From Byron King, a financial newsletter writer re rare earths:

"The Big Picture of Rare Earths and Technology Metals

Rare Earths - They're On the Test

The trip to Washington, earlier this week, was something else entirely. I attended a highly technical conference on rare earths and minerals. I was also a speaker, offering comments from my perspective of covering the mining, energy and energy technology sector. Plus, I did a lot of networking to meet the key players.

You may have seen news, in the past couple of months, about rare earths and related substances that are called "technology metals." There are a lot of issues involving China, of which I'll discuss more below. Basically, rare earths and technology metals are exotic elements that are critical to the future of high tech, clean energy, Big Science and - oh by the way - national defense.

Just the term "rare earths" includes 17 elements buried deep within the periodic table. The list includes elements like terbium, ytterbium, yttrium and more. Some of the strange names are due to their place of discovery, a small island off the coast of Stockholm, Sweden in the late 1700s and early 1800s. (Long story, but not now.)

Back in chemistry class, you may have heard of the "Lanthanide Series" of elements, which includes 15 of the 17 elements.

Also back in chemistry class, somebody doubtless raised their hand and asked the teacher what you needed to know about the Lanthanides. If your chemistry class was like most chemistry classes, the teacher probably said, "Don't worry, they're not on the test."

Well, these guys are on the test now. Why? Because the Chinese control 97% of world output of rare earths, and have tight control over much else as well in the realm of technology metals. Recently the news is that the Chinese have been restricting exports of rare earths, and apparently some other metals. Whoops. That's a problem.

Looming Problem

All of the rare earth elements have one or more excellent atomic properties. These include incomparable chemical, electrical, magnetic and/or optical properties. For example, neodymium (Nd) makes strong magnets even stronger. Europium (Eu) is necessary for television screens to show color images. Lanthanum (La) is useful in high energy-density batteries, as well as being critical in petroleum refining.

Now think about all the rhetoric you've heard about how "we" are going to transition to a high tech/clean tech future of solar panels, windmills, electric cars, smart grid, wired-world. Oh yeah? Problem is, most of these technologies simply WILL NOT WORK without large amounts of rare earths.

That is, the electric cars, wind turbines, solar panels, miniature electronics, smart grid, etc. will not get built in the U.S. (or Canada, Japan, Europe, Australia, etc., for that matter) if industries cannot secure long-term supplies of rare earth minerals. And, oh by the way, that goes double for advanced defense technologies. For example, EVERY missile in the U.S. arsenal uses some quantity of rare earths - every single one!

What's the problem? In the past 15 years or so, the West closed down essentially all of its rare earths refining capability. The entire market (well, 97% of it) was conceded to the Chinese, for a lot of reasons - economic, wages, resource-base, environmental and much more. Now that the West wants to build out a different energy and technology future, the Chinese control critical substances from ore bodies though to final oxides and metals.

It's as if somebody (the West) wants to set up a fancy, Napa Valley-style winery (new, clean, high tech), but doesn't have any grapes (rare earths). This vintner-wannabe will have to buy the grapes from a producer in China. Do you really think that the Chinese will sell the guy the best grapes, and help him create a world-class brand of wine?

The Chinese View

What do the Chinese say? They say that they're just acting rationally. They're closing down unsafe mines and controlling past environmental pollution. They're consolidating the industry, as most other industries consolidate over time.

The Chinese say that they're just encountering natural issues of depletion, from mining their ore bodies over the years. They say that they just don't have "more" rare earths to export, because of natural economic and market forces.

Of course, the Chinese also say that if you move your factory to China, they'll put you on an allocation for rare earths. You'll have enough to operate. That is, you'll have enough raw materials as long as you set up a joint venture with a Chinese firm and share all your technology. Of course.

Can You Invest in This Problem?

You can invest into the rare earths issue. And you might make a lot of money if you can handle a lot of risk. And I mean a LOT of risk!

Right now, there are about 200 distinct rare earths investment "ideas" out there. The promoters will all tell you about their great acreage, their drill program, the core results, the processing research they're doing. There are a lot of great stories - and it's my job to look for and listen to stories.

But are there really 200 sets of great managers in a mining sector (and refining-processing downstream sector) that's been dead as a doornail in the West for two decades? How many of these guys can succeed in a short time, in a tight investment space, with immense capital requirements (many billions!), and with ultra-complex engineering challenges?

Right now, there is NO publicly traded Western company that has a mine, refinery or plant up and running, let alone producing commercial amounts of rare earths for sale as useable end product. All of the publicly traded investment ideas - even the best of them, and some are quite good - are speculative ventures on future output.

Right now, that is, it's all about "What we're going to do" - and it'll be two years at the earliest before they do it. That's a long time to hold your breath as an investor.

Plus - since I'm giving it to you straight - when even a few (a very few, to be sure) of these investment players do get a mine, mill and plant up and running, it'll take years to de-bug things.

That is, there's next to no pool of human talent out there for running these super-complex engineering facilities. By way of example, there's only one university-level program in the U.S. that's even beginning (just this year) to teach rare earths process engineering - Colorado School of Mines, naturally.

So when you read about all the "investment opportunities" in rare earths, you need to keep all of this in mind. How much risk do you want? After all, you can still make great returns off ideas like Schlumberger (SLB: NYSE), and other well-established firms with a business, base, cash flow, dividend yield.

The Energy & Scarcity View

Ok, yes. I do discuss rare earths investments, but I do it in my other newsletter, Energy & Scarcity Investor. ESI is a higher-cost publication, designed for an investor who can tolerate a much higher level of risk. It's for plays that take time to work out. It's filled with prospectors and early-stage developers. If you're interested, you can get the full details here."