Scaling China’s Rare Earths Wall

We’re at war!

The West vs China. Call it a cold war, a trade war or a technology war. The label doesn’t matter.

The world’s two largest economies are beating their chests. It’s a fight to see who’ll be top gorilla in the next decade.

Neither side will go down without a fight.

It might not escalate to missiles and bombs. The temperature could drop.

But no boardroom in Washington, Berlin or Tokyo is betting the next decade on Beijing staying friendly.

The lesson of the past three years has sunk in. You need your critical supply chains sitting outside China, or at minimum the ability to switch fast when the gate slams shut.

Supply chain sovereignty is a must-have.

We’ve watched the paranoia and resentment build over the last decade. It hit a tangible fever pitch as the Covid pandemic played out.

Export licences on gallium and germanium. Restrictions on the heavy rare earths that go into magnets. Stockpiling programs from the Pentagon to the European Commission.

Rare Earth Elements (REE) sit right at the centre of it. They’re the one chokepoint where China holds almost the entire chain.

So why do a handful of obscure metals start trade wars?

After all, despite the name, they ain’t actually rare.

They’re scattered through the earth’s crust almost everywhere, just in quantities too small and too stubborn to pull out without a fight.

What makes them valuable is what they do.

A pinch of neodymium or dysprosium turns a lump of iron into the strongest permanent magnet known to science.

That magnet spins the motor in an electric vehicle, the blades of a wind turbine, the joints of a factory robot, and the fins on a guided missile.

No rare earths means no energy transition, no data centres, no AI, no advanced manufacturing and no modern military. It’s a small market with an outsized grip on the modern world, and the magnet slice is its fastest-growing corner.

China owns that corner almost outright. Close to 60% of the mining, close to 90% of the processing and the lion’s share of finished magnets all come from inside its borders.

When Beijing tightened heavy rare earth exports through 2025, prices outside China jumped, because the rest of the world had nowhere else to turn.

That gap between the Chinese price and the ex-China price is the margin every Western rare earth project is built on. It’s also the thing that can vanish.

Critically, they know how to separate bulk REE ore into the separate component elements. This separation piece is proving the trickiest part of the supply chain.

It’s taken Lynas years and bulk cash to separate first one, then a second individual element in their Malaysian plant.

Governments and boardrooms won’t be betting on world peace.

They’ll be betting on whoever can hand them the strongest forward defence for their fragile supply chains. And one of the best REE supply-chain cure stories sits right here at home on the ASX.

The Industry

We’ll get to the specifics in a moment. First, let’s finish setting the scene with why these supply chains have proved so darn hard to copy.

If you want the full primer on the 17 rare earths and how China came to own the chokehold, I pulled it apart in a separate deep dive, ‘Seventeen Metals, One Chokehold’. What follows is the short version.

Right now, every REE miner/producer/processor in the supply chain outside of China is running one of two strategies.

The first is to produce mixed REE concentrate at the most efficient price point they can muster. That means going for bulk, low-cost deposits and hoping the economics hold. The big risk here is that at any moment China can turn around and flood the market with cheap REE supply to crush these higher-cost western operations.

It also relies on getting lucky with an economical deposit mix, high in the valuable elements and low in the cheap and nasty materials that still need to be separated out.

The second path is splitting the mixed ore into individual elements.

Separation.

This requires deep expertise. Various costly processes target the removal of each element. But also, each deposit comes in different mixes, meaning the configuration and formula can change from one mine to the next. Even one mine section to the next.

Talk about painful.

If you’ve followed early-stage ASX gold explorers, you’ll see geologists obsessing over how the mineralisation was formed.

They talk about the geology, using big words like orogenic, intrusion related, epithermal, Carlin-type, porphyry, skarn, volcanogenic massive sulphide, sediment-hosted and placer gold.

Just when you were about to fall asleep they’ll switch gears to talk about mineralogy. Things like free gold, pyrite-hosted, arsenopyrite-hosted, carbonaceous and tellurides.

But that’s not even the end of it. Then comes metallurgy. Free-milling, refractory, preg-robbing, double refractory.

All of this informs the best processing setup, which can vary wildly in cost and complexity.

Gold just ain’t gold.

And keep in mind that a gold miner is after one main element.

Now take REEs.

There are 15 elements (or 17 depending on who you ask). They come in various deposit types. Ionic clay hosted, mineral sands and hard rock.

We broadly classify them into heavy and light rare earths.

Some are often found together, some are rarer, some more common. The techniques to separate them out vary wildly. One batch of REE ore may well go through thousands of individual processing steps.

