Investing in Australia’s Super Power: Rare Earths and Mining

Investing in Australia’s Super Power: Rare Earths and Mining

Australia hit the geological jackpot.

You want oil? We got it…

You want gas? We got plenty of that too.

Copper, iron ore, zinc, lead, silver, and gold…yep, yep, yep, yep, yep, and hell yes.

We’ve even got the unpopular ores that nobody likes until that commodity cycle is hot again, like uranium and coal.

To boot, because of our climate we can grow and farm almost any agricultural commodity in the world.

Wheat. Wool. Cotton. Sugar. Soya beans. Cattle. Salmon. Pigs. Timber. Dairy. An incredible mix of fruits and vegetables.

Our ability to mine it or grow it is surpassed by very few countries…

Which means that mining and farming are pretty much Australia’s superpowers.

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Australia could supply the world for decades

We have some of the oldest rocks in the world.

And you might have noticed one missing from the list above.

I didn’t mention rare earths.

While China has the world’s largest deposit of rare earths, Australia also has significant rare earth deposits too.

Although the name ‘rare earths’ is misleading.

Because there are plenty of those elements around in the Earth’s crust.

It’s just that they are rarely found in deposits economical enough to mine.

Australia alone has 3.2 million tonnes of rare earths.

Even though our supply of rare earths is barely 3% of the world’s total reserve, our meagre deposits could supply the world for decades.

Think about that.

China might have almost half the world’s supply of those elements. But Australia’s modest 3% of the stuff could supply the world into 2050.

So, the problem of finding rare earths isn’t really a problem.

Believe it or not, the biggest risk when it comes to rare earths, is processing them.

That’s something the world accidently let China dominate…

The superpower of metals

Think of rare earths as the ‘superpower’ of metals.

Adding them into the mix, notes Daniel Cordier, a mineral commodities specialist for rare earths at the US Geological Survey, just makes everything ‘better’, saying:

They help everything perform better, and they have their own unique characteristics…particularly in terms of magnetism, temperature resistance and resistance to corrosion.

A United States Studies Centre report notes that you’ll find tiny bits of them in almost everything.

Pick up any electronic device around you, and it will have small traces of rare earths in it.

Rare earths are used in less than 1% of all military applications in the US…but the military goods can’t be made without them.

We already know that these elements are in high demand for future technology.

Yet securing supply is becoming harder.

This lesson was learnt by the world back in 2010.

China banned rare earth exports to Japan in 2010 over an international waters dispute…and as a result Japanese companies started to look for other metal alternatives.

However, it was this dispute that drove many rare earth users to secure another supply.

Almost a decade ago now, we all learnt an ugly lesson. That is, not only have we farmed off rare earths to China. Allowing them to control the elements deposits. We also allowed them to spend 20 years perfecting the processing of rare earths.

China has had a head start on the rest of the world: They’ve been the dominate producer of rare earths so they have excellent production knowledge and skill sets.

Something every other country with a rare earth deposit lack.

Because rare earths are crucial to ordinary and military technology…the government is stepping up and declaring rare earths as a strategic resource…

Government to save rare earths?

The rare earths market may end up being propped up by governments in the West.

Why?

Cutting off the supply of rare earths in 2010 for just one country became a powerful lesson for countries around the world.

So much so that when Japan lost their supply, they began looking for alternate mines.

Japan has been instrumental in funding many parts of Australia’s rare earth market.

The 2010 crisis for Japan triggered a wave of investment into alternative sources…and was behind large amounts of funding to get the Lynas Corporation-owned, Mount Weld — a rare earths processing facility in Western Australian — off the ground.

Late last year the Australian government and the US government announced they’ll work together to support the industry, with The Verge writing at the time:

The Morrison government is pulling out all stops to make cheap money available for rare earths and other critical minerals projects as it works with the United States on ways to reduce China’s near stranglehold on supply.

The government will set up a dedicated office within the Department of Industry as it looks to secure critical minerals projects in Australia with an emphasis on those strategically important in defence.

[…]

The critical minerals push comes as Resources Minister Matt Canavan and US Commerce Secretary Wilbur Ross prepare to co-chair a meeting of the US-Australia Critical Minerals Dialogue in Washington on Tuesday.

Australia and the US have made it clear they are worried about rare earths supply in particular because the resources are needed in leading-edge technology, including guided missile systems and other defence equipment.

The entire global rare earths industry is worth less than US$4 billion a year.

Which isn’t much.

However, for two allies to step in and work towards protecting such a small industry, tells us a lot about how critical these minerals are to our future.

As political tensions increase between Australia and China, we need to ensure allies have access to rare earths.

As well as getting the processing capabilities outside of the Middle Kingdom. After all, there’s no point only having the rocks the world wants and not the ability to morph them into their final form.

Australia’s geological jackpot continues. So, keep your eyes on the sector for investing opportunities…

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

PS: Think you understand the rare earths market? Think again. The buying of rare earths is no simple feat…nor is turning them into the final product. I’ll explain more tomorrow.

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On a final note today…A CONTRARIAN’S GUIDE TO CLEAN ENERGY INVESTING…

The conventional narrative around clean energy stocks this year goes something like this…

Policymakers are finally over fossil fuels.

COVID-19 has sent fossil fuel prices tumbling, making renewables way more competitive.

Now Biden is in, we’re on fast-forward to a cleaner, greener future.

And if you think ASX green stocks had a blinder in 2020…just wait to see what next year has in store.

While there’s some truth to that, what’s actually going on beneath the surface is more complex.

And, potentially, far more profitable than you might first think.

Because of that, we’re devoting a significant amount of airtime next week to an ALTERNATIVE TAKE on the alternative energy sector.

For instance…how is Australian mining pivoting to get in on this trend for 2021? Who will the winners and losers be?

What are the DOWNSIDES of this boom? Which sectors and stocks are overhyped and overbought?

Is traditional oil and gas REALLY dead and buried…or are there way-oversold opportunities to be had there?

Why are some of the BIGGEST stories in clean energy not yet being reported? Which side industries are vying for smart money attention right now?

Are there really clean energy versions of future Facebooks, Amazons and Googles to be snapped up now? If so…who are they?

Whatever your politics are on this issue, we believe there’s a huge megatrend forming here.

But it’s not what most people think.

Next week, we’re going to break this whole thing right down and bust it wide open for you. And acquaint you with a set of stocks we think will be getting more than a bit of news attention in the coming year.

Until then…

James Woodburn Signature

James Woodburn,
Group Publisher, The Daily Reckoning Australia