Date: 03/15/2021
Author: Mr. X
It has long been argued that free trade between nations would end wars. The Great War put an end to such illusions. However, there is a deeper reason why truly free trade may always remain, like Henry Clay said, the cry of a “spoiled child” demanding the impossible. Governments need to control markets simply to prevent other governments from building up hegemonic economic power. When one state starts consolidating control over a crucial economic sector, others may form an economic alliance against it in the same way they would form an alliance against a military superpower.
In the coming century, the main foreign policy challenge America faces is China. New reports indicate that American experts are deeply concerned about the potential for China to use a military solution to reclaim what it regards as the rogue province of Taiwan. A declaration of independence by Taiwan would itself be enough to provoke intervention. While the United States would certainly try to prevent the Taiwanese question from being settled through force, how much will and capability does America really have? China may doubt America’s willingness to use force if necessary. It’s not out of the question that we see Chinese military action sooner rather than later.
There’s also a deeper economic vulnerability that plagues Washington. Rare Earth Elements (REEs) are substances that are used in many applications such as catalysts, metallurgy, magnets, and, critically, batteries. Though these materials aren’t really “rare,” it’s hard to find them in concentrations where it is viable to mine them. These elements will be especially important because they will be needed for renewable energy projects and advanced electronics. No global power can thrive without access to them.
China controls at least 70% of the world’s supply of these elements. In 2017, former president Donald Trump signed an executive order directing the government to secure rare earth elements. The Trump Administration’s supposed efforts to secure Greenland, fodder for late night comedians, was another example of the former president saying the quiet part out loud. The United States really does want to secure crucial raw materials, and Greenland is one of the few places where they can be found free of Chinese control. America wanted access, not annexation, but it’s easy to see President Trump stating the issue in blunt terms.
The Biden Administration has not led to a more accommodating relationship between the world’s two greatest powers. Instead, the Biden Administration has continued efforts to make the United States independent of China when it comes to strategic materials, especially rare earth elements. The Biden Administration is also moving in the direction of securing supply chain autarchy when it comes to critical goods like semiconductors. This obviously means ensuring control over certain raw materials.
In Rogue Investing Daily, one of the stocks I discussed with readers was the Van Eck Vectors Rare Earth/Strategic Metals ETF [REMX]. Over the course of 193 days from August 7, 2020 to February 16, 2021, this stock returned over 106 percent in the Model Portfolio I shared with readers. However, the market is changing. The Biden Administration may actually be more forceful than the Trump Administration when it comes to securing American control over REEs. And REMX features many Chinese companies.
Simple geography puts America at a disadvantage. There is only one operational rare earth elements mine in the United States. It is owned by MP Materials [MP]. The company recently received a large grant from the Department of Defense. MP was up more than eight percent on Monday and almost 75% over the last three months.
Another key company that is not under Chinese control is Lynas Rare Earths [LYC: ASX]. However, that company trades on the Australian Stock Exchange, which might require you to create a separate brokerage account.
Still, an alternative could be Energy Fuels [UUUU]. This company is one of the country’s leading uranium producers and is also focusing on vanadium. Vanadium, named for a Scandinavian goddess of beauty, is not valued for its aesthetic qualities but its industrial uses. Many argue batteries that use vanadium could one day prove more efficient and useful than lithium batteries. Its time has not yet come, but the U.S. Department of Defense is interested in the possibilities. UUUU boomed more than 20% on Monday.
Denison Mines [DNN] also soared yesterday. It rose after news that it was joining the S&P/TSX Composite Index, which is used to track the Canadian equity market. Investors may want to be cautious here because of DNN’s volatility. For example, even taking yesterday’s gains into account, it’s still down over the last month – but up more than 120% over the last three months.
DNN and uranium producers generally are benefitting from increasing demand and supply chain disruptions. America may be forced to keep its nuclear plants functioning for longer than anticipated. Uranium spot prices spiked dramatically following the beginning of the COVID-19 pandemic – partially because the market was so dependent on imports. A shock to the supply chain changed the economic underpinnings of the industry.
A year ago, it was just the virus. However, we now see a conscious effort on the part of the American government to decouple from China, at least when it comes to certain raw materials. REEs, uranium, and associated mining projects are promising investment targets.
The American government, especially the military, is looking to secure, research, and fully exploit any sources of these materials that can be brought totally beyond China’s reach. Call it Mining Stock Nationalism. Global supply chains may be cut, but your investments don’t have to be. Government subsidies will fuel the growth of mining companies that remain outside the Chinese sphere of influence, allowing Main Street investors to profit from the developing economic Cold War.
