Rachel’s note: Regular readers know our in-house geologist and resource investing expert, Dave Forest, has been pounding the table on rare earths for years.
And he’s hitting it out of the park. Earlier this month, his readers had the chance to cash in on a rare earth metals mining stock he recommended at the end of 2019. At writing, it’s up over 800%.
But for those of you just joining us, you may be wondering, “What are rare earths? And why are companies that mine them delivering such explosive returns?”
So today, we’re sharing Dave’s recent Q&A with our colleague over at The Daily Cut, Chris Lowe.
As you’ll see below, the situation with rare earths all boils down to China’s plan to use these metals as a weapon in the trade war. And Dave believes it’s about to trigger an even more epic melt-up in rare earths…
Chris Lowe, editor, The Daily Cut: Dave, you’re a geologist… as well as a mining entrepreneur and financier. And you head up the International Speculator advisory. Your mission there is to help your readers profit from junior mineral exploration companies with the potential to double or triple in 12-24 months.
And you just blew the doors off with a rare earth metals mining stock you recommended. Can you tell me more about that big win for your readers?
David Forest, editor, International Speculator: The play in question is a rare earths mining company. I recommended this stock in October 2019. And it caught fire in February. In just six trading sessions last month, it jumped 68%. That made this stock a 10-bagger in the model portfolio.
So, last month, I recommended my readers take their initial stakes off the table by selling some shares… and letting the rest of their positions ride. At the time of my alert, the stock was up 1,019%.
Chris: For folks who know nothing about rare earth metals… and the scramble over them right now… can you help them understand what’s going on?
Dave: Rare earths are a group of 17 silvery-white metals. Their recent price rise has happened because of some unusual developments in global politics. In short, China is looking into using its supply of rare earth metals as a trade weapon.
It’s easy to understand why…
The primary use of these metals is in high-strength magnets. These magnets have a variety of defense applications. But they’re also key to a wide range of tech, including electric vehicles, 5G phones, and wind turbines.
Military technology relies on these elements… Rare earth metals go into cruise missiles, bombers, rockets, drones, lasers, decoy flares, and all sorts of other cutting-edge military equipment. The U.S. Air Force’s F-35 fighter jet contains half a ton of rare earths.
And China controls about 60% of these metals’ supply.
Chris: And it’s threatening to weaponize this stranglehold as part of the trade war?
Dave: It sure is. Last month, the Financial Times reported that the Chinese government had reached out to its rare earth industry and basically asked, “How much damage could we do to the U.S. military if we cut off rare earths exports? Could we cripple its production of new fighter jets?”
Party bosses in Beijing see rare earths as a potential weapon in the trade war with the U.S. The Chinese have done this before. In 2010, Beijing cut off the exports of rare earths as a political retaliation against the Japanese.
With the world’s major supplier offline, rare earth metals skyrocketed in price. In just a few months, prices for rare earth metals lanthanum, dysprosium, and promethium went up thousands of percent.
Junior rare earths mining stocks – smaller, exploration-type companies – did even better.
Chris: Do you think it could be about to happen again?
Dave: Last December, China imposed a new Export Control Law. It sounds dry, and most people ignored it. But the law played a big role in spiking rare earths prices the last few months.
For natural resource investors like me, it’s potentially one of the biggest developments in over a decade. It will now be much harder for Chinese rare earths miners to export supply. The law gives the government power to choke off exports completely if it chooses.
But my research indicates there’s something bigger happening. China simply doesn’t have enough metals to keep up supply. If that’s the case, it’s only a matter of time until exports drop. The new law is the first step.
What’s more, China’s new trade policy could choke off other critical metals exports – starting very soon. One trade expert went on record recently saying he expects the Chinese government to cut off metals supply as a “tool of reprisal.”
It’s going to be a big problem for some people. But it also means well-positioned investors, like my readers, will make a lot of money.
I don’t know if the rare earths boom I see coming will unfold in the same short timeframe as it did in 2010. But the lesson from history is clear. Rare earths can move really quickly when the market starts to take off.
Chris: So how should our readers invest to profit from this setup in rare earths?
Dave: At International Speculator, my goal is to discover stocks you can invest a small amount in to make a meaningful – maybe even life-changing – impact on your wealth.
As with all speculations, it’s critical you keep your position size small – 1% of your liquid wealth, say.
That ensures you keep your downside risk low. The maximum amount you can lose is 1%. But your upside potential is in the thousands of percent. That’s the kind of asymmetric setup you want to take advantage of.
I’ll be tracking this story closely for my paid-up readers. You can find out how to join me as a subscriber here.
And if you’re looking for a broad way to get exposure to the rare earths boom, you can buy shares of the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX).
This exchange-traded fund tracks an index of global companies that mine, refine, or recycle rare earths and strategic metals. Six of its top ten holdings are based in China. It charges an annual fee of 0.6%.
REMX isn’t the perfect play on the rare earths boom. A lot of companies in this index are only loosely involved in the rare earths industry. But it’s a good second best to the individual stocks I recommend to my paid-up subscribers.
Chris: Excellent. As always, Dave, thanks for speaking with me today.
Dave: Any time.