Avalon Rare Metals Inc (US listing) (NYSEMKT:AVL): Rare Earth Combination A Winning Strategy?


Many companies in the rare earth industry are not in the pink of the health. However, the product range of Avalon Rare Metals Inc (US listing) (NYSEMKT:AVL) seem to be helping the company in these difficult times as it is relatively free from the worries of its competitors.

The rare earth story:

Rare earths find a variety of uses in today’s technology driven world. Though used in very minute amounts, they are essential for many electronic parts. The rare earth industry suffered a major jolt when China banned exports some years back and many non-Chinese rare earth companies flourished. Investors flocked to these companies without looking at the product mix. The bubble burst as soon as China lifted albeit temporary ban. Not all rare earths are important and investors learnt this the hard way.

The product mix of Avalon Rare Metals Inc (US listing) (NYSEMKT:AVL) is very important in this context. Avalon focuses on tin, lithium, niobium, cesium, tantalum, zirconium, gallium, indium as well as others. Of particular importance in the current context is lithium. It is widely used in batteries used in mobiles, tablets, laptops, electric vehicles and other devices. This has fuelled rumors that Tesla Motors Inc (NASDAQ:TSLA) has held talks with the company. The rumors have been shot down. However, they assume significance as Tesla has announced plans to build a gigafactory to manufacture batteries. And once they go on line, they will require lithium, lots and lots of it.

The mining operations:

Rare earths are called rare because they are not available freely. Mining them is a complicated process as extraction part is very critical. As they are available in very small proportion in the ore, extraction needs to be done very carefully. In this regard, Avalon Rare Metals Inc (US listing) (NYSEMKT:AVL) has tied up with a French company Solvay. The agreement will be initially for a period of 10 years. Under the agreement, Avalon will ship concentrate to Solvay’s facility for extraction. Solvay has an option to purchase the rare metals extracted. Any excess metals will be returned back to Avalon for selling as they deem fit. Solvay will also provide its technical expertise to the company in commissioning the hydrometallurgical processing plant.


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