While they’re still four years from actual production, Avalon Rare Metals Inc. (AMEX:AVL) has enough metal in the ground to warrant a serious look. The company’s market cap has catapulted 70 percent higher to $678 million after shares moved off the OTC market and onto the AMEX on Dec. 27. Here are three reasons to consider buying shares in Avalon even with the stock’s recent gains:

1) Rare earths outlook. China’s thirst for rare earth metals has tossed the sector into chaos. China supplied 95 percent of the world’s rare earth’s supply last year, and early this year, the country announced it would forcibly trim exports by 35 percent during the first half of 2011 while simultaneously raising tariffs on the metals. China’s so concerned with future supplies of rare earths that its silently moved to create its own rare earth strategic reserves, per a report from the Wall Street Journal. That’s catapulted shares in rare earth mining stocks higher with Avalon up more than 70 percent in a month and a half.

2) Bargain basement rates per ton. In an excellent piece at SeekingAlpha.com, contributor Michael Filloon compares Avalon’s Total Rare Earth Oxides (TREOs) holdings to its peers on a price-per-ton basis. “Avalon (AVL) has a market cap of 633 million; it has 4.298 million tons of TREO, which values their rare earth oxide at $147 per tonne,” Filloon writes. “Arafura (ARAFF.PK) had a market cap of $390 million; it has .84 ton of TREO, which values their rare earth oxide at $464 per ton. Quest Rare Minerals (QSURD.PK) has a market cap of 281 million; it has 551 million tons of TREO, which values their rare earth oxide at $511 per ton.” Filloon’s list keeps going all the way up to Molycorp, Inc. (NYSE:MCP), which has a rare earth oxide valuation at $3,025 per ton. Filloon’s quick to point out, though, that Molycorp’s far closer to production than Avalon.

3) Possible takeover target. Avalon’s Nechalacho Rare Earth Element Deposit in Canada’s Northwest Territories is chock full of heavy rare earths – among the rarest elements in the rare earths category. Demand for heavy rare earths is expected to surge in coming years, and it makes sense that a company like Molycorp – which has an abundant source of light rare earth elements at its Mountain Pass, Calif. mine – might be looking to diversify its rare earths portfolio. “Who knows,” writes Wyatt Investment Research, “as Molycorp becomes more cash-rich and in a position to make acquisitions, Avalon might show up on that company’s short list of targets.”

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