UPDATE 2-Sumitomo may invest in Molycorp for rare earth supply

* Deal talk boosts rare-earth shares in Canada, US

* Japanese firms rush to cut reliance on China for rare earth

* Sumitomo aims import 2,000 tonnes rare earth in 2011-Nikkei

* Shimpments to rise to 3,000 tonnes in 2012- Nikkei

* Sumitomo may invest $120 mln in Molycorp expansion-Nikkei
(Recasts with U.S. Canadian rare earth shares, background)

By Yuko Inoue

TOKYO, Dec 7 (BestGrowthStock) – Sumitomo Corp (8053.T: ) is in talks
with Molycorp (MCP.N: ) on a rare earth supply deal and may take a
stake in the U.S. company, the latest move by a Japanese firm to
secure supplies of the crucial minerals outside China.

Japanese trading houses have been scrambling to secure new
sources of rare earth — vital for making auto parts and
high-tech products — in recent weeks after shipments from
dominant producer China stalled, possibly due to diplomatic
tensions or because its export quotas had run dry.

China, which produces 97 percent of the world’s rare earths,
set 2010 export quotas 40 percent lower than 2009 levels, raising
alarm among buyer nations about supplies.

A spokesman for Sumitomo, Japan’s third-biggest trading
house, said various options were being discussed for a supply
deal, which could lead to it taking a stake in Molycorp, but he
gave no further details.

Earlier on Tuesday, the Nikkei newspaper reported that
Sumitomo plans to invest 10 billion yen ($120 million) in
Molycorp’s expansion and is eyeing an equity stake in the
company, which has a market value of about $2.3 billion.

“It (the deal) meets the needs of the Japanese to diversify
their sources of resources,” said Tomomichi Akuta, senior
economist at Mitsubishi UFJ Research and Consulting.

“By taking a stake (in Molycorp), Sumitomo believes it can
benefit from a rise in the value of its shares.”
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A PDF primer on rare earth, containing Reuters analysis,

is available at: http://r.reuters.com/cyc53q

Interactive graphic: http://r.reuters.com/xep73q

For a factbox on rare earths: [ID:nN09251080]

For an earlier story on a similar deal: [ID:nSGE6AN0IA]

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Sumitomo and Molycorp may reach an agreement this week and
shipments will begin in spring and run through 2012, the Nikkei
said.

Sumitomo plans to import nearly 2,000 tons of rare earths
next year, including both new output and inventoried stock, with
shipments expected to grow to 3,000 tons in 2012 — about 10
percent of current Japanese demand, the paper said.

Sumitomo plans to import cerium, lanthanum and neodymium,
among other rare earths from Molycorp, the Nikkei said.

Sumitomo Corp shares edged up 0.3 percent in a flat (.N225: )
Tokyo market.

Shares in Greenwood, Colorado-based Molycorp surged 18
percent to close at $32.86 on Monday in New York after the Nikkei
report.

Molycorp shares have risen sharply since China lowered its
export quotas. Shipments to Japan dried up in September due to
longer customs inspections, prompting reports that Beijing was
choking off supplies to Japan due to a spat over disputed islands
in the East China Sea, sending prices of the minerals soaring.
China denied it had imposed any embargo.

Mitsubishi Corp (8058.T: ) also said on Tuesday that one of its
units had signed a one-year contract to import a portion of
Molycorp’s inventory, further evidence of Japanese firms rushing
to diversify procurement away from China.

Last month, Sojitz Corp (2768.T: ) reached a deal with
Australian miner Lynas Corp (LYC.AX: ) to secure more than 9,000
tonnes of rare earths per year — nearly a third of its current
needs — from early 2013. [ID:nTOE6AM06R]

News of Sumitomo’s likely investment lifted stocks in the
Canadian rare earth sector, where takeover talk has been rampant.

Shares of Vancouver-based Rare Element Resources (RES.V: )
jumped more than 13 percent on Monday on speculation a deal with
Sumitomo could prompt Molycorp to bid for Rare Element, which
owns rare earth properties in the United States.
(Addtiional reporting by Chikako Mogi; Editing by Nathan Layne
and Anshuman Daga)

UPDATE 2-Sumitomo may invest in Molycorp for rare earth supply