In the last year or two you may have heard the term “rare earth elements” thrown around. Rare earth elements include a number of elements most have never heard of like, Neodymium, Praseodymium and Europium, to name a few. These elements are vital in the construction of products, such as electric motors, hard drives, cell phones, cameras, batteries, fluorescent lights…
Today around 97% of all Rare Earth Elements are controlled by China. This puts other markets at a clear disadvantage. No only do other markets lack the resources, but they must pay heavy premiums because China has decided to reduce the amount of rare earth element exports. These restrictions are projected to increase hard drive costs 5-10% this year…no telling what it will do to other consumer goods that rely on such materials.
One interesting occurrence in the rare earth arena is a company based in Canada named Rare Elements Resources (REE). REE owns a property called Bear Lodge in northern Wyoming. The property has been tested and shown to be one of the highest grade deposits of rare earth elements in the U.S. The site has great potential.
The key word in REE’s picture is potential. They have not yet started mining, but their company has a market cap of over $350 million. They are sitting on many precious items, but have yet to produce the product. As we know, the market is forward looking and the potential of REE’s property is being priced into their stock’s price.
As an investor, I would play this stock based on monitoring positive news or negative news coming from oversees (China). I would be less inclined to hold this as a long-term play. The restrictions China is imposing could loosen and thus would cause the Bear Lodge property to look less as a vital resource to investors. On the other hand, a long-term play could enable investors to profit from a potential buy-out. I doubt many, if any, investors have an idea of the likelihood of a buy-out, but a larger company may seethe company’s assets as a worthwhile investment. In such a case investors would be rewarded with a premium.
Rare earth elements is an interesting field, especially when considering China’s strangle hold on the market and the increasing need of goods to contain such elements. I would look at event driven catalysts to guide your investing decisions.