Critical Minerals Markets Turmoil, Trump's Energy Rollback Fears, & Rare Earths Supply Uncertainty
MARKETS UPDATE
A string of blows against the future of energy transition kneecapped critical mineral stocks this week, with a particularly painful reversal in the battery material sector. The twin pincers have tightened with rising regulatory uncertainty, just as well-funded anti-mining groups continue to engage in a vendetta against legitimate mining projects. The immediate winners of the US election were steel stocks and banks. The losers? Anything that smacks remotely of renewable energy – anything except Tesla and Chinese stocks. The US dollar continues to anticipate unsustainable fiscal expansion, which typically boosts currencies with higher yields on the long end before the reality of a deficit triggers inevitable depreciation. The calendar for this reckoning is still uncertain, but American voters will have only themselves to blame for buying into empty fiscal promises.
Meanwhile, the Chinese market enthusiastically embraced the Republican sweep. The leading critical minerals stocks listed in Shanghai ended the week with gains up to 12%. Is the Chinese market correctly reading America's forthcoming surrender (sorry, “a deal”) in the trade war? That would make Chinese miners’ sub-vertical upswing perfectly legitimate. (1)
GEOPOLITICAL INSIGHTS
If Donald Trump's first term taught us anything, it's that the priorities of a serial bankruptcy artist lie not in building, but in demolition—especially the dismantling of his predecessor's work. In 2017, Trump wasted no time tearing down key pillars of Obama's legacy: scrapping progress on trade deals with allies in Europe and East Asia, withdrawing from the Paris Climate Accord, and abandoning the JCPOA with Iran.
Biden's list of achievements is not particularly long. Still, it does include two pieces of domestically-focused legislation that affect the critical minerals industry worldwide – the US Inflation Reduction Act and the US Science and Chip Act. The former bill, arguably fraught with unnecessary complexities, was voted on partisan lines. The latter enjoyed bipartisan support. Incredibly, we hear that both compromises aimed at America’s re-industrialization may not pass the new administration’s smell test. How quickly the damage will be meted out to hundreds of billions of dollars already invested will depend on the final tally in Congress.
Personal animus may drive Trump to trash the more expensive provisions of these bills in order to preserve his own 2017 Tax Cuts and Jobs Act, a series of pro-cyclical tax cuts that are set to expire at the end of 2025.
Forget about energy transition. Every self-respected MAGA-nik knows that all this green blabber is "woke." Who needs batteries if we can have… well, what exactly? Locomotives? China has just put export controls on Skydio, the leading US commercial drone company. Because China makes most of the world’s batteries, this move may succeed in crippling a substantial portion of America’s drone manufacturing capacity. Ask Ukrainians what drones are used for.
By Wednesday morning, it was clear that (non-Chinese) lithium miners were suffering the most. The majority of the IRA’s emissions reductions come via tax credits for clean energy technologies, including EVs equipped with non-Chinese components, including critical minerals. These provisions are separate from the direct spending under the law for grant programs and loans, and it would take congressional action to repeal these. With the GOP flipping three seats in the Senate, this is now a distinct possibility. At the time of writing this, Republicans also enjoy a narrow majority in the House, with 211 seats (7 seats from clinching majority), leaving Democrats with control of 199 seats. Since the IRA was passed through a reconciliation process, Republicans may be positioned to repeal the law. But what would that mean, now that USD $199bn have been sunken by US carmakers into electrification? Write-offs? IRA brought USD $76bn into battery investment. Scrap it? Washington lobbyists must be busy scouting for new hires.
Even without controlling Congress, the President would have a leeway on how to use the funds already allocated by the legislative branch. Before the election, he pledged to rescind any “unspent” funds under the Inflation Reduction Act. The plans outlined by some fringe elements in the Republican Party to further erode Checks and Balances would benefit the President, who promised to restore a presidential authority to withhold congressionally approved spending that he considers wasteful. The administration would gain broad discretion over the pace of disbursement of previously allocated funds.
Such threats may have accelerated the recent disbursement of funds from the DoE's Loan Office and the Development Finance Corporation (e.g., Syrah Resources). The Loan Office has been particularly active since passing the IRA, but not so under the previous Trump administration.
Cooler heads in Trump's entourage, including former USTR Robert Lighthizer, have suggested that those among the IRA’s provisions that support investment in domestic facilities should be retained. It is unclear if reason prevails. While scrapping portions of the US IRA may be understood as politics, the attack on the US Science and Chips Act is not. We have noticed that shares of certain companies specializing in providing materials for high-end technology tanked on Wednesday morning.
