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Message: Molycorp Moving to Boost Light Rare Earth Production

In a move to assert more control over its Rare Earth (RE) resources, China is limiting Rare Earth (RE) exports. Now, major RE end users like Japan are increasingly looking beyond China – to places like India and Vietnam – to ensure an adequate supply.

Rare Earths companies are rushing to fill this potential gap. But because of the treacherous regulatory landscape around RE mining and the tremendous challenges associated with processing rare earths, most of these companies are a long way off from getting their first Rare Earths out of the ground, let alone ready for the assembly line.

One of the biggest RE companies, Australian based Lynas Corporation, has said worldwide demand will outstrip supply by as soon 2014. And it’s pegged the amount at 20,000 tons per year.

Big difference between Lights and Heavies

This potential shortfall has prompted a major RE player in the U.S. to announce that they are boosting their Rare Earth output. Molycorp Inc. plans to double the production capacity at its Mountain Pass processing facility to 40,000 tons of Rare Earth Elements (REEs) per year. As it happens, that 20,000 tons per annum increase is the same number that Lynas is predicting as a shortfall.

This news could impact prices, as well as the potential profitability of some companies scrambling to get into the RE race. But to find out which companies might be affected, Rare Earth investors need to consider the critical difference between companies producing Light Rare Earth Elements (LREEs) and Heavy Rare Earth Elements (HREEs).

Molycorp “Lightening” up Rare Earth Supply

99.44 % of Molycorp’s Rare Earth reserves are Light Rare Earth Oxides. That leaves less than 1% of the Heavy Rare Earth Oxide (HREO) variety.

Molycorp’s Mountain Pass mine and the Lynas mine at Mount Weld in Western Australia are the only two outside of China scheduled to go into production in the next two years. And almost all of Lynas’s Rare Earth Oxides – like Molycorp’s – will be of the light variety. Only 3.46 % are HREOs.

It is the LREE market, therefore, where Molycorp’s move to double production capacity will be mostly felt. Some analysts have pointed out that the looming 2014 shortage won’t be in LREE’s – but in the more valuable Heavy Rare Earths like Europium, Dysprosium, Terbium and Yttrium. As Jon Christian Evensen of The Strategist Newsletter says, “With so many junior miners targeting a 2015 or 2016 start date, it does not suggest a very promising economic picture if heavy rare earths are not the primary component of the deposit.”

HREE producers will have an edge

It is clear then, that companies specializing in the mining and processing of HREEs should have a leg up in the race to get their Rare Earths to market. RE players – like Quest Uranium Corp., Alkane Resources Ltd. and Avalon Rare Metals Inc. — have mines with relatively high HREO potential. However, with its recently announced purchase of an REE processing facility in the former Soviet Union and its 100% ownership of an open pit mine that historically produced 50% HREEs and 50% LREEs, another strong consideration is Stans Energy Corp. Stans Energy is currently the only company outside of China focusing primarily on HREEs and it is well positioned to take advantage of the supply and demand equation in coming years.

One old investor trying to make sense of the difference between Light and Heavy Rare Earths came to the conclusion that Light Rare Earths are like Silver and the Heavy Rare Earths are like Gold. There is a big difference between the two in terms of value and demand.

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