Rare earth elements (REEs), despite the name, aren’t rare at all, with many occurring abundantly within the Earth’s crust. What is uncommon, however, is finding these metals and minerals in sufficient quantities to extract profitably.
REEs have become essential materials powering our modern-day existence, with uses in items such as smart phones screens, computers, flat panel televisions, batteries of hybrid and electric cars, as well as in missiles, firearms, radars and stealth aircraft, according to the US Geological Survey.
China accounts for 63% of the world’s rare earth mining, 85% of rare earth processing, and 92% of rare earth magnet production, with China and Myanmar producing 100% of the world’s ‘heavy’ REEs, primarily dysprosium and terbium.
Government subsidies, low wages for workers, and poor environmental standards allowed China to dominate the output of rare earths by the late 20th and early 21st centuries, after having been previously controlled by the US.
In fact, the Mountain Pass mine in California was the world’s main supplier of rare earth metals until it was forced to close in 2002 following a toxic waste spill and did not reopen for years.
Meanwhile, other US rare earth mines closed because they couldn’t compete with China.
Most recently, China’s commerce ministry revealed that the country is restricting the exports of two metals, gallium and germanium, important to the manufacturing of semiconductors beginning August 1, likely in response to the Biden administration’s plan to block sales of some chips used to run artificial-intelligence programs.
But could China’s latest move to restrict rare earth shipments globally spark another bull market in rare earth-related stocks?
Rare earth equities saw their last big surge that began with Beijing imposing export quotas on rare earth metals in 2009, in a bid to boost prices.
But it was China’s use of rare earths as a political tool to retaliate against Japan for its nationalization of the Senkaku Islands in late 2010 that caught the world’s attention, and sparked speculative buying of rare earth stocks.
Today, prices of many REEs have once again powered sharply higher since early 2020, even factoring in the sharp pullback year to date, with the dysprosium price rising 51%, neodymium surging 104%, and the price of terbium soaring 244% over the past three years, just to name a few.
Investors looking to play the rare earth space could look to larger companies such as MP Materials Corp, which owns and operates the Mountain Pass mine. Shares of the $4.6 billion market cap company have generated an average annual return of 32% over the past five years.
There’s also Australia-listed Lynas Rare Earths Ltd (ASX:LYC, OTC:LYSCF), the world’s second largest producer of separated rare earth materials, with operations in Western Australia and Malaysia. Shares of Lynas, an A$6.6 billion market cap company, have generated an average annual return of 51% over the past five years.
Smaller companies, however, offer greater upside potential despite being more speculative, as these names tend to be more leveraged to price moves in the underlying commodity.
For example, American Resources Corporation (NASDAQ:AREC) is a $149 million market cap company which, through its American Rare Earth LLC division, is one of the largest developers of critical and REEs in the US.
Through its initiatives, American Rare Earth will be the first to produce isolated and purified (99.5%) magnet and battery metals, with a focus on neodymium, praseodymium, and dysprosium, through the environmentally safe recycling of end-of-life products. The parent company's shares have generated an average annual return of more than 13% over the past five years.
American Rare Earths Ltd (ASX:ARR, OTCQB:ARRNF), meanwhile, is a A$76 million market cap company that is developing its 100% owned La Paz project in Arizona and Halleck Creek project in Wyoming, both of which have the potential to be among the largest rare earths deposits in North America. Its shares have powered 157% higher over the past five years.
Then there’s Auxico Resources Canada Inc (CSE:AUAG, OTCQB:AUXIF), which is focused on the production of critical minerals and high-value metals, including REEs niobium and tantalum. The company is also the exclusive trade agent for rare earth concentrates from the Democratic Republic of Congo (DRC), containing rare earths used as permanent magnet materials and including neodymium, praseodymium, dysprosium, terbium and gadolinium.
Not to be overlooked is Namibia Critical Metals (TSX-V:NMI, OTCQB:NMREF) Inc, which is developing its Lofdal project in Namibia that the company calls a “globally significant deposit” of the heavy rare earth metals dysprosium and terbium.
Also worth watching is Amaroq Minerals Ltd (TSX-V:AMRQ, AIM:AMRQ), which is developing several projects in Greenland that include the Paatusoq REE, niobium, tantalum, zirconium project. Its stock has appreciated 103% over the past five years.
Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF), meanwhile, is developing its Songwe Hill Rare Earths project in Malawi. The company has completed a feasibility study on Songwe Hill, which estimates average annual production of 5,954 tonnes of total rare earth oxides (TREO) during the first five years while generating US$215 million per year in earnings before interest, taxes, depreciation and amortization (EBITDA). Its shares have gained 54% over the past five years.
Another promising junior is Defense Metals Corp. (TSX-V:DEFN, OTCQB:DFMTF), which is developing its 100% owned Wicheeda property in British Columbia. The project has estimated Indicated resource of five million tonnes averaging 2.95% TREO as well as a 29.5-million-tonne Inferred resource averaging 1.83% TREO, using a cut-off grade of 0.5% TREO. Defense Metals shares have climbed 53% over the past five years.
And last, but certainly not least, Ucore Rare Metals Inc (TSX-V:UCU, OTCQX:UURAF) is involved the near-term build of a heavy and light rare-earth processing facility in Louisiana, while longer term it is developing its 100% controlled Bokan-Dotson Ridge rare heavy REE project in Alaska.
All in all, prospects for the rare earth space look promising for investors and speculators alike provided they can accept the volatility and risk inherent to all resource-related stocks.
Contact Sean at sean@proactiveinvestors.com