The race to secure a supply chain for rare-earth minerals outside of China is on, with opportunities for those with the proper expertise to invest in rare earth stocks.
We use rare earth minerals as components in electronic technology such as smartphones, LED lights, digital cameras, and flat-screen TVs. They are also used in the defense industry. The US Department of Defense uses these components in its fighter jets and missile systems. In addition, they play a crucial role in the development of green technology. With the rise of demand for electric vehicles, the need for materials used in these industries will likely increase.
Before diving into these metals, investors should be aware that they are commodities and can fluctuate widely due to economic cycles. Rare earths are commodity prices that are always volatile. Pavel Molchanov, an analyst at Raymond James & Associates, says that this volatility can affect a company’s earnings and revenue.
The rise of China in the metals industry has created its risks, which could affect producers’ profitability. Aside from the political and economic landscape, Ricardo Pina, the CEO of The Modest Wallet, also explained that certain taxes and regulations can affect the price of rare earth elements. Currently, investors can’t buy futures contracts for rare-earth elements like they can for gold, copper, and wheat. That means they should look for other ways to invest in this industry.
What are rare earth metals? What is their use?
Rare earth elements are a group of 17 metallic elements. They include the fifteen lanthanides and the scandium and yttrium.
These metals go by the names rare earths, or lanthanides. Rare earths are silvery soft and very similar-looking. They are pretty abundant, so their term originates from the 18th century when they were perceived as scarce. Let’s name each of them and point out where the utility of these valuable materials lies.
Rare earth metals
Scandium (17-Sc) is a silvery-white metal. Scandium goes in components that make up airplanes, as an additive in certain kinds of lamps, as well as an agent that traces radioactive materials in oil refineries.
Yttrium (39-Y) is found in a Sweden village Ytterby. It is how it got its name. Yttrium has a variety of uses, depending on the chemical compound it’s found in. For example, it serves as an ingredient of different alloys used in lasers, high-temperature superconductors, ceramics used in dental care, fuel cells, light bulbs, optical lenses, cancer treatment, etc.
Lanthanum (57-La) is a soft metal named by the Greek term for ‘hidden’. One can find Lanthanum in particular kinds of glass, flint, battery electrodes, lenses of cameras and telescopes, and used as a catalyst in conversion processes in petroleum refineries.
Cerium (58-Ce) is an oxidizing agent, a polishing powder, a catalyst for processes concerning oil refining, and an ingredient of coatings for turbines.
Praseodymium (59-Pr) is found in rare-earth magnets, lasers, glasses, and enamels, as well as in didymium glass. For example, welding goggles use didymium glass.
Neodymium (60-Nd) is used in magnets, lasers, and electric motors of electric cars.
Promethium (61-Pm) is named by Prometheus, a titan who brought fire to human mortals, according to Greek mythology. The name is appropriate since nuclear batteries and luminous paint use this metal.
Samarium (62-Sm) We can find Samarius in magnets, lasers, and control rods of nuclear reactors.
Europium (63-Eu) The name for Europium came after the continent of Europe. Different phosphors, special lamps that use mercury, and lasers contain this metal.
Gadolinium (64-Gd) is used as an MRI contrast agent, in high-temperature superconductors, solid oxide fuel cells, and oxygen detectors, apart from its similar uses that all rare-earth metals share.
Terbium (65-Tb) is found in naval sonar systems and stabilizers of fuel cells.
Dysprosium (66-Dy) is a metal that got its name from the Greek term ‘dysprositos’ which means ‘hard to get and is found in hard disk drives.
Holmium (67-Ho), Erbium (68-Er), Thulium (69-Tm), Ytterbium (70-Yb), and Lutetium (71-Lu) are used as the ingredients of lamps, magnets, lasers, optical spectrophotometers, x-ray machines, decoy flares, PET scan detectors, and light bulbs.
It is apparent that the production of many areas of the economy, with an emphasis on industry, depends heavily on these metals. We use some of them, like cerium and neodymium, to produce smartphones, flat-screen TVs, and LED lights. It is an enormous industry with an expansive global production.
