Investing in Rare Earth: Heavy vs. Light

By Michael Montgomery—Exclusive to Rare Earth Investing News

The 17 elements that make up the group of rare earth metals are as diverse in their applications as they are challenging to pronounce. They are often broken up into two categories according to their atomic weight on the periodic table: light and heavy rare earths. Some of the common light rare earths are of less value than heavies on the market, yet are in higher demand. While the heavies are of high value many of the elements have smaller markets.

The concern of those looking to invest in rare earth mining operations is the relative value of the various minerals in the ground. Often analysts focus on just one side of the equation, favoring companies with high levels of heavies or lights in determining relative value.

In an exclusive interview with Rare Earth Investing News, Ryan Fletcher Director of Zimtu Capital (TSXV:ZC), and Chris Grove of Commerce Resources (TSXV:CCE), explain the subtleties of investing in a market with 17 different metals.

Prospective investors simply looking at resource estimates of heavy and lights may be shortsighted as demand, and therefore value, for the elements fluctuates. “The rare earth market is dynamic. What is in demand right now, and what will be required in five years is constantly evolving,” stated Ryan Fletcher.

Investors should look at the most in demand elements within the group, especially those that may face supply deficits in the coming years. Fletcher explained how attitudes toward the elements are changing. “At the International Rare Earth Conference in Hong Kong last year, the focus was on the ‘Big Five’ rare earths: neodymium, praseodymium, europium, terbium, and dysprosium.” Yttrium should also be mentioned with these due to its use by the plastics industry, as well as its predicted supply deficit by 2015. This method of looking at the supply and demand levels for the various elements may be a more well-rounded approach.

Of the ‘Big Five’ elements, two are light rare earths: neodymium and praseodymium.  The most important and in demand element in the light category is neodymium because of its use in magnets that are in high demand due to their applications in hybrid/electric vehicles and wind turbines. Chinese trade policy reflects the importance of neodymium, and is another crucial factor to consider on the supply side of the equation.

“Look at Chinese trade policy since 2005. The rare earth elements that they have been exporting less and less of are the lights. The element China has been holding back the most? Neodymium. Chinese companies have also been active in trying to get a stake in neodymium rich projects outside of China,” stated Chris Grove.

The use of neodymium in wind turbines and electric vehicle is of particular importance in China and will only continue to grow as the country urbanizes and tackles many lingering environmental issues.

“China is a huge market, and one of their most pressing problems is environmental degradation. China needs to electrify their transportation sector, and a significant portion of neodymium will go to electric vehicles and the wind power sector,” stated Chris Grove. Of course these magnets are made with a combination of elements, Grove added, “dysprosium is the key heavy rare earth in the making of magnets.”

Three of the ‘Big Five’ elements fall under the heavy category: terbium, dysprosium and europium, and to a lesser extent yttrium. “Dysprosium, terbium and yttrium are three of the heavy rare earths that are predicted to be in shorter supply, and have sizeable markets,” stated Fletcher.

Dysprosium is used in tandem with neodymium in magnets that are vital to modern technology and renewable energy. Dysprosium oxide is also used in nuclear reactors to help cool fuel rods to keep the reaction under control.

Terbium is used in color television screens as well as solid state hard-drives for computers. Currently, computing speed is limited by conventional hard drives. Solid state hard drives are just now being used by companies such as Apple to dramatically increase computing speed. As production costs are decreased, solid state drives will undoubtedly become the standard.

Yttrium is used in a variety of application from TV screens to an alloying agent to increase the strength of aluminum and magnesium alloys. It is also used in the polymerization of ethylene vital to the production of plastics.

Investors looking to invest in mining operations should look at the stratification of elements in the deposit and take into account the current and future demand for the various elements, be they heavy or light.

“Investors shouldn’t be looking only at the heavies or the lights, the rare earth market needs both. Some of the lights are in the highest demand, they are big tonnage markets, and will continue to grow. While certain individual heavy rare earths are of high value., an investor should be looking at both the heavies and the lights.” stated Fletcher.

Any investor practicing due diligence should look into the concentrations of the ‘Big Five’ elements, as well as others in the group. Many of the other elements have large markets and steady demand. In a market that contains 17 elements all with different applications, taking a myopic view could be shortsighted.

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  • Dacha Strategic Metals is the best choice. An investment company with large inventory of the heavy eare earths, and no mining risk since they only hold the resource itself. And the stock has over 30% discount on NAV.

  • As much as everyone is focusing on the lights vs. heavies, the bigger consideration is the metallurgical processing capability of the company. Anyone can mine the rare earths, but few have the metallurgical processes in place to separate the elements from one another…an expensive and time-consuming process. There is no value in unseparated rare earths. So which companies are capable of doing this separation?

  • Dacha has limited ability to buy the rare earths, Karl. If China is not exporting them, then where will they get them from? Dacha had a great idea, but was too late to the game. The inventory they have is static, not growing.


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