Rare-earths mining play Critical Metals went vertical on amid news that the Trump administration was considering an equity stake in the company, though Bloomberg just threw cold water on the report. Meanwhile, Lithium Americas, which tripled after the first report of a possible U.S. stake, received an underperform rating on Monday and a price target 45% below Friday's close. Lithium Americas stock rose early but faded.
Analysts have begun distancing themselves from run-ups in some mining stocks, as President Donald Trump's equity investments appear in some cases to be overhyped. Investors should consider whether the investments are potentially transformative, as in the case of Intel and MP Materials.
The Department of Defense didn't only take an equity stake in MP Materials, which operates the Mountain Pass rare-earths mining complex. The Pentagon also raised the price floor for the mine's rare-earth oxide to $110 per kilogram, nearly double MP's realized price in Q2.
'Free' Stake In Lithium Miner
In the case of Lithium Americas and its Thacker Pass lithium project, the Department of Energy received essentially free 5% stakes in both companies in return for loan payment deferrals, BMO Capital wrote in an Oct. 2 note.
BMO is one of three firms that have recently set a price target of 5 or less for LAC stock, even as shares trade above 9 in early Monday stock market action. Scotiabank raised its target to 5 from 2.75 on Monday, but downgraded the stock to underperform and advised investors to take profits, according to a write-up at The Fly investment news site.
On Oct. 1, Canaccord analyst Katie Lachapelle cut LAC to sell from speculative buy, saying terms of the DOE loan saw only minor modifications.
Greenland Rare Earths Play
Critical Metals, which acquired the Tanbreez rare earth and gallium deposit for $5 million in cash and $211 million in stock, is in discussions with the Trump administration about an equity stake, Reuters reported. The report noted that Critical Metals applied for a $50 million grant under the Defense Production Act, and talks involve converting that grant into equity. That could equate to an 8% stake.
However, Bloomberg said a White House official denied that the Trump administration is actively considering an investment.
The Tanbreez mining development is still in the feasibility-study stage, but that's set for completion this year. Critical Metals also controls the Wolfsberg Lithium Project in Austria, which is targeting first output in 2026 or 2027.
Shares of CRML came off Monday's highs but remained sharply higher, helped by news of a $35 million private placement from an institutional investor. Critical Metals CEO Tony Sage said the financing "from a fundamental institutional investor validates the opportunities ahead for Tanbreez." In addition to the $35 million upfront, the investor got warrants to buy 10 million shares for $7 a share.
Critical Metals, Lithium Americas
CRML stock surged 50% to 11.96 in Monday afternoon stock market action. USA Rare Earths, whose shares rallied 49.8% last week on Trump-equity potential, added 2.5% on Monday.
LAC stock dipped 1.3% to 8.92. Albemarle rose 4.7% in afternoon trading as investors speculate on the next Trump equity stake.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
A stock's average true range, a metric available on IBD's MarketSurge, reflects its daily volatility. Higher numbers raise the risk of a shakeout that can trigger sell rules. Current market conditions are conducive for buying stocks with pretty high ATRs of up to 8%, but investors should be wary of being too concentrated in high-octane names.
Some of the speculative names linked to Trump equity investments have especially high 21-day ATRs, including USAR (10.8%), LAC (15.1%) and CRML (11%).
