Rare earth elements
A trade war, tech, EV & defense play
It’s no secret that USA and China are battling hard but few know that China has an Ace up her sleeve. Rare earth elements are almost exclusively produced in China with over 80% of the global market. They are used in technology products from smartphones to F-35s. That’s why China recently imposed a ban on selling these to Lockheed Martin (LMT).
This is a geopolitical, EV car, tech and defense play simultaneously.
Of course USA needs to make a move and they did, back in November when an MoU was signed between Washington and Canberra and the Australian government will give loans and try to incentivize the industry. Matt Canavan, the minister for resources, said Australia could supply the US with at least nine of the 14 critical minerals it needed to power its high-tech and defense industries and would make investments to enable that. Another global mining player is Canada. This can be a 4-way game with USA,EU,CA,AUS all co-operating against China while the only one that would have a slight problem with that would be Australia since they have very strong trade connections with China.
In 2018, the United States was completely dependent on imports for at least the following 18 mineral commodities:
Arsenic, asbestos, cesium, fluorspar, gallium, natural graphite, indium, manganese, natural sheet mica, nepheline syenite, niobium, rare earths, rubidium, scandium, strontium, tantalum, thorium, and vanadium.
Chamath Palihapitiya, a high profile SV investor tweeted about his views.
I have identified a list of potential companies that can benefit from this trend listed below:
Lynas (LYC) is the biggest miner worldwide and directly identified in the signed agreement.
FVAC is the investment vehicle that will merge to become the first REE mining company in USA.
Northern Minerals (NTU) is also identified by the AUS gov to be boosted financially.
Peak Resources (PEK) has a REE mine in Tanzania and is also into licensing & RnD.
Arafura Resources (ARU) is starting up a big mine in early 2022, now in contract seeking period.
Jervois Mining (JRV) is a cobalt - nickel play with mining in Africa. Elon Musk was begging for more nickel production lately. It also has a strong buy rating from Reuters Refinitiv.
Pensana Metals (PM8) is into gold and REE in Tanzania & Angola. Lately signed an agreement with China for co-production (unsure how good is that though).
Hastings (HAS) environmentally friendly miner that recently signed an agreement with German EV company Schaeffler.
Alkane (ALK) is primarily a Gold (GLD) producer with a large construction ready mine for REEs which is eligible for government funding.
Tempus (TMR) diversified miner with Gold, REEs and Iron Phosphate which is sought out by Tesla’s (TSLA) new batteries.
Commerce Resources (CCE) is a REE miner in Quebec. Very tiny mcap, watch out!
My investing philosophy on this kind of plays can be summarized here in my previous article about constructing your own ETFs and this is pretty much what we are doing here by using diversification to keep us safe from unknown risks. Nobody except the board participants of these tiny cap companies know if they are getting funding, what their mining process requires etc. We are just betting in that the whole sector will go up. FVAC,LYC,ALK and NTU are the safest bets in this list.
On the other hand a safer play would be VanEck’s REE ETF (REMX) which has been gaining nicely lately, but this is *NOT* what my post is all about because it’s top holdings are all Chinese companies.
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