Remember having to study the periodic table in high school chemistry? There was always that group of elements set off on their own because they didn’t easily fit onto the laminated wall poster hung somewhere near the dissection sinks and titration tubes.
Those misfit elements include rare earth minerals — crucial to smartphones, the energy transition and military applications — that are at the center of international trade tensions.
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It’s these elements and other critical minerals that are at the heart of President Donald Trump’s calls to take over Greenland, make Canada the the 51st state, and secure mineral rights from Ukraine in exchange for America’s help against Russia. Here’s a rundown of investing in rare earth elements:
— Why are rare earth elements important to geopolitics?
— What are the challenges of rare earths mining?
— What are the rare earth elements, and what are their applications?
— Top rare earth stocks to consider investing in.
— Rare earth market risk versus reward.
Why Are Rare Earth Elements Important to Geopolitics?
The main reason for the push is that the rare earth element (REE) supply chain is dominated by China, and it can use that control as leverage in geopolitics.
“China dominates the mining and refining of rare earths, so trade wars with China have the potential to be extremely impactful to the rare earths market,” says John Berman, founder and chief investment officer at natural resources investment management company Berman Capital Group. “China putting trade restrictions on REEs can impact the supply substantially.”
That leaves the U.S. scrambling to build up a domestic supply chain for REEs, or secure supplies from friendly nations.
These minerals have become especially important as the energy transition away from fossil fuels has gained steam, as REEs are crucial for renewable energy applications such as wind turbines.
Energy independence also has a national security element to it for many nations, especially after Russia’s invasion of Ukraine roiled global energy markets.
Also of national security interest, REEs are widely used in military applications such as fighter jets and satellites.
But cutting China out of the supply chain won’t happen overnight.
What Are the Challenges of Rare Earths Mining?
“Creating new sources of rare earths is capital and time-intensive,” says Tracy Shuchart, senior economist and commodities expert at NinjaTrader, a retail futures trading platform. “Under this new administration, the industry does expect fewer regulations and faster permitting for projects; as of now, it can take more than 10 years just to secure a permit.”
REEs have unique magnetic and electrochemical characteristics that can reduce weight, energy consumption or emissions and are key to many modern technologies, according to MP Materials Corp. (ticker: MP), a company that operates a mine in California and produces about 15% of the rare earth content consumed each year.
The elements are a bit of a misnomer, though, as they aren’t really rare. Rather, ore bodies that have a high enough concentration to make processing economically viable are few and far between, MP Materials says.
“They are difficult to extract and refine due to their geological distribution and complex processing requirements,” Shuchart says.
What Are the Rare Earth Elements, and What Are Their Applications?
Of the rare earth elements, the ones used for technology and military purposes are the highest priority, Shuchart says.
She points to:
— Neodymium, which is used in electric vehicles, wind turbines, hard drives, precision-guided munitions and aircraft.
— Dysprosium, which enhances heat resistance in neodymium magnets, and is critical for EVs, wind turbines, data storage devices and laser targeting systems.
— Terbium, which helps improve magnet performance and is used in sonar, night vision and guidance systems.
— Yttrium, which strengthens alloys and is used in superconductors, LEDs and solid-state batteries, as well as jet engine components.
— Erbium, which is critical for fiber-optic communication networks and is used in laser rangefinders.
— Gadolinium, which is used in MRI contrast agents, x-ray imaging, nuclear reactors and advanced sonar systems.
— Lutetium, which is used in semiconductor production and artificial intelligence processors.
“Neodymium and praseodymium are the rare earths you’ll hear most about concerning electric motors,” Berman says. “Lanthanum and cerium are used in the largest volumes; they are needed for a wider variety of industrial uses.”
Top Rare Earth Stocks to Consider Investing In
There aren’t many publicly traded companies producing rare earth elements outside of China, but the few that are look like they will have an expanding market for some time. And there are a host of smaller companies looking to develop parts of the ex-China REE supply chain.
MP Materials Corp. (MP)
MP Materials focuses on producing high-purity neodymium-praseodymium oxide, which it says is the primary ingredient in the most efficient and high-strength permanent magnets. The company also produces lanthanum and cerium.
Lynas Rare Earths Ltd. (OTC: LYSDY)
Australian company Lynas Rare Earths has lanthanum, cerium, praseodymium, neodymium, samarium, europium, gadolinium, terbium and dysprosium products. The company has a high-grade mine in Australia and processes concentrate in Australia and Malaysia. The company is also building a rare earths processing facility in Texas.
More Rare Earth Stocks
Other rare earths players include Iluka Resources Ltd. (OTC: ILKAF), Energy Fuels Inc. (UUUU), NioCorp Developments Ltd. (NB), Aclara Resources Inc. (OTC: ARAAF), Ucore Rare Metals Inc. (OTC: UURAF), Mkango Resources Ltd. (OTC: MKNGF) and Arafura Rare Earths Ltd. (OTC: ARAFF).
Rare Earth Market Risk vs. Reward
Because of a host of factors, mining companies can be risky investments, especially small explorers or developers that aren’t yet in production. As companies gain permits and build out infrastructure, that risk decreases but doesn’t go away, especially because the price for rare earth elements, like other commodities, can be volatile.
But there can be rewards for investors, too.
“The rare earth market is growing and is expected to continue expanding due to their necessity in the ever-growing tech industry, especially for artificial intelligence and EVs, and ever-expanding military needs,” Shuchart says. “With the supply of these materials being limited and concentrated, coupled with surging demand, prices for certain rare earths are likely to rise over time.”
As demand for rare earths outpaces supply, investors can potentially see high returns, Shuchart says.
Rare earths can also offer diversification to a portfolio as the sector is somewhat insulated from traditional stock market fluctuations because its performance is more tied to the demand for the materials in high-tech and military industries, she says.
In a traditional portfolio of 60% stocks and 40% bonds, Shuchart says an allocation to the commodities sector as a whole could range from 5% on the conservative side up to 15%. But of that, no greater than 1% should be allocated to rare earths via one or two companies, she says.
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Rare Earth Stocks: How to Invest in Rare Earth Elements originally appeared on usnews.com
