truth about why rare earth stocks are surging

http://finance.yahoo.com/tech-ticker/article/535550/Heres-The-Truth-About-The-Rare-Earth-Stocks-That-Are-Surging-Right-Now

Provided by The Business Insider, October 28, 2010:

The rising global demand for rare earth metals - the elements needed to make items like hybrid electric cars and laptop batteries - have caused the value of rare earths mining companies to soar in just a few months.

We've told you about one company, Rare Element Resources, that saw its stock surge 1200% in the last year.

But China's outright monopoly in the industry, along with fears that it will cut down on its rare earth exports, are driving plenty of other stocks higher too.

But some of these companies have not even generated any revenue yet or lack the adequate facilities to even mine rare earths.

So what's the reality? A lot of these stocks are rising right now based on a narrative. That narrative is as follows:

* China, which controls the rare earths market, decides to export less.
* Demand continues to rise globally for the good at the same time.
* Hey, we have this land! With rare earths in it! And we're gonna mine it.
* But it's not open just yet, you have to trust us, it's going to be great.

So, there are clear macro problems with this thesis.

* China doesn't cut off supply, and many of these mines can't break even on their mine investments because prices don't go high enough.
* Demand declines due to a global slowdown.
* There's rare earths all around the world, and if production ramps up quickly, prices could easily collapse, just like it has before.

Many companies also have serious problems on a micro level. So if you believe in the thesis, you may want to look deeper at each company and see what the truth about their mines looks like.