America’s REAL National Emergency
We’re in the midst of a national emergency.
Those aren’t my words, either. They come from President Trump himself.
It has nothing to do with the Trump-Biden debate on Tuesday.
Nor does it have to do with the announcement that Trump and the First Lady tested positive for Covid-19.
Instead, the President is addressing an issue that will impact national defense and energy security far beyond his current convalescence…
In fact, the issue will remain a problem for whoever ends up winning the upcoming election debacle.
The executive order that Trump signed on Wednesday is just a small first step to address it…
But it will still send a flood of government cash into selected sectors of the economy.
That means there’s a very lucrative upside to this national emergency, if you know where to look.
In fact, if you’re a regular at our Whiskey bar, you should already be in ahead of everyone else.
But if you’ve been dragging your feet, this could be your last chance to jump in at great prices.
Let’s dig in…
On Wednesday, Sept. 30, President Trump signed an executive order declaring a “national emergency” within the U.S. industrial supply chain for a variety of minerals and elements.1
He specified rare earths, barite, gallium and graphite, and also referred to other materials on a list prepared by the Department of the Interior.
All I can say is, it’s about time!
Long-time readers know that for over a decade I’ve written about rare earths and other critical materials for Agora Financial.
Just last week, we discussed rare earths and “battery metals” like nickel and copper.
As I explained, California’s electric vehicle policies are pushing transformation throughout the automotive sector. And future electric cars and trucks will require significant amounts of rare earth magnets and other battery materials.
So the future of automobiles alone portends serious upside for resource investors who understand what’s happening and climb aboard.
But I doubt Trump had electric cars in mind when he signed his order.
Rather, I suspect he was thinking more about what I discussed in July — China’s embargo of rare earth elements against U.S. defense contractor Lockheed Martin .
I wrote, “China’s actions will also jumpstart an entirely new industrial sector in the U.S. and Canada.”
Before that, rare earths came up when we discussed reasons why President Trump would want to annex Greenland.
The point is, we’re on familiar ground…
And the more you understand what’s happening, the more comfortable you might feel about investing in the sector.
So let’s take a quick look at the materials specifically named in Trump’s executive order.
There’s plenty to say about rare earths, barite, gallium and graphite.
But this is just a fast overview…
Start with graphite.
You likely know it as the material in pencils, but its industrial use goes far beyond that.
Much of the world’s graphite is used in batteries, such as the ones you use in a flashlight. But more and more graphite is going into larger, high-tech batteries like those that power electric cars.
Graphite is also a key component of electrodes that are used to melt steel.
In short, graphite is critical in numerous industrial and electrical applications.
But the U.S. has virtually no graphite industry. We’re entirely reliant on imports. It’s a problem.
The same is true for gallium. You may not know much about the element, but it’s a byproduct of primary aluminum smelting.
It’s used extensively in electronics, particularly as gallium-arsenide.
Gallium is critical to high power electronic circuitry, ranging from smart phones to radar and microwave systems.
And again, the U.S. produces almost no primary gallium. The country relies on imports, much from China. This is a problem.
Next, if you work in or around the oil industry, then you’ve probably heard of barite. It’s used to thicken and densify drilling mud, so it’s key to drilling oil and gas wells. Over the past 15 years, barite has become critical to fracking, too.
In other words, barite is essential to U.S. energy security.
Up into the 1990s, the U.S. produced much of its own barite. But these days most barite comes from China, which presents another supply chain problem.
Finally, there are rare earths, meaning a particular row of elements in the “lanthanide” series of the periodic table of elements. (It often also includes scandium/Sc and yttrium/Y.)
Here’s an illustration.
Rare earth elements.
Each element has its own electronic, optical, phosphoric, magnetic or other properties.
With rare earths, we rapidly get into PhD-level quantum chemistry. But suffice to say that rare earths are critical to all manner of modern devices…
You’ll find them in everything from catalysts used in oil refining to medical imaging equipment; from your smart phone to your flat-screen television; from windmills to drones; from your car to nuclear submarines.
Frankly, people write books on the modern technology that depends on rare earths, but I’m sure you get the idea.2
And the world’s main supplier of rare earths is… China.
