China’s "dirty tricks campaign" speaks volumes about the outlook for rare earths: 3 ASX mining stocks headed for a rerate

Revelations by US cybersecurity firm Mandiant that China had resorted to cyberwar tactics in an effort to protect its stranglehold on the strategically-important rare earths industry comes as no surprise.

The dirty tricks campaign has been loading up chatrooms and websites with disinformation about competitor western world projects, with the clear implication being China is out to protect its dominance of the industry, as it would.

It was a smiling Deng Xiaoping who said back in 1987 that the Middle East has its oil and China has its rare earths. Later in 1992, he commented that the rare earths industry was of “extremely important strategic influence” and that China had to make the “fullest use of the country’s advantage in rare earths”.

Come 2010, Beijing did just that by imposing a ban on rare earth exports to Japan over an East China Sea dispute. And later on, Beijing introduced a moving feast of export quotas to keep the west on edge, and to ensure China’s needs were foremost.

So here we are decades later and China is now said to be choking up TikTok and Instagram with disinformation designed to undercut the western world’s efforts to wean itself off dependence on China for its rare earths needs.

Long considered critical, rare earths have become even more so because of the mega trend of decarbonisation. Electric vehicles and wind turbines are big components of the push, and both happen to be big end-users of rare earths.

None of that has been lost on the western world.

It is why Australian taxpayers are providing soft financing for Iluka’s (ASX: ILU) $1.2 billion Eneabba rare earths refinery in WA and why US taxpayers recently stumped up $US120m for a rare earths separation plant to be built by Lynas (ASX: LYC) somewhere on the Gulf coast.

But there is so much more to do, not just from a geopolitical standpoint, but also from a sheer demand standpoint. Slice and dice the forecasts out there and there is consensus that Lynas-scale capacity (it’s the biggest outside of China) will need to be built every 1.5 years for at least the next 20 years.

Lynas is an $8 billion company.

Despite the pressure for more and more rare earths, particularly non-Chinese rare earths, Lynas and the rest of the ASX rare earths space have been beaten up in the last three months along with the rest of the market.

Lynas is down 20% while the explorers/developers are down 50% or more. Rare earth prices have come off a touch in the same period on general recession fears but remain elevated.

And given the non-China supply imperative and the emerging deficit in the supply of the particular EV and wind turbine rare earths, it is hard to see the bullish outlook changing anytime soon. It suggests that the ASX rare earths space has moved into oversold territory.

That came through in a $12.50 price target Macquarie put on Lynas last week. Lynas closed on Thursday at $8.73.

Rare earth explorers with strong newsflow ahead of them offer leverage to the thematic that the sector’s best years are ahead. There are 15 rare earth explorers and would-be developers worth their salt on the ASX.

But here are three with newsflow ahead of them:

Australian Rare Earths (ASX: AR3)

It has just gone into a trading halt pending a resource update for its Koppamurra ionic clay-hosted rare earths discovery in southeast South Australia, straddling the border with Victoria.

AR3 joined the ASX lists in June last year, raising $12m at 30c a share. It traded up to $1.35 but is now back at a more sedate 37.5c.

The resource update could well trigger a re-rate. It is the nature of clay-hosted deposits (like those mined in China) that the mineralisation can be shallow, consistent and laterally extensive.

As it is, Koppamurra already ranks as a large-scale discovery based on its maiden resource estimate. The upgrade could take it to another level still.

PVW Resources (ASX: PVW)

In a neat piece of timing, PVW got in ahead of the general market sell-off to pull in $9.5 million from a placement at 40c a share to chase down the idea that its Tanami (heavy) rare earths project in WA’s Kimberley region could be something special.

It closed on Thursday at 24c notwithstanding the news that it has just kicked off a 35,000m drilling program.

The drilling campaign follows on from rock chip sampling which returned up to 12.45% in total rare earth oxides in October last year, which is more encouragement than anyone needs to roll in the drill rigs.

The bigger picture is that there could be some real scale to the discovery as the project area covers an 18km stretch of prospective unconformity.

RareX (ASX: REE)

RareX was a 14c stock earlier in the year but is now back at 5.3c. It too got in ahead of the broad market sell-off by raising $10m at 9c a share.

It means it is funded for a drilling program to grow the resource base at its Cummins Range project near Halls Creek in the East Kimberley region of WA.

It is the same style of mineralisation as Lynas’ Mt Weld operation and would currently be categorised as being of moderate size.

But success in confirming primary mineralisation to a depth of 500m, compared with the 100m limit of the current (oxide) resource estimate, means the scale of the resource could comfortably double, if not more. It is what the drilling program is all about.

A resource update is likely before the end of the year and would lead into early development studies.

VOLT RESOURCES (ASX: VRC)

Volt’s (VRC) $2 million placement at 1.6c a share wasn’t the biggest fundraising exercise of the week but it was certainly the most interesting.

The funds are earmarked for a restart of its Zavalievsky graphite mine in Ukraine, in the west of the country, well away from the invading Russians.

Investors in juniors of any description are generally derring-do types. But hats off to them for supporting the type of project that Ukraine wants and needs to be restarted to repair its economy.

Investors (and the company’s chairman) who took up the stock are also backing the idea that Zavalievsky can be a key link in Volt’s bigger ambitions to become a significant integrated graphite producer from its projects in Ukraine and Tanzania.

Graphite is the forgotten anode side of the batteries powering the EV revolution. But as the revolution gathers pace, it too is enjoying price strength on growing demand from the battery sector, with Europe in particular needing new non-China supply options.

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