A Deep Dive Into the World of Rare Earth Investing

Louis O'Connor is the founder and principal at Strategic Metals Invest, which allows private investors to physically own rare earths as tangible assets. Additionally, he hosts The Louis O'Connor Show on Business Radio Network.

United States does produce rare earth concentrate, yet we rely exclusively on imported oxides and alloys as sources for finished rare earth products. That could change.

What Are Rare Earth Elements?

Rare earth metals, an elemental group found at the middle of the periodic table, possess unique fluorescent, conductive, and magnetic properties that make them highly sought after for use as alloying agents with more common metals. Furthermore, rare earths are widely employed in electronics production such as high-tech electronics, jet engines and catalytic converters; for this reason they're sometimes known as "technology metals."

Rare earth elements don't fall under the category of scarce as you might imagine, though their production presents technical and geopolitical difficulties that limit their supply/demand ratio.

Mining and processing rare earth minerals is a labor-intensive process that can disrupt ecosystems, pollute the environment and generate hazardous byproducts. Furthermore, rare earth elements are dispersed unevenly across several countries around the globe making it challenging for companies to ensure consistent supplies.

Due to these challenges, many companies stockpile rare earth elements as an insurance policy against supply disruptions. But if rare earth metals become too costly for manufacturers to afford, prices could increase on products made using them and put vital technologies out of reach for many - including military and medical users.

As rare earths tend to be relatively affordable investments, investing in them at their cheapest is especially essential. There are various strategies for doing this - purchasing rare earth oxides directly from metal traders may be one way to do this, unlike gold or silver which must be sold in large amounts; an investor could also purchase shares of companies mining or processing rare earth elements, or exchange-traded funds that provide exposure.

VanEck Vectors Rare Earth/Strategic Metals ETF (REMX), for instance, holds shares in several Chinese, American, and Australian rare earth producers and processors. You could also look for smaller companies developing innovative ways of extracting rare earths more efficiently; Aclara Resources offers one such process which is more environmentally-friendly than traditional methods.

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What Are the Pros and Cons of Investing in Rare Earth Elements?

Rare earth metals (REMs) may not be at the top of Wall Street's agenda, but their presence has recently made headlines more frequently as companies and governments become aware that there may not be enough to go around. Essential for renewable energy production such as electric vehicle batteries and wind turbines, rare earth metals (REMs) have seen increased demand as prices skyrocket due to limited supplies.

That is great news for investors, who can take advantage of a surge in demand by buying shares of companies mining and processing REEs. But investors should keep several things in mind; REE prices tend to fluctuate widely depending on supply and demand conditions.

Second, mining and processing REEs can be extremely hazardous. Since these minerals can only be found in very small deposits that are hard to access, extracting them could cause significant environmental damage - increasing costs for consumers and manufacturers who must pay extra to ensure sustainable production practices are adhered to.

Investors should keep in mind that the share prices of rare earth companies don't move in sync with spot REE prices; therefore, before purchasing shares of an REE producer or related ETF it's essential to conduct due diligence.

Noting the concentration of REE stocks among a few large producers increases risk for investors. China currently leads in REE production and holds the world's largest reserves; as such, its virtual monopoly on the market and recent trade war with the U.S. have caused supply security worries to arise.

Investors should also consider entering further down the supply chain by investing in companies that recycle rare earth metals, which provides diversification in your portfolio and protection from potential shortages of REEs in the future. Companies which recycle REEs include Metal Tech Recycling Corp (NASDAQ: MTRX), American Resources Corporation (NASDAQ: AREC), and Geomega Resources Ltd (ASX: GEMRF). Keep in mind, however, that recycling REEs may be less profitable than mining them directly from scratch.

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How Can You Invest in Rare Earth Elements?

Investment in rare earths typically involves selecting a mining company or ETF dedicated to extracting these minerals, and investing accordingly. Due to their use in modern technologies such as renewable energy and electric vehicles as well as in producing MRI and PET scanners, demand for rare earth metals is expected to surge over time - although many investors may hesitate investing due to its high level of price volatility.

Rare earths are an intricate and fascinating group of 17 elements found at the center of the periodic table, each possessing their own special properties that make them useful when combined or alloyed with common metals, like 5G mobile communications standards or modern X-ray technology. Furthermore, rare earths play an essential role in green transformation - providing power for wind turbines and electric cars.

Rare earth metals may not be as scarce as their name implies, but their production remains challenging due to technical, geopolitical and environmental challenges associated with mining them. Supply disruptions caused by such difficulties often increase prices further while their four most widely-used elements - dysprosium, neodymium, praseodymium and terbium--are in high demand worldwide due to their application across industries.

Rare earth mining companies can be highly lucrative investments for investors, though doing your homework before making your choice is vital to success. Rare earth mining often occurs in remote locations with complex extraction processes that have environmental ramifications; plus, rare earth markets can be highly volatile - which means small retail investors may face difficulty entering or exiting these volatile markets quickly and smoothly.

Investment in rare earths can be achieved most effectively through exchange-traded funds (ETFs). There are various options available, including VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) and Global X Rare Earth Elements & Critical Materials ETF (CRIT). There are also rare earth miners listed on ASX, such as Neo Performance Materials (TSX:NNP) and Vital Metals (ASX:VML), who both own Mountain Pass mine, one of the world's largest REE deposits.

How Can I Start Investing in Rare Earth Elements?

Attribute this high demand to how heavily we depend on modern technology - rare earth metals are in high demand across many applications from electric car batteries to nuclear reactors, where rare earths play an essential part. Their limited availability is further compounded by this need.

Rare earth metals make a compelling investment opportunity, yet investing directly can be tricky due to not being available on exchanges like gold or copper. A more efficient means of getting exposure could be by investing in companies mining rare earths instead.

Unfortunately, finding an ETF or mutual fund that specializes in rare earth metals can be challenging. That's due to these elements not being standardized enough for futures contracts to exist and mining processes being expensive and complicated; additionally, most rare earths being located only in certain countries which presents geopolitical and environmental challenges.

Some mining firms have successfully developed methods of streamlining the mining process and improving efficiency with modern technologies, resulting in greater rare earths reserves being held by mining firms; as demand for these materials continues to increase so will their prices.

Not to be forgotten when investing in rare earth metals is that their delicate composition requires special storage and protection. While the idea of purchasing bullion may appeal, you should probably invest in a company offering professional storage with insurance cover such as Swiss Safe that provides segregated storage of rare earth elements outside the banking system.

Rare earth metals are in high demand and their prices are expected to increase as more people choose hybrid and electric vehicles, green energy technologies, and other products that rely on them. But as with any investment decision, it's vitally important that investors fully comprehend both risks and returns before investing their capital in rare earth metals.