It’s Who You Know — The Commodities Boom and Strategic Partnerships

It’s Who You Know — The Commodities Boom and Strategic Partnerships

Dear Reader,

Australia hit the geological jackpot.

Depending on how long you’ve been reading these pages, you’ve probably heard me say that before.

Surely, I should be able to find a new hook.

But there’s a reason why I continue to push this point.

It’s the same reason Rick Rule told me in an interview that ‘even your government won’t be able to squander the fortune that’s coming your way’.

There are untold riches that lay beneath our feet.

We are vastly unexplored.

We’ve lightly picked over the surface. But there’s still many hundreds of metres below the land that we can explore.

And the stroke of luck living here, means that we may be able to avoid the worst of the financial fallout of the pandemic. Well, that is if you know where to look…

How to Survive Australia’s Biggest Recession in 90 Years. Download your free report and learn more.

Inking papers and forming alliances

There are a few buzz words you’ll need to keep an eye out for this year.

One is ‘energy transition’. Though you may have already started seeing that. Another is ‘downstream’. And of course, there’s the ‘circular economy’.

Over the coming weeks I’ll explain what all of these mean and how you benefit from them.

Today’s topic focuses on ‘protection’.

Though I don’t believe that’s the buzz word we use to describe this imminent trend.

I’m pretty sure those making the deals will call it ‘strategic partnership’.

Tomato tomato, the jargon doesn’t matter. What’s important is being able to see the trend before other investors do.

Which is why I want to draw your attention to Australia’s looming commodities boom.

But this time, it’s different.

I know, I know. Those are the five most expensive words in history but hear me out.

This commodities boom is not simply about digging up rocks and selling them to the highest bidder. This time it’s about having the rocks and the right partnership to go with it.

You only need to look at a recent transaction with Lynas Rare Earths Ltd [ASX:LYC] and the US government to see its power.

Lynas inked a deal to build a processing plant in Texas in partnership with the US Department of Defense. That’s right. Not a private US mining company. Not a manufacturer. A military branch of the US government has agreed to fund half the cost of the plant.

Traces of rare earth elements are used in almost everything electronic we use. But they are absolutely critical to defence machinery and aerospace. Which could be one reason why the spooks have stepped in to make this deal happen…

Now, I’ve explained before that the rare earth industry isn’t exactly a profitable one. But that hasn’t stopped shareholders getting all excited. The Lynas share price has jumped 21% in the past two weeks as news started to spread that Lynas was about to make a new best friend.

The thing is the signing of the deal isn’t new information.

The idea of any government entering into an agreement with a rare earths’ miner was mentioned way back in the middle of 2019.

In an interview with Byron King — a former navy man turned geologist turned investment editor‚ he explained to subscribers of Rock Stock Insider that the government would have to step in and secure a supply of rare earths elements. According to him it wasn’t a question of if, but when.

The thing is the idea of Australia playing favourites with other countries is the start of a multiyear trend.

The Australian Federal Government changed the rules around foreign investment. They now have the power to veto any deal worth more than a dollar.

Increasing tensions with China will mean that the Aussie government is likely to support partnerships with countries we like. Nationalistic investment decisions that aren’t just about digging up the rocks…but working out how to process them on our shores.

In other words, Australia might just be about to move into the ‘downstream’ side of the mining business. What do I mean? More on that tomorrow.

Now, onto my call with Jim

Alright, time to put the rocks aside.

I’m about to jump on a Zoom chat with Jim. I’ve just finished his new book The New Great Depression. We’re going to be chatting all things gold, Modern Monetary Theory and why the worst of the health crisis is still to come.

More on that next week.


Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.