EDITOR: | July 11th, 2013 | 25 Comments

The REE turnaround has arrived and this time it’s here to stay

| July 11, 2013 | 25 Comments

REE_month-JU13Shares of Molycorp (NYSE: MCP) and Lynas Corp (ASX: LYC) surged yesterday and today when compared to the lackluster performances seen during most of last June. Lynas reached over AUD$0.45/share in Sydney trading while Molycorp crossed the USD$7 barrier at USD$7.08 share yesterday. Given that there were no significant announcements from either one of the two only existing rare earths producers in the ‘West’, the main explanation is to be found in the Chinese government’s action to cut domestic rare earths production, especially by targeting illegal miners, in conjunction with a perception of higher demand, especially in key markets such as Japan. China, which has repeatedly tried to gain more power over the prices of coveted raw materials, especially rare earths, had actually tested the limits of diplomacy by adopting confrontational international trade policies. It has clearly loosened the rigid policies in the past months and Chinese exports of rare earths have risen thanks to the lower prices.

The encouraging, if rollercoaster like, performance of the Japanese economy has also encouraged demand for the coveted minerals. In addition, European companies have started to buy rare earths again as their reserves have slowly been running out. It is certainly possible to use the term ‘turnaround’ more confidently now. And the time is right as prices for rare earths worldwide are still low, in 2013 they were 80% lower than the same time in 2012, but this buyer’s bonanza may soon turn in favor of the seller. The REE market was burdened by the Chinese export blockade and by the international legal proceedings adopted to challenge them, resulting in an overall climate of tension and mistrust.

Prices for rare earths from Chinese production did fall in recent weeks by some 10%, but worldwide demand has increased since the start of 2013 by 7% to 107,000 tons. If this sounds familiar, it is because ProEdgeWire suggested as much in an article published exactly two weeks ago, when hints of Molycorp’s current rally, and the relevant explanations, first appeared. Lynas’s share performance, moreover, suggests that Molycorp’s market rise is not a speculative fluke and that demand for rare earths can be expected to increase in the near future, because the prices of the products are low and end users are reaching the bottom of their inventories. Many end users according to Lynas’s CEO, Eric Noyrez, last purchased their stocks of REE’s in 2010. Lynas has already completed the first phase of its Lynas Advanced Materials Plant (LAMP) in Malaysia. The second phase, which will be characterized by a stability of production, has already begun but Noyrez suggested that Lynas has no plans to increase production yet, even if it has the capacity. An increase would only occur after rare earths prices themselves increase.

As for a general REE price indication; in 2011, prices bubbled and grew too high. In the past months, REE prices have fallen too low and perhaps the market has now started to move toward a more reasonable plateau, which will prompt producers to optimize capacity at current levels for the next few months at least. Perhaps, in this still uncertain economy, especially in the OECD zone, this is what best accounts for a ‘turnaround’, whose most optimistic indication is that the REE market has seen the bottom and survived to tell about it.

That bottom may actually have been reached in January, even if the market did not see it, because the steady upward trend in Chinese exports of REE’s started in February and Chinese customs data suggests that REE exports increased such that in the first four months of 2013, the country exported nearly 6,112 tons of these commodities – that’s almost half of the total REE exports recorded in 2012. It turns out that fears of strained trade relations between Japan and China over the diplomatic dispute around sovereignty of the Senkaku/Diayou Islands failed to disrupt what both countries have shown to be of far greater importance to them now: economic growth. Japanese investment in China did drop in relation to Japanese investment in South East Asia, but not by much and there were no bilateral sanctions or direct boycotts.

The situation is ripe for speculators and bargain hunters to rush back to the REE’s, driving prices up. The crucial element here is that this is the second time around. The REE market speculators and the experts have gathered considerable experience and the rise, should it materialize, will be more substantial and less prone to bubbles and bursts. Surely, prices will fluctuate up and down, but the upswings will be more frequent and the downturns less dramatic. The second coming of the REE market rise will be a steadier affair and a long term phenomenon. While China still has the production capacity, giving it monopoly power, the United States with Molycorp and Australia with Lynas and a host of juniors in North America and Australia steadily leading their projects through the phases needed to reach production; Beijing understands that it can no longer use the policies of the past.


