How to Play the Rare Earths Boom
Prices of rare earth metals, as well as shares of mining companies in the west, went higher this week, thanks largely to the news of China looking to restrict exports to other countries. Demand for these metals was already on the rise with countries looking to rebuild their economic infrastructure in a more environmentally friendly way.
Rare earth elements are primarily used in the defense, energy, and electric vehicles industries. There are seventeen rare earth metals in total but they are scattered across the earth’s crust which makes them extremely expensive and difficult to mine.
Around 80% of the world’s rare earth metals are currently being mined in China. The remaining mining is primarily done in Africa. However, even those metals need to be exported to China for processing. In short, China enjoys a near-monopoly on metals and intends to use that to hurt the US in the trade war.
America’s reliance on China
The Americans use these metals in microchips, wind turbines, fighter jets, drones, and many other things. Politicians have long known that China could play the rare earth card any time. Last year in April, the Pentagon allowed setting up two processing plants in California and Texas. Later the same year, Donald Trump struck deals with Australia and Canada to reduce reliance on China.
This week, the UK company Bluejay Mining was offered a 208 million dollar loan to set up a rare earth minerals site in Greenland, the same country Donald Trump offered to buy due to its richness in rare earth metals.
The quest for rare earth metals has the potential to turn into a new cold war. The Chinese government has already restricted imports from Australia due to the country’s coverage of China’s handling of COVID-19. That hostility may soon turn towards the Americans, which is why they do not want to rely on the Chinese for access to these metals.
Effects on the market
With an increase in demand on the horizon, shares of rare earth metal mining companies have shot up. The prices of the metal themselves have gone up, too. NdPr (neodymium and praseodymium) has gone up $72,543 per tonne from just above $40,000 last year. In the last month alone, the price has shot up about $10,000.
What’s the play here?
Here are three companies on the London Stock Exchange that are worth taking a look at.
Rainbow Rare Earths
Rainbow Rare Earths experienced a boom in its stock price 3 years ago. The boom was short-lived as investors soon fled the stock and moved to safer and bigger names in the same industry. Now, however, the stock is back and is positioned favorably to provide better returns. The company management is working on expanding its exploration activities in Zimbabwe.
The company also has a new CEO, George Bennett. He has 1.5 million dollars of his own money in the business making him the second-largest shareholder. With his own money on the line, the CEO himself sees the opportunity the stock provides.
Mkango is a Toronto-based company. It has mining projects in Malawi but needs to export the metals to China for processing. The company is working on reusing rare earth metals that come to the end of their lives when used in turbines. Their prospects looked good and with a listing in the London Stock Exchange, UK-based investors can use the opportunity to buy a Canadian company.
Pensana Plc has assets in Angola, which are under feasibility review at the moment. Pensana plans to process its metals in the UK instead of China at the Saltend Chemicals Park facility in the Humber. The company is attractive because of its unique independence from China. Its stock reacted slowly to the recent boom in rare earth prices, but if the US government shows interest and backs the company, the stock could skyrocket.