China's Rare Earth Maneuvers Could Bring Molycorp (MCP) Back to the Glory Days

June 19, 2012 4:12 PM EDT
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Shares of Molycorp (NYSE: MCP) are trading higher today by 3.5 percent. After a 62 percent, stomach-turning decline in the past 12 months, today's rally could come as a relief to some investors in the rare earth mining company.

In an article today on, Rahul Jalan of Beroe Consulting in India, stated that China will "further tighten the rare earth noose with tax permits". As is well known, China controls 90 percent of the world's rare earth minerals. According to Jalan, in May China announcement new tax permits for mining companies there and confirmed that it will continue to create new policies in a bid to regulate overproduction and collect extra revenue.

Knows as REE Tax Permits, the new regs will require controls on light rare earths, including concentrates and isolation oxides.

"This permit is seen as an initial step taken by the government to control overproduction, illegal mining, and environmental violations," wrote Jalan, adding that "The Chinese government will be able to control rare earth supply to a certain extent, by forcing rare earth producers to sell their finished products based on production and export quota allocations."

Previous efforts by China to control rare earths sent prices outside China skyrocketing, and although the market is slightly different today compared to a year go, it could happen again. However, considering the sick selloff in Molycorp, it is unknown if investors will be eager to get back on this rollercoaster.

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