The RMI Report: Reading the Tea Leaves (PT 3)

OK here’s the last part…

TeaReading As an investor I took notice that not only was the market relatively inefficient when there was material news but I also noticed that the market consistently grouped all rare earth stocks together no matter the deposit type.  The most important data point, however, was what happened when Lanthanum prices rose over 500% forcing catalyst producers to increase final product costs.  A 500% price increase in one particular input (La) resulted in only a 5% increase in the final product price to which I saw no backlash from refineries. 

This was a real live data point that spoke to the critical nature of this input to the production of FCC’s and the leverage this represented.  It is this pinch point that was the basis for my thesis behind investing in a physical stockpile which became Dacha Strategic Metals.  To witness this happening in real time was an unexpected spectacle to watch as the inelasticity of demand has never been tested in rare earth material (I can’t emphasize enough how important this data point is).  While Lanthanum and Cerium did not qualify as being strategic by my investment methodology, a political policy change resulted in the creation of a supply disruption (foreign only) and I still believe the heavy rare earths will run into a structural shortage in the next few years.  The difference is that when this happens the shortage of HREEs will be driven off of fundamentals and not a so-called embargo that is temporary.  A possible scenario that may warn of things to come is the more logical refinement of the export quota system so that it reflects the fact that each element has its own uses and markets.

Conclusion?  Read Rare Metal Blog (couldn’t resist the plug J ) and watch for material news that can affect the industry – it is quite possible the lag will persist and you can make some coin off of being on top of things.

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Reality Check

There are always two sides to making a good investment; a good entry price and a good exit price.  I state the obvious because sometimes investors forget that it can be just as difficult knowing when to get out as to when to getting in.  A wrong decision leaves money on the table or worse, a potential loss of capital.  As the Rare Earth market became increasingly frothy and newspapers highlighted the China/Japan dispute every day, I went back to the numbers and updated my analysis that I originally wrote in July.  Here were some of my data points;

  • Stock prices were moving on the basis of FOB prices in the Light Rare Earths, however, the entire market value of Lanthanum and Cerium exports was less than $50M for the first half of 2010
  • I roughly estimated that the market capitalization of all RE stocks went up by more than $4B
  • Export Quota usage did not show any signs of being significantly different than any other year placing the real possibility that there will not be a large shortage of export quotas

It was the latter half of October when I not only sold the basket of RE stocks I bought in July but I went short… an old trader’s adage is that “Volume provides confirmation of price signals”, and when you see a $4B market cap increase based on a $50M data point, it tells me things were overdone and the odds were for a pull back.  I remember the few next days, prices continued to moved higher but I just added to my short positions. 

I continue to watch the market closely and use my contacts in the industry to get the latest news and gossip.  I will post my findings and thoughts on this blog so I hope you will find them useful or at least entertaining…  OK, I’ll settle with “thoughtfully stimulating”???

Please, please feel free to ask any question at all… I truly enjoy bantering back and forth between readers and fellow experts in the industry. 

Your Lanthanide Lackey,

Pat Wong

Patrick Wong is deemed an authority in the Rare Metals Industry.  His investment thesis, “Strategic Positioning” was the basis for the creation of the world’s first publicly owned stockpile of Rare Earths.  Mr. Wong has had over 17 years of public market experience as a Prop trader/hedge fund manager and his last 5 years have been spent building companies that are critical to what he calls “the largest arb trade in modern day history”.  After his departure from Dacha Strategic Metals, Mr. Wong is pursuing his passion for the industry as a consultant and in creating a centralized separation facility for Rare Earths and other strategic minor metals. 

  1. Patrick: the same thing happened in the permanent magnet industry – price increases in neodymium-based magnets have been a small fraction of the price increases in the underlying neodymium compounds.

