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Investing in Chinese Rare Earth Metals Mining Companies

Commodities / Metals & Mining Dec 01, 2010 - 03:54 AM GMT

By: Anthony_David


During the recent de facto ban on the export of rare earth shipments to Japan by China, what almost went unnoticed is the fact that the ban was only on raw materials and not on finished goods that utilized rare earths sourced from China. This is viewed as a move by China to force foreign buyers to purchase China’s manufactured goods in addition to the raw materials. Economist Paul Krugman, while not sympathetic to the Chinese cause, blames the US and other advanced economies for getting themselves into such a position of dependence. He has pointed out that one way of breaking free is to do what the Japanese are doing – recycle rare earth metals, or get innovative and design products that do not require rare earths.

While China’s moves are creating panic in the rare earth sector, it cannot be denied that unless China conducts its business on a more transparent mode, its efforts to monopolize the sector will backfire since the nation’s policy makers seem to have failed to realize that such high-handed measures are uniting the rest of the world against China. Business partners and prospective investors will insist on tougher terms of contract or develop other ways to protect their business interests.

The Chinese government has meanwhile stepped up efforts to restructure the rare earth industry and has introduced favorable policies, and is encouraging acquisitions and mergers to restructure the sector. According to plans, the Chinese government will bring down the number of rare earth companies from 90 to 20 within 2015. Managing Director William Majcher of Hong Kong based investment bank Baron International Limited put to rest fears that China does not encourage foreign investment in its rare earths industry. He said, “People think they can’t get involved in the upstream or downstream of rare earths, but that’s not the case. You’ve got to follow a specific path, but it can be done.” He speaks from a position of authority since Baron is an adviser to the Baotou City Development Reform Commission, which houses the Inner Mongolia Baotou Steel Rare Earth Hi-Tech Co. – China’s single largest producer of rare earth metals.

The rare earth sector is attracting several new players into the sector. In September 2010, China’s leading mining company, the Beijing based Aluminum Corp-oration of China, Limited (NYSE: ACH) (Chalco), announced plans to invest $1.5 billion to develop rare earth resources in China. With that amount, Chalco would acquire a major stake in Jiangxi Rare Earth and Rare Metals Tungsten Group (JXTC) – China’s largest producer of tungsten with interests in rare earths.

As non-Chinese companies scramble to find new sources of rare earth metals, a few mining companies such as the US based Molycorp Minerals and the Canada based Rare Element Resources have had their fortunes boosted by China’s controlling policies. However, analysts don’t tire pointing out the difficulties faced by new rare earth ventures, both in terms of infrastructure and finances. Chinese rare earth companies will continue to rule the market until production begins, which is unlikely to happen before 2015 at the earliest.

By Anthony David

The mission of the Critical Strategic Metals Web Site

is to serve as a monthly compass for those who take a fundamental view of investment regarding the Molybdenum, Manganese and Magnesium metals markets, are concerned with the emerging critical under-supply of these strategic metals to Western nations and wish to profitability chart their course. Each month we will research and provide, in as short and concise a manner as possible, the most applicable information available on resources that will have the biggest impact on our day to day lives. Click here to sign-up for our FREE monthly report

© 2010 Copyright  Anthony David- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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