Rare-earth miners toil in obscurity, operating a fancy-sounding but grungy business. They have hit pay dirt on the stock markets late this month, with it looking increasingly likely that China will restrict U.S. supply of the minerals they produce.
The Global Times, a mouthpiece for the Communist Party on foreign affairs, has run an article stating that it's only a matter of time before China will "weaponize" its rare-earth exports in the trade war.
The shares of the listed miners operating in this space have surged. The CSI Rare Earth Industry Index (index code 930598) tracks 50 of these stocks, companies that mine, extract, process, trade or apply the minerals. The index is up 45.4% so far this year.
The most-easily accessed stock for overseas investors is Hong Kong-listed China Rare Earth Holdings HK:0769. Shares in the company shot up on Wednesday, ahead 23.5% at the close, after languishing since August 2015. The penny stock has virtually doubled, up 90.9% this year.
China Rare Earth Holdings specializes in yttrium, an element you'll find filed under the letter Y and atomic number 39 on the far end of the periodic table. Yttrium is silver and shiny, and most of the company's products are refractory or fluorescent.
The company is actually a relatively small rare-earth operator, with a market cap of $188 million, while other peers value in the billions. But given its Hong Kong listing, the company is not hampered by the rules in mainland China's markets limiting stocks to daily moves of not more than 10%.
There are 17 rare-earth elements, metals used to make magnets for electric cars, earphones and computer hard drives. China accounts for 90% of global production and 80% of worldwide export shipments.
Some of the rare-earth elements are not really that rare -- there's more cerium than copper on the planet. Yttrium is named for a village in Sweden, Ytterby, where it was first extracted. But it is rare to find high enough concentrations of them in one location to justify mining, and they're normally fused into compounds with other elements that make them expensive to process. China has the cheap cost basis and productive-enough soil to make it worthwhile.
Chinese President Xi Jinping highlighted his government's intentions with a visit last week to JL Mag Rare-Earth, a mining and processing plant in Ganzhou, a city in southeastern Jiangxi province. Just to ram home exactly why he was making this his first domestic trip since the truce in the trade war broke, Xi took along Vice Premier Liu He, who has been leading the trade-negotiating team on its series of talks in Washington and Beijing.
The Trump administration has threatened to slap import duties on China's rare-earth minerals several times. But it has notably left them off the list of included categories of goods, since they're used in everything from iPhones to missile-guidance systems.
JL Mag is listed in Shenzhen SZ:300748. Its shares climbed the 10% limit on Wednesday, and likewise have doubled this year, up 127.3%. Another Shenzhen listing, Innuovo Technology, also keeps advancing by the daily limit, and is up 163% in 2019. It's also known as the Taiyuan Twin Tower Aluminium Oxide Co.
Beijing Zhong Ke San Huan Hi-Tech SZ:0009790, which produces rare-earth magnets for computer hardware and household appliances, advanced 5.8% on Wednesday. It is up 61.9% this year.
China Northern Rare Earth Group High-Tech has a Shanghai-listing of SH:600111, but mainly operates in Inner Mongolia, on China's northwestern border with Mongolia itself. That province and Jiangxi are the sites of the vast majority of Chinese production.
China Northern Rare Earth Group High-Tech is the largest of the miners, with a market cap of $7.1 billion, with others typically $2 billion to $3 billion. The company's stock narrowly missed the max advance on Wednesday, up 8.7%, and has moved ahead 54.1% in 2019.
China Minmetals Rare-Earth Co. SZ:000831 rose the daily limit on Wednesday, and is another stock to have doubled this year, up 107.7%.
Xiamen Tungsten SH:600549 sounds pretty boring (wait, not rare, or high-tech?), but is a tungsten and molybdenum specialist. Those aren't technically rare-earth minerals, but are often lumped along with them, since they go into lithium batteries and magnetic materials.
China shipped $92 million worth of rare earths into the United States last year, according to the U.S. International Trade Commission. Japan, the second-largest supplier, shipped $23 million of the fancy soil.
China's National Development and Reform Commission indicated late on Tuesday that the Chinese government would prioritize rare-earth supply for domestic demand. To the Global Times, that move is a "clear signal" that Beijing will play the "rare-earths card."
"China understands clearly that the complex global supply chain comprises industries from every country in the world," the newspaper states. If China cuts off rare-earth shipments to the United States, "then China will also suffer but the impact felt by the U.S. would be much more serious."
There's only one rare-earths miner in the United States, MP Materials, which runs the Mountain Pass mine in California. It actually exports pellets of ground-up ore containing rare earths -- to China. The pellets get processed into products containing cerium, neodymium, lanthanum and europium in China.
MP Materials bought the mine from the original U.S. operator, Molycorp, which filed for bankruptcy in 2015 due to Chinese competition. Now faced with having to pay a 25% import duty on shipments into China, Las Vegas-based MP Materials says it will kick-start its own processing operation, due to start now by the end of 2020.