Rare Earth Metals: The Future of Green Energy and Investing

An electric car battery requires six times as many minerals than its gasoline-powered counterpart, while wind farms consume nine times more.

United States officials have made numerous attempts to compete with China in the rare earths market and rebuild domestic production; these endeavors, however, have all proven futile.

Scientists are actively developing eco-friendly ways to recover the elements. Recycling electronic waste may provide one such means. Neodymium, praseodymium and dysprosium will remain in high demand in future.

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Demand for Rare Earth Elements

Rare Earth elements' magnetic, phosphorescent and catalytic properties play an essential role in miniaturizing cell phones, wind turbines and electric vehicle motors. Furthermore, their magnetic, phosphorescent and catalytic properties make these minerals essential to national security, commercial energy production and green energy applications; one estimate estimates that each F-35 fighter jet contains around 920 pounds of rare earth elements built into its electronics systems and military defense systems.

Rare-earth elements (REEs) are notoriously difficult to extract and process. Rare-earth mining presents unique difficulties; REE processing costs money and takes considerable time before production can begin in an REE mine. This process may take several years before any mine can start producing REEs commercially.

REEs can be extracted from various sources, but the process can be hazardous and cause environmental concerns. For instance, The Los Angeles Times described an REE mine near China which produced a lake of radioactive black sludge. Furthermore, REEs are rarely traded publicly like gold and copper do, instead being sold directly to manufacturers who then use them in end-use applications that inevitably contribute to price fluctuations that cannot be controlled by an individual company, investor, or government entity.

There are ongoing efforts to decrease China's monopoly over rare-earth minerals, but this will be a long road. Demand is growing quickly for rare earth metals. A study conducted by RAND Corporation concluded that current plans to diversify supply chains won't likely be implemented on schedule and that building new processing facilities will likely prove costly.

Faced with these concerns, rare-earth element producers have an incentive to keep costs as low as possible. Relying too heavily on rare-earth metals from overseas suppliers even for just a small portion of sales can result in huge financial losses for manufacturers; so to safeguard margins they often seek cheaper alternative raw materials or switch to lower quality ones when available.

Companies are actively taking steps to mitigate this risk by developing their own REE production capacity, like MP Materials' partnership with General Motors to produce magnets and alloys for electric vehicle magnets starting in late 2023.

The U.S.’s Role

Supply and demand dictate the market; when demand for minerals increases, mining companies look for innovative ways to produce them. While certain techniques might seem futuristic -- deep sea mining or extracting metals from acidic wastewater or even using nuclear energy -- such innovations may become practical if demand skyrockets significantly or governments choose to subsidize production costs.

Under President Joe Biden's administration, efforts are underway to restore America as a major supplier of rare earth materials used for electric vehicles, battery production and renewable energy systems.

Mining companies will need time to establish new sources of supply. Mining companies must acquire properties, acquire permits and build processing plants before beginning operations; for rare earth elements this can take several years or more from acquisition of property to starting production.

Differing REEs can also make diversifying supply difficult; their alternatives often don't work as effectively - for instance, neodymium-iron-boron magnets are vital components in many 21st century technologies and cannot be substituted with other types of magnets.

As demand for REEs grows, it's imperative that policies promote sustainable and socially responsible production practices. This can be accomplished by setting enforceable standards, disclosing product ingredients fully, and offering buyers incentives to pay more for ethically produced materials.

One way to increase supply security is by encouraging recycling efforts. This can be accomplished through providing incentive for products reaching the end of their operating lives to be recycled, supporting efficient collection and sorting efforts, and funding R&D of new recycling technology.

African nations must leverage the African Continental Free Trade Area to maximize value addition. This may prove challenging due to the expense involved with setting up separation facilities that isolate rare earths from other materials; without such facilities, African countries will export ores instead of realizing local processing and manufacturing benefits - this being essential in protecting rare earth supplies against geopolitical disruptions.

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China’s Role

China dominates production and supply of rare earth elements due to both its size and domestic policies that encourage rare earths development, including differential price controls and export quotas to keep investment within China's borders. This follows President Xi Jinping's policy of creating "Made in China 2025", intended to foster global economic leadership and manufacturing innovation.

In the 1990s, companies owned by Chinese investors attempted to acquire controlling stakes of rare earth mining and processing firms located outside China. Their strategy proved initially successful but eventually altered due to various factors that altered production locations for rare earths such as rapid increases in demand, developing applications for them, changing trade patterns that created opportunities for companies that could mine more efficiently and at reduced costs.

China reopening their market and lifting export restrictions was responsible for the biggest shift. China produced unprecedented amounts of rare earths metals at unbeatably low prices that other producers were unable to match; consequently prices rebounded back towards 2009 levels faster and consolidation in the industry increased rapidly as conglomerates became ever larger rare earths producers.

MP Materials of Las Vegas recently won a $35 million contract from the Department of Defense to construct a processing and separation facility at its Mountain Pass mine in California, thus decreasing reliance on China for processing and exports.

No one knows for certain the full effect of this facility, but its existence signals China's dominance in the rare earth industry may be declining. If the US can increase processing capacity to further erode China's market share. Longer term, this will open up more options for green technology makers as well as consumers willing to pay a premium for products produced ethically and sustainably.

Domestic Production

Rare earth elements are abundant throughout Earth's crust, yet rare concentrated deposits make their extraction expensive and energy intensive. Because they are essential in producing advanced electronic devices and high-powered magnets for electric power generation (USGS 2021) industries require large amounts of these elements for manufacturing (USGS 2021).

As demand for REEs increased in the 1990s, their price skyrocketed and governments worldwide began to worry about an impending shortage. Fear made bold solutions seem reasonable: mining the Amazon rainforest or mining the Moon for REEs were all floated as viable solutions.

Research in the 1970s and 1980s produced products for consumers that utilized REEs in innovative ways. For instance, Lanthanum and Neodymium batteries using nickel-metal hydride technology permitted consumers to recharge portable electronics such as video cameras; hybrid car batteries utilized them to store large amounts of electricity throughout their lifespan; while Neodymium-iron-boron magnets found within electric car motors offered another creative application of these rare earth elements.

At the same time, China was expanding its manufacturing and global trade capabilities in an attempt to restore domestic prosperity and security. As part of these efforts, their control over rare earth production increased considerably; consequently, prices began increasing by hundreds of percent. China also introduced export quotas as another measure against supply disruptions.

Mining companies worldwide were forced to find alternative sources of supply. Although this can take years, REE prices became an incentive to hasten this process.

Recent years have seen MP Materials and Lynas Corporation secure contracts to build processing and separation facilities for light REEs in the US, providing opportunities to boost magnetic materials production while diversifying supplier risk away from Chinese sources.

REEs remain vulnerable, however. To ensure adequate supplies for critical applications, sufficient reserves must be available from countries with sufficient mineral reserves and technology, along with geopolitically secure supply chains that enforce sustainable mining and refining practices and promote innovation where REEs enable technological dominance.