How a Bet on Rare Earths Flopped as Scarcity Was a Mirage

In late 2010, two questions were on the minds of many commodities investors: What are rare earths? And where could they buy some?

The group of 17 obscure, difficult-to-pronounce minerals, used in hot-ticket items like smart phones, electric cars and wind turbines, were beginning to post the kind of price gains not seen even in the traditionally volatile energy and metals markets. For many investors, the only way to get in on the action was to buy shares of U.S. producer Molycorp Inc. Its market capitalization had shot up to $4 billion after an initial public offering earlier that year.