The trade war shows more and more signs of becoming a permanent fixture in our lives and especially in the world of investments. In our article about the possibility of the trade war becoming permanent, we discussed how both China and the U.S.A. view this issue in the broader scope of global power and homeland security. As such, both sides are ramping up their tariffs and making no-so-hidden threats about what comes next. One of the things that especially caught our attention was the Chinese threat to cut off the export of rare earth metals to the U.S.A. At this point, investing in non-Chinese rare earth producers might be a really good idea. The Streetâ€™s Real Money has an informative article about how rare-earth stocks strike gold at the prospect of a Chinese rare earth export cutoff.
Rare-earth miners toil in obscurity, operating a fancy-sounding but grungy business. They have hit pay dirt on the stock markets late this month, with it looking increasingly likely that China will restrict U.S. supply of the minerals they produce.
The Global Times, a mouthpiece for the Communist Party on foreign affairs, has run an article stating that it’s only a matter of time before China will “weaponize” its rare-earth exports in the trade war.
The shares of the listed miners operating in this space have surged. The CSI Rare Earth Industry Index (index code 930598) tracks 50 of these stocks, companies that mine, extract, process, trade or apply the minerals. The index is up 45.4% so far this year.
Real Money goes on to state this.
There are 17 rare-earth elements, metals used to make magnets for electric cars, earphones and computer hard drives. China accounts for 90% of global production and 80% of worldwide export shipments.
They go on to talk about a Chinese rare earth producer whose stock trades on the Hong Kong Exchange. We donâ€™t think that Chinese producers will be a good investment choice in this situation because they stand to lose if 1) they cannot export to the U.S.A. and 2) if more and more companies follow the ABC (anywhere but China) course for outsourcing their manufacturing. We think that investing in non-Chinese rare earth producers may be a better idea in case Chinese exports get cut off. And, if the trade war becomes even uglier, we may see countries like the U.S.A. find ways to subsidize rare earth producers through tax incentives and more.
Investing in Rare Earth Mining Operations
There are rare earth mining operations scattered across the globe. Here are the companies in the U.S.A, Australia, and Canada that mine rare earth elements and produce rare earth metals.
Rare Earth Producers in the U.S.A.
The one active rare earth mining operation in the U.S.A. is Alkane Resources Limited. (Mining Feeds Rare Earth U.S.A.)
This company has been a penny stock for the last twenty years with the exception of 2011 and 2012 when it â€œsurgedâ€� as high as $2.52 a share before falling back. Its mining operation was shut down for a while about a year ago but is open and producing again.
Rare Earth Producers in Australia
Australia has seventeen companies that do rare earth mining as part of their operations. (Mining Feeds Rare Earth Australia)
The list of Australian stocks is a better place to look for investing in non-Chinese rare earth producers because it includes mature and strong mining operations that are not totally dependent on profitable rare earth extraction and processing for their survival.
Rare Earth Producers in Canada
There are seventeen Canadian mining companies that extract and process rare earth elements as part of their operations. (Mining Feeds Rare Earth Canada)
As with the Australian companies, investing in non-Chinese rare earth producers will work better with Canadian companies that are large, have been in business for years, and have operations in numerous countries extracting numerous metals.
Rare Earth Elements Are Not Really Rare
Rare earth elements are not rare. They simply donâ€™t occur in the kinds of concentrations seen for copper, gold, silver, and other minable metals. This makes them more expensive to mine because a lot more ore needs to be extracted and processed than with other metals.
For more insight into Australian rare earth elements and rare earth production, you can look at information about rare earths published by the Government of South Australia.
Rare earths were named by Johann Gadolin in 1974 for a group of chemically similar, metallic elements with atomic numbers 57 through to 71.
In order, these are lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), promethium (Pm), samarium (Sm), europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er), thulium (Tm), ytterbium (Yb) and lutetium (Lu).
These elements are commonly known as the lanthanide series and are divided into light rare earths (lanthanumâ€“gadolinium) and heavy rare earths (terbiumâ€“lutetium). Scandium (Sc, atomic number 21), yttrium (Y, atomic number 39) and thorium (Th, atomic number 90) are also generally included in the rare earth group because of their similar chemical properties.
The rare earths were originally thought to be rare in crustal abundance but this is now recognised not to be the case and they have a similar crustal abundance to elements such as nickel, copper, silver, lead and tin. However, mineable concentrations are less common than for most other ores.
And, the lack of easily minable concentrations is what has hindered mining operations outside of China. China still has a lower wage scale than countries like Australia, Canada, or the U.S.A. And, the government heavily subsidizes these operations in various ways, not all of them plainly visible from outside the country.
Investing in Non-Chinese Rare Earth Producers
Our considered belief is that threats of cutting off rare earth exports by China will at least temporarily drive up stock prices and make investing in non-Chinese rare earth producers more profitable. Over the longer term, governments in countries like the U.S.A., Australia, and Canada will be able to mine these elements because they are common and can be extracted from things like coal deposits. Higher prices will make these operations more profitable and to the extent that their production is seen as critical to national economies and national defense, governments will find ways to subsidize such operations to ensure their long term survival and success.