KEY RARE EARTHS PRICE SHOWING SIGNS OF LIFE

WHAT ARE RARE EARTHS AND WHY ARE THEY IMPORTANT?

Rare earth elements are critical minerals for manufacturing electrical equipment such as EVs, medical equipment and wind turbines. They’re used to produce permanent magnet materials, catalytic materials, luminescent materials, polishing materials and hydrogen storage materials.

Although there are 17 metals, a third of their usage and the fastest growing, comes from the magnet metals neodymium and praseodymium (also known as NdPr), as well as terbium and dysprosium.

Rare earth magnets are essential components for two of the fastest growing industries, electric vehicles and wind power. A rare earth magnet in an electric motor makes it lighter, cheaper and longer range. A rare earth magnet in a wind turbine provides strength and heat resistance.

Other usages are wide and varied and include medical equipment such as MRI machines, fighter jets and missile systems.

PRICE DRIVER: RISING MAGNET DEMAND

The market for NdPr should be in a supply deficit over the coming decade* due to strong demand and a lack of supply due to the 5+ years it takes for a new mine. 

Mineral sands producer Iluka (ASX:ILU) is building a plant to process rare earths. The miner stated that demand for magnet metals (Nd, Pr, Dy and Tb) is expected to grow almost by over 300% over the next 15-20 years from 87k tonnes last year to 280k tonnes by 2040.

This assumes EV sales growth and wind power demand grows at 12% a year, which requires an additional 100k of magnetic power a year for EVs, 50k tonnes a year for wind power and 45k tonnes a year combined for industrial applications, consumer electronics, defence and other applications.

For context, Lynas (LYC) NdPr production was 5,880 tonnes last year, which it plans to almost double by FY25 – see note below.

* Data from Commodities Research Uni

PRICE DRIVER: HURDLES FOR A COMMERCIAL DEVELOPMENT

Rare earths are not strictly rare. However, finding rare earth deposits than can be mined and processed economically is challenging – read below about Lynas! Deposits can be complex and capital intensive. Environmental safeguards can be crucial as some deposits contain radioactive materials.

PRICE DRIVER: DIVERSIFYING OUTSIDE OF CHINA

China currently accounts for around 65% of mined rare earth materials and nearly 95% of processed rare earths. This is a big concern to global supply chains, putting them at risk to possible bans or restrictions by China on exports.

This dominance underpins the momentum behind developments. There is a huge exploration and project generation push, particularly in North America, Australia and Africa. However, this will take time (see previous price driver).

MORE ABOUT RARE EARTHS

Rare earths comprise 17 elements in the periodic table, 15 of which are known as the Lanthanide series plus scandium and yttrium. They are categorized into two groups, the light rare earths, which include lanthanum through to gadolinium (atomic numbers 57 to 64) and the heavy rare earths, which covers terbium through to lutetium (atomic numbers 65 to 71).

The principal rare earths used in permanent magnets include Neodymium (Nd) and Praseodymium (Pr), which are both light rare earths and account most of Lynas’s sales by value. The less abundant Dysprosium (Dy) and Terbium (Tb), are heavy rare earths. The rare earth Neodymium (Nd) is the strongest known magnetic substance.

INVESTMENT CONCLUSION

There are many players looking to take part in the rare earths market, but most are early stage. We cover Lynas (LYC) below, which is one of the few in the world in production, outside China. The earlier stage developers are progressing at different paces and we will be covering the more investable of these stocks in future issues. This is very much a case of picking winners on deep analysis.

Rare Earths Video
Watch our latest video with Richard Hemming & Peter Chilton discussing rare earths and why they are so important for the next generation of investing.