Originally published Apr. 19, 2023 by TraderStef on CrushTheStreet (updated)
The necessity for rare earth elements (REEs) has been discussed regularly in financial rags since the 1990s as China dominated rare earth mining and its industry of toxic processes to extract and smelt REEs from mined ore into usable elements. Beijing’s first attempt to weaponize REEs happened in 2010 by trimming export quotas, but the subsequent price spike for REEs sparked renewed interest in prospecting and mining those precious rocks around the world. The excitement generated over the prospects of reopening decommissioned mines and establishing operations for newly discovered deposits calmed the market, and prices returned to normal in a few years.
The same hype that spiked prices was responsible for the opposite reaction of returning prices to Earth, which resulted in the cancellation of many projects because the new math without profits no longer made sense. There are also environmental pollution issues associated with processing REEs that Western governments would rather not allow that China overlooks to keep their mining and processing costs at a minimum. China is once again planning to limit REE exports in response to U.S. sanctions on microchip technology and tensions brewing over Taiwan. I will cover that after revisiting some basic rare earth fundamentals.
“The Middle East has oil; China has rare earths.” – Deng Xiaoping
Here are two REE tables and an excerpt from “Rare Earth Trade War as an Ultimate War Trigger” Parts 1 and 2 published in Sep. 2018 and Oct. 2019:
“Wherever you look in the world, and especially in electronics, REEs permeate the manufacturing of cell phones, televisions, automobiles, computers, monitor displays, superconductors, magnets, alloys, renewable energy, medical devices, caustic cleaning agents, specialized glass, anti-counterfeit embedding, aerospace, lasers, various high-tech military applications, and many more… There are 17 known REEs found on Earth, and the word ‘rare’ connotes scarcity, but they’re abundant all over the world in small amounts. The term ‘rare earth’ came from their original discovery as only tiny portions can be isolated from larger quantities of more common elements. There are 15 metallic chemical elements with atomic numbers from 57 to 71 (lanthanides) and similar elements scandium and yttrium.” – TraderStef
China’s demonstrative control in mining and production of REEs woke up the West to its strategic dependency that threatens national security and prompted a process to begin weaning itself off Chinese imports. Japan is building trade relationships with Australia’s Lynas Rare Earths to eliminate imports from China, and Sweden’s iron ore miner LKAB recently discovered Europe’s largest deposit of REEs. The only U.S.-based REE mining operation that processes its ore onsite is MP Materials Corp.
MP Materials CEO on EPA regulation, China and REEs – CNBC, Apr. 12
The uranium mining industry is an example that’s dominated by Russia, and the war in Ukraine severely impacted trade deals with the West. U.S.-based Energy Fuels ($UUUU) is sending partially processed uranium ore to Estonia for refining and is also an emerging producer of REEs. North American-based Ur-Energy ($URG) is a premier uranium mining company that’s extracting and processing ore onsite using unique environmentally friendly processes. The uranium mining sector is covered in more detail in “Uranium Mining Stock Poker” published in Apr. 2022.
Despite efforts by the Trump and Biden administrations to ramp up REE production, it was too little too late. Tensions over Taiwan with China and the war in Ukraine have launched supply chain and diplomatic fallouts that show no sign of reversal, especially when BRICS+ nations, the Middle East, and Saudi Arabia are on a de-dollarization fast track (Twitter thread). Even though China was thwarted from purchasing mining deposits overseas by a few Western countries, the West is definitely in trouble and nowhere near mining or able to import the required supply of REEs in the near term.
China revealed new details yesterday about sanctions announced in February against U.S. military weapon manufacturers Lockheed Martin and Raytheon’s Missiles & Defense for supplying weapons to Taiwan. The sanctions include a ban on exports and imports from China “to prevent Chinese products from being used in their military business.” The U.S. already bars most sales of weapon-related technology to China, but there are U.S. military contractors that have civilian businesses in aerospace and other markets. The sanctions will also restrict the senior executives of both companies from traveling to China or working there. Lockheed has provided Taiwan with F-16 fighter jets, radars, and air defense missiles along with other equipment. Raytheon provided missiles, radars, and other defense products. Both companies formed a joint venture to manufacture Javelin anti-tank missiles that Taiwan purchased. Note that the above items were likely supplied to Ukraine to fight the Russian military in Donbas and China recently cemented an unprecedented alliance with Russia last month.
China’s role as the leading global exporter of rare earth minerals may become a challenge for all U.S. defense contractors in the near future, but the level of exposure to Raytheon and Lockheed is unknown.
Critical minerals take central stage in US-China rivalry… “Rumblings of a China ban on rare earth exports first emerged in 2019, which caused angst amongst Western powers, pushing them to consider other sources of supply and establish new partnerships. And while it has been ‘all talk, no action’ since, China’s threat remains a ticking time bomb. Things could be heading in a precarious direction, though, following Washington’s recent decision to impose restrictions on exports of high-end semiconductors to Beijing. Reports are coming out that China is now considering the possibility of banning certain rare earth magnet technology exports. The reality of China cutting off rare earths could prove catastrophic for the US, whose high-tech sectors imported 78% of their rare earth metals from China between 2017 and 2020, according to the US Geological Survey.” – Mining.com, Apr. 14
China weighs export ban for rare-earths… “Officials are planning amendments to a technology export restriction list, which was last updated in 2020. The revisions would either ban or restrict exports of technology to process and refine rare-earth elements. There are also proposed provisions that would prohibit or limit exports of alloy tech for making high-performance magnets derived from rare earths… The Chinese government, meanwhile, is looking to turn the country into a high-tech manufacturing superpower that can compete with the U.S. Because China is behind when it comes to advanced semiconductors, ‘they’re likely going to use rare earths as a bargaining chip since rare earths are a weak point for Japan and the U.S.’ said a source in the resources industry.” – Nikkei Asia, Apr. 6
Meanwhile, hundreds of military-age Chinese men are surging to the U.S. southern border as the Biden administration is about to ramp up pressure on China with additional actions that are forthcoming. Keep in mind that China has expanded a wartime military draft and is conducting military exercises that surround Taiwan in preparation for a naval blockade that would eliminate the shipment of microchips from Taiwan to the U.S.
Chinese Nationals Crossing the Darien Gap – Emerald Robinson Interview w/Michael Yon
White House nears unprecedented action on U.S. investment in China… “The White House is briefing industry on coming rules to govern American investments in China. But some key details remain up in the air… ‘It is important for the U.S. to be clear [that] we do not seek to decouple from China or seek to limit China’s growth in any way,’ Jay Shambaugh, Treasury’s undersecretary for international affairs, said during a discussion at the Brookings Institution last week. Though the U.S. will sometimes ‘take targeted national security actions’ aimed at Chinese firms, like last year’s trade rules targeting Chinese microchip makers, those policies are ‘not things we’re doing to benefit the U.S. economically vis-a-vis China.’” – Politico, Apr. 18
Consider the following stocks to keep on your miners watch list as the situation develops:
- $LYC – Lynas Rare Earths Ltd. (Australia ASX)
- $LYSDY – Lynas (U.S. OTC)
- $MP – MP Materials Corp. (U.S. NYSE)
- $REMX – VanEck Rare Earth/Strategic Metals ETF (U.S. AMEX)
China Successfully Countering U.S. Chip & REE Industry – China Focus CNF, Apr. 14 – CCP State Affiliated Presentation
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