* Dozens of non-Chinese companies seek to fill supply void
* Most won't survive expected industry shakeup - analysts
* Industry valuations remind observers of dot-com era
* Survival may depend on having right mix of rare earths
* Rare earth value in downstream processing, not mining (Repeats to widen distribution; In U.S. dollars unless noted)
By Julie Gordon
TORONTO, Nov 8 Rows of moss-covered concrete bricks block the opening of the Monmouth rare earth mine in Canada, keeping curious hikers from entering the long-abandoned shaft.
From the early 1940s to the late 1970s, a now-defunct company called Amalgamated Rare Earth Mines explored the site for uranium and a then-obscure cluster of 17 elements known as rare earths.
The mine, 340 km (215 miles) north of Toronto, never went into commercial production and by the early 1980s the company abandoned the project, scared off by an aggressive Chinese campaign to corner the rare earth market.
Two decades after the Monmouth mine shut, China accounts for 97 percent of the world's rare earth ore production, empowering Beijing in a way that was unimaginable in the 1980s.
Rare earths have become crucial components for some of the world's consumer and industrial icons: the Toyota Prius, General Electric wind turbines, the Apple iPhone and hundreds of other devices.
Until recently, the global dependency on China for rare earths was a well-kept secret. But word started to spread fast after Beijing cut export quotas by 70 percent for the second half of 2010, sending prices of some oxides -- the purified form of rare earth elements -- up as much as 850 percent. The need for alternative supplies from outside China suddenly became obvious.
Dozens of companies all around the world are now aiming to fill the coming void in supplies, and investors have poured billions of dollars into their projects.
Rare Element Resources RES.V, which owns a promising rare earth deposit in the U.S. state of Wyoming, is a good example. Its shares have risen almost 400 percent in less than 90 days, and over 2,000 percent since April 2009. In that time, the 495,000 shares belonging to one director have jumped in value to more than C$5.4 million ($5.4 million) from C$247,500.
But the bricks that seal the entrance to Amalgamated's long-abandoned Canadian mine should serve as a cautionary tale to rare earth investors.
Current Chinese policies, which are driving up prices of oxides as well as company share prices, could shift, leading to a big industry shakeout. Holdings worth millions of dollars could turn worthless overnight, leaving burned investors with a painful sense of deja vu.
"There's a dot-com aspect to a few of these mines," said Christopher Ecclestone, a strategist with Hallgarten and Co in New York. "These stocks are going up because the products are going up in price, but none of these companies have any products to sell."
The common refrain in interviews with industry executives, analysts and mineral experts is that only about a half dozen non-Chinese producers will emerge from the rubble.
"Some of these stocks will be found to be nothing more than a pile of dirt," Ecclestone said. "And it's not because the product isn't there; it's just going to be that they're never going to be developed."
While the odds of emerging as a successful producer are long, the winners are likely to be those with the right mix of specific rare earths in their deposits, the downstream processing know-how and the contacts to make it in a demanding industry.
With literally hundreds of exploration companies and junior miners to chose from, the challenge for investors is separating the real players from the pretenders playing the rare earth buzz to make a quick profit on the stock market.
The speculative nature of rare earth stocks, coupled with the intense investor demand to own them, has prompted fund manager Van Eck Global to launch an exchange-traded fund focused on rare earths and minor metals.
But even the buffer of trading a group of rare earth miners instead of just one doesn't guarantee a safe ride for investors.
"Everybody's standing up, waving the flag, and shrieking it's rare earths, because that pushes the valuation up," said Byron Capital Market analyst Jon Hykawy. "When the Chinese change their quota system, we will see the bubble rupture."
For more rare earth content: [ID:nSGE69S09C]
Insider on rare earth: link.reuters.com/waf24q
Insider on valuations: link.reuters.com/rec44q
Insider on Molycorp CEO link.reuters.com/nyv42q
Insider on China control link.reuters.com/gyk39p
Insider on Lynas link.reuters.com/jyw62q
Insider on smuggling link.reuters.com/huc44q
That bubble, which has seen the average share price of the top juniors in the sector rise 145 percent in six months, is one of the main risks facing investors.
Even BlackRock (BLK.N), the world's largest money manager, says the "jury is still out" when it comes to the long-term investment potential for rare earth mines outside China.
"The ability to bring on production quickly in the higher-price environment means that the longer-term sustainability of those prices are questionable," Catherine Raw, a fund manager in BlackRock's natural-resources division, told Reuters.
Regardless of the red flags, analysts and industry observers agree that more suppliers are needed, no matter what policy China pursues.
"Whether the Chinese are restricting supply or not, there's going to be a need for new deposits," said Ecclestone. "The Chinese do not have a boundless supply of rare earths."
If new supplies of rare earths do not come online within the next 10 years, a global shortage would likely develop with far-reaching consequences: wind turbines will not be built, electric vehicle production will grind to a halt, and mobile phones would have to triple in size.
The issue even carries national security implications because of the rare earth content in many advanced military weapons, not to mention the economic threat that shortages would present. The problem is, getting new sources of supply into production is not that easy.