Demystifying the World of Rare Earth Elements Investing

Investing in rare earth elements is challenging because these metals do not trade on an exchange and must instead be sold directly through private agreements between businesses that use them and those selling the rare earth elements themselves. Your best option would be investing in companies that mine or process these metals.

Industry growth is being propelled by increasing hybrid and electric vehicle ownership as well as demand for green technologies. But how can newcomers enter this field of endeavor?

1. What Are Rare Earth Elements?

Rare earth elements are essential components of modern technology. You would be hard-pressed to find any component on an electric vehicle without using one of them - such as motors, sensors or speakers that don't feature permanent magnets made of this rare earth material; while Erbium-doped fiber amplifiers help send signals across long distances via fiber-optic cables.

Without even being aware of it, you likely make use of rare earth elements without realizing it. Your cell phone uses lanthanum to reduce distortion in its tiny glass camera lens while using yttrium and erbium phosphors for energy efficient screens; and you likely drive a car that contains rare earths in its high efficiency electric motors, nickel metal hydride batteries, and electrical sensors.

Rare earth minerals may seem misleadingly named; they're actually relatively plentiful underground and occur in low concentrations across many minerals that can be processed into usable products. Their difficulty lies in mining and processing due to similar chemical properties which are difficult to differentiate. Furthermore, ore deposits typically contain multiple deposits of rare earths which need multiple rounds of processing in order to separate out into individual mineral types.

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2. What Are Their Applications?

As with other metals, investors can gain exposure to rare earth elements through mining companies or exchange-traded funds (ETFs). Examples of such funds are VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) and Freeport-McMoRan's Rare Earth/Critical Materials ETF FREX.

Our experts discussed the growing demand for rare earth elements across a range of applications, from cellphones and electric vehicles to sustainable production methods. They highlighted their necessity.

Jack Lifton highlights several companies which have established niches within this complex market, such as Energy Fuels which is licensed to process Monazite a Rare Earth mineral used extensively in hybrid vehicle batteries, fluorescent lighting fixtures, defense and green energy technologies.

Lifton also cites Neo Performance Materials, which specializes in neodymium oxides and chemicals. He says the company stands a good chance to become a global leader in its niche, with production projected to increase significantly if given enough time and investment capital to scale up production.

3. What Are Their Future Demands?

Due to increased use in green technologies like electric vehicles and wind turbines, rare earth metal demand is projected to surge significantly over the coming years. But supply is limited and prices will likely go up accordingly - providing investors with an opportunity to capitalize by purchasing shares of companies producing or processing rare earth elements.

However, rare earth investments do not come without risks. Like any mining industry, rare earth mining companies can be vulnerable to price volatility and supply chain disruptions. Furthermore, many rare earth mining firms possess an unusually high concentration in their hands of large (sometimes secretive) companies which increases the possibility that one company might dominate the market.

Some companies are striving to buck this trend by creating alternative sources for rare earth metals. Energy Fuels, for instance, is the sole US producer of monazite containing several rare earth elements; plans are underway to expand processing capacity while selling its neodymium magnets to electric vehicle makers.

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4. What Are the Risks of Investing in the Mining Industry?

Investors interested in rare earths have several investment options at their disposal for investing in this market, from individual mining companies and mutual or exchange-traded funds to mutual or exchange-traded funds. Major mining corporations with proven exploration and mining techniques such as MP Materials Corp (NYSE:MP), Rare Element Resources (OTC Pink:REEMF), Lynas Rare Earths (ASX:LYC; OTC Pink:LYSCF) are popular choices that should be explored when investing.

Pros of this investment option include its potential for secure, long-term returns based on scarcity and high demand; downsides could include volatility and limited liquidity as well as supply or demand disruptions.

Mining can have severe environmental repercussions, including water pollution and habitat destruction, making rare earth miners less suitable candidates for inclusion in sustainable investments. On the plus side, however, new technologies are emerging which may help mitigate such risks in the future.

5. What Are My Options for Investing in the Rare Earth Market?

With demand expected to surge for technologies reliant on rare earth elements, investors may see an opportunity in companies mining or producing these elements. There are a few caveats worth taking note of however; first being that rare earths do not trade publicly like other commodities; therefore investors will need to purchase shares of individual companies if they want exposure in this sector.

Second, China remains the primary supplier of REEs and this has resulted in several companies developing strategies to increase domestic production of these elements. One such method called biomining uses microbes to break apart or separate out these specific elements from larger mixtures.

Lifton and Hykawy, however, both advocate looking for companies specializing in particular Rare Earth Elements such as neodymium or praseodymium (Lynas is one such option). Also remember that REE prices will change over time; so diversifying your portfolio with other commodities as well as traditional investments like stocks and bonds would be wise.