The U.S. stock market plunged by the widest margin in six months on Friday, with the S&P 500 shedding nearly 3% after President Donald Trump threatened “a massive increase of tariffs on Chinese products” due to its continuing strict control of the rare earths market. On Thursday, Beijing announced that it was increasing export controls for five more rare-earth metals, bringing the total number of critical minerals under export control to 12. Under the previous restrictions, Beijing required exporters to apply for a license from the Ministry of Economy and also disclose the final use of materials like dysprosium, gadolinium, scandium, terbium, samarium, yttrium and lutetium, but has now added tungsten, tellurium, bismuth, indium, and molybdenum to that growing list.
Trade talks between the U.S. and China have been progressing at a snail’s pace. China has been hardest hit by Trump’s tariffs, with the Middle Kingdom now facing an effective tariff of 64.9%, including an additional 34% duty imposed by former President Trump on top of existing tariffs from previous administrations.
However, not all corners of the stock market are complaining about Trump’s latest tariff tantrum.
Canadian rare earths developer, Trilogy Metals (NYSE:TMQ), rocketed nearly 140% last Monday after the U.S. government purchased a 10% stake in the company with warrants to purchase an additional 7.5% stake.
The Trump administration announced that it will reverse a ban on the construction of the Ambler Road project in Alaska by the Biden administration and will start to reissue the necessary permits to construct the road. The 211-mile road from the Dalton Highway was proposed in a bid to make it easier to access the remote Ambler Mining District, rich in copper, cobalt, germanium, gallium, and other minerals. The Biden administration rejected the initial proposal, citing risks to protected species, including caribou and fish populations. Trilogy has continued its wild run in the current week, with the development-stage company now up more than 1,200% over the past 12 months with a market cap approaching $1 billion.
The Trilogy Metals takeover has raised serious ethical concerns as well as possible conflict of interests,“It is uncommon for a government to have a stake in a domestic company, but it’s even more uncommon for a foreign government,” Richard Leblanc, a professor of governance, law and ethics at York University, told Bloomberg.“To have an outside investor who can have regulatory approval, is that a conflict of interest? It absolutely is a conflict of interest,” he added.
But the Trilogy deal was hardly the first such foray by the Trump administration, with the U.S. Department of Energy having cut a similar deal with Canada’s Lithium Americas (NYSE:LAC) two weeks ago while the Department of Defense bought a stake in Las Vegas, Nevada-based MP Materials (NYSE:MP) in July. The DoD-backed investment package will see the Nevada-based producer build out a fully domestic magnet supply chain and lock in long-term pricing support for neodymium-praseodymium, the critical alloy used in everything from fighter jets to iPhones.
The MP Materials deal wasn’t just about cash; it’s about control. Under the agreement, the Pentagon will take a 15% equity stake in MP through a $400 million preferred share issuance and secure warrants for additional common stock down the road. The government is also extending a $150 million loan, while JPMorgan and Goldman Sachs are syndicating $1 billion in private financing to bring MP’s so-called “10X Facility” online. Construction is already underway, with commissioning slated for 2028. The real deal sweetener is a $110/kg floor price guarantee for NdPr magnets, nearly double today’s spot price of $63. That pricing mechanism, backed by the full faith and credit of the U.S. government, creates a bulletproof margin environment for domestic producers and resets the cost basis for long-term buyers across defense, autos, and consumer electronics, according to Reuters.
MP shares doubled in a matter of days, with the shares now up 530% in the year-to-date and re-rating the entire Western rare earths complex. Shares of other rare companies have enjoyed similar outsized gains: NioCorp Developments (NASDAQ:NB) has rocketed 603% YTD, Ramaco Resources (NASDAQ:METC) has gained 412%, Lynas Rare Earths (OTCPK:LYSCF) has returned 288% while USA Rare Earths (NASDAQ:USAR) has gained 257%.
Maybe rare earths stocks will extend their hot streak after news emerged that Trump could be mulling more investments in critical minerals. According to Mark Chalmers, CEO of Energy Fuels (NYSE:UUUU), the Trump administration needs to strike more such deals with U.S. miners if the United States is to secure its critical minerals supply and break its heavy dependence on China. Chalmers says that multiple investments would lower the risk that comes with depending on just one company. The White House is open to this idea, and is “not ruling out other deals with equity stakes or price floors as we did with MP Materials, but that doesn’t mean every initiative we take would be in the shape of the MP deal,” a Trump administration official told CNBC.
By Alex Kimani for Oilprice.com
