Trump’s Takeover Of Canadian Rare Earths Miners Raises Major Concerns
- U.S.–China tensions escalate as Beijing expands rare earth export controls.
- Washington doubles down on critical minerals, with the Trump administration buying stakes in companies like Trilogy Metals, MP Materials, and Lithium Americas.
- The Trump administration needs to strike more such deals with U.S. miners if the United States is to secure its critical minerals supply and break its heavy dependence on China.
The U.S. stock market plunged by the widest margin in six months on Friday, with the S&P 500 shedding nearly 3% after President Donald Trump threatened “a massive increase of tariffs on Chinese products” due to its continuing strict control of the rare earths market. On Thursday, Beijing announced that it was increasing export controls for five more rare-earth metals, bringing the total number of critical minerals under export control to 12. Under the previous restrictions, Beijing required exporters to apply for a license from the Ministry of Economy and also disclose the final use of materials like dysprosium, gadolinium, scandium, terbium, samarium, yttrium and lutetium, but has now added tungsten, tellurium, bismuth, indium, and molybdenum to that growing list.
Trade talks between the U.S. and China have been progressing at a snail’s pace. China has been hardest hit by Trump’s tariffs, with the Middle Kingdom now facing an effective tariff of 64.9%, including an additional 34% duty imposed by former President Trump on top of existing tariffs from previous administrations.
However, not all corners of the stock market are complaining about Trump’s latest tariff tantrum.
Canadian rare earths developer, Trilogy Metals (NYSE:TMQ), rocketed nearly 140% last Monday after the U.S. government purchased a 10% stake in the company with warrants to purchase an additional 7.5% stake.
The Trump administration announced that it will reverse a ban on the construction of the Ambler Road project in Alaska by the Biden administration and will start to reissue the necessary permits to construct the road. The 211-mile road from the Dalton Highway was proposed in a bid to make it easier to access the remote Ambler Mining District, rich in copper, cobalt, germanium, gallium, and other minerals. The Biden administration rejected the initial proposal, citing risks to protected species, including caribou and fish populations. Trilogy has continued its wild run in the current week, with the development-stage company now up more than 1,200% over the past 12 months with a market cap approaching $1 billion.
The Trilogy Metals takeover has raised serious ethical concerns as well as possible conflict of interests,“It is uncommon for a government to have a stake in a domestic company, but it’s even more uncommon for a foreign government,” Richard Leblanc, a professor of governance, law and ethics at York University, told Bloomberg.“To have an outside investor who can have regulatory approval, is that a conflict of interest? It absolutely is a conflict of interest,” he added.
But the Trilogy deal was hardly the first such foray by the Trump administration, with the U.S. Department of Energy having cut a similar deal with Canada’s Lithium Americas (NYSE:LAC) two weeks ago while the Department of Defense bought a stake in Las Vegas, Nevada-based MP Materials (NYSE:MP) in July. The DoD-backed investment package will see the Nevada-based producer build out a fully domestic magnet supply chain and lock in long-term pricing support for neodymium-praseodymium, the critical alloy used in everything from fighter jets to iPhones.
The MP Materials deal wasn’t just about cash; it’s about control. Under the agreement, the Pentagon will take a 15% equity stake in MP through a $400 million preferred share issuance and secure warrants for additional common stock down the road. The government is also extending a $150 million loan, while JPMorgan and Goldman Sachs are syndicating $1 billion in private financing to bring MP’s so-called “10X Facility” online. Construction is already underway, with commissioning slated for 2028. The real deal sweetener is a $110/kg floor price guarantee for NdPr magnets, nearly double today’s spot price of $63. That pricing mechanism, backed by the full faith and credit of the U.S. government, creates a bulletproof margin environment for domestic producers and resets the cost basis for long-term buyers across defense, autos, and consumer electronics, according to Reuters.
MP shares doubled in a matter of days, with the shares now up 530% in the year-to-date and re-rating the entire Western rare earths complex. Shares of other rare companies have enjoyed similar outsized gains: NioCorp Developments (NASDAQ:NB) has rocketed 603% YTD, Ramaco Resources (NASDAQ:METC) has gained 412%, Lynas Rare Earths (OTCPK:LYSCF) has returned 288% while USA Rare Earths (NASDAQ:USAR) has gained 257%.
Maybe rare earths stocks will extend their hot streak after news emerged that Trump could be mulling more investments in critical minerals. According to Mark Chalmers, CEO of Energy Fuels (NYSE:UUUU), the Trump administration needs to strike more such deals with U.S. miners if the United States is to secure its critical minerals supply and break its heavy dependence on China. Chalmers says that multiple investments would lower the risk that comes with depending on just one company. The White House is open to this idea, and is “not ruling out other deals with equity stakes or price floors as we did with MP Materials, but that doesn’t mean every initiative we take would be in the shape of the MP deal,” a Trump administration official told CNBC.
