January 22, 2018 05:53 am CST
China's Most Dangerous Weapon
By Alex Koyfman, Wealth Daily


People give Western media a lot of flak for sensationalizing catastrophes, feeding paranoia, and spinning facts into conspiracy scenarios that do nothing but up ratings — and blood pressures.

So it's a bit surprising that they missed one of the biggest stories of the century — and yes, I do mean century.

That is, until last Sunday, when 60 Minutes finally did an exposé on a topic of which few Westerners were aware — and yet that stands as one of the most relevant stories to anybody living in the developed world today.

The story involves China... which isn't unique. It involves China buying up a resource... which also isn't unique.

But the resource in question is very unique, and it's equally critical to just about every aspect of our lives today.

This resource is actually a family of metals called Rare Earth Metals, or Rare Earth Elements (REEs for short), pictured below in their raw oxide forms.

reeoxide

That name is a bit of a misnomer, because these elements (there are 17 of them in all) are actually pretty common.

In fact, you're within arm's reach of some this very minute.

The screen you're looking at right now contains some. Your cell phone, your tablet, your laptop... any wireless device that operates off a rechargeable battery and anything using an electrical motor or electromagnet needs REEs to operate.

It holds true for your household items, and it holds true for the more important things — like aircraft, computers, and missile guidance systems.

Your cell phone contains a few grams of the stuff. But the Air Force and Navy's new F-35 Lightning Joint Strike Fighter, the world's most advanced and by far most expensive fighter plane, contains more than 1,000 lbs.

The demand for these metals — which have become known in the industry as "technology metals" — has grown exponentially for the last 20 years, tracking the growth in consumer, commercial, and military demand for digital devices and microprocessors.

Our Weakness... Their Opportunity

So where does China come into this?

Well, they saw this trend coming, and they acted on it.

In 1992, Deng Xiaoping, the Chinese premier at the time, stated that Rare Earth Elements were no less important than oil and that China was destined to become the "Saudi Arabia of REEs."

deng

His words were largely ignored in the West, but in the 20-plus years since that speech, China has made good on its promise.

As of last year, it controlled no less than 95% of the global production and reserves of REEs.

Our own government, which is by far the biggest consumer of this resource thanks to the DoD's unprecedented demand for the material, was left completely unprepared.

reechart

Here is a quote from the office of the Pentagon Inspector General, issued on July 3, 2014:

DoD [Department of Defense] lacked a comprehensive and reliable process to assess REE supply and demand... [and] As a result, DoD may not have identified all REEs with expected shortfalls, increasing the risk that those shortfalls will adversely affect critical weapons systems production in the DIB, and overall DoD readiness.

If you're having trouble distilling the central message of that rather inefficiently worded statement, it can be summed up very elegantly: “We ****ed up royally, and we know it.”

Thanks to this gross and ongoing lack of foresight, we currently import 100% of our REEs from external sources — with no stockpiles or untapped reserves to use and develop.

Just sit back and think about that for a moment... If the Chinese owned 95% of the world's plastics, would we be concerned? If they owned 95% of the world's aluminum, would we be concerned?

The answer, without a doubt, is yes. And yet they own 95% of a whole class of materials that are absolutely vital to every segment of our economy and to which there are no alternatives, and we had no idea.

Too Little Too Late

 

Until last Sunday, that is, when 60 Minutes' Leslie Stahl finally did the story (titled "Rare Earth Elements"), which has since been causing a stir.

In fact, Rare Earth miners have been basking in investor attention all week off this news — even though, as the 95% figure implies, finding a company that's not either wholly or partly owned by the Chinese is no easy task.

Their quest for a monopoly was simply allowed to go on for too long, and with too little competition. Unbound by the laws of the U.S. federal government — which prohibits this type of competition-crushing — the Chinese have nothing standing in their way.

As much as I'd like to spend some time blaming politicians or greedy corporatists, I really don't see the use in that.

Because, as one of my colleagues likes to say, "Every crisis is an opportunity in disguise."

And the bigger and more disruptive the apparent crisis, the bigger the opportunity.

Which means this might be one of the biggest.

Goliath Meets David

You see, there's a tiny company — barely $30 million market capitalization — that may be the biggest thorn in the side of China's plan to monopolize the REE market.

It may well be China's single-biggest strategic enemy in the world today, in fact.

It's all because of a single property on one of the world's least-populated, most forbidding chunks of land, which is estimated to contain as much as 25% of the world's known REE reserves.

It's so huge that the total value is hard to estimate, but it's easily in the hundreds of billions of dollars.

This company owns 100% of the property rights to this strategically crucial project, and, unlike most development-stage miners, it has already drilled more than 100,000 feet of test holes to prove what its geologists suspected:

There is enough REE ore on this property to keep American consumer, industrial, and military demand satisfied for at least 50 years — even with demand growth accelerating.

Moreover, the company has found another resource on that very property that's already being used by one of the world's biggest fiberglass manufacturers to produce a new-generation material that may disrupt the global composites industry — and that's just a secondary revenue stream.

The most important thing, however, is that this company isn't Chinese. It's not owned or controlled in any way by them, nor will it ever be.

The company is based in Vancouver, Canada, which makes it a natural ally and a potential future Pentagon partner.

I'm in the process of preparing a detailed report on this company, which I will share with you next week — so look out for that.

In the meantime, if you want a taste of some other companies with this sort of early-stage potential and a bit of background on how guys like me find opportunities like this from the tens of thousands of stocks available out there, click here for a quick, informative video.

Fortune favors the bold,

alex koyfman Signature

Alex Koyfman

Coming to us from an already impressive career as an independent trader and private investor, Alex's specialty is in the often misunderstood but highly profitable development-stage microcap sector. Focusing on young, aggressive, innovative biotech and technology firms from the U.S. and Canada, Alex has built a track record most Wall Street hedge funders would envy. Alex contributes his thoughts and insights regularly to Wealth Daily. To learn more about Alex, click here.

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