If you want to invest in something with a bold geopolitical flavor, then rare earth minerals are the investment for you. When the China trade war headlines were all the markets were talking about way back when, rare earth minerals were always in articles titled something along the lines of, “Possible China trade war weapons”. And these headlines could be making market headlines once again.
US-China relations have worsened. A few months ago, House Speaker Nancy Pelosi visited Taiwan, a country that the Chinese Communist Party (CCP) deems as part of its territory and not an independent country. Pelosi became the highest ranking US official to visit Taiwan in 25 years. The CCP were not happy, but are dealing with their own problems. For more info on the geopolitics, check out my most recent on this topic and the US-China Thucydides Trap.
The Chinese have issued sanctions on Pelosi, and have suspended cooperation with the US on a range of issues including military, anti-drug, and climate change.
The 20th National Congress of the Chinese Communist Party is set to be held on October 16th 2022. This is where China’s top leaders are set for a reshuffle. The big headline will be Xi Jinping consolidating power and congress giving him an unprecedented third five year term. Chinese leaders are only allowed two five year terms, but this is a new China. Xi’s China.
A new senior leader on foreign affairs is also expected. Will US-China relations improve? It does not seem like it. Tougher foreign policy is to continue, and Taiwan will continue to be a contentious topic between the two countries.
The US has responded by boosting competitiveness with China. Since the two countries will likely not be getting along quite well in the future, the US is now protecting itself from major Chinese imports. Things that the CCP could use as a weapon. The US is boosting production of chipmaking and semiconductors in the US. The U.S currently produces only about 10% of the world’s supply of semiconductors, whereas east Asia accounts for 75% of global production.
If the US is now about to protect themselves by increasing domestic production on things which they currently rely on China for, then my money is on rare earth minerals.
When it comes to rare earth metals, China is the #1 producer, producing more than half of the world’s total rare earth production. The US comes at a distant second place accounting for about 15% share of global production.
When it comes to rare earths and certain other critical minerals, the US relies on imports. And I mean heavily:
With rare earths receiving strategic designation by the US government, the US government is all in for increasing domestic supply. This means more rare earth mines need to come online. Environment concerns still matter, but in terms of how vital these metals are, I think it is safe to say that some of these projects could be fast tracked with government support. Especially now with US-China relations deteriorating.
And what better company than NioCorp Developments (NB.TO) with their Elk Creek Critical Minerals Project being the second largest rare earth resource in the United States. Elk Creek is a large underground deposit in southeast Nebraska. The project is rich in Niobium, Scandium, Titanium and Rare Earth elements.
NioCorp CEO Mark Smith recently appeared on Fox Businesses’ “The Claman Countdown” and mentioned that automotive and other manufacturers should not count on sufficient supplied of rare earths and other critical minerals coming from China.
Geopolitics is one thing, but China itself is consuming more of its own production of critical minerals for the production of electric vehicles and other technologies that use permanent rare earth magnets.
“Rare earth minerals are very, very important, and the majority of the rare earths in the world today are coming out of China,” Mr. Smith said. “Well, that’s fine, except China’s making a whole bunch of EVs. Now we want to make EVs. And there isn’t going to be enough rare earths coming out of China to feed all of those EVs that we want.”
From a supply and demand perspective, NioCorp’s Elk Creek Project looks even more attractive, and CEO Mark Smith has said there has been a lot of interest and discussions with some of the top automotive companies and steel companies who are looking for procurement programs for the next 10-20 years out.
Geopolitics not your cup of tea? Then how about the green movement? The US government on both the Federal and State level have recently passed bills which will see demand for critical minerals increase.
Firstly, the Biden administration has passed the Inflation Reduction Act which also deals with tax credits for critical mineral production. The bill creates a new 10% Advanced Manufacturing Tax Credit for a variety of critical minerals produced in the U.S., including niobium, scandium, and titanium. Should NioCorp find it economic to produce the magnetic rare earths neodymium, praseodymium, dysprosium, and terbium, and once the Project is financed and placed into commercial production, the 10% tax credit would also apply to the cost of producing these products.
“NioCorp could benefit substantially from these new production tax credits in the future,” said Smith. “This and other provisions in this bill send a powerful signal to producers, markets, and investors that the U.S. government wants to up its game in terms of encouraging more production of American-made critical minerals.”