  2. Patrick.
    Some of the buying might refelct hedge funds hedging off dollar and euro exposure. Prefering to hold what they hope will become a good long term asset for the next 30 years, rather than hold dollars or euro ahead of a difficult 2011. Reportedly JP Morgan now owns 80% of the LME copper inventories, which might also be related to the same sort of thing. If true, it puts JPM in the position of heavily long copper while simultaneously heavily short silver. This presumably makes sense to Blythe Masters if not to me.

  3. Some of the $4B increased capitalization of REE stock is based on future expectations that demand will rise dramatically and that there may be shortages. I don’t think investors were focussed on actual exports, as your figures indicate, but on (1) China’s action being a wakeup call that it is not going to be sole supplier any longer, and (2) possible shortages that could crop up in the near term.
    So… are you focussed on the short term only, or do you bring in medium or long term factors? If so, how do you quantify them?

  4. Tek, I put today’s drop off as a reaction to the headline, “Toyota Tsusho to build rare earth plant in India”. They expect to start it in early 2011 and be in production (!) in a year with 3-4 thousand tons. Combined with Vietnam, Japan will get 1/3 of its needs covered by 2013! Ten thousand tons.
    These are big claims, which, if they work out, show up the miners we’ve been looking at over here, in speed to market, in building separation plants, and in size of production. Ouch! Scary stuff. If it works out, though. It must have given others some pause. IMHO.

  5. Hi Graeme!
    First off, I love your writing and I’m an avid reader :)
    You hit on some topics close to my heart… hedge funds and currency trading which both I have quite a bit of experience in. From the hedge fund side, you do get the few that are specialists in taking physical positions but for most of them, Level 3 assets have a very strict limit and while copper and some other LME listed inventory, that might be OK but with rare earths, it is definitely not OK. There are many ways a fund can hedge their dollar exposure and getting into something that is relatively illiquid for them is not usually the solution. Now, if they are buying because they are interested in the long term prospects and there are no other alternatives ie. a forward curve or futures, then perhaps but again, this isn’t a scalable investment for many large funds.

  6. well I’m not so sure my comments can be used to help with day to day changes. The underlying commodity price hasn’t changed which goes to show you that there is relatively little correlation between the investment and the commodity. As a previous fund manager, there are so many things that go to affecting a market that it’s hard to pinpoint but in a niche market like this, they can be the first ones to sell off when liquidity or speculative premiums start to erode.
    Now that you have this bell-weather stock, MCP, a lot of times you can take its price action as a leading indicator to what may happen to the rest of the RE stocks. For this sort of short term trading call, you’d probably be better off with technical analysis that gauges the psychology of markets and I find it works particularly well in an emotional, retail driven type market like the Rare Earths.
    Your Lanthanide Lackey,
    Pat Wong

  7. Hi Bob,
    You raise a great topic… future expectations and how that is built into investment valuations. The reason why I think the increase in capitalization was due to the export policy change is that this huge increase happened just after the change in policy was announced and that your points #1, 2 had not changed at all… it’s not like people just realized China could be protective over its resources and the fact that the increase in RE stock prices with the quota cut is more than coincidental. There has been no real shortage of product, only where the product has been allocated but that will also get sorted out and as you see the price differential between FOB prices and domestic prices fall, you should see the froth in the market also subside.
    The fundamentals of the market did not change between August and today… the only thing that changed was a perceived huge drop in quotas but again, I say perceived because we should always have expected a drop in the quotas and the 70% figure people quote is just because China did not cut as it should have in the first half of 2010.
    For example, what do you think people will say if they leave quotas relatively unchanged from last year. Because they give out quotas 2x per year, and if they were the same 30k in annual quotas, the announcement that quotas would be 15k for the first half of 2011 would be seen as a 100% increase from 8k in the prior period… see how these things can be miscommunicated?
    I try and stay focused on the short to medium term because the longer you go out, the more variables there are and there’s just no way of predicting all of that. The problem comes when you have something happen that does not follow your thesis and you have too many variables you can blame it on and then you don’t see what parts of your thesis you should change. I do try and trade on a more thematic basis based on what I see as long term trends but that’s more for portfolio construction.
    Quanitfying them is a whole other ball of wax. I believe an investor’s focus should match their personality. To try and take someone who’s fundamental in nature and who likes to do their due dili, asking them to trade off the whims and psychology of the market is just asking for disaster. If you have someone who’s more active and likes the excitement and trading, then asking them to look at a longer term of more than a few days is way too much for their patience and they will end up doing bad trades as a result.
    I haven’t said much to answer the last part of your question but if you’d like we can banter around what you look for in terms of making an investment decision and I can tell you mine but I don’t think this is the right thread to do it in.
    Your Lanthanide Lackey,
    Pat Wong

