Investing in the Future: A Look at Rare Earth Metals

Investors may be cautious after the stock and bond markets spent much of 2022 in decline, yet investing with an eye towards rare earth metals is one way they may make up the difference.

There are 17 rare earth elements - 15 lanthanides plus yttrium and scandium. Though often lumped together, each has its own market dynamics that should not be overlooked.

Demand for REEs is Growing

Rare earth metals have become essential components in modern technology, from cell phones and computers to televisions, cordless power tools and jet aircraft engines. Their main application lies in creating powerful permanent magnets - found everywhere from electric vehicles to wind turbines.

Demand for REEs is projected to surge further, especially as countries move away from fossil fuels and towards renewable energy sources like electric vehicles (EVs), onshore wind farms, and solar PV panels. Each requires six times more mineral inputs than gas-powered cars while onshore wind farms use nine times as many mineral resources than typical coal-fired power plants.

Another factor driving demand is the increasing use of MRI machines, which utilize neodymium magnets to image internal structures without radiation exposure. Medical and defense industries rely heavily on REEs for night-vision glasses, communication equipment and precision-guided weapons - which all depend on them for functionality.

Unfortunately, REEs can be extracted without causing environmental harm. Most mines use open pit mining techniques which require stripping the land surface before using toxic chemicals in leaching pools to extract metals; this process can pollute water supplies, cause erosion and pollute air quality.

China produces 60% of global REE production; as demand for REEs grows, more countries are looking to diversify their supply chains and reduce reliance on China as a top producer. Africa may benefit from using the African Continental Free Trade Agreement to establish rare earths separation facilities on their continent before shipping the ore off overseas for processing and sale.

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REEs Are Critical to High-Tech Manufacturing

Rare earth elements - 17 chemical elements with specific fluorescent, magnetic and catalytic properties -- are essential components of modern technology. Used extensively in permanent magnets found in cell phones, televisions and computers as well as wind turbines, jet aircraft and advanced military weapons as well as green energy technologies such as battery production and rechargeable LED lights; rare earth minerals can be found worldwide though their extraction/refining can be complex and environmentally taxing processes.

REEs are typically extracted using leaching ponds that require large quantities of chemicals and pollute waterways, making extraction more hazardous and expensive than its alternatives. Because of these considerations and costs associated with REE mining, REO extraction often outsourced to countries with lower wages and laxer environmental regulations; China now supplies 95% of world REO supplies.

Recent years have witnessed efforts to compete with China and rebuild a domestic REE supply being hindered by rising prices of these essential materials. An instance is Molycorp reopening their Mountain Pass Mine in California due to price spike, only for it later to shut down when prices dropped back down again. Furthermore, President Biden's push towards investing in climate change technology and taking hard lines against geopolitical tensions with China may only drive demand higher for REEs; therefore it will become ever more critical that producers produce these metals ethically in an ever expanding global market environment.

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REEs Are Expensive to Mine

Electric vehicles and hybrid-electric vehicles use batteries made up of rare earth compounds, with each vehicle using multiple pounds to power itself. As concerns regarding energy independence, climate change, pollution, and pollution control increase, so too should demand for REEs increase dramatically. REEs are used for air pollution control as well as illuminated screens on electronic devices and polishing glass for optical quality windows - although alternative materials could possibly provide similar functions but more efficiently or cost effectively than REEs.

Rare earth elements in chemistry refer to 15 lanthanides (yttrium, cerium, praseodymium, neodymium, promethium, samarium, gadolinium, europium terbium dysprosium holmium erbium and lutetium) plus scandium that occur at low concentrations in Earth's crust and often form mixed oxides; they may occasionally exist pure; separation can be accomplished using physical, chemical or electrical means - however these methods can be expensive and hazardous.

China currently dominates the rare earths market and is the world's top supplier of both light and heavy REEs such as terbium and dysprosium. In contrast, the United States previously relied on Molycorp's Mountain Pass mine in California as its primary source for these metals; however, that operation closed late 2010. As an alternative source, efforts are currently being undertaken to establish new mining properties within America's borders in order to form domestic REE supply chains but due to long lead times between deciding to open mines and starting production, making it challenging to quickly meet growing demand quickly enough.

REEs Are Environmentally Harmful

Rare Earth Elements (REEs) are essential components of the green energy economy, yet mining them is often associated with environmental harm. Electric cars require six times as many REEs as traditional cars while wind turbines need nine times as many. High performance magnets and phosphors used in LED lights and flat screens also rely on REEs; unfortunately their extraction from clay deposits requires toxic leaching agents that pollute both soil and water resources during extraction processes.

Rare earth exploration seeks to identify more environmentally friendly methods of production; unfortunately, those efforts haven't proven very fruitful thus far.

China currently supplies nearly 100% of global demand for light rare earth elements (LREEs), which are mostly used in electronics, and 100% of heavy rare earth elements like dysprosium and terbium, essential elements in wind turbine technologies. Molycorp's Mountain Pass Mine in California had been one of the leading U.S. producers until it closed down in 2023 - today almost entirely dependent on imports for supply of rare earths.

Mining companies need to invest in more cost-efficient extraction techniques, but this can be expensive. Without its own rare earth separation facilities, Africa will continue exporting raw ore overseas without reaping the economic advantages associated with value addition. That is why an African Continental Free Trade Area could be key for its future prosperity.