With China's Rare Earths Restrictions Comes a Rare Small-Cap Opportunity

China tightened up its export rules for rare earth minerals and metals on Thursday. Yes, this makes things a little tough on those companies that support the semiconductor industry. I speak of wafer foundries such as Taiwan Semiconductor  (TSM) , GlobalFoundries  (GFS)  and Intel  (INTC) . I also speak of manufacturing equipment providers such as Lam Research  (LRCX) , ASML (ASML)  and KLA Corp  (KLAC) .

But there's an upside. U.S. companies that produce and refine rare earth minerals were on the rise on Thursday. MP Materials  (MP)  was up 2.41% for the session. USA Rare Earth  (USAR)  was up 15%, and "Stocks Under $10" name Ramaco Resources (METC) was up a nifty 11.7%. Readers may recall that I initiated that long position in early to mid-July as the U.S. government made plain its plan to invest in MP Materials.

That stock has steadily moved higher ever since. While it has never been one of my constant "go-to" names when covering our under the radar low-priced and / or low market cap niche here at TheStreet Pro, METC is now up 185% since we got involved. Another Palantir  (PLTR) , Rocket Lab  (RKLB)  or SoFi  (SOFI) ? We can only hope, but this is already a huge victory in its own right.

Crash Course

Because I haven't written on METC in almost four months, just who is Ramaco Resources? It's a developer of metallurgic coal in southern West Virginia and Virginia as well as a developer of coal, rare earths and other critical minerals in Wyoming. The company is based in Lexington, Kentucky.

Ramaco has four active metallurgic coal mining complexes in the central Appalachia region and one coal mine, and one rare earth development facility close to Sheridan, Wyoming. The company also has control over larger mineral deposits near Sheridan, which is part of the firm's initiative to recover rare earths and critical minerals. The Knox Creek site, which is one of four, includes 64.050 acres of controlled mineral rights all by itself.

Earnings

Ramaco Resources is expected to report the fiscal third-quarter financial results in less than a month. Right now, Wall Street (which only amounts to four analysts) is looking for an unadjusted loss per share of $0.31 on revenue of just $131.5 million. This does not compare well to the year-ago comp of a loss of $0.03, while reflecting year-over-year sales decline of -21.5%.

Speculative? You bet your tail this is speculative. But is it worthy of speculation? You tell me. While full year 2025 "EPS" is seen at a loss of $0.96, full-year 2026 EPS is projected to land at $0.34 -- in positive territory. While full year 2025 revenue is seen at -12.9%, full year 2026 revenue growth is seen at 24.3%.

Should that play out as projected? Then the stock is trading at 5-times forward looking earnings. That's inexpensive in almost anyone's book. Unless Beijing simply allows unlimited access to their rare earths, then there is going to be an almost insatiable drive to develop our own mining abilities in that space for national security purposes. METC, in my opinion, will be one of the winners.

The Chart​

Readers will see that METC has broken out of a four-month uptrend illustrated here by a Raff Regression model. ​The upper trendline of the model is the pivot. I would not be surprised to see the shares of this still not profitable firm roll forward and back like the waves at the beach as headline risk will run the share price for a while.

Relative Strength is well into technically overbought territory. The daily Moving Average Convergence Divergence is postured in overtly bullish fashion with all three components in positive territory since mid-September. The position of the histogram of the 9-day exponential moving average suggests continued short-term bullish behavior while the positioning of the 12-day EMA relative to the 26-day EMA implies short to medium-term bullish behavior. This may be a long-term bumpy road, but if I didn't think we had one here, gang. I wouldn't be in.

Those who missed the move so far and are willing to get paid to take on discounted equity risk could either write the Nov. 17 $34 puts for about $2.00 or the Nov. 17 $27 puts for about $0.60. Those two strike prices are about as close as I can get you to the 21-day exponential moving average and 50-day simple moving average respectively.

At the time of publication, Guilfoyle was long INTC, LRCX, METC, PLTR, RKLB, SOFI equity.