Source:Streetwise Reports
There has been quite a bit of ink spilled lately regarding the Chinese—U.S. standoff and possible implications for rare earth metals. Rick Mills of Ahead of the Herd has written the best articles that I've read so far. Many rare earth metals companies have seen their share prices increase, some substantially. Yet, we are probably still in the early innings of a long, drawn-out game. Of course, no one knows how this will end, but select rare earth (REE) prices have begun to move higher. For instance, light rare earth element (LREE) neodymium oxide (Nd) is up > 22% in just the past few weeks. As of Friday, May 24, prices of praseodymium-neodymium oxide stood at 330,000-340,000 yuan/tonne, up from 264,000 yuan/tonne the week prior, according to SMM. That's up 26% in a week.
From a Global Times article: 'Why did the U.S. threaten to raise tariffs on essentially all remaining imports from China, while sparing rare earth metals? Without a reliable domestic supply, the U.S. must rely on China to supply industries of high strategic importance. China can raise prices of rare earth metals exported to the U.S. in response to higher tariffs on Chinese products. The U.S. decision to omit rare earths from the China tariff list shows how much the Country depends on these minerals. In the short term, U.S. users would not be able to find alternatives, so they would have to accept higher prices. China has various tools to influence prices, cutting the number of rare-earth mining licenses, raising market access standards for miners and reducing exports of primary rare-earth products.'
In addition to rare earths being in the crosshairs, security of supply of cobalt is also being discussed by industry participants, government, and trade officials in the U.S. While less critical then the highest value rare earth metals, lithium and cobalt are important, especially for grid-scale energy storage Systems. Last week, execs from cobalt companies with projects in the U.S. and Canada met in Washington, D.C., to discuss cobalt's tortured supply chain. Supply is at grave risk due to ~65% of it coming from a single country in Africa. Politicians talking about cobalt supply is helpful in framing the rare earth metals situation. Evidence that the trade war is heating up can be seen in higher rare earth metals prices. It’s as simple as that, and we're seeing higher prices of select metals.
The biggest increases have come from dysprosium (Dy), Nd and praseodymium (Pr), up by 56%, 22% and 22%, respectively, from 2019 lows, as of May 27. These three metals just happen to be three of the most critical metals for national defense applications, and are widely used in super magnets and in other crucial high-tech fields. In many uses there are few, if any, substitutes. Rare earth metals juniors are catching a bid: Appia Energy Corp. (APAAF:OTCQB), GéoMégA Resources Inc. (GMA:TSX.V), Rainbow Rare Earths (RBW:LSE), Greenland Minerals & Energy Ltd. (GGG:ASX), Northern Minerals Ltd. (NTU:ASX) and Peak Resources Ltd. are up an average of 114% from 52-week lows.
Interestingly, three of the top six performers I mentioned are Australian-listed, an exchange that most readers (and me) rarely, if ever, trade on. There are not that many North American-listed REE stocks to choose from. And, many of the U.S and Canadian listed names have projects that require hundreds of millions of U.S. dollars in capex. Others that were exciting in the last REE bull market have metals that are no longer as highly prized. In 2010–2011, there might have been six to eight REEs worth owning. Today, only three to four rare earth metals are truly bankable for the long run.
With that in mind, (wait for it; I have a stock idea to discuss) readers should want to invest in companies with LREE deposits, more specifically with deposits containing as much Pr, Nd and Dy as possible, and companies that have tight share structures so that if they move, the uptick could be very significant. Readers should look for companies with small market caps. Less money is being deployed into natural resource stocks, it's a lot easier to move a company with a market capCA$100M. Finally, a strong management team and board are paramount.