Barry FitzGerald: A couple of 'critical minerals' stocks to watch as China tenses up

Governments around the world are concerned about China’s supply grip on a suite of so-called critical minerals and metals.

It is not a new fear but the concerns have escalated in recent times due to China’s tetchiness with the rest of the world across any number of issues.

The fear is that if push were to come to shove, China could use its grip on supplies of critical minerals in a coercive manner.

The US, Japan, Korea, India, Europe and the UK are taking the over-reliance on China for critical minerals very seriously, and have turned to Australia as a mining nation for help.

Would you believe, Australia now has a Critical Minerals Facilitation Office (CMFO) to co-ordinate the nation’s response to supplying as many as 25 of the minerals that have made it on to the “critical’’ lists of the concerned nations?

As the CMFO explains, global demand for our resources has broadened in recent years to include minerals used in a range of emerging high-tech applications across a variety of sectors such as renewable energy, aerospace, defence, automotive (particularly electric vehicles), telecommunications and agri-tech.

“Known as critical minerals, this group of minerals is considered essential for the economic and industrial development of major and emerging economies,’’ the CMFO said.

All that is a bit to highfalutin for Garimpeiro. Having said that though, it is clear that governments – and companies dependent on critical minerals supply – are going to be more supportive than they have been in supporting new projects independent of the Chinese supply chain.

Expect that to unfold across many different critical minerals, and in many different ways.

Garimpeiro has gone looking for a couple of names with exposure to the critical minerals thematic, one that is expected to gather momentum in the “greener’’ post COVID world.

Australian Strategic Materials (ASX:ASM):

Everything that Australian Strategic Materials plans to produce from an integrated development of its Dubbo project in central-western NSW appears on the critical lists mentioned earlier.

The truth is that has been the case for years, with the project the subject of numerous studies over the years but no action on the development front to date.

Previously housed within Alkane, ASM was demerged into a stand-alone company on the ASX on July 30 on the basis of one ASM share for every five Alkane shares held.

ASM started out at $1.40 a share (effectively 28c an Alkane share) and has since taken off to $2.27 (45.4c an Alkane share) for a market cap of $270 million.

The share price strength is a sure signal that Dubbo is on the move, with Korea “Inc’’ (government and business) expected to get behind the project to sponsor a new supplier in the zirconium and rare earths space.

Recent success with a patented low-energy metal refining technology is also causing excitement.

There was no song and dance from ASM in a recent presentation on the project lodged on the ASX.

But followers of the stock were blown away by the reference to the company “implementing a growth strategy with Korea to deliver metals and metal alloys for Korea’s technology manufacturing industries”.

Added to that was a timeline suggesting that before this year is out, there will be news on a strategic partner and offtake arrangements for the project, leading in to project financing and a potential metal producing joint venture.

King Island Scheelite (ASX:KIS):

Garimpeiro mentioned King Island Scheelite in September last year on the strength of its critical metal credentials, namely tungsten.

KIS was a 7c stock back then and is now 6c. The company is looking to revive the famous – in mining circles at least – Dolphin tungsten mine near Grassy on King Island’s southeast coast.

The high-grade mine operated intermittently between 1917 and 1992, with tungsten’s critical role as a steel hardener giving rise to prime years for the operation during the First and Second World Wars, and the Korean War.

The strategic appeal of tungsten comes through loud and clear there. In addition, there is a bunch of new and grower applications that has the world worried about China’s 80%-plus grip on supplies.

Tungsten prices have taken a back seat of late due to the impact of COVID-19 on industrial production. But the outlook is improving as China’s producers face cost and environmental pressures.

Add the broader “strategic’’ overlay of tungsten, and it was no surprise to see KIS recently sign up with commodities trader Noble Group for the supply of 1,500tpa of tungsten concentrate over an initial three years.

Combined with an earlier offtake agreement, KIS now has nearly 70% of Dolphin’s initial production covered. It has given fresh momentum to KIS meeting its near-term first production target.