Rare earth minerals have seen increasing demand as economies move toward cleaner technologies to decarbonize. Yet many companies involved with producing and processing these metals have had their stocks reduced significantly over time.
As the global community seeks ways to diversify production, stocks in that sector could experience a rebound. There may also be opportunities for investments at different parts of the supply chain - from mining to recycling.
As the world transitions toward green transformation, rare earth metals will play a pivotal role. Essential for various green tech applications, investors looking for exposure to rare earths can look into shares of mining companies producing rare earth metals (known as majors with proven track records over several years or newcomers aiming to revolutionise how raw materials are extracted) as well as exchange-traded funds that provide rare earth exposure ( ETFs ).
Investors looking for rare earths mining stocks can find them on US, Canadian and Australian stock exchanges. Many of these companies aim to reduce Western dependence on China for rare earth supply.
The Australian Securities Exchange currently lists 35 rare earths mining stocks. Lynas Rare Earths of Eneabba, Australia is currently the leading non-Chinese producer of rare earths and is in the process of building its processing plant at Kalgoorlie operations. Other notable producers include Iluka who produce neodymium, dysprosium and terbium to help Australia reduce its reliance on Chinese rare earth exports.
Investors in rare earth mining companies face numerous risks, including fluctuating prices and environmental concerns. Investors should exercise caution with companies without proven experience or an ability to control costs under control; also avoid any speculation in rare earths as this could result in sudden price swings.
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Investment opportunities exist within the rare earth metals sector for companies that mine or process rare earths, providing investors with unique investment options. Rare earth elements form part of 17 metallic elements in the middle of the periodic table with fluorescent, conductive, and magnetic properties - key ingredients to green transformation as they're used in wind turbines, electric cars, and various green tech applications.
There are various methods available for investing in rare earths, but mining companies offer the most attractive option. Unfortunately, they're currently only found outside China; MP Materials stands out amongst them by owning California's Mountain Pass mine as an integrated REE mining and processing facility with exceptionally rich deposits containing heavy rare earth elements such as neodymium and praseodymium used to make powerful magnets.
China Northern Rare Earth Group High-Tech Co Ltd (ticker: 600111), owner of Inner Mongolia's world's largest rare-earth deposit, and top REE processor globally with more than 50% refining capacity, is also a significant REE producer and processor.
Outside China there are only a handful of other rare earth producers, many of which face geopolitical risks. Malaysia recently instituted a processing ban for rare earths starting July 1, potentially jeopardizing Lynas' Kalgoorlie plant production in Australia.
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Investment in companies that recycle rare earth metals can be an excellent way to capitalize on their rising demand. Rare earth elements are essential components in many modern devices, including magnets used in small and large motors; glass additives for television screens; rechargeable batteries; X-ray machines; and lighting.
Although investing in rare earth mining stocks can produce attractive returns, it's essential to weigh all of their potential risks before making a decision. Rare earth metals tend to be expensive to produce, while their prices can fluctuate greatly. Furthermore, rare earth markets tend to be highly opaque and difficult for small retail investors to access.
The US-China trade war is having an effect on industries worldwide, including rare earth minerals. China currently exports 80% of global rare earth metal production; that can become problematic when other countries rely on China as their sole provider for materials like neodymium, praseodymium, ytterbium or dysprosium.
As such, there is now an intense race to build production and refining supply chains outside China, offering investment opportunities to those who know where to look. Companies such as Lynas are at the forefront of innovation. Lynas' proposed processing plant near Kalgoorlie in Western Australia to undertake early-stage processing on ore from its Mt Weld deposit prior to sending it onward to Malaysia for upgrading is one example. Not everyone wants to pick individual stocks; those looking for alternatives may wish to consider mutual funds or exchange-traded funds that provide exposure to several companies involved with mining, refining and manufacturing of rare earth elements - for instance VanEck Vectors Rare Earth/Strategic Metals ETF (REMX). It features companies from China, America and Australia among its holdings.
ETFs offer investors who prefer not to invest in individual stocks a way of accessing rare earth companies, yet remain uncomfortable buying individual stocks, another avenue of exposure. Before investing, investors should do their due diligence on any ETF chosen - too concentrated an ETF may become more sensitive to changes in market conditions due to increased concentration in one area.
Although rare earth mining stocks are becoming more appealing to investors, their prices remain highly variable due to a variety of factors including lack of availability in large amounts, difficulty processing and no standard pricing system in place - keeping this sector relatively small with only a handful of active players participating.
Rare earth minerals offer investors a promising investment opportunity. Comprised of 17 elements (such as scandium, ytterbium and lanthium) with exceptional fluorescent and magnetic properties - rare earth minerals play a pivotal role in green technologies like wind turbines and electric vehicles.
Lynas holds one of the world's largest rare earth deposits at Mt Weld and Hastings is currently developing their Yangibana project in Western Australia, while Arafura Resources are working on their Nolans deposit in Northern Territory - all seeking to reduce Western dependence on China for supply. Investors should note, however, that such companies involve substantial development risks related to government approval and political considerations.