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Alright, enough of that. In this week’s column: Chinese Nationals illegally dig rocks, MP cuts China ties, and China buys Ecuadorian gold.
Wow, lots of China!
“Digging for Value, One Story At A Time.”
Chinese Nationals Take The Scenic Route
Picture this: You’re a mid-cap Australian mining company, you’ve got the keys to one of the world’s largest undeveloped rare earths deposits, and you’re feeling pretty good about your 45-year mine life and your “we’ll help rid you of Chinese dependence” marketing pitch.
Then, one morning, your head of security calls to say that two Chinese nationals have been caught on your site in Malawi, allegedly trying to collect geological samples without permission, and now the local police are involved.
If this is your first time reading Digging Value, let me refresh the rare earth element (or REE) pitch. Rare earths make your phone vibrate, your wind turbine spin, and your fighter jet … productive? China dominates the supply chain, and everyone else is suddenly very interested in finding new, non-Chinese sources. Because, well, China and the US aren’t exactly friends at the moment.
Enter Lindian Resources (LIN.AX), a small Australian mining company that owns the Kangankunde asset. According to SmallCaps.com.au:
“Kangankunde is recognised as one of the world’s largest and highest-grade undeveloped rare earths resources, with an estimated Stage 1 mine life exceeding 45 years.The deposit contains exceptionally high-grade mineralisation and, most notably, an absence of deleterious radioactive elements.”
The project is expected to produce over 15,000 tonnes of concentrate per year, and it’s fully funded with a $50 million package from a US-based commodity trader. That’s probably worth a lot of money.
Isn’t it convenient that two Chinese Nationals stumble upon the deposit while hiking through Malawi? The article says that “they were attempting to collect geological samples without consent.”
I assume that means they chipped some rocks, examined them through a handheld telescope, and then shoved them in their pockets? Imagine that conversation.
Police: “Why do you have rocks in your pocket?”
Chinese Nationals: “Oh, I don’t know, we just thought they looked pretty. I’m sure they’re completely worthless. Just a token of our memorable hike, that’s all!”
Police: “Why does it say ‘Head of Geology’ on your backpack?”
And in the world of rare earths, where supply chains are strategic assets and every new non-Chinese project is a potential geopolitical flashpoint, a security breach is not just a local issue—it’s a headline. Especially when the alleged intruders are from the country that controls 70% of global rare earths production and is currently locked in a tariff war with the US.
The real story here isn’t just about two guys with a rock hammer and a questionable sense of direction. It’s about how rare earths have become the new front line in global trade wars, and how even a mid-tier mining project in Malawi can suddenly find itself at the center of a geopolitical drama.
Because in 2025, every mine is a strategic asset, every security breach is a potential international incident, and every rock sample might just be the next move in a global game of resource chess.
Or to put it another way, Everything Is Bullish Metals. Even a story about two lost “hikers.”
It’s Not Me, It’s You
Have you ever dated someone even though you knew it wouldn’t last? Like you see them at a bar or a church or (more realistically) on Tinder and think, “Wow, that’s the hottest person I’ve ever seen.” And by some miracle, they agree to go out with you.
You ignore all the toxic traits, bad habits, and “definitely not wife material” vibes because … who cares? She’s gorgeous.
But eventually, they do something so bad that you have to end things. And for some reason, you’re sad, even though you knew this would happen the moment you met them.
That reminds me of MP Materials (MP) and its toxic relationship with China.
“MP Materials Corp. (NYSE: MP) stopped shipping rare earth concentrate to China in response to China’s retaliatory tariffs and export controls.
The company said on Thursday that it went ahead with this decision because selling its critical materials under 125 per cent tariffs isn’t exactly commercially rational, nor does it align with America’s national interest.
The team said it has prepared for this moment since day one. Its mission, capital strategy, and execution reflect a long-term vision designed to withstand short-term disruptions and emerge stronger.”
I don’t know who wrote this press release, but they need a raise. My favorite parts:
- “Selling its critical materials under a 125% tariff isn’t exactly commercially rational, nor does it align with America’s national interests.”
And
- “The team said it has prepared for this moment since day one.”