By Alex Kimani for Oilprice.com
Canadian Oil Producers Prioritize Buying Over Building
- Canada's oil patch is undergoing significant consolidation, with companies preferring to acquire existing operations rather than invest in new, expensive oil sands production.
- The acquisition battle for MEG Energy, ultimately won by Cenovus Energy, highlights this trend of boosting production and resources through mergers.
- Despite lower oil prices, Canadian oil sands production is projected to reach record highs in 2025 and continue growing, driven by optimization of existing assets and increased pipeline capacity.
A two-month-long bidding war in Canada’s oil patch signaled there is another way for a company to boost its production and resources than investing in new oil sands production, which is considered the world’s most expensive source of new oil supply.
The acquisition saga for MEG Energy appears to have ended after the hostile bidder, MEG’s shareholder Strathcona Resources with a 14% stake, terminated its takeover pursuit on Friday. This followed a sweetened offer by the rival bidder, Cenovus Energy, which earlier last week sweetened its offer for MEG Energy, and MEG’s board accepted it.
“While Strathcona is disappointed with this outcome, it is pleased that its actions, along with those of its fellow MEG shareholders, delivered something which the MEG Board could not, namely a more equitable transaction with Cenovus which allows MEG shareholders to participate more meaningfully in future upside,” the rejected bidder said.
Strathcona dropping the takeover pursuit was unexpected for some analysts who had anticipated a sweetened offer from Strathcona, too.
One of the most contested and unusual M&A battles in Canada’s oil and gas sector may be over, but the companies’ pursuit of additional existing resource base and production is not.
Consolidation Favored Over New Oil Sands Development
Consolidation has become the key growth driver for bidders who prefer buying existing operations to pouring the same or higher amount of money into new oil sands production, Reuters Breakingviews columnist Robert Cyran argues.
The breakeven costs for existing oil sands operations are below US$50 per barrel WTI, according to estimates by S&P Global Commodity Insights.
On the other hand, oil sands remain the most expensive source of new supply, intelligence firm Rystad Energy has estimated.
New oil sands production breakevens average $57 per barrel, but can go as high as about $75, according to Rystad Energy.
“One of the greatest misconceptions about oil sands, defined as synthetic crude oil and undiluted bitumen, continues to be the cost of supply,” S&P Global Commodity Insights said in June.
While new projects need huge upfront expenditures over many years, “that is not the cost structure required to continue to maintain and even optimize existing production,” S&P Global Commodity Insights noted.
Existing production has much lower breakeven costs than new oil sands supply. That’s why major producers prefer buying developed assets to embarking on costly development of new resources.
Canadian Producers Are Boosting Output Without New Projects
Canadian producers are boosting crude production even if they aren’t starting up new projects. The secret sauce appears to be reducing maintenance times and extending maintenance cycles to squeeze more oil and raise efficiencies, Bloomberg reported earlier this year.
Encouraged by the expanded Trans Mountain pipeline, which increased takeaway capacity from Alberta to the British Columbia coast and to global markets, Canadian producers are raising output even as oil prices have declined this year from last year.
A new pipeline with a capacity of up to 1 million barrels per day (bpd) proposed by the province of Alberta could also be considered by the federal government as Prime Minister Mark Carney set up a Major Projects Office to back and accelerate critical energy infrastructure to make Canada an energy superpower and diversify its energy exports to reduce dependence on the U.S. market.
Despite lower oil prices, Canada’s oil sands production is expected to reach an annual all-time high of 3.5 million bpd this year, thanks to optimization and efficiency at producing assets, S&P Global Commodity Insights said in June in its latest outlook.
Oil sands volumes are expected to top 3.9 million bpd by 2030, per S&P Global Commodity Insights. The projection for 2030 is 500,000 bpd higher compared to the 2024 production level and is 100,000 bpd – or almost 3% -- higher compared to the previous 10-year outlook.
M&A Driven by Efficiency and Scale
Riding the growth momentum, major Canadian producers seek to add producing assets via acquisitions.
“It might not be quite merger mania in Canada’s oil and gas sector this year, but activity has been steady and filled with several headline-grabbing items,” analytics firm RBN Energy said last month.
Companies are looking to raise the value for shareholders by boosting efficiency in operations and reducing operating costs. They also seek to scale up to compete with both domestic and international rivals, RBN Energy said.
By Tsvetana Paraskova for Oilprice.com
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