Their utility in producing wind turbines (ingredients of their coatings) and electric cars (crucial elements of batteries) makes rare earths critical for the global transition to a more eco-friendly economy.
Their vast utility alone presents a basis for a fair assumption that the demand for their exploration and mining and production of their impressively useful alloys will only rise with the ever-growing capacity of the global industry.
Investing in rare earth stocks? Current geopolitical tendencies
China is the world’s largest producer of rare earths, with around 60% of global production, while some estimations give numbers of up to 86%. Additionally, China has about 37% of global reserves of rare earth metals, with Brazil coming second at 18% and Russia coming in third at only 15%. Meanwhile, the USA owns about 1% of the global rear earths reserve.
One hundred twenty thousand tonnes per year is a limit in China’s production. About half of that amount appears every year from illegally mined sources. That could be a sign that rare earths demand is outgrowing current supplying capacities. Many in China perceive rare earths as “new oil” because of their strategic significance.
US ships a large percentage of rare earths extracted in the US over to China to be processed. The Chinese government owns a vast majority of the global processing power.
That put the Chinese government in a unique position to dictate global rare-earth trade and production by shrinking and expanding export quotas.
U.S. have a plan for rare earth metals
At the same time, the western governments, predominantly the US, are growing their demand for rare earth metals. For example, the US Department of Defense produces F-35 fighter jets and missiles, radars, and lasers using rare earth metals.
The US government is also planning a massive budget for the electric car industry in the future. Rare earth metals have a pivotal role in the production of electric cars. Therefore, the tendencies of the US government are shifting towards re-establishing its processing capacity. Along with investing in new mining operations.
The US government is seeking to restore its rare earth economy. Therefore, this geopolitical context could be a catalyst for an expansion of the rare earth stock market.
The US government used to have the upper hand in rare earth production. However, the production operations were outsourced to China for its lower labor costs and environmental standards. This move resulted in China owning most of the production, refining, and manufacturing of rare earths.
The opportunity for the investor
The opportunity for the potential investor lies within this shifting process. However, investing in China-based production operations could be risky. The Chinese government controls the pricing of these metals as well as taxes and other tariffs. Meaning they could change unpredictably.
Therefore, the potential investors could look into the situation at the White House and find the window of opportunity there. Namely, the Defense Department is investing $341 million into projects of partnership with domestic US companies to boost the production of rare-earth elements and bring important supply chains back to the US. The Department of Energy also supported this cause, donating $19 million for 13 different projects involved in producing rare-earth elements.
The White House is not content that the Chinese government has set to exploit their advantageous market position and a shift towards U.S.-based production operations is in order.
Greater opportunity for the investor
The crossfire that potential investors could find themselves in is not necessarily a bad thing. China seeks to keep its leverage of rare earth materials with several trade disputes in the last ten years, which could have resulted in export restrictions. The Chinese government has recognized the strategic importance of this resource and is keen on keeping this advantage on the ‘home court’. That only means a potential opportunity for the investors, as the US will seek means of relieving its dependency on a rival economy and gush out vast amounts of investments to domestic companies to create its’ market.
Also, many EU countries have shown a great interest in securing their production.
This interest might open up a new chance for investors. Unfortunately, there is a limit to how investors can participate in the rare earth metal market due to the small number of companies listed outside China. However, with the appropriate funding and a fine business plan, rare earth stocks could get to the investors’ portfolio.
Rare earth metals and the environment
All industrial operations in the 21st century face the same question – meeting the needs of modern society while at the same time preserving the environment without which modern society does not have a future.
It is a deep and complex question for our system of values, where the growth of the economy, financial gain, and production expansion, while important, must be put in a broader context of priorities. But, unfortunately, even though the answer seems simple, the human species is far from reaching a consensus when it comes to preserving the environment as the highest value of any enterprise.
