Buy Lynas in my long-term Jubak’s Picks portfolio

I added Lynas (LY.AU in Sydney or LYSDY in New York) to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13 (See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ on January 13 for all the changes to the portfolio.) Please note that most of the volume in Lynas is in Sydney. The New York shares are relatively thinly traded.

I can think of three reasons to add shares of Australian rare-earth miner Lynas to a long-term portfolio now.

First, the bubble (if there was one) has collapsed in rare earth minerals so investors can buy into Lynas cheap. Way back in 2009 and 2010 the worry was that China, which produces more than 90% of the world’s supply of rare earth minerals, was slapping on stringent export quotes. With rare earth minerals critical to the manufacture of hybrid cars, wind turbines, flat screen displays, and other fast-growing technology products, the fear was that high technology companies would have to move manufacturing to China to assure a supply of rare earths. That made the stocks of the few rare earth companies outside of China rare and valuable commodities. New York-traded shares of Lynas peaked at $2.57 in April 2011.

But now the global economic slowdown has produced a big drop in the short-term demand for rare earths and has sent prices of rare earth minerals plunging. The average price for the 17 different rare earth minerals fell 46% in the fourth quarter of 2011. The eight rare earths found at Lynas’s Mount Weld mine sold for $193.21 a kilogram in the third quarter, according to Lynas. That’s a big increase from the $31.50 price in 2010 but prices have since dropped back to $103.76 a kilogram currently. For 20112 China has announced that it will keep export quotas unchanged but no one is much riled by that since exporters used only half of the allotted quotas for 2011. New York-traded shares of Lynas are trading near $1.10 today, January 18.

Second, on January 5 Lynas announced that it had completed its application to the Malaysian Atomic Energy Licensing Board for a temporary license for its rare earth processing plant in Gebeng, Malaysia. Read more

Molycorp (MCP) announces discovery of heavy rare earth deposit

I know I just finished a big post on rare earths but this news from Molycorp (MCP) arrived too late to get into that post http://jubakpicks.com/2011/10/04/remember-when-rare-earth-stocks-were-hotter-than-magma-well-theyre-50-cheaper-now/

Molycorp has filed a form 8K with the Securities and Exchange Commission with a Regulation FD Disclosure announcing that today, October 4, the company will announce at an industry conference that it has discovered a heavy rare earth deposit on mining claims it owns near its Mountain Pass, California, mine.

This is a big deal—even with the company’s disclosure that it still has to do lots of test drilling to determine the quantity and quality of the deposit.

A story in this morning’s New York Times fills in some of the details. Read more

Remember rare earths? And how prices of these metals, required raw materials for technologies such as wind turbines, hybrid cars, and flat screen displays, had soared. Technology manufacturers scrambled to find reliable sources of supply as China used its position as owner of 95% of global production of rare earths to restrict supplies to manufacturers outside of China. And investors scurried to find a rare earth stock or two to add to their portfolios.

And now?

Shares of Molycorp (MCP), the highest profile U.S. rare earth miner, were down 33% in just one week (September 16 through 23) recently. Lynas (LYC.AU in Sydney or LYSDY in New York) dropped 17% in Sydney on September 26 and 12% in New York that day.

After falling another 3.5% on Friday on September 30 to $32.87 Molycorp.is 58% off its 52-week high. Lynas at $1.07 in New York on September 30 is 64% off its 52-week high of $3.

The plunge in the price of rare earth stocks is, of course, partly a result of macroeconomic fears—of a slowdown in the Chinese economy, of a slide by the U.S. economy back into recession, of fears that the euro deb crisis will result in a chaotic default by the Greek government that will return the global financial system to the brink it faced in 2008.

Because rare earth stocks like Molycorp and Lynas are highly speculative issues—Molycorp has just begun full-scale mining and Lynas is still waiting on approval from the Malaysian government to open a processing plant to turn rare earth ores into useful forms of rare earth minerals—their share prices are even more volatile than the already highly volatile global financial markets.

But the rare earth story isn’t all macroeconomics. The drop in the price of rare earth stocks—and the odds that these shares might not only recover but also move up to new highs—is a result of changes in the rare earth market that has nothing to do with global macroeconomics. And the trajectory of any individual stock in any rally will be strongly influenced by company specific news.

In other words, if you want to figure out whether or not to invest in what are currently very depressed rare earth stocks, you need to understand what’s been happening in this once-hot sector since it dropped out of the headlines. Read more

Update Vale (VALE)

You’d think news that the Brazilian government is so eager for Vale (VALE) to get into the rare earth business that it was busy lining up potential customers would be nothing but good news for Vale. (Vale is a member of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ )

You’d be wrong, however.

The move by the Brazilian government has added to fears that it wants to regain control of the company that it privatized in 1997. Government pressure was key to pushing out Vale CEO Roger Agnelli in April. Financial markets have generally reacted favorably to new CEO Murilo Ferreira, a Vale veteran who left the company in 2008, seeing him as an experienced mining executive rather than a political appointee.

But the jury is still out. The new government of President Dilma Rousseff has made moves to reassert control over Petrobras, also a partially privatized government-controlled company, and recently moved to impose price controls in the Brazilian ethanol industry. It’s clear from government negotiations with companies like China’s Foxconn, the maker of Apple’s iPhone, for a potential $12 billion investment in Brazil, that the government wants to foster a Brazilian technology industry. Being able to promise technology companies access to a supply of rare earth minerals at a time when China, the source of 90% of global supply, is restricting exports, would be a major boost to that effort.

The question for investors, of course, would be “Is this investment in Vale’s interest or are we headed back to the days when the government ran the mining company in the national interest?”

At this point it’s hard to tell for at least two reasons. Read more

Another Japanese trading company is considering an investment in another rare earth company–this time it’s Molycorp

Good news—but it’s hard to tell how much that news is worth because so much is still at the “letter of intent” or “considering” stage.

Molycorp (MCP), the U.S. rare earth mining play that went public on July 29 with a first day closing price of $12.85, spelled out its progress in reopening its Mountain Pass mine and in expanding production there at December 1 and 2 presentations at conferences sponsored by Robert W. Baird and Gabelli & Co. Molycorp shares traded at $30.37 today, December 6.

The company now expects that the mine will be mechanically complete by July 2012 and will be producing at planned production rates by December 32, 2012. The mine has a current capacity of 3,000 tons of rare earth oxides a year and the company’s current expansion plans will take the capacity to 19,050 tons per year. The company estimates that it will be able to build out the mine to a capacity of 40,000 tons a year. Molycorp puts the life of the mine at 30 years

Molycorp told analysts that it has 19 letters of intent from customers that, in total, represent 138% of anticipated 2013 production volume. Read more