Rare Earth Truce: Navigating Strategic Investment in Critical Supply Chains

The US-China trade truce framework, finalized in June 2025, marks a critical turning point for industries reliant on rare earth metals—a resource so vital that it has been dubbed "the new oil of the 21st century." With China controlling 90% of global rare earth refining capacity and 70% of mining, the agreement aims to unblock supply chain bottlenecks threatening everything from electric vehicle (EV) production to advanced defense systems. For investors, the truce presents a rare opportunity to capitalize on undervalued mining and tech firms positioned to benefit from revived trade flows, while navigating near-term catalysts and long-term geopolitical risks.

The Trade Truce Framework: Near-Term Catalysts for Recovery

The truce, pending final approval by Presidents Trump and Xi, resolves immediate tensions by addressing China's April 2025 restrictions on seven rare earth elements—dysprosium, terbium, and scandium among them—critical for EV motors, wind turbines, and missile guidance systems. The US has slashed tariffs on Chinese rare earths from 145% to 30%, while Beijing has agreed to expedite export licenses for U.S. automakers like Ford and GM, which had faced production halts due to shortages. The World Bank estimates this could boost global GDP by 0.6% in 2025, as manufacturers resume output.

For investors, the most immediate catalyst is the truce's final approval, expected by August 2025. Once enacted, it will trigger a surge in demand for rare earth metals, benefiting miners and processors with access to both raw materials and refining capacity. Defense contractors, too, stand to gain: Raytheon and Lockheed Martin rely on samarium cobalt magnets (produced using Chinese dysprosium) for F-35 fighter jets and precision-guided missiles.

Undervalued Rare Earth Producers: Where to Invest Now

While the truce is a near-term win, the long-term opportunity lies in firms capable of breaking China's monopoly. Below are four undervalued companies poised to capitalize:

1. Energy Fuels (NYSE: UUUY)
2. Market Cap: $725M
3. Play: Global feedstock and separation expertise.
4. Catalyst: Its White Mesa mill in Utah is the first U.S. facility to produce commercial-grade neodymium-praseodymium (NdPr) from monazite sand. With acquisitions of feedstock projects in Brazil (Carina Module) and Madagascar (Toliara), it aims to reduce reliance on Chinese ore.
5. Risk: Execution delays in scaling up global supply chains.

6. Visual:

7. NioCorp Developments (NASDAQ: NB)

8. Market Cap: $94M
9. Play: Scandium and niobium for aerospace alloys.
10. Catalyst: Its Nebraska-based Elk Creek project produces scandium—a lightweight metal vital for jet engines—and niobium for high-strength steel. Its recycling initiative to convert EV magnets into oxides offers a low-cost, ESG-friendly supply.

11. Risk: Securing financing for construction.

12. Mkango Resources (TSXV: MKA)

13. Market Cap: $85M
14. Play: Recycling and African mineral reserves.
15. Catalyst: Its HyProMag facility in Poland uses hydrogen-based recycling to recover dysprosium and terbium from scrap magnets. A strategic partner of the EU's GREENE project, Mkango also holds the Songwe Hill project in Malawi, rich in neodymium and terbium.

16. Risk: Scaling up recycling capacity.

17. Ucore Rare Metals (TSXV: UCU)

18. Market Cap: $77M
19. Play: Alaska-based innovation.
20. Catalyst: Its Bokan-Dotson Ridge mine and Louisiana processing facility use RapidSX technology—a U.S. DoD-backed method to separate rare earths with 99.9% purity. This positions it to serve defense clients needing domestic, secure supply.

Defense Supply Chains: A Silent Crisis

While automakers grab headlines, defense industries face an existential threat. The Pentagon estimates China supplies 80% of rare earths used in U.S. military hardware. The truce's success hinges on Beijing's willingness to allow exports for defense applications—a point of contention given its "redlines" on Taiwan and other issues.

Risks: The Fragile Truce and Geopolitical Storm Clouds

The truce is a tactical pause, not a strategic win. Long-term risks loom large:

• Trust Erosion: Beijing's delayed rare earth exports in May 2025, despite the agreement, underscore its willingness to weaponize supply chains.
• Fentanyl Disputes: U.S. demands for accountability over fentanyl shipments threaten to reignite trade wars, with China retaliating by tightening export controls.
• Refining Dominance: Even if China lifts export bans, its near-monopoly on refining (90% global capacity) remains a choke point.

Conclusion: A Selective Play for Patient Investors

The truce creates a window of opportunity for investors to buy undervalued rare earth firms at pre-truce prices. Recommendation:
- Long Positions: Energy Fuels (UUUY) and NioCorp (NB) for their global feedstock and recycling moats.
- Avoid: Overvalued firms like MP Materials (MP) until they prove vertical integration works at scale.
- Hedge: Use put options on defense stocks (e.g., Raytheon) to guard against supply chain shocks.

The path to self-sufficiency in critical minerals is fraught with geopolitical pitfalls. Yet, for those willing to navigate the risks, the truce offers a rare chance to profit from the reshaping of global supply chains—a process that will define the next decade of trade and technology competition.