Its reported that Lynas expects to return to  commercial rare earth product production within a few weeks at its Malaysian plant, which has been emeshed in ongoing environmental and safety disputes with area residents.

The process has achieved recovery rates of more than 90 percent of contained rare earth oxides through the cracking units, which are now ready for production of individual rare earth products, the company said.

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Frontier Rare Earths shares picked up Tuesday as investors eagerly await the preliminary feasibility study for the company's Zandkopsdrift rare earth project in South Africa - expected out in the first quarter of this year.

Shares in the junior rare earths company were up almost 7 per cent to 80 cents Tuesday afternoon.

In December, the company said that Korea Resources Corp (Kores) - the state-owned mining and natural resource investor - offically acquired the initial 10 per cent stake in Zandkopsdrift.

Along with the 10 per cent interest, Kores has also acquired an off-take right and obligation for 10 per cent of Zandkopsdrift rare earth production, for a total cash payment of C$23.8 million.

The acquisition is part of a strategic alliance agreement initially signed between the two parties in December 2011, with an expanded deal announced in late October last year.

Under the expanded deal, Kores has the option to increase its interest in the project to up to 50 per cent, becoming an equal partner with Frontier, with an off-take right and obligation for up to 50 per cent production from Zandkopsdrift.

Frontier said the acquisition makes it the  only junior company in the rare earths sector to have signed and  completed a definitive agreement with a significant strategic partner.

The option to increase Kores' interest will be given when Frontier files its definitive feasibility study for the project - currently slated for the fourth quarter of next year.

As of late December, the company had $52 million of cash under its belt, which is expected to suffice for both the preliminary and definitive feasibility studies, as well as work on other exploration programs.

The junior rare earths company started the prefeasibility study on the Zandkopsdrift property in April of this year, and says that "good progress" has been made, with most requisite studies now either completed or at an advanced stage.

The report is targeted for the first quarter of this year, after which the company expects to immediately start work on the definitive feasibility study.

Frontier's preliminary economic assessment (PEA) report on the project, released last February, reported that Zandkopsdrift is estimated to contain roughly 950,000 tonnes of total rare earth oxide (TREO), applying a one per cent TREO cut-off, and gave a whopping net present value of $3.65 billion, after tax and royalties, at an 11 per cent discount rate.

Internal rate of return for the project was seen at 52.5 per cent, after tax and royalties, with a two year payback from start of production.

Average production was pegged at 20,000 tonnes of separated rare earth oxides per year over a 20-year mine life, with production due to start in the second half of 2015.

Under the deal with Kores, the Korean company is also to arrange project financing for the entire development and must committ to provide its pro rata share of funding for the portion of  costs not covered by the project financing.

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How many times have we heard the saying "Bet on the jockey not the horse"? This can be easier said than done with the requirement to do extensive due diligence on the jockey and still face execution risk. Yet with factual data at our finger tips, many times distractions draw our attention away from one of the easiest measures of a potentially undervalued situation. What do the officers and directors of that company think of their equity investment opportunity and are they willing to do anything about it? How much equity do insiders own? Has management been purchasing shares?

A long time ago a mentor of mine told me, investors sell stock for many reasons, but only buy stock for one, to make money. And we have to assume if insiders are buying, they not only want to make money but feel especially strongly about the future of their company.

Below are three companies in the heavy rare earth metal and mining space that recently have enjoyed insider buying and I believe are worth investors consideration for a buying opportunity.

Gold Resource Corporation (GORO) is a mining company that pursues and produces gold and silver projects in Mexico. For the most recent third quarter, GORO generated $36.5 million in revenue, $23.8 million in gross profit and net income of $7.3 million. As of September 30, 2012 the company had approximately $36.2 million in cash and cash equivalents or $0.69/share. The stock has seen its share of volatility recently which is well documented in a separate Seeking Alpha piece which you can find here.

Mr. William Reid, Chairman and CEO, purchased 6,188 shares on November 21, 2012 and currently owns 2,745,669 shares or 5.1% of the company. Mr. Reid previously co-founded and served as CEO of US Gold Corp. (USGL) from 1977 to 2005 where he helped build six producing mines.

