When the Trade War started heating up with China, you knew it would only be a matter of time before “rare earths” started coming into play again.
These are the rare earth elements, sometimes called rare earth metals or rare earth magnets, that are way down the periodic table, often found in uranium mines, and are critical to all kinds of gee-whiz newer technologies, from guided missiles to iPhones. The production and refining of rare earth elements is also dominated by China, partly because that country is, as they have claimed in the past, the “Saudi Arabia of Rare Earths”, and partly because China has often been friendly to the kind of dirty, difficult refining process that separating and preparing these elements for industrial use requires.
It has also been a key part of their industrial policy at times, using export controls to help to push foreign manufacturers to put their factories in China if they want to use Chinese rare earths — or even to push around the Japanese by turning off their access to these critical elements as they fight over disputed territories.
So whenever there’s a dispute, the worry that Chinese rare earths dominance might be used as a cudgel gets trotted out again — often by junior mining companies that are exploring for rare earth metals but who never seem to get anywhere near the point that they can actually build a mine… perhaps because the disputes always seem to end, and no one seems excited to finance a mine that has to compete with Chinese production on price. Last time around the leader of the resurgent rare earths business was Molycorp, which briefly re-opened its Mountain Pass mine in California… before falling into bankruptcy as prices collapsed again and getting bought by some hedge funds and a junior Chinese partner (it’s still private, not sure if they’re actually producing anything these days).
There is clearly also a strategic imperative for companies and governments to ensure access to necessary supplies of these critical elements — the government maintains a stockpile, and presumably some companies do as well, but we’ve been through a few speculative cycles for rare earths in the past couple decades as the headlines create panic and imply that the West will soon be spending billions to build up rare earths mining and refining capacity, and so far those cycles have always led from spike to crash, like every other short-lived commodity bubble.
Are about to have another one of these? Well, we’re partway there — the one real investable “outside of China” rare earths project that’s actually producing, Lynas (LYC in Australia, LYSCF OTC in the US) was already under some buying pressure thanks to a takeover offer as the stock suffered from some disputes with Malaysia (where their refining facility is — the mine is in Australia), and then soared briefly above $2 as the Trump/Xi trade war drumbeats were amplified by some conciliatory words from Malaysia late last month.
But that’s an in-production project, and it will be subject to all that boring stuff like cash flow and earnings and reserves — the sexy exploration projects are really what usually get people revved up, since those aren’t nearly as anchored to reality, they just promise what all junior explorers promise: That they can turn a chunk of worthless-looking rock into, well, a gold mine.
So which juniors are going to get touted this time around? We’ve seen a few teaser ads floated, but haven’t written about a rare earths teaser in a while… so Alex Koyfman’s pitch for Penny Stock Millionaire caught my eye. That was a long lead-in to our teaser decipherification today, no?
OK, we’ll get right to it — what’s Koyfman touting? Here’s the first part of the ad:
“Trump’s Secret Rare Earth Stash
“It’s a Sparsely Populated Chunk of Tundra the Size of Texas…
“But With a Quarter-Trillion Dollars of Essential Rare Earth Reserves Locked Inside, it Could Be:
“The Most Valuable Chunk of Land on Earth”
And like so many fun teaser ads in the natural resource space, it starts out with a dramatic story about a mysterious and remote place:
“Hidden away in the coldest regions of the North Atlantic, about 700 miles northeast of Newfoundland, lies a desolate, forbidding tundra.
“It’s more than three times the size of Texas, and yet only 56,000 people dare to live there, giving it the lowest population density of any nation.”
OK, so that’s obviously Greenland, the semi-independent (formerly Danish) territory that has indeed been touted for its rare earth potential a few times in the past. More from Koyfman:
“… locked within a 278-square-mile section on the southern tip of the giant Arctic island known as Greenland is a unique group of minerals, concentrated unlike any other deposit on Earth.
“They’re called rare earth elements, or REEs for short. And this prized piece of land contains more than $273 billion worth.”
And then, we’re delighted to see, we get the “one small company” part that is crucial to any mining teaser pitch:
“This chunk of land isn’t controlled by any nation. It’s controlled by a single company — and not some giant multibillion-dollar corporation with interests scattered all over the globe.Are you getting our free Daily Update
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“This company is small. Tiny, in fact — just over $70 million market capitalization as of today.”
What other clues do we get about our hopeful little miner (or, probably, explorer)?
“… trades under $0.40” … because, as Kofyman says, it’s “technically still in its development stage.”
That’s a technicality that has emptied the wallets of many an investor over the years… but yes, every now and then a little “development stage” miner does actually get a mine financed and built. So will this be the one?
Most of the ad is all about China, of course, and the strategic urgency that will lead to this “one tiny company” becoming a huge player. More from the pitch:
“The Company Taking Over This Real Estate Is About to Claim 25% of the Global REE Marketplace
“As this company moves from limited to full-scale production, it will finally start to monetize the world’s single-biggest REE deposit.
“Over the next 50 years, even by the most conservative growth estimates, these reserves will have generated as much as $273 billion in today’s money.”
What else do we learn about this little stock?
“The $0.40 Stock That Could Return 670%
“This company has already set itself apart from all others in the junior mining sector.
“It’s precisely this sort of company that I live for.
“Right now, my brand-new recommendation is poised to make a triple-digit leap as early-stage limited production — like the kind I told you about at the beginning — moves to full-scale production.”
Why this company? Well, he says that part of the reason is that Lynas and Arafura, two of the survivors from the last startup-and-exploration wave in rare earths, have been co-opted by Chinese investors, so only this little Greenland operator still stands alone as a challenger to the Middle Kingdom.
More? I thought you’d never ask! Additional clues:
“Once production ramps up in Western Greenland — which could happen in the next few months — this operation will remain a significant player by producing 6,500 tonnes of rare earth elements annually….
“With an expected annual production of that magnitude, this $40 million outfit would have grossed a staggering $208 million.
“But even if it was running at only a quarter capacity, and even if costs ate up an almost unheard-of 90% of gross revenue (for REEs, 50% is closer to normal), the share price would still hit about $2.00.”
And apparently he’s expecting them to make some progress on this project over the summer (not a lot of new work gets started in Greenland in the winter), so he sees big steps forward in the near future… though he does later allow that the 670% gain he says is the “lowball” would be over the next three years.
And, well, that’s about all we get by way of clues — so which of the Greenland rare earths hopefuls is being teased by Koyfman here? Thinkolator sez this is … Hudson Resources (HUD.V in Canada, HUDRF).
And yes, it is down around 40 cents (31 cents in the US, with a market cap of about $55 million).
What will happen with Hudson Resources? Well, if you’re talking about the near-term stock price, that depends almost entirely on what happens with the rare earths market and whether the current trade war chatter turns into a real price spike for yttrium and terbium and all those other little fellas down at the bottom of the periodic table… and, more importantly, into a speculative mania for the stocks in the sector.
And yes, Hudson Resources was around a decade ago