What about the legislation pipeline? The Bipartisan Energy Permitting Reform Act, championed by Joe Manchin, Independent Senator from West Virginia, and John Barrasso, Republican from Wyoming, may be left for dead after the GOP's electoral sweep reshuffled the political deck. Manchin, whose final term ends next year, may try to attach the bill to a (transportation-heavy) omnibus Appropriation Bill by the end of 2024. However, Speaker Johnson is on record saying that the House would not vote on the bill. With three levers of the government potentially controlled by one party, there is no incentive to push through the fruits of past compromises.
Some politicians thrive on the electorate’s benign ignorance, but once elected, they are responsible for the economy and national security. Chinese “wumao” army of bots had a field day coming out in favor of Trump’s candidacy and the Chinese market's strong performance on the election night, and since then seems to confirm this. This reading comes against the well-telegraph moniker of Trump being a "Tariff Man," but Beijing realizes that the swagger is but an opening gambit in a transactional quid pro quo. Although the Biden Administration has maintained Trump's earlier anti-China tariffs, the White House returnee originally planned to trade them away. Still, it ran out of time because of the Covid pandemic. Since then, several undisciplined, pro-Chinese statements by Trump (e.g., TikTok, Taiwan) have raised eyebrows among the Republican establishment. Not surprisingly, the Shanghai market outpaced S&P500 this week, even though Beijing’s promised “stimulus” has been postponed in favor of yet another debt swap.
Chinese stocks’ performance contrasted with the uneven reaction from Australian mining shares. Trump has a track record of abandoning allies (e.g., Kurdistan, negotiations with the Taliban), and there is no guarantee that Australia’s and Canada’s effort to become America’s ‘mineral arsenal’ will be reciprocated by a nativist president.
Headwinds are everywhere, just as the solar and wind overcapacity is screaming for mass energy storage build-up. And here lies the opportunity. Before the election, the Republican candidate claimed his plan would “cut energy prices in half or more within 12 months of taking office.” He promised that oil production would grow fourfold, conveniently forgetting that America's production has already increased by 25% since 2021. The US is pumping more oil today than any country in history, but this type of rhetoric risks boosting volumes further, crushing the margins of energy companies. It certainly didn’t help oil and gas stocks last time Trump resided in the White House. During his first term in office, oil and gas stocks, as measured by the XLE index, tanked 39% but returned a positive 178% under Biden.
Conversely, Biden's green policies delivered a net 48% loss for new energy names (ICLN). During 2017-2020, the same green index returned a whopping 285.8%. That's the way to go, Donald.
The market has a sense of humor that our politics clearly lacks.
SUPPLY CHAIN OBSERVATIONS
China’s rare earth exports fell by 11.5% in September. The country shipped out 4,181t of (separated) rare earths in September, compared to 4,723t in August. A year ago, China had exported 3,935t. As local prices rebounded 18% since August, producers have prioritized domestic sales. Still, export levels between January and September were 6.4% higher year-on-year.
On the other hand, September imports of unprocessed concentrate fell 32% year-on-year and were down 2.8% month-on-month to 102,489t. Overall, inflows between January-September imports were down 23.7% year-on-year. Much of the fall can be attributed to the situation in Myanmar. In the last 15 years, Chinese producers have become increasingly dependent on feedstock imports from the Southeast Asian nation, where operations straddle the border region spanning Myanmar’s Kachin State and Nujiang Prefecture in China’s Yunnan Province. While Yunnan accounted for over 20% of Chinese feedstock in 2009, at the beginning of this decade, the number fell to 3%, with Myanmar exports filling the gap. This “filling” was particularly rich in heavy rare earths and some analysts estimate that as much as 60-70% of terbium and dysprosium in the Chinese market originated from Myanmar.
The conflict in Myanmar, where the civil war conducted by urban Burmese against Tatmadaw (the military junta), has now conflated with the decades-long, multifarious ethnic strife. The Burmese government has lost control over the border areas, and Beijing has been inconsistent in its support for Min Aung Hlaing's junta. This week, The Burmese dictator visited Beijing seeking stronger backing from the CCP. China’s nervousness has increased since its consulate was bombed in Mandalay several weeks ago. Burma represents an essential element for Beijing to resolve its geostrategic "Malacca Dilemma," but the work on the transportation corridor linking Yunnan to the Bay of Bengal. By contrast, India, China's regional strategic rival, has opened channels with Burmese opposition.
