A report in The Australian newspaper (affiliated with The Wall Street Journal) provides an insight that is worth considering. It suggests a some key ideas that could be important in evaluating the investment prospects of both Lynas (OTCQX:LYSCF) and Arafura:
1. China’s exports of Rare Earth Elements (REE’s) is slipping significantly.
2. China may be seeking to both monopolize the REE market and to diminish its reliance on its own domestic supply of REEs for use in its own production of end products. In other words, let the world use non-Chinese REE’s so China can conserve its own reserves as much as possible.
The article’s suggestions of strategic planning behind China’s REE moves (both military and commercial) sound reasonably accurate to me. I would offer just one note for perspective. We should remember that there are U.S. and Canadian deposits of REEs that are in the process of being developed. Thus over time the world may become somewhat less reliant of Chinese REEs (including now Australian REEs) than appears to be the case now.
That said, it still seems strange to me that the U.S. and the Australians would allow Lynas come under the potential control of China, just from a national security viewpoint. Therefore it would not shock me if some better western sponsored financial deal were offered to Lynas before the Chinese deal can be consummated.
In either case, whether the Chinese deal does close or a better deal is offered to Lynas from elsewhere, it seems increasingly likely to me that the company is now on its way to a fairly interesting future.