Rare earth metals: what investors should know

Rare earth metals are critical for modern technology, from wind turbines and mobile phones to electric vehicles and fibreoptic cables. Mining experts speak to interactive investor about their uses, what investors should look for, Chinese control of the market and geopolitics and how the West can compete.

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George Bennett, CEO, Rainbow Rare Earths Ltd (LSE:RBW): Rare earth metals are basically 17 elements that make up what’s known as rare earths. When you mine them, you mine all 17 elements together. Similar to a platinum PGM [platinum group metals] basket, when you mine platinum, you don’t mine platinum, you mine rhodium, palladium, and so forth.

So, with rare earths, you have 17 elements, but they are critical for modern technology today. All modern tech has got rare earth elements in it, be it your cellphone, be it your ear pods, be it your wind turbines, your electric vehicles, your normal ICE vehicles, what they call internal combustion engine vehicles, MRI machines and so forth. In fact, even fibre-optic cable’s got a rare earth called erbium. All the fibre-optic cable around the world today uses rare earths.

John Meyer, partner and mining analyst, SP Angel: If we drill into rare earths, it’s really important to understand which specific rare earths you’re buying into as an investor and what they’re used for because we can all make judgements on whether there’s going to be strong demand growth or whether there will be less of that.

The key ones that we look at from a price perspective are neodymium and praseodymium.  They are used in permanent magnets. If you take an ordinary magnet, a normal metal that you would use for making a magnet, and you put neodymium and praseodymium into that metal, that becomes a permanent magnet. That means when you run the motor, it can work much more efficiently. It’s already electromagnetised. 

Now, you can do that just by putting electrons or power into a motor, but it’s much better if it’s doing it itself. So, you then use other metals or other rare earth elements to give other properties to these magnets. So, dysprosium and terbium for the heat-resistant properties.  That means that when your motor gets hot, it shouldn’t disintegrate.

It’s really important for wind farms, because sometimes those turbines are spinning at big speeds, they’re very heavy, and they can create a lot of heat. So, that magnet needs to remain magnetised at high temperatures. Dysprosium turbines, I think they work at 600, 800 degrees C. Once in a while, you’ll see one of these catch fire and blow up.

So that’s what you’re doing. You’re quite happy to put some very expensive rare earths into those magnets to give them a much longer life, especially if you’re talking about an offshore wind farm, where getting to these things is difficult and rebuilding them is very expensive.

When it comes to a whole bunch of other rare earths, there’s a load of different specific uses on turbine blades, drone magnets are, again, neodymium, praseodymium-type stuff, and a whole bunch of other very technical applications.

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Ivan Murphy, executive chair, Harena Rare Earths (LSE:HREE): The Chinese control all supply effectively, certainly in the heavy rare earth and the magnet metals. That allows them to pretty much turn it on and turn it off to the great irritation, especially of President Trump, who if you’re trying to build a defence, and if you’re trying to get into the AI race and lead it, or in EVs, you need to be able to control your supply of rare earths.

So at the moment, the Chinese dominate on the heavy rare earth side to almost 90%-plus and on lighter rare earths to a lesser extent. So, they’ve become this absolute kind of fundamental battleground if you want to build your own defence, if you want to build your economy, if you want to really be at the forefront of AI.

For example, President Trump has made a commitment to deliver a whole batch of F-35s or F-36 fighter jets to Saudi Arabia. You can’t build those without having a secure supply of rare earth elements because of the technology you need within those.

There’s a fantastic book, if you want to have it on your bedside, called Mining is Dead. Long Live Geopolitical Mining. It’s a great book written by two really educated people in this space and what that does is it tracks why we got here, and how we got here is the Chinese about 25 to 30 years ago realised what was coming and made a really direct policy to secure critical minerals supply, and that’s what took them to Africa to get those mines in control, take them back.

Now, they also have a geological advantage, which we share in our mineralisation in Madagascar from the same band coming across China towards us in Africa, which is these ionic clays, which are the easiest ones to treat, they allow for very quick processing and they have very high content of magnet metals and heavy rare earths.

The other thing that they were able to do, and it’s a great quote from back then, was they realised that rare earths were going to be the gas/oil equivalent of the Middle East. So, we said the Middle East has oil and gas, China has rare earths and critical minerals, and it’s been true, it’s come true. So, that’s why they have this control.

It’s like an oil crisis of old or like OPEC turning on and off the tap. You can imagine what that would do for everybody, what it would do for pricing of oil. So, if you think of it in that context, it’s easier to understand. It’s that same push and pull. They have control and the West need it. You can see what’s going on there. But it was a stated policy of the Chinese and they’ve executed it brilliantly.

Rupert Verco, CEO, Cobra Resources Ordinary Shares (LSE:COBR): The Chinese have utilised an ionic form of mineralization. Now what that means is you can use a very weak acid anywhere from a glass of red wine to a black coffee effectively in terms of acidity to liberate rare earths from these clays.

Now, they have done that for over 30 to 50 years. They haven’t done it in terms of the best mining practices, but they’ve done it at a very low cost and they’ve developed the technology and the capability to refine and process these rare earths into these permanent magnets very effectively and efficiently. It probably takes a more environmental risk than many other countries are prepared to accept and, as such, they’ve been able to build this commanding position.

Western nations have probably had their eyes off the football for a number of years and it’s only now we’re starting to understand what the risk is there, and we’re trying to develop these supply chains to compete and support emerging markets.

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John Meyer: It’s very interesting observing China. They have thrown a lot of intellect, expertise, and people into dominating commodities. They saw some years ago how well it worked with rare earths. That if they withdrew the supply of rare earths into Japan, for example, which happened over a fishing dispute, as I remember, then they could persuade people to do what they wanted.

They then did that with Donald Trump, again with rare earths, and now they’re expanding it into other areas. I don’t think it was originally a deliberate policy, but now they’ve seen how well they can control geopolitics and that they can actually force other countries to take their manufactured goods, that, actually, I think they’re rolling this out. 

The policy originally started with China just wanting to be self-sufficient. They’ve always, always looked for self-sufficiency. Now they’re saying, OK, we’re going to be self-sufficient, but maybe we’re going to restrict exports of these metals to other countries. And it gives them an element of control. Control is power, and as we know with politicians, power is everything.