Texas Rare Earth Resources is a mining company engaged in the acquisition, exploration and development of mineral properties primarily from their 950 acre Round Top lease located in Hudspeth County, Texas. An initial independent assessment detailed an estimated over 1 billion metric tonnes of measured, indicated and inferred resources containing 531 grams per tonne or over 1 billion pounds of rare earth metals including uranium contained at this location.

The company recently issued a detailed release highlighting that the company and insiders have recently purchased over 1.5 million shares or over 4% of the common shares outstanding. The company along with three directors recently purchased 1,000,000 shares, and separately directors earlier purchased another 559,025 shares at an average price of $0.384/share. Chairman, John Tumazos, is the beneficial owner of approximately 2.3 million shares consisting of 1.8 million common shares, 149,000 warrants and 369,446 options or 6.2% of the company.

The company's current game plan is to work towards monetizing their assets starting this year. In a recent announcement, the next phase in the monetization process was initiated with the air quality baseline study so that permitting can move forward on the property which could make it more attractive for strategic alternatives. The company has sufficient capital to move forward with this strategy through 2014.

Revett Minerals' (RVM) principal assets consist of a 100% interest in a Troy silver and copper mine in northwest Montana and a 100% interest in the undeveloped Rock Creek silver copper development project also located in northwest Montana. Recently, the company issued a release providing shareholders with an update on the monitoring activities at its Troy Mine. Data collected over the past two weeks suggests that conditions at Troy have stabilized and management believes that it will be back to production quickly after conducting all safety measures.

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There’s a minor fervor Monday for rare-earth firms, sending the sector’s exchange-traded fund to what is now a nearly 5% 2013 gain. Will it last?

Lawrence Balter of Oracle Investment Research, tells Barron’s that he’s hopeful. That, at least, is what he says when it comes to the most closely watched U.S. stock in this sector, rare-earth miner Molycorp (MCP). The stock plunged 67% last year, but at $10 or so — shares are up 10% this morning, to $11.37 — “the stock discounts all the bad news and then some,” the Barron’s Trader column quotes him over the weekend as saying. Balter sets a price target of $50.

“[Molycorp is] ramping up production at a new Mountain Pass, Calif., mine and China — the world’s biggest producer of these metals, like molybendum and titanium — is closing down some mines,” writes the Trader column.

The Market Vectors Rare Earth/Strategic Metals ETF (REMX), which I predicted in my column over the weekend should do better in 2013 than its rough time last year, is ahead by 1.5% this morning.

There’s also a note this morning from Commerzbank’s strategists: Mixed in its implications for the sector. Most notably, they’re entertaining the end of China’s near-monopoly:

    Ten days ago, the China Ministry of Commerce set the first tranche at 15,501 tons, 27% down on last year’s figure. As a rule, the ministry approves another tranche in the second half of the year. In total, last year’s export quota amounted to 30,996 tons. Meanwhile, Australian company Lynas Corp has begun commercial production of rare earths in its controversial plant in Malaysia following considerable delays. This could put an end to China’s quasi monopoly.

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GREENWOOD VILLAGE, Colo. — Magnetics 2013 has announced an industry-leading line-up of magnetics experts who will be addressing current market conditions and what's ahead for end-users and the magnetics industry in the years to come. There are rising concerns over cost and foreign control of the current supply of rare earth resources, which has motivated a search for new sources outside of China and for non-rare earth permanent magnets. Magnetics 2013, taking place February 7-8 in Orlando, Fla., will address rare earth (RE) supply chain issues, permanent magnet (PM) alternatives and RE-free magnet options for motor applications, the latest in magnetic materials R&D from leading National Laboratories, and the latest advancements in design and testing.

“The area of rare earths has been a hot topic for the last couple of years. This year’s line up at Magnetics 2013 offers our most diverse coverage to date of the rare earths crisis including supply and demand as well as PM alternatives,” said Heather Krier, conference program manager and editor of Magnetics Business & Technology magazine. “This is a once-a-year opportunity for professionals involved in magnetics technologies to not only get the latest information on the global issues of rare earths, but to learn the latest advancements in magnetic applications, technology and materials.”