  8. Hi Bob,
    Toyota’s announcement of building a rare earth plant in India is not new news. This is months and months old… but this is a good example of how you can look for something that is the cause of what you see in the market place and if the lesson is that you take news like this and act on it, then if you’re wrong, the next time you see news you could react to it and you’ll be asking yourself why didn’t it work :)
    That’s why blogs like this are a good place to go. PM’s have never had an opportunity before to goto active sites like this and get a sense to the markets and find out a lot of information quickly.
    As for your premise that new supply could indeed lead to lower stock prices… well that’s not a bad one and further investigation would tell you that the India plant is mainly a light rare earths plant so those prices should get affected more than others. Everything else being equal (there is no new news of demand today, it’s the same as yesterday and last week and the month before), new supply with no change in demand should lead to lower prices so I’d agree with that.

  9. Well said, Patrick. I’m not a trader and I don’t follow day to day, so maybe I should leave that to others.
    I am amazed at how quickly Japan is working to secure its supply, though. I wonder, too, if we in North America are too oriented toward markets, for Japan’s agreements seem to have come from government to government negotiations first. According to Wall St and Bay St, isn’t that a no no? Am I over interpreting here, or are governments an important factor in the rare earth field, at least governments outside of North America?

  10. OH! I also forgot to mention the forward curve aspect. Since many industrial minerals including Rare Earths have no futures market, an investor (and banks who lend money to future producers!) has no reference to a forward curve. That means as an investor you have to take some pretty scary assumptions but if you can buy the actual commodity, it means something different.
    Buying the actual commodity should implictly carry the value of the forward curve in it. It is worth what you bought it today for as well as its future value. In other liquid markets, you can see contango that reflect a number of factors including the cost of money, storage, insurance etc. but because there’s no forward curve, investors are forced to seek exposure elsewhere. This is what I think you’re saying in that the forward curve is embedded in these potential mining companies and you’re right except that during this period where market caps rose, nothing changed in the market nor in the projects themselves.
    You can also use a company like Dacha as an example… it owns physical so its valuation should be a reflection of the forward curve and is one of the reasons I thought it should trade at a premium. That being said, a number of other factors need to be considered but it is still an example of physical commodity ownership.
    I think I eluded to this earlier but the whole issue of a lack of a forward curve is very important when looking at financing options. If you were a bank and the only security was tied to a market with no forward view or way to lock in profits, how would you feel about lending a lot of money to it? This will lead to other sources of financing and pre-requisites for bank facilities that may prove to be onerous but not unachievable. I’ll save this for yet another topic of discussion :)
    Your Lanthanide Lackey,
    Pat Wong

