(By Alexander Crawford. List compiled by Eben Esterhuizen, CFA. Data sourced from Finviz.)
Rare earth metals, mostly used in the automotive industry for permanent magnets, have taken a big hit lately. Bloomberg’s Rare Earth Mineral Resources Index has fallen 41% in the last three months, as companies like Toyota are announcing ways they’re engineering away from the costly metals.
Analyst at Hallgarten & Co. Christopher Ecclestone forecasts that cerium and lanthanum, the most abundant rare-earth elements, will fall 50% in price over the next year, while neodymium and praseodymium (the permanent magnet elements) will fall up to 15%, according to Bloomberg.
The latest decline follows a five-month, fourfold increase in the average price for eight of the most widely used rare-earth oxides, hitting a top of $62,068 in July. Over 90% of rare earth metals are sourced from China.
Because of the rising prices, automakers have been developing alternative solutions. Some Toyota vehicles will be built with induction motors, which do not use rare-earth magnets. GM also plans to sell the Chevrolet Malibu Eco using an induction motor, according to Bloomberg.
“The magnets are like God’s gift to electric motors,” Pete Savagian, GM’s chief engineer for electric motors, said in a telephone interview with Bloomberg. “But we don’t always need that level of magnet. Even at prices we saw three and four years ago, there’s a more economic alternative, albeit at slightly less efficient outcome.”
To help you invest with this idea, we compiled a list of five rare-earth stocks. Do you think these stocks will weather the substitute competition?
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1. Molycorp, Inc. (MCP): Market cap of $2.96B. Current price at $33.84. It is headquartered in Colorado. It mines rare earth minerals, which it then turns into oxides, alloys, metals, and magnets. It is one of the few vertically integrated rare earth metal producers.
2. Avalon Rare Metals Inc. (AVL): Market cap of $312.99M. Current price at $2.83. It is a Canadian mineral exploration and development company with a primary focus on the rare metals and minerals, headquartered in Toronto. Avalon's primary asset is the 100% owned, advanced development stage project, Nechalacho Rare Earth Element Deposit located in the Northwest Territories, Canada.
3. Rare Element Resources Ltd. (REE): Market cap of $261.9M. Current price at $5.70. It owns and operates the Bear Lodge mining facility in Wyoming, which contains one of the largest disseminated rare-earth deposits in North America as well as extensive gold occurrences.
4. Quest Rare Minerals Ltd Common (QRM): Market cap of $151.53M. Current price at $2.34. It is a Canadian-based, exploration company focused on the identification and discovery of new world-class Rare Earth deposit opportunities. Most of their projects are located in the Newfoundland and Labrador regions of Canada.
5. Polymet Mining Corp. (PLM): Market cap of $196.49M. Current price at $1.17. It is a Canadian mining company that owns and operates mines in the Duluth Complex in Minnesota. Its deposit, the second-largest deposit within the large Duluth Complex, represents nearly 25% of the known mineral resources in the area.