Is China about to blow up the dividends of BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG)?

What has happened with China?

According to reporting by the Australian Financial Review, China is changing the supervising rules for inspecting iron ore.

The worry is that China could cause major disruptions to Australia’s iron ore exports. It could mean Australian iron ore gets checked but Brazilian imports don’t have the same checks.

But BHP isn’t worried about it and actually thinks it could lead to a quicker process. Fortescue also confirmed it was part of a process that has been in the works for years.

Plenty of people are linking Australia’s support for a coronavirus inquiry to a potential backlash by China. We have already seen the Asian superpower put tariffs onto Australian barley.

If China were to put tariffs onto Australian ore, or stop buying altogether, then it could be devastating for the dividend and profit of BHP, Rio Tinto and Fortescue. Indeed, state and federal governments would feel the effects of it too. Let’s hope China doesn’t do anything else. 

What have the miner share prices done?

At the time of writing, the BHP share price is slowly down (after being up in the morning), the Rio Tinto share price is down 0.3% and the Fortescue share price is down 2.3%.

It’s this type of event that could cause the mining environment to dramatically shift. The outlook for miner dividends is (was?) good, but things can change quite rapidly if demand for iron or the price of iron goes down.

I wouldn’t own a miner for dividends, just for the theoretical expected profit generation (and valuation of those cashflows). I’m not interested in owning miner shares and this news puts me off even more.

More reading

• Why ASX 200 iron ore miners are your best bet for dividends right now
• Why these ASX shares have just stormed to record highs
• Here’s why the Fortescue share price hit an all-time high today
• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• Could ASX 200 iron ore shares save the Australian economy?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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The Qantas Airways Limited (ASX: QAN) share price has been an exceptionally strong performer over the last couple of months.

It was around this time in March that the airline operator’s shares sank to a multi-year low of $2.03.

Since then Qantas’ shares have rebounded remarkably strongly and are fetching $3.58 on Thursday afternoon. This means they are up more than 76% since hitting that March low.

Is it too late to invest?

Whether Qantas’ shares are undervalued, fair value, or overvalued will depend largely on how quickly travel markets recover from the pandemic.

Based on current economic reopening expectations, I would say that the company’s shares are closing in on fair value now.

However, if a vaccine is successfully developed and distributed in the coming month, then travel markets could rebound far quicker than expected. In this scenario, I would say Qantas’ shares are very good value.

For this reason, I’ll be watching the progress of Moderna’s COVID-19 vaccine candidate, mRNA-1273 very closely. The early results have been promising, but there’s still a bit of work and further testing to go before we’ll know whether it is the key to unlocking global borders.

Morgan Stanley retains its overweight rating.

One broker that is bullish on Qantas is Morgan Stanley. This morning it retained its overweight rating on the company’s shares with a slightly reduced price target of $5.20.

This price target implies potential upside of almost 45% over the next 12 months.

According to the note, the broker believes that Qantas’ business will normalise in FY 2023. However, it suspects it could return to profitability a year earlier.

Though, it has warned that there is a lot of uncertainty, not least with rival Virgin Australia Holdings Limited (ASX: VAH) in voluntary administration. It feel that what happens with Virgin Australia could have a major impact in the coming years.

More reading

• Small-cap ASX aviation share soars 30% higher as it re-establishes earnings guidance
• Why investing in these COVID-19 stricken ASX shares won’t be the same again for a very long time
• ASX 200 climbs 1% in positive start to the week
• Virgin narrows its shortlist down to 4 suitors
• 5 ASX 200 winners and 5 losers of the week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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Canaccord Genuity initiated a buy rating for ASX 200 rare earths miner, Lynas Corporation Ltd (ASX: LYC). It has a target price of $3.80 and its current share price at the time of writing is $2.01. 

The Aussie miner is a fully integrated producer of refined rare earths. These are a group of 17 chemical elements used in computers, batteries, cellular devices, magnets and defence/military applications. Lynas is the world’s largest producer of rare earth elements outside of China. It is also the second largest in the world. Its main operating assets are located in Western Australia and it also has a processing plant in Malaysia. 

Magnets – a focal point in rare earths market 

Among the key products produced by Lynas are neodymium/praseodymium oxides (NdPr), a critical component in rare earth permanent magnets. These magnets are used in a wide variety of consumer electronics and industrial/high technology applications. This includes in electric vehicles and wind turbine generators. Canaccord forecasts that these emerging renewable technologies will drive significant demand growth for rare earth permanent magnets over the medium to long term. 

Supply gap could emerge by 2023 

Canaccord anticipates flat demand growth for NdPr in the near term but a post-COVID-19 world could see a recovery in many rare earth consuming industries. This could see a shortage of rare earths by 2023, placing upward pressure on NdPr prices. 

China produces approximately 80% of the world’s rare earths. However, there has been a recent clampdown on illegal production as well as a move away from producers with poor environmental credentials. Because China has a near ‘monopoly’ on rare earth production, global consumers are increasingly looking to diversify critical mineral supply chains.

Amidst the heat of the US–China trade war, China threatened to stop delivering supplies of rare earth metals – a key material for US defence and healthcare. The US has since looked at Australia as a key supply partner and a means to move away from its dependency on China. This has resulted in Lynas, in partnership with American company, Blue Line Corporation, being awarded a Phase I contract by the US Department of Defence (DoD). The venture involves planning and design for a US heavy rare earth separation facility intended to fill a key gap in the country’s supply chain. Whilst Phase I encompasses design only, its successful completion may lead to further contracts for production and operation for this ASX 200 miner. 

Furthermore, in the past, China was able to flood the market and cripple global rare earth prices. This has forced Lynas to develop itself into a consistent, low-cost producer. Today, its low cost capabilities and considerable intellectual property see it well positioned it to expand its production capacity by 2025. This includes relocating its mid-stream processing to Western Australia and upgrading its product separation facility in Malaysia. 

Foolish takeaway

Lynas may be vulnerable to the volatile movements of the general market. However, it plays a crucial role in the global supply of rare earth minerals. While it may be a rocky road for the share price in the near term, I believe it is good value for ASX 200 share investors with a long-term mindset. 

More reading

• Should you invest $5,000 in Wesfarmers shares today?
• Is it too late to buy the outperforming Fortescue Metals share price?
• ASX 200 weekly wrap: Negative oil price breaks ASX’s winning streak
• These 2 underperforming ASX mining shares are now catching the eye of experts
• Market closes down: ASX 200 erases early gains

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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