Are Rare Earth Metals a Good Investment?

Rare earth metals are crucial for technology-dependent countries like America, Japan, and European countries as they are used in several technological industries. But do they make good investments?

Rare earth metals are not a guaranteed good investment. They're risky and volatile and will remain so until governments establish regulations and streamline the process of production. However, their importance makes them a valuable investment for the investor with the flexibility to take risks.

In this article, I'll explain what rare earth metals are, why they're essential, and how you can invest in them. I'll also explain the risks associated with investing in rare earth metals and the best stocks you can buy, so read on.

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Can You Invest in Rare Earth?

Investing in rare earth metals or REEs is similar to investing in oil or gas or other commodities, which are raw materials used to produce other products.

Before investing, interested investors have to consider the risks of investing in rare earth, particularly the volatility of prices.  You can invest in rare earth, and after considering the risks, you might look into the different ways you can invest in REEs to maximize the returns.

As it stands, investing in REEs is best if you have the flexibility to take risks regarding the volatility of prices and the political landscape. 

Investors also need to be patient and wait on returns when investing in rare-earth.

How to Invest in Rare Earth Metals

Typically, investors might buy stocks in companies manufacturing the commodity, funds, the commodity itself, or trade-in futures when investing in commodities. 

The rarity and importance of the REEs make a direct purchase of these elements difficult. Futures trading around rare earth metals is currently unavailable.

Interested investors must rely on investing in stocks or funds.  Investors who are interested in REEs can buy stocks in two types of companies:

  • Companies that produce REEs by mining reserves.
  • Companies that produce REEs by recycling waste electronics and magnets. 

In addition to purchasing stocks, investors can buy rare-earth funds, which have a mix of rare earth metals and other precious metals like titanium and lithium.

Risks of Investing in Rare Earth Metals

Apart from the typical volatility of prices associated with investing in commodities, governments have typically failed to build confidence among investors when it comes to investing in REEs. 

Imbalances in the supply chain, long lead times in opening mines, and unreliable producers of REEs have all contributed to a significant number of risks regarding investment in REEs. 

Penny stocks are considered high risk in REEs because of producers' unreliability and the environmental concerns around REE mining.

Reducing investment risks in REEs depends heavily on the political climate, standards set for mining, and the methodologies adopted for mining and processing. 

With the growing global understanding of the need to become less dependent on Chinese stocks of REEs, governments are allocating more resources to REEs. But the results of these resource allocations remain to be seen.

What is the Best Rare Earth Stock?

The best rare earth stocks are those of well-established companies that pay good dividends, the majority of which are based in China. They come from Chinese companies like China Northern Rare Earth Group High-Tech Co. or Xiamen Tungsten Co. 

American rare earth companies that purchase stock include MP Materials Corp.  Apart from companies that produce REEs, some companies undertake rare earth exploration activities. 

These companies are growing in importance with China's decision to limit its export of REEs to the rest of the world. Interested investors who can take risks could purchase stocks in companies like the Texas Mineral Resources Corp. (TMRC), Rare Element Resources (REEMF), and Ucore Rare Metals (UURAF). 

Rare Earth Metals Explained

Rare earth metals, more commonly known as rare earth elements or REEs, are a group of 17 elements that are used in industries ranging from electronics and technology to defense.

These metallic elements include scandium, yttrium, and the fifteen lanthanides.  Most advancements in technology are powered by the REEs, which are used in everything from smartphones and medical technology to wind turbines. 

While the metals themselves are fairly abundant, the concentrations mined in are far fewer. With the increasing demand for REEs, the value of these reserves, usually found in crystal form, has been on the upswing. 

The primary producer of REEs is China, followed by the USA, Australia, Malaysia, and India.

Why Are Rare Metals So Valuable?

Rare metals are so valuable because of the unique properties that allow them to be used in various applications. They are critical resources for industrialized societies and are needed in essential medical, communication, and defensive technologies. 

REEs are essential for making nuclear reactor parts and wind turbines, making them an important part of the world's shift towards more sustainable energy sources. 

They are also essential for new and developing defensive technologies.  In everyday life, rare earth metals are used in handheld phones, medical imaging technologies, cancer treatments, digital cameras, computer screens, and other electronic displays.

These critical uses of the REEs drive the global demand for these metals, and the availability of minable deposits further fuels this demand.

Despite being reasonably abundantly present in the crust, minable concentrations of these metals are limited.

Will We Run Out of Rare Earth Metals?

Minable concentrations of rare earth metals are very few, and scientists have achieved very limited success in creating these metals in the lab. 

We will run out of rare earth metals within the next 100 years. The current reserves of rare earth metals are quite limited. As these metals cannot be recreated naturally or in laboratories, it is likely that we will run out of these REEs. 

The reserves of REEs are expected to run out in about 100 years.  Currently, China is one of the largest producers of REEs, followed by the USA and Australia.

With the Chinese government reconsidering the quantities of REEs that it intends to export, technology-dependent countries in Europe, Asia, and America are looking into discovering new reserves and developing alternatives to the REEs. 

Bottom Line

Rare earth metals are essential and valuable but risky commodities to invest in as governments around the world are yet to build confidence among investors.

The best rare earth stocks belong to established production companies and smaller exploration companies that aim to identify more minable concentrations of REEs outside China. 

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