Fishing for Rares

I opened a position in $HAL the other day with a target of $50-$51. This is while knowing that I’ve left myself somewhat exposed to margin hikes by the CME. Apparently if you continue to hike margins to infinity, the Clam can fight inflation and continue to print money….not (well not the continue to print money thing).

Rare Earths:

I’ll start by saying I have no intention of buying any of these companies except Neo Materials (on a confirmed breakout), but these are my opinions on the sector – one that I am long-term extremely bullish on. I’m seeking and entry point into $AVL.

Some of the earnings I mentioned in my last post had strong reactions, mostly downwards as expected. There is no question the Rare Earth Metal supply/processing/demand chain has been disrupted by everything Japan. Today we saw Molycorp $MCP trade down over 7% during the day, released earnings after hours and disappointed, leading to another near 6% loss in the after market. Their guidance for the prices and demand for rare earths are still bullish, but if you take one glance at the weekly chart of Molycorp below, you can tell the company is beyond overextended for the year. The real question is where will $MCP pull back too, and how will this affect other rares producers.

The real variable in this sector of basic materials, is how long will the Japanese mills and micro technology/companies like Apple are affected by the tsunami/nuclear disaster. At this point, it is complete speculation. However, inputs that require Rares are still prominent (smart phones to hybrids to medical applications). Furthermore, there is no question as emerging markets continue to develop infrastructure in the utilities/power transmission sector (mainly improving reliability in markets like India) smart phone usage will increase substantially. The long-term supply deficit is still in play. I see this as an opportunity in the future to pickup discount $AVL. An interesting variable coming out of the Canadian election that could benefit $AVL – is the intention of the Conservatives to ratify trade deals with China and India. We also saw the USA make some concessions with China today. I’ve traded Avalon from $4 through the early breakout and $AVL is my favorite miner (maybe some patriotic bias, but their resources are outstanding) – albeit not producing any product yet from their projects.

Another Canadian company that could see some benefit in the wake of the Japan disaster is Neo Material Technologies $ They are a producer, processor and developer of rares, both for magnets (neodymium-iron-boron), but zirconium (yittrium stabilized zirconia will be in high demand with aging populations requiring transplants of all varieties – including pensions [I kid]) and Rares for you guessed it TVs, chips, touchscreens etc. This could be breaking out today, confirmed tomorrow.


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