The rare earths mining industry has been in a state of slow collapse for the past five years, with almost all the companies in the sector globally, outside of China, falling by 90% or more.
I've not written about it here before because it's been a macabre scene; like watching an animal struggling in quicksand on an Animal Planet show.
The industry finally appears to be entering an accelerated process of resolution that was triggered with the bankruptcy filing by U.S.-based rare earths mining company Molycorp (MCP) on June 25.
That was immediately followed by the company's delisting from the NYSE and conversion to trading over the counter using the symbol MCPIQ.
This also resulted in the stock prices falling another 80% from about $0.40 before NYSE delisting to about $0.08 now.
The stock prices of almost all the other companies globally have followed suit. Although they were already trading for pennies, most have fallen substantially further following Molycorp's filing and may indicate that the industry, outside of China, will disappear as a stand-alone and be merged into larger and broader mining concerns.
I'll address those issues in future columns as the process plays out from here.
I'll not list all the companies individually, but a list of most of the publicly traded companies globally, not including China, may be found here.
It is also possible the industry will consolidate within itself rather than being dispersed into companies in related industries.
The only company globally that appears to be a candidate for doing that is Iluka Resources Limited, which is actually up about 56% in the past five years, and 32% this year alone.
The easiest way to track the industry globally is through the Market Vectors Rare Earth/Strategic Metals ETF (REMX).
REMX went public at the height of the rare earths market in 2010 and almost immediately fell as rare earth prices declined. It's off by 74% in the past five years, and has fallen 8% since Molycorp filed for bankruptcy.
REMX also owns Chinese rare earth companies. As the industry consolidates, these companies should perform well, although they too have been trounced as a result of the Molycorp filing.
The two best to watch there are China Northern Rare Earth Group CNRE (600111.SS), and China Minmetals Rare Earth WKXT (000831.SZ).
Both of these stocks had been up 50% and 33%, respectively, year to date before the Chinese market selloff began and fell further after the Molycorp filing.
They are off by 7% and 10%, respectively today alone and by 8% and 33% year to date.
However, the rare earths industry is dominated by the Chinese, with their mines accounting for about 95% of global production.
What's bad for the industry and the stocks of the companies in it, outside of China, should prove to be positive for those in China.
China Rare Earth Holdings Ltd. (CREQF) also trades over the counter in the U.S. and should be tracked for indications of the shift in the industry that has now started.
The reason for the industry to have gone through this collapse is that China, which essentially controls the industry, cut exports of rare earths, which are required for many technology applications, in 2010. The prices shot up along with the stocks of the companies outside China. Those companies then borrowed to expand to meet demand. The U.S. and European Union appealed to the World Trade Organization on grounds that the export restrictions by China violated the WTO rules. The WTO agreed and China relented on the export restrictions. The supply increased again, causing prices to drop, and left the companies outside of China incapable of selling at a profit and servicing debt they'd taken on. The result has been the slow death of the industry outside of China.
There are many other related issues that could cause the prospects for the rare earth miners not to be as strong after the industry consolidation that is under way.
The biggest of these is the search for alternatives and substitutes for rare earths, although this is proving to be more difficult than originally thought.
Most germane for this venue is that there may be some great bargains to be had soon in the industry, especially by retail investors, before it has rebounded strongly enough for institutions to participate again.
As the issues become clearer, I'll address this in future columns.