Rare Earth Metals Demand Is Unstoppable: Jeb Handwerger

The Critical Metals Report: Jeb, as a student of the critical metals space who's been watching precious metals stocks over the past 20 years, do you believe we're seeing a renaissance in the industrial metals space?

Jeb Handwerger: It's interesting. We saw last week The Wall Street Journal headline, "After Xstrata, a Mining Merger Pileup." Of course, we always try to look beyond the headlines and read between the lines. The proposed merger between Glencore International plc (GLEN:LSE) and Xstrata PLC (XTA:LSE) is old news for my readers because for some time we've said we would see increased global hunger for natural resources. This transaction goes much deeper and is implicit with words not mentioned in the routine press release.

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TCMR: How is it more important than just that one deal?

JH: Banks are aligning with resource seekers to create real competitors to giants such as Vale S.A. (VALE:NYSE), BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) and Rio Tinto (RIO:NYSE/ASE) to assimilate the resource stocks and claim resources such as copper, iron ore and metallurgical/thermal coal. The Xstrata-Glencore transaction is notable in that it confirms the rising demand from emerging nations, especially in Asia.

TCMR: There has been a lot of nervousness among investors regarding the pace of growth of China, and the mainstream media has been reporting softening GDP growth in many of the Asian nations, particularly China. Are we not getting the straight story from the mainstream media?

JH: The way we see it, the gloom and doom that came out of Europe in 2011 and fears of recession and global contagion were overdone. We've seen a flight out of equities into risk-off assets such as the dollar and treasuries. But the Federal Reserve Bank has extended low interest rates from mid-2013 to late-2014, and we're seeing stimulus underway in Europe and China. In fact, we're now seeing a return to the risk-on trade and a return to what we consider one of the most important sectors-the rare earths (REEs). Rare earths are intrinsic to the new technologies, rapidly increasing demands and this ongoing, long-term global commodity boom.

TCMR: So you believe in the long-term growth of BRIC nations (Brazil, Russia, India and China), not just in traditional metals but also in specialty metals and rare earths?

JH: Exactly. Many analysts are overlooking a Department of Energy report that came out at the end of 2011. Analysts claim that rare earth demand is low, and that China can just open the floodgates and drown the market with heavy rare earths (HREEs). Well, a U.S. government think tank wrote a 200-page report-these are the top professors, the top scientists, the top economists coming together-anticipating a supply shortfall in certain basic elements. Instead of only two elements that are most critical and strategic, there are now five. They're saying that in the short-term we could experience supply shortages of yttrium, europium, neodymium, terbium and dysprosium.

TCMR: Even with lack of Chinese transparency?

JH: Right, even with the lack of Chinese transparency. This is what I've seen and I'm studying. So very few projects with these metals will really be able to come online outside of China, and these elements are growing more and more in demand. We're not in the 1970s anymore. These emerging countries are building new automobiles, electric vehicles and fuel-efficient, lighter vehicles. The rise in demand for smart phones in emerging nations has been huge. Look at the Egyptian revolution. Look at the Arab Spring. These events would not have occurred if not for the rise of the smart phones.

TCMR: And that doesn't even include all the green applications-for photovoltaic cells and so forth.