REMX Is More Than Rare Earth

October 29, 2010 by  
Filed under Commentary, ETF IPOs (New ETFs), ETFs

It’s not just rare earth – rare earth and strategic metals are the focus of the new Market Vectors Rare Earth/Strategic Metals ETF (REMX).  Launched yesterday (10/28/10) by Van Eck Global, REMX will focus on companies involved with the mining and production of 17 rare earth and 32 additional strategic metals – 49 elements in all.

The fund currently has 24 holdings.  According to the overview page, the stocks with current weightings over 5% include Iluka Resources 8.3%, Lynas Corp 7.8%, Titanium Metals Corp. 6.3%, Thompson Creek Metals 5.8%, Molycorp Inc 5.6%, RTI International Metals 5.5%, Osaka Titanium Technologies 5.2%, and China Rare Earth Holdings 5.1%.  As you might expect from such a niche industry, the holdings have a distinct small-cap flavor.

Much has been written about China and its supposed 97% control of current rare earth metal production.  The REMX initial country weightings paint a different picture: Australia 23.9%, Canada 19.8%, United States 18.8%, China 14.8%, Japan 11.1%, Mexico 4.4%, Ireland 4.0%, and Brazil 3.2%.  Most of the Chinese companies involved with rare earth production are A-Shares and not available to most foreign investors.

REMX expenses are capped at 0.57%, and additional information can be found in the press release (pdf), REMX fact sheet (pdf), and prospectus (pdf).

Contrary to their name, rare earth elements are not all that rare.  Many are nearly as abundant as copper.  Mining and extraction costs are typically very high, however, because the deposits are typically very dispersed.

There is some disagreement among analysts on the definition of strategic metals, but Van Eck provides this foundation:

“Rare earth/strategic metals are industrial metals that are typically mined as by-products in operations focused on precious metals and base metals.  Compared to base metals, they have more specialized uses and are often more difficult to extract.  Currently, approximately 49 elements in the periodic table are considered rare earth/strategic metals. They include such elements as cerium, manganese, titanium and tungsten.  Strategic metals are used in a variety of technologies including jet engines, hybrid cars, steel alloys, wind turbines, flat screen televisions and cellular phones.  Rare earth metals, a subset of strategic metals, are a collection of 17 chemical elements that are essential in many of today’s most advanced technologies, with particular applications in electronics.”

You can find additional background information in the Wikipedia definition for rare earth element and in Defining Minor and Strategic Metals (pdf) by Strategic Metal Investments Ltd.

REMX had a volatile yet enthusiastic reception in its first day of trading.  More than two million shares traded at prices between $20.50 and $19.51 for an intraday drop of 4.8%.  A review of the indicative value shows that it too had a large intraday move while closing nearly unchanged from the prior day, due to a large upside gap at the open.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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