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Critical metals such as rare earths, tungsten and tantalum are essential for a number of advanced technologies and green energy applications, but can also be vulnerable to disruptions in supply, either for political or economic reasons.
For example, rare earth magnets are the strongest type of magnet by weight and volume, and are key in a range of electronic industries, as well as energy and defense applications. Tantalum is key for making tiny capacitors that allow for smaller hand-held devices, and cobalt and graphite make up key components in lithium ion batteries.
However, a large amount of the world’s cobalt and tantalum comes from the Democratic Republic of Congo (DRC), and the metals have been the subject of plenty of controversy with regards to conflict minerals.
China produces the vast majority of the world’s rare earth supply, and previously enacted strict export quotas to give domestic electronics producers an advantage. Prices varied widely, leading some companies to choose alternative technologies in order to avoid using rare earths due to a lack of secure supply.
The World Trade Organization (WTO) has since forced China to remove its export quotas, but many analysts say that the market still lacks transparency.
The hunt is on for critical metals projects in geopolitically stable jurisdictions. Jon Hykawy of Stormcrow Capital has admitted that security of supply is an important factor for end users, albeit potentially not as important as low prices. There are plenty of junior rare earth companies doing their best to advance projects in North America, Australia and elsewhere.
For tantalum, tungsten and cobalt (as well as gold and tin), regulations surrounding conflict minerals are forcing manufacturers to look beyond the DRC for raw materials. The US Securities and Exchange Commission’s (SEC) conflict minerals rule requires that publicly traded end-users to disclose whether any of the raw materials they use may have come from the DRC, and the European Parliament recently voted in favour of a similar rule.
As technology advances, demand for certain critical metals is certainly increasing. Tesla Motors (NASDAQ:TSLA) announced it would build a $5-billion lithium-ion battery gigafactory in 2014, and Benchmark Mineral Intelligence has predicted that if the gigafactory reaches its target capacity of 35 GWh by 2020, it will require 25,000 tonnes of lithium, 112,500 tonnes of flake graphite, 45,000 tonnes of spherical graphite and 7,000 tonnes of cobalt.
In 2014, flake graphite production was just 75,000 tonnes, while spherical graphite production was 30,000 tonnes. Furthermore, companies such as LG Chem (KRX:051910), FoxConn Technology (TPE:2354), BYD (HKEX:1211) and Boston Power are all planning their own battery megafactories as well.
The global market for scandium is currently only about 10 tonnes per year, but John Kaiser of Kaiser Research has suggested that there’s an “enormous latent demand” for the metal, should it ever become available on a primary, scalable basis.
Most critical metal are not traded on public exchanges, so it can be difficult, if not impossible, to invest in the metals directly. However, it is possible to invest in rare earths, cobalt and graphite by buying shares of mining companies focused on those metals.
The vast majority of available companies and projects to invest in are still at the early exploration or development stage when it comes to critical metals, and some companies that have actually made it into production, such as rare earth producers Molycorp (NYSE:MCP) and Lynas Corporation (ASX:LYC) haven’t had the best share price performances as of late.
Still, for those who want to gain exposure to critical metals early, there is plenty of opportunity. While it can be difficult for junior mining companies in the critical metals sector, with a little research, one can find a fair few that are using innovative strategies to advance critical metals projects in safe jurisdictions.