Shares of Australian rare earths companies surged significantly on October 20, 2023, after the U.S. Department of Defense announced a partnership with the U.S. rare earth producer MP Materials. This development has heightened optimism within the Western rare earth industry, particularly in light of ongoing export restrictions imposed by China.
The stock of Lynas Rare Earths, the largest producer of rare earths outside of China, experienced a remarkable increase of 17% on the Australian Securities Exchange. This uptick marks the highest share price for Lynas since August 2022. Another key player, Iluka Resources, saw its shares soar by as much as 27%, achieving its largest intraday gain on record.
This wave of optimism follows MP Materials’ announcement on October 19, 2023, regarding a transformative public-private partnership with the U.S. Department of Defense. The initiative aims to accelerate the establishment of a comprehensive U.S. rare earth magnet supply chain, thereby reducing reliance on foreign sources.
The partnership includes a multibillion-dollar investment package and long-term commitments from the Department of Defense. MP Materials plans to construct a new magnet manufacturing facility, known as the 10X Facility, at a yet-to-be-determined site. This facility is designed to serve both defense and commercial markets. For a decade after its completion, the Department of Defense has committed to purchasing all magnets produced at the facility, thereby ensuring a steady market for MP Materials.
Analysts at Jefferies noted that this deal represents a significant push by the U.S. for rare earth magnet independence, which in turn raises the potential for price increases across the rare earth market. Following the announcement on October 19, shares in MP Materials surged by 50%, and Australian rare earth stocks reacted positively as the market opened on October 20.
China’s dominant position in the rare earths sector has prompted concerns over supply security, leading to export controls that have affected global markets. The recent U.S. initiative may shift the dynamics of the rare earth supply chain, as countries seek to establish more independent sources of critical minerals.
As the world continues to navigate the complexities of rare earth supply and demand, the developments in the U.S. and Australia could reshape the industry landscape. Investors and stakeholders in the rare earth sector are closely monitoring these changes for potential long-term impacts.
