Rare earths have been getting lots of attention recently, and so have companies with rare earths development projects.
Rare earths are the latest resource to burn under the spotlight of the trade war, with the world’s primary producer — China — seemingly considering leveraging its dominant position in the supply chain to bring a whole lot of pain to negotiations with the US.
Despite having its own reserves and its own output, the US is heavily dependent on rare earth imports from China, which also has a stranglehold on processing capacity, putting the US in a precarious position should China choose to start applying pressure.
From reports over the last few weeks, that appears to be exactly what China is thinking about: in a move that made trade war watchers sit up and take note, President Xi Jinping visited a major rare earth-dependent factory alongside Vice Premier Liu He, who is China’s lead trade negotiator with the US.
While Jinping’s visit was just that, a visit, talk about restricting rare earth imports to the US has also been present within the media in China.
What’s more, China’s willingness to limit exports of rare earths in disputes with trading partners is well known. It restricted rare earth shipments to Japan in 2010 over a fisheries dispute, so negotiations with the US in the trade war are likely fair game.
As mentioned, that’s a problem because the US relies heavily on China for rare earths supply, as does the rest of the world — outside of the Asian nation, there’s only one other significant producer of rare earths: Australia’s Lynas (ASX:LYC,OTC Pink:LYSDY).
Lynas has assets in Australia and Malaysia and recently announced plans to develop rare earths processing capacity in the US alongside a local downstream rare earths processor. Its share price has soared by over 50 percent year-to-date, with much momentum coming in the last few weeks.
While Lynas has seen plenty of movement, so have companies developing rare earth assets. The Investing News Network (INN) reached out to rare earths-focused companies with properties in Canada and Australia that their respective governments deem significant to find out whether the sector has been getting extra attention.
The answer was a resounding “yes,” with each pointing to the trade war as the reason why.
INN also asked them how they feel about that extra attention, and the response was predictably one of thoughtful elation.
“It’s free marketing right now,” said Defense Metals (TSXV:DEFN,OTCQB:DFMTF) Vice President of Communications Todd Hanas. Defense is developing its Wicheeda rare earth project in BC.
Hanas said that what is happening in the rare earth space has been a long time coming. “This has been stirring for a long time and it’s finally here — it’s real.”
He added that junior miners with advanced projects “are going to do well.” He explained, “(The news) couldn’t be better timing for us in regards to Trump finally realizing this can’t go on.”
Defense’s share price peaked in late May at C$0.22, up from C$0.145 at the start of the month.
Avalon Advanced Materials (TSX:AVL,OTCQB:AVLNF) is developing its Nechalacho project in the Northwest Territories of Canada. President and CEO Don Bubar said that the current situation was just a matter of time given the trade war.
“China threatening to weaponize rare earths in the context of the trade war with the US was highly predictable. We saw it coming when Trump first announced he was imposing tariffs on China last year.”
Bubar added that the world has done little to wrest control of rare earths from China after it inflicted pain on Japan in 2010.
“China still largely controls the global supply of rare earths and the ‘magnet rare earths’ (neodymium-praseodymium-dysprosium), in particular, remain critical ingredients in a growing list of new technologies, including electric vehicles, as well as defense applications.”
Avalon’s share price went from C$0.045 on May 17 to C$0.16 on May 30.
CEO and Director of Canada Rare Earth (TSXV:LL,OTC Pink:RAREF) Tracy A. Moore told INN that whether or not China actually applies any pressure through rare earths, this is a teachable moment.
“The possibility of a disruption to the supply of rare earths is a major concern whether the disruption actually occurs or whether there is a threat,” she said.
“The fact is: one country with centralized planning and significant amount of control over its individual industry participants acts as an oligopoly if not a monopoly.”
Canada Rare Earth has enjoyed a similar bounce in value through May.
Greg Andrews, president and CEO of Search Minerals (TSXV:SMY), said that the renewed interest in the sector is going to be good for the company as it has been advancing its Newfoundland and Labrador projects while the market was depressed. “We are poised to capitalize on the renewed interest,” he said.
In Australia, Northern Minerals (ASX:NTU) Managing Director and CEO George Bauk said that while the use of rare earths as a weapon in trade negotiations isn’t unprecedented, “development of alternative rare earth supplies is not something that can occur overnight.”
He added that while existing projects outside China such as Lynas’ Mount Weld and Northern Minerals’ Browns Range could potentially take away China’s ability to cause pain, “they are limited by time and other factors in how quickly they can react to changes in the market.”
Northern Minerals actually had a drop in value around the same time all the others were going up, falling from AU$0.076 to AU$0.058 on May 17. However, it has been trading well up since March, when it announced an attractive maiden mineral resource for the Dazzler deposit at its Browns Range project.
Nic Earner, managing director of another Australian miner, Alkane Resources (ASX:ALK,OTCQX:ALKEF), said the company has long been aware of the danger China poses to the rare earth supply chain.
“The trade war is simply bringing this risk into both focus and genuine impact. This is compounded by the actual rapid rise in demand of rare earths without an adequate supply response.”
Alkane is primarily a gold miner, but it describes its Dubbo project in Central New South Wales as “set to become a strategic and significant producer of critical materials for advanced technologies.”
Alkane was also well up on May 17, reaching a high of AU$0.35 on May 31.
Aiming for the US?
With so much talk about how China fits into the rare earth market, INN also asked each rare earth company whether it is specifically targeting the US for its product and got a mix of responses that overall skew towards “yes.”
Alkane in particular stressed that it is positioned to cater and supply to US customers.
“Alkane is one of the few rare earth element opportunities out there that doesn’t have a significant Chinese shareholding on its register or offtake into China as part of its processing route, a fact that most people seem to ignore,” said Earner.
Avalon’s Bubar said the company is “a natural supplier to the North American market. “The key is to work with other rare earth refiners outside China to create a new alternative supply chain for end users outside China.”
Northern Minerals’ Bauk said, “Northern Minerals is happy to discuss the company and its projects with all parties. We have made several trips to the US over the past 18 months. However, we are not restricting ourselves or focusing on one jurisdiction over another.”
Bauk did say, however, that Northern Minerals is looking into refining its product further to produce rare earth oxides, and “by producing these products, we have the potential to supply direct to permanent magnet makers and bypass Chinese downstream producers.”
Moore at Canada Rare Earth said that the US is “just one of a number of countries we serve.”
Defense Metals is very much aimed at the US, said Hanas, who commented, “That’s why we spelled our name ‘Defense’ with an ‘S.’” That is, of course, the American spelling.
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.