China’s domestic rare earths mining represents 60% of global capacity, while the country’s refining constitutes 90%. This gap means the country's magnet industry is ready to offer significant premia, with a knock-on effect upstream for unprocessed material but not for (processed) mixed carbonate. This is reflected in the payability for imported concentrate, which reaches 40%, twice the levels from a decade ago. Payability is positively correlated to prices, which makes the business highly cyclical.
Barring a peaceful resolution to the conflict in Myanmar, there is little hope for near-term volumetric growth in global supply. On the contrary, Western leader Lynas has recently stated that the company will match its production to market demand conditions. This means a slower ramp-up at the Kalgoorlie plant, which may, in any case, experience shortages of acid for processing due to the demise of nickel production in the region.
Lynas has recently questioned magnet manufacturers’ efforts to reduce the intensity of heavy rare earths (dysprosium and terbium). Since China's 2011 export embargo, many approaches to thrifting have been taken, affecting both the magnet rare earths (neodymium and praseodymium or NdPr) and heavy rare earths. Some attempts have sought to utilize lanthanum and cerium—lighter, more abundant rare earth oxides—but the results have been mixed at best.
More stock has been put into developing iron-nitride magnets as an alternative to NdPr-based solutions. However, iron nitride magnets exhibit lower coercivity than neodymium. Coercivity is a measure of the magnet’s ability to resist having the polarity of its field flipped when exposed to a strong opposing field. When coercivity is unreliable, there is a risk that the magnetic fields in a motor would rotate without prompting the shaft to spin. This behavior prevails in higher temperatures. To combat this hurdle, alloys of aluminum, nickel, and cobalt (the so-called “alnico”) have been considered as alternatives. Alas, these formulas have so far failed to match the magnetic strength of dysprosium-enhanced magnets.
Instead of inventing entirely new alloys, some researchers have sought to test hybrid materials, in which rare earths are mixed with other substances. These hybrids pose challenges related to saturation, the point at which a given material can maintain magnetization, regardless of the strength of the magnetizing field to which it is exposed. When the field is removed, the remaining flux density, known as the remanence, indicates the magnet’s inherent strength. The problem is that the remanence of the pure materials tends to drop off significantly when other temperature-resistant substances are added.
Progress in manufacturing two-dimensional materials based on graphene and transition metal dichalcogenides (TMDs or TMDCs) is even more futuristic. Their unique magnetic properties are being applied in emerging technologies such as spintronics.
Other scientists have sought to introduce ceramic ferrite magnets, which, however, are less potent than rare-earth-based permanent magnets.
The quest will continue - and may eventually be successful - unless a reliable source of low-capex, high-volume feedstock can be identified and fast-tracked to production. Whether this source will be found in Brazil, Africa, Australia or Greenland, will in large part depend on the US government’s willingness to engage with the most promising developers.
MINING & EXPLORATION NEWS
Within days of receiving a positive Record of Decision from the US Bureau of Land Management, ASX-listed Ioneer, the developer of the Rhyolite Ridge lithium-boron project in Nevada, was hit with the reality of America’s anti-mining morass. The gut punch came when a lawsuit was filed on October 31 against the US Bureau of Land Management to challenge its approval of Ioneer's future mine. The allegation is, by now, pretty rusty. Allegedly, the project would put the wildflower Tiehm's buckwheat “at risk of extinction." It will also cause damage to nearby water sources and sacred sites, at least according to the lawsuit’s sponsors: Center for Biological Diversity, Great Basin Resource Watch, and Western Shoshone Defense Project. The Shoshone people live in California, Utah, Wyoming, and the Duck Valley Reservation, located on the border between Idaho and Nevada. Rhyolite Ridge is located some 250 miles south of the Reservation. This is no longer an exercise in NIMBY, but rather in NIABY – not in Any backyard. The groups claim the mine will impact groundwater, springs, wetlands, air quality, cultural resources, and wildlife habits and transform a remote part of rural Nevada into an industrial complex. We have not been able to verify if any of these anti-mining groups are financed from foreign sources. Still, just recently, another attempt at America's industrialization was thwarted when Meta's AI data center was blocked due to the "presence of rare bee species." Bees and Buckwheats of All Backyards Unite!
Liontown, Australia's newest lithium producer, is wrapping up its first quarter of operation at Kathleen Valley mine. Its spodumene production was 28.2k dry metric tonnes and is on track to reach steady-state throughput in the current fiscal year. Construction and commissioning should be finalized before the end of December. The company is working on an optimization plan, and new cost estimates will be provided by the end of the year. Some operating costs have been capitalized, resulting in higher capex and depreciation, flattering the near-term earnings. Still, the company trades 72% below the peak reached during the time of intense interest by Albemarle and Hancock Prospecting. Hancock is holding 18% of the company.
