Breaking China’s Grip, SGQ’s Brazilian Rare Earth Opportunity

Yesterday we saw the following video on Bloomberg:

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The video explains the market dynamics at play as the Western world focuses on reducing China’s stranglehold on Rare Earth processing.

China currently controls ~100% of the world’s heavy rare earths supply, with these rare earths being critical for making permanent magnets.

Permanent magnets are what make EVs move, wind turbines spin, and advanced robotics work as they are also used in defence applications like fighter jets and submarines.

For the past 50 years, China has dominated rare earth production and processing.

Globally governments and manufacturers are now racing to build out alternative supply chains.

Brazil has the highest rare earth occurrence outside of China, but most projects are still at an early stage.

This is where our rare earths Investment St George Mining (ASX: SGQ) comes in to play.

SGQ’s project is the largest and highest-grade carbonatite-hosted rare earth deposit in South America…

And the second highest grade REE deposit globally in the Western world.

SGQ’s project ranks right up there with the two assets owned by $18BN MP Materials and $14BN Lynas Resources:

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SGQ having the largest and highest-grade carbonatite-hosted rare earth deposit in South America and second highest grade REE deposit globally in the Western world matters…

Both $13BN Lynas and $18BN MP Materials hard rock carbonatite-hosted rare earth deposits.

We noticed the following AFR article out recently which highlighted Lynas’s $750M cap raise and mentioned that the company is deal ready.

We did note that Lynas mentioned going downstream, but who knows what they plan to do with the funds…

Going downstream won't be an issue for someone like Lynas…

But finding the feedstock to feed those facilities will be.

IF MP and Lynas want to go upstream and take out projects that become feedstock for their refineries/processing facilities they could start looking at assets like the one SGQ owns.

And if that happens, we think the big western players like Lynas and MP will likely stick to what they know (hard rock deposits) and if they were to do a deal it would be on other assets with size/scale.

MP Materials in particular will need to do a deal after receiving a US$400M investment from the Pentagon and a supply deal with Apple worth ~US$500M.

Most of the Pentagon funds are earmarked to expand MP’s magnet production facilities.

The catch though is that once MP’s magnet facilities are expanded - MP’s mine (the only one in the US) won’t be able to keep up with the rare earths supply the plant needs to operate.

MP will need to go out looking for new rare earths supply - which is hard to come by given China controls over 2/3rd’s of global supply.

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That’s where we think a winner could be a company like SGQ - even though its rare earths project is in Brazil and not inside the USA.

That’s just MP…

What Lynas ends up doing with its $750M is also in play now.

We think that as SGQ drills out and increase the size/scale of its project, it could start to become more and more attractive as either a source of supply or an outright M&A target for someone like a Lynas or MP (or any other group looking for rare earth supply from a hard rock deposit).

Of course we are just thinking out loud here, there is no guarantee any of this happens and there are plenty of other places corporates could go looking for rare earth feedstock.

What’s next for SGQ?

Drilling results 🔄

In the short term the main thing we want to see are drill results.

Ideally we see big extensions at depth and to the north/east/west of SGQ’s current JORC resource estimate.

Beyond the drilling 🔄

Over the next 12-18 months, a lot of the catalysts for SGQ could come at hard-to-forecast times:

• Updates on downstream processing strategy - We want to see SGQ define its downstream rare earths strategy. We are especially looking forward to an update in relation to the US.
• Start working on development studies - SGQ has already commenced environmental, geotechnical and development studies with a view of getting to economic studies in Q4-2025.
• Pilot plant trials - SGQ has an agreement in place with Latin America’s only permanent magnet maker. SGQ is participating in the “MAGBRAS Initiative” - a program that has major automakers like Stellantis working toward building Brazil’s first permanent magnet-making facility.
• Metwork and sample production - SGQ should have results from this fairly soon. The main catalyst we are looking forward to is the re-starting of SGQ’s pilot plant so that product samples can be produced for potential strategics/offtake partners.
• Permitting - SGQ is targeting completion for permitting by Q4-2026.
• Finalise the remaining vendor payments - (US$6M due before the end of the year and US$5M due next year). Hopefully, SGQ can follow up on the $8M cornerstone investment it managed to get from Xinhai Group earlier this year.

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