lelde smits interviews james dines

James Dines Pt 1: Rare earths forecast October 11, 2011 12:50 PM


Lelde Smits from Finance News Network speaks with US investment analyst and commentator, James Dines, at the RIU Melbourne Resources Round-up conference.

Lelde Smits: Hello, I’m Lelde Smits reporting for the Finance News Network. Joining me to talk about the bull market in rare earths is legendary US market commentator, James Dines.
Mr Dines welcome to FNN and Australia. You’ve called a bull market in gold and commodities for the last decade with rare earths your most recent pick. What is it about rare earths that excites you as an investment?

James Dines: Rare earths are the elements of the future. There are 17 of them on the Periodic Table of Elements and these are quintessential for the use in cell phones, electric cars, wind turbines, cruise missiles. Without rare earths a modern economy would not be able to function, they’re crucial. China controls 97 per cent of the world’s production of it and they’ve got a virtual monopoly on it. And I’ve been urging other countries not to give up and not to sell them, because they are an irreplaceable asset and they will be very, very important in the future.

Lelde Smits: OK, so rare earths prices really took off last year and have continued their upward momentum due to demand for plasma televisions, smart phones, energy-saving light bulbs, to name but a few of their uses. Given demand by consumers for these products is increasing, how long potentially do you see prices rising?

James Dines: I think in the next few years, there’s going to be ups and downs as with any new technology. And furthermore, all stocks are vulnerable to the overall market by mass psychology. In a general bear market things will all move down because – and the reason for that is, people tend to sell the stocks that remain high. So nobody is spared in a bear market.
However, I would say that until additional production comes on-stream, possibly five to 10 years from now, we’re going to have a huge growth spurt here in the next few years, by whatever remains outside China.

Lelde Smits: Thank you Mr Dines. Now to substitutes for rare earths, is there a risk here?

James Dines: There is no substitute for them. These are magnets and they’re very strong magnets, and they’re natural magnets. And if you want a small cell phone instead of one that weighs a great deal more, you need a very tiny magnet. Anything that requires a motor, whether it’s a car or a missile, or anything that involves a magnet or an engine is going to have to have a magnet. And yes, you could have a large magnet but it changes the size of things. So no, there is no substitute for them but anybody knows and they’ve been trying to find one for a long time.

Lelde Smits: Certainly. So Mr Dines how do you prefer to invest in this space, via equities given that rare earths do not have the same liquidity as commodities?

James Dines: You can’t really buy the commodity because that’s what’s in such rare – such a rarity that the demand would overwhelm it. They’ve already gone way up. So the only realistic way to buy into them is to buy the stocks, there’s enough liquidity to buy them. I mean if you’re a huge fund, you’d have trouble acquiring them at this price. But they have come down with the rest of the market here in the last few weeks and I’m expecting someone to come out of the woodwork, and just buy the entire company. And that’s what I think you’re going to see some M&A, merger and acquisition activity.

Lelde Smits: So still on equities, what are some of your picks within the segment?

James Dines: I can’t give all of them because that’s for my paying subscribers, but I will say that one of them is – I’ll give you one that’s actually based in Australia and that’s Tasman (Tasman Metals Limited, CVE:TSM). And their mines are in Sweden and also Finland, but that’s a very good one. But we have eight of them on our recommended list and that’s just one of them.
That’s what I would be buying now, they’re cheap, the market caps are under $200 million which is peanuts for China with their $3 trillion in assets. So I think someone is going to come out of the woodwork and buy them.

Lelde Smits: OK so Mr Dines, if we could now look at Lynas Corporation Limited (ASX:LYC). It’s our best known rare earths company developing a project at Mt. Weld in Western Australia, with a processing plant in Malaysia. What’s your view on the stock after a volatile couple of months in the market, where the stocks actually halved before bouncing back 50 per cent in the last week?

James Dines: The smart way to buy rare earths in any new mining area is to buy a group of them, because you never know what’s going to happen. Lynas has its problems in Malaysia with their new plant and without going into details, but you never know which one is going to be the leader. I like Lynas as one of them because first of all, it’s in Australia and the production of these things are toxic, so there’re serious environmental problems with them. And it’s hard to say which one is going to be the first to production to begin to match China’s output.
But I like Lynas as part of the group of stocks I recommend, you’ve really wormed two out of me – so, but it’s a good one and I think that it should be included in a rare earths portfolio.

Lelde Smits: Certainly, so looking at the volatility in the markets as well. Do you think this is something investors in rare earth stocks need to get used to?

James Dines: I think there’ll be volatility in everything as the world begins to come to terms with what’s going on in the world. Right now the world is gagging on debt and this is now a debt liquidating depression, and part of that is the result of over printing of paper money. The problem with the world today, is they print more paper money than actual wealth being created by labour. And that extra amount of paper chasing the same goods and services results in inflation, like the law of supply and demand, and that is the problem. You have all the surplus paper out there and they’re trying to solve that problem by printing even more, which to me is economic masturbation - its lunacy.
What they need to do is to first of all stop printing and then try to get a currency with integrity, and not printing more unless it’s linked to an asset. It could be oil or gold or silver traditionally, but there must be a reality to the money. Personally I would like to see the Government lose its monopoly and let everybody compete on it, in a Darwinian way.

Lelde Smits: OK so finally Mr Dines, investors are looking for safety. From what you’ve said it sounds like rare earths, despite the short term volatility, look like a pretty safe bet. What percentage of peoples’ portfolios would you recommend allocating to rare earths, given the demand and supply outlook for the next decade or more?

James Dines: Now that’s hard to say because everybody’s different and their purposes are different, and their risk tolerance is different. I think that people should be conservative about buying mining stocks generally and I think that for a lot of people, it’s not suitable. But if they want to put a small amount into something with a huge amount of potential, with the potential risk – but I think you’re buying wealth in the ground, and I don’t know what could happen with that. I mean if you’re buying any one company, it could get into trouble. But if you’re buying a group of them, it would seem to me that it’s a pretty good idea, at least take some kind of position in them for growth.