Generally I wouldn't suggest buying shares in companies because they could benefit from sort of unusual or radical government policy, especially if that government is China's one party state. However, shares in rare earths miner Lynas Corporation Ltd (ASX: LYC) are up 74% over calendar year 2019 on the back of news reports China may consider banning rare earth exports in response to the US's aggressive trade practices against it.
Clearly, if the world's largest exporter of rare earths were to ban exports this could send the rare earths price soaring as demand globally and from the U.S. in particular would likely start to exceed supply.
Lynas, as the Malaysia-based world's largest listed miner of rare earths then looks in the box seat to position from any ban. However, speculating on potential outcomes of the U.S. / China trade dispute is a tough game and certainly not a sound investing strategy.
However, another positive for Lynas is that it appears the Malaysian government and prime minister have changed their tune about the environmental compliance practices of the business now they've realised it could be an important strategic asset and cash cow.
On May 30 for example the Malaysian prime minister was reported to "have acknowledged the importance" of Lynas just as rumours over a proposed China export ban began to circulate.
For the quarter ending March 31 2019 Lynas posted an operating cash profit of $26 million on revenue of $88.2 million and had a closing cash balance of $67.1 million. As we can see for a miner it's in reasonable financial shape and also recently attracted a $2.25 per share takeover bid from investment conglomerate Wesfarmers Limited (ASX: WES).
Lynas is also reportedly working on a joint venture to develop rare earths mining and processing capabilities in the United States in a project that could add more value to the business.
Today the shares change hands for $2.70 and could rip higher on confirmation of a Chinese rare earths export ban.