In other words, REEs take one look at the complexity of gold mining and say ‘hold my beer’.

To say that separating REEs into individual elements is complex and expensive would be an understatement.

So how does the West ever break a grip like that?

It turns out, there’s a handy shortcut, with an ASX small-cap at the forefront. But more on them in a minute.

The Recycling Business

When you build one industry, others are bound to follow.

Look at steel.

For a century, steel meant giant integrated mills. Iron ore in one end, slabs out the other, billions in capital, decades to pay back. Then a scrappy Carolina outfit called Nucor did something heretical.

It skipped the mine entirely, fed scrap steel into electric arc furnaces, and undercut the giants on cost.

Today more than 70% of American steel is made from recycled scrap. An entire industry, larger than most countries’ economies, exists only because we first made the steel that later became scrap.

The recyclers didn’t beat the mills on geology. They skipped the iron mining, the coal mining, the coking, all of the processes that are required to make steel from scratch, and they threw the finished product into the machine to be made new again.

Simple. Brilliant. Lucrative.

Why take on all the extra hard work and expense when you can take a shortcut, save money and recycle?

That is the exact bet Ionic Rare Earths (ASX:IXR) is making in rare earths.

You can’t out-dig China. You can out-recycle it.

The West cannot beat China by digging more dirt.

China has the deposits, the cheap labour, the processing know-how and 30 years of head start.

But the West is about to manufacture a mountain of rare earth magnets, and every magnet made creates waste that has to go somewhere.

Somewhere, it turns out, is back through a recycling plant. Hold that thought.

A primary mine that wants to sell finished oxides has to build the full separation circuit, the same brutal kit we just walked through. That’s why an integrated mine and refinery can cost billions of dollars. A heavy rare earth project with full separation can see technical risk amplify tenfold.

Recycling skips all of that.

When you feed in old magnets or magnet factory waste, you aren’t separating the whole periodic table. You’re pulling out a small handful of elements, often around four, the neodymium, praseodymium, dysprosium and terbium that make a magnet pull.

Fewer elements means a smaller plant, simpler chemistry and a far lighter bill. A magnet recycling line can be stood up for something closer to US$100 million. That’s a lot of change from the $1-2 billion or more required for the traditional path.

Same end product. A fraction of the cost and the time. It gets better once you see where the feedstock comes from.

The magnet manufacturing process compounds the case.

The magnet making process is itself a complicated and multi-stage affair. It can include processes like smelting, strip casting, hydrogen decrepitation, jet milling, alignment and pressing, sintering, machining, plating and magnetisation.

Several of these stages create large amounts of waste. It’s unavoidable. That magnet waste is known as swarf.

Swarf.

That’s the clippings, shavings, dust and debris, bits and bobs left laying on the production room floor after a magnet production run.

Swarf can be picked up off the production line floor and sent straight to a recycling line.

Between 25% and 40% of it ends up on the factory floor as swarf. Up to 95% of that can be recycled.

The magnet recycling flowchart (Source: Ionic Rare Earths Company Presentation)

A third of magnets made never leaves the factory as a magnet. It leaves as recycling feedstock.

The West is now building magnet factories at pace. The United States alone has roughly eight rare earth magnet plants in motion, from USA Rare Earth in Oklahoma and South Carolina, Vulcan Elements in North Carolina, to MP Materials and Noveon in Texas to e-VAC in South Carolina.

Every one of them will spit out swarf the moment it switches on. Why ship that swarf to China to be recovered, if you can just bolt a recycling line onto the same plant?

Build the magnet plants and you’ve built the feedstock supply for the recyclers in the same stroke. The more magnets the West makes, the more swarf piles up, and the bigger the recycling pool grows.

It compounds.

Recovering magnet oxides costs a modest sum per kilogram. After all, they’re already in offcut bins. They just need to be picked up and moved to the recycling line.

Neodymium and praseodymium oxides recovered sell for roughly US$100 to US$150/kg. The heavy hitters like dysprosium and terbium can fetch thousands.

It turns a waste-disposal headache into a high-margin product.

Ionic’s way in is clever.

Rather than build giant central plants, it can drop modular recycling units right next to a customer’s magnet factory. IXR will run them itself so the patented technology never leaves its hands, and lean on the customer’s balance sheet to fund the build.

The customer gets a clean, local, China-free supply loop, and a share in the recovered value. Ionic keeps the IP and its share of the margin.

It’s alow risk business model, with massive potential upside.

This isn’t a slide deck. Belfast is already running.

