The global push to promote environmentally sustainable technologies presents one of the most potentially enticing opportunities for investors in a generation. Most major governments have either already set or are in the process of setting target dates for the phasing out of fossil fuel dependant vehicles and electricity production. Two industries that will in all likelihood benefit greatly from this are the electric vehicle (EV) industry and the wind turbine industry. However, given the direct nature of this benefit, share prices of companies in these industries, such as Tesla, usually have this future demand priced in. While there is almost certainly still plenty of money to be made with these stocks, growth potential may be limited. A possibly more lucrative strategy may be to look at the less well known, indirect beneficiaries of the green revolution.
Growth in both EVs and wind turbines is expected to drive strong growth in the rare earth market. This is because they both require strong permanent rare-earth element (REE) magnets to operate their motors (N.B. there are some alternatives based on ferrite magnets but these are lower performance, weaker magnets making rare-earth magnets the usually preferred choice). These magnets are primarily made of the element neodymium, sometimes containing other metals like praseodymium and dysprosium. Each EV manufactured uses at least 1kg of rare-earths and a wind turbine uses from 0.5 to 3 tonnes of the metals depending on size.
While rare-earth elements are generally not all that rare, they are usually found in concentrations too low for a mining operation to be economically viable. In addition to this, their refinement is a costly and complex process with environmental concerns involved. The combination of these factors means REE mines and processing plants are uncommon.
China is, by a significant margin, the world’s largest producer of REEs, mining around 70% of global output. Even countries which mine REEs themselves generally ship them to China for final refinement & separation given its costly nature. Many major economies are looking to reduce their dependence on China’s effective monopoly in the rare-earth market for strategic reasons.
The only significant alternative to China currently available is the Australian firm Lynas Rare Earths (0A2N.L). they have REE mining operations in Western Australia and processing operations in both Australia and Malaysia. Last year they announced a partnership with US firm Blue Line to build a processing facility in Texas for the separation of light rare-earths. With a good balance sheet and significant growth potential, Lynas may be a good bet for prospective investors.
Another, riskier investment strategy may be to look at early-stage REE mining companies. Three such companies listed on the London Stock Exchange AIM market are Rainbow Rare Earths (RBW.L), Pensana Rare Earths (PRE.L) and Mkango Resources (MKA.L). The companies are all similarly young firms looking to operate mines in various African countries and extract ores with high neodymium concentrations. One that stands out is Pensana. Whilst all three companies plan to open mines, Pensana is the only one of these firms to announce plans to open a processing plant. They plan to open a facility in Hull for REE refinement and separation, which would be well-positioned to supply REEs around the UK and Europe.
While potentially profitable for prospective investors, none of these companies as of yet actually operate REE mines so should be considered highly speculative and risky investments given their long term nature and the possibility of mining plans not going forward.