Big corporations and governments that represent the leading force of western society have their challenge regarding finding a stable solution for maintaining the balance between producing enough goods and keeping the world green. However, each member of society is also a part of the solution.
Each of us makes decisions that define our contribution to the preservation of the environment as either positive or negative. The same principle goes for potential investors in rare earth stocks. The business itself should not come without a necessary aspect of personal responsibility.
Rare earth metals can be a pivotal factor in transforming the global industry into a safer, cleaner, and more eco-friendly one. However, they demand heavy standardization, supervision, and control in their production process.
Without proper management of the mining, refining, and recycling of rare earths, consequences could be destructive.
Rare earths production process and the environment
If mining, refining, and recycling operations don’t meet the modern rules and regulations to the fullest, the role of rare earth metals in making the environment safer becomes negative. Thus, the process of expansion of the rare earth metals market becomes counterproductive. Even paradoxical in the context of ecology.
How rare earths affect us? Potentially they can leach into the soil and continue moving from the influence of erosion, groundwater, precipitation. Plants absorb them, which means humans and animals consume them as well. Also, strong acids from the extraction process can leak out into the environment result in the contamination of aquatic ecosystems.
The responsibility of the potential investor lies in their rare earth stocks investment choices.
The investor should approach their potential purchase by carefully researching the targeted stock. For example, does the company have a responsible policy regarding containment measures during the mining or refining process? Does the local government enforce laws, rules, and regulations that are strict enough and inclusive enough regarding the safekeeping of the environment?
Bear in mind, potential investors inquiring on these points have more chances for profit, with the modern tendencies of US and European governments leaning towards investing in their mining and processing capacities. Moreover, these operations, under strict regulations for safety and environment preservation, are also heavily funded. Therefore, they have significant market potential and a bright future with regards to further expansion and profit.
When it comes to adequately exploited and processed rare earth metals, their potential to become a significant factor of a cleaner world is great!
Use in the renewable energy industry
With a global drive towards more sustainable and eco-friendly energy infrastructure, rare earth metals are an essential pin in a chain of events that leads to accomplishing this goal. Transitioning to a cleaner energy source will use materials such as copper, uranium, and rare earth metals.
Their use in the renewable energy industry has a positive impact, mainly in reducing the carbon footprint.
Firstly, there’s a significant role of neodymium and praseodymium in producing the world’s most powerful permanent magnets. These magnets are helpful in a broad range of modern technology, but their utility mainly lies in their key role in the functioning of electric cars and other electric vehicles. More than 90% of electric vehicles include these magnets. While we anticipate the production of magnets integrated into magnetic trains at 15 times higher rate. By 2035, electric vehicles could demand 100% of rare earths produced globally.
Furthermore, these metals are applied in the production of wind turbines used for wind-based power operations. As a result, demand for these magnets to produce wind turbines will grow at an annual growth rate of 9.4%.
Both of these are vital points in the transition to low-carbon options for energy production.
Investing in rare earth stocks
Let’s consider that British Prime Minister Boris Johnson stated that new petrol and diesel cars will be banned in the UK by 2030. He added that switching to low-carbon emission technology and removing fossil-based fuels from all possible operations is the highest priority. Eco-friendly technology is looking at a bright future.
Rare earth metals are an essential material for the production of this technology. Therefore, its’ demand is already high, with predictions of it outgrowing the supply greatly.
Investing in rare earth stocks while keeping a close eye on the stocks’ environmental aspirations should prove a profitable financial move by the investors.
As stated above, the system of values that modern society is looking to accept should promote this kind of responsible business strategy, not only because it is expedient, but above all else, because it is right.
Investing in rare earth stocks – a precise look into the supply and demand.
The impact of the COVID-19 pandemic
The COVID-19 pandemic has made the market stagnant or dropping, with production enterprises lowering their demand for any material. That was the case with rare earth metals as well.
The prices of materials dropped, and the stock numbers walloped.
However, the last quarter of 2020 showed a significant surge, partially thanks to yet another trade dispute between the US and the Chinese government that ended as just another trade restriction threat that didn’t take place.
