A Rare-Earth Rush in Green Technology

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"The race for supremacy in green technology turns on key elements"

It was an investor frenzy that truly came out of nowhere. In 2009, the hottest commodities around were lithium and rare-earth metals, which were completely off the radar until that point. Even now, many investors could probably not pronounce rare-earth elements such as dysprosium and neodymium in which they have eagerly placed their money.

Lithium and rare earths got hot because of one simple fact: the emergence of new green technologies that require these metals in order to function, and specifically hybrid cars when it comes to lithium. There are no substitutes for these commodities, and investors quickly realized that the markets could become more constrained than they realized.

The result was staggering share price gains for any company involved in these spaces in 2009. For a while last summer, it looked like investors did not want to own anything else.

Of course, the frenzy eventually cooled off. And now the question is whether it was a one-time event or the start of a prolonged boom.

Experts in the industry claim it is definitely the latter, even though there are no supply shortages to speak of right now.

"For lithium, the investor frenzy cooled off a little bit, but the corporate frenzy hasn't changed at all," says Jon Hykawy, an analyst at Byron Capital Markets.

He pointed out that auto-makers, which are worried about securing supply of lithium, continue to invest in new projects. Toyota Motor Corp. recently teamed up with Australia's Orocobre Ltd. to develop a lithium project. In Canada, auto parts company Magna International Inc. invested in a little exploration company called Lithium Americas Corp.

Likewise, the exploration companies are working faster than ever.

"It's starting to get stupid. It's hard to find drill rigs for reasonable amounts of money in Argentina," Mr. Hykawy says. "And we're not talking complicated drilling. It's a few hundred meters."

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