Rare Earth Metals: An Investment Opportunity Worth Considering

Investment in markets outside the mainstream public can bring unique advantages, particularly when focused on scarce commodities and emerging technologies. But such investment comes with its own set of risks.

Investment in rare earth metals presents an appealing opportunity, but it is vital to carefully consider all potential outcomes before making a final decision.

Supply and Demand

Rare earth elements are an indispensable component of many modern technologies - from smartphones in your pocket to magnets powering electric vehicles on the road - yet Beijing's iron grip on supply means nearly all rare earth minerals mined anywhere must travel to China before being utilized for weapons, wind turbines, medical devices or cellphones.

Recently, the United States has attempted to counter China's dominance of the rare earths market by rebuilding domestic industry and increasing U.S. production of these critical resources. Unfortunately, their efforts have been hindered by difficulties finding and developing mining sites as well as creating infrastructure to process and refine them as well as political interference from China's government.

As such, the US relies heavily on foreign sources for rare earths to meet current demand in this country. If foreign supplies decline significantly and demand continues to increase rapidly, prices could dramatically surge as happened in 2010, when one component - rare earth metal neodymium - saw its price double within a matter of months.

The United States possesses considerable potential as a rare earths producer; however, opening a mine and starting production takes time and resources are required for extracting rare earths at cost. Therefore, building domestic production capacity with allies in order to reduce dependence on dominant producers such as China will help the U.S. become competitive producer of rare earths.

Partnerships can also help expedite processing and separation facilities, like those owned by Las Vegas-based MP Materials at Mountain Pass Mine in California. In fact, MP Materials has received grants and contracts from both Departments of Defense and Energy in order to develop technologies necessary for cheaper rare earth production.

Other mining companies are working on projects to extract rare earths from less conventional sites, including deep sea drilling or extracting them from acidic wastewater draining from abandoned mines. Such methods could prove financially sustainable should demand for rare earths increase significantly or governments decide to cover production costs through subsidies.

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Extraction Methods

Rare earths--yttrium, lanthanum, neodymium and erbium--are abundant in Earth's crust but can be hard to access in sufficient quantities for mining to become economically viable. Furthermore, chemical processes used to extract, separate and refine them pose serious environmental and health hazards.

Investors interested in rare earth metals have several investment strategies at their disposal for exposure: mining companies that produce them; exchange-traded funds (ETFs) holding diversified baskets of rare earth minerals; or purchasing stocks in companies that recycle rare earths - for instance Metal Tech Recycling Corp (NASDAQ: MTRX), American Resources Corp. (NASDAQ: AREC), Geomega Resources (NASDAQ: GOMRF).

Mining companies use acid leach extraction procedures to produce rare earth elements like neodymium and praseodymium; then flushing them from solution using solvents, to produce rare earth elements such as neodymium and praseodymium. Unfortunately, this process is energy intensive, expensive, difficult to calibrate with precise accuracy required for success, and each geological deposit has unique extraction procedures tailored specifically for it.

Separation and refining processes involve using various chemicals that can be hazardous to human health as well as harmful to the environment - some even pose significant water contamination risks. Furthermore, mining itself can have serious environmental repercussions, from disrupting natural habitats to polluting nearby rivers and lakes.

As demand for rare earth minerals continues to increase, efforts are being undertaken to develop innovative extraction methods. Scientists have experimented with using ligands --ions which bind specifically to certain atoms--to separate rare earths from each other and developing acid-free techniques for dissolving and recovering rare earths from hard drives shredded during data storage processes.

Domestic rare earth resource production is essential to America's competitiveness in the high-tech economy and national security, but more affordable and viable alternatives could reverse current consumption trends, diminishing miners' return potential significantly. Investors would do well to consider all risks involved with rare earth mining and processing before embarking on such an endeavor.

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Environmental Impacts

Rare earth elements are essential in producing hybrid electric vehicles and other eco-friendly technologies, yet their extraction and processing has an enormous negative impact on the environment.

Mining operations typically include extracting topsoil, digging up ground, and creating leaching ponds to use chemicals to separate out rare earth elements from other materials. Unfortunately, these chemicals can leak into groundwater supplies, lead to erosion and air pollution issues and contain radioactive material which poses threats both humans and wildlife alike.

Rare earth deposits tend to be located in tropical regions, and their extraction can have devastating consequences on local biodiversity. Mining of coltan - used in some cell phones and electronic devices - places Grauer's gorilla at risk in Democratic Republic of Congo. Furthermore, extracting rare earth metals often requires clearing forests and disrupting ecosystems which leads to deforestation and habitat loss.

Recently, China significantly curtailed rare earth exports in an effort to ensure stable domestic supplies, leading to panic buying as prices skyrocketed and manufacturers reconsider their use of rare earths while searching for alternatives. This decision resulted in panic purchasing by retailers as prices skyrocketed dramatically and prices continued their steep rise.

Recycling electronic waste (e-waste) is one of the more viable solutions. In 2019, more than 53 million tons were generated and contained valuable metals containing rare earth elements that could be reused rather than being dumped into landfills or incinerators. Unfortunately, only a fraction of e-waste generated each year is actually recycled each year.

Good news is that new technologies are being created to reduce our need for rare earths. Companies are investing in battery technology that uses less of these elements or that substitutes them with more abundant materials; energy-efficient devices use fewer rare earth elements; while others create products without these rare earth elements altogether. Governments can support these efforts by funding research, encouraging recycling initiatives, or by taxing mine waste as an incentive for pollution reduction.

Political Risk

Rare Earth Metals are essential materials in many critical industries. Examples of their uses include permanent magnets for electric vehicles and wind turbines, rechargeable batteries and optical devices like lasers. Demand has increased dramatically in recent years, creating political risk with populist parties emerging around the world which threaten to change the political landscape and affect business scenarios and investments.

Contrary to their name, rare earth elements (REEs) aren't as scarce as is sometimes implied. There are 17 REEs that fall under this category and exist naturally worldwide as deposits or in complex structures around mines; however, extracting, processing and refining rare earth minerals requires many steps due to various technical considerations.

Political risks related to REEs arise from their potential use in industrial manufacturing by any one country, as one country can cut imports or exports and manipulate prices accordingly. China took such steps in 2010 in order to protect domestic manufacturing supply of REEs for manufacturing; as a result, prices skyrocketed, leading several companies such as Molycorp to declare bankruptcy and Mountain Pass Mine being sold off to Shenghe Resources which now ships its concentrate to China for processing.

Shenghe has the ability to process and distribute REEs globally, giving it a distinct edge over other suppliers in terms of price stability. Furthermore, this company boasts strong relations with both China and its government as it receives funding from both sources - which could signal danger for investors as if restrictions on China were suddenly put into place, they could severely disrupt the U.S. rare earth market causing serious disruptions.

Additionally, it's crucial that companies can maintain production methods that are ethical and eco-friendly. REEs are highly volatile industries with demand trajectories being highly dependent on battery chemistry evolution and climate policies; their sustainability ultimately hinges on consumers and manufacturers willing to pay more for more eco-friendly sources - thus it is imperative for companies to have mechanisms both inside and outside their operations to guarantee sustainable and ethical production practices.