“More Precious than Gold: Technology Metals” (Leeb)

By Travis Johnson, Stock Gumshoe, December 22, 2009

Dr. Stephen Leeb is jumping on the rare earths bandwagon, already crowded with newsletter pundits of every stripe, and promising that these “more precious than gold” elements will “outperform the hottest stocks.”

The argument is a fairly basic one, and we’ve heard it many times: China controls most of the world’s supply of rare earth metals, and essentially all of the refining capacity for these elements. These elements are crucial for everything from hybrid cars to consumer electronics to precision optics and oil refining and guided missiles, among other things.

And he makes the point, as others have also done, that “The Green Revolution Depends Upon Rare Earth Elements!”

Here’s a bit of his argument:

“China needs its reserves of REEs for its own industry. Which makes the remaining supplies of these critical resource incredibly valuable. And with talk of China’s ban on exports… a surge in worldwide demand… and an impending supply shortage… conditions look better than ever to reap quadruple-digit gains in the next few months.

“Few substitutes exist for these unique and critical commodities, making them attractive long-term prospects. And demand will be increased by the worldwide move to tighter emissions standards, growth in defense and modern medical technology, and the digital revolution which will continue to bring forth a fast-changing array of new iPhones and flat-screen TVs.

“When supply of REEs dwindles, it will stifle promising new technologies in wind, solar and hybrid cars…prompting a huge wave of money to be spent to get more of them out of the ground. That’s why the money to be made in these metals can be breathtaking. They’ll be among the best bets in the years ahead. The coming gains to be made in Technology Metals will make the oil investments of years past look like the runt of the commodity litter, and the sweet profits that investors have reaped in sugar taste sour by comparison.

“The demand for rare earths is expected to increase at around 10 percent a year for the next few years. With marketable supply of the rare earths falling, we expect prices to soar. However, because China lays claim to the overwhelming share of the rare earths, investing in the rare earth minerals is difficult. That’s why I’d like to send you a FREE Report, More Precious than Gold: How to Dig up Meteoric Profits in the Age of Technology Metals. In it you’ll find details on some of the most interesting REE investment plays in the small/microcap, non-Chinese rare earth space. Here’s a glimpse of some publicly-traded stocks we like …”

He then goes on to tease us about five Rare Earth Element mining stocks, and he’ll share the special details if you’ll be so kind as to subscribe to his The Complete Investor newsletter. If you just want to find out the names and get yourself started on some research, though, your friendly neighborhood Stock Gumshoe can probably help … let’s look at them one at a time:

“Rare Earth Play #1 —An Australian mineral exploration company developing its mining facilities in Mount Weld, Western Australia and constructing an Advanced Materials processing plant in Kuantan, Malaysia. Importantly, Mt Weld contains one of the world’s largest undeveloped deposits of rare earths. During 2008 the firm was able to secure $310 million worth of firm sales contracts, with a delivery target of 2010.”

This is our old friend Lynas (LYC in Australia, LYSCF on the pink sheets). They do indeed own the Mt. Weld project in Australia, and they are in the process of re-starting their Rare Earths project there — they did an initial phase of mining at the site, and the very first steps of building a concentration operation there (they need to concentrate the ore a bit to transport it), and they began work on a refinery in Malaysia, but that all fell apart when the financial crisis hit and construction was stopped on both projects, with the mined ore just sitting there and waiting.

They initially planned to sell a controlling interest to a Chinese company as, effectively, a financial rescue/takeover, but the Australian government made that very difficult (Lynas’ raison d’etre, after all, was the creation of a strategic non-Chinese REE supply chain). Thankfully for them, financing markets cleared up again and they were able to raise a big chunk of cash this fall to recommence operations. They were and probably still are the most advanced new Rare Earth Elements mining project, but it’s still going to be quite a while before the get all the construction restarted, finish the refinery and concentrator, start shipping concentrated ore to Malaysia, and can actually sell pure rare earth minerals to their customers. Lynas is a stock that I still owned shares of until fairly recently, and it remains a favored play on this theme because of the relatively advanced status of their projects compared to many others, but there’s no guarantee that the shortage in REE’s that we all see coming will actually materialize, or that governments won’t step in with large boots to modify the marketplace further.

Oh, and, of course, the economy has a huge amount to do with any of this — these are strategic metals, to be sure, but they’re bought and sold in the marketplace, and pric