The anticipation of restrictions created a higher demand for metals used to produce magnets and turbines (which are the two most important products related to rare earth metals). It consequently created a higher demand and a leap in stock prices.
Since then, the market has been stabilizing. As a result, the demand for rare earth magnet applications continues to grow, as it now forms 29% of the general demand for rare earth metals.
Furthermore, the demand for electric drivetrain and wind turbine components is growing with even more stability.
How to start investing in rare earth stocks?
The first step for investing is investigating.
When it comes to investing in stocks, the general rule is always to diversify. For example, see if the company involved in the mining or processing of rare earths has multiple operation stations. Geographical diversification makes investments resilient to unpredicted events, technical or other malfunctions, and accidents.
This commodity should be a small part of a portfolio so that any significant drops in stock prices don’t hurt the overall budget.
It is essential to wait for the opportune moment when a company’s mining and processing operations are reliable enough. The company has sufficient funds, stable plans for future operations, and a clear policy of doing its business.
Research which rare earth metals are currently in the highest demand. Investors should keep in mind that, while all of these metals are extremely useful, only some of them are in a demand that outgrows the supply at this moment.
The materials in high demand belong to a subgroup of rare earth metals called heavy rare earth metals. Heavy rare earth metals are dysprosium, erbium, holmium, lutetium, terbium, thulium, ytterbium and yttrium. These materials are currently in the highest demand.
However, most of these mining operations are Chinese, and most rare earth stocks probably won’t be an option for you. Even if they are, you should look closely at those companies’ business policies.
Looking into companies to invest in
Some of them have nasty environmental regulations and are involved in forcing child labor and similar illegal activities. Owning stocks of questionable companies like that is ‘morally challenging’ since the investor would indirectly be funding modern slavery. It is also bad business, as owning such stocks is a potential risk.
Additionally, when looking into a specific company, it’s crucial to search for clear signals that show if the company has a stable internal structure that enables it to profit and create a financial plus for you.
One of the critical factors to consider when choosing the right stock is the increase in the price of bonds over the last year. In addition, a potential investor should want to see a positive tendency in the company’s record.
Another factor that should encourage the potential investor is low debt and a positive cash flow. Therefore, even when the stock prices are generally low on the market, the flow should show a positive tendency.
The company that should be appealing to the investor also shows a tendency of expanding operations. Furthermore, if the new operations offer greater geographical diversification, that should further increase investors’ enthusiasm. That especially applies to mining operations and other endeavors that rely on geographic diversity for a more significant financial effect.
If a company is not showing positive tendencies in the cash flow, investors should look into the earnings per share data (EPS). Instead of the general earnings number, this information shows the potential investor the gradual progress of the company. A positive sign for the potential investor is if a company is gradually reducing its debt. If the company doesn’t meet this criterion, investors should avoid such stocks as they could bring losses to their overall output.
Two ways to invest in rare earth stocks
1) Invest in companies that are in the exploration or processing business
2) Invest in exchange-traded funds that hold rare earth stocks in different metal companies
Investors looking to participate in the rare earth metals market have more limited options than, e.g., gold investors— they can’t buy physical rare earth metals, and not many exchange-traded funds offer exposure to these metals. Because of that, investing in rare earth stocks is more strategic directly through mining and processing companies.
Many of those companies are in China and are not traded on a stock market, but some are reachable.
Going for a rare earth stock through exchange-traded funds is an easier way. Investing in rare earth stocks through smaller, more speculative companies may bring far higher rewards but with matching risk.
Also, investors should always consider investing in ETFs since these commodities offer instant diversification. Both concerning the geographical position of companies and the sector that the company operates within. That should mean less financial risk, generally speaking.
Top rare earth stocks to invest in
The easiest way to rank rare earth stocks would be to look at their market cap. However, considering other circumstances, the market cap doesn’t reflect on all the leading indicators.
