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A key midcap mining stock to buy now for 2020

Brendon Lau
Buy ASX shares

One of my favourite mining stocks is outperforming the market this morning and is likely to keep running ahead in 2020.

It’s the Lynas Corporation Ltd (ASX: LYC) share price I am referring to with the rare earths miner jumping 2.9% to $2.46 in morning trade. This makes it the third best performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

Lynas is only beaten by the Service Stream Limited (ASX: SSM) share price and Northern Star Resources Ltd (ASX: NST) share price as they surged 4.1% and 3.8%, respectively.

Lead Agency status

Investors are excited that Lynas’ Kalgoorlie rare earths processing plant was awarded Lead Agency status by the Western Australian state government.

The award by the WA Department of Jobs, Tourism, Science and Innovation reinforces the view that Lynas is in pole position to win the financial backing of the US military.

As Lead Agency, the department will provide Lynas with project advice as well as assistance with managing and coordinating approvals within the project’s timeframes.

Increased chance of US backing

The bulk of the costs for building the plant could be picked up by the US military, which is very keen to ensure reliable supply of the minerals critical for weapons manufacturing.

China currently supplies nearly all of the world’s rare earths and could use this as leverage over the US and its allies. This is probably the Asian giant’s biggest stick that it can hold over the Americans as the nations clash over trade and other strategic issues.

Lynas can thank China

Lynas is the only non-Chinese rare earth producer of note and management confirmed that it will meet the US Department of Defence tender deadline. If it wins the tender, the US will fund two-thirds of the cost of the processing plant.

The strategic importance of the minerals, which are also used in consumer electronics and electric vehicles, is also recognised by the Australian government. WA wants to increase downstream processing and intellectual property in the state.

Foolish takeaway

The fact that rare earths have become a political bargaining chip makes Lynas a key pick in my portfolio for 2020.

The stock represents the best way for ASX and international investors to gain exposure to this thematic.

While one needs to be conscious about the commodity price outlook before making a call on a mining stock, the entrenched tension between the world’s two largest economies makes rare earth price volatility less of a consideration in my view.

I believe this puts Lynas in a rare position to chalk up further strong gains in 2020.

The post A key midcap mining stock to buy now for 2020 appeared first on Motley Fool Australia.

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Motley Fool contributor Brendon Lau owns shares of Lynas Limited. Connect with him on Twitter @brenlau.

The Motley Fool Australia has recommended Service Stream Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019