Breaking China’s Rare Earth Dominance

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The price of samarium has risen 60-fold over the past year.

What the heck is samarium, you ask? It’s a rare earth element (REE) used to create magnets designed for high temperature applications.

Samarium-cobalt magnets are about 60 times as powerful as your average fridge magnet. They are used in fighter jet engines, where actuators and generators must be able to withstand temperatures up to 350 degrees celsius.

Even other rare earth magnets, such as those made with neodymium, would lose their magnetization in such high-temp environments.

So why is the price of samarium up 60x over the past year? Because China produces almost 100% of the world’s supply.

In this trade war, China is using its control over samarium and other REEs as a powerful lever. And it’s been effective. At this point, they have essentially cut off the U.S. defense sectors’ access to rare earths. And it’s becoming difficult for auto and electronics manufacturers to secure enough supply as well.

But defense contractors are worse off. They’re barely getting by on previous stockpiles. And those are dwindling.

From Sunday’s Wall Street Journal:

On Wednesday, the chief executive of Leonardo DRS said the U.S.-based defense firm is down to its “safety stock” of germanium.

“In order to sustain timely product deliveries, material flow must improve in the second half” of 2025, Chief Executive Bill Lynn said on a conference call. The company is the U.S. subsidiary of Italian defense giant Leonardo.

The Pentagon is requiring defense contractors to stop buying rare-earth magnets that contain China-sourced minerals by 2027.

This is why America’s Department of Defense has stepped in to support Western efforts to develop rare earth mines and separation and refining plants, as we covered in The Pentagon’s Top Stock Pick.

My guess is that the U.S. government is just getting started. They’ve already invested more than $400 million in MP Materials, and put a price floor on rare earth elements. But they’re going to need to pick up the pace if we have any chance of hitting that 2027 goal. Uncle Sam will need to invest many billions, and quickly.

As investors, we should be exploring ideas in the rare earth space aggressively. MP Materials, which my colleagues James Altucher and Enrique Abeyta both recommended, has done extremely well over the past year, with a 525% return.

Beside MP, the next largest rare earth firm (outside China) is an off-the-radar company from Australia.

Circling Back to Lynas Rare Earths (OTC: LYSDY)

In June, we covered Lynas Rare Earths, a $7B Australian company with a unique portfolio of REE mines and refining facilities in Australia, Malaysia, and soon, the U.S.

Back then, I was still doing my research and hadn’t bought any shares yet. In full disclosure, I have initiated a small position since.

What I’ve learned during my research is encouraging. Here are a few notes from Lynas’ latest quarterly report:

• Sales revenue grew 38% on the prior quarter to A$170.2m with sales receipts of A$152.7m.
• Lynas is the world’s only commercial producer of separated Heavy Rare Earth oxides outside China.
• Dysprosium Oxide (Dy) and Terbium Oxide (Tb) were produced on the new production line at Lynas Malaysia in May and June respectively, the first commercial production of separated Heavy Rare Earths (HRE) for Lynas and the first commercial production outside China in decades.
• a first MOU has now been signed with JS Link (Korea) to collaborate on the development of a new magnet manufacturing facility in Malaysia

When we first covered Lynas, it was trading at $5.87. It has since risen to $7.78, and might be due for a pullback. But in this market, who knows? And over the longer term, there is still significant room for this one to run.

The company has decades of experience in the rare earth field, quite a rare attribute in the Western world.

Additionally, this is still a very under-the-radar company. Lynas’ primary stock listing is in Australia, where volume is relatively low. Here in the U.S., it trades OTC on the pink sheets, so most investors are still unaware or avoiding it.

If Lynas were to uplist to the Nasdaq or NYSE, I suspect many more investors would jump on board. With a market cap of over $7 billion, it’s not a small company. They could afford to list on the big board to attract a higher class of investor.

If Lynas were to uplist, I expect it would attract significant institutional buyers.

Of course, there’s no guarantee Lynas will uplist to a more premier exchange, but it would make sense in this environment. To be clear, I don’t have any relationship with the company other than being a shareholder. This is simply an educated guess.

To get a technical analysis perspective on Lynas’ chart, I asked my colleagues Enrique Abeyta and Greg Guenthner to take a look. Enrique said it has “$6.25 written all over it, but it might go to $15 before that.” Greg said it’s “Bumping up against those 2022 highs. Lotto ticket for sure”.

So it sounds like from a technical perspective, the stock may be overbought short-term.

However, I’m not giving up on the name simply due to the chart. I’ve done my due diligence on the name, and it’s one of the only legit rare earth stocks outside China. The fundamentals look good, and the rare earth story should provide a tailwind going forward. The possibility of government support could provide additional juice.

My hope is that the company continues to invest in its heavy rare earth mining and processing facilities in Australia, and particularly in Malaysia, which produces some of the more exotic “heavy” REEs. That could begin to break China’s monopoly on these critical elements.

Needless to say, there are significant risks at play here. There’s always a chance that China drops its export restrictions and floods the market with REEs. But if the U.S. government is smart (no guarantees there), they will continue to support Western REE independence.

It is absolutely vital that we develop our own mining, refining, separation, and magnet manufacturing expertise. And fast. Until we do, China will hold powerful leverage in any trade negotiations.

Lynas could play a significant role in making that Western rare earth independence happen. We’ll keep watching this name and update you with any major news.

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