Jeffrey Hutton is a Morningstar contributor.

A decade ago, Alkane Resources (ALK) managing director Ian Chalmers undertook a feasibility study of his company's zirconia ore reserve just outside Dubbo, in NSW.

With the company's Peak Hill gold mine slated to wrap up production by the middle of the decade, the company was keen to get a jump on the next project. What Alkane found was that about 75 per cent of the Dubbo deposit was made up of metals like zirconium, half a kilo of which can usually be found in catalytic converters.

The rest was made up of something called rare earths, which are not exactly rare, but finicky to extract. But recent Chinese limits on exports of the metals have made them rare indeed, as the government hoards rare earths to bolster its electronics industry.

Now, elements such as dysprosium and terbium, which were worth only a few dollars a kilogram a few years ago, will comprise almost 40 per cent of the $1.2-billion mine's expected revenue.

While rivals such as Australia's Lynas Corporation (LYC) and Molycorp in the US are keen to take a slice of the growing demand for the material, Chalmers is confident that careful planning and intimate knowledge of the chemical make-up of the ore Alkane will mine will ensure steady returns for shareholders.

"There are few large-scale, non-Chinese rare earth projects. The pricing has only really changed in the past 12-18 months, which has enabled us to become viable and compete with the Chinese in terms of their price structure," Chalmers says.

"Each of these projects is quite different. The chemistry of the rocks is quite different. It's not just a function of grabbing something that somebody else has done, saying 'yeah, that'll work for us' and away you go. It's not that easy."

The economics underpinning the operation seem compelling. Rare earth elements are expected to be in short supply as gadgets such as mobile phones, as well as technology used in alternative low-carbon energy production, proliferate.

And the top three rare earth elements Alkane expects to churn out of its Dubbo deposit will be increasingly tough to come by.

Take neodynium, for example. It's a key component of ceramic capacitors - little gizmos used in electronic circuit boards to temporarily store electrical charges. Neodynium will comprise just under a third of the company's rare earth production at Dubbo, according to one analyst report. But by 2015, world demand for the stuff will be so intense it will outstrip supply by about 16 per cent, brokerage Petra Capital said in late November.

Prices have soared as a result. During the second quarter of 2010, neodynium sold for about US$31 a kilogram. By the end of November, the prices had climbed to about US$240 a kilogram, down from an average US$313 a kilogram during the three months ended September as users searched for cheaper substitutes.