Barry FitzGerald: A couple of REE juniors with costs low enough to survive China's chokehold

For all the taxpayer dollars being thrown at the rare earths producers and developers by Canberra, Washington and elsewhere, you would think that demand and pricing for rare earths has taken off like no tomorrow.

But here we are with prices at four-year price lows of $US45-$55/kg, a level at which ex-China producers struggle to make a buck.

It has got to be frustrating for the governments because they want to break China’s stranglehold on the supply of the rare earths which go in to permanent magnets in EVs and windmills, and a whole suite of defence industry applications.

Government intervention with all sorts of incentives can only go part of the way. Higher prices are needed if China’s rare earth curtain is to be brought down.

But if the stuff is so important from a strategic standpoint, and has clear stunning demand growth projections fuelled by EVs, renewable energy, stepped up defence budgets, etc., why are prices crapped out?

Part of the answer is China’s control of the external market through quotas to keep prices below what the private sector in the ex-China world would consider an incentive price to get cracking on building an ex-China supply chain.

Current prices certainly don’t provide an incentive, with Benchmark Intelligence suggesting nearly 50% of pipeline projects require $US115/kg and more to make a 15% profit margin, while just 12% could get by at $US60/kg.

To Garimpeiro’s way of thinking, the ex-China world should focus on the lowest cost supply response because it is going to be decades before China loses its grip on its rare earths version of OPEC. If it wants prices to remain below incentive levels, so it will be.

Best then for the ex-China world to take China on as the lowest cost producer. Government incentives help, but low cost production is the best weapon of attack.

There could be no better place to achieve that goal than in Garimpeiro’s second homeland of Brazil. Its high-grade ionic clay adsorption (IAC) and hard rock rare earths industry is emerging as a disruptive force, to the Chinese rare earths industry that is.

Brazil’s IACs and high-grade hard rock projects are shaping up as low capex and low opex operations able to match it with China’s own IAC industry which is a big part of how it controls the rare earths market. A bunch of ASX companies have been leading the way in the Brazilian charge.

The resultant share market value creation for them has been fast and substantial, just how Garimpeiro likes his caipirinhas. Meteoric (ASX:MEI) and Brazilian Rare Earths (ASX:BRE) are way out in front and now sport market caps of $370m and $660m respectively.

There are a bunch of other ASX companies active in Brazil with smaller caps, Garimpeiro’s natural hunting ground. He came across two this week with near-term newsflow which could well cause a bit of a buzz.

Equinox Resources (ASX:EQN): Trading at 33c mid-week for a market cap of $40m. It has got a bustling former Fortescue, Northvolt and BHP operative in charge, Zac Komur.

He is over in Brazil now helping to finish up a maiden drill program at the Rio Negro hard rock/clay prospect in Bahia state, 20kms from BRE’s recent Pele discovery. Initial drill results are expected in mid-June.

Rio Negro was picked up in the good old-fashioned way of staking the ground, as was the company’s Marta das Corda project in the state of Minas Gerais where surface and channel clay sampling has returned high-grade assays. A drilling program there is being planned for the September quarter.

Viridis (ASX:VMM): Trading mid-week at $1.58 for a market cap of $100m. It has been busy at its Colossus project in Minas Gerais and is planning to release a maiden resource estimate next month.

Its focus now is very much on infill drilling and metallurgical testwork for mine planning. To that end, a scoping study is expected in the September quarter, rolling in to a preliminary feasibility study.

Beijing will be looking for a copy.