Strategic minerals is a pretty broad term for everything from lithium to aluminium these days, but one thing many of these minerals have in common, as Bell Potter says in a recent report, is that their prices are sensitive to growing geopolitical and trade tensions.
This was thrown into sharp relief earlier this year when rare earths became a political hot button topic, with China tightening export controls on more of its own resources, sending the share prices of Australian producers and would-be producers higher.
In a recent research note to clients, Bell Potter has taken a tighter focus in terms of the strategic minerals companies it is forecasting will do well.
But as they said in their note, "geopolitical volatility and trade tensions are positive for strategic mineral and processing technology equities''.
They went on to say:
Western governments are increasingly seeking to reshore supply chains and manufacturing capabilities, particularly in high-technology and aerospace/ defence sectors. US defence spending as a percentage of GDP is at a cyclical low and is expected to lift over the coming decade. NATO members have recently announced increased spending commitments.
In terms of stocks they are recommending, they have focused in on high-tech production processes which could differentiate the companies.
Here are their picks:
Alpha HPA Ltd (ASX: A4N)
Bell Potter says this company's proprietary process "produces ultra-high purity aluminium compounds with applications in technology growth sectors including semiconductors, lithium-ion batteries, LED displays/lighting, and direct lithium extraction''.
The analysts say the process is disruptive in terms of its low production costs, "ultra-high" product purity, and low emissions. Australian chemicals group Orica Ltd (ASX: ORI) is also a shareholder.
The broker has a speculative buy rating on the stock and a price target of $2 compared with 71 cents at the moment.
IperionX Ltd (ASX: IPX)
Bell Potter says IperionX "has the potential to disrupt the incumbent titanium supply chain through materially lowering production costs and manufacturing waste".
The analysts say the company started producing titanium on a large scale this year at its Virginia US site, and will now scale that up, "and progress commercial relationships with aerospace, automotive, luxury goods and government end users''.
As they said:
Titanium is a highly strategic metal given its applications across the defence and aerospace sectors, with around 95% of current US supply met through imports, predominantly from Japan. Russia and China account for more than 70% of global titanium supply.
Bell Potter has a speculative buy recommendation on the stock and a price target of $9.25 compared with $5.01 currently.
Titomic Ltd (ASX: TTT)
Three-D printing company Titomic has applications in the defence, aerospace, and natural resources markets Bell Potter says, with its technology bringing "unique manufacturing capabilities around material selection and component properties".
We expect news flow relating to Titomic's participation in US defence programs, new commercial agreements and non dilutive government-backed funding.
Bell Potter has a speculative buy recommendation on the stock and a 50 cent price target compared with 22 cents currently.