Magnetics 2013 is offering informative pre-conference workshops on February 6th to complement its in-depth conference program. The workshops, which have limited seating to ensure each attendee receives individual attention, will sell out.

The conference offers new low rates until January 10th. Special discounts for OEMs are also available.

Magnetics 2013 is co-located with Motor & Drive Systems 2013.

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Australia’s Lynas Corporation yesterday commissioned its controversial rare earth plant in Malaysia.

The first delivery of commercial rare earth product is expected in the next few weeks.

In a statement released yesterday Lynas said they have successfully begun cracking and leaching rare earth extraction units and production will continue to ramp up over the next three to four months.

“This is another significant milestone for Lynas,” said Lynas executive chairman Nicholas Curtis.

Following the announcement the company’s shares rose 14 per cent.

It was a good day for rare earth companies around the world yesterday with Molycorp and Great Western Minerals also seeing their share prices rise by 9.8 per cent and 4 per cent respectively.

At full production Molycorp, Lynas and Great Western are expected to end China's grip on the rare earth market of which China currently controls more than 95 per cent of the global supply, mining.com reported.

In November Australian Mining reported Lynas had received its first shipment of about 100 containers of rare earth concentrate at the Malaysian plant. At the time the company expected the first kiln feed to take place just a couple of days later.

However, the company has been embroiled in legal action launched by the Save Malaysia, Stop Lynas group which aimed to block Lynas from acquiring a temporary operating licence for the new facility.

“The safe and efficient operation of the LAMP is now a reality, and we are providing real-time data that assures people the LAMP is entirely safe for our local communities and the environment,” Curtis said.

Protests took place outside the company’s Sydney head office in November last year amid concerns from the Greens that radio active waste produced at the Malayasian plant would be shipped back to Australia.

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KUANTAN: Lynas Corporation is expecting the production of commercial rare earth products in a few weeks.

This follows the successful commissioning of its kiln to produce mixed rare earth sulphate.

“The process has achieved a recovery rate of more than 90% of contained rare earth oxides.

“The mixed rare earth sulphate is now being fed into the solvent extraction units for ultimate production of individual rare earth products,” Lynas said in a statement on its website yesterday.

It added that the production would be intensified in the next three months.

Lynas executive chairman Nicholas Curtis hailed this as another significant milestone for the company.

“The safe and efficient operation of the Lynas Advanced Materials Plant (LAMP) is now a reality.

“We are providing real-time data that assures people the plant is entirely safe for our local communities and the environment.

“We are excited to start creating value at the LAMP and we look forward to sharing that value with all our key stakeholders, including the communities in which we operate,” Curtis said in the statement.

The statement also said Lynas was now producing sufficient quantities of solid residue to start the production of synthetic gypsum and aggregate co-products.

It said this would enable co-product samples to be produced for testing and market trials for commericial distribution.

During a site visit last month, Lynas Malaysia managing director Datuk Mashal Ahmad said the company had spent RM10mil to build a synthetic aggregate plant to recycle the residue.

Lynas was issued a temporary operating licence effective from Sept 3 last year and announced that it had commenced operations on Nov 30.

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China is responsible for more than 95% of the global supply of rare earths and over the weekend the country's Ministry of Land and Resources (MLR), announced that the first production quota for rare earths this year will be set at 46,900 tonnes.

Another quota will be announced later this year and the allotment is broadly in line with recent output caps.

2012 output has not been disclosed, but production totaled 93,800 tonnes in 2011, according to Bloomberg. The MLR also set production for tungsten concentrate at 43,500 tonnes and antimony at 37,680 tonnes.

In December China pegged 6-month export quotas at 15,501 tonnes, also broadly in line with the 2012 figure.

The export quotas – which Japan and the US took all the way to the World Trade Organization dispute resolution body – appears to have become a meaningless exercise.

China only exported some 13,000 tonnes of rare earths through authorized channels during the whole of last year, a mere 40% of the allowed export.

A crackdown on illegal mining, consolidation of the industry under a few large producers, mothballing mines – China's number one producer recently decided to extend its production halt to three months – and the quotas have not helped to put a floor under REE prices which have continued to fall from 2011's stratospheric levels.

