Could These Rare Earth Plays Be Takeover Targets? (MCP, REE)

Shares of rare earth metals companies have been in the news lately, as China was accused of hoarding them, as it continues its ever growing insatiable demand for commodities. Today, a bill from the House of Representatives allows more companies to look for these rare earth metals, and shares of the pure plays on rare earths are moving higher on this news. Could they eventually be take over targets as a result of this? Molycorp, Inc MCP and Rare Element Resources Ltd. (REE) are the two pure plays on rare earth metals, and could eventually be acquired by a mining major or other mining company due to this bill. First, investors need to figure out what rare earth metals are, and what they are used for. Rare earth metals are a group of 17 metals used in a wide array of consumer products. Lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, scandium, and yttrium are rare earth metals. Rare earth metals are used in products such as rechargeable batteries for electric and hybrid cars, advanced ceramics, magnets for electric car motors, computers, DVD players, wind turbines, and many others products consumers and businesses use day to day. So you can see the demand for rare earth metals is particularly strong, and with only a handful of companies being allowed to mine for them, this has essentially created a monopoly. Now that the House is working on a bill to allow more companies to mine for rare earths, this raises the possibility that a mining company looking to expand its product portfolio could potentially acquire one of them. A miner like BHP Billiton BHP or Vale VALE has enough cash on the books to acquire Molycorp. and and Rare Element Resources at a significant premium, and not think twice about it. Investors looking to add commodity exposure to their portfolios would be wise to take a look at either of these companies, but bear in mind that shares have been volatile lately, and positions should not be bought at once to help hedge risk. Disclosure: no positions mentioned in any companies written about