Investment in rare earth metals entails some risks. Yet as an alternative investment option, rare earth metals could diversify your portfolio while giving access to an international industry.
Beijing has leveraged cheap domestic supplies to become the dominant supplier of rare earth oxides, alloys and permanent magnets worldwide. Thankfully, however, efforts are being undertaken by the United States government to break China's hold.
Rare earth metals, comprising 17 elements found in Earth's crust but less frequently, are valuable assets due to their durability and wide array of applications in both commercial and defense settings. Yet the Biden administration is concerned about an over-dependence on China for these essential resources; Daniel Raimi speaks with Jordy Lee, Senior Research Associate from Colorado School of Mines Payne Institute for Public Policy's Payne Institute for Public Policy on this episode of Market Maker about mining for rare earth minerals as a difficult proposition, how they're utilized, as well as why the United States must build its own production capacity -
The term "rare earths" was first coined to describe the difficulties nineteenth-century chemists encountered when trying to isolate these elements from one another. Now, these rare earths are divided into categories according to atomic weight and how they're used; for instance neodymium and samarium are heavy rare earths while europium, terbium, and dysprosium belong together as "phosphor rare earths", due to their use in fluorescent lighting applications.
As technology evolved throughout the 1990s and 2000s, demand for rare earth metals increased rapidly. Bell Labs developed erbium-doped fiber amplifiers to reduce distortion in long fiber-optic cables that now transport internet data around the world; smartphones utilize neodymium magnets to improve sound quality from tiny speakers; yttrium and erbium phosphors are used to produce vibrant colors on energy-efficient screens;
Renewable energy has been one of the main drivers behind rare earth demand surge. To produce one 3-megawatt wind turbine requires 4.7 tons of copper, 3 tons of aluminum and more than 700 pounds of rare earth metals - while solar panels likewise use large quantities.
Mining companies are struggling to meet the rising demand for rare earth minerals despite increasing global supply, as major rare earth producers have relocated operations to China where it's easier and cheaper. As such, the United States has become an importer of rare earths; with 80% of global supply coming from this source alone.
http://climateerinvest.gametrust.org/2011/09/predictions-rare-earth-demand-2015-2020.html
Mining companies can be one way to take advantage of the rising demand for rare earth elements like scandium, ytterbium and lanthium which are used widely throughout modern devices and applications. They include catalysts used in petroleum refining and catalytic converters; magnets found in small and large motors; glass additives for television screens and computer monitors; lighting systems, X-ray machines, rechargeable batteries, as well as rechargeable batteries. Mining these metals is an expensive endeavor. Miners must pay to locate, extract and transport minerals before sending them for processing at processing plants - expenses that can quickly add up if mineral deposits are low in grade. Overall, mining companies have difficulty producing profitable returns to investors; rare earth mining presents particular difficulty due to its cyclical nature and unpredictable prices.
Investors looking to invest in rare earth mining companies have several investment options available to them, including exchange-traded funds (ETFs) and individual stocks. ETFs like the AuAg Essential Metals fund provide exposure to mining companies that extract rare earth elements while others like AuAg Precious Green focus more specifically on companies developing green technology using rare earth elements.
China's dominance in the rare earth sector poses investors a key threat: China accounts for more than 60% of production and 88% of refining capacity of rare earths, driving prices higher on global markets while sparking fears of shortage. However, in 2015 it lifted export quotas.
Reshoring rare earth supplies away from China remains controversial, as this would require significant investments into building refinery capacity and other infrastructure in America, potentially taking years to complete and leaving us vulnerable to China's ever-evolving policies.
Mining companies face many environmental and social considerations, including child labor and conflict-affected/high-risk country sourcing. Investors and shareholders increasingly hold mining companies to higher standards of accountability regarding environmental and social concerns.
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To invest in rare earth metals successfully, it is advisable to acquire a mining company dedicated to this sector. Mining companies in this sector will benefit from an increased demand for rare earth elements in technology and other industries; however, investing in rare earths involves risks; this particular investment must involve technical knowledge for mining and processing rare earth metals effectively as well as potential supply disruptions or volatility within mining operations themselves.
Investors looking to invest in rare earth elements can diversify their investments with ease by purchasing mutual funds or exchange-traded funds that hold multiple rare earth metals - the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) is one such fund which gives investors exposure to all facets of this market.
Investment opportunities exist for those interested in recycling rare earth metals. Such companies can profit from the increasing demand for renewable energy and electric vehicles based on these materials as well as technologies that rely on rare earth elements, such as permanent magnet synchronous motors that utilize rare earth elements like neodymium and praseodymium in their construction.
Rare earths investing can provide exposure to emerging technology sectors, but investors should keep in mind that it should only constitute a smaller part of your overall portfolio.
Investment in mining companies can also be highly volatile due to their reliance on global supply of rare earth elements for production, making them highly sensitive to any supply or production problems in their sector. China restricted exports of rare earth elements in 2010 in order to meet domestic manufacturing requirements resulting in global shortages that caused prices to skyrocket and prompting prices increases around the globe.
Therefore, investing in a mining company with operations across multiple countries is crucial in mitigating disruptions to global supply chains.
Modern technologies rely heavily on rare earth elements - from smartphones in your pocket to magnets for electric vehicles on the road - which include scandium, ytterbium, lanthanum and samarium metals. China currently controls more than 60% of rare earth mining operations, 85-70% processing operations and 90% of magnet production; many in the United States have expressed alarm at China's dominance due to potential security risks associated with being so reliant upon one country for supplies of these precious minerals.
As investors can gain exposure to this niche market, there are various ways they can do so. One method involves investing in mining companies that specialize in extracting and processing these elements - typically these businesses boast long track records with solid balance sheets making them attractive investment options. Investors should look for companies with proven exploration and mining techniques, sufficient rare earth market share and consistent production capabilities.
Another way of investing in rare earths is through mutual and exchange-traded funds, typically composed of stocks relating to production and processing of rare earths - for instance, VanEck Vectors Rare Earth/Strategic Metals ETF (REMX). This fund holds stocks from Chinese, American and Australian companies who mine, process or refine rare earths.
Investment opportunities exist for those interested in rare earths through companies that develop innovative techniques of extraction and production. For instance, several teams are working on using microbes to separate and refine rare earths sourced from existing mines as well as industrial waste - this project may significantly increase supply while simultaneously decreasing prices.
Rare earths offer many compelling reasons to invest in them, including their growing importance to hybrid and electric vehicles and green technologies. But like with any investment decision, it is crucial to conduct due diligence - rare earths require complex extraction techniques which require special knowledge and specialized technology - they also cannot easily be replaced and may be volatile, which is why diversifying your portfolio with other investments would likely be wise; but rare earths could make for a great addition if you can handle some risk.