  11. Hi Bob,
    You got that right… at presentations I use the example of a boy who just got a nice shiny balloon at the fair but instead of tying it to his wrist he just held onto it as tightly as he could. Of course, it slips out and he can do nothing but jump and jump trying to reach it while it floats away. That’s how North American companies should feel when it comes to securing their strategic supply chain inputs :)
    I also suggest the hypothetical scenario where if I were the President of another European or North American car company, I should be asking myself… why are my Japanese competitors so adamant and aggressive about securing their supply? The answer should be frightening.
    The Paradigm shift I use in my presentation can be explained by the following example:
    Today one might look at a pile of Rare Earths and say… hmmm, I should grab that because it will secure the production of my products for the next 10 years.
    Tomorrow one might look at a pile of Rare Earths and say… hmm, I should grab that because not only will it secure the production of my products for the next 10 years but that also means my competitor won’t be able to.
    That one slight difference, the fact that people will look to the security of supply as a competitive advantage is huge. It adds tremendous value to strategic material.
    That’s the Paradigm shift I think is happening right now.
    Your Lanthanide Lackey,
    Pat Wong

  12. Isn’t the 5% FCC price increase vs the 500% La price increase, just explained by the fact that La only makes up ~2% of the total catalysts weight? And like many of the applications the RE is just a very minor, yet critical part of the inputs?
    They are known as the vitamins of industry after all.

  13. Hi Jim,
    On another thread, someone had asked me for my opinions on stocks and I really try to avoid those. This way I can be as independent as possible. I could comment on what you think is necessary to take an exploration play and make it an economic mine or I can talk about the importance of processing and what is involved with that but I’m going to defer making an opinion on particular stocks.
    I will say this, however, I think that only a few companies will be able to come onstream because the market is just not that big. I have read some of the assumptions made in forward pricing and I’m not sure they realize that their production could represent a very large increase in supply and how this might impact pricing going forward. That being said, prices will go to a level where projects are economic because the volumes are simply required. Any other marginal player that comes afterwards will need to be the lower cost producer.
    Sorry if I could not give you what you were looking for in an answer.
    Kind Regards,
    Pat Wong

  14. Hi Reganbaha,
    Yes, yes! That’s exactly it and if I didn’t describe that point well, my apologies. It is this pinch point, that I was referring to. The investment methodology I created is called Strategic Positioning and it basically looks at parts/processes in the building of any product and looks for ones that are a small % of the overall value yet are critical and cannot be substituted easily. There are a host of other factors but essentially this is what you are talking about. I looked at various things but Rare Earths and other Minor Metals that the market hasn’t recognized yet, fit the bill perfectly. For example, a hybrid car may only use 100g of Dysprosium but you cannot have the types of magnets you need for a hybrid without it. Not only are they used in high temperature applications but I believe that the solution is not a plug-in but in a hybrid car which has additional issues with the heat generated with a combustible engine. That 100g is worth about $40… $40 on a $30,000 car is a pretty good pinch point.
    With Lanthanum and FCC’s, it is the same and I think refineries may now have no choice but to consider buying FCC’s from Chinese companies and hedge their risk that US based suppliers get locked out. That would be a shame since the efficiency/quality of chinese catalysts is supposedly less than their US competitors.

