Commodities & Metals

Commodities Watch: Deep-sea Rare Earth Mining Likely a Long Ways Off (MCP, AVL, REE, SHZ, REMX)

The announcement that Japanese scientists have found high concentrations of rare earth minerals on the Pacific Ocean sea bed could be far less than meets the eye. The report estimates that the total amount of rare earth elements in the oceans may equal or exceed the amount available on land. The following map indicates the locations of newly found deposits.  But shore-bound producers like Molycorp, Inc. (NYSE: MCP), Avalon Rare Metals, Inc. (AMEX: AVL), Rare Element Resources, Ltd. (AMEX: REE), and China Shen Zhou Mining & Resources, Inc. (AMEX: SHZ) probably don’t have a lot to worry about yet.

The possibility that these newly discovered deposits will make any difference in the supply of rare earth elements in the near future is so remote as to be nearly invisible. The deep-see deposits are, mostly, deep. As in 10,000-20,000 feet of water miles from shore. There is no proved technology to extract the minerals and the environmental considerations of digging up the ocean floor have not even been considered yet.

In January a Canadian firm, Nautilus Minerals, won a lease from the government of Papua New Guinea to mine copper, zinc, and gold in the country’s territorial waters at depths of about 5,000 feet. The deposits are located near hydrothermal vents in the ocean floor and mining near the vents could destroy both the vents and the environment surrounding them with unknown consequences.

While the Japanese discovery is interesting the challenges, that face deepwater extraction of rare earth — or any other — minerals don’t argue for any sort of near- or mid-term solution to the available supply.

The Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) is up about 0.6% today, to $25.75, within a 52-week range of $19.25-$28.91. Molycorp shares are down about -1%, at $59.22, in a 52-week range of $12.10-$79.16. Avalon shares are down more than -3%, at $6.63, in a 52-week range of $1.88-$10.11, and China Shen Zhou shares are up more than 2%, at $3.40, in a range of $0.60-$10.84.

Paul Ausick

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