Crisis Creating Opportunity for Rare Earth Stocks

Jul 05, 2023
bauxite, pyrolusite, galena, pyrite, chromite, lepidolite, chalcopyrite. Collection of stones extracted in Brazil, mineralogy, Brazilian mineral wealth

By now, you’re aware of the latest tensions with China.

However, with the crisis comes opportunity.

Over the last few days, China just said it would “enforce export restrictions on certain rare minerals essential for the production of semiconductor chips,” as noted by Street Insider.

“Starting from August 1st, the Chinese Ministry of Commerce announced that the exportation of germanium and gallium metals will require exporters to obtain licenses from the ministry. China said this measure has been deemed crucial to safeguard national security and protect the nation’s interests,” they added.

China also put restrictions on more than 35 other related metals and materials., which will go into effect on August 1. That’s not the best of news for companies that rely heavily on rare earths, such as Apple, Raytheon, Tesla, Toyota, BMW, the Department of Defense, Lockheed Martin, or BAE to name a few. Making matters far worse, China still dominates the rare earth market.

While it could get painful for rare earth-reliant industries in the U.S., the crisis creates opportunity for ETFs. For example:

Sprott Energy Transition Materials ETF (SETM)

With an expense ratio of 0.65%, the ETF offers pure-play access to critical mineral stocks needed for global clean energy transition. That includes MP Materials, Albemarle, Cameco Corp., Uranium Energy, Denison Mines, and dozens more. Since the end of May, the SETM ETF ran from about $16 to $18.08. With the latest crisis, the ETF could potentially see $20.

VanEck Rare Earth- Strategic Metals ETF (REMX)

With an expense ratio of 0.54%, the REMX ETF invests in companies that derive at least 50% of total revenues from the rare earth/strategic metals industry. Some of its top holdings include Pilbara Minerals, Allkem, Livent Corp., Lynas Rare Earth, MP Materials, Sigma Lithium, and dozens more similar stocks.