Preface
Recently, Lynas Rare Earths, an Australian listed company and a leading rare earth company, has received the attention of Gina Rinehart, Australia's richest man. It spent $49 million in the past few days to buy shares in Linas, becoming the majority shareholder of the company.
In the past two years, Gina has also made frequent moves, and the goal is also very clear. Last year, it acquired a 10% stake in Arafura Rare Earth Limited.
Western governments want to break China's grip on the processing of rare earths for permanent magnets, which are vital metals in modern defense. Australia is the key to this.
But can it work?
Accelerate layout
Back in the Liberal administration, the Morrison government provided a $1.25 billion loan to Iluka Resources (ASX Code:ILU) to build a refinery in Western Australia for the separation of rare earth oxides.
On March 14, 2024, Arafura Rare Earth Limited (ARU) received a low-interest loan of US$533 million (about A$840 million) from the Australian federal government, and Arafura mentioned that the company also received interest in borrowing up to US$550 million from international financial institutions. to advance the construction of Arafura's proposed rare earth mine and refinery in the Northern Territory.
Soon after, on March 21, Australian Strategic Materials (ASM) received a letter of intent from the U.S. Export-Import Bank to finance its project, totaling US$600 million (about A$923 million), and the previous A$200 million loan from the Australian Export Finance Agency, bringing the total to A$1.12 billion.
Ginaqi, through her company Hancock Prospecting, has spent $49 million in the past few days to buy shares in Lynas Rare Earths, becoming the majority shareholder of the company with a 5.82% stake.
MP Materials held merger discussions with Lynas earlier this year, and nothing came of it.
This time, since Gina is also the majority shareholder of MP Materials (5.3%), after Gina's purchase of Lynas' shares, the market is speculating whether Gina will facilitate the merger of MP Materials and Lynas Rare Earth, thus becoming the king of rare earths in one fell swoop (excluding Chinese rare earth companies).
Strategic layout
China banned the export of rare earth extraction and separation technology in December to protect its market dominance.
Lynas, which has mines in Western Australia, processing plants in Malaysia, and MP Materials, which has operations in Paz Hill, Calif., have both received funding from the U.S. Department of Defense to help break China's stranglehold on supply.
The U.S. military is funding the Lynas downstream processing plant in Texas, while MP Materials, which restarted the Perth Hill processing plant last year, has also received financial support to increase heavy rare earth supply.
In the previous article "Global Competition: Australia's Sudden Force", the demand for heavy rare earths mentioned in the military industry cannot be ignored. Heavy rare earths are mainly used in the downstream for military industry and other fields. Especially in the context of a significant increase in arms spending by European countries, the demand for heavy rare earths may rise sharply.
70% of the world's known heavy rare earth reserves are concentrated in ionic rare earth deposits in southern China. The known recoverable reserves of gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium and yttrium in heavy rare earths are almost unique to China.
This is why the United States, Australia and other countries have classified rare earth elements as important national strategic metals. In particular, the U.S. needs to eliminate supply chain risks to ensure that financial support continues to be provided regardless of who the president is.
This explains why the US Export-Import Bank has made non-binding loan commitments to ASM and Meteoric Resource (ASX Code:MEI), two small Australian rare earths companies, to help them develop mines in New South Wales and Brazil respectively.
Gina为何选择此时入局?
Rare earth prices have generally fallen over the past year (chart below), meaning that it is now not commercially relevant for most proposed mines to even consider developing hard rock or clay deposits in Australia.
But what was the reason why Gina chose to step in at this time?
Ms. Reinhardt is reportedly on good terms with Amanda Lakaz, who is at the helm of Linas. If they are interested in resuming talks aimed at bringing together the world's two largest non-Chinese rare earth producers, the two sides could forge an efficient and fruitful alliance.
It is important to note that if Ms. Reinhardt plans to be involved in planning the merger, the Chinese factor could be a potential obstacle.
According to data provided by Bloomberg, China's Shenghe holds an 8.27% stake in MP Materials.
Then Gina could go through its stake in Brazilian rare earths, which may have the ability to supply key heavy rare earths to Linas and MP to meet its commitments to the US military.
From the perspective of supply and demand, the author expects that the global supply and demand of rare earths will begin to balance in 2024, and the demand gap will reappear by 2025 (as shown in the figure below). Real capital will always enter early, not at the time of its occurrence like smart money, and even less at the climax like hot money.
In addition to the relationship between supply and demand, from a macro perspective, it seems that the signs of a credit crisis in the US dollar in 2025 are becoming clearer, and global dollar-denominated commodities continue to buy dollar-denominated assets in the face of the continuous return of the US dollar.
Gold, Bitcoin, U.S. stocks, U.S. real estate, commodities are all rising.
Especially from the perspective of gold, the oldest currency, under the leadership of gold, the entire commodity is undergoing a counterattack against the over-issuance of U.S. bonds and the indiscriminate issuance of U.S. dollars. Orange juice, coffee, cocoa, ground beef, live cattle and much more are all reaching incredible all-time highs. Zinc, aluminum, nickel and other futures have also made breakthroughs in technical forms.
At the same time, from the perspective of cycles, in the last round of the Jugra cycle, due to the overall lack of mining investment and the superposition of the factors of the times, the development of the mining field has been limited to a certain extent.
However, with the arrival of a new round of the Jugra cycle, these historical problems seem to be looking for opportunities to compensate, indicating that the mining sector is about to usher in a new stage of development.
epilogue
As a major player in the global rare earth field, Australia's importance is not only due to its rich rare earth resources, but also because of its close relationship with the United States, which has won it the support of the US government.
However, in the current market environment where China offers rare earth products at low prices, other countries seem reluctant to invest resources to explore and master the complex chemical processes and technologies involved in transforming rare earth concentrates into key ingredients for modern life and defense needs.
This will make Australia's position in the global rare earths market more prominent, and it will also bring greater opportunities for it.
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