Barry FitzGerald: Here’s a couple of potential stayers to hitch back onto a very oversold rare earths bandwagon
Funny goings-on in the rare earths market.
Prices have weakened yet China is again said to be looking to weaponise its dominance of the industry for use in its trade wars with the US, and others.
Normally that would fire up the rare earths market. But it hasn’t, so far anyway.
Then there is the question of whether the current price weakness is real anyway.
There are thoughts that China has managed spot or export prices lower while maintaining domestic prices, again as a way to stick it up the West, as the late and great Aussie Rules footballer Ted Whitten would have put it.
Industry consultant Adamas Intelligence has a more sophisticated assessment of what could be going on.
“Ex-China rare earth concentrate prices are being driven down by a drop in spot prices (to the benefit of importers) while the value of rare earth oxides and metals these concentrates yield in China has largely held its own year-to-date.’’
“(The) winner amidst this unprecedented delta – China. (The) loser – everyone else,’’ Adamas said.
Managing a slump in prices puts pressure on the supply response that stepped up in US, Europe and non-China Asia after the COVID pandemic highlighted the fragility of global supply chains, particularly when a supply chain like rare earths is dominated by a tic-tac-toe geopolitical player like China.
It is in China’s interest to slow or halt the supply response by taking some short-term price pain on exports.
That prices for rare earths, including the highly prized ones used in permanent magnets in EVs, wind turbines and a whole lot of other things, have taken a hit of late is reflected in the 19% share price hit the lead ASX rare earths stock Lynas has taken since the start of the year.
Yet “Japan Inc”, in the form of a couple of Japanese authorities charged with ensuring Japan has access to the commodities it needs, recently pumped another $200 million into the company to ensure the country remained at the head of the queue for permanent magnets from Lynas material until 2038.
Japan has a car and consumer electronics industry it needs to protect. So it is looking beyond the current price slump to make doubly sure it has rare earths supplies when it needs them, remembering China froze supplies to Japan over a maritime border dispute in 2010.
One certainty beyond the latest goings-on in rare earths is that demand for the magnet material is set to grow exponentially in the years ahead. It’s why Garimpeiro went hunting in the ASX rare earths sector during the week, the idea being that the sell-off in stocks has seen long-term value return.
METEORIC (ASX:MEI): Trading mid-week at 10.5c for a market cap of $182m. Garimpeiro mentioned this one in January when it was a 6.5c stock on the strength of its pick-up last year of the high-grade Caldeira rare earths project in Brazil.
The company is convinced it is a potential Tier 1 asset and has said so in ASX announcements. We are about to find out as a maiden resource estimate is due before the end of the month.
Garimpeiro’s Brazilian cousins are convinced world-scale tonnage at shallow depth, and a remarkably high grade for its the ionic adsorption clay-type mineralisation, will be reported.
As mentioned in January, rare earths in ionic clay deposits are held on the outside of the clay lattice by an ionic bond which put simply, can be “washed’’ off with a desorption agent. It is the style the Chinese mine and process.
The simple metallurgy makes for low capital and operating costs compared with hard-rock rare earth deposits.
A funny thing about Caldeira is that one of the Japanese government bodies that pumped money into Lynas to secure future supplies explored the project between 2016-2019, and found ultra high-grade mineralisation from surface.
But to complete its entry into the project, the Japanese body was faced with a tonnage-based royalty, with the suggestion being that as Caldeira is so big, its entry price would have been prohibitive.
Meteoric has a simpler cash-up-front and shares deal which was recently completed by the payment of an initial $US5 million of the $US20m cash component of the deal.
ARAFURA RARE EARTHS (ASX:ARU): Trading mid-week at 49c for a market cap of $1.03 billion. Billion dollar companies don’t normally get sighted in Garimpeiro’s column.
But he has been following Arafura for so long, he might as well keep going, particularly as there is now a line of sight to the company getting its Nolans project near Alice Springs into production.
It is a big project with a $1.3 billion capex cost. But when in full swing it could generate annual earnings of more than $570 million.
More to the point is that the world needs 10 Nolans to meet the supply gap coming by 2030 in rare earths supplies.
To get to this point there has been all sorts of support for Nolans from government and export credit agencies, here and overseas – such is the concern about the coming shortage and China’s ability to play funny buggers in supplying other countries.
Earlier this week the German wind turbine manufacturer Siemens Gamesa signed an offtake agreement covering magnet rare earths from Nolans. It adds to those with Hyundai/Kia and others under negotiation for the project which is aiming for first production in 2025.