How to invest in rare earths stocks

China currently produces 99 percent of the world’s rare earths supply. It seems Beijing has realized it can exploit that control, too, by cracking down on illegal rare earths mining within the country and limiting exports abroad. On Tuesday, China’s commerce ministry…

China’s growing stranglehold on the production of commodities and metals like coal, iron ore, tungsten, antimony and tin give the Chinese government more control over foreign businesses than we might like to admit. And yet, it’s China’s control over heavy rare earth materials that really makes me nervous.

Consider this: China currently produces 99 percent of the world’s rare earths supply. It seems Beijing has realized it can exploit that control, too, by cracking down on illegal rare earths mining within the country and limiting exports abroad. On Tuesday, China’s commerce ministry announced its export quotas for rare earth metals will drop by 35 percent during the first six months of 2011.

Why does that matter? Because heavy rare earths are vital in the production or operation of high-tech goodies like iPhones, Blackberries, wind turbines and nuclear power plants.

Shares in rare earth stocks rocketed up on the news. Want to get in on the action? Here’s a short list of rare earths stocks:

  • Molycorp, Inc. (NYSE:MCP); +394 percent YTD
  • Rare Element Resources Ltd. (CVE:RES); +263 percent YTD
  • Neo Material Technologies Inc. (TSE:NEM); +68 percent YTD
  • Lynas Corporation Limited (ASX:LYC); +255 percent YTD
  • Medallion Resources Ltd. (CVE:MDL); +157 percent YTD
  • Ultra Uranium Corp. (CVE:ULU); +54 percent YTD
  • Fieldex Exploration Inc. (CVE:FLX); -15 percent YTD

Not interested in picking individual rare earths stocks? There’s at least one rare earths ETF that will help you diversify in the sector: the Market Vectors Rare Earth/Strategic Metals ETF (NYSE:REMX). The relatively new ETF launched in October and has risen 22 percent since then with a big chunk of the gains coming on Tuesday’s export news out of China. The ETF was up 7 percent yesterday.

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Tocqueville Gold Fund (TGLDX) moves higher on Morningstar’s list of top-performing mutual funds

The Tocqueville Gold Fund has edged out the PIMCO Real Estate Real Return Strategy A (PETAX) mutual fund for the No. 2 spot on Morningstar’s top mutual fund performers YTD. That puts it behind only the Dynamic Gold and Precious Metals I (DWGOX) mutual fund, another gold-focused fund that’s returned some 50 percent YTD.

The Tocqueville Gold Fund has edged out the PIMCO Real Estate Real Return Strategy A (PETAX) mutual fund for the No. 2 spot on Morningstar’s top mutual fund performers YTD. That puts it behind only the Dynamic Gold and Precious Metals I (DWGOX) mutual fund – another gold-focused fund that’s returned some 50 percent YTD. The Tocqueville Gold Fund has returned just shy of 36 percent YTD, and here’s a look at its Top 10 biggest holdings as of Aug. 31, 2010:

Holding % of Total Assets Ticker
Physical Gold 7.2% n/a
Osisko Mining Corporation 6.2% TSE:OSK
Randgold Resources Limited – ADR. 4.5% NASDAQ:GOLD
Ivanhoe Mines Ltd. 4.4% NYSE:IVN
Eldorado Gold Corp (pvt) 4.1% NYSE:EGO
Andean Resources 4.0% TSE:AND
IAMGOLD Corporation 3.8% NYSE:IAG
Silver Wheaton Corp (pvt) 3.6% NYSE:SLW
Newmont Mining Corporation 3.5% NYSE:NEM
Goldcorp, Inc. 2.9% NYSE:GG

Compare their holdings with Dynamic Gold and Precious Metals I (DWGOX) mutual fund, and you’ll see Tocqueville Gold Fund’s more conservative – although there are quite a few overlaps. Namely, both funds count the following stocks in their Top 10 holdings:

  • Osisko Mining Corporation (TSE:OSK)
  • Eldorado Gold Corp (NYSE:EGO)
  • Andean Resources (TSE:AND)

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