Here is our list of rare earth stocks:
Lynas Rare Earths
Formerly known as Lynas Corporation Ltd, Lynas Rare Earths is an Australian company. The second-largest producer in the world and the only company with such processing capabilities outside of China.
The company was founded in 1983. For more than twenty years, investors have been trading this stock on the Australian Securities Exchange (ASX: LYC).
The extraction process takes place on Mt Weld in Western Australia. Its mine has been recognized as one with the highest grade ore. The processing plant is located in Malaysia, and it’s the largest single processing on the globe.
A new processing plant in Kalgoorlie, Australia, is under construction. The company is also planning to build a new processing facility in the US. It would be a joint venture with Blue Line Corp and funding from Pentagon.
Company Website: https://lynasrareearths.com/
MP Materials Corp
MP Materials is an American rare earth metals company that came to life in 2017. By JHL Capital Group, which holds 51.8% of stocks. It was formed by acquiring mineral rights to the Mountain Pass Mine through a special purpose acquisition company. The company in question was Secure Natural Resources.
In partnership with QVT Financial, they secured Mountain Pass Mine operating equipment and facilities.
Later in 2020., the company merged with Fortress Value Acquisition Corporation via a reverse takeover. Afterward, it became a public company traded on New York Stock Exchange (NYSE: MP)
The company now operates the only rare earth mining facility in the US. It produced about 15% of global rare earths in 2020. They’ve also signed a contract with US DoD, proving governments’ efforts to establish domestic rare earths production.
Company Website: https://mpmaterials.com/
Leading Edge Materials Corp
A Canadian public company based in Vancouver focuses on developing rare earth materials production inside the European Union.
It was founded in 2010. Shortly after it secured 100% of the ownership of Woxna graphite mine and Norra Kärr rare materials mine in Sweden. Together with a 51% stake in Bihor Sud Cobalt Exploration Alliance in Romania.
The Norra Kärr mine is the only rare metal mine of scale in the EU. It holds a considerable amount of rare earth deposits. The area also has a well-developed infrastructure and a skilled workforce, which gives them an edge for future production.
Investors can trade this stock on TSX Venture Stock Exchange (TSX-V: LEM)
Company Website: https://leadingedgematerials.com/
Ucore rare metals
Another Canadian-based company, founded in 2006. and operating Bokan Rare earths mine in Alaska. The parent company also holds two subsidiaries – Alaska SMC and IMC.
Alaska Legislature approved additional funding In 2014, which sums up to $145million.
They’ve developed a special environmentally sound critical metal separation technology called the “RapidSX”. Currently patent pending.
One can trade their stock on TSX Venture Stock Exchange (TSX-V: UCU)
Company Website: https://ucore.com/
VanEck Vectors Rare Earth/Strategic Metals ETF
VanEck has a long history of identifying opportunities in areas beyond the financial markets. They became one of the first US asset managers to offer investors the ability to access international markets. This framework helped the firm identify asset classes and trends that would influence the industry in the future. VanEck’s active and passive strategies provide a compelling combination of exposure and performance.
The firm’s multi-purpose capabilities include core and specialized investment opportunities, as well as more specialized strategies. Their active management techniques focus on identifying and managing risk. The factors that influence VanEck’s passive strategies are also critical to the firm’s success. Such as liquidity, diversity, investability, and transparency
VanEck is an American investment firm with a long history, founded in 1955. By John Van Eck in New York. This stock is traded on the New York Stock Exchange (NYSE: REMX)
Company Website: https://www.vaneck.com/us/en/
Texas Mineral Resources Corp
Texas Mineral Resources Corp was founded in 1970. They focus on exploring and developing mineral properties in the US, Primarily in the Hudspeth County, Texas, known as Round Top. The company holds long-term rights for exploring and developing the 950-acre strip, rich with uranium and beryllium, together with exploration rights to 9,350 acres of land near the Round Top.
However, they are not producing anything yet and have generated no revenue. This mine could be one with the most potential for mining in the country. Investors can trade their stocks on the OTC market as TMRC.
