While the world is distracted by the coronavirus and its potential ramifications, there’s another story from China that should be drawing attention. I’m talking about China’s control of rare earth elements and the incredible potential for domestic rare earth stocks.
What are Rare Earth Elements?
Put simply, rare earth elements (REEs)—also known as rare earth metals—are the key to the modern world.
REEs are a small, but necessary component of almost every high tech device on earth. Electric vehicles, computers, batteries, magnets, cell phones, and satellites are all made using rare earth elements.
But it’s not only civilian devices that rely on REEs. The majority of tools used by modern militaries—like helmet-mounted radios or laser-guided missiles—can’t be created without access to these elements. This makes rare earth elements—and rare earth stocks—an incredibly valuable resource for military-conscious governments.
Which brings us to China.
REEs are a Weapon of Trade Wars
Over the last few decades, China has come to dominate the REE market. Between 2004 and 2017, China accounted for 80% of US rare earth imports.
Formerly, this wasn’t a problem, as Sino-American relations were relatively strong during this period.
Last year, however, things started to heat up between Presidents Donald Trump and Xi Jinping. The ensuing conflict not only led to tit-for-tat tariffs between the world’s two largest economies, but it also turned rare earth elements into a cudgel wielded by the Chinese government.
Things came to a head when, in May, Xi mentioned the possibility of banning the export of rare REEs to the US. That day, Chinese rare earth stocks shot through the roof. One stock even closed the day 108% higher.
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By contrast, experts in America went into a frenzy, with one calling the potential ban of REEs a national security threat.
The Rise of Domestic Rare Earth Stocks
To reduce America’s reliance on Chinese REEs, Trump promptly issued a determination that called rare earth elements “essential to the national defense.”
As a result of greater domestic production, analysts project that the market will rise from $8.10 billion in 2018 to $14.43 billion by 2025.
Notably, the market probably won’t be divided by dozens of small REE companies. Instead—as only a small amount of the elements are needed—organizations that require REEs are likely to identify just a few small suppliers that can meet demand.
Where will they find these REE suppliers? Well, one good choice is Canada.
There are already 16 advanced REEs projects across the country. In addition, Trump and Prime Minister Justin Trudeau recently discussed “ways to improve mineral security and … work more closely to ensure secure and reliable supply chains.”
Rare Earth Stocks to Keep an Eye On
Ucore Rare Metals Inc. (TSXV:UCU) (OTCQX:UURAF) explores rare earth projects in both Canada and the US. It currently holds two sites in Alaska, and recently raised $8.1 million in a share rights offering. This positions it to deliver on its ambitious growth strategy.
In addition, Canada Rare Earth Corp. (TSXV:LL) is active at four different rare earth properties in Canada and is in the middle of acquiring holdings in South America. The company is working to develop a vertically and horizontally integrated operation, which would distinguish it from other REE suppliers.
Finally, Defense Metals Corp. (TSXV:DEFN) (OTCQB:DFMTF) is developing an extremely promising project in British Columbia. The CEO recently said he expects 2020 “to be a watershed year” for the company, as it works towards making its mine operational.
Viral panics may come and go, but society will always be reliant on technology. Keep these rare earth stocks on your watchlist if you want to position yourself in a niche space that’s of critical importance to tech, the military, and international diplomacy.
Featured image: DepositPhotos © Antoine2K