Other positives that will benefit Niocorp includes the revision of the existing $7500 federal electric vehicle tax credit, and bill provisions which includes $500 million for ‘enhanced use’ of the Defense Production Act to provide economic incentives to create, maintain, protect, expand, or restore domestic sources for critical components, critical technology items, and industrial resources.
More US states are likely to follow California’s lead in banning the future sale of internal combustion engine vehicles as a means of accelerating demand for electric vehicles. These government actions are going to increase demand for the critical minerals needed for electric vehicles and other clean/green applications. Very bullish for companies sitting with a domestic supply!
When it comes to a play advancing a project, there is no other proposed project in the world that will make these 3 critical mineral groups other than NioCorp.
If you listen to management, they say that this is a primary Niobium mine with elements of Scandium, Titanium and magnetic Rare Earth Elements. So what is Niobium primarily used for?
Niobium is used in alloys including stainless steel. It improves the strength of the alloys, particularly at low temperatures. Alloys containing niobium are used in jet engines and rockets, beams and girders for buildings and oil rigs, and oil and gas pipelines. This element also has superconducting properties.
When it comes to Niobium, there are only 3 primary Niobium mines in operation in the world today. NioCorp’s Elk Creek Project was confirmed as the second largest indicated-or-better rare earth resource in the US!
When it comes to junior miners, this is definitely a company that is more advanced stage and de-risked. They have a feasibility study, and a NI 43-101 technical report. The project is shovel ready. All that is left is to secure project financing to build the mine.
Here are the economics of the Elk Creek Project:
The life of the mine has increased from 36 to 38. The after-tax net present value (NPV) also increased to $2.35 billion. Not bad considering NioCorp is sitting at a current market cap of $265 million.
The next step will be to focus on the magnetic REE products neodymium-praseodymium oxide, dysprosium oxide, and terbium oxide at purity levels that meet current commercial requirements. There currently is no commercial-scale production in North America of these separated rare earth products from ore mined in the U.S. A further updated NI 43-101 technical report will detail the company’s plans for producing rare earth products and will determine the net impact of integrating rare earth operations into the project.
NioCorp has recently been riding the momentum of very bullish press releases.
The company recently announced the signing of a definitive agreement for a proposed business combination with GX Acquisition Corp II (GXII), a Nasdaq listed SPAC. Once this acquisition closes, NioCorp will be listed on the Nasdaq stock exchange and US investors will be able to buy shares of the company. This closing is expected to be in Q1 2023.
The proposed transaction values the combined entity at an enterprise value of $313.5 million.
What is the major benefit? The merger can give NioCorp access to as much as $285 million in net cash from the GXII trust account which can be deployed to advance the Elk Creek Critical Minerals Project. This project has been confirmed as the second largest indicated-or-better rare earth resource in the US. The Elk Creek Project is well advanced with a resource and now it is all about raising capital to finance the project.
Management is exposing NioCorp to US investors as they get close to a Nasdaq listing. CEO Mark Smith will also be presenting at the first ever International Scandium Symposium on October 16th 2022 in Las Vegas. This will continue to keep US investors interested in the company following the Fox Business appearance.
When it comes to the chart, we told readers and viewers that NioCorp began a new breakout uptrend once it broke above $0.90. If you listened to our technicals, you would be currently up over 40% on your investment. 84% if you managed to take some profits when the stock hit recent highs of $1.71.
Notice the channel that I have drawn out. On September 30th 2022, NioCorp closed above this channel with a strong 26% green day. The catalyst? The Nasdaq SPAC news. The breakout took the stock to $1.71 highs, where the stock ran into some resistance.
So what happens now? I expect to see a channel retest. In technical analysis, a retest allows for the opportunity for buyers who missed out on the initial spike to enter into a position. I expect there to be buyers around the $1.20 zone.
If buyers do jump in and enter on the retest, this would set us up for a move higher. First to retest the $1.70 zone and then eventually higher to prices above $2.00
2023 is looking bright for NioCorp with the US Nasdaq listing. This will be huge for the stock and US interest will drive prices higher.
The technicals have a breakout, and the current macro environment is looking positive for rare earth/critical minerals. NioCorp deserves a top spot on your watchlist.
