The Lynas Corporation Ltd (ASX: LYC) share price has surged to a near one year high this morning even as the miner tried to downplay the prospects of a surge in rare earth prices.
The Lynas share price jumped another 8% to $2.44, it's highest since June last year, after coming out of yesterday's trading halt. This makes the stock the best performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index with the Orocobre Limited (ASX: ORE) share price and Pilbara Minerals Ltd (ASX: PLS) share price taking second and third spots.
Lynas went into a trading halt yesterday to give time for management to clarify its resources position in the investor presentation and will likely resume trade today.
Is the trade war entering a new phase?
But the more significant news is Chinese President Xi Jinping's visit to a rare earths in China – the timing of the visit has sparked speculation that China is about to cut supply of the mineral to the US as the trade war between the world's two largest economies escalates.
The last time China did something similar was in 2009 when it stopped supply to Japan due to claims from both countries over disputed islands. This sent the price rare earths skyrocketing. These minerals are used in key industries like military, automotive and technology.
China is the world's largest supplier of rare earths and Lynas is the only supplier of any note outside of China. It's managing director Amanda Lacaze told the Australian Financial Review that she wouldn't read too much into President Xi's visit to a rare earths plant.
But it's clear that the visit was a shot over the bow of US President Trump after US tech companies restricted supply of technology to Huawei. Trump later issued a three-month reprieve to allow customers to adjust to the ban. It isn't clear if Xi's visit influenced the decision.
Lynas in pole position
Regardless of how the trade dispute plays out, it's a win-win for Lynas in my view. The miner is confident that it will regain its license to operate its Kuantan processing plant from the Malaysian government after the company agreed to stop accumulating low-level radioactive waste at the facility.
This had been a big sticking point and Lynas will now build a processing facility near its Mount Weld mine in Western Australia to remove the radioactive substance before shipping the ore to Malaysia.
Lynas has also signed a joint venture agreement to build a rare earths plant in the US (click here to find out more) and I wouldn't be surprised to see other partners trying to cosy up to the miner.
I also think the stock's outperformance isn't about to end anytime soon – not when governments around the world are actively looking to reduce their dependence on China for rare earths.
Good luck to Wesfarmers Ltd (ASX: WES) in its takeover attempt for Lynas. The price for Lynas just went up very considerably.
