January 2011 Letter – “Rare Earth Metals”
The hottest stocks on the market in 2010 have been from companies that produce rare earth elements and metals. Also known as Technology Metals & Critical Metals, Rare Earth metals are used in just about everything that makes it possible for you to live in this highly & increasingly technologically dependent society.
Rare Earths are used in the rechargeable batteries in iPhones, BlackBerry’s and electric car motor engines. They are used in computers, DVD players, lighting, lasers, and magnets. In fact, they even have incredible military importance and severe implications for national defence … and projected demand is set to continue at a minimum rate of 8% a year.
Consider this: last year China accounted for 95% of the world’s production of Rare Earths. Yes, there is a supply crisis in the United States and the government is getting involved as a matter of national defence. In fact, U.S. Senators are increasingly introducing legislation to restart domestic rare earth mining, processing, and refining all to support the growth of the U.S. clean technology, manufacturing sectors, and for the missiles used by the U.S. military.
Federal Legislation changes are Bullish for the sector:
The recent bipartisan passage of the Rare Earths and Critical Materials Revitalization Act of 2010 is important in both its timing and scope. The Act includes proposals to further the establishment of a domestic supply chain for rare earths in the United States sufficient to satisfy the national security, economic well-being and industrial production needs of the United States. The Program will be designed to support activities from the exploration and discovery of rare earth materials through to the development of new or improved processes and technologies utilized in the industry. One Rare Metals company’s CEO was quoted “It demonstrates policy makers’ commitment to the re-establishment of a US Domestic supply chain for Rare Earth materials”. So what is the insight for investors? Look for companies that are involved in the different parts of the process of bringing rare earth materials to the market – not just producers of raw rare earths.
Minimize Geopolitical Risk:
A ready supply of Rare Earths is crucial to manufacturing industries such as electronics and automobiles that keep the global economy growing. This adds to the importance of picking companies in strategically important geopolitical locations to minimize geopolitical risk in your investments in rare earths. Remember, geopolitical risk for our purposes is simply the investment risk – a country will change its policies for its own interests – often in spite of investors’ interests. So what is the insight for investors? Look for companies that are producers & are involved in bringing rare earth materials to market in the US & Canada or other geopolitically advantageous locations.
In closing, it’s been a good year with Rare Earth Metals stocks powering portfolio returns and we’ll strive for continued success in the New Year.
As always, we will be in touch with updates and any actions necessary in your specific accounts and we will continue to work with you to bring out the best in 2011!
David Derwin & Joseph Alkana