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"What do you get
when you put a professor, a fisherman and a creative Wall
Street journalist together?
Answer: science fiction, fishy stories and IPOs trying to sell the latest version of snake oil to unsuspecting investors."
Many years ago, farmers in Pennsylvania noticed a murky liquid seeping up through the soil. It didn't take long for entrepreneurs to find
a use for this oily stuff. It was advertised as a cure for baldness,
impotence and sundry medical
conditions. Little did
the super-salesman of that
time realize that they had come across a vital component of the industrial
revolution. They called it Snake
Oil.
Recently, a professor at the University of Tokyo, spinning a story, announced a latter-day version of the discovery of the lost continent
of Atlantis. Brought up from
the briny depths of King
Neptune were stories of huge
deposits of rare earth elements (REEs) located 20 fathoms beneath the sea. You might as well chalk this one up to tales
about Rhinemaidens, leprechauns
and sunken pirate treasures.
Truth be told, the professor's article may have value for readers of science fiction. You might find a pot of gold at the end
of Finian's Rainbow more quickly than you can bring
up REEs from Davy Jones Locker. The search costs would be
prohibitive. You would be
well advised to file this story into the bin labeled Myths and Fairy Tales.
Now back to reality. Mitsubishi has joined the growing ranks of Lynas Corp. (ASX:LYC)
investors. The company
recently disclosed the purchase of a 10% stake accumulated between the dates
of May 24 and June 7 at
the cost of approximately
AUD$325 million. In the face of the Malaysian
brouhaha and the World Trade Organization (WTO) ruling against China, Mitsubishi's buy and Siemen's recent joint venture is a bold vote of confidence that Lynas is here
to stay and that REE resources must be produced outside China.
The WTO may take a long
time in the execution of its
decision as the matter falls into the delaying hands of lawyers, appeals and politicians. However, experienced market players have been through news-driven developments on other
occasions. Stocks can be drawn and quartered by media
stories that can exacerbate day-to-day events and cause short-term fluctuations only to be forgotten the next day. With
Lynas, we are witnessing a classic
example of how panic can
influence hasty and erroneous
conclusions. It is important to play
our cards close to the vest.
In assessing the barrage of stories flooding the news, we are deluged with often-conflicting items. One story purports
that the Malaysian Prime Minister is requiring
Lynas to institute several corrective procedures before moving forward there. Lynas responded that it would
get the work done within the targeted end of 2011 timeframe.
Stories and opinions from anonymous
sources hinting at further delays could be planted
to confuse the lay retail
investor. Possible short sellers
are driving skeptical
stories in order to turn
a profit. Gold Stock Trades takes anonymous sources and fishy stories with a grain of salt.
Articles in the press, namely
The Wall Street Journal, have highlighted
the possibility that we may be
witnessing a bubble in the rare earths. They cite a preponderance of
short sellers hovering as
vultures in the skies over the sector.
Moreover, there may be the presence
of a fine Chinese hand at
work. After all, it is to Beijing's
benefit to throw as many monkey wrenches
as possible into the grist
for the Malaysian mill.
Where does this leave investors?
At this moment (and I
stress moment), we take a long-range view. Gold Stock
Trades is convinced that the REE arena will reemerge
as a source of profit once this particular
black swan is overcome. We maintain a cool hand in what is a developing
story.
Not all the cards are in the hands of the Malaysian bureaucracy and the
Green Party. Many interests
are looking forward to Lynas providing REEs, particularly Japan and its highly technologically dependent industries. Lynas may well have other moves that it can make.
Is it too fantastically far-fetched to think it could
dump Malaysia and move to another venue closer and more economical to its Australian base? Think Papua or Borneo. After all, Sumitomo Corp. of Japan
has bankrolled Lynas thus far. This is only a matter
of conjecture at this
point and Lynas will make every attempt
to satisfy whatever
corrective measures are necessary
to develop the Malaysian project. One way or another, these critical ores will be refined to satisfy the survival, not only of Japan but advanced industrial interests elsewhere.
At this point, what may be
impediments on the Lynas
road to production may actually
accrue to the benefit of other
REE recommendations on our
select list. These companies are undervalued and just emerging. They have resisted falling below long-term trendlines and are now testing overhead
resistance areas. The survival
of Japan's modern industrial
base is at stake. It is full speed ahead for large, corporate investors who stand undeterred in their growing position of the stock.
The Lynas stock chart reveals the penetration of the
50- and 200-day moving average
to the upside. This strength
continues in the face of bad press,
negative news and announced
government hurdles. Technically, this reveals that the stock has passed from weak
to strong hands. Additionally,
a very significant development has occurred with another one of my recommendations. Tasman Metals
Ltd.'s (TSX.V:TSM; OTCPK:TASXF; Fkft:T61)
Norra Karr Project has been declared
a National Interest by the Swedish
Government. This classification is
crucial because it guards Norra Karr from any land use issues that may occur
in the future. The importance of this development is best expressed in the following words issued by the government: "REEs are of great importance in modern society and access to these elements is very
limited within Europe.
The Swedish Geological
Survey is therefore of
the opinion that assets such as these should be accessible to future generations. Norra Karr is a very important project from a material supply point of view, both for Sweden as well as for Europe.
The mineral resource at Norra Kärr
is the only NI 43-101 compliant REE resource in mainland Europe."
Tasman's Norra Karr project is located
near the capital of Stockholm. The site has great infrastructure, which allows year-around access. This is no Wall Street
house hyping a stock. It bears
the official seal of the Swedish
Government. Attention must be
paid.
 
Tasman
has found support at the
200-day moving average
and maintains its long-term uptrend. The company did not violate March lows in its most recent
selloff since May. Tasman
has been stuck in a range between
$3.50 and $6.00. In May, the commodity selloff brought Tasman down along with it
extending the consolidation. Now
it is forming
a six-month base and did not break down technically
in early June. Tasman is forming a W consolidation
and I expect a breakout into new highs by Autumn of 2011.
Similarly, Ucore Rare Metals Inc. (TSX.V:UCU;
OTCQX:UURAF) is in a kindred situation. The governor of Alaska is on record
advocating fast-track development of this company. Ucore's Bokan Deposit is the only heavy
REE (HREE) mine on American soil. It has based and reversed in the
$0.60-$0.65 area for many months,
making a major move. I would
not be surprised if Molycorp Inc. (NYSE:MCP), which
is not exposed to HREEs, gets interested
in Ucore's assets before it is
too late. For the past six months, Gold Stock Trades has been highlighting
Ucore as a takeover target by such entities as Molycorp. Such majors stand to profit from
the inclusion of HREE Ucore's dominance. The possibility of Ucore being taken over by resource-hungry majors is gaining increasing
attention from brokerage houses and institutional interests. The National Strategic
and Critical Minerals
Policy Act is now moving through
both the Senate and House
of Representatives. It enjoys
bipartisan sponsorship at
the highest levels because of the importance of fast-tracking
domestic production of vital metals
for national interest including
Ucore's Bokan Mountain HREE deposit. That is not Snake Oil; that is
real opportunity.
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