Back then China held over 95% percent of the rare-earth market, in the years following companies who suffered from the shortage increased their interest in rare-earth miners outside China. But because rare-earth mining is a cost-intensive and has a hefty impact on the environment there hasn’t been a great rise of rare earth mines outside China. In fact, Lynas holds a monopolistic position as the only big and viable rare-earth miner outside of China.
American Reliance on China
The last rare earth miner in the USA went bankrupt in 2015, therefore, the American government started an initiative to stimulate rare earth mining in the United States. Where the miners used to be pushed out of the United States because of the environmental issues and regulations coming with rare-earth mining, now afraid of losing the essential supply of rare earths, the sector is welcomed back into the United States.
This summer the Australian prime minister met with Donald Trump, discussing this issue since rare-earths are essential elements not only in electric vehicles and mobile phones, but also important for national defense equipment like night-goggles, weaponry and laser systems. That’s why in November last year Australia and the United States signed an agreement to collaborate on the supply of these critical minerals. Not long after, the U.S. Army allegedly had plans to fund construction of rare-earth processing facilities. Lynas has also announced its intention to build a heavy rare earth separation facility, which would be the only facility of its type outside China. Where one may be built in Texas, since Lynas and Blue Line entered into a memorandum of understanding last year to built a processing plant in a joint-venture in the United States. They are expected to be one of the contenders for this funding.
The position Lynas Corp (ASX:LYC) holds looks good, however, on the short term there is still volatility possible since Lynas is currently in dispute with the Malaysian government. Their billion-dollar processing plant in Kuantan allegedly had a buildup of toxic and radioactive waste in a landfill on their site. The Malaysian government set new waste removal conditions for their license to end this long running dispute. In September Lynas Corp got a 6-month extension of their operating license which is set to expire on 2 February this year, although it’s clearly visible that the Malaysians are done with all the waste being dumped in their country. To calm the Malaysians Lynas made plans to make an initial processing plant in Australia that could remove some of the low radioactive material before the shipping of the metals to Malaysia for further processing. In September last year Lynas signed an agreement with the city of Kalgoorlie to look at potential sites for this plant.
The Golden Investor thinks Lynas Corp Ltd (ASX:LYC) is on a good way to resolve their problems with the Malaysian government and is despite all problems and Chinese pressure making a profit. Moreover, they hold good odds to expand their business to the United States which will further increase their strength.
Disclaimer: The writer of this article holds Lynas Corp Ltd (ASX:LYC), this article should not be interpreted as investment advice or anything like that.