Rare earths are a collection of 17 important elements that are necessary for the sustainable energy transition. Find out whether investing makes sense.
What do rare earth metals entail?
Rare earth metals are a group of 17 elements in the periodic table that are necessary for the shift to renewable energy. The metals are often mined combined and utilized to improve the efficiency of electronics. Rare earth may be found in electric vehicle batteries and motors, wind turbines, mobile phones, televisions, speakers, camera lenses, aircraft, magnets, and headphones, among other things.
Before looking at methods to invest in rare-earth elements, keep in mind that these metals are commodities, which means they are susceptible to the ups and downs in demand that come with economic cycles.
"Commodity prices are always unpredictable – rare earth are no different from oil and gas in this regard – and that translates into choppy revenue and profitability," says Pavel Molchanov, a Raymond James & Associates analyst.
China's hegemony in the sector has its own set of challenges for metal pricing, altering manufacturers' fortunes.
Taxes and other levies, according to Ricardo Pina, CEO of The Modest Wallet, a personal finance website, may impact the price of rare-earth elements in addition to the economic and political environment.
You can't purchase futures for rare-earth elements like you can for other commodities like gold, copper, wheat, or maize right now. As a result, investors should seek rare-earth exposure via more traditional channels.
Rare earth production is dominated by China.
Rare earth are not very rare, but since they are found combined with other minerals, they are difficult to separate and purify. Rare earth mines with enough uncommon earths to make extraction economical are rare.
Although the United States had a rare earths lead in the 1950s, China is now the world's leading producer and consumer. China contributes roughly 80% of the world's rare earths, according to the United States Geological Survey. China has planned to form a new rare earths behemoth, China Rare Earth Group, in late 2021, in order to strengthen the country's dominance in rare earths even more.
However, for international enterprises, China may not be a trustworthy source of supplies. There is a chance that China may impose export restrictions, such as during a trade war or as a strategic weapon. The World Trade Organization has previously sanctioned China for limiting rare earth shipments. Export restrictions would benefit rare earth miners outside of China, but it would hurt industries that rely on rare earths, such as electric vehicle manufacturers.
The United States is putting money into rare earths.
The U.S. administration is looking for alternatives to China's reliance on vital minerals. To reduce its reliance on China, the US has to diversify its vital mineral supply chain, according to a White House assessment released in 2021.
The availability of rare earths is also linked to national security. The U.S. Defense Department decided to invest in Lynas Rare Earths, Australia's biggest rare earth firm outside of China, in 2021. M.P. Materials, the sole rare earth supplier in the United States, has also been given cash.
The majority of rare earth equities are listed in Hong Kong or mainland China, making them difficult to access for U.S. investors. China Rare Earth Holdings, China Northern Rare Earth Group, and Shenghe Resources Holding Co Ltd are among the examples. However, most major US brokers would not allow you to buy Chinese stocks. Outside of China, there are still options, but many of them are small-cap exploration-stage miners.
Materials MP (M.P.)
$8.3 billion in market capitalization
Return in one year: 31%
M.P. Materials maintains a rare earth mine and processing plant near Mountain Pass, California, and is the sole rare earth producer in the United States. After combining with a SPAC, the Las Vegas-based firm went public in November 2020. M.P. Materials' predecessor, Molycorp, restarted the Mountain Pass mine in the early 2000s before declaring bankruptcy in 2015, enabling M.P. Materials to purchase the assets and begin production in 2017.
The Mountain Pass mine, which focuses on Neodymium-Praseodymium, supplies around 15% of the world's rare earth supply, according to M.P. These two components are essential for sustainable energy applications.
As proof, M.P. just inked an electric vehicle supply deal with General Motors.
Mountain Pass has a substantially greater rare earth richness than the typical worldwide deposit, about 7% vs. 0.1-4%, resulting in cheaper extraction costs.
M.P., on the other hand, continues to sell to Shenghe Resources in China, depending on them for processing as well. They aim to shift processing in-house with the development of the Mountain Pass Facility. The objective is to establish a reliable rare earth supply chain in the United States.
In 2020, M.P. Materials reported $134 million in sales and $42.6 million in EBITDA; the outlook for 2021 is substantially brighter.
Lynas Rare Earths (LYSCF)
10 billion Australian dollars in market capitalization
161% return in one year
Lynas Rare Earths, situated in Australia, is the world's leading rare earth metals producer outside of China. It is one of the world's biggest rare earth deposits, located in Western Australia. In Gebeng, Malaysia, the business also operates the world's largest rare earth processing facility. Lynas is also expanding its processing operations in Western Australia.
Australia is a "friendlier" strategic mineral supplier to the United States than China. As a result, Lynas won funding from the U.S. Department of Defense to build a new plant in Texas.
