Last week, I talked about how rumours of a Chinese export ban may spur a rare earths boom.
Well, in the span of just eight days, it seems as though the boom is already underway…
Despite no confirmation from China regarding the potential ban just yet, investors aren’t waiting around to find out the hard way. They’re already piling into a handful of local explorers in the hopes of building out a rare earths supply chain free from China’s whims.
As our own resources minister, Madeline King, confirmed yesterday:
‘“China enjoys an unchallenged position across many aspects of the global critical minerals market, having invested in its sector for decades,” she said.
‘King said “likeminded partners” can work together to build sustainable supply chains and hedge against such concentration.
‘She also acknowledged “the leadership and foresight” of the US and Japan, with both countries becoming key investors in Lynas Rare Earths, which is the only major rare earths producer outside China.’
As I explained last week, Lynas was one of the lucky rare earth players to survive the last bubble…now they’re one of the most important mining companies in the world, thanks to these geopolitical games.
But the real winners this week have been the up-and-coming rare earth explorers…
Major deals and major finds
Arafura Rare Earths [ASX:ARU] and Australian Rare Earths [ASX:AR3] are two standout stocks this week. Because while everyone else is worrying about inflation, these two rare earth explorers have been making major moves.
The bigger of the two, Arafura, is, in fact, well on its way to challenging Lynas’s title as the sole producer outside of China. Just more than two weeks ago, it received a conditional loan of US$600 million from German insurer Euler Hermes Aktiengesellschaft.
That money will help the company bring its Nolans project online and help supply the world with more rare earth materials. The only catch is that Arafura had to enter some off-take agreements with German companies in desperate need of these critical minerals.
Well, as of this Tuesday, that’s exactly what they’ve done.
You can read about the details of the deal here. But the long and short of it is that Arafura has agreed to supply a global wind turbine manufacturer. And with this agreement in place, the Nolans project has now locked in roughly 53% of its targeted output in offtake deals.
A big win for a rare earths company on the rise.
But it wasn’t the only rare earths stock making moves this week.
The much smaller but no less exciting AR3 has had big news to share recently as well. Management announced some exciting updates to its Koppamurra project last week. And while the announcement didn’t make many waves initially, once the story was picked up and covered in The Australian over the Easter weekend, it sent the stock soaring on Tuesday’s market open.
From trading at just 26 cents per share at the close of last Thursday, AR3 shares are now sitting at 50 cents per share.
This kind of return certainly isn’t uncommon for a stock with less than a $50 million market cap, but it’s the way that it’s happened that is remarkable.
It goes to show just how much influence the media can have on a stock’s performance. Not to mention how overlooked some of these niche miners can be too!
European demand is key
Like I said last week though, this time around, the rare earths trend is far more interesting for long-term investors. Not just because China’s threat to ban exports needs to be taken seriously, but because demand from regions like Europe is only growing.
This isn’t like 2011, rare earths are known as critical minerals because they are just that…critical.
And when it comes to Europe, sourcing these minerals locally isn’t easy. But they’re certainly trying, as our resident commodity guru, James Cooper, recently noted himself:
‘In a reflection of the seriousness of the situation, for the first time, the European Commission is looking to unlock its own supply of critical metals.
‘It’s an unprecedented move.
‘Unthinkable in the dark days of colonialism, where European countries sourced most of their raw materials from faraway lands.
‘But it’s a decision based on sheer need…Europe has lost much of its former colonial influence in these mineral rich nations…China controls those supply chains now.
‘No longer does Europe have the luxury to say “not in my backyard” anymore.
‘That’s why, on 16 March 2023, the EU announced it would look to fast-track mining approvals and incentivise developers operating on European soil.’
Yet even with this kind of push from politicians, they can only do so much. They will still need to rely on countries like Australia and Canada to meet all their demand. That’s why Arafura managed to secure this loan and off-take deal with German buyers.
For local investors like yourself, this is also why you should be looking to invest in rare earths.
Because whether the China ban comes into effect or not, buyers can’t afford to take the risk. They need supply chains of these minerals outside of Beijing’s influence, and Aussie miners like ARU and AR3 could be the big winners because of it.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
