Critical minerals and their producers

[Jackfin]

In Trump’s speeches and now also in his actions, the need to get rid of dependence on China seems to be recurring very often. Now that the trade war has really picked up pace, one of the United States’ biggest weaknesses is its dependence on critical minerals imported from China.

I shamelessly quote the text of the Substack writer I linked.

The purpose of this thread is to discuss the development of the situation and the companies that benefit most from it.

Improving Fundamentals

Now that the trade war has begun, one of the sectors that may benefit most from it in both the short and long term are producers of critical minerals.

In the short term, the sector may get an additional boost if China expands mineral export restrictions or, in the “best” case, stops them altogether. That could be a bad situation for the global economy, but a home run for the sector.

In the longer term - assuming that trade relations between China and the United States normalize even a little, the sector’s outlook is still better than before liberation day. Now that it has become clear that China is willing to use minerals as a weapon, states are likely to further increase their support for the sector - which, of course, increases investor interest - improves financing prospects, and a snowball effect is underway. Support from states, and especially the United States, has increased even before recent events.

On February 24, Congressmen Swalwell and Reschenthaler introduce the Rare Earth Magnet Security Act (REMSA), which would provide tax incentives to producers. In practice, it would mean a $20 per kilo increase in the price of produced magnets if they are produced in the United States, and $30 per kilo if both the magnet and its manufacturing materials, the minerals, are entirely produced in the United States.

On March 21, Trump uses a presidential order (executive order) aimed at accelerating the permitting and ramp-up of new production.

The government also supports the sector with direct grants - $440 million over the past five years, so even if Trump were to give up his job for some reason, the idea would hardly suffer because both parties are behind it.

The author of the text I linked in a previous message, @MylesMcNulty, discusses the sector quite thoroughly on Twitter. A kind of @Mikko_Leivo of the sector.

Sector Stocks

The sector has a relatively small cluster of companies, tickers:

$MKA $MP $LYC $USAR #PRE #RBW

In my opinion, the first two, Mkango Resources and MP Materials, are the two most fascinating, but for different reasons.

Mkango has the highest risk/reward ratio as the company is an exploration company, but MP Materials is the only one with significant production in the United States - however, it carries its own unique risks. More on that later.

Mkango has two fascinating assets under its belt.

1. Songwe Hill - a project that will soon be brought to the stock market via a SPAC.
2. HPMS - technology, a mineral recycling technology that should be more efficient and cheaper than others of its kind. The technology is moving from theory to practice as the JV (Joint Venture) in which the company is a part is just ramping up production at small facilities in Britain and Germany. They will serve as pioneers for the future.

Mkango Resources

The bull case is that the facilities operate as desired, Songwe Hill SPAC rockets, as does $USAR SPAC, and by selling it or taking out a loan against it, the company can finance the construction of facilities in the United States.

MP Materials is the largest US company and has significant mining production, but also metal processing in the future. The reason why MP has performed worse than smaller companies may be that as late as 2024, up to 80% of the company’s production had to be sent to China for processing. Currently, however, the company is ramping up its “Independence Facility” - a plant aimed at reducing dependence on China.

As with Russia’s gas exports, trade agreements will probably be honored until the end, but at some point, a limit will likely be reached when China no longer accepts MP’s production.

It is somewhat uncertain how the stock would perform in that situation. If the situation were to escalate, would the minerals still underground and becoming more valuable daily be so valuable that they would compensate for the decline in revenue until US processing can be ramped up?

From a risk management perspective, it might therefore be wise to assemble a basket of several companies.

Happy research moments in the sector .

[Jackfin]

Last night, various news reports emerged stating that China would have halted the export of all critical minerals and magnets containing them over the weekend. The sector is currently up by about 10%.

China halts critical rare earth exports as trade war intensifies

[Jackfin]

New presidential order from Trump.

Ensuring National Security and Economic Resilience Through Section 232...

