Rumours of China’s push to block rare earths exports to the US spurs rally in ASX stocks
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Speculation that China may ban rare earths exports to the US has seen investors flock to ASX-listed rare earths players.
Greenland Minerals & Energy (ASX:GGG) led the charge with its share price climbing nearly 54 per cent to around 11c over the past week. It’s up 53 per cent since the start of 2019.
Arafura Resources (ASX:ARU) jumped over 27 per cent to 6.5c and has gained 38 per cent since the start of the year.
Heavyweight Lynas Corp (ASX:LYC) and Alkane Resources (ASX:ALK) both shot up nearly 27 per cent to $2.41 and 26c, respectively.
Earlier this week China’s President Xi Jinping visited the JL MAG Rare-Earth factory, which manufactures magnetic rare earth elements, in Ganzhou.
Also on this factory tour was Vice Premier Liu He, who has been leading trade negotiations with the US, US trade representative Robert Lighthizer and US treasury secretary Steven Mnuchin.
These events have seen a raft of media reports surmise that Xi might be about to ban the export of rare earths to the US to “cripple” its opponent’s tech and military industries as well as force US President Donald Trump to back down.
Alkane managing director Nic Earner reckons this could be the “big shot in the arm” the industry needs.
Earner told Stockhead it might lead to big manufacturing houses or industrial chemical producers shifting away from Chinese supply and looking elsewhere for their needs.
“That would be the big shot in the arm for ASX-listed rare earths producers — but only a few,” he said.
“Only the ones that are not related to China through significant investment and/or part of their processing route.”
Alkane wants to bring its Dubbo rare earths project into production, but first needs to lock in buyers for its end product.
Earner said the China-US tiff was exactly what the company needed to propel its project forward.
“The issue is selling zirconium and rare earths — so neither of those do we have an offtake in,” he explained. “We’re constantly in discussions. A lot of people are trying to read the tea leaves of the market before they commit.
“But apart from that we are absolutely ready to rumble.”
Alkane owns all the land, has completed all the engineering and pilot plant work, has locked in all the necessary mining and environmental licences and just needs to press the go button.
“So we need some of this trade, China environmental concerns, we need that to land and for the investment community to make a decision where it’s moving in order for us to get the required offtake and subsequent investment in that project,” Earner said.
Northern Minerals (ASX:NTU) managing director George Bauk agrees China banning rare earths exports to the US could lift investment in rare earths.
The company’s shares gained 25 per cent over the past week and 25 per cent since the start of the year to trade at around 7c.
Northern Minerals became another significant heavy rare earths producer outside of China with the official opening of its Browns Range project in Western Australia in July last year.
“China long-term will be importing rare earths rather than exporting them anyway,” Bauk told Stockhead.
“So that’s one thing I think we’ve got to face, and I think this will hopefully start to really charge forward investment and people realising that we need to progress a number of projects.
“So I think for ourselves and others on the ASX it’s got to be good.”
Meanwhile, Arafura’s Nolans project in the Northern Territory will produce neodymium and praseodymium (NdPr).
NdPr is expected to play a key role in the rapidly expanding green energy and electric vehicle sectors, because NdPr is used to make high-strength permanent magnets for the drivetrains of next generation EVs.
Each EV also contains about 100 grams of dysprosium, and the price of dysprosium is up nearly 40 per cent this year.
With consumption of rare earths in the EV sector forecast to grow by 4 to 5 per cent a year over the next decade, questions remain over the ability to meet the industry’s rapidly increasing demands.
Managing director Gavin Lockyer told Stockhead that this latest move in the China-US trade war might stir up inward investment into non-Chinese NdPr supply from the US rather than from potential customers in the US looking for magnets.
“You might be looking at funds and those sorts of organisations looking at longer term investments in non-Chinese NdPr supply,” he said.
“I think that’s probably going to be an upshot from this sort of shorter term trade thematic in the market at the moment.”
Earlier this year Arafura released a definitive feasibility study for the project and has been in talks with potential customers at all points in the e-mobility supply chain in Europe, South Korea, China and Japan.
The DFS indicated the project will be a low-cost producer with a net present value (NPV) of $729m and internal rate of return (IRR) of 17.43 per cent.
IRR and NPV are used to estimate the profitability of a potential operation. The higher the number, the more profitable it is.