Canada’s Critical Role in Rare Earth Supply Chain

Last year delivered several important developments in the commodities industry.

Gold rose to multi-year highs as global central banks started signaling that their rate-hiking campaigns could be over soon.

As of writing, gold is still trading above $2,000 per ounce. The yellow metal’s price has shown resilience even despite recent expectations that interest rates could stay higher for longer.

Eventually, they will go down. And it will, in our view, have positive implications for gold and other commodities.

Specifically, rare earth elements. They could become the hottest corner of the commodity market due to several reasons.

Global Supply Chains Are Crumbling

During the pandemic, the world saw firsthand how fragile global supply chains are.

As consumers stayed home and online shopping soared, delivery of even the most basic products got delayed.

High demand was one reason. Another one was the closing of ports and other elements of the global shipping infrastructure. Containers with all sorts of goods couldn’t get them not only to the final destination, but also to the nearest port.

The reason? Lockdowns and other government decisions that restricted trade.

Last year, the government of China started implementing measures that would, in our view, severely disrupt the global rare earth supply chain.

In December 2023, China restricted exports of rare earth extraction and separation technologies.

You can think of it as an instance of a “lockdown” for something that’s critical for the tech and defense sectors in the West.

How can the West respond?

A Local Critical Minerals Infrastructure

Last year, China proved itself to be an unreliable trading partner.

It’s not exactly news to a lot of investors… but the extent to which one non-democratic government can threaten the national security of Western countries was underappreciated.

Well, now we know.

And in response, the United States and its friendly nations made the decision to bring the mining and processing of critical elements such as rare earth minerals back home. Most investors haven’t caught up to this trend yet.

Last year, the prices of strategic minerals were moving sideways.

In our view, this won’t last for long.

The market will eventually realize how important they are and how short their supply is. At least for now…

(There are publicly traded companies based in Canada addressing this issue. Read on to learn more…)

It’s All About National Security

The world has become more chaotic since 2020.

The global pandemic upended the notions of free trade and supply chain resilience…

The war in Ukraine, the conflict in the Middle East, and a possible Taiwan crisis made it clear that the era of the “peace dividend,” which started after the Cold War and brought extra prosperity to the relatively conflict-free world, is over.

Defense spending is going up.

In the United States, the defense budget is projected to grow each year until at least 2033.

Defense spending in the European Union has reached a record high in 2022 (latest data available). And as the war in Ukraine continues, the E.U. will continue growing its defense expenditures to ensure its own safety.

In other words, the era of the “peace dividend” is over.

Now, we’re not saying that World War III is likely.

But the world is facing many more challenges than it did ten or twenty years ago.

As a result, we project that as defense spending increases, the demand for strategic minerals, including rare earth elements, will grow as well.

They are needed for the most cutting-edge military equipment, such as the F-35 fighter jet.

And the U.S. government has already said that it started working with the private sector to ensure ample supply.

In September 2023, the U.S. Department of Defense said:

Rare earth permanent magnets are essential components in the F-35, Unmanned Aerial Vehicles, and numerous other defense systems. These national security related uses, represent a small part of the U.S. commercial need for rare earth element magnets. As a result, [Manufacturing Capability Expansion and Investment Prioritization] MCEIP is dedicated to using its resources to help stimulate private capital […]

Canadian mining companies remain reliable sources of commodity and technology supplies for the United States.

This is why we believe that the Canadian resource juniors addressing this urgent need will become a critical element of the North American rare earth supply chain.

One of the most advanced companies working in the rare earth sector is Defense Metals (TSXV:DEFN, OTC:DFMTF).

Defense is developing a rare earth project in British Columbia, Canada. We recently included this company in our Canadian Mining Report portfolio. Please read our recommendations and disclaimers here.

In our view, Defense has a chance of becoming one of the most important players in the North American strategic metals supply chain.

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