That’s a problem.
For three decades China has been hollowing-out U.S. industry, as we’ve discussed before.
And I’ve discussed “strategic mistakes” that the U.S. has made over the decades, including allowing China into the World Trade Organization.
We can analyze it all we want… but the bottom line is that China produces a long list of critical industrial and defense materials, and the U.S. does not.
And let’s be fair… It’s easy to view the president’s “national emergency” declaration as a rebuke against China. As you’ve seen, it’s easy to criticize China and its industrial policies.
But you have to give credit to China, too. The country’s government is far-sighted.
In the 1980s and ’90s, China made a long-term commitment to develop the nation’s rare earth resources, along with a long list of other primary mineral supply chains.
In essence, China arranged its economy to produce basic “stuff.” And this all gets back to how a “real” economy makes real things.
China sponsored an industrial buildup over two generations. It involved long-term policies that controlled investment, banking, taxes, environmental regulation, labor and more.
And consider… For every mine or mineral supplier, there was a downstream industrial user.
In other words, China has created entire supply chains…
Chinese companies take materials from the ground, then send them to the mill, processing plant and factory. All without leaving the country.
Eventually, Chinese products are packed away in shipping containers, bound for export and sale.
You have to admire China in this regard… The country has its act together.
In rare earths alone, China has an extensive industry, from mines and mills to final production of magnets, phosphors, electronic additives, glass, ceramics and much more.
Plus, China has a vast educational complex that teaches its people what they need to know about chemistry, physics, engineering, etc.
Indeed, China has an army of useful, productive human talent in this one sector alone, from top scientists to factory-floor production workers.
And much the same thing pertains to graphite, gallium and barium materials. These, and a long list of other elements and minerals.
Keep in mind that as China built out industrial capabilities, the U.S. — and much of the West in general — walked away from its industrial heritage.
So China and its minerals don’t just pose an industrial challenge.
A big part of the problem is internal to U.S. culture… Too many “gender studies” majors and not enough chemical engineers.
Which leads us back to why President Trump declared a national emergency.
The industrial reality is that global supplies of all the materials on Trump’s list are tightening while demand is exploding. There are plenty of news articles on that point.
But there’s also likely a “military” reality which is at least partially classified. The Pentagon and its weapons-building companies are deeply concerned over assured access to future supplies. There’s no way they would publicly discuss the extent of the problem, at least not in any great detail.
So right away, you can begin to see the problem.
All the large-scale sources for these materials are in China. The big mining names in the West simply don’t have — and aren’t developing — enough similarly sized projects close to home.
By necessity, that means we’ll see a lot of attention focus on the smaller companies that are working on deposits in our own backyard, so to speak.
As a Whiskey reader, you probably know that I’ve covered small exploration and mining plays for many years. And the first thing I have to say is that there’s always risk in “junior” mining plays.
If you do your research, however, you can minimize your risk.
And as I’ve noted before, Whiskey is not a “portfolio” newsletter, so we do not make formal “recommendations” about what to buy or sell.
But in my travels and experience, there are small companies in the exploration and development biz that offer reduced risk and high upside.
On the rare earths side, I’ve previously mentioned a pair of companies that trade over the counter (OTC): Medallion Resources and Defense Metals.
Medallion has an advanced-stage program to process mineral sands comprised of monazite, which is rich in rare earths. Miners have been extracting rare earths from monazite since the 1940s, so the technology is de-risked. The company is moving towards a deal to set up industrial-scale operations in North America.
Defense Metals, meanwhile, is an early-stage exploration play, holding claims on a well-endowed body of rare earth minerals in the middle of British Columbia. Drill results so far indicate large-scale, high-grade mineralization to make up a significant ore body.
There are other ideas out there… But these are the two that seem to have the best focus just now on near- and medium-term advancement of projects.
I’ll watch the space for other ideas as events unfold — especially now that we have the official national emergency.
One final point… If Trump’s executive order can’t kick-start U.S.-Canadian development of these critical materials, not much else will.
And on that note, I rest my case.
That’s all for now… Thank you for subscribing and reading.
Managing Editor, Whiskey & Gunpowder
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2 David Abraham (2015), The Elements of Power