Medium rare – just how I like my metal

Here are some examples of things that are labeled “rare” but actually aren’t: 

• Purple carrots
• The Aurora Borealis 
• Original neon signs 
• Boy Scout merit badges 
• Rare earth metals. 

The misnomer about “rare earth” comes from the idea that 17 specific minerals which make up the group are in short supply when the opposite is true:  planet earth has a gigantic supply…they just happen to be in China. We’re talking 70-80% of the world’s known reserves.  

Why should you care? 

Rare earth minerals are in most electronics we rely on: cell phones, TVs, electrical vehicles, and devices that require AI. 

And our dependence on technology is increasing: there are 3.5 billion smartphone users worldwide or 73% of the world’s population is using a smartphone. Demand for smartphones and other electronics means demand for rare earth minerals increases considerably.

But this is where things get tricky: geopolitical issues often create potential challenges to the supply chain. One minute, China is increasing production quotas of minerals as a goodwill gesture to the Biden administration, and weeks later, rumors are circulating China may ban the export of rare earth minerals citing “security concerns.” 

Admiral James Starvridis puts it in context. In a piece for Bloomberg Opinion, he said the following,

“China will go to great lengths to maintain overall control of the global rare-earths supply. This fits neatly within the geo-economic approach of the One Belt, One Road initiative, which seeks to use a variety of carrots and sticks — economic, trade, diplomatic and security — to create zones of influence globally.” Stavridis, who was also in charge of the North Atlantic Treaty Organization’s presence in Afghanistan, known as the International Security Assistance Force, noted “…a national rare-earths strategy will be only one part of the administration’s complex calculus as it constructs a holistic strategy for dealing with China.”

We saw China’s stranglehold on rare earth supply back in 2010 when they banned exports to Japan for a time.

Until a strategy is locked, loaded, and mapped out by someone on the Biden administration’s National Security Council, here are a couple of ways to play the demand for rare earth stateside based on what we are seeing through our TrackStar data

MP Materials Corp. (MP)

This company, which went public via SPAC last November, is expecting to capture a large market share of the rare earth elements market. According to Grand View Research, the sector is projected to reach $5.62B by 2025. MP Materials is responsible for 17% of the world’s rare-earth magnets used in electrical vehicles. The company mines neodymium and praseodymium: both crucial for magnet manufacturing. What’s more, profits for MP are expected to increase from $30M to $250M between 2020 and 2023. 

VanEck Vectors Rare Earth/Strategic Metals ETF (REMX)

This ETF is… well…an ETF. However, it does try to replicate the yield performance of the MVIS Global Rare Earth/Strategic Metals Index according to ETF Trends. Like many ETFs the structure lets investors participate in rare earth metals without a ton of volatility associated with investing in straight-up rare earth stocks. 

Takeaways: 

1. Rare earth minerals are not really rare, just in crazy high demand. 
2. The increase in global mobile device usage, including electrical vehicles is fueling demand for rare earth minerals. 
3. There are layers of geopolitical drama happening between China and the United States with regard to rare earth minerals. Why? Because China holds 70-80% of the world reserves. 
4. There are ways to avoid investing in China-backed rare earth companies by looking at MP and REMX here in the United States. 

Questions from your clients: 

1. Why should I care about this? 
2. Won’t hydrogen fuel cells eliminate our dependence on rare earth minerals when it comes to motor vehicles? 
3. Are there other US companies going public which focus on rare earth minerals?