March 10th, 2021 | 09:36 CET
NIO, Defense Metals, Baidu - it's five to twelve!
Table of contents:
Two problems, no solution
The Western world should have acted back in 2010 when China first limited export volumes for rare earth metals. Prices skyrocketed at that time, and the German government wanted to tackle a raw materials strategy. We currently see how long such things can take regarding masks, vaccination programs, and rapid tests in the fight against the Corona pandemic. In 2021, we are facing the same challenges worldwide, but the problem has become significantly greater. One is the fact that global demand for rare earth metals is increasing dramatically. The electric car industry alone recorded sales figures of almost 100% last year. In this industry, rare earth metals are needed for permanent magnets that drive electric motors.
Pressure from China
This shortage is also being exacerbated by the trade war between China and the USA. At the moment, 80% of rare earth production occurs in China, which has a virtual monopoly. For some time now, the Middle Kingdom has been restricting the supply for export. Now the Chinese want to go one step further concerning sanctions against the USA. Thus, the plan is to set up export controls for 17 rare earth metals. The aim is to curb the production of US fighter jets. Similarly, a blacklist is to be created, listing mainly defense companies such as Lockheed Martin, Boeing and Raytheon, which are supplying arms to Taiwan. The US alone invested USD 732 billion in armaments in 2019.
But it is not only the defense industry that depends on exports from China. Thus, the shortage for new technologies will become dramatic in the coming years. Alternatives are urgently sought outside China, which governments already subsidize. Therefore, the goal must be to ensure a secure supply chain for rare earth outside of China. With the Wicheeda rare earth project, the mineral exploration Company Defense Metals offers one of the most promising alternatives. Within a few years, the resources and the value of the deposit could be almost doubled. The project offers an outstanding infrastructure and shines with low pilot and drilling costs.
In early March, extremely positive results were also reported from hydrometallurgical tests with flotation concentrate in advance of the pilot study, with a high rate of impurity precipitation and minimal loss of rare earth elements. The next objective is to complete the hydrometallurgical pilot plant. A drilling program to further upgrade and increase the deposit's size is scheduled to commence in the third quarter. Based on the extremely positive results and the excellent infrastructure of the project in Canada, we trust Defense Metals to become one of the most important players in the rare earth metals market. The competitor US Rare Earth is to be listed on the stock exchange with a USD 1 billion valuation. Of course, these are already a step ahead, but the growth prospects are similar. The stock market value of Defense Metals is currently EUR 17.47 million. The share is traded in Toronto and Germany.
Problems at Chinese companies
Of course, one can blame the current price losses on the ongoing correction of technology stocks worldwide. However, it is striking that Chinese shares such as Baidu, NIO or Alibaba have lost disproportionately in value in recent trading days. With smartphone manufacturer Xiaomi - which is still on the US government's blacklist and is taking legal action against it - there is also the fact that index provider FTSE Russell intends to remove the Chinese smartphone manufacturer from its global and Chinese indices at the end of the week. But it is not only on the investor side that things are currently getting tough. The Chinese government has asked the tech giants to share their key data to ensure data sovereignty. The policy aims to prevent unfair competition due to the monopoly positions of individual companies. If stricter rules were to be established, this would, of course, eat into the companies' profits. For this reason, there is currently no reason to invest.
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