London-listed Beowulf announced “the completion” of its natural graphite spheronization and purification project in Finland. The project was partly funded through a grant of EUR €530k. The company reports that it has successfully demonstrated a robust process flowsheet for the production of 'battery-grade' spheroid graphite with significantly lower environmental impact compared to conventional processes used in China. Further evaluation of the flowsheet will form the foundation for the pre-feasibility study for the commercial-scale Grafintec graphite anode materials plant. Note that it is precisely spheronization (and not coating for the anode material) that constitutes a bottleneck in the non-Chinese graphite value chain. The optimized PFS is expected in 1Q25, followed by the EIA process. Beowulf plans to apply for EU Strategic Project status early next year, which should accelerate permitting and boost capital access.
Keras Resources, the operator of Diamond Creek phosphate mine in Utah, has concluded the JV with PhoSul Utah LLC and the acquisition of a new site 8 miles north of Delta along with the transfer and construction of all processing infrastructure. The new integrated processing facility was commissioned in June, with 7.5kt of organic rock phosphate to be mined this year. The company has generated revenue of GBP £556k, a 40% increase YOY. Separately, Keras provides consulting services to the Togo government, which operates a manganese mine at the Nayéga mine (awaiting restart). Keras holds a 1.5% royalty advisory fee plus 6.0% of gross revenue from the Nayéga mine over the lesser of 3.5 years or 900kt of beneficiated manganese ore sold.
Pilbara Minerals posted another volumetrically strong quarter of operational performance at its Pilgangoora Mine in Australia’s northwest, but weak spodumene prices overshadowed the result. The company decided to put the Ngungaju plant on care and maintenance, leaving only the Pilgan plant in operation, which will operate at an 850ktpa rate. Production of 5.2% spodumene concentrate was 700-740kt, with operating costs between AUD $620-640/t. To preserve cash in this margin environment, and reduce capex, Pilbara has also decided to pause the development of its mid-stream JV with Calix. The demonstration plant construction was on schedule, with 60% completed at the end of September, and the commission was originally due to be completed in March 2025. Calix and Pilbara may seek further government funding for the project, which currently stands at A$20m. When (if?) the project is restarted, Calix might still need to provide between AUD $5 to 7 million for the capex.
London-listed First Tin published its results for the 18 months to June 30, reporting a loss of AUD $3.1m. The company completed the feasibility study for its Taronga tin project in New South Wales. First Tin is gearing up to submit an Environmental Impact Statement for Taronga and expects approval during 2025. Meanwhile, the Tellerhäuser tin project in Germany is advancing toward the feasibility study. An updated indicated resource stands at 10mt, with an average grade of 0.45% tin. The inferred resource of 18mt sports an average grade of 0.52% tin. First, Tin has slowed down progress on its third project at Gottesberg in Germany but will refocus on it in “the next 12-24 months.”
US-listed rare earths and uranium producer Energy Fuels reported its Q3 2024 results. The company has finalized commissioning its commercial scale Phase 1 rare earths separation circuit at the White Mesa facility in Utah. Energy Fuels has produced 38 tonnes of separated magnet oxides (neodymium and praseodymium, NdPr) so far this year, which is above guidance. Permanent magnet manufacturers are currently assessing the product quality. The company is updating the pre-feasibility study for the mill, intending to increase throughput from 40,000 to 60,000 tpa of monazite and produce ~4,000-6,000 tpa of NdPr, 150-225 tpa of dysprosium, and 50-75 tpa of terbium. This Phase 2 expansion is planned to be completed by 2027. Drilling is also ongoing at the Bahia project in Brazil, with an update on mineral resources expected in late 2024 or early 2025. Uranium ore processing at White Mesa commenced during the quarter, with material stockpiled from three sources: Pinyon Plain in Arizona, La Sal, and Pandora, both of which are located in Utah’s San Juan County. During the year's first half, Energy Fuels sold 0.2mlbs on the term market at an average realized price of USD $75.13/lb and spot sales between USD $80/lb and $92/lb. However, the market was disappointed by cuts to production guidance, apparently caused by shipment delays from Pinyon Plain, located near Grand Canyon National Park. The route from the mine north to Utah crosses the First Nation’s territory, where local Havasupai and Navajo groups apparently oppose the transportation of the ore. The updated guidance speaks of the upper range of 0.2mlbs instead of 0.5mlbs, with ore being stockpiled at the mine site in the meantime. Energy Fuels continues to ramp up its three mines, hoping to reach up to 1.4mlb p.a. by the end of 2025, but this number does not factor in the current transportation challenges. Future production will mostly rely on mining in Wyoming (Whirlwind Mine and Nichold Ranch ISR operation).