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  • aurelius

    Mr. Bruno, am not sure how you got to be an analyst for the REE industry, or why this publication works with you. “Given that there were no significant announcements from either one of the two only existing rare earths producers in the ‘West’” is a statement that you should never have made. Are you that ignorant of Great Western Minerals? And I am not even referring to their latest announcement: “GWG successfully produces Neodymium metals”, which is an earth shattering event in the REE industry, one that also makes a fool of Jack Lifton. I hope you’ll have the courage and the integrity to correct this grave mistake at the first opportunity. The same goes for Lifton.

    July 12, 2013 - 2:30 AM

    • Tracy Weslosky

      Mr. Bruno is a respected member of this team. His piece was written and posted prior to the GWMG’s news release, which was edited and posted by me. GWMG is a respected advertorial member of InvestorIntel — and their news was posted as soon as we received it. Thank you kindly.

      July 12, 2013 - 10:29 AM

      • Veritas Bob

        Even with this latest news from Great Western, I believe aurelius is still wrong. Great Western had already been producing rare earth metals from oxides, and has now increased its portfolio, but it is NOT producing rare earth oxides, and therefore is not (yet) a rare earth producer in the sense meant by Mr. Bruno.

        P.S. I am now awaiting the usual erroneous claims by aurelius that I am a paid Great Western basher.

        July 12, 2013 - 1:17 PM

        • SteauaOilers

          Veritas Bob, the point is that Great Western Minerals is doing it now by a different (better, cheaper and basically newer for ROW) method. If you want more context, read the following note of Ed Richardson, the VP of Thomas&Skinner:


          July 12, 2013 - 10:28 PM

          • Veritas Bob

            The point to my comment is that Great Western does not yet have upstream rare earth processing operations – see slide 4 of http://www.gwmg.ca/images/file/Presentations/april22_2013.pdf . There are other non-Chinese downstream rare earth processing operations. My comment was a response to the illustrious aurelius.

            July 13, 2013 - 8:05 AM

          • Ausheds

            Lynas is an active producer of feedstock and breaking news reveals the pilot program to establishing a 4ktpa Didymium & La metals production facility. If the ROW middle supply chain has largely contracted into China I guess you just have to build one yourself!
            Probable precursor to the Siemens JV.

            July 13, 2013 - 11:45 AM

  • Dan

    Alessandro, the thing I like about you is your fearlessness concerning bold predictions. We all hope you are right.

    July 12, 2013 - 6:26 AM

  • JohnH

    “Alessandro, the thing I like about you is your fearlessness concerning bold predictions. We all hope you are right.”
    I second that Dan.
    Nice post Alessandro. I have heard the bottom being called before but I think we have just seen it.

    July 12, 2013 - 9:10 AM

  • Nevada George

    I think these stocks have always been “ripe for speculators”
    as they are highly sensitive to investor sentiment.
    The Behavioral Finance guys love these type of stocks.
    Those of us that have been riding it out for several years get to
    experience the volatility.
    In the not too distant past MCP was 79USD and LYC was
    working its way up to 3USD.
    I am still holding, still waiting…the year 2015-2016 should
    give the long term holders an indication if there is an ROI at
    the end of the rainbow.
    It will be interesting to see how UCORE progresses in the
    highly regulatory environment of the USA. At this point it
    looks as if they are moving forward. Albeit, the stock has
    been getting hammered.
    I am still keeping the faith that the REE Industry outside of
    China will survive.

    July 12, 2013 - 11:14 AM

    • hackenzac

      Speaking of Ucore, they now have 172 million shares outstanding and not 152 million so the market cap as calculated here on the ProEdge stock table is incorrect. The market cap today of uuraf is 47 million dollars, still grossly undervalued imo either way. If Molycorp can get up and running, so should Ucore. They’re doing everything right especially if SPE proves out as expected. As for Great Western, their South Africa plans look to be stuck. They don’t have a separation plan other than looking for a tolling arrangement and that’s a sticky wicket. Maybe Molycorp can toll for them?

      July 12, 2013 - 1:13 PM

  • GoBucks

    Jeez aurelius,

    You sure know how to win friends and influence people.

