Tuesday, April 26, 2011

Rare Replacement

Investors have learned that despite all the whoopla surrounding rare earth elements, there is nothing rare about them at all.  What are rarified, however, are quality substitutes, which is one of the reasons prices for rare earth supplies have skyrocketed. 

The sixteen elements that are considered rare earths are not even accorded a proper berth on the periodic table of elements.  Nonetheless chemists and scientists have found a number of uses broadly falling into two categories:  1) technology process enables such as catalysts and glass polishers and 2) technology building blocks such as magnets and battery alloys.

One of those building blocks  -  magnets  -  represent over a quarter of the demand for rare earth, mostly neodymium or Nd.  In a fluke move during an experiment in his university lab, Dr. George Hadjipanayis created a magnet more powerful than had ever been known.  Hadjipanayis was not satisfied with the combination of Nd and iron (Fe), so he directed an assistant to add boron (B) to the mix.  His Nd and Fe mix kept crumbling so the thought the adhesive properties of B would help keep it together, much like a beaten egg helps keep flour and sugar together for a cake.  Some cake!  The combination sent measuring instruments off their scales.

The result of the Nd-Fe-B combination was the most powerful magnetic property yet known.  Rare earth magnets have magnetic power in the range of 50 to 60.  Compare this to your bulletin board magnet with power around 3 to 4.  Human hands cannot pull rare earth magnets apart if they accidentally get smacked together.

Now a professor of physics at the University of Delaware, Dr. Hadjipanayis is leading one of about three hundred different projects trying to develop as powerful a magnet without the rare earth component.  The U.S. Department of Energy gave the University $4.4 million to support the research.  It is clear even the expert in the field is a long way from replacing Nd in the production of powerful magnets.  One strategy that may be a short-term solution is the use of nanoparticle technology that greatly reduces the amount of the Nd element required.

In the meantime, escalating prices for rare earth elements and continue noise from China about export restrictions, is drawing more players to rare earth mining.  In addition to leader Molycorp (MCP:  NYSE) and Avalon Rare Metals, Inc. (AVL:  NYSE AMEX), there are at least ten other public companies in the rare earth space.  We are adding all ten to The Mothers of Invention Index in the Materials Group.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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