One fund manager has revealed that he's recently increased his exposure to ASX shares involving the production of rare earth elements.
Currently China is overwhelmingly the dominant global producer of the 15 elements that make up the group of rare earths.
According to Datt Capital chief investment officer Emanuel Datt, the tense current and prospective geopolitical situation has lit a fire under the fortunes of companies that extract these valuable minerals.
"Should the Taiwan situation worsen and/or should China use force to control Taiwan, it's likely there will be sanctions on goods sold to China and restrictions of the supply of strategic materials exported by China."
Datt's worries are underlined by this week's visit of US senator Marsha Blackburn to Taipei. That marked the third visit to Taiwan by American legislators this month, which has infuriated Beijing.
China considers the democratic island a part of its country and discourages other nations from recognising its sovereignty.
"I will not be bullied by Communist China into turning my back on the island," said Blackburn.
"Taiwan is our strongest partner in the Indo-Pacific Region. Regular high-level visits to Taipei are long-standing US policy."
If China caused a worldwide rare earths shortage…
Datt fears that a cornered China could hold the world to ransom.
"China produces around 80% of the rare earth elements globally," he said.
"And given their critical nature in the production of a wide range of modern technologies, a logical first step would be China restricting this supply to the rest of the world in which it is in disagreement."
As such, Datt has started piling into ASX shares that are involved with rare earths production.
He named five stocks that fit the bill:
- Lynas Rare Earths Ltd (ASX: LYC)
- Iluka Resources Limited (ASX: ILU)
- Hastings Technology Metals Ltd (ASX: HAS)
- Dreadnought Resources Ltd (ASX: DRE)
- Lanthanein Resources Ltd (ASX: LNR)
Datt himself has bought Lynas, Dreadnought and Lanthanein shares.
Lynas reported bumper annual results on Friday, sending its share up 1.46%.
The company is globally "the gold standard" for rare earths producers, according to Datt.
"It is an integrated producer with downstream processing facilities located in Malaysia and upstream operations in Western Australia," he said.
"Its customers are primarily Japanese and other nationalities who wish to diversify their supply from non-mainland Chinese sources."
The other two players are in an exploratory stage.
"Dreadnought has made a new rare earth discovery with initial results demonstrating grades almost 3 times that of Hastings' deposit which is situated a short distance to the north," said Datt.
"Lanthanein has defined similar early rock chip samples as Dreadnought, which sits in a similar geological context. However, with a superior heavy rare earth ratio."
