China’s threat to restrict exports of rare-earth metals (REMs)—its latest retaliation to Trump’s growing tariffs—could have a substantial impact on the TSX Venture. In fact, a number of publicly traded rare-earth metals companies on the TSX Venture may have already begun to experience the side-effects of China’s REM rhetoric.
Why Are Rare-Earth Metals Important?
Due to their geochemical properties, rare-earth metals are used in everything from smartphones and hybrid vehicles to nuclear batteries and permanent magnets. A vital component in advanced and renewable technologies, China happens to control about 90% of the world’s annual production of rare-earth metals, which was estimated at 135,000 tonnes as of 2017.
Despite being known for its mining sector, Canada has an extremely limited amount of active rare-earth metals projects.
According to Natural Resources Canada, there are only three Canadian-based rare-earth elements (REEs, a term which can be used interchangeably with REMs) exploration projects that “contain significant concentrations (>20%) of heavy REEs” as of 2017. The other three companies on Natural Resource Canada’s list have either pursued other projects or are no longer solvent (ie. Quest Raw Minerals LTD., which filed for bankruptcy in January 2018).
Out of these three companies, only one publicly traded REE company, Avalon Advanced Materials Inc. (TSX: AVL), experienced a noticeable bump after China began its threats regarding the export of REEs. Between May 28 to May 30, Avalon shot up from $0.07 to $0.16, settling slightly lower at 0.13 by market close on May 30, 2019.
While China’s threats may have had little effect on the TSX, they were certainly more pronounced on the TSX Venture, which is home to a much higher concentration of REE companies…
Rare-earth Metals Companies On The TSX Venture Rise
A handful of TSX Venture listed REE companies rose between May 28, 2019 and May 30, 2019 following news that China was “seriously considering” restricting REEs exports.
- Hudson Resources Ltd. (TSXV: HUD) jumped from $0.34 to $0.40, announcing on May 30, 2019 that it was now looking for a partner to help it develop its Sarfartoq Carbonatite Rare Earth Element (REE) project in light of new trade tensions between the U.S. and China.
- Geomega Resources Inc. (TSXV: GMA) rose from $0.16 to a new 52-week high of $0.26 before closing at $0.18. Earlier this month, the company announced that it had selected Seneca Inc., a Montreal based engineering consulting firm specializing in industrial process engineering, to complete the Front End Engineering Design (FEED) study for its rare earth recycling demonstration plant.
- Ucore Rare Materials Inc. (TSXV: UCU) jumped from $0.15 to $0.26. The company just announced yesterday that a Utah Court had dismissed IBC’s complaint against Ucore.
- Medallion Resources Ltd. (TSXV: MDL) increased from $0.13 to a new 52-week high of $0.18 before closing at 0.16. At the beginning of May, Medallion provided an update on its process development work with the Saskatchewan Research Council (SRC) and the Chemical Engineering & Applied Chemistry Department at the University of Toronto.
Rare-earth Metals Trade War Could Enliven TSX Venture
The fear surrounding China’s stranglehold over the flow of REMs is not unlike the concerns over Huawei and its role in 5G—just like 5G, rare-earth metals are a crucial part of advanced industries. As such, China’s attempt to exert influence through its control of the world’s rare-earth metals supply is likely to be met with the same fierce resistance as Huawei’s 5G infrastructure.
However, this isn’t the first time that China has flexed its REMs “muscle”. Back in 2010, China restricted REMs exports to Japan over Japan’s detainment of a Chinese fishing trawler. Japan was later joined by the U.S. and the E.U. in 2012, at which point the countries filed a challenge with the World Trade Organization regarding the matter. Although the WTO ruled against China in September 2014, it wasn’t until January 2015 that China finally implemented the WTO’s ruling.
So, while China may attempt to restrict exports of its REMs, it will likely be forced to accept a WTO ruling instructing it to do otherwise. In the meantime (which could be years, considering the pace of WTO cases), China’s decision to restrict REMs exports could breathe new life into the TSX Venture and its rare-earth metals companies.