Chief Investment Strategist, The Freeport Society
By Charles Sizemore, Chief Investment Strategist, The Freeport Society
“I love it when a plan comes together.”
– John “Hannibal” Smith, The A-Team
I know better than to taunt the market gods by lighting a cigar early. But I do want to talk about our recent investment win in rare earth elements. Our plan came together nicely. And it’s a trend that likely has a really long runway left in front of it.
Thirty-three days ago I recommended MP Materials (MP) and USA Rare Earths (USAR) to my Freeport Investor readers. And as I write this, the stocks are up 67% and 47%, respectively.
(Out of respect for my paid readers, I don’t generally share specific stock investments, but given that both are already well outside of my original buy zone, I’m comfortable sharing.)
So, what’s the story here?
Today, I’ll tell you.
And I’ll offer you a way to play this trend as well.
It started with the collapse of globalization. It recently accelerated with China’s Trade War weapon…
A De-Escalating Trade War Doesn’t Disarm China
The trade war isn’t “over,” per se. But the U.S. and China are in de-escalation mode.
Europe is reportedly close to a deal as well.
And President Trump appears to be getting bored with the whole thing. Heplans to send letters to the remaining holdouts with revised trade terms that they can take or leave.
Of course, all of this may end up being moot if the Supreme Court rules Trump’s tariffs illegal.
But here’s the thing.
China currently controls about 70% of the market for refined rare earths elements and 100% of the market for heavy rare earths. The heavies are the elements the U.S. needs to make our modern weapons.
A single Virginia-class submarine requires more than 9,000 pounds of them, for example. An F-35 fighter jet uses about 900 pounds. They’re used in drones… missiles… radar systems…
If it goes “boom,” it likely requires heavy rare earths.
That means that the United States depends on its greatest geopolitical rival for the critical materials needed to maintain its military.
That’s insane.
It shows how utterly complacent the United States had become.
When China retaliated against Trump’s tariffs by restricting export of seven rare earth elements – samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium – it lit the fire to create a home-grown rare earth supply chain.
Too Stupid to be Believable
Believe it or not, rare earth elements are actively mined in the U.S. But here’s where it gets stupid…
After pulling the minerals out of the ground, we ship them to China for refining because – up until now – there were no rare earth refineries on American soil.
That’s obviously a problem.
One that MP Materials (MP) is actively in the process of solving.
MP Materials operates the only active rare earth mining facility in America – the Mountain Pass mine in San Bernardino County, California. The mine is pictured below.
Source: California Curated
The mine produces neodymium and praseodymium, light rare earths used to make high-strength magnets in EVs, wind turbines, and electronics.
It also produces lanthanum and cerium, which are used in catalysts, glass polishing, and batteries.
More interestingly – given that these two elements are currently restricted for export by China – the mine produces samarium and europium, which are used in specialty magnets, lighting, and displays.
Apart from mining rare earths, MP also refines them and has started processing them into finished magnets at its Fort Worth, Texas, facility.
The company says it will reach commercial-scale production – meaning it expects to produce enough consistently to generate sustainable revenues and profit – by the end of this year.
It expects to produce enough batteries to power 500,000 electric vehicles per year. This will give the company a fully integrated rare earth chain completely independent of China.
All of that is great. But we haven’t gotten to the most important part yet.
Under contract from the Department of Defense, MP Materials is building a facility to process heavy rare earths… the ones that China is most aggressively restricting.
It’s not the only one, of course.
USA Rare Earths (USAR) is also developing a comprehensive domestic supply chain for heavy rare earth elements through its Round Top project in Hudspeth County, Texas.
Round Top hosts a polymetallic deposit containing 16 of the 17 rare earth elements, with a significant concentration of the heavies like dysprosium and terbium… two that China specifically singled out for export restrictions.
Apart from mining, USA Rare Earth is also setting up processing and refining facilities, building out a fully integrated rare earth supply chain.
By next year, the company plans to start manufacturing magnets for EVs, wind turbines, and defense systems in its new facility in Stillwater, Oklahoma.
You can bet that China won’t be happy about relaxing its monopoly on rare earths. They’ll engage in every imaginable form of economic warfare to maintain their stranglehold.
Ironically, this could include flooding the market with rare earths in order to cause financial stress to the American operators.
This is to say that while the trend here is clear, it will be volatile. America will be moving to self sufficiency in rare earths. And MP Materials and USA Rare Earths are two of the most obvious ways to play that trend.
To life, liberty, and the pursuit of wealth,
Charles Sizemore
Chief Investment Strategist, The Freeport Society