The order mandates an investigation into how overproduction keeps mineral prices low and how well (or poorly) the supply chain is diversified. The first analysis should be released in 90 days. In practice, this will lead to Trump imposing tariffs on imports to make local production more profitable, and the industry will be supported even more strongly with various subsidies. Here are mentions that directly refer to this:

Policy Basis (Section 1):

It is emphasized that a strong national defense requires a sustainable production capacity, price stability, and a resilient industrial base – this provides justification for supporting domestic production investments.

It is mentioned that the United States needs an affordable, sustainable, and resilient domestic supply chain for processed critical minerals.

Grounds for Investigation (Sec. 3(b)(iii)):

The order mandates an investigation into how market manipulation by foreign actors affects domestic investments, and how it undermines the United States’ ability to develop its own production.

Consideration of Proposed Actions (Sec. 3(d)):

Among the proposed measures, the following are specifically mentioned:

“Policies to incentivize domestic production, processing, and recycling”

This means that the Secretary of Commerce must consider policy actions that incentivize domestic production and recycling.

---

What does this mean in practice?

The order does not yet include direct forms of support, but initiates an investigation that could lead to policy actions, such as:

• Subsidies or tax breaks for domestic mining and processing facilities
• Investment incentives for companies using critical minerals
• Public-private partnerships to build supply chains
• Strategic reserves or state-supported infrastructure projects

[Jackfin]

Mkango continues to look more and more interesting in this environment. I believe the investment idea can be divided into two different parts, one of which has a much lower “hurdle rate” than the other.

First, the listing of Songwe Hill. This is one of only four construction-ready critical mineral projects in the world. It should, in itself, be extremely valuable. The project’s NPV is 559 million USD.

For comparison, $REEMF, which is still conducting a preliminary study and is OTCM listed, has a mcap of 500 million, and $USAR has a mcap of 1100 million. Both have a potential exploration project and a magnet processing plant underway.

From a narrative perspective, I think REEMF and USAR are good benchmarks, but for different reasons.

While looking for USAR’s 43-101 PEA, I unfortunately found an old 2019 version. It mentioned the Texas mining project’s NPV of 1.5 billion USD. Without taking a stand on its current value, one could assume that USAR is trading at 75% of the mine’s NPV, and you get the magnet processing plant thrown in. This is highly speculative, and I wouldn’t invest based on that, but it’s a good benchmark.

Since Songwe Hill is in Africa, Malawi, it should trade below its US counterparts. It should be noted that the project is much further along than others. 0.5 x 559 = 280 USD. Add in the dilution from Spac PIPE participants, and let’s conservatively value it at 200 USD… MKA is currently trading at 85 mcap.

The magnet recycling technology is a separate chapter. I’m still researching this, but the AISC of MKA’s technology should be $20/kg vs USAR’s $100/kg. A huge difference. The number of recycling plants will also soon exceed USAR’s as the UK, Germany, and Poland begin production in the next 12 months. If the Spac goes well or the US government funds the projects, the company will soon also have plants in the United States + interest has also been shown in Japan and Canada. This might become a real company, not just a small, eyebrow-raising research firm.

One final point. MKA trades on the London Stock Exchange and TSX Venture. Second-tier exchanges. REEMF also trades on one; OTC, and still gets a higher valuation. One would think that at the latest, when the Spac lists on Nasdaq, the company would start to be valued.

Therefore, I believe at this point, an investor must trust at least one of two things. Will market favor for the sector continue for the next 3-4 months so that the Spac has time to list? If financial markets were to completely collapse, or if a bromance developed between Xi and Trump, it would kill the idea.

Gritting my teeth a bit, I would dare to say that the sector will perform okay even in a bad market, as stocks seem to be in a strong uptrend, production is being restricted, which improves fundamentals, and governments may soon throw money at the sector.