  15. Gareth and Mr. Wong, this was from last night which got lost in the shuffle, Gareth you stated:
    “Finally, you asked why “the Chinese, who apparently are swimming in LREEs, would seek to purchase two deposits in foreign jurisdictions that have nothing but LREEs”. This question implies an assumption that the Chinese rare-earths industry is monolithic – that there is a coordinated national effort on the part of the Chinese to “take out” Western competition. I don’t buy it. Don’t just take my word for it; in a Nov 2010 interview with Clint Cox ( ), Dr. Chen himself points out that a key misconception about the Chinese rare earths industry is that there is a “carefully planned scheme” here….”
    The Chinese plan to reduce producers to what 6-8 REE companies. And as Mr. Lifton has pointed out many, many times, absolutely NO ONE can compete with Bayan on cost structure, as the LREEs are a byproduct of the main mine.
    So, again, the idea to MAKE MONEY makes no sense, how can they compete with the lowest cost structure domestic Chinese mines that have an ENDLESS SUPPLY of LREEs… And you hit the nail on the head, if there is no monolithic effort to shut out Western countries/companies, then what is the other option – I would respectfully submit is that the Chinese supply of LREEs is not unlimited as most would have us believe, as Occam’s razor leads us to that simple conclusion, it is the only one that makes sense.
    Finally, Mr. Wong, being short REE companies is madness imho, I hope this is a short term trade and you’ve got your stops set. If Mr. Lifton has taught us anything, it is that men that actually run businesses need certainty of supply!! They can’t have quotas, fishing boat accidents or whatever interfere with ability to do business.
    The money at stake is ridiculous. Look at La, which is used as a fluid-cracking catalyst in the US. Yes, the annual purchase of La in the US is small as you point out, but the annual SAVINGS caused by the efficencies of using La is $17B!!!! Eventually, an end user is just going to BUY THE WHOLE DAMN THING. Saving $17B per annum more than justifies significant investments in these mines.
    I also don’t understand your comment or overall theme that “everything will get sorted out”, etc. While I agree that FOB prices likely are not sustainable, I would think it reasonable for prices to settle somewhere in the middle. Thus, use conservative price targets on these proposed deposits and review the economics. The fact that the stock market didn’t recognize the value does not mean the value is not there. Efficient market theorists make me laugh, the key is to figure it out before that ever “efficient” market does, of course.
    You might be right in the short term, but I am more than comfortable long term as I think that the demand picture is much much stronger than most realize, even the so-called experts in the field.
    Finally, I read your comment on smuggling and I really have no idea what most here are talking and perhaps we are talking at cross purposes.
    Dr. Chen made a shocking statement that 30-40k tons are smuggled out illegaly. Well, if it’s illegal, might that not be under the radar of those in the industry trying to gauge actual demand? Which is why the Japanese, and now even the Germans and South Koreans are squawking so hard about this. My guess is that Japan is running down a lot of the inventories right now.
    And again, this is where I think future, unaccounted demand comes from. Countries and companies will continue to stockpile to avoid any further “shortages” or “quotas”. In fact, Mr. Dines made this same point recently and said that he thinks it will get so bad in the near future that one major rare earth user might be out of business for a while until supply comes online and is secured.
    That’s my bet. Let’s talk in a year or two and let’s see what happens as no one knows what the future holds.

  16. Dude, me thinks your mixing up a lot of opinions and from people who just make opinions :) … I don’t quite understand a lot of things you say like “Well, if it’s illegal, might that not be under the radar of those in the industry trying to gauge actual demand?”. My point was that if there was illegal supply and it was getting shut down, the demand is still there so supply needs to satisfy it. With no noticeable increase in export volumes that means either the demand is wrong or the amount of illegal shipments is wrong because it should have shown up in the export stats.
    You speak of Rare Earths in their entirety when it is quite clear that countries have their preferences and Japan just happens to use a lot of Ce that falls within the export quotas which is really what we’re talking about… when people talk about the shortage of rare earths, it’s only about the exports, not about the tons of other products that use rare earths in them and get shipped outside of china with no quotas at all.
    Anyways, it has nothing to do with the next few years to prove who is right or wrong. I could be right but for the wrong reasons and it won’t make me a better trader or investor. In some ways I’d rather be wrong and know why I’m wrong as long as the lesson didn’t cost me too much :) . Don’t forget, this blog is about exchanging ideas and opinions, I have not questioned whether your opinion on new technologies is valid or not, I am just questioning some of the logic and find it similar to many others who only want to see things their way… call it data mining, selective hearing or whatever, just ask yourself if you could accept an answer that is opposite to your current thinking.
    I’ve gone through the export data and so far it shows no significant change in volume or behaviour and that’s after industry consolidation and a cramp down on smuggling. If any of the numbers that I have produced (usage of export quotas by element, the trend in quotas usage etc.) are new data points to you, then simply ask yourself if you’ve looked to try and take that data and assimilate it into your investment thesis. If you didn’t immediately do that (don’t cheat now, you can’t go back and do it :-) )then you know that your opinion and investment thesis is biased.
    Pat Wong

  17. An interesting exchange that certainly throws a new light on the entire saga.
    Pat, what are the “other Minor Metals that the market hasn’t recognized yet” ?
    Are you referring to Scandium, Hafnium, Zirconium, Niobium?
    Also, which of the HREE’s are you most interested in ?

