Ucore Rare Metals profits: Battle for rare earths intensifies

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The US's only rare earth producer is no longer supplying its materials to China. Prices are rising.

Chinese reference prices for rare earths have risen by around 40% this year. This increase was triggered, among other things, by the Pentagon's acquisition of the US mining company MP Materials in July. Budding rare earth producers such as Ucore Rare Metals ( TSXV: UCU, OTCQX: UURAF, WKN: A2QJQ4 ) are also benefiting from the higher prices. The company is building its first RapidSX™ plant in Louisiana to produce rare earth oxides on a commercial scale.

Ucore is particularly interested in so-called heavy rare earths, which are essential for the production of permanent magnets, among other things. Industrial companies without these resources are effectively excluded from certain markets. The permanent magnets produced are used in electric vehicles, wind turbines, and military applications, among other things.

At this point, it quickly becomes clear why the Sino-American conflict not only has a trade dimension, but is also of a geostrategic nature, because whoever is able to control access to these elements also controls the access of its competitors to important military and civilian markets.

US Department of Defense pursues a clear strategy with support from MP Materials and Ucore Rare Metals

When the US Department of Defense acquired MP Materials, North America's only rare earth producer, in July, it also took the battle for rare earths to a new level. Previously, the US company had supplied refineries in China with the rare earths it mined. The consulting firm Adamas estimates that before the Pentagon's entry, MP Materials' supplies accounted for approximately seven to nine percent of China's supply.

This supply chain has since been completely severed, as the US Department of Defense wants the ore processing to take place in the US itself in the future. For this reason, one condition for the Pentagon's acquisition of MP Materials was that the company cease its exports to the People's Republic in the future.

Instead of being shipped to China, the ores will be refined in the USA itself in the future. By building its own refining capacity, the United States aims to break China's dominance in rare earths in the medium term. This strategy makes sense, because while China currently controls "only" approximately 70 percent of rare earth production, it controls an extremely high 90 percent of global processing capacity.

Because industry doesn't need the raw materials, but rather the processed end products, China effectively controls the entire global industry. Companies that aren't supplied by Chinese refineries are essentially excluded from the global market and can cease production.

Prices are sensitive to recent changes

Since this is essentially a matter of survival or extinction, the companies affected are extremely sensitive to changes in the market. This sensitivity can also be seen in the price. Not so long ago, a prolonged period of price weakness meant that many rare earth projects in the West were not economically viable and were discontinued.

While these decisions were obvious from a business perspective, they had devastating consequences on the national economy, as they did not reduce the West's existing dependence on China for rare earths, but rather preserved and reinforced it. Only since Western countries began actively counteracting this and, in some cases, enforcing higher prices for rare earths has the process toward greater independence from China gained momentum again.

While producers have since enjoyed significantly higher prices, manufacturers of permanent magnets and wind turbines are concerned. They fear that their profit margins could suffer due to the higher purchase prices for rare earths.

Only domestic rare earth production will ensure long-term independence from China

Ultimately, however, they can live much better with the higher prices than with a Chinese export ban. Such a ban was used as a weapon by Beijing in April as part of the tariff dispute and, as mentioned above, led to some automotive factories coming to a standstill because the required products from the Middle Kingdom were not available.

For Western industry, rare earths from China—even if they are cheaper—are nothing but a dangerous drug. Avoiding the need to consume them because domestic production facilities and refineries are available is therefore the best way forward. Ucore Rare Metals' RapidSX plant represents a crucial step in this direction.

If Louisiana can demonstrate on a commercial scale that independent, technically superior rare earth production in the US is possible, independent of China, the ban will be broken and the foundation for lasting independence from China will be laid. The Pentagon in Washington knows this, too. Therefore, they have not hesitated to invest USD 22.4 million to support Ucore Rare Metals in building the plant.

For Ucore, this decision is not only a kind of accolade, underscoring the project's international importance, but with the support and funding of the US Department of Defense behind it, the challenging business decisions that lie ahead will be easier to make. Ucore knows that it is not fighting the Chinese dominance alone, but has a powerful ally at its side. This development has not gone unnoticed by the market. Ucore shares are currently trading near CAD 4.00, a five-year high!

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