Rare Earth Elements Insights: Q2 & Q3 2012 

Key insights

• Most companies in the rare earth elements (REE) sector are trading at near 12-month lows with, on average, prices for REEs continuing to decline since the mid-year 2011 highs.
• As of the end of Q3 2012, the medium-term outlook for REEs was not upbeat.
• Of the over 250 publically-listed REE companies, it is likely that more than 75 percent will shut down, be mothballed or merge within the next 24 months.
• Watch out for: more merger arbitrage, further long/short equity event driven plays where investors realise gains from balance sheet restructuring or spin-offs and an uptick in a variety of private equity plays with special situations that seek to realise value through strategic sales or IPOs.
  
• Private investors and equity houses will seek downside protection through convertible bond financing rather than investment in straight equity plays.
• Some market observers are now courageously predicting that prices will soon stabilise or even trend upwards in the coming months bearing in mind that prices of REEs are not uniform.