from sovereign investor

Posted to Stockhouse

In portfolio news, we start with a story of ignorance. Investors last week pounded rare-earth miners because of a J.P. Morgan research report quoting a couple of news stories noting that China will keep the 2012 rare-earth export quota in line with 2011. So, because China is not shrinking the supply of metals that are already damn near impossible to come by outside of the Middle Kingdom, investors whacked shares of Lynas Corp., our Aussie rare-earth miner. The fear is that a non-reduction in supply means weak prices going forward. As we said, ignorant … short-sighted … stupid … pick your adjective.

China continues to control 95% of the rare-earth supply, and it has been restricting exports since at least 2005 because the country is amassing stockpiles of what it considers a strategic resource. Given that rare earths go into everything from cell phones to iPads to electric cars and smart bombs, countries and companies outside of China are desperate to lock in supply that is not tied to China’s whims. Lynas expects to begin producing rare-earth metals in 2012 (and already has huge supply contracts in place with companies in Japan and elsewhere) and it will be one of only two companies doing so until at least 2014 or 2015. Rare-earth prices fell off in the last half of 2011 as the speculative froth finally came out of the market. But industrial demand remains just as strong as ever. Dear readers, the market is giving us a buying opportunity. Use it. Lynas, traded in Australia under the symbol LYC, is a buy up to A$1.50 (US$1.51)