Company Website: http://tmrcorp.com/
Rare-Earth Recycling Companies to invest in
Here is our list of environmentally oriented rare earths companies:
Mkango Resources Ltd. (TSX-V/AIM: MKA)
This company is involved in mining and exploration. The headquarters is in Vancouver, Canada, and it was founded in 2007.
It’s a dual-listed mineral exploration and development company, and it operates on the UK and Canadian stock exchanges.
The company operates in the African country of Malawy, specifically in four different locations – Phalombe, Thambani, Chimimbe Hill, and Mchinji. While Chimimbe Hill and Mchinji are compounds next to each other, the Phalombe and Thambani are two separate operations.
The company focuses on both rare earth exploration and recycling.
It’s funded, equipped with infrastructure, and committed to sustaining the environment. The company is conducting most activities in an environmentally responsible manner. For example, it is helping local communities, promoting education in Malawi schools, and donating funds for communities that have been struck by poverty or natural disasters.
The company is also expanding its’ enterprises, with more funds and plans for future projects.
Company Website: https://www.mkango.ca/
Geomega Resources Inc. (TSX.V: GMA) (OTC: GOMRF)
The company creates technology for the processes of mining and recycling rare-earth metals that’s environmentally friendly. It Is based in Canada, and it was founded in 2008.
The company is striving to build the first sustainable rare-earths recycling facility. The facility would convert magnet production waste and end-of-life magnets into products usable by the renewable energy and electric vehicle industries.
This facility would be the first of its’ kind in the world.
This company’s technology is seeking to reduce residue volume significantly and minimize effluents by recycling the main reagents, which would, in turn, reduce operating costs and avoid creating other waste streams.
This environmentally-oriented endeavor company is making could present an opportunity for investing in a cleaner and eco-friendly future.
Company Website: https://geomega.ca/
Investing in rare earth stocks – conclusion
Analysts expect rare earth metals to have a bright future with high demand.
Even today, it would be virtually impossible to name a piece of technology that doesn’t contain at least one of them. We use rare earths mainly as catalysts, ingredients of batteries, lamps, magnets, and different alloys that find their use in making various pieces of technology.
Modern cars, smartphones, electric motors, hard drives, optical displays, and many more are just some top of the head examples of the use of rare metals. Their use in defense systems is crucial, which makes them a key strategic resource.
The key element, however, lies in the automobile industry. The global annual passenger electric vehicle sales could rise from 4.6 million units last year to 14.0 million in 2025 and 34.5 million in 2030.
This kind of rapid growth of demand for both electric vehicles and permanent magnets will challenge the capacity of the supply to meet that demand and keep up. It mainly applies to neodymium, praseodymium, and dysprosium. The annual demand for these elements worldwide will expectedly surpass yearly global production from 2022 onward. The final result could be the depletion of all accumulated reserves and a general shortage of supply. Developing new sources of supply can prevent this scenario.
It also applies to dysprosium oxide which will also deplete current reserves as its’ demand grows annually, worldwide. By 2030, demand for dysprosium oxide worldwide could surpass global production by upwards of 1,850 tonnes. It is the same amount that mines produce in one year, by today’s standards.
What will change?
It could also mean a significant change in the current geopolitical situation. Also, call for a different approach to the supply and demand game.
All surges in demand for rare earth metals are a consequence of the global tendency to preserve the planet. To shift our technology to less carbon emission, more sustainability, and renewability.
Therefore, the companies in the business of either exploration, mining, production, or processing should uphold modern environmental standards. That way, the demand will keep rising, as the world is more and more successful in shifting to a green and environmentally friendly future. The companies that supply the resources for that shift are supporting this cause. It will present a lucrative business model for the industry and an appealing platform for the investor.
[1] The number listed on the left side of the dash represents the atomic number. While the symbol listed on the right side of the dash represents the metal symbol in the periodic table of elements. The same pattern applies to each rare earth metal.
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This article was last updated on November 8th, 2021.
