Key Insights for Investing in Light Rare Earth Oxides

Shifting global supply

In 2021, the United States, the second-largest producer of rare earths globally, accelerated efforts to work with multiple countries to develop more resilient supply chains. One important outcome of this initiative involved an agreement between Australia's Lynas Rare Earths Limited (ASX: LYC) and the United States Department of Defense. Under this agreement, Lynas, which operates the massive Mount Weld Mine in Western Australia, was awarded a second contract to develop a rare-earth processing facility in Texas.

Upon the project's completion, Lynas will operate two of the largest rare earth processing facilities outside of China, providing a massive boon to the rare earth industry in both Australia and the United States. Given the Australian government's commitment to increasing its global share of the rare earth market, this contract is likely the first of many and potentially lead to considerable development of Australia's largely untapped reserves.

Types of rare earth

There are 17 rare earth elements in total, all of which occur in close proximity to one another in nature. Fifteen of these are classified as rare earth metals, and all 17 are categorized as either light or heavy based on their atomic weight. Scandium is the one exception to this classification system.

Light rare earth metals include cerium, lanthanum, praseodymium, neodymium, promethium, europium, gadolinium and samarium. Highly reactive to oxygen, these metals are nearly always processed into oxide compounds prior to being sold. For this reason, the term ‘light rare earth metals’ is often used interchangeably with ‘light rare earth oxides.’

Light rare earth oxides application

Light rare earth oxides have an incredibly broad set of uses, though neodymium and praseodymium are often considered two of the most critical.

Neodymium is a critical element in smartphones, computer hardware, electric vehicles and medical equipment. It's also the primary rare earth oxide used to manufacture the magnets used in wind turbines and data storage systems.

Praseodymium, meanwhile, sees extensive use in the film industry, typically in the form of studio lighting. A praseodymium-magnesium alloy is one of the primary components of aircraft engines, as well.

Both neodymium and praseodymium (NdPr) are also required for the manufacture of a key technology known as the rare earth permanent magnet (REPM). The key technology is Neodymium iron boron magnets (NdFeB) which are the strongest permanent magnets in the world. NdFeB rare earth magnets power permanent magnet electric motors, a technology used by roughly 80 to 90 percent of the electric vehicle manufacturers. This also makes both metals pivotal in supporting electrification and the proliferation of electric vehicles.

Rare earth oxides are also used in batteries, as catalysts in petroleum refinement, in steel alloys and in many types of screens and lighting.

Unfortunately, the criticality of light rare earth oxides to electrification also represents a considerable stumbling block in the transition towards greater sustainability. Extracting and refining rare earths is an incredibly energy-and chemical intensive process, one which also produces heavy pollution. It's imperative that companies explore more sustainable production options — otherwise, they may well defeat the purpose of transitioning to low carbon society.

Mining light rare earths

It's fairly well-known amongst investors that rare earth elements are not especially rare, often more plentiful than precious metals like gold, silver and platinum. Their rarity stems from how infrequently they occur in mineable, commercially viable concentrations.

As mentioned, China contains the largest known reserves of mineable rare earth minerals, at 44 million MT. Vietnam's reserves total 22 million MT, while Brazil and Russia both have 21 million. India, Australia and the United States host 6.9 million, 4 million and 1.8 million MT, respectively.

It's important to note that these are known reserves, and that not every deposit hosts a producing mine. It is entirely possible that there are more deposits waiting to be uncovered. From an investment perspective, there is also the sociopolitical angle to consider.

Although Australia and the United States have significantly smaller reserves than Vietnam, Russia and Brazil, their more stable political climate gives the two countries a considerable edge.

Australia is especially notable here. In addition to Lynas Rare Earths, multiple mining and exploration companies currently operate in the region. RareX (ASX:REE) is arguably one of the most promising, and aims to become a leading producer and supplier of the key rare earth elements called Neodymium and Praseodymium (NdPr) for the manufacture of REPMs.

Situated in the Kimberly region of Western Australia near Halls Creek, RareX's flagship project Cummins Range has the potential to be a world leader in low-carbon, sustainable rare earth production. Rather than toxic pollutants, the project's unique hydroelectric refinement facility will produce phosphoric acid and a phosphate mineral concentrate as by-products. This gives the facility the potential to participate in the production of agricultural fertilizers.

Phosphate is also a key component in lithium iron phosphate (LiFePO4) battery technology, which currently holds approximately 30 percent of the global battery market and is poised for further growth.

Takeaway

Light rare earth oxides are pivotal in the transition to clean energy and electric mobility. Unfortunately, environmentally unfriendly refinement processes and an uneven global market present traditional roadblocks in their production. The trade relationship between Australia and the United States coupled with innovation from companies such as RareX could be the answer to both problems — one which also creates a number of incredibly promising investment opportunities for Australian based projects offering the global supply chains a secure, sustainable, ethical sourced and reliable supply solution for these materials.

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