In other words: “We’d rather not pay you for the privilege of selling you our stuff, especially when you might just cut us off anyway.”
But like any toxic relationship, it’s complicated. China owns ~8% of MP through its initial investment by Shenghe. That stake is worth roughly $340 million today.
And then there’s the original offtake agreement, where MP would sell 100% of its rare earths to China in take-or-pay contracts.
That’s over. MP Materials has stopped shipping to China. Instead, they’re ramping up domestic processing, stockpiling concentrate, and accelerating plans to produce rare earth oxides and magnets in the U.S., including a new magnet plant in Texas.
If you’re a U.S. manufacturer, this is both terrifying and exhilarating. Suddenly, MP Materials is the belle of the ball, fielding urgent calls from automakers, defense contractors, and electronics companies desperate for a non-Chinese supply of rare earths. The company is stockpiling concentrate and racing to get its Texas magnet plant up and running, because demand for a “secure, resilient source of materials” has never been higher.
If you’re an MP (or an MP shareholder, which we are as of this writing), this is both terrifying and exhilarating. Suddenly, you’re the only game in town with the largest deposit and processing capabilities. Yet you’re stuck because the US doesn’t have an REE supply chain. And it’s your job to build it.
I don’t know. I feel like this is one of those instances where the US government will claim MP Materials as “nationally strategic,” offer it a 0% interest rate for billions of dollars, and say, “Have at it, building our REE supply chain!”
What’s that company worth? What’s the price tag for National Security?
China Wants Ecuadorian Gold
I listen to a lot of interviews with Robert Friedland. Probably to my detriment, because I always leave those interviews thinking, “I can’t believe copper will go to $10/lb one day” and “why isn’t all of my retirement money in copper right now?”
Besides the bullish copper anecdotes, there is one theme that runs throughout Friedland’s talks that I can’t stop thinking about: China does not use NPVs when analyzing mining projects. They just pay whatever price is necessary to control that raw material.
Maybe he didn’t say exactly that, but in so many words. It’s a simple idea. China plays the long game, with a time horizon of over 100 years. They don’t care what today’s copper or gold price is because they’re thinking 50-100 years from now. China knows it needs the resources, so why let an NPV model get in the way?
It kind of makes sense? Granted, China can afford such a long time horizon with its one-party/Communist regime.
But sometimes the “we don’t use an NPV model” approach works for the buyer.
For example, Chinese-backed company CMOC acquired Lumina Gold for $421M in all-cash:
“Lumina’s flagship asset, the Cangrejos gold-copper project, is considered the largest primary gold deposit in Ecuador. Located in the El Oro Province in the country’s southwest, the project sits approximately 30 kilometers southeast of the Pan American Highway and 40 kilometers from the deep-water port of Puerto Bolívar …
Cangrejos hosts 659 million tonnes of probable reserves grading 0.55 grams per tonne gold, 0.1% copper, and 0.69 g/t silver. This equates to 11.6 million ounces of gold, 1.4 billion pounds of copper, and 14.4 million ounces of silver. These are contained within an indicated resource of 1 billion tonnes grading 0.48 g/t gold, 0.09% copper, and 0.7 g/t silver—representing 3.7 million ounces of gold, 483 million pounds of copper, and 7 million ounces of silver.
The 2023 PFS outlined a capital expenditure of $925 million and projected average annual gold-equivalent production of 469,000 ounces over a 26-year mine life.”
According to the pre-feasibility study, the project has an after-tax NPV of $2.2 billion. So China bought it for ~0.19x NPV. The low NPV valuation is partly due to jurisdiction, but also the early-stage nature of the project.
I also like examining these M&A deals on a price-per-reserves basis. Basically, how many dollars did you pay for each ounce of reserves? Lumina has ~11.6Moz of gold so CMOC paid $36.29/oz. Which isn’t that high.
That said, the purchase price represented a 71% premium from Lumina Gold’s 20D VWAP. Which isn’t bad!
For investors, the transaction provides valuable benchmarks for valuing development-stage gold-copper projects, particularly in emerging mining jurisdictions like Ecuador. It also reveals China’s interest in the region and its willingness to invest in high-quality, large-scale assets, regardless of their development stage.
