“We believe that Molycorp remains a best-in-class rare earth play and expect that as metal prices remain high, the company will generate significant cash flow,” said CIBC analysts in a recent note. “These are all near-term issues for the company. It will also certainly be a challenge to fully integrate all of its new assets over the next year; however, we believe the potential returns that can be realized once everything is fully integrated and scaled up will be enormous.”
Gareth Soloway for InTheMoneyStocks reports that there are three major contributors to the rare earth rally:
- A continued fear over the Chinese monopoly of this sector; Chinese officials have denied accusations of manipulating the run-up in rare earth prices. In response, companies in Australia and North America are ramping up efforts to reduce dependence on China for these metals, and gain market share.
- The future need for these metals is questionable because they are used to create semiconductors and auto parts.
- The haven-like quality of rare earth metals are similar to the role that gold has played during times of market volatility.
Market Vectors Rare Earth/Strategic Metals ETF
Tisha Guerrero contributed to this article.