It might actually be enough for the company to announce the Spac listing date, and the stock would likely rise by 50% as a result. The spread between NPV and price is so huge.
Of course, there could also be pleasant surprises. What if the sector is at its hottest then, and the Spac finds itself at the same valuation level as USAR? Mkango’s ownership stake could then be 5-10 times higher than their market capitalization.

The second, higher hurdle rate is whether this will ever truly become a real company. If the tech works and plants are built widely geographically, the company might generate 200-400 million in EBITDA. Before that, some cleanup and consolidation of JVs under one company, etc., would be needed, but there really might be an opportunity for significant returns here.

Quoting Bezos: “Given a 10% chance of a 100 times payoff, you should take that bet every time.”

USAR is currently up 25%, MP materials 10%, MKA +/- 0, and indices down 2-4%. Does the sector follow the stock market with a delay, or is there a real reason for the sector’s strength? If so, MKA should follow suit.

[Waldeboy]

MKA is interesting, and I’ve only just started my own research. The company clearly has two different parts: the mining side and then the magnet recycling side.

This recycling side is interesting because it is patented and appears to be very energy efficient.

I did some research online and found that the patented technology and development projects have been transferred under a company called Maginito, of which MKA owns approx. 80%.

In 2023, the US-based investment company Cotec joined Maginito as an investor. Their investments focus on the mining sector.

Cotec acquired a 10% stake with the option to increase their share to 20.6%. The idea is that, in cooperation, they will bring the patented recycling technology to the US market, which will certainly include the construction of a pilot plant. Cotec’s website has a good summary of this ownership structure.

CoTec Holdings Corp. - HyProMag Ltd.

Additionally, I came across the following page in one of their joint presentation slides:

CoTec Holdings Corp. - Presentation

So it seems the US pilot plant is already quite far along in consideration. MKA has a 50% stake in this.

[Waldeboy]

Here’s also last week’s LinkedIn update from MKA’s CEO

#rareearth #rareearth #hypromagusa #mineralssecuritypartnership...

[Jackfin]

In the long run, that JV will likely complicate value realization. I haven’t yet started digging into Magnito’s and Hypromag’s financing solutions, but at some point it would certainly be sensible to put everything under one company. This could be done, for example, through Magnito’s IPO or by arranging a share issue for Cotec as part of Mkango. Good comparables for that are, e.g., Galiano Gold and Taseko Mines.

However, there’s still a way to go. If they could get Songwe Hill’s listing moving forward first.

[jaapo]

Here is SVT’s article about minerals.
(e.g., Chrome + translation works for this article, but be prepared for translation errors)

“To find out more about the consequences of the mineral fever, SVT’s correspondents and envoys have visited eight locations that, for various reasons, play a key role in the power game.”

Kriget om mineralerna

In this article, it is mentioned:
“If China turns off the tap tomorrow, the United States will be without important components within a few weeks, warns Mel Sanderson.”
https://www.svt.se/nyheter/utrikes/mel-har-jagat-metalleja-i-15-ar-im-a-golddigger

[timontti]

MP Materials, The Only U.S. Rare Earth Mine, May Win Big From Trump’s Tariffs

Found a small piece, we’ll see.

[Jackfin]

Welcome to Mkango Resources Ltd.

News from Mkango on the progress of the US recycling center. I have bolded the interesting sections of the text. The theoretical capacity of the plant is surprisingly large, 10% of domestic demand. This would already have a significant impact on security of supply. It would not be surprising if the state financed the project. Quoting Cotec’s management:

“On the financing side, we have approached the US government for grant funding* . Those discussions are also ongoing, and that’s also *going exceptionally well .”

