China's Stranglehold Makes Ucore Rare Earths a Top Pick

Ucore Rare Metals Inc
We have previously written about Ucore and it has one of our favorite picks for some time.  Today an article was published in www.mining.com that highlights Ucore and Matamec Explorations Inc.  For the largest part, this article mirrors our opinion on the rare earth sector.

Buy When the Price is Low, Sell When the Price is High
We have often commented on how the stock market rarely reflects true value. This is one of those outstanding examples. How the market is mis-valuing a strategic unique resource that is clearly supported by the American government, is beyond me.

Ucore (UCU) is currently trading at $0.52 with a market cap of $78 million. Look at the crazy valuations we have seen between 2007 and 2012 on the following chart.

January 2007 $1.72 high v August 2007 $0.45 low
October 2007 $1.01 high v December 2008 $0.03 low
September 2009 $1.00 high v June 2010 $0.20 low
September 2010 $0.74 high v November 2010 $0.37 low
February 2011 $1.28 high v May 2012 $0.22 low

If an investor had bought at any low point, and sold at any high point, the profit would have been large.

What is important is to remember that the market usually has little relationship to true value. Ucore seems to have true value. Read up on this stock. The article from www.mining.com follows:

Pentagon and Toyota Seek to Overcome China’s Rare Earth Stranglehold
Marc Howe | November 8, 2012
The US Department of Defense and Japanese automaker Toyota (NYSE:TM) have embarked upon simultaneous bids to overcome China’s stranglehold on rare earth metals via the development of North American supply sources.

Bloomberg reports that both the Pentagon and Asia’s largest auto maker have teamed up with Canadian companies Ucore Rare Metals Inc. (TSX-V:UCU) and Matamec Explorations Inc. (TSX:MAT) to expand supply of rare earth metals via mining of deposits in North America.

In October the Pentagon entered an exploratory agreement with Ucore as well as enlisted Canada’s Great Western Minerals Group to study supplies of yttrium oxide which is used in jet engines.

Toyota’s trading firm Toyota Tsusho has meanwhile taken up a 49% stake in a joint venture with Matamec, while also pursuing a feasibility study of Quebec’s Kipawa project for the extraction of dyprosium and other heavy metals.

Rare earth metals are a set of 17 heavy elements possessing similar properties which are essential to a number of hi-tech industries. Both the Pentagon and Toyota are dependent upon rare earth metals for use as high-performance magnets in drone weaponry and electric automobiles.

China currently controls 95% of the world’s rare earth supplies, which makes both the Dept of Defense and Toyota highly vulnerable to any untoward changes to China’s rare earth export policy.

The precarious nature of their dependency upon China’s rare earth exports is further heightened by geopolitical considerations, such as the Middle Kingdom’s relationship with the US as a strategic competitor, and the country’s unresolved animus towards Japan for its militaristic aggression last century.

China has already used curbs of rare earth exports as a punitive measure during disputes with Japan, slashing supplies to the Land of the Rising Sun by 40% in 2010.

In July both Japan and the US teamed up with the EU to apply for a WTO probe into China’s restrictions of rare earth exports, claiming that the measures were in violation of international free trade agreements.

A lesson in Investing
If you are a regular reader of this blog, you will be aware that we continuously refer to economic cycles and we describe how at the bottom of each cycle, stock values are significantly depressed, and at the top of each cycle, stocks are ridiculously overvalued.

Investors tend to follow the trend and when the trend is rising, sooner or later, the cab drivers start talking about stocks and the stock market rises and seems to have an upside that is far above current values. This belief grows ever stronger as the cycle reaches ludicrous heights. Then the inevitable failure comes and the average investor, having bought at the height of the folly, gets badly hurt, then goes off to lick his wounds, and gets his confidence back only as the next cycle seems to be reaching for the sky. A repeating pattern that never changes.

The Message
Stocks are very depressed currently and it is a good time to take the plunge, especially when a stock with excellent value is priced so low. As Warren Buffet has remarked, if the company has the same value, buy when the price is low.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.