China tensions bring 5 ASX companies into the spotlight

Emanuel Datt

Datt Capital

Following on from the surprise invasion of Russia earlier on in the year, recent events related to the growing tension between China and Taiwan have spurred us, to increase our exposure to Rare Earth Elements ('REE').

Should the Taiwan situation worsen and/or should China use force to attempt to control Taiwan it is likely there will be sanctions enacted against China. However, investors should be prepared for counter-sanctions from the Chinese side and we believe this will entail the restriction of REE supplies.

China produces around 80% of the REEs globally and given their critical nature in the production of a wide range of modern technologies, a logical first step would be China restricting this supply to the rest of the world in which it is in disagreement.

This group of metals comprises the 15 elements of the lanthanide series and two chemically similar elements in scandium and yttrium. 

We have increased our exposure to the REE sector in recent months given the market outlook fuelled by the current and prospective geopolitical situation.

According to the Australian Government’s Geoscience Australia, 

The growing strategic importance of REE (Rare Earth Elements) and scandium was reflected in their inclusion in the US Government’s 2018 list of 35 critical minerals. This list was an initial step toward ensuring reliable and secure supplies of minerals critical to the US economy and military.

For those looking for exposure to the space, these five ASX-listed companies listed could be considered for inclusion as part of a diversified portfolio:

    • Lynas Rare Earths Ltd (ASX: LYC) is the gold standard for rare earth producers globally. It is an integrated producer with downstream processing facilities located in Malaysia and upstream operations in Western Australia. The company's customers are primarily Japanese and other nationalities who wish to diversify their supply from non-Mainland Chinese sources. LYC is currently the ASX's sole REE producer.
    • Iluka Resources Limited (ASX: ILU) is an established mineral sands business that is building a rare earth refinery in Western Australia, in conjunction with the Australian government, to process its own stockpile of rare earth ores. It expects production to commence in early 2025. As a non-producer, it will bear commissioning and delivery risk until production.
    • Hasting Technology Metals Ltd (ASX: HAS) is a rare earth developer in the Gascoyne region of Western Australia. HAS is developing a resource that is lower grade as compared to LYC. It expects to commence production in late 2024. As a non-producer,       it will bear commissioning and delivery risk until production.
    • Dreadnought Resources Ltd (ASX: DRE) is a rare earth explorer in the Gascoyne region of Western Australia. DRE has made a new rare earth discovery with initial results demonstrating grades almost three times that of HAS’s deposit which is situated a short distance to the north. This resource is still being delineated but we consider the potential is enormous given its results to date and simple path to commercialisation via third-party processing options. The company still has considerable exposure to exploration risk being at an earlier stage than the previous companies mentioned.
    • Lanthanein Resources Ltd (ASX: LNR) is a rare earth explorer in the Gascoyne region situated along strike to HAS. LNR has defined similar early rock chip samples as DRE,       which sits in a similar geological context, but with a superior heavy rare earth ratio. LNR intends to commence its initial drill program in September, a short distance to the east of HAS’ main deposit. The company still has considerable exposure to exploration risk being at an earlier stage than the prior companies mentioned. This makes LNR the most speculative exposure of the cohort.
Disclaimer: This article does not take into account your investment objectives, particular needs or financial situation; and should not be construed as advice in any way. The author may hold shares in all companies discussed.

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1 contributor mentioned

Emanuel Datt
Principal
Datt Capital

Emanuel is the Principal of Datt Capital, a boutique Melbourne-based investment manager focused on identifying high growth and special situation opportunities.

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