Digging Value is a twice-a-week column where I deep dive into markets, mining, and whatever financial absurdity caught my attention.
If you like your investing insights (not advice!) grounded in cash flows, hard assets, and common sense—but also recognize that markets frequently ignore all three—you’ll probably enjoy this.
Let’s explore the wild world of value investing in natural resources together.
Today’s column: Everything is a rare earth element, titanium is the new antimony, and what happens when someone digs in your sandbox.
“Digging for Value, One Story At A Time.”
Everything Is A Rare Earth Mineral
We talked last week about Ukraine’s plan to seduce the United States with $500B worth of rare earth minerals it didn’t have.
Now Putin doesn’t want to feel left out.
““We [Russia], by the way, would be ready to offer (joint projects with) our American partners, and when I say ‘partners,’ I mean not only administrative and governmental structures but also companies, if they showed interest in joint work,”
“We undoubtedly have, I want to emphasize, significantly more resources of this kind than Ukraine,” Putin added.”
Putin is kind of right, though? Back to Reuters:
“Russia has the world’s fifth-largest reserves of rare earth metals, according to the US Geological Survey data, after China, Brazil, India and Australia. Russia reserves are estimated at 3.8 million metric tons.
The rare earth metals are used to make magnets that turn power into motion for electric vehicles, cell phones, missile systems, and other electronics. Russia mines only 2,500 tons of concentrate a year and lacks capacity for processing.”
We’re watching a geopolitical game of “my pile of rocks is bigger than yours so come play with me.”
I guess nobody ever really grows up? It’s like trying to decide which of your friends’ houses to sleep over for the weekend.
Friend 1: “My house has a pool and a basement.”
Friend 2: “Yeah, but my house has four gaming systems and a hot tub.”
Friend 3: “My house has 2,500 tons of rare earth elements used to make lasers, permanent magnets, and advanced weapons systems, and pizza rolls.”
Okay fine we’ll go to Vlad’s house, again.
The pitch is simple. Russia’s got plenty of aluminum and rare earths (buried somewhere in Siberia), while the U.S. has raging thirst for both—think batteries, F-35s, and all that green military tech.
Putin’s not wrong that there’s a trade to be made. Rusal (the world’s second largest aluminum producer) churns out about 3.8 million tonnes of aluminum a year, roughly 6% of the global supply, and Russia’s rare earth reserves are vast, if under-tapped.
The U.S., meanwhile, imports 90% of its rare earths, mostly from China, and aluminum’s a constant juggle of tariffs and domestic smelters. On paper, the trade pencils?
This seems like a better deal than the Ukraine proposal. The US needs rare earths, sure, but it really needs aluminum. Not because they can’t get aluminum elsewhere (the US imports ~60% from Canada), but because they want diversification from China.
Plus, U.S. smelters are running at half-capacity (1.8 million tonnes vs. 4 million potential), so imports help plug the gap.
The important thing to remember is that it’s not really about rare earth elements. “Rare earths” is just a code word to enter the secret speak-easy where the real deals are made for things like copper, aluminum, iron ore, or titanium.
Don’t follow the code word, follow where the code word leads.
The New China Trade: Titanium?
Historically there have been two ways you can make money investing or trading commodities:
- Do deep research on individual companies, explore their projects and economics at various commodities prices, interview management to see if they’ve been successful in the past and aren’t complete liars, agnoize over why the stock isn’t higher despite its underlying commodity going up, then exit the trade at 0.2x NPV.
Or
- See what China is buying and then just buy those commodities/related companies.
The second option is less stressful, more profitable, and avoids early onset hair loss (bearish HIMS?).
Now there’s a third option: See what China will ban and then just buy those commodities/related companies.
China did this with antimony, which went from ~$12,000/t at the start of 2024 to $50,000/t today. Not a bad trade!
Then they did it with tungsten. Companies with any tungsten exposure, like Almonty Industries (AII), rose 100%+ on the news.
And according to Kevin Walmsley, titanium is next:
“Let’s look now at what a similar ban on titanium—which is likely coming– would do. Titanium is yet another metal crucial to weapons systems and aviation, and the dual use aspect of titanium is intriguing for another reason.
Titanium is a very important metal for the production of industrial robots. Goes without saying that China’s military wouldn’t care to see their titanium being used to build military-grade robots in other countries. But industrial robots installed in North America and Europe would undermine China’s factory sector.
