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Medallion Resources Represents An Urgent Buy Opportunity In REE Space In The Wake Of USA-China Trade Dispute

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  • China produces about 80% of the world’s rare earths today.
  • US REE dependency on China remains problematic due to the ongoing US-China tensions.
  • Medallion Resources (MLLOF), a junior minerals company, offers the most practical and financially sustainable solution to REE supply problem by focusing its operations exclusively in North America.

Rare Earths (also known as Rare Earth Elements – REE – and/or Rare Metals) comprise 17 difficult to extract elements, including lanthanum, praseodymium, neodymium and dysprosium. Not all REE metals enjoy the same levels of demand, but China produces about 80% of the world’s rare earths today. While the U.S., Canada, Australia and Russia also possess significant REE resources, they are time-consuming and prohibitively expensive to get into production. This dependency on China remains problematic due to the ongoing US-China tensions and unfortunately, wasn’t alleviated after the G-20 meeting between Trump and Xi. However, Medallion Resources (OTCQB:MLLOF), a junior minerals company, which specializes in extracting rare earth concentrates from monazite sands, avoids the mining risks, and offers the most practical and financially sustainable solution to achieving a North American REE production and reducing the reliance on Chinese supplies.

Medallion’s operations are exclusively based in North America. This is the key to its potential; it addresses the susceptibility that the U.S. technology sector has to the strong likelihood of Chinese REE export restrictions. Medallion’s positioning within the REE sector, allows it to benefit from demand independently of any Chinese supply cuts, acting as a catalyst for the stock price. Why? Simply put, its model is more realistic than many of its ‘mining’ competitors. It has a better chance of bringing the desired rare earths (more specifically neodymium-praseodymium, or Nd-Pr, magnets that allow the manufacturing of ever smaller and more powerful electric motors) to market. Medallion is on track to achieve production within two-three years instead of five to seven years for most of the North American companies in the REE space (at exorbitant initial costs, exceeding $1.0 billion) and with 10-15% of the capital investment.

As Medallion is based entirely in North America, it would not suffer from shortages in the availability of raw rare earth minerals. And it would be able to supply North American and other markets in the likelihood of Chinese restrictions – and the permanent threat thereof. Indeed, as relations between the United States and China become more entangled amid Huawei, trade, and other geopolitical disputes, the Chinese have threatened to impose an embargo on crucial exports of rare earths - just as they did in 2010. Such a measure, even if partially enforced, would have a heavy impact on U.S. industry, which is forced to rely almost entirely on China for the supply of these critical materials – and not just in consumer technology; in the defense sector as well. Not surprisingly, Chinese rare earth stocks have more than doubled, while their North American counterparts (all at preliminary stages) have gained some 40% in 2019. The only non-Chinese rare earths miner and processor, Australian based Lynas Corp., has also shown similar gains.

The seriousness of the situation was made clear when Chinese President Xi Jinping himself signaled China is ready to impose a rare earth embargo against the U.S. and its allies. On May 21, 2019, as Trump announced restrictive measures against the telecommunications giant Huawei, Xi visited a super- magnet factory (the kinds of magnets derived from concentrates such as the ones Medallion intends to produce Nd or Pr) in Jiangxi, one of the main centers of rare earth production and processing. More on the impact of US-China dispute on REE market can be found here: NXTanalytic | LinkedIn

China has made a real show of strength, which concerns the rare earths used in various technologies, including smartphones, electric cars and defense systems. Moreover, because of rising environmental concerns and official crackdowns on the widespread phenomenon of illegal REE mining (and smuggling), China’s own ability to increase NdPr production could be constrained, such that it may start to consider importing these materials to meet its own rising industrial demand in the next few years. Such supply constraints represent a significant catalyst for the development of alternative suppliers such as Medallion.

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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