The US-China trade war seems to have reminded investors that China supplies 90% of the world’s rare earth elements (REEs). This vital supply has been restricted before, as the Chinese reminded us all a few months ago, prompting the US military to invest in building REE processing facilities in the US.

No surprise, then, that several readers wrote in to request coverage of REE plays—especially US REE plays—in My Take.

I’m sure you’ll understand if I reserve my company-specific analysis to those who’ve paid for it, but I will give you my take on the investment thesis.

As I said last May when the Chinese threatened to restrict supply of REEs to the US, I still think it’s too early. Here’s why:

Now, I have to say that none of this will stop REE stocks from rallying if investors get excited by this story, and these metals become the next flavor of the day.

But I remember one Canadian junior, Matamec, with a large deposit in Quebec that got a branch of Toyota to invest heavily in the project the last time REEs became the flavor of the day. After spending millions, Toyota walked away when it became clear that it would be cheaper to keep buying REEs in China.

I also remember Molycorp’s failure to make US REE production work back in 2015, resulting in that company’s bankruptcy.

I get that the new China story piques investor interest. But actual success in this space depends on government action not yet taken, metallurgy not yet proven, and more variables there’s just no way to assess at this stage.

Any REE stock we buy today may go higher, if the China threat and the America First stories remain strong. But any one of them is subject to suddenly stepping off a cliff on adverse news.

In my view, this all makes any investment in the REE sector extremely high risk—a gamble, more than a speculation.

I’m willing to miss out on whatever upside there may be in REE plays this year in order to keep that level of risk out of my portfolio.

That’s my take,

 

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Friday, December 27, 11:59am, EST, 2019