The value of many of the 17 elements used in a variety of industries including green technology, defence systems and consumer electronics are down more than 80%.

While mid-2012 prices looked as if it will begin to stabilize, values continue to soften.

Abundant, less valuable REEs have experienced the sharpest reversals.

Lanthanum oxide – used in ceramics and fuel catalysts – for example rose from a price of just $8.71/kg in 2008 to average $117/kg in the third quarter of 2011. By the third quarter of 2012 it was down to $19.54/kg.

As of 7 January 2013 it’s fallen further to $11/kg. Inside China that same kilogram costs $7.54.

This price behaviour can be seen across the board: cerium oxide, used to polish TV screens and lenses, is trading at $12 from an all-time high of $118 in the September 2011 quarter. In 2008 the price for cerium oxide was $4.56.

Praseodymium, used as an alloy in aircraft engines and welder goggles, was available from China in 2009 for $18/kg. After peaking in the second half of 2011 along with all the other rare earths it was still priced at $163/kg during the first quarter of 2012. Monday's benchmark price was $85, down from $105 last September.

The price of a kilogram of samarium oxide increased dramatically from a mere $3.40/kg in 2009 to average $103/kg in 2011. Used in jet fighter electrical systems among other applications, samarium actually increased in value from the first to the second quarter of 2012, from $73/kg to $82/kg.

Now it has plummeted to $25/kg free-on-board while the domestic price in China is only $7.70 for samarium.

Heavy, scarcer REEs have generally held up better, but some have experienced price declines of more than 50%.

Neodymium oxides, used in windmills, continue to slump – from $338/kg in Q3 2011 to $105.31/kg in Q3 2012 to $80/kg today.

A hybrid vehicle ingredient, dysprosium, rocketed from a price of $118.49/kg in 2008 to average $1,449/kg in 2011. It peaked at an astonishing $2,300 by September of that year.

Dysprosium, also used in conjunction with vanadium and other elements in making laser materials, has now given up more than $1,500 per kilogram and now goes for $630/kg. Inside China it is worth only $385/kg.

The reversal in europium oxide – the priciest REE – which is used in medical imaging and the nuclear and defence industries – has been most startling.

The price of europium increased almost 10-fold from $492/kg in 2009 to average $4,900/kg in the third quarter of 2011. In the first quarter of 2012, importers still had to pay $3,623/kg and stayed above $2,000 for most of the year.

The price is now $1,600 a kilogram. Chinese domestic europium is almost half that at $867/kg.

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China exported only about one-third of its annual export quota for rare earth minerals in the first 10 months of 2012.

According to data from the Customs Statistics Information Center, some 11,312 tons were exported from the beginning of January to the end of October, 36.5 percent of the quota for the year set by the Ministry of Commerce (MOC).

In 2011, China set rare earth export quotas of 30,200 tons but only 18,600 tons were exported, official data shows.

The MOC set the quota for the first batch of export for 2013 at 15,501 tons, without giving the annual total.

Twenty-four companies, such as Baogang Group, China Minmetals Corp. and Aluminum Corp. of China, have obtained their export quotas for this year's first batch, according to the report.

    Baogang, the country's largest producer of rare earth minerals, has the biggest share of the quota. Its four subsidiaries have been allowed to export a combined 1,811 tons.

The United States, European Union, Japan, along with Canada, lodged a complaint with the WTO in March, claiming Beijing was unfairly choking off exports of the commodities to benefit domestic industries.

Rare earths, as vital non-renewable natural resources, are a group of 17 metals vital to a wide range of products and materials like smart phones, wind turbines, electric car batteries, and countless other applications.

China has been insisting that it's unfair to bear the burden of supplying 90 percent of rare-earth demand while only having 23 percent of global reserves, and began to implement stricter environmental standards on mining and refining.

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Molycorp (MCP) mines and produces lanthanide and molybdenum compounds, concentrates, and oxides using open-pit mining techniques. Molycorp's top-level product is bastnasite, which is a mixture of rare earth metals in their flurocarbonate form. From this ore, mischmetal can be extracted. On the other hand, bastnasite can be used in the later purification processes of many rare earth metals. Bastnasite also serves as a high-performance polishing product for optics and sensitive equipment.

