Used in everything from smartphones to fighter jets to wind turbines, nations are seeking to secure their rare earth element sources.
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The rising tensions between Canberra and Beijing have thrown up a headwind for many ASX shares.
But those same tensions have also boosted demand for select goods, services and commodities produced outside of China. And that’s helped other ASX shares post some strongly outperforming gains over the past 12 months.
The 5 ASX shares we’ll look at here have all gained between 2 and 9 times as much as the All Ordinaries Index (ASX: XAO) over the last full year. And this is over a year where the All Ords gained 24%.
What these 5 outperforming ASX shares have in common
The ASX shares we’ve put under the spotlight today are:
Australian Strategic Materials Ltd (ASX: ASM)
Iluka Resources Ltd (ASX: ILU)
Dreadnought Resources Ltd (ASX: DRE)
Hastings Technology Metals Ltd‘s (ASX: HAS)
Lynas Rare Earths Ltd (ASX: LYC)
To see what they have in common you need only look at Lynas’ full company name.
That’s right. They’re all involved (to varying extents) in exploring for, or producing, rare earth elements.
What are rare earth elements?
In a nutshell, there are 15 different rare earth elements. And they’re not really rare in terms of their abundance in the earth. What makes them rare is they’re usually found with very limited concentrations. That means you need to dig up and process a lot of rock to get to the few useful bits.
While many people can’t name a single rare earth element, they’re used across a growing range of modern technologies. They include powerful magnets which you’ll find in wind turbines and electric motors. Other rare earth elements are crucial in making your smartphone smart, and several are increasingly important to national defence in aircraft, vessels, and high-tech ground vehicles.
How China is boosting demand for Australia’s rare earth elements
Depending on the source you’re using, you’ll find China produces somewhere in the range of 70-90% of the global supply of rare earth elements.
But that’s a statistic the West, driven by efforts from the United States, aims to change.
With tensions between China and the West rising, nations are looking beyond the Middle Kingdom to ensure a secure supply. And with Australia home to the 6th largest deposits of economically viable rare earth elements on Earth, according to CSIRO’s Critical Energy Minerals Roadmap, ASX shares involved in this niche sector have been garnering increased investor attention.
According to Jeffrey Wilson, research director at the Perth USAsia Centre (quoted by msn.com):
China’s monopoly over these minerals that are critical for technologies gives it a really powerful economic weapon. And indeed it has cut off supply of rare earths in the past to Japan in 2010. Of late, there have been a number of threats made that it might cut off supply to the United States in the future.
So, as China’s relationships with a number of countries — Australia, Japan, the US, and Europe — has steadily gotten worse over the past 12 months, there’s a present threat that China may use its monopoly to deploy the rare earths weapon to punish others if they fall into diplomatic disagreements.
When the world’s 2 biggest economies get into a tug of war over a group of elements critical to their military and technological ambitions, investors tend to take note.
You can see this by looking at the performance of today’s 5 ASX shares involved in the rare earth elements game.
How have these ASX shares been moving?
Beginning with the biggest of our rare earths ASX shares, with a market cap of roughly $5.6 billion, Lynas has gained 201% over the past 12 months. Lynas is the world’s second largest producer of rare earths and currently remains the only “significant producer” outside China. The company’s Mt Weld mine in Western Australia is amongst the highest grade rare earths mines in the world.
International mineral sands company Iluka has also strongly outperformed the benchmark over the 12 months. Iluka’s rare earths projects include Eneabba in Western Australia and Wimmera in western Victoria. The Iluka share price is up 85% since this time last year.
In the small-cap space, we have Dreadnought Resources and Hastings Technology Metals.
The Dreadnought share price is up 360% over the last 12 months. And it’s rocketing today, up 18% after reporting the presence of high-grade rare earths elements at its Western Australian Yin Prospect.
Meanwhile, Hastings, whose Yangibana rare earths project is under construction in West Australia, has seen its share price gain 50% in 12 months.
Leaving off with our biggest share price gainer, we have Australian Strategic Materials, up 429% year-on-year.
This ASX share is in a trading halt today pending an announcement on its Dubbo project in New South Wales. The company indicated it plans to develop Dubbo to “supply globally significant quantities of zirconium and rare earth metals, as well as contribute to the niobium and emerging hafnium industries”.
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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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.