The race is on to bulk up a production and refining supply chain for rare-earth elements outside of China, providing investment opportunities for those who know where to look.
These 17 elements — such as cerium and neodymium — are widely used in smartphones, flat-screen TVs and LED lights. The U.S. Department of Defense uses them in its F-35 fighter jet and in missiles, radar and lasers. Because they are used in wind turbines and electric vehicles, these elements are also key to the nation’s transition to a greener economy.
“With the pivot to electric vehicles and other clean energy technologies that employ these materials, it is clear that demand for them in the future will be inexorable,” says Gavin Harper, research fellow with the University of Birmingham in the U.K.
Although the U.S. used to be a leader in rare-earth production, that has now been largely outsourced to China, which historically has had lower labor costs and environmental standards.
China now controls most of the production, refining and manufacturing, and the U.S is reliant on imports from the Asian nation. That has Washington worried.
Under the latest White House budget request, the Defense Department would devote $341 million to partner with domestic companies to boost the defense industrial base and bring critical supply chains back to the U.S., including for rare-earth elements. In April, the U.S. Department of Energy awarded $19 million for 13 projects supporting production of rare-earth elements and critical minerals. In November, the Defense Department announced contracts and agreements with several rare-earth element producers.
Rare-earth elements are “a little bit of a light switch kind of investment,” says Charles Lieberman, chief investment officer at Advisors Capital Management. “If the government wants it, it’ll get turned on.” With that framework in mind, here’s what investors should understand about the rare-earth space:
— The risks of rare-earth investing.
— Investing in rare-earth stocks.
— Investing in rare-earth funds.
— Investing in rare-earth recycling companies.
Risks to Rare-Earth Investing
Before delving into ways to invest in rare-earth elements, investors should remember that these metals are commodities, which means they’re subject to the ups and downs in demand that economic cycles bring.
“Commodity prices are always volatile — in this sense, rare earths are no different from oil and gas — and that translates into choppy revenue and earnings,” says Pavel Molchanov, analyst with Raymond James & Associates.
China’s dominance of the industry creates its own risks for pricing of the metals, affecting the fortunes of producers.
In addition to the economic and political landscape, Ricardo Pina, CEO with The Modest Wallet, a personal finance site, says taxes and other tariffs can affect the price of rare-earth elements.
At the moment, you can’t buy futures for rare-earth elements like you can with other commodities such as gold, copper, wheat or corn. So investors should seek exposure to the rare-earth industry using more conventional means.
Investing in Rare-Earth Mining Stocks
No list of ways to invest in the rare-earth mining sector would be complete without mentioning China.
The China Northern Rare Earth Group High-Tech Co. (ticker: 600111) mines the world’s biggest rare-earth deposit, located in the Inner Mongolia region. Other publicly traded Chinese miners involved in the rare-earth industry include China Minmetals Rare Earth Co. (000831), Rising Nonferrous Metals Share Co. (600259) and Xiamen Tungsten Co. (600549).
The list of publicly traded companies that mine rare-earth elements outside of China is limited.
One of the biggest of these is Malaysia-based Lynas Rare Earths (LYSCF), which extracts rare-earth elements from its high-grade mine in Australia and also processes rare-earth minerals. The Defense Department is contributing $30.4 million in matching funds for Lynas’ separation facility in Hondo, Texas, where it’s partnering with independent rare-earths processor Blue Line Corp.
[Read: How to Invest in Silver.]
Domestically, the only company mining and processing rare-earth elements is MP Materials Corp. ( MP), which operates the Mountain Pass mine in California. From the 1960s until the mid-1980s, that mine made the U.S. the world’s biggest producer of rare-earth elements.
In November 2020, the Defense Department awarded MP Materials a $9.6 million technology investment agreement to aid in its effort to bulk up value-added processing and separation capabilities at the Mountain Pass facility.
Beyond companies in production, there are smaller mining companies known as “juniors” involved in rare-earth mineral exploration activities.
Some rare-earth exploration companies include Rare Element Resources (REEMF), which has a mine in development in Wyoming; Texas Mineral Resources Corp. (TMRC), which is developing projects in Texas and Colorado; and Ucore Rare Metals (UURAF), which is working on a mine in Alaska. Defense Metals Corp. (DFMTF) is advancing its rare-earth element property in western Canada.
Meanwhile, NioCorp Developments (NIOBF) is advancing a Nebraska mine that will produce a rare-earth element as a byproduct. And Energy Fuels ( UUUU), which currently produces uranium and vanadium, is working with Chemours Co. ( CC) and Neo Performance Materials (NOPMF) on an ex-China rare-earth production and refining supply chain.
Investing in Rare-Earth Funds
Investors who don’t want to pick individual stocks have a couple of options when it comes to rare-earth funds.
By far, the most well-known and accessible is the VanEck Vectors Rare Earth/Strategic Metals ETF ( REMX).
While this exchange-traded fund isn’t a pure play on rare earths — it also contains cobalt, molybdenum, titanium and lithium stocks — it does offer exposure to rare-earths players, including China Northern Rare Earth Group and Lynas Rare Earth. Over the past 12 months, the fund has surged about 125% as of early June 2021.
There is also the Dolefin Rare Earth Elements Fund, a Swiss mutual fund that invests in shares of rare-earth elements companies. Still, this fund also isn’t a pure play, as its largest holdings include platinum group metals producers in addition to rare-earth producers.
Investing in Rare-Earth Recycling Companies
Moving to the other end of the supply chain, investors may want to consider rare-earth recyclers.
In June, American Resources Corp. ( AREC) said it and Purdue University were able to achieve a high purity of rare-earth element neodymium through the recycling of waste magnets.
Geomega Resources (GOMRF) says it’s building the world’s first sustainable rare-earths recycling facility to convert magnet production waste and end-of-life magnets into products usable by the renewable energy and electric vehicle industries. The company also owns a rare-earth deposit in eastern Canada.
Mkango Resources (MKNGF) is involved at both ends of the supply chain. The Canada-based company is developing a rare-earths project in Malawi. It also has a 75.5% interest in green technology incubator Maginito, which recently invested in U.K. rare-earth magnet recycler Hypromag.
The Bottom Line
Amid strategic and environmental concerns, the rare-earth industry outside of China has a lot of room to grow, providing investors with opportunities from mining to recycling.
“As countries around the world seek to diversify their supply base for rare earths, there will be opportunities to invest in different stages of the rare earth supply chain,” Harper says.
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