Lanthanides (which include cerium, lanthanum, and yttrium) are used in everything from cell phones and computers to X-ray film and television glass. The company is staking its future on the production of rare earth oxides (REOs). Molycorp went public in July 2010 with an initial public offering (IPO). Since its IPO, it has been making acquisitions and investing in joint ventures to further its growth. In its biggest takeover to date, Molycorp acquired rare earth processor Neo Material Technologies for about $1.3 billion in 2012.

Current Rare Earth Metals Landscape

China controls about 95% of the global rare earth metals supply, and its restriction on global access has had an interesting affect on the market. China is the biggest producer, as well as consumer, of rare earth elements. As a result of restrictions by China, manufacturers and miners are currently working on finding alternatives to Chinese supply. At the moment, companies are increasing their presence in Central and Southeast Asia. Electronics manufacturers will continue to increase demand as the demand for products increases. However, the U.S. has not been able to devise a plan to cope with the dependence on one supplier.

Japan, the biggest importer of rare earth elements, has increased its efforts to counter the restrictions by China. China's Bayo Obo mine is in close proximity to Mongolia. As a result, Mongolia is getting substantial offers from miners and manufacturers. Japan recently signed a free trade agreement with Mongolia in order to get access to rare earth metals. In addition, Germany and Kazakhstan signed a $4 billion agreement allowing German mining companies access to Kazakhstan's rare earth elements. Germany will provide technical assistance in modernizing railroads and building chemical plants in exchange for the privilege of mining in Kazakhstan.

Furthermore, Japan is also collaborating with India to decrease dependence on China. The Indian state of Orissa has deposits of rare earth elements, which the country is looking to exploit. India is looking to build facilities in Orissa and Central Asia to get a share of this lucrative market.

Importance to the U.S.

Molycorp products are extremely important for the U.S. defense applications. Rare earth elements are used in underwater mine detection equipment, radar systems, jet engine coatings, optics and scopes, lasers, electronic counter measures, and precision guided bombs. The Department of Defense highlighted the importance of rare earth elements to the country, as well as the consequences of China being the only supplier. Molycorp is the answer to the problem for the U.S. The company has suffered due to lower prices, lower product volumes, and higher transaction costs. Molycorp will benefit from its Canadian acquisition and Phoenix project. I expect the company to see more profitability in 2013. It is also expected that the hoards of rare earth metals will start to decrease, and demand will increase. In addition, stricter regulations from the Chinese government will help bring supply down. The Chinese government is trying to stop the illegal mining in order to decrease supply. Decreasing supply should bring prices up, and we should see some recovery in 2013.

Comparison With Peers

Molycorp peers include Lynas Corporation Ltd. and Avalon Rare Metals, Inc.. The table below lists some important metrics for the sake of comparison between these companies.

Companies in the rare earth metals segment are trading at low forward multiples. However, a look at margins shows that the industry has been hit hard by low prices. All three companies have negative ROE at the moment. Molycorp is the only company among the three to have debt; the other two companies do not have long-term debt.

Summary

Rare earth metals are an integral component of a lot of products. Demand for these products will remain high as the global economy recovers. The recovering global economy will increase consumers' disposable income, resulting in increased demand. Furthermore, the Phoenix project and the Canadian acquisition will help Molycorp improve its profitability.

However, Molycorp has several risks associated with it, and only investors with a high risk tolerance should consider it. The biggest risks are a slow recovery in prices and the company's failure to bring down the costs. Molycorp needs to control its costs in order to bring down its losses. Out of the two biggest risks, high cost is the company-specific risk that Molycorp can control. The company should focus on bringing down its costs and augmenting the profit margins.

There is still a lot of uncertainty about the market at the moment, despite some positive steps taken by the Chinese government. If the proposed measures do not yield expected results, the prices for rare earth elements could remain low during 2013. As a result, Molycorp could suffer and stock price may not move much. That's why I believe only investors with a high risk tolerance should consider investing in Molycorp.

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