Evaluating Investment Opportunities in the Rare Earth Sector

Rare earth elements are vital for manufacturing magnets used in green technologies like wind turbines and hybrid/electric vehicles, yet processing rare earths into finished materials is expensive and China currently monopolizes this market.

MP Materials hopes to change that by building a separate processing facility at its Mountain Pass mine in California; it's expected to open for business by 2025.

Price

As the world shifts towards a green economy, rare earth elements and magnets play an essential role in its success. These essential minerals accelerate net-zero technologies while driving demand through consumer electronics - not forgetting their essentiality to national security!

Rare earth element prices tend to fluctuate drastically with oil and metal prices used in clean energy generation. Furthermore, political events and security incidents often have an effect on supply of rare earth elements globally and increase their prices accordingly. In China's case alone, political unrest had an especially profound impact on this aspect of market dynamics, driving prices upwards dramatically in some cases.

When tensions arise between the US and China, Chinese export restrictions and environmental concerns related to mining industry pollution in its domestic region tend to exacerbate matters further. However, recent COVID-19 pandemic outbreak and growing tensions may have altered earlier empirical findings regarding rare earth markets.

As numerous companies explore domestic production of rare earths, China will remain an ever-present challenge to domestic production of these minerals. One potential strategy could be the development of coal seams containing concentrations of rare earth elements as an effective means of providing military and commercial markets with their own supplies, thus freeing them from dependence on China for these minerals.

One solution would be to promote more recycling efforts. This may involve encouraging consumers to recycle outdated products or supporting research into innovative rare earth recovery techniques. By increasing recycling levels, one will help minimize future shortages as well as mining activities.

Western countries must work together and prioritize environmental, social, and governance (ESG) outcomes in order to break China's monopoly on rare earths. They will need to build resilience against shortages of these critical resources while simultaneously increasing response speed in case of disruptions in supply chains; additionally they should establish alternative supply chains that can meet all stakeholders needs.

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Supply

Earth's supply of rare earth metals may not be rare in itself; rather they're distributed widely throughout its crust at very low concentrations and require extensive, environmentally hazardous processing to extract. At present, most rare earth ore and raw materials needed for conversion into usable metals come from China - this makes China an essential player on the global market.

China produces almost all the world's rare earth metals - used in magnets and hybrid cars - and controls over 95 percent of processing capacity, giving it immense market power. China's government has encouraged consolidation within this industry to increase production and exports while furthering technological superiority while safeguarding value as a strategic asset.

Many experts fear China's control over the market could be used as military leverage. China has in the past restricted REE exports during diplomatic disputes and could do so again to safeguard its manufacturing sector.

As such, policies should seek to diversify sources of critical minerals and foster innovation in their use. Furthermore, measures must be put in place to secure supplies of these elements as well as create more resilient supply chains capable of withstanding disruptions.

Recycling metals is one way to address this challenge, though its technology remains at an early stage. Policymakers should promote more efficient and eco-friendly mining and processing techniques.

Rare earth production worldwide is highly concentrated, with just three producers accounting for more than half of total output. This concentration level exceeds even that of oil or natural gas production and raises concerns that one of our world's most critical resources may become vulnerable to geopolitical risks or have unbalanced supply and demand dynamics.

To combat these issues, the global supply chain needs to become more diversified; this can start by investing more in recycling technology. Policies should incentivize mining outside China and promote sustainable production practices by mandating that companies pay more for ethically produced material. Finally, mechanisms both inside and outside governments must be put in place in order to guarantee these goals are achieved.

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Demand

As global transition towards renewable energy sources intensifies, demand for rare earth elements such as neodymium and praseodymium should surge exponentially. Furthermore, electric vehicle sales are expected to expand significantly - further fuelling this demand surge for rare earths like these two elements.

Even as their demand increases, rare metals remain extremely scarce and attractive to investors willing to take on risk. Investors should carefully examine their investment options prior to investing in rare earth companies; specifically seeking an established production model with proven profitability over several years.

Investors should look for companies with established mining capabilities and a solid market share in rare earths. Furthermore, investors should search out firms with efficient production processes which reduce waste while increasing resource utilization rates. Finally, investors should prioritize finding companies with strong research and development departments which can develop new technologies to increase productivity.

Current rare earths supply is heavily reliant upon China. At one point in 2010, China controlled 97% of world REE production - though this dominance was short lived after export restrictions were instituted during a dispute with Japan and caused global shortages and increased prices.

As a response, the Chinese government took several measures to manage this industry, such as restructuring domestic industry operations, consolidating production lines, and restricting exports. These steps helped decrease illegal mining of REEs while simultaneously increasing domestic profitability and efficiency.

REEs are also benefiting from the growing interest in electric cars, which are projected to dominate the auto market by 2040. Wind turbine magnets also require rare earths for efficient performance as do air pollution control systems and optical glass polishing applications. Additionally, demand is rising due to applications like magnets used in wind turbines requiring rare earth magnets as well as industrial processes utilizing REEs like polishing optical glass surfaces with electropolishing technologies.

As such, it is crucial for investors to diversify their exposure to the rare earths industry by diversifying through recycling companies. Not only can this offer investors another source of these essential metals, but it can help decrease mining requirements - for instance Oak Ridge National Laboratory has pioneered an effective technique for recycling neodymium and praseodymium from permanent magnets using hollow fiber membranes and organic solvents; thus decreasing demand while protecting water supplies from potentially toxic exposure.

Risk

Rare earths--comprising 17 elements with atomic numbers between 57 and 71 (the lanthanides), scandium, and yttrium--have magnetic, fluorescent or conductive properties which make them indispensable components in high tech components such as permanent magnets, catalysts, rechargeable batteries and LED light displays. Their use spans from smartphones and consumer electronics devices to advanced military weapons systems and renewable energy technology.

China once held 97% of the global supply of REEs; however, after an incident involving a Chinese fishing vessel being detained by Japan in disputed waters ignited an international incident which resulted in China cutting REE exports and skyrocketing prices, this grip on global supply slipped away dramatically.

As soon as the price spike occurred, companies sought ways to diversify their REE supplies and explore innovative mining techniques. Some bold solutions included opening up Amazon rainforest for mining or extracting rare earths from ocean floors or even collecting them off of the Moon; however due to high mineral costs many of these plans were abandoned for less costly alternatives.

Molycorp, which once ran California's Mountain Pass mine but later declared bankruptcy, now sends its raw ore to China for processing. Furthermore, three of China's six original rare earth producers merged last year into one mega-conglomerate called China Rare Earth Group Co and account for about 70% of China's annual heavy REE production quota. Industrial consolidation serves multiple goals such as increasing cost competitiveness, production efficiency improvements, and tightening control on pricing levels for critical rare earth elements such as neodymium.

REE production and processing can be an extremely polluting industry that uses dangerous chemicals and generates toxic waste. Mining, separating, and purifying these metals may have detrimental health impacts for workers while leaving lasting environmental damage behind and polluting our water supplies. Recycling REEs may provide some potential solutions but at present is too cost-prohibitive.

Round Top could change all that. Employing more than 130 workers and producing over 400 million pounds of neodymium annually, its unique production process should lower operating costs than other REE processing plants while simultaneously having less environmental impacts.