Rare Earths, Looking Back at 2020 and 26 Companies with a $17B Market Cap at Year End
In this article we review the 2020 rare earths space – and what a year it was….!
You don’t need to have perfect vision to see what happened in the rare earths space. It’s safe to say that with all the “hurrah” around last year being a great new year, a year of 20/20 vision blah blah blah, the only thing anyone got right was the continued resurgence in the rare earths. As a reminder, for a description of what constitutes a rare earth, see here. There are 15 of them, with two additional metals (yttrium and scandium) being considered as rare earths because they are typically found in the same ore as the true rare earths. The grouping is further broken down into heavy and light rare earths – there is a global abundance of the light rare earths, while the heavy rare earths are less available and more desirable for their applications in technology.
Why should investors care? Rare earths have become ubiquitous in our everyday electronics-driven lives, but there is a serious supply problem. Whether by design or by accident, the global rare earths supply is controlled by one country. We have known about the Chinese dominance of the rare earth space for years now. Some can vividly recall the market manipulation of 10-12 years ago that both caused a feeding frenzy, with rare earths prices soaring, stock promoters manufacturing “rare earths” companies as fast as possible and the inevitable market collapse of the sector. Ultimately, China became the market, producing about 80% of the rare earth metals etc. for industrial use while only supplying about 30% of the input. China arguably has the world’s most complete rare earth industry chain, which means in order to make full use of the rare earths mined in various countries, ore producers must go to China for processing.
Unfortunately, moving the rare earths processing away from China is no small feat, will cost billions of dollars and will take years. Already governments are taking notice and there is tremendous US government support to reinvigorate the domestic rare earths industry (partly out of strategic concerns) as well as the Province of Saskatchewan committing to build a rare earths processing facility in Canada. As we know, rare earths are crucial in military technology, from the manufacture of F-35 fighter jets, nuclear submarines, armored vehicles and night vision goggles to name a few. Having this supply chain controlled by a foreign power is a glaring oversight.
“Donald Trump has had more influence on rare earths industry in the US and probably the world because he is actually the first president to pay attention to this in light of his interest in critical metals production being brought back to North America from China and other places that he considers less friendly” said international rare earths expert Jack Lifton in an August 2020 interview. The move to end Chinese dominance is underway.
Looking at 2020
What does this mean for investors? Well, (and I promise, my last clichés…) hindsight is 2020 but is not an indicator of future results. The world appears to have woken up (again) to the rare earths space as highlighted below – there were some tremendous gains in company share prices and corresponding market capitalizations. Half of the 26 companies listed below saw their share prices more than double! This is not unexpected for small-cap companies who all of a sudden garner market attention and see their share prices explode, but note that the share price appreciation was not confined to them – the multi-billion dollar MP Materials Corp. saw a triple from their announced business combination in mid-2020.
Changes in Share Price (2020)
Combined across all 26 companies listed, there was a total of almost CAD$17 billion of market value at year-end 2020. Three companies (MP Materials, Lynas Rare Earths and Iluka Resources Limited) dominated this statistic and accounted for almost CAD$13 billion of that value, making them all 600-pound gorillas. The two largest market capitalization companies (Lynas and MP Materials) saw significant market capitalization increases – this signaling a shift in investor sentiment towards the sector and certainly increased recognition.
Note that of the 26 companies listed, 12 have an Australian primary listing, 9 have a Canadian primary listing, 4 have a US primary listing with one company listed in the UK. There are secondary listings in all but the Australian market for Appia Energy (Canada/US), Energy Fuels (US/Canada), Pensana Rare Earths (Australia/UK) and Mkango Resources (Canada/UK).
Oh, what a year 2021 is going to be! Watch for a second article in which we highlight our top five rare earths companies for 2021.