Our policymakers know that the only way to re-shore production to the US or Western Europe is by automating our factories, because only that has a chance to be cost-competitive against Chinese industry. But we need a lot of titanium to build robots in our markets, and China and the other BRICS have the titanium.”
Tungsten, antimony, or titanium … it’s all roughly the same trade. Which is why it works.
China dominates the production and/or processing of said mineral. Those minerals are critical for high-value items like robots, weapons systems, and aviation. The US has outsourced every aspect of production and processing to places like China or Russia. And now it doesn’t like that concentration risk.
There’s a lesson here: customer concentration isn’t a problem … until it is.
“Just one Russian company, VSMPO-Avisma, produces 15% of the world’s titanium sponge comes from. More than half the world’s sponge comes from China, about 25% from Japan, and 10% from Kazakhstan.
Just that paragraph, alone, should be enough to cause titanium buyers to worry. Russia, China, and Kazakhstan are friendly countries—with each other —- and together make up more than three fourths of the world’s supply of titanium sponge, with Japan providing the rest.”
Okay, fine. But we’re friends with Japan right? Why don’t we ask Japan to give us more sponge?
“Japan takes titanium ores, and converts them into titanium sponge. Japanese titanium sponge production has increased by a fifth since 2021, and it is now the second largest producer of titanium sponge.
But there is a big problem: Japan doesn’t have titanium ores. Japan imports the titanium ore which it then turns that into titanium sponge. In 2023, Japan was the world’s 2nd largest importer of titanium ore. The takeaway here is that an export ban of titanium ore puts much of the Japanese titanium sponge industry out of business, until new sources of ore can be found.”
It’s a giant circular reference error that starts and ends with China.
I can see Japan now, “Hey we need like 5x more titanium ore than we normally use because there’s an undisclosed buyer that needs to fill supply gaps. Oh, and we can’t tell you who that buyer is because you’d be mad. But I promise its not the US.”
Global titanium demand is roughly 250,000 tons annually. For reference, China produces 110,000 tons, Russia (pre-sanctions) produced 30,000 tons. The US? 10,000 tons.
The trade here is to buy titanium (not advice!). I just don’t know the best way to express it yet.
You Can Value Culture
If I asked one hundred people to value their culture, I’d get answers like, “It’s priceless” or “you can’t put a price tag on culture” or “this flag ain’t for sale, brother.”
But the answer could be $1.1B.
“An Aboriginal group is seeking A$1.8 billion ($1.1 billion) from Western Australia in compensation after the state government allowed Fortescue to mine for iron ore without a land use deal, court filings showed on Wednesday.
The Yindjibarndi Ngurra Aboriginal Corporation (YNAC) says activity at the Solomon mining hub has damaged its land and people. Its claim includes A$1 billion for cultural damage and A$678 million for economic loss, filings to the Federal Court of Australia showed.”
Here’s the timeline of events till today:
- 2013: Fortescue begins mining at Solomon Hub without YNAC agreement
- 2017: Federal Court awards YNAC exclusive native title over Solomon leases
- 2020: High Court upholds native title, refusing Fortescue’s appeal
- 2021: Negotiations for Indigenous Land Use agreement fail
- 2025: YNAC files A$1.8 billion compensation claim, alleging no agreement
Did the ends justify Fortescue’s means? I mean, yes? The $60B iron ore producer has generated $80B in revenue mining Solomon Hub since 2013.
I don’t know. If I got a letter in the mail saying, “Hey, you do not have a license to mine here, and if you do, you will face consequences.” I probably wouldn’t mine $80B worth of material from that place.
Unless I knew that the consequences would only cost me 1.1% of total lifetime mine revenue.
The damages include, “more than 285 significant archaeological sites and six Dreaming or creation story tracks that form part of Australia’s understanding of human settlement in its arid regions around 40,000-45,000 years ago.”
YNAC thinks that damage is worth $1.1B. The state? Not so much:
“In its final submission to the court, the state government said the total compensation for economic loss should be A$128,114 plus interest of A$92,957. And the award for cultural loss should be in the range of A$5 million to A$10 million.”
I don’t know if the cultural and economic damages are worth $1.1B or $128,000. But the story highlights a more important issue.
Large mining companies don’t work for the state. The state works for the mining companies.
Fortescue is responsible for thousands of jobs and pays nearly $6B in annual taxes and royalties to Australia.
It’s like banking.
If you pay $100,000 in taxes and have issues, those are your issues. If you pay $5,000,000,000 in taxes and have issues, those are the state’s issues (not tax advice!).
