Australia to Control the Global Rare Earths Supply?
BEFORE WE BEGIN THIS FRIDAY, AN IMPORTANT ANNOUNCEMENT FROM THE GROUP PUBLISHER…
The outlook could hardly be rosier for clean energy investors going into 2021.
Electric vehicles (EVs) are now on track to overtake gas guzzlers inside the next decade or so.
Trillions in stimulus cash is looking for a home next year — and all things low emissions are first in line.
Australia is going green crazy. Extraordinary announcements seem to be made weekly. The world’s largest green power station is being planned in the Pilbara. Woolworths is promising to go 100% renewable. Super funds are dumping coal shares in droves.
And, to top it all off, a green president-elect is measuring for curtains in the Oval Office.
Could the case for smartly selected alternative energy shares be more bullish?
Well…since you ask…yes, it could…
The green revolution is already here.
But it’s the evolution of the revolution where the real history-making profits will be made, banked and spent.
What do I mean by this?
Well, that’s what we’re going to be covering here next week.
There’s something called a ‘second-order effect’ to everything that has gone down in the green energy space in 2020.
You’ll see exactly what that means as next year unfolds.
Next week, we unwrap it all for you. And give you some ideas on which stocks — local and international — that we think have a great shot at making headlines and rising to the top.
They’re not the obvious plays here.
And it’s unlikely you’ve even heard of them.
But if the worldwide transition to a low-carbon economy takes the unexpected (by the mainstream) turn we’re predicting…these will likely be the stocks that will benefit most.
I don’t think there’s a more important investment story on the planet you should be studying up on and preparing for right now.
Look out for this fresh research next week.
And now, back to our scheduled programming…
What if I told you everything you know about rare earths is wrong?
The price charts for those materials? Mostly wrong. Or outdated and old news.
That’s exactly what happened to me last year.
I was introduced to a contact of a contact. Someone I was told I ‘must’ speak to.
It took a bit of calendar to-and-froing, but finally we found an hour for me and this person to chat.
That hour was game changing.
Everything I’d read about rare earths from Bloomberg, Reuters, or even our local was about to come undone…
It’s who you know…
Back last year when we were allowed to travel, I managed to make my way to Vancouver to attend the Sprott Natural Resource Symposium.
A geologist friend of mine came up to me and we had a brief chat. He insisted I speak with a colleague of his that was in town.
As I recall, my geologist friend said, ‘No, you should speak to this person.’
This person was already given the lowdown on who I was. And by the time we caught up, they’d already gone over some of my past work.
Before the coffee was poured, they looked at me and said, ‘Everything you know about rare earths is wrong’. Quickly adding, that most people don’t know how the market really operates.
That hour completely changed my understanding of how the rare earths market operates.
Here’s the rub.
I can’t tell you this person’s name…
Nor what company they work for…
I can’t even reveal their gender.
Before our conversation began, they informed me that they must remain completely anonymous.
Why? Because the global rare earths industry is very small. So small, that all the people who work between business, miner, and processor know each other…
And unlike bigger commodities markets, there is no one exchange. There’s no ‘one’ place to go to a fixed price. The fixed prices you see online? Old data based on estimated historical transactions.
As I was about to learn, every single contract for rare earths to a useable product is negotiated independently. Every time.
Not only that, many clients don’t want the media knowing their business.
What they’re working on or what type of rare earth they need…and what the final form will be.
Hence the secrecy.
If this contact of mine ‘outs’ themselves…there goes their business.
Which is why I can only ever call them Person X.
And here’s only a taste of what they told me…
A dark market
What makes rare earths a strategic resource is that properties are both unique…
…and despite their ubiquitous use in technology…
…there is not one clear market or pricing structure behind it.
Gold, iron ore, tin, nickel, copper, coal, gas, and petroleum are all established markets.
All of those commodities are trading through several exchanges.
While commodity suppliers and the wholesale purchaser may have individual contracts in place, generally the prices and conditions would be fairly similar to others around the world.
That is incomplete contrast to the rare earths market.
For starters, almost every single price chart of any rare earths metal you’ve looked up is probably wrong.
There is no exchange for rare earths…
There is no one set price for rare earths…
Each rare earth metal is a private negotiation between producer and buyer.
Because the end result of the ‘ore body’ or rare earths — that is, how the metal is shaped into a useable product — is completely different for almost every single company.
No one end use of rare earths is the same as another.
Making the rare earths market extremely opaque.
Because the end use for each rare earth element wildly differs, almost every single rare earth contract is individually negotiated.
Meaning that processing of rare earth elements changes almost every single time. So, the price for every single rare earth used is unique to that one contract only.
Furthermore, this tells us that it’s not the mining of rare earths that’s the problem…rather the processing of them.
And this is where — and why — China has continued to dominate rare earths mining and processing.
But here’s the kicker.
China has dominated both the resources and supply of rare earths…the industry still struggles to make money.
That’s right. Even with their drastically low labour costs — and illegal backyard rare earth mines — the Chinese rare earth industry still struggles to turn a buck.
This inability to profit from these highly desirable metals is what’s deterring projects from getting off the ground.
Not only that, but the rapid change of technology has regularly seen one rare earth element swapped out for another one.
This is what makes the rare earth market unlike any commodities market in the world: Potential finance rests on a locked-in contract.
Yet customers won’t sign on the bottom line until they can be sure volume and purity can be confirmed.
Meaning that many potential rare earth mines and processing facilities rarely get off the ground.
Banks won’t stump up the coin without a guaranteed customer. And a corporate won’t buy until the rare processor can guarantee supply.
And because supply and end use of rare earths differ for every single customer, a mining company can’t guarantee the customer’s need will be met until they start mining…
National security threat — high
This strong hold is why the Australian and US government entered into an agreement last year.
Controlling the supply of these minerals is not only critical — but having the ability to shape their final form is vital for almost every tech gadget you own. As is ensuring their use in military equipment.
Lynas Corporation was on the first to benefit from this last year. And in the middle of this year Arafura Resources won a contract to send rare earth ore from the Northern Territory to Colorado for processing.
Wrestling control back of the supply chain is only just beginning.
There are going to be a wide range of investing opportunities opening up in rare earths in the coming years. Not just in miners…but processing them here in Australia as well.
Until next time,
Editor, The Daily Reckoning Australia
PS: Australia’s Great COVID Recession — Learn which investments to accumulate and which ones to avoid in order to give you the best chance of preserving your wealth during the recession. Click here to learn more.