    Where I come from, a person can be wrong now and then without being called a fool.
    In my mind, if you don’t make the occasional mistake, then you ain’t tryin’.
    Now, how ’bout you just take your turds out of the punchbowl and run along?

    July 12, 2013 - 4:14 PM

  • Joeri Van hee

    Hip hip hoeray, we see in Belgium when good news arrives. Unfortunaltely I have been saying that a lot, each time a market turn arround was promised…
    I hope for my portfolio it’s true, but if it’s not, I’ll still have a good night’s sleep.
    I have read that the amzrican president is going for change, again, green this time, wich should be a booster for the rare earth industry. He also stated in the past that he wants to be independant from China, so I expect more for Molycorp, also Ucore…

    July 12, 2013 - 5:08 PM

  • Joeri Van hee

    As for your title: and this time it’s here to stay…
    Who excactly are you in the rare earth industry? Do you work for a rare earth company and have insights that we don’t have. I would love to know.

    July 12, 2013 - 5:10 PM

  • Steve

    “Given that there were no significant announcements from either one of the two only existing rare earths producers in the ‘West’, the main explanation is to be found in the Chinese government’s action to cut domestic rare earths production…….”

    Ahh no……..

    The reason for Lynas share price jump was more likely an upgrade to “buy” from JP Morgan on the day of the jump. You could have found the article in the mainstream Australian media if you bothered to look.

    Tracy – Mr Bruno may be a respected member of your team, but a little investigative journalism wouldn’t hurt would it…….Or should we just succumb to our confirmation biases.

    Now can we please stop this incessant speculation every time a share price moves?

    July 12, 2013 - 8:23 PM

  • Bill Keenes

    Alessandro, as always I very much appreciate your articles and the views expressed, that doesn’t mean I agree with everything you write, but it does mean I enjoy reading your articles – thank you.


    aurelius, thinking isn’t your strong point, is it.

    July 13, 2013 - 3:43 AM

  • bourque

    the problem with Lynas and Molycorp is that their processes were established too soon, too expensive to build, are now not state of the art and now there is no money in the rare earth oxides business. The point about Great Westerns SKK mine is that they have postponed the building of the benplant (development of a more efficient process) and wisely are looking for an interim alternative for the sepplant (again development of a more efficient process). They’ve done this to avoid the same mistakes as the others.

    July 13, 2013 - 5:56 PM

    • Veritas Bob

      Yeah, that and not having the money to build them. Nice spinmeistering attempt there.

      July 13, 2013 - 6:03 PM

      • aurelius

        Veritas, you are indeed known as full time basher Derm on the GWG blog and you are not fooling anyone. Bourque’s comment is right on and GWG backers will have the last laugh. Expect to hear from me again!

        July 17, 2013 - 3:00 AM

    • Ausheds

      Goodness, I didn’t realise just how clever GW were, interim alternative and all. So where are they placing the 45% Ce that underpins the project?

      July 13, 2013 - 10:55 PM

      • aurelius

        The first part of your remark is correct.

        July 17, 2013 - 3:01 AM

  • Mike Jones

    Alessandro and Tracy,

    What is your opinion on Stans Energy? And are we about to witness news that may make or break the company?


    July 14, 2013 - 5:16 PM

    • mike

      Stan’s will have their special and general meeting late Sept. and if all the legal challenges are put to rest the news should be good.

      July 23, 2013 - 4:24 PM

  • Dan

    Does anyone know when LYC’s QE2 Earnings will be out?

    July 15, 2013 - 10:12 AM

  • Performance of REE Leaders confirms the market turnaroundInvestorIntel

    […] of rare earths outside of China Lynas Corp (ASX: LYC) and Molycorp (NYSE: MCP) in the past few weeks has indicated that the REE market is experiencing a turnaround – and one for the better. The […]

    July 16, 2013 - 2:54 PM

  • Sue Glover

    As the Community Manager for InvestorIntel I will see if I can get some answers for you Mike and Dan. Love the great debate, support and exchange of ideas happening here. The most brilliant and motivated the industry has to offer can be found in the REE sector.

    July 16, 2013 - 8:50 PM

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