The rare earths market is dominated by China, but Australia is a key player. Here's a look at ASX rare earth stocks with projects on the boil in Australia.
Rare earths are a group of commodities that Australia has done well to corner the market on, not because of a monopoly on resources (indeed Australia only accounts for 3 percent of global reserves), but because it was ahead of the curve when it comes to investment.
The story of rare earths in Australia — the modern success story at least — has its roots in a 2010 trade dispute between Japan and China, when China throttled exports of rare earths to Japan as retribution for a fisheries clash.
Long story short, Japan found itself looking to diversify its rare earths import partners. Up until then it had been beholden to the whims of its larger neighbour, which at the time accounted for over 93 percent of rare earths output.
So Japan looked to Australia, and by investing in a then little-known company called Lynas (ASX:LYC,OTC Pink:LYSCF), Australia's rise as a reliable import partner for rare earths began.
How and why to invest in rare earths on the ASX
Australia is one of the world's top producers of rare earths. Accounting for 17,000 tonnes of the world's 2020 total of 240,000 tonnes, the country is an important player.
Australia is behind the king of rare earths, China (140,000 tonnes), the US, which has long sought to lock down its own rare earths supply (38,000 tonnes), and Myanmar (30,000 tonnes).
Australia's relationship with the US and key allied partners is a major component of its attraction as a rare earths-mining jurisdiction. Rare earths are vital in the production of high-tech defence materials — something the US excels in and wishes to safeguard. Rare earths are also important in the production of electric vehicles, navigation equipment, computers, chips, mobile phones and more.
Australia and the US signed a critical minerals agreement in 2019. Rare earths are a focus of the deal, which binds the two countries together at a high level, and paves the way for the geological research departments of the two countries (and Canada) to cooperate in exploration and research, and attempt to reduce the sector's vulnerabilities to trade disruption.
Public companies in Australia list on the Australian Securities Exchange (ASX). The Sydney-based stock exchange has 2,035 companies listed, of which nearly half play in the basic material and energy sectors.
It's easy to invest on the ASX, which has done investors' homework with an explanation on how to get started on its website. But the first step for those who want to jump in is to get set up with a stockbroker (which the ASX has also provided a useful tool for).
The outlook for Australian rare earths production is bright — while Lynas remains the top producer in the country, with a mine in Western Australia and a processing facility in Malaysia — there are between four and six "shovel-ready" projects around the country, according to top government sources.
Rare earth stocks on the ASX
So what about the stocks themselves? Here's a look at some biggest rare earths companies listed on the ASX that have projects on the boil somewhere in Australia.
Market cap: AU$4.9 billion; current share price: AU$5.44
The star of the show, Lynas describes itself as the only major producer of refined rare earths outside of China, with a mine at Mount Weld in Western Australia, a processing facility in Malaysia and plans to build a light rare earths separation facility in the US.
2. Australian Strategic Materials (ASX:ASM)
Market cap: AU$763 million; current share price: AU$5.47
Australian Strategic Materials' share price has increased by 116 percent in the 12 month period since it was demerged from gold-focused Alkane Resources (ASX:ALK,OTC Pink:ALKEF). Australian Strategic Materials is the owner and developer of the Dubbo project in Central-Western New South Wales; the asset is ready for construction with all permits in-hand.
3. Arafura Resources (ASX:ARU,OTC Pink:ARAFF)
Market cap: AU$187 million; current share price: AU$0.16
Arafura Resources is based in Perth and is in the process of developing the Nolans project in the Northern Territory near the town of Alice Springs. Nolans is in the development phase with a definitive feasibility study.
The company describes Nolans as "shovel ready" as of early 2021, and it has support from key ministers within the Australian government. The project is unique in Australia in that the company has plans for Nolans to be a vertically integrated operation with processing facilities on-site.
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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.