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Toyota Innovates Way Out of Rare Earth Handcuffs

Companies / Metals & Mining Jan 25, 2012 - 02:52 AM GMT

By: G_Joel_Chury

Companies

According a report from Reuters today, Toyota Motor Corp. has developed a way to manufacture hybrid and electric vehicles without the use of rare earth metals. The announcement comes in response to China’s export quotas that have made the metals less economic.


China made waves in 2010 when it imposed export quotas on all rare earth elements (“REEs”), of which the country holds a near monopoly through producing more than 95% of the world’s supply. The announcement sent shockwaves through the manufacturing sector, while capital rushed to non-Chinese companies that had REEs as a primary focus. Aside from MolyCorp (NYSE:MCP) and Lynas Corp (OTC:LYSCF), which have looked to be the most likely candidates to win the race to supply REEs to the marketplace in the wake of a Chinese chokehold, it doesn’t appear that a solution would be coming soon for manufacturers beholden to China’s whims.

This is why the move by Toyota is interesting, as it is proactive instead of reactive, and represents a move forward in innovation that should make other manufacturers take notice. With Japan as a nation representing a third of global rare earth demand, having Toyota emerge as a leader in a fight to cut consumption helps dissolve the optics of Japan’s helplessness pertaining to the REE issue. And this hybrid solution doesn’t look like it’ll have to wait long either, as Japan’s Kyodo News reports that Toyota’s technology could hit the market in two years if the price of rare earths doesn’t subside.

There’s a saying in Japan that, "Oil is the blood of industry, steel is the bread of industry and rare earths are the vitamins of industry." From an investor’s point of view, the announcement does impact the timing available to potential REE producers, as grass roots REE exploration may need to be sped up to meet the demand in time. The window of opportunity is small, but possibly quite lucrative for the winner of the race to provide manufacturers with the supply they need.

While the USA’s MolyCorp and Australia’s Lynas each appear to be the heir apparent to the REE crown, should China officially close its doors, several other companies based in Canada also are looking to be a part of the solution. Avalon Rare Metals (TSX:AVL) (AMEX:AVL) and its Thor Lake Project appear to be ahead of the curve,

with the NWT property grabbing attention with its wealth of heavy rare earth elements boasting inferred mineral resources of 226.88 million tonnes averaging 1.30% TREO with 14.33% HREO/TREO.

Another Canadian entity worth looking at is Medallion Resources (TSX-V:MDL), which in comparison to the others listed in this article comes at a much lower entry price. Medallion’s approach is refreshing, having opted to not go the typical exploration route, instead going for a monazite processing strategy that utilizes historically successful metallurgy to retain rare earth elements from the tailings and discard piles of other miners. Medallion is looking to derive REEs from monazite, which occurs in mineral sands around the world, and is most often associated with titanium and zircon mining. By sourcing monazite supplies, which contain 60% REEs, from these same producers, Medallion seeks to offer a cost-effective waste disposal alternative for mining operations and to obtain REEs at pennies on the dollar.

The market for REEs has fluctuated since China launched this race for REE supplies among competitors outside its borders. Whether or not other manufacturers will take the route Toyota has chosen by innovating their way out of a supply problem is still unknown. But, the fact is that no one seems to be standing pat and letting China dictate how the future of electronics and their REE supplies will play out.

G. Joel Chury
Editor in Chief
VantageWire.com

Disclaimer: No information in this article should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. VantageWire makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the VantageWire only and are subject to change without notice. VantageWire assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this article and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. The author of this article does not currently own shares of any of the companies mentioned in this article. Furthermore, VantageWire assumes no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this article.

G. Joel Chury

G. Joel Chury is a veteran investment columnist for Resource World Magazine and the Editor in Chief of VantageWire.com. His knowledge of both the mining and oil and gas sectors along with his ability to sift through TSX.V data and press releases makes him one of the best up-and-coming newsletter writers on the web.

With a diverse background that includes investor relations writing and consulting for publicly-held companies and previous field work as a surface land agent for oil and gas companies, Mr. Chury seamlessly translates technical results geared towards engineers and geologists into a more readable language that’s palatable for investors on the go. As well, Mr. Chury is an avowed silver bug, always willing to join the debate on where the precious metals market is heading.


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