December 20th, 2019 | 11:11 CET
Lynas Corporation, Mkango, Ucore Rare Metals - who will benefit most from the U.S. Army?
The market for rare earth elements is dominated by the People's Republic of China. Worldwide production of rare earths in 2018 was around 170,000 tonnes, of which 120,000 tonnes came from China. This shows how much the global industries have become dependent on a good relationship with China. In 2010, following a diplomatic dispute with Japan, the People's Republic restricted exports, which caused prices for niche metals to skyrocket.
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Author:
Mario Hose
ISIN:
AU000000LYC6 , CA90348V1031 , CA60686A4090
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Author
Mario Hose
Born and raised in Hannover, Lower Saxony follows social and economic developments around the globe. As a passionate entrepreneur and columnist he explains and compares the most diverse business models as well as markets for interested stock traders.
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Political Cooperation with China
Rare earths are important raw materials for mobility with electric drive motors, the generation of wind energy and modern communication with smartphones. Of course, the use of rare earths can be listed by a multitude of other applications, but the current mainstream topics make it clear how much the success of these projects depends on political cooperation with China. The supplier issue is particularly critical in connection with the national security.
U.S. Army has financial leeway
The trade dispute between China and the USA is about many issues, but also about rare earths. With a military budget of over USD 600 billion per year, the US understandably has a problem with remaining dependent on the emerging China. In this context, it was recently announced that the US Department of Defense is looking for ways to secure procurement in North America. Given annual military spending, building a pilot plant costing up to USD 20 million or completing a plant costing over USD 100 million is certainly not a problem. The U.S. Army wide financial latitude for national defense.
Development between the major powers
This development between the two major powers will also be exciting for companies that deal with rare earths on a daily basis. Lynas Corporation from Australia is one of the already established companies in the scene. The company currently has a market capitalization of just over EUR 1 billion. Ucore Rare Metals is a small player with a market capitalization of around EUR 36 million. The Canadian company with projects in Alaska may benefit from an initiative of the U.S. Army for obvious reasons.
Rare earths in Malawi
The developments around the Canadian company Mkango will be very interesting in the coming days and weeks. The company has several rare earth projects in Malawi, one of which is called Songwe Hill, and a bankable feasibility study is currently being conducted for this project in partnership with Talaxis. Talaxis will bear the cost of this feasibility study and subsequently, depending on the outcome of the study, the project will be brought into production.
Partnership with potential
On December 9, 2019, Talaxis' owner holding company, Noble Group Holdings Limited, signed a Memorandum of Understanding with Chinalco Guangxi Nonferrous Rare Earth Development Co, Ltd for a potential supply of 42,000 tons of rare earths. This volume corresponds to approximately 25% of the world's annual production in 2018. The press release also explicitly mentioned Mkango's Songwe Hill Project. As of September 30, 2019, Mkango had over USD 10 million in cash on its balance sheet and its market capitalization is currently EUR 12 million.
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