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CoTec Holdings Corp. (TSXV: CTH; OTCQB: CTHCF) (“CoTec”) and Mkango Resources Ltd. (AIM/TSX-V: MKA) (“Mkango”) are pleased to announce that U.S.-based PegasusTSI Inc. (“PegasusTSI”) and Canada-based BBA USA Inc. (“BBA”) have been engaged to complete the HyProMag USA, LLC (“HyProMag USA”) engineering, procurement and construction management (“EPCM”) services for HyProMag USA’s advanced stage rare earth magnet recycling and manufacturing project located in Dallas-Fort Worth, Texas (the “DFW Hub”). The award of the EPCM contract follows the November 2024 completion of the base case Feasibility Study for HyProMag USAi (“Feasibility Study”), which indicated a NPV7% of US$262 million based on current market prices and US$503 million based on forecast prices.

The project will be executed over a 24-month period with the work being undertaken from the PegasusTSI Tampa office, supported by an owner’s team comprised of HyProMag Limited, CoTec and Mkango.

First revenue is targeted in H1 2027 following a Notice to Proceed (“NTP”) expected in H2 2025 following completion of the detailed engineering design and value engineering phase. HyProMag USA is initially targeting to supply 10% of U.S. domestic demand for NdFeB magnets within five years of commissioning the first DFW Hub.

Julian Treger, CoTec CEO commented: “The EPCM represents a significant milestone towards the construction of commercial-scale magnet recycling and production facilities, reshoring U.S. manufacturing capability and reducing dependence on foreign magnets and rare earths. Following the competitive bid process, we are looking forward to continuing to work closely with BBA and PegasusTSI to develop these facilities. As HyProMag USA progresses it will be working and collaborating with local, state and federal stakeholders. HyProMag USA is supported by the Minerals Security Partnership,iii which aims to accelerate the development of diverse critical minerals supply chains in cooperation with industry and other governments to support strategic projects.”

Will Dawes, Mkango CEO commented: “We are very excited to see HyProMag USA’s groundbreaking rare earth magnet recycling and manufacturing project proceed to the next stage of development. This project will make a major contribution to the creation of a more robust rare earth supply chain and a strong platform for further expansion in North America, complementing the ongoing HyProMag developments in the UK and Germany.

The detailed engineering design and value engineering phase will include the completion of sufficient engineering design works to support development of the AACE Class 2 capital cost estimate to update what was outlined in the Feasibility Study. This will also support the final site selection efforts which are to be completed in H1 2025 and allow the commencement of site permitting in line with the initial project schedule. Environment and permitting studies will be supported by U.S.-based Weston Solutions, Inc.

During this phase and prior to the NTP, HyProMag USA will aim to secure commercial arrangements with potential feed supply and product off-takers to meet ongoing financing obligations. Discussions with federal, state and municipal governments continue to progress. HyProMag USA has the potential to supply the United States with sustainable, long term domestic supply of neodymium/iron/boron (NdFeB) permanent magnets to enable the creation of secure, low carbon and traceable rare-earth supply chains.

The Feasibility Study includes the DFW Hub, and two pre-processing facilities located in South Carolina and Nevada respectively. In March 2025, HyProMag USA announced the expansion of the detailed engineering phase to include three HPMS vesselsiv and that it was initiating concept studies for further expansion and complementary “Long Loop” recyclingv. The DFW Hub’s annual production is expected to be 750 metric tons per annum of recycled sintered NdFeB magnets and 807 metric tons per annum of associated NdFeB co-products (total payable capacity – 1,557 metric tons NdFeB within five years of commissioning) over a 40-year operating life. It is expected the production facility will provide significant optionality to supply the U.S. market with additional NdFeB alloy powder while assisting in revitalising the U.S. magnet sector with the creation of 90-100 skilled magnet manufacturing jobs.

Also in March 2025, HyProMag USA announced the results of an independent ISO-Compliant product carbon footprint study which confirmed an exceptionally low CO2 footprint of 2.35 kg CO2 eq. per kg of NdFeB cut sintered block product.vi

Ownership

HyProMag USA is owned 50:50 by CoTec and HyProMag Limited. HyProMag Limited is 100 per cent owned by Maginito Limited (“Maginito”), which is owned on a 79.4/20.6 per cent basis by Mkango and CoTec.