  18. prescient11: A few points…
    1) I don’t really get why you think that there is some murky issue with Chinese LREE supply. China has current capacity to produce over 1.5 times present world demand for rare earths in total. There are vast amounts of stockpiled LREOs in the tailing ponds of Baotou that are as yet untapped. There are vast amounts of rare earths still in the ground. There is little question that China has plenty of LREEs. It’s stated goal, however, is to mitigate past transgressions with regard to environmental damage and other problems associated with past and present practices. To do so requires reduced production rates, and apparently consolidation within the industry.
    2) Competing with LREE extraction that results from byproduct processes is certainly difficult, but it is not impossible, if the subsequent concentration, cracking and separation steps can be done for a cost much less than the Chinese to compensate, or a competing byproduct production route is developed outside of China, or if the costs are distributed across the overall overhead, through vertical integration. Molycorp claims that it can produce separated REOs for a cost that is 50% that of the Chinese. It of course remains to be seen if they can do this or not, but I would not agree that it is impossible to compete with Baotou.
    3) Given the growth of Chinese GDP, it is my belief that future Chinese production of REOs will increasingly be geared towards internal consumption, to the point where we effectively have two markets – China and the rest of the world. The ROW market would be served by the likes of Molycorp, Lynas etc etc. in addition to a reduced supply from China. There is still money to be made in such a situation.

  19. Gareth,
    That is a good point regarding MCP’s cost structure. I grant everything that you say. However, I still think that the moves into the LREE arena do not make sense unless there is something else going on. That’s my opinion, and I may be completely wrong, but why else go purchase what you have in vast vast abundance and where your cost structure, arguably, is among the lowest around…
    There is a great 250 page research piece on China that HSBC did, I plan on enjoying that over the weekend.

  20. Mr. Wong,
    I am really not understanding your points here:
    “I’ve gone through the export data and so far it shows no significant change in volume or behaviour and that’s after industry consolidation and a cramp down on smuggling. If any of the numbers that I have produced (usage of export quotas by element, the trend in quotas usage etc.) are new data points to you, then simply ask yourself if you’ve looked to try and take that data and assimilate it into your investment thesis. If you didn’t immediately do that (don’t cheat now, you can’t go back and do it :-) )then you know that your opinion and investment thesis is biased.”
    While it is true I am not an expert in export quota data, has not market behavior indicated to you that the reductions in quotas by the Chinese are seriously impacting end users??
    Your point:
    “My point was that if there was illegal supply and it was getting shut down, the demand is still there so supply needs to satisfy it. With no noticeable increase in export volumes that means either the demand is wrong or the amount of illegal shipments is wrong because it should have shown up in the export stats.”
    Does not really make sense to me. Is not DSM’s entire business model that these prices are going to go up? Why else hold the physical? If export quotas are sufficient and there is no stress in the market, then why does DSM exist? Sprott did not create PHYS because he thought the physical gold market was adequately supplied and the price would remain static.
    Finally, you state “with no noticeable increase in export volumes”, well isn’t that a function of the fact that there are QUOTAS mandating static export volumes? I would posit my theory that the Japanese are running off stockpiles and that major end users are close to starvation. And I would also submit that market activity validates that very theory.
    But to each his own, and this is a free exchange of ideas, so good luck with those shorts, I obviously am hoping you cover at a very high loss.

  21. Now there we are agreed, which is why I do not understand how you can be short these names, at least the good ones, for any long period of time.

