looking at the specific stocks:
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