Rare Earth Metals: Investing With Call Options

| November 23, 2010 | 0 Comments

According to the General Administration of Customs, China’s Rare Earth Elements (REEs) exports dropped 77% in October.

Clearly a 77% drop in exports from a country is a shock to any commodity.  But when you consider China produces 97% of the world’s supply of Rare Earth Elements… this is an atomic bomb sized shock.

You see, Chinese officials just cut their export quotas on REEs.  They want to conserve them for domestic use and ensure Chinese manufacturers have access to supply for years to come.

The result?

REE prices are exploding!  Some have already shot up 600% to 700% in the last six months.

One thing’s for sure… It’s creating a great opportunity to speculate on Rare Earth Element mining operations.

But first, what are Rare Earth Elements?  And more importantly, what are they used for?

There are 17 different REEs.  They have names like Lanthanum, Cerium, Europium, and Promethium.  I know… it sounds like stuff you’d find in a science fiction movie.  But these are real materials.

These elements are critical to many high-tech and green-tech products. Things like flat screen TVs, batteries for hybrid vehicles, catalytic converters, and medical devices.  What’s more, they are also critical to defense systems like missiles, jet engines, and satellites.

It’s REEs role in national defense that has Congressmen like Mike Coffman of Colorado calling China’s domination of the REE market a national security crisis.

The Congressman said, “The Department of Defense is facing a near-term shortage of key ‘rare earth’ materials necessary to support our defense weapon systems, and rare earth magnets are especially critical.”

I’m sure you’ll agree that relying on China for materials critical to our national defense is a bad idea.  And lawmakers do to.  Right now lawmakers are looking at what needs to be done to reduce or eliminate our reliance on Chinese REEs.

Here’s the good news… Despite their name, REEs aren’t all that rare! Some are even more abundant than copper, gold, and platinum.  And amazingly, the US is home to some of the highest concentrations of REEs…

According to a new report from the U.S. Geological Survey (USGS), the US has 13 million metric tons of REE within known deposits in the United States.  That’s 13% of the world’s supply of REEs right here at home.

USGS Director Marcia McNutt said, “Although many of these deposits have yet to be proven, at recent domestic consumption rates of about 10,000 metric tons annually, the U.S. deposits have the potential to meet our needs for years to come.”

In short, the US has REEs in the ground… We’re just not mining them!

However, that wasn’t always the case.  At one point, the US was the main supplier of REEs to the world.  But over the last 25 years, cheap supply of Chinese REEs pushed other mining operations out of business.

Now China is drastically reducing their exports.  And it’s creating an opportunity for US operations to pick up the slack.

As you might imagine, speculation in US REEs mining companies is going crazy!

Here’s the deal.  Right now there are no US companies actively mining REEs.  But there are a couple of companies who own the mining rights to the few areas where mining is economically feasible.

What an opportunity!

How can we profit from it?

When it comes to speculative investments, there’s only one way I like to invest… options!

Buying call options on speculative companies can deliver enormous gains in a hurry!  And it also limits your downside if the speculative bubble bursts.

Subscribers to my Elite Option Trader service know how profitable using options to speculate on REE companies can be.  A few weeks ago they doubled their money in only two days with call options on one of the US Rare Earth Element companies!

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Category: Options Trading

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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