Race for Rare Metals–And China Is Winning!

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". . .one has to draw attention to the ownership structure of these acquisitions and investments."

In what could be a further indication of China's tightening grip on the supply side, the China Non-Ferrous Metals Mining (Group) Co., Ltd. (CNMC) recently acquired a controlling interest in the Australian rare earth project developer Lynas Corporation Ltd. (Lynas). The full transaction, comprising a combination of equity, debt and loan guarantees, is valued at US$366 million and provides a glimpse of what rare metal companies are really worth.

Interestingly, CNMC is not the only government-sponsored rare metals investment company. The Jiangsu Eastern China Non-Ferrous Metals Investment Holding Co. Ltd. (JIH), a unit of East China Exploration & Development Bureau, agreed to acquire a 25% stake in Arafura Resources Ltd., a gold and mineral mining company, for A$24 million, in February 2009. Arafura has a rare earth and phosphate deposit in its Nolans project.

One has to draw attention to the ownership structure of these acquisitions and investments. Both CNMC and JIH are owned by the Chinese government and are established to ensure it has interests in nonferrous metals both at home and abroad.

These investments clearly indicate that China is aggressively securing rare metal deposits around the world. Given China's massive consumption of rare metals, their desire to secure supply sources makes sense. The concern however is their continued acquisition would enable them to control both supply and prices thus leaving the rest of the world at their mercy!

According to the EU, for several years China has applied export restrictions to key raw materials of which China is the leading extractor and exporter. Such restrictions naturally distort competition and increase global prices.

Besides the traditional rare earth metals, other strategic metals such as tantalum are now assuming increasing importance. Tantalum is primarily used in the production of electronics capacitors, which find their way into cell phones, DVD players, personal computers, digital cameras, gaming platforms, LCD monitors and wireless devices. It is currently produced by only a handful of suppliers. As China tightens its grip over rare metals with foreign asset purchases and export restrictions, the investment case for tantalum companies is also expected to gain recognition.

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