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Rainbow Rare Earths Get Weekend Tip, Rises 11% — What Now?

Tim Worstall
Tim Worstall trader
Updated 29 Nov 2021

The Midas column in the Mail on Sunday tips Rainbow Rare Earths (LON: RBW) as one to follow. As is typical of major weekend newspaper tips the stock is up this morning. The big question, as always with such Sunday tips, is whether that rise is the start of a re-rating or just a marking up as a result of the tip.

The Midas column does have some successes but that’s not quite the point – that it has a following is. People do buy on the basis of the column and of course, the brokers and market makers know this. Something that is heavily tipped in a solid column like this will move price as a result. As it has done, it’s 11% up so far this morning.

The basic idea of the company seems sound. The chemistry certainly works. Wastes from phosphate mining do contain rare earths and gypsum, it is possible to separate them all out. Much work has been done on the vast Florida piles of this stuff (you might recall The Guardian worrying about floods and overflows from these wastes). One problem is that there is also thorium, which is lightly radioactive, in the wastes. That must be separated out because no one really does want radioactive plasterboard, the market for that gypsum. South Africa, fortunately, has a sensible licencing regime for dealing with that as shown by Steenskampskraal – and as doesn’t exist in Florida.

As traders, we’re not really all that interested in the 3 and 5-year horizon which is what it would take to bring this into production. We’re interested in the market reaction to the greater visibility of the stock as a result of the tip. This can go one of two ways.

One is that the market makers respond, as they have done, by marking it up before open. There might then be a burst, a little bolus, of buying on the back of the tip. And then the effect fades as the excitement and visibility do and the price edges back to where it was. This is not uncommon as a set of price movements after such a tip.

The second is that the column has uncovered a little diamond in the rough and this focuses attention on the prospects. At which point there’s a full rerating of the stock and the price moves substantially and permanently higher. Given the current more general perception of renewables, rare earths, and the whole investing to beat climate change movement this is possible.

There are going to be price movements here is the point for us to grasp. Movement means trading opportunities. Whether or not the project moves into full production in that far future isn’t the point – it’s what other people think is going to happen these few days that is. Divining what we think other people are going to do is thus the heart of our own trading decision. A flash in the pan or the start of a full rerating? 

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Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.