Lynas reported 489 million AUD in revenue and 235 million AUD in EBITDA for the fiscal year 2021. E.V.s and wind energy provided tailwinds that enabled production volumes to expand despite COVID.
Australian Strategic Materials Ltd (ASMMF)
1.3 billion Australian dollars in market capitalization
Return in one year: 64%
Australian Strategic Materials (ASM) is new titanium, zirconium, and rare earths manufacturer. In South Korea, the firm has opened a processing unit. ASM plans to build a bigger commercial facility after a successful trial phase.
ASM presently purchases rare earths on the market, but it intends to get them from its Dubbo Project in New South Wales, Australia, in the future. The Project has rare earths, zirconium, niobium, and hafnium resources, as well as the necessary permissions and licenses. However, being a newcomer, ASM does not yet generate a lot of income.
Neo Performance Materials Inc (NOPMF)
746 million CAD in market capitalisation
Return in one year: 16 percent
Neo, situated in Toronto, Canada, is well recognized for processing rare earths, unlike the other rare earth miners mentioned here.
Neo manufactures high-tech materials such as magnetic powders, magnets, speciality chemicals, and alloys. They operate Europe's sole commercial rare earth separation factory and have supply lines both within and outside China. Neo intends to provide rare earths mined in the United States to the United States and European markets, in collaboration with Energy Fuels (UUUU), a uranium producer.
Neo's products are sold worldwide to companies including LG, Bosch, Panasonic, and Samsung. Electric cars and energy-efficient houses are cited as important development drivers by the firm.
Neo isn't a startup, after all. The company made $385 million in sales and $62 million in EBITDA in the first nine months of 2021.
Texas Mineral Resources (TMRC)
$170 million in market capitalization
Return in one year: 47%
TMRC is a new company based in Texas that plans to develop a rare earths deposit. Round Top Mountain includes a diverse combination of rare earths and is predicted to last 20 years. TMRC estimates that the project has a net present value of $1.56 billion and that it will pay off in 1.4 years. Commercial manufacturing, on the other hand, is not scheduled to begin until 2023. Because deadlines are often missed, this investment is very speculative.
Hastings Technology Metals (HSRMF)
469 million Australian dollars in market capitalization
Return in one year: 21%
Hastings is an Australian rare earth exploration firm that is working on the Yangibana Project and the Brockman Project in Western Australia. Yangibana has a lot of Neodymium and Praseodymium, both of which are utilized in technology. However, HAS is not profitable now: Yangibana construction began in Q3 2021, and production is expected to begin in 2024.
Arafura Resources (ARAFF)
349 million AUD in market capitalisation
-10% return after one year
Arafura Resources is a rare earth prospecting firm based in Australia. It is working on the Nolans Project, which has a net present value of around $1 billion and a 38-year projected life. Arafura plans to begin production in late 2024 after the Project is shovel-ready.
NioCorp Developments (NIOBF)
325 million CAD in market capitalization
76 percent return in one year
NioCorp is a rare earth mining exploration firm based in Nebraska. Niobium and scandium, two essential rare earth elements, are abundant in the Elk Creek deposit. All key federal approvals required for construction have already been obtained. The mine is expected to last 36 years, with a net present value of $2.56 billion and a three-year payback period, according to NioCorp. Construction, however, has not yet begun.
Rare Element Resources (REEMF)
$176 million in market capitalization
45 percent return in one year
Rare Element Resources, a rare earth exploration firm, is developing the Bear Lodge Project. Rare earth elements are found in the deposit, which is utilized in permanent magnets, electric automobiles, solar panels, and wind turbines. The Department of Energy awarded the firm $22 million in October 2021 to finance a rare earth separation facility. Bear Lodge, on the other hand, will not begin production for another three years.
Northern Minerals Ltd (NOURF)
278 million Australian dollars in market capitalization
Return in one year: -20%
Northern Minerals is developing the Browns Range Project in Western Australia, which it controls 100 percent. Despite the fact that commercial production of rare earths is still years away, the business plans to complete a feasibility assessment for the Project in 2022.
America is stepping up its rare earth metals game.
According to a study by the United States Geological Survey, China imported 80% of rare earth metals in 2019. Last year, however, the proportion was substantially lower owing to supply chain delays caused by the epidemic. China has previously imposed export restrictions and levies on rare earths, taking advantage of its market dominance and limiting shipments during trade conflicts.
To accomplish the net-zero emission goal, the Biden administration must now work to solve the supply chain challenge and put an end to the geopolitical conflict. The Biden administration is already working on a $2 trillion infrastructure program to close the gap in domestic supply chains for rare earth, semiconductors, and other critical commodities. This large investment will aid in the development of climate change technology. What contributes the most to the rare earth space? The U.S. Department of Energy (DOE) stated in January that it would invest $28.35 million in cost-shared research and development initiatives on rare earth elements and essential minerals for industrial and manufacturing uses. Scandium and yttrium are in great demand, with mobile phones, LED displays, solar panels, energy infrastructure, military technologies, and other high-tech uses requiring them.