Ionic isn’t pitching a concept.

It already operates a demonstration plant at Belfast Harbour, the only Western facility producing recycled, separated magnet oxides today. It feeds in spent magnets and factory swarf and turns out neodymium, praseodymium, dysprosium and terbium oxides at better than 99.5% purity, clean enough to drop straight back into a new magnet.

The demo line is small, around 10 tonnes a year of Rare Earth Oxides (REOs).

The next step is the commercial plant, a 400 tonne line, a 40-fold scale-up, targeted to be built and producing by 2028.

The UK Government has put up a £12 million cornerstone grant to help fund it. That’s a useful vote of confidence that someone other than shareholders believes in the technology.

Belfast is the template.

Prove the economics there, then stamp the modular design out next to magnet factories wherever they spring up.

Sound compelling, right?

So why does the market keep staring at a mine in Uganda instead?

The Makuutu Mine

Because the mine is genuinely a beauty, and beauty sells.

Ionic owns 60% of the Makuutu Heavy Rare Earths Project in Uganda, an ionic adsorption clay deposit stretching 37 kilometres near Kampala.

Ionic clay is the prize geology of the rare earth world. It’s soft, near-surface, rich in the heavy magnet rare earths, and cheap to leach. It’s also the geology that made southern China dominant.

Crucially, these deposits are scarce outside China. Beyond the Chinese and Myanmar clays, you can almost count the meaningful ones on one hand. Serra Verde in Brazil, a few in Madagascar and Australia, and Makuutu, which ranks among the largest and most advanced of them.

(Source: TheMarketsIQ.com / ASX Announcements)

It has a Definitive Feasibility Study and, since January 2024, the first large-scale mining licence ever granted under Uganda’s 2022 Mining Act. On paper, it’s a Western-aligned source of exactly the heavy rare earths the world is short of.

Here’s the catch, and it’s a big one.

Makuutu is not a magic bullet.

The 2023 DFS came with an upfront stage 1 cost of US$120.8 million. But that would produce Mixed Rare Earth Carbonate (MREC). In other words, it still needs to be sent to China for separation.

Getting to full separation of desirable elements might take another 10 years and a billion dollars. It also might never happen.

The uncertainty is the killer.

It’s a great deposit, there’s no doubt. But gold ain’t gold. And separating REE is no simple feat. And without the separation we’re back to running a low cost mining model and praying that China doesn’t dump cheap material into the market just to thump its chest.

All of those complications don’t diminish how great this asset is. IXR has several paths to realising value from Makuutu. It’s possible we’ll see a sale or joint venture, whereby IXR could give away all of the project risk, keeping only upside for investors.

Financials

At 34 cents a share, Ionic is an $77 million company.

There was $8.5 million in cash on the balance sheet at the end of March.

This is a pre-revenue developer that burns money, and the chart agrees, down 68% from a 52-week high of $1.05 to sit near the floor of a 21 cent to $1.05 range.

The balance sheet is clean but tight. Ionic burns roughly $4 million a quarter, so the $8.5 million in the bank buys around six months of runway.

Not a comfortable buffer for a company building plants on two continents.

Funding risk sinks as many companies as geology or technical ability at this stage of the game.

So the question isn’t whether Ionic burns cash. It’s what that burn is buying. And the company’s own feasibility numbers give you a sense of the prize.

In November 2024, Ionic published a feasibility study on the commercial-scale Belfast plant.

The headline figures are eye-catching for a company this size. A post-tax net present value of US$502 million. An internal rate of return of 43.6%. A capital cost of £85 million, paid back in 2.4 years. Across a 20-year life the study models US$2.1 billion of revenue and US$1.8 billion of EBITDA. From one plant.

Read those numbers carefully, because they cut both ways. The post-tax NPV of a single Belfast plant is about ten times Ionic’s entire market value today. But that £85 million build cost is more than the whole company is worth.

Catalysts and Outlook

Three forces are pushing in Ionic’s favour.

Government money, through grants and defence offtakes. Corporate urgency, as carmakers and manufacturers scramble for non-Chinese supply. And a magnet-building boom that creates feedstock for free.

A developer is a sequence of milestones, and Ionic has a thick stack of them coming.

Belfast funding and final investment decision on the 400 tonne per annum commercial recycling plant, backed by an offer of a £12 million UK Government grant.

New US joint-venture plants alongside magnet makers, the modular swarf-recycling model going from concept to contract.

Offtake and supply deals, building on the recycled oxide already flowing to a US magnet partner and the Nth Cycle processing tie-up.

