Avalon Rare Metals Trading Higher on All But Inevitable Tesla Partnership

Michael Teague  |

Shares for Canadian rare metals producer Avalon Rare Metals (AVL) were up on heavy trading throughout Monday’s session, as the company benefitted from electric car-manufacturer Tesla’s (TSLA) announcement over the weekend that it would only source its materials from mines on the North American continent.

The $62 million dollar company by market-share digs a for a number of rare metals and minerals, including lithium, tantalum, niobium, cesium, indium, gallium, and zirconium, and is a natural candidate to do business with Tesla once that company’s $5 billion so-called “Gigafactory” is up and running.

A spokesperson for Tesla over the weekend said the company’s decision to buy local comes as part of an effort to enhance transparency in the company’s supply chain, reduce environmental impacts from mining, and, of course, reduce the often enormous costs of shipping these metals to the US.

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The tech-car company already sources most the graphite that is a crucial component of its batteries from synthetic producers in Japan and throughout Europe, and there has been some concern over how supply issues will be met, given that the largest known reserves of elements such as cobalt are found in war-ravaged Democratic Republic of Congo.

In terms of graphite, one of the most important elements in the company’s car batteries, Tesla already avoids the world’s largest producing nation, China, where the government itself has been closing down mines due to pollution issues. The company's projections for output at its new factory are ambitious, as it expects to be producing enough of its lithium ion batteries by 2020 to power somr 500,000 vehicles.

More than other rare earth miners, however, the market seems to have picked Avalon as the greatest potential beneficiary of Tesla’s upcoming factory, likely because the company’s operations are already up and running in five different locations, whereas the greater portion of industry companies operate in the exploration space, meaning that Avalon has product ready to sell.

The stock was leading the industrial metals and minerals sector higher on gains of nearly 8 percent ahead of Monday’s closing bell, with shares trading at $0.66 on almost five times normal volume.

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