Summary
Highlights
Rick Rule notes that rare earths are not as rare as their name suggests, but their previous low cost due to efficient Chinese production and lack of exploration has changed. Geopolitics, particularly China's weaponization of rare earths, and environmental concerns in China have led to a 30% increase in production costs, establishing a new floor price. He advises that the sector is suitable only for experienced speculators with a 3-5 year time horizon, an understanding of political and infrastructure risks in places like Brazil, and a high tolerance for risk, as there are few viable developers outside of China.
Rule, a long-term uranium bull, explains that the market is now truly shifting. The supply deficit is impacting term prices, which are around $90 a pound. Uranium is unique because producers and consumers can sign long-term contracts, enabling better cash flow forecasts and lowering the cost of capital for producers. He suggests that large producers like Cameco offer a better risk-to-reward ratio than junior companies, although development-stage companies will also benefit from improved access to capital due to these term contracts.
Rule describes copper as an 'absolute no-brainer' for the next decade. Beyond electric vehicles and data centers, increasing global electricity access for billions will drive massive demand. On the supply side, 30 years of underinvestment in exploration, development, and construction mean a significant and worsening deficit. Wood Mackenzie predicts that $250 billion is needed over the next 10 years just to maintain current consumption levels, which are already in deficit. Permitting issues, like the 28-year delay for the Resolution deposit in Arizona, further restrict new supply. Given copper's low price relative to its utility in key products like electric vehicles, its price 'has to go up' without significantly dampening demand.