  22. Hi there,
    I enjoy a good debate, it’s all in good due dili. You nailed Hafnium but some of the other Minor Metals that were identified as being strategic or critical are Rhenium, Selenium, Tellurium and perhaps Rhodium but I have not completed my analysis of that one yet. The HREE’s that interest me most are Dysprosium, Europium, Terbium, and Yttrium. Scandium would be more interesting if it was used in alumunium based alloys more extensively but so far it hasn’t caught on.
    Your Lanthanide Lackey,
    Pat Wong

  23. Ahhh, the business model of an ETF… that’s a whole other story but like I said, the purpose of an ETF-like company is to give its investors exposure. What’s the purpose of a mutual fund or Sprott’s gold fund? They’re all to give investors exposure whether that’s in an up or down market. It’s much easier to market an investment vehicle like this in an UP-market, however :) . The business model for those who created the structure is to take fees usually measured in basis points and depending on the role of management (active or passive) the expense ratio can differ but in general you try to keep expenses low in these vehicles.
    Now personally, I think the heavy rare earths are going higher but not because of any export quota squeeze. I use the export stats as just another data point because if I had noticed a large increase in volume (not due to stockpiling) then it would have given me a better idea as to what impact the cessation of illegal imports would have had. It would have been nice to see that it is really huge for HREEs but I just don’t think it is. There is so little HREE material exported that anyone would easily have had the opportunity to use export quotas because it had the least amount of surcharge on it but I just didn’t see that pick up in volume.
    The Japanese had inventories but due to the embargo they had to cut into that cushion but keep in mind that J-I-T (Just In Time) manufacturing was started there which means that they would normally try and minimize work-in-progress inventory. They are way ahead of the game, however, so I do think that given a chance they will increase their stockpiles again which is why I think all of the export quotas will be used this year. If not for the stockpiling, I think we could have had a small excess in quotas again. There really isn’t any ‘starvation’… words like that create a different sort of mentality around the subject. Demand this year has not changed that much from last year with HREEs and production has always met supply in years past but going forward I think it will be different but it’s still important to be cognisant of these data points so you know where to look for important info.
    I hate to burst your bubble but I covered a long time ago at a nice profit… I’m just flat right now with the exception of owning shares in my predecessor company. I definitely saw the increase in mkt cap directly due to the embargo which I knew was short term and the quota cuts to which I think they will leave them slightly below where they are this year but it will prove to be a significant jump from H2, 2010.
    Your Lanthanide Lackey,
    Pat Wong

  24. Simply because nothing had changed in the fundamentals in those months that the market shot up by $4B and that the reasons behind it were temporary. Some of that increase could be due to more overall awareness and stockpile building so that is why I covered mid-way down instead of waiting all the way but I clearly saw that the hype was caused by 2 temporary factors.

  25. Prescient11: You’re thinking of China in monolithic terms again. It is not monolithic. Most companies in China do NOT have access to the deposit in Baotou. They have to find their own way in the world.
    As I said above, individual Chinese companies most likely expressed an interest in taking a position in Western companies, because they think they can make money – the same reason that anyone else would invest. There will be a market outside of China, for those Western companies to sell into, once they’re up and running.
    You keep saying that you think something else is going on; what exactly is it, that you think might be going on?

  26. I think that the Chinese supply of LREE is not as great as everyone assumes. I’m going to do a bit of research into exactly what entities tried to buy into LYC and MCP, but I suspect it is the same companies who will be one of the survivors after the Chinese consolidation.
    Good discussion, thanks.

  27. Yes, definitely a great discussion and thanks for all of your views and input. I would think that anyone looking to buy into LYC and MCP were at much lower levels than they are today so it would be tough to say if they were interested at that time because of the economics or the strategic value… I guess both are tied together somewhat. In terms of looking at LREE production potential, just take a look at their production quotas in the past which were a lot higher than today and they were able to supply everyone as well as the pricing history for the LREEs. Also consider that the Separation capacity for LREEs is multiple times greater than their production rate…
    Kind Regards,
    Pat Wong

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