Alkane Resources targets upgraded
30th May 2019 |
When I wrote the issue of Frontier Tech Investor focusing on rare earth metals back in September 2016, I had a sense that the sector was going to prosper. My rationale was simple enough. China had already tried to use its dominant position as the refiner of 80% of the world’s rare earth metals to force high-tech companies to set up shop with them instead of elsewhere.
All China achieved was to alert the world to the clear danger of a country with no rule of law controlling the supply of elements essential to the high-tech sector. Everything from wind turbines to MRI machines and guided missiles don’t work without rare earth elements (REE).
The ban imposed on REE exports to Japan resulted in a massive price spike back in 2010 and it peaked when China relented and started exporting again. Very few of the developmental stage companies that spun up operations during the boom survived the subsequent crash. However, that did nothing to ease the risk.
Over the weekend China made some clear statements it is looking at ways of using its REE sector as a weapon in the trade war. It’s phenomenally short-sighted of China to threaten to ban the export of REE to the US. I am reminded of the adage “Fool me once, shame on you; fool me twice, shame on me”.
The world slipped back into complacency the last time China tried to weaponise REE; we won’t be fooled twice. Regardless of whether China imposes a ban on exports or not, the damage is already done and prices are likely to rise significantly from here.
Alkane Resources’ price is currently above by buy-up-to range and that level dates from 2016. I continue to believe the potential is for a swift doubling from here, to 60 cents, and a two-year target of A$1.50 is conservative in my opinion.
However, if China does in fact go ahead with a ban, then we can expect the share to trade back to the 2010 peak near A$2.70. Therefore, I am raising my buy-up-to-range to 40 cents.
The risk is this whole affair quickly blows over, but nonetheless the episode greatly increases potential for REE assets to be developed outside of China and Alkane Resources is one of the most far along development-stage companies in the sector.
All the best,
Eoin Treacy
Investment Director, Frontier Tech Investor
