Barry FitzGerald: Garimpeiro narrows in on Brazil as the rare earths tide turns

The ASX-listed rare earths stocks have endured a couple of miserable years.

Prices for the strategic/critical material cratered in response to China, the dominant force in the industry, effectively massaging prices lower from the peak levels seen in early 2022.

Throw in concerns about the uptake of electric vehicles and the plentiful supply thanks to surging output in Myanmar, and it is no wonder prices for the key magnet rare earths came tumbling down from that $US175/kg peak in 2022 to $US50/kg earlier this year.

But since June 30, prices have edged higher, reaching $US62/kg recently. A couple of things are at play.

Independence militants from a key rare earths mining province in northern Myanmar fighting the country’s military junta have (again) prompted the closure of the border with China, and China itself is now managing prices higher because even its industry was struggling to stay in business at $US50/kg prices.

In the meantime, the imperative for the rest of the world to reduce the over-reliance on the Chinese supply chain has not got away.

Sensing that the tide has turned for the beaten up rare earths stocks – market leader Lynas (LYC) has gained 26% since the end of June – Garimpeiro went hunting during the week for some junior stocks that are in line to benefit.

He narrowed his hunt to ASX juniors in Brazil, an emerging competitor to China’s low-cost production from ionic adsorption clay (IAC) deposits. Just as he was doing that, there was an important bit of news out from the Minerals Security Partnership (MSP).

The US-led MSP is a government partnership of 14 countries (including Australia) and the European Union that aims to accelerate the development of diverse and sustainable critical energy mineral supply chains.

During the week, the MSP added the new Pela Ema rare earths mine in Brazil’s Goias state – the first of the IAC projects to take on the Chinese – to its list of projects that are of critical importance to the global energy transition.

The mine is privately owned by resources funds and private equity under the Serra Verde Group banner, which have just kicked in $US150m to debottleneck the operation and to get moving on a possible expansion.

MSP didn’t contribute funds itself, but its recognition of the project prompted the US Department of State to separately welcome the move.

It’s important because there was a thought that US and EU government support for the growth of a rare earths industry in Brazil was verboten because of Brazil’s membership of BRICS, the governmental organisation that has just been hosted by Vladimir Putin at its annual conference held in Kazan.

It suggests that Aussie juniors looking to develop their Brazilian projects can look to tap in to the wall of funding available from the US and EU to build out a rare earths supply chain free from China’s control.

There are too many ASX juniors active in the Brazilian rare earths space for Garimpeiro to deal with all of them today. They are all worth a look given they have yet to benefit from the price bounce and Brazil’s clearance, as it were, from the MSP/US to become a major supplier.

Garimpeiro settled on Meteoric (MEI) and Viridis (VMM) in the end.

Meteoric Resources (ASX:MEI)

This one is well known to Stockhead readers. It was trading at 10.5c mid-week for a market cap of $240m.

It was a 25c stock a year ago so it can be said it has yet catch the tailwind of rising prices and the MSP/US endorsement of Brazil becoming an alternative to China.

The company is moving in to the financing stage for its Caldeira project with the benefit of an updated feasibility study which took in the high-grade Figueira deposit.

The update indicated that even at current depressed prices, Caldeira would be capable of generating returns of 22% with a payback of three years.

Chief executive officer Nick Holthouse said adding the Figueira tonnes “further improved the financial metrics of an already outstanding low cost REE development project.’’

Using an external long-term price forecast and then discounting it by 40%, the pre-tax net present value in the update increased to $US1.4 billion ($A2.1 billion). Ord Minnett has a 20c price target on the stock.

Viridis Mining and Minerals (ASX:VMM)

Another one well known to readers and another one that has yet to benefit from rising prices and the MSP/US endorsement of Brazil.

It was trading mid-week at 48.5c for a market cap of $35m. A year ago it was a $1.10 stock.

Another junior with a world-scale project on its hands, aptly named Colossus.

Colossus recently sailed through all-important metallurgical testwork.

Chief executive Rafael Moreno said the met work ‘’provided insight into the potential groundbreaking economics’’ of Colossus, and why it is has the ‘’potential to re-set the cost curve.’’

The company recently pulled in $4m from a placement to keep up momentum at the project. A resource upgrade is in the works, with the latest raising seeing the company through the definitive feasibility study stage to a targeted final investment decision by the end of 2025.