Rare earths … A rare opportunity

9 March 2021

If you want to read a non-fiction book that is scarier than Stephen King’s work, check out The Rare Metals War: The Dark Side of Clean Energy and Digital Technologies by Guillaume Pitron. A French journalist and documentary maker, Pitron has been an authority on the geopolitics of raw materials for some years now. In The Rare Metals War, which came out last year, Pitron argues that the metals going into the new ‘clean, green’ economy aren’t nearly as clean or green as many people would like, because the mines, smelters and refineries they come from tend to be environmentally hazardous. That, however, isn’t the most scary part of the book, which is this:  China controls far too much of the world’s rare earths and in a world where we really need those rare earths, and a lot of them, that market dominance leaves many countries vulnerable. Including Australia.

What the heck is praseodymium?

The rare earths are a group of 17 elements that actually aren’t all that rare. Indeed, in the earth’s crust they are moderately abundant, but it’s rare to locate them in economic quantities. To find the rare earths on that periodic table they made you study in High School chemistry, move your eye over to the third column from the left. At the top of that column is scandium (Sc), Element No. 21. Right underneath that is yttrium (Y), Element 39.

Then below yttrium there’s a foldout row comprising the ‘Lanthanides’, which is Elements 58 to 71: Lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), promethium (Pm), samarium (Sm), europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er), thulium (Tm), ytterbium (Yb) and lutetium (Lu). We bet they never taught you in High School what any of these metals were good for.

Okay, enough chemistry. The thing for investors to pay attention to when it comes to rare earths is that they are the ‘vitamins’ of the 21st century. Want to make permanent magnets for wind turbines or Electric Vehicles? Depending on the application you will need neodymium and praseodymium as well as terbium and dysprosium. Make a catalytic converter and you’ll need cerium. Make an LCD television and you’ll need europium. And so on.

It’s not just tea that China has a lot of these days

For a long time, China has dominated this vital suite of metals with more than 90% of the world’s output. It was Deng Xiaoping back in 1992 who famously said ‘The Middle East has oil. China has rare earths.’ That referred to the actual mines for the stuff. Over the last 30 years China has also developed (or bought) the knowhow to produce the finished products economically.

Guillaume Pitron spends a lot of pages in his book describing how China is now in a position to deny those products to the rest of the world, which it does every now and then, such as in the 2011 embargo against Japan. That market power is scary not just because our advanced economies need rare earths badly. It’s also scary because of their use in defence applications, like stealth fighters. Pitron also suggests we may not have enough rare earths, China or no China, to properly fuel the new economy.

All of which can only mean one thing – the prices of rare earths are more likely to be headed up then down in the medium term and governments everywhere are going to help in the development of those increasingly valuable non-Chinese sources of rare earths.

Crisis equals opportunity for Lynas and Iluka

That may sound like a crisis, but to various ASX-listed companies it also means opportunity. Lynas Rare Earths (ASX: LYC), a decade after starting up its company-making Mt Weld mine in Western Australia in 2011, is now one of the world’s largest producers of rare earths outside of China. This Top 100 company, which we last wrote about in Stocks Down Under on 16 November 2020, is now pursuing various other downstream opportunities, such as the light rare earths processing facility it’ll be building in the US state of Texas. We think Lynas will rank alongside MP Materials Corp (NYSE: MP), the company that owns the massive rare earths mine at Mountain Pass, on the California-Nevada border, as one of the leaders of the global pushback on China in rare earths.

Other major companies will soon join in the effort. Iluka (ASX: ILU), the mineral sands major, has a monazite-rich mineral stockpile at Eneabba in Western Australia. Monazite is a phosphate mineral that contains rare-earth elements. For more on Iluka see our Stocks Down Under article from 18 September 2020.

The rare earths fast followers are making progress

We’ve written about a number of other exciting rare earths project developers in Stocks Down Under recently. Greenland Minerals (ASX: GGG -14 September 2020) has reached the public consultation stage with its Kvanefjeld project in southern Greenland. Hastings Technology Metals (ASX: HAS – 25 February 2021) is getting close with its Yangibana Rare Earths Project in the Gascoyne region of WA. Northern Minerals (ASX: NTU – 4 February 2021) reckons it has the right stuff with its Browns Range project in WA’s Kimberley Region. And Australian Strategic Materials (ASX: ASM – 28 January 2021)  has recently shown some great progress with its Dubbo project in western NSW.

Not covered yet in Stocks Down Under, but worth a look are Arafura Resources (ASX: ARU) that has completed a feasibility study on Nolans Project near Alice Springs in the Northern Territory. Ionic Rare Earths (ASX: IXR) has probably the best geology out there for easy-to-obtain rare earths in its Makuutu Project in Uganda. Peak Resources (ASX: PEK) has also done feasibility work on its Ngualla rare earths project in Tanzania. Vital Metals (ASX: VML) has the Nechalacho project in Canada’s Northwest Territories as its flagship. And RareX (ASX: REE) has a rapidly expanding rare earths deposit at Cummins Range project in WA’s Kimberley region.

We think the rare earths theme is a multi-year one, so it’s one we’re keeping a close eye on here at Stocks Down Under. We’ve done a lot of research in this space, which our subscribers can access in the Stocks Down Under archive, including our top picks in this space.

Stay tuned for more articles and if you want a good background piece, check out our issuer-sponsored research on Greenland Minerals at pittstreetresearch.com. Great reading, and less scary than Guillaume Pitron’s book.

 

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