Rare earths prices to dip, but not shares - Dahlman Rose

TORONTO (miningweekly.com) – Analysts at Dahlman Rose & Co. believe prices for rare-earth elements like cerium could shrink by up to 80% over the medium term, but that shares in companies set to produce them are undervalued, he said on Tuesday.

“From a fundamental standpoint, we continue to see medium-term upside potential in the shares as we believe that the equities are building in a dramatically lower level of rare earth pricing,” Anthony Young and Anthony Rizzuto said in a note.

However, they added that there may be some “headwinds” for stocks while prices for rare-earth elements settle.

According to the analysts, prices for the elements reported by Asian Metal and Metal Pages have started to move apart, with the former reporting that prices have subsided by as much as 25% for some rare earths.

Dahlman Rose predicted that Metal Page’s prices would likely move lower in sympathy.

“In our valuation analysis we forecast that rare earth prices will move somewhat lower over the medium term,” Young and Rizzuto wrote.

Earlier this year, Goldman Sachs controversially forecast a supply glut for light rare earths including cerium and lanthanum by 2013, as companies start projects in Australia and the US.

Currently, China accounts for about 95% of global rare earths output, and the country has been cutting back on production and export quotas, leading to a shortage and surging prices.

“Over the long term we believe a decrease in price may be a healthy development for the industry, setting the stage for longer, more stable demand growth,” said the Dahlman Rose analysts.

In other rare earths news on Tuesday, Dacha Strategic Metals, which buys and stockpiles rare earths, betting that it will be able to sell them at higher prices in the future, reported a profit of $23.6-million for the year ended March, after having clocked up a loss the previous year.

“We have seen remarkable gains in our inventory based on significant price appreciation of our underlying metal inventory,” said CEO Scott Moore.

Rare earths are used in a wide range of modern technologies, from smart phones to hybrid cars and advanced missiles.