London-listed Guardian Metal Resources (formerly Golden Metal Resources), which is 45% owned by Power Metals, has secured an option to evaluate and possibly acquire the inactive Tempiute (formerly Emerson) tungsten mine in Nevada, 240km north of Las Vegas. The historically producing mine, active till the 1980s, was the source of tungsten, silver, and zinc and was operated by United Carbide, a former producer of zinc-based batteries, terminally hobbled by the Bhopal disaster in India. The transaction is subject to further due diligence. If it goes ahead, the company pay a further USD $50,000 in cash and issue 150,000 shares to Hinkinite Resources LLC. Guardian Metal Resources must then exercise its option within three years and establish “a "mineral resource" of tungsten trioxide (WO3) with a minimum cut-off grade of 0.4%”. Historical data point to combined measured, indicated, and inferred resources of 8Mt grading 0.43% of tungsten trioxide (WO3). Separately, Guardian is conducting a drilling program at Pilot Mountain in Nevada’s Walker Lane belt.
Days before the US election, Mozambique-focused graphite producer Syrah Resources received a USD $150 million loan for Balama from the US Government. The interest rate is fixed at 400bp spread over a 20-year US Treasury rate. The binding agreement was signed with the US International Development Finance Corporation just as Mozambique risks escalating civil conflict. The loan is intended to fund capital commitments at the Balama graphite project—the DFC funds upstream operations in developing markets and Eastern Europe. The loan matures in 2037 and is callable but saddled with premium penalties applicable for accelerated repayment. Mozambique is currently being shaken by anti-government unrest, but opposition leader, Venâncio Mondlane has, for now, abandoned plans to lead a demonstration this week.
SOURCES: (1) Market Data from Bloomberg as of 10:00 AM ET, November 7, 2024, in the local currency. (2) Additional data courtesy of Albemarle Corporation (ALB US), Beowulf Mining PLC (BEM LN), Calix Ltd. (CXL AU), Energy Fuels Inc. (UUUU US), First Tin PLC (1SN LN), Guardian Metal Resources PLC (GMET LN), Hancock Prospecting Pty Ltd (private), Hinkinite Resources LLC (private), Ioneer Ltd. (INR AU), Keras Resources PLC (KRS LN), Liontown Resources Ltd. (LTR AU), PhoSul Utah LLC (private), Pilbara Minerals Ltd. (PLS AU), Power Metal Resources PLC (POW LN), Skydio, Inc (private), and Syrah Resources Ltd. (SYR AU).
DISCLAIMER: No statements made in third-party links to this email should be interpreted as legal, accounting, investment, or tax advice. Amvest Capital Group Holdings LLC and together with its direct and indirect subsidiaries and affiliates (“Amvest Capital”) may describe, reference, or provide links, in its sole discretion, to other information or products or sites on the World Wide Web for the convenience of users in locating related information and services. Amvest Capital assumes no liability for the content of any linked sites, including, without limitation, the accuracy, subject matter, quality, or timeliness of the information. Any such information has not necessarily been thoroughly reviewed by Amvest Capital and is provided or maintained by third parties over which Amvest Capital exercises no control. In addition, to the extent that they were reviewed by Amvest Capital, Amvest Capital takes no responsibility for continually monitoring such sites; the material at a site when Amvest Capital viewed it may differ materially from when you do. Accordingly, Amvest Capital expressly disclaims any responsibility for the content, the accuracy of the information, and/or the quality of products or services provided by or advertised on these third-party sites.
This is neither an offer to sell nor a solicitation of an offer to buy interests in any entity managed by Amvest Capital, any related entity, or any other security nor shall there be any sale of securities in any state or jurisdiction in which such offer or solicitation or sale would be unlawful prior to registration or qualification under the laws of such state or jurisdiction. This contains certain statements that may include "forward-looking statements". All statements, other than statements of historical fact, included herein are "forward-looking statements." Included among "forward-looking statements" are, among other things, statements about the company’s future outlook on opportunities based upon current market and survey conditions. Although Amvest Capital believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks, and uncertainties, and these expectations may prove to be incorrect. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. One should not place undue reliance on these forward-looking statements, which speak only as of the date of this discussion. Other than as required by law, the company does not assume a duty to update these forward-looking statements.