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Why the Ionic Rare Earths (ASX:IXR) share price hit a 5-year high today

asx share price rising on deal represented by hand shake
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The Ionic Rare Earths Ltd (ASX: IXR) share price was flying earlier today after the company announced a new partnership with a Chinese minerals’ explorer.

This morning, shares in the mineral exploration company were up 14.29% to hit a 5-year record of 6.8 cents each.

Since then, the Ionic share price has plunged the red, closing down 1.79%, at 5.5 cents. In comparison, the S&P/ASX All Ordinaries Index (ASX: XAO) was up 0.5%.

Let’s take a closer look at Ionic’s new partnership.

What’s driving the Ionic share price?

In today’s release, Ionic announced it had signed a non-binding Memorandum of Understanding (MOU) with Aluminium Corporation of China subsidiary, Chinalco.

The MOU relates to Ionic’s rare earth’s project in Makuutu, Uganda. Ionic claims resources at the site cover an area of 20km to 37km and could have a timeframe of at least 30 years.

According to the release, Chinalco has conducted “extensive” due diligence works on the site over the past year. This includes assessing local infrastructure, drilling results, and Ugandan regulations. 

As part of the MOU, Ionic and Chinalco have agreed to use “reasonable endeavours” to cooperate in accelerating the development of the Makuutu project. As well, Chinalco may be able to invest in future Ionic projects, including direct investments in the Makuutu project. Chinalco is described as “the largest rare-earths miner and separator on the planet by market capitalisation”.

Most of the MOU is non-binding except for some provisions, and the exclusivity portion will expire in 12 months. Despite the exclusivity clause, Ionic reserves the right to continue discussions with third parties that began before the MOU was signed.

Management commentary

Ionic managing director Tim Harrison welcomed today’s announcement, saying:

We are very pleased to have signed this MOU which, further endorses the quality of the project and its strategic importance and will now enable the Makuutu Rare Earths Project to rapidly advance activities in the near term. 

We see Makuutu rapidly growing into a very large, long life producer of critical and heavy rare earths. Partnering with Chinalco potentially fast tracks the development process for Makuutu and will greatly assist in value creation for Ionic.

Foolish takeaway

The Ionic share price has gone gangbusters over the last 12 months increasing by 1,060%.

The price of many rare earth minerals has also climbed dramatically recently, as western nations look to secure their own supply of the vital metals.

Rare earth minerals have a variety of applications including magnets and super magnets, electronic equipment and batteries, according to Geoscience Australia.

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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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