About HyProMag

HyProMag is commercializing Hydrogen Processing of Magnet Scrap (HPMS) recycling technology in the UK, Germany and the United States. HPMS technology was developed at the Magnetic Materials Group (MMG) at University of Birmingham, underpinned by approximately US$100 million of research and development funding, and has major competitive advantages versus other rare earth magnet recycling technologies, which are largely focused on chemical processes but do not solve the challenges of liberating magnets from end-of-life scrap streams – HPMS provides this solution.

[Jackfin]

Analyst’s view on HyproMag in the USA.

Equity-Research-Report.pdf

[Jackfin]

Old news, but on April 17th, MP Materials stopped sending concentrate to China for processing.

MP Materials Accelerates Strategy to Reindustrialize the Rare Earth Supply Chain

Mentions:

"In response to China’s retaliatory tariffs and export controls, MP Materials (NYSE: MP) has ceased shipments of rare earth concentrate to China. Selling our valuable critical materials under 125% tariffs is neither commercially rational nor aligned with America’s national interest.

MP has invested nearly $1 billion to restore the full rare earth supply chain in the United States. Today, our California refinery is processing nearly half of our production, with virtually all of that material sold into markets outside China—including Japan, South Korea, and the United States."

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I subscribe to the Macro ops newsletter, and it made a thought-provoking observation;

"I feel like this is one of those instances where the US government will claim MP Materials as “nationally strategic,” offer it a 0% interest rate for billions of dollars, and say, “Have at it, building our REE supply chain!”

What’s that company worth? What’s the price tag for National Security?"

[Jackfin]

Interview with Cotec’s CEO from today. Other Cotec projects were also discussed, but the conversation mostly revolves around HyProMag USA.

In brief:
-Discussions with Washington are ongoing. They are in the biggest emergency since COVID and are trying to find working solutions.
-Within the next six months, an agreement on raw materials and “offtake agreements” with future buyers should be made.
-After that, financing will be considered. A share issue was mentioned, but also the possibility of a grant or loan from the US government. This was not mentioned in the interview, but one possibility would be the funds received from MKA’s SPAC, as mentioned earlier in the chain.
-To my understanding, superficial discussions are being held with potential magnet buyers (Tesla and Apple) if they would like to finance the project. Related to that…

6ix

[Jackfin]

Trump aims to fight China's control of minerals by investing in miners

[Waldeboy]

Why shares in rare earths junior have more than doubled

A story about Mkango in the Mining Journal. Mainly reiterates things already discussed in the thread.

[Jackfin]

Expert interview examining, e.g., the recent history of the field, regulation, and challenges.

The actual discussion begins at 5:15.

[Waldeboy]

US researchers to Yle: USA is badly behind in its own mining industry | Foreign | Yle

Yle’s article, where experts discuss how bad the US mining industry is, especially regarding securing the supply of critical minerals.

In the future, one could assume that the US administration will react to this, and investments will begin if there isn’t a complete turnaround in China policy.

[Waldeboy]

US$750k Investment Commitment to advance SPAC transaction | William Dawes

[Jackfin]

Welcome to Mkango Resources Ltd.

Songwe Hill has been added to the EU’s list of strategic projects. Practically, this increases the likelihood that the project will more easily receive support and funding from the EU.

That in itself is not yet a sign of victory, but when one considers that the SPAC that may soon be listed includes both the Polish production facility and Songwe Hill, the entire production chain is under one roof.

If the SPAC is successfully listed, it will certainly also be a positive signal for the grant providers, because they do not grant funds to a bottomless pit, but to a Nasdaq-listed company that is capable of seeking funding through multiple different channels.

[Jackfin]

China has so far continued to restrict the export of magnets. This is starting to have concrete and surprising consequences:

https://www.wsj.com/business/autos/car-companies-production-rare-earth-shortage-aaf87ad2?s=09