Senior Analyst, Freeport Strategic Opportunities
Ludicrous…
That’s the only way to describe the speed of the SR-71 Blackbird.
The long-range, high-altitude, strategic reconnaissance plane is the fastest plane ever made… with a top speed of about 2,200 mph.
As former SR-71 pilot Colonel Jim Wadkins said, “At 85,000 feet and Mach 3, it was almost a religious experience. Nothing had prepared me to fly that fast.”
If you’ve never seen one, you’re missing out. It’s a sight to behold.
The fastest plane ever built, the SR-71 Blackbird, at the Pima Air & Space Museum
But it was more than just fast – the SR-71 was a technological marvel.
The plane’s designer, Lockheed Aircraft (now part of Lockheed Martin) had to invent new materials to make it work.
Because of the speeds it flew at, it had to withstand temperatures hotter than 1,200°F.
Aluminum is the material of choice for most aircraft. But it melts at 1,200°F.
So, Lockheed designers and engineers created a titanium alloy – Ti-6AI-4V – that keeps its strength beyond 3,000°F.
But what most people don’t know is that the ultimate spy plane almost didn’t fly. Without “help” from America’s archenemy, the Soviet Union, it almost never took off.
At the time, the Soviet Union was the world’s largest supplier of titanium. And it wasn’t like the U.S. government could pick up the phone and ask to buy some for a spy plane.
So, with the help of its intelligence agencies, the U.S. bought titanium through shell companies working through Third World countries.
Something similar is happening today.
Except this time, it’s not just that the U.S. is buying. It’s that it’s a host of rare earth metals (REMs) critical to aircraft such as the F-22 Raptor or F-35 Lighting II.
And who has these metals?
Yup. China.
Out of 44 REMs, China is the leading supplier of 30. The U.S. depends entirely on imports for 12 of these metals. It sources more than half of its needed supply for the other 28.
This means U.S. military security is in the hands of Chinese mining companies.
That’s a major problem.
But if you know where to look, it also means a potentially massive opportunity for investors.
Mine, Baby, Mine!
Investing is hard. It’s not supposed to be easy.
But every so often, an opportunity comes along that can earn you multiples of your money.
And sometimes they stare you straight in the face.
That’s why on March 20, my ears perked up. On that day, President Trump signed an executive order titled “Immediate Measures to Increase American Mineral Production.”
The goal is to create an in-house supply chain of REMs to reduce reliance on foreign supply.
It authorizes the use of the Defense Production Act (DPA) for sourcing them. That means the U.S. is at war… at least when it comes to mining.
The DPA allows for government financing to speed up the domestic mining process for these minerals. And the president has also directed the U.S. Export-Import Bank to invest in more critical mineral projects.
In 2017 it was “drill, baby, drill!” Today, it’s “mine, baby, mine!”
When the government and defense industry get behind a specific movement, the best thing to do as an investor is jump onboard for the ride.
100% Imported
As I mentioned, most REMs today run through China.
And in response to Trump’s tariffs against Chinese imports to the U.S. the Chinese government recently enacted export restrictions on a number of them.
For example, scandium.
It’s as strong as titanium, as light as aluminum, and as hard as ceramics. In alloys, this combination makes it attractive for high-performance applications.
Scandium’s chemical properties are difficult to substitute. So, it’s a key metal for the aviation industry. It helps commercial jets become lighter and more fuel-efficient.
The U.S. hasn’t produced scandium since 1969. There’s no stockpile… and no recycling capacity. It’s 100% imported.
According to the U.S. Geological Survey, most of the global production comes from three countries: China, Russia, and the Philippines.
What’s more, China controls 80% of global primary scandium production. And it refines100% of scandium metal production.
But although China may have a lock on production today, it won’t always be that way.
Once-in-a-Generation Super Spike
In the past, permitting a new mine was slow, cumbersome, and costly.
That’s changing with the recent executive orders from the president.
And it’s going to open up the chance to tap into a multi-trillion-dollar opportunity.
Since 2002, only three REM mines have come online in the U.S. But there are 10 non-operational mines in various stages of the approval process. And many more new mines are looking for approval.
Plus, the U.S. has some of the best mineral reserves in the world. The total estimated value of the U.S. national endowment of select critical-mineral reserves and resources is more than $8 trillion.
That just scratches the surface.
What’s happening today in the U.S. mining sector is a once-in-a-generation super spike.
Take a look at the chart below. It shows the ratio of the S&P Commodity Total Return Index to the S&P 500 over the past 50 years.
The lower the ratio, the lower the price of commodities versus stocks.
Notice the three peaks highlighted in the chart. Those are commodity super spikes. They typically kick off when the ratio finds a bottom. That happens about every 15 to 20 years.
And these super spikes produce massive gains.
For example, Thompson Creek Metals. In the early 2000s, it was North America’s largest molybdenum (moly) miner. Back then, moly was trading around $2 per pound. No one was paying attention to it.
Then came the boom. The moly market got hot and it traded up to $45 per pound. Shares of Thompson Creek went from $0.60 to $26 just in 2.5 years.
That’s more than 4,000%.
But it wasn’t just Thompson Creek. Gold royalty company Royal Gold surged more than 2,500% from early 2000 to its peak in 2012. And copper miner Teck Resources, ran more than 800% in a three-year span.
That’s why we should be paying attention to commodities today.
With the ratio near all-time lows, this could be the biggest super spike of our lifetimes.
The best opportunities will be in the junior mining companies I’m recommending to readers of Freeport Strategic Opportunities – companies that are far too small for me to mention here.
The good news is there is a way to buy a basket of critical metals miners through the VanEck Rare Earth and Strategic Metals ETF (REMX).
It offers targeted exposure to companies involved in the production, refining, and recycling of REMs. In return, it charges an annual fee of 0.54%.
That makes it a great way to get exposure to the super spike I see coming.
Consider getting exposure to this space.
Regards,
John Pangere
Editor, Freeport Strategic Opportunities