There have been major developments occurring this week in the rare earth arena, which could hold significance for the expansion into Europe of Molycorp (MCP) and the development of a US domestic supply chain of rare earths (Market Vectors Rare Earth/Str Metals ETF (REMX).

Molycorp is fast becoming the Stella Polaris of the rare earth complex. It announced its takeover of a little-known Estonia-based producer called AS Silmet, purveyor of niobium and tantalum. The move involving acquisition of this unlisted production company is quite significant. It reveals the awareness on the part of the European community to secure rare earth finished products. Europe is embracing clean, carbon-free energy and independence from Middle Eastern oil. This requires an increase of fuel-efficient hybrid or electric vehicles. In fact Renault is planning four new electric vehicles to introduce to the market and expects demand will increase significantly by 2020.

Now Molycorp will increase production and supply the European market with valuable rare earth oxides to help with the growing demand for clean, carbon-free energy.

Niobium -- which is what Molycorp will be producing in Europe -- is used to make vehicles more fuel-efficient. Rising gas prices and the crisis in the Middle East are showing an increased demand in fuel-efficient, clean vehicles. The rising price of a gallon of gas drives the consumer to hybrid cars, which require huge amounts of rare earths and lithium (Global X Lithium ETF (LIT)). Japan and South Korea automakers are seeing soaring niobium prices and are concerned about future cuts from China. Only a few weeks ago, Japan and South Korea invested $1.8 billion in a Brazilian mining group that is the largest producer of niobium. These two countries are concerned about a shortage of several commodities used to make specialty steels. Europe is in desperate need of clean energy and lowered carbon emissions.

Countries throughout the Western Hemisphere are looking for ways to become independent from Middle Eastern oil. There is no cease-fire negotiated yet with Gadaffi and now unrest haunts Nigeria and Algeria to add to the plentiful list of countries seized by revolution. Oil (iPath S&P GSCI Crude Oil TR Index ETN (OIL) prices are soaring but this crisis may be different than in the late '70s. Fuel-efficient vehicles and the use of rare earths and lithium have significantly advanced and are no longer a far-off dream. The costs for these vehicles had been prohibitive with cheap oil, but that may change more quickly than many may think. We are witnessing a crucial time where energy independence and fuel-efficient vehicles are no longer a luxury. With gas prices soaring the demand for hybrid and electric cars will increase. This should be quite beneficial to our rare earths and lithium investments. These commodities are what I consider 21st century gold and the precious metals for the next century.

This week a new bill was introduced to try to assist US rare earth miners to fast-track their mines. This action was predicted in my article "Rare Earth Prices Soaring: Will Miners Play Catch Up?" four weeks ago. Colorado Congressman Mike Coffman introduced the Rare Earth Supply-Chain Technology and Resource Transformation (RESTART) Act of 2011, which will give loans to the industry and speed up permitting. On March 9, I wrote the following as I was surprised that no US elected officials had proposed legislative action to build a US supply chain:

This shows the inaction of our elected officials, who have been more concerned with bailing out failed banks than securing a supply of precious heavy rare earths needed for our most crucial defense technologies.

I am glad legislators are becoming aware of this national security threat as this should have been done years ago so we wouldn't be in the situation today of groveling to China a la Oliver Twist. I applaud Coffman's actions as it will help many of the North American producers who may have had difficulties with the costs associated with such projects. It has certainly helped some of the rare earth investors who are witnessing huge gains from North American rare earth developers such Rare Element Resources (REE), Molycorp, and Avalon (AVL).

The key to this rare earth crisis is not just finding and producing the ore, but separating the rare earths into valuable refined products. Today's action is a step toward building a separation facility outside China and revitalizing a crucial and vital industry.

Disclosure: I am long AVL.