In a junior mining sector that’s supposed to be dead on its feet, it’s been heartening to see a string of news releases detailing the exercising of warrants in Mkango Resources Ltd (LON:MKA)(CVE:MKA).
The reason is simple: Mkango is one of only a handful of rare earths companies listed in anywhere in the world, and just now investor appetite for rare earths companies couldn’t be stronger, as the Chinese-US spat over tariffs begins to escalate into a full-blown trade war.
At the end of May the Chinese state planning agency, known as the National Development and Reform Commission, stated that it was considering placing export controls on China’s rare earth production in response to US moves to restrict Chinese trade.
Big share price rises
Because China controls between 70% and 80% of the global rare earths supply the statement caused a flurry of interest in non-Chinese rare earth companies, many of which rose by around 20% or more in equity markets in London, Australia and Canada.
And those rises didn’t stop there. Even as patient Mkango investors finally cashed in on warrants following the initial boost to the price, more buyers were coming in and the shares continued their upward spiral.
It was serendipitous that Mkango was able to release full year results in the same week, detailing a strong cash position and plenty of progress on its Songwe Hill project in Mali, because that only added to the momentum.
Barely a week after the Chinese shocked the market Mkango’s share price had almost doubled to 11p. On Thursday 6th alone, the shares had booked a 40% gain by mid-day.
And Mkango’s not alone.
Companies favoured by the market
Shares in Pensana Metals (ASX:PM8) are up by more than 20%; shares in Greenland Minerals and Energy are up by 50%; shares in Alkane Energy (ASX:ALK) are up by more than 30%; shares in Arafura (ASX:ARU) are up by 60%; and so the list goes on.
The attraction, of course, is that this is structural.
Although rare earths themselves aren’t actually that rare, mining projects can take up to ten years to develop from early exploration into production, and the market doesn’t have that long to wait. Especially since rare earths are essential to the US military-industrial complex, to consumer electronics and, increasingly, to electric vehicles.
In that context those companies - like Mkango, Pensana and Greenland Minerals - that already have projects that are well-advanced through the development cycle suddenly start to look very attractive, especially when there aren’t too many of them.
Attractive development opportunities
Other companies lucky enough to be in a similar position include Frontier Rare Earths (TSE:FRO), with its huge project in South Africa, Rainbow Rare Earths (LON:RBW), with its small producing mine in Burundi, Northern Minerals (ASX:NTU), with its Browns Range project in Western Australia, Peak Resources (ASX:PEK), with its Ngualla project in Tanzania, Hastings Technology Metals (ASX:HAS), with its Yangibana project in Australia, Crossland Strategic (ASX:CUX), with its Charley Creek project, in Australia, and Strategic Minerals (LON:SML), with its CARE project, also in Australia.
That may seem like a fair old list, but consider that the number of junior listed gold mining companies runs into the hundreds, and that there are a fair-few mid-tiers and major gold mining companies too. Outside of China, in rare earths, it’s really only Lynas that boasts any size. Aside from that, mid-tier rare earth companies just don’t exist.
And yet it’s this small handful of companies which may be required to fill a gap that could potentially amount to as much of 80% of supply, if the Chinese do follow through on their rhetoric. In fact, it’s unlikely that the Chinese will restrict supply so rapidly because they themselves are hardly commodity self-sufficient, importing huge amounts of copper, iron ore and aluminium from companies that are right at the heart of the American-led trading system.
Macro-economic tensions unlikely to fade soon
Even so, such high level figures in the US as Commerce Secretary Wilbur Ross are now talking urgently about securing rare earths supply for the US. After all, while Australia, Africa and Malaysia can at least boast some existing production and beneficiation, in the US there’s only one producer of ore, and guess where that goes to be worked up into an end product? - China.
Given that the US is China’s number one protagonist, this shortage of production seems stark, even if US geological survey estimates do put the overall US rare earth reserve base at 1.4mln metric tonnes. What’s more, President Donald Trump’s recent announcement that he will place tariffs on Mexico is beginning to underline to the world that we are entering a new world order.
Neoliberalism and open borders are dead. Tariffs and trade barriers are in. In the case of rare earths that’s likely to precipitate a scramble for supply that’s only just getting underway.