Makuutu project financing or a strategic partner stepping in to fund the mine.

The Brazil Viridion venture with Viridis Mining and Minerals (ASX:VMM) moving forward.

Each one is a chance to reprice the story. Each one also needs capital, partners and time, and developers routinely miss their own timelines.

While Belfast is front and centre as the imminent venture, a new announcement of contract wins in the US or other markets could have a dramatic impact on the share price.

Want to hear the company make its own case? Ionic walks through the full Western supply-chain vision in this short video, ‘Building a secure Western rare earth supply chain’. Watch it with an investor’s scepticism, it’s their pitch after all, but the roadmap it lays out is the same one your money would be riding on.

The Belfast roadmap (Source: Ionic company presentation)

Valuation

Nobody is buying Ionic for what it earns today. They’re buying it for what it can become. So the main valuation question worth asking is whether the engine works at scale.

Start with the unit economics, because they’re the whole argument.

The feasibility study says Ionic can produce separated magnet oxide for about US$27.68/kg. Now assume it also pays for its feedstock, and pays generously, say US$5/kg for swarf it could often get for free or be paid to take away.

It takes roughly three kilograms of swarf to yield a kilogram of finished oxide, so call feedstock another US$15/kg. All in, on a deliberately harsh assumption, Ionic makes the stuff for somewhere around US$43/kg.

The study itself assumes feedstock costs almost nothing, so this is the cautious version.

Now look at what it sells for. Recovered neodymium and praseodymium oxide fetches US$100 to US$150/kg. The heavy hitters, terbium and dysprosium, run into the thousands. Across the blended basket the Belfast study realises well north of US$200/kg.

Make it for US$43, sell it for US$200+. That is the entire investment case in one line, and it’s why a US$27/kg cost base matters more than any price chart.

Now stack the plants.

One Belfast carries a US$502 million NPV. Ionic’s plan is to drop modular versions of it alongside the US magnet factories now being built. The eight sites we know about could generate around kt a year of new magnet capacity.

IXR will be trying to secure deals with as many of these sites as they can.

Each one shedding swarf the day it switches on. Fund the builds off customer balance sheets, keep the patented technology and a share of the margin, and you have a business that compounds with every magnet the West makes.

These sites combined could produce more than 20kt per year of swarf. Using the above assumptions, IXR could produce roughly 6kt per year of separated REEs.

The cost would be about US$258 million (6,000,000kg x US$43/kg). If we assume US$200/kg average selling price, the revenue already comes out at US$1.2 billion. That’s close to a whopping 80% gross margin.

A back of the envelope calculation on current western prices is closer to US$386/kg for this mix. A far more lucrative endeavour again.

But let’s use our US$200/kg assumption.

If we assume IXR partners 50/50 in JVs on all of these projects, it’s going to walk away with half of that US$942 million profit. That’s about US$471 million in gross profit.

But let’s also assume they don’t do so well in onboarding those partners in the next three years. Let’s say they only pick up 20% of that volume.

That would still bring them in a juicy US$94.2 million per year. Or, converted to real money, about $145 million in AUD.

So, it’s conceivable to see that the company could be punching out several multiples of its current market cap as profit within five years.

If IXR can deliver, the current valuation will likely look cheap. But, there is a non-zero risk of total failure. And that explains why the market hasn’t priced this for glory just yet.

There are still plenty of hurdles to clear before we can start counting chickens.

Recommendation

Ionic Rare Earths (ASX:IXR) is two bets in one. A low-risk, low-capital recycling business that turns the West’s magnet boom into feedstock, and a heavy rare earth deposit in Makuutu the market is barely paying for.

The recycling side is where the edge sits.

At 34 cents Ionic is an $77 million company, yet a single Belfast plant carries a post-tax NPV close to ten times that. The whole case turns on execution and funding. Get the plants built and Makuutu moving and the numbers point north. Miss, and dilution drags it back toward the floor.

We recommend a ‘Buy’ on Ionic Rare Earths (ASX:IXR) at current prices, with a buy-up-to price of $0.50 and a sell-above price of $1.20.

This is a patient position.

We see it as a four to six year hold, while the recycling model scales from the Belfast demonstration line to commercial plants standing alongside the West’s magnet factories.

Size it as the high-risk small-cap it is, a pre-revenue developer that burns cash and builds plants on two continents. The upside is several multiples of today’s market cap. The downside, if funding tightens or execution slips, is severe. Position accordingly.

Ionic Rare Earths (ASX:IXR) daily price chart (Source: TradingView)