Later in April, the department announced another $19 million in funding for 13 projects aimed at increasing the production of rare earth elements and key minerals, which are required for the creation of batteries, magnets, and other clean energy components.
IPOs are boosting the market.
The rare earth element sector continues to benefit from increased capital inflow, investment, and initial public offerings. Rare earth miner M.P. Materials Corp. M.P. went public last year following a $1.47 billion merger with a special purpose acquisition company (SPAC). Several firms are attempting to take advantage of the opportunity provided by the U.S. government's support for reducing dependency on China's rare earth minerals. M.P. Materials and Lynas Rare Earths have received funds from the US Department of Defense to assist boost domestic rare earth mineral production.
USA Rare Earth, a mining company, plans to float on the NYSE this year with a market capitalization of more than $1 billion. The Round Top Mountain mine in Sierra Blanca in Hudspeth County, Texas, is already under construction, with plans to open in 2023.
Watch These 4 Stocks
While rare earth metal mining raises environmental issues, the government has given the sector the green light as long as corporations follow official guidelines to provide for permanent disposal of hazardous waste and develop waste treatment facilities. Rare earth metals are vital to the development of technologies that provide cleaner, renewable energy. As a result, we've identified four rare earth element stocks that investors should keep an eye on.
Tronox Holdings plc TROX is a company that owns and operates titanium-bearing mineral sand mines, as well as beneficiation and smelting facilities. The company's expected earnings growth rate for the current year is more than 100 percent, compared to 28 percent for the Zacks Chemical - Diversified industry.
Over the last 60 days, the Zacks Consensus Estimate for the company's current-year profits has been revised to 37.1 percent higher. Tronox is a Zacks Rank #1 stock (Strong Buy). The entire list of today's Zacks #1 Rank stocks can be seen here.
Materion Corporation (NASDAQ: MTRN) develops and distributes sophisticated engineered materials for the semiconductor, industrial, aerospace, and military, automotive, energy, consumer electronics, telecom, and data center industries. The company's estimated profit growth rate for the current year is 55.7 percent, compared to 28.9 percent for the Zacks Mining - Miscellaneous industry. Over the last 60 days, the Zacks Consensus Estimate for the company's current-year profits has been revised to 9.7% higher. Materion currently has a Zacks Rank of #2. (Buy).
Freeport-McMoRan Inc. FCX is a mineral property mining company. The company's predicted earnings growth rate for the current year is more than 100 percent, compared to the Zacks Mining - Non-Ferrous industry's estimated profits growth of 10.2 percent. Over the last 60 days, the Zacks Consensus Estimate for the company's current-year profits has been revised to 15.1 percent higher. Zacks has Freeport-McMoRan at #3. (Hold).
BHP Group is a company that specializes in oil and gas exploration, development, and production. Copper, silver, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and energy coal are also mined by the corporation. The estimated profits growth rate for this Zacks Rank #3 business for the current year is 83.5 percent, compared to 28.9 percent for the Zacks Mining - Miscellaneous industry. Over the last 60 days, the Zacks Consensus Estimate for the company's current-year profits has been revised to 3.8 percent higher.
Investors Should Care About
Bloomberg reports that several developments, including a visit by President Xi Jinping to a rare earth facility and comments by various figures affiliated with the Chinese government or the ruling Communist Party, have fueled speculation that China may restrict rare earth metal exports to the United States.
Even if demand in the United States falls, the price of rare earth elements and stock values are unlikely to fall. According to Wang Daixin, a fund manager at Bristlecone Pine Asset Management Ltd. in Guangzhou, China, "the effect of increased prices and margins as a consequence of a drop in supply would far surpass the impact of a dent in demand from the U.S." "I don't believe the sector's price movements are even close to logical at this moment," he continued.
According to Geology.com, rare earth metals are a set of 17 chemical elements that are utilized in a broad range of goods, including computers, mobile phones, rechargeable batteries, catalytic converters, magnets, fluorescent lights, and for which global demand has been rapid. Due to their application in the creation of night vision goggles, precision-guided weaponry, communications equipment, and GPS devices, they are also vital to the U.S. military.
China has roughly 37% of the world's rare earth metal deposits, with Brazil coming in second with 18% and Russia third with 15%. Meanwhile, according to the same authority, the United States possesses just approximately 1%.
Looking Forward
According to the report, China has attempted to manipulate the global market for rare earth metals, such as by cutting shipments by 40% in 2010, which drove prices to rise. As a result, manufacturing procedures that employ less of these materials have been developed. However, for the time being, China's leverage with rare earth resources means that prices are expected to rise, resulting in attractive returns for rare earth stock investors while raising the cost of many U.S. items.
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