Rare Earth Elements: A Safe Haven for Investors

Recent efforts to compete with China in rare earth markets and rebuild domestic industry have been foiled by Beijing's stringent export controls, but a new study published during heightened US-China trade tensions and COVID-19 pandemic provides some answers.

Canada's Nechalacho mine could soon become the first independent source for clean mixed rare earth oxides outside China, providing critical metals used for aerospace and defense, electric motor production and high-tech manufacturing without dependence on China alone.

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Why Rare Earth Elements Are So Valuable

Rare Earth Elements (REE) comprise 17 metals with unique electrical, metallurgical, catalytic and nuclear properties that make them essential components for emerging technologies that meet society's needs. From everyday items such as lighter flints and polishing mediums for glass polishing mediums and car alternators to lasers, magnets batteries and fibre optic telecommunication cables; REEs can be found everywhere from lasers and magnets for laser printers and fiber-optic telecommunication cables - not to mention being essential elements for green energy products such as hybrid cars wind turbines and rechargeable battery systems!

REEs are often referred to as the "green elements." Their presence helps make green technology more affordable and accessible, by serving as the basis for renewable energy solutions that reduce greenhouse gas emissions.

Though rare earths may sound exotic, they're actually readily available worldwide in workable deposits. China dominates REE production with over 94% of total global supply coming from their country alone; but Australia, India, Kazakhstan Malaysia Russia and the US all also produce and refine significant amounts.

Short term, the current trade war between the US and China could put rare earths supplies under strain as Beijing curtails exports; however, many experts remain confident that an international market for these metals would remain even if China stopped exporting altogether.

Gholz points out that companies may develop innovations that do not rely on rare earths, such as alternative energy motors. But this would require significant investments in research and development as well as consumer and manufacturer acceptance of paying for materials produced responsibly.

With global demand for greener technologies on the rise, it is imperative that their supply chains can withstand political interference in their production. This is especially relevant to key materials found within green products; US green bonds have demonstrated strong positive volatility correlations with clean energy stocks and rare earth elements, providing reliable diversifiers against market uncertainty.

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What They Are

Rare earth elements found at the bottom of the periodic table play an indispensable role in today's most innovative technologies, from consumer electronics like Apple AirPods and iPhones to green technology such as General Electric wind turbines and Tesla electric cars, medical tools such as Philips healthcare scanners, medical diagnostic tools like Philips healthcare scanners and defense technologies such as F-35 fighter jets. They offer magnetic, phosphorescent, catalytic properties that make them invaluable resources.

China currently accounts for most global production and 85% of refined rare earth production, due in large part to their concentration of mining, processing and refining facilities for essential materials like rare earths. This poses risks for companies who rely on diverse supply chains. If the US and China engage in a trade war, retaliatory tariffs could impede access to essential raw materials, forcing businesses to compete aggressively for scarce supplies in order to retain competitive advantages and drive up finished product prices accordingly.

Therefore, the Biden administration is taking a tough stance against Chinese control of rare earth markets and working to develop domestic industry with climate change technologies in mind. MP Materials of Las Vegas was awarded grants and contracts by both departments to develop rare earth separation and refining capabilities at Mountain Pass Mine in California; such an infrastructure will help reduce dependence on Chinese producers.

However, this won't be easy as rare earth elements rarely exist in high concentrations and often mix in with other minerals or radioactive elements such as thorium and uranium. Mining for them often poses environmental concerns; many rare earth deposits contain toxic waste which disrupts ecosystems.

That is why emerging producers outside China have prioritized developing alternative sources to avoid being dependent on Chinese supply. Furthermore, efforts are underway to increase recycling rates as an effective means of decreasing mining-dependent economies.

How They Are Produced

Rare earth elements present a complex supply chain. While essential for today's technology, including electronics miniaturization and green/defence technologies, they're also extremely toxic requiring enormous amounts of energy and water for mining/processing operations.

Why so much attention on rare earth minerals is garnered is because of their current over-reliance. China dominates rare earth mineral production with its cheap labor costs and lax environmental regulations allowing it to dominate this sector of industry.

Molycorp, on the other hand, is actively exploring technologies that will remove middlemen and bring rare earth production in-house. They're exploring biomining -- which employs microbes to extract elements from ore and recycled electronic waste -- using "biomining." In order to do this, scientists program different species of microbes with organic acids capable of leaching rare earth elements from compounds they come in contact with; once identified they isolate which genes work best and breed more efficient bacteria that produce organic acids that leach out the elements from compounds they come into contact with; once identified they breed more effective bacteria to extract rare earth elements from ore and recycled electronic waste sources.

Alternate efforts to lessen our dependence on Chinese suppliers include developing alternative sources. Malaysian company Lynas produces some REEs by extracting them from radioactive waste from nuclear reactors - something which has attracted criticism from activists and Malaysia's government, although they contend their low levels of radioactive waste are safe for the environment.

As for demand, various factors are contributing to its rise. Wind farm development is contributing to this phenomenon by increasing demand for the neodymium and dysprosium used for electric motors; as is hybrid or electric car adoption driving up demand.

Experts predict that national security and other industries that depend on rare earth elements will eventually make do without China's exports of rare earths, while in the interim companies are taking steps to prepare for any potential supply disruptions by building inventory stockpiles containing essential elements - this way they can prioritize them for products like headphones or golf bags while forcing their manufacturers to pay more.

Where They Come From

Rare earth elements are scattered through the ground in varying concentrations. Extraction requires first processing the concentrates and second purifying them - processes which currently don't exist on a commercial scale in the US - which require specialist equipment and expertise that currently don't exist there - hence China being at the top of rare earth production and export. President Xi recently made an iconic visit to a Chinese rare earth mining and processing facility recently while tariffs from both sides escalate tensions further, yet experts believe the global market would survive even if China stopped exporting pure rare earths altogether.

Emerging producers outside China are actively searching for alternative sources and diversifying supply chains away from China through exploration or recycling efforts, as the growing demand driven by emerging technologies creates investment opportunities in this sector.

Many introductory science books treat rare earths as one element, since their chemical properties are similar. However, this elemental group can actually be divided into three trivalent groups and four tetravalent ones: cerium, praseodymium and terbium are trivalent elements; while yttrium, samarium and europium form four-element compounds while ytterbium has divalent characteristics.

Rare earths are plentiful within Earth's crust, yet their abundance is fragmented among various trace impurities that make their purification cost prohibitively expensive. Acquiring rare earths requires as much or more work than extracting gold from ore.

Rare earth companies typically keep inventory stocks on hand to cope with temporary supply shortages, while the entire industry could adjust production to prioritize rare earths used in military and medical applications while forcing producers of headphones or golf bags to pay higher costs for rare earths they need for production.

Some ambitious proposals to increase access to rare earths have been put forth, such as opening up Amazon rainforest for mining or even harvesting them from space, however these ideas are unlikely to become reality due to being environmentally damaging and costly mining operations.