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Leading Edge Materials (STO:LEMSE): Rare-Earth Gamble May Prove Lucrative Under Green EU Pressure

Two years after The Golden Investor’s first article on rare-earth opportunities, Lynas Rare Earths has risen over 500% as only big viable rare-earth miner outside of China. As prices for rare-earths like Neodymium have gone through the roof, profits have multiplied in this very concentrated market. Under great geopolitical and environmental pressure the EU is looking for alternative ways to secure the necessary amounts of critical raw materials needed for its ambitious green transition. However, as rare-earth mining is relatively unenvironmentally friendly rare-earth miners have been pushed out of the West towards China which now holds key market shares in the raw material market.

Figure 1 – Leading Edge Materials expects major growth in the CRM market

For small-cap miner Leading Edge Materials does have a differentiated asset portfolio of mines. With their full ownership over the Woxna Graphite mine and the Norra Karr rare earth deposit in Sweden, the company has a great foothold in Europe. While the tender for the exclusive exploration license in the Bihor Sud area in Romania that would add nickel and cobalt to the strategic raw material portfolio, could complete the extensive grip the company has in Europe.

China’s Power Is Major Supply Chain Risk

These critical raw materials the mainly Swedish board of Leading Edge Materials tries to attain are essential elements for batteries and magnets used in growing industries that the EU has appointed as important. The green and digital agenda of the EU cannot be completed without high dependency on China that still holds a firm grip over the critical raw materials market. The latest merger of the three big rare earth miners Minmetals Rare Earth, Chinalco Rare Earth & Metals Co and China Southern Rare Earth Group Co in China could drive prices in the already hot raw material market up even more.

Figure 2 – Geopolitical Risk in the CRM market is high

Licensing Risks Are Not Over Yet

On the long run a demand versus supply squeeze can uphold current elevated prices. However, as Norra Karr is located in a Natura 2000 region, Leading Edge is facing some counter-pressure as its initial mining license was not granted as it did not comply with the Natura 2000 regulations. However, since then Leading Edge Materials has been supported by the European Union as legislators realize extracting materials at Norra Karr could make the European rare-earth supply not only more stable but also more sustainable on the long run. Therefore, Leading Edge Materials could soon be finally set free to start their environmentally friendly operations at site. Important is to note that Leading Edge Materials uses cutting-edge technologies that cut emissions down 90% in the mining and processing of materials, in itself this company could give a helping hand to the EU to reach its green goals and supply chain targets.

Speculating on approvals could prove to be a lucrative gamble for investors looking to diversify their portfolio with high-risk green investments. However, this comes at a risk that these approvals will not occur and Leading Edge Materials (LEMSE:STO) will only be able to operate at their Woxna Graphite flake graphite mine that has the lowest operating margin in normal circumstances as competition is higher in that market. For now, Leading Edge Materials looks like a sustainable option in the mining sector.

Disclaimer: The writer of this article holds IQE (STO:LEMSE) stock, this article should not be interpreted as investment advice or anything like that.

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