Dear Happy Investor, Investing in Rare Earth Metals is increasing in popularity. This started with the increasing trend of lithium. Now investors are also seeing opportunities in scarce rare metals that are needed for "clean" technologies. In this article you will read the ins and outs of investing in Rare Earth Metals and we also look at 7 interesting shares for Rare Earth Metals and we end with 2 of the best ETFs for rare metals.
On to sustainable (financial) success!
Table of contents
Investing in Rare Earth Metals: What is it and Why Invest in it?
Rare Earth Metals by the name are those metals that are rarely found on the Earth. The scarcity in comparison to their use makes them precious. After spending a lot of time on research and market demand the metals such as dysprosium, lanthanum, terbium, cerium, erbium, thulium, praseodymium, holmium, promethium, neodymium, europium, gadolinium, samarium, lutetium, ytterbium, scandium and yttrium are considered to be the rare earth metals.
This is quite a list. As an investor, it is helpful to understand how supply and demand influence rare metals. For example, we have seen that the huge increase in battery batteries has led to an explosion in the price of lithium, among other things. Investing in Rare Earth Metals could be very profitable if done correctly.
Among the top precious metals, gold is the widely known one. The periodic table in chemistry shoes all precious and rare metals. The metals are basically categorized into three sections: Base Metals, Precious Metals, and Rare Earth Metals.
In fact, rare earth metals are not always scarce. However, they are really hard to extract. Even if they are available on the Earth, it takes years of study to build the machinery that extracts them without havoc.
Investing in rare earth metals provide possibilities for both short- and long-term investors. Other than gold, palladium and neodymium are gaining a lot of attention these days and are being traded in stocks, futures, options, and ETFs.
Why Invest in Rare Earth Metals?
Investing in rare earth metals has gained popularity since they are being used in the manufacturing of electronic and technological products. Nd, Pr Ce, and La are a few of those elements that are used in the production of electronics such as cameras, memory chips, smartphones, and e-readers.
Besides their use in technological sectors, they are widely being used in the manufacturing of military and defense appliances. These applications include night vision goggles, sensitively guided weapons, and of course, stealth technology.
Investing in rare earth metals can be interesting because of fluctuations in supply and demand. Macro-economic developments have a greater impact on raw material companies compared to other companies. As we have seen with the increasing demand for lithium etc. to meet the "green transition". But political movements can also have a big impact, as we see recently with the war between Russia and Ukraine. In this case, non-Russian companies are increasing their demand for oil and gas.
Note that rare earth metals are a specific domain. Also for investing. The market has large cyclical movements. The entry and exit moment is very important for price gains.
Read all about investing in commodities here.
Best Stocks Rare Earth Metals: 7 interesting companies
Below is a list of 7 interesting companies for inspiration to the potentially best stocks for Rare Earth Metals. However, keep in mind that the biggest price explosion has already taken place. Within the world of commodities, the right entry point is very important. What used to be (deep) value stocks are now no longer so.
If you never want to miss these kinds of opportunities again, we can recommend Capitalist's research. Read more about it in this Capitalist Exploits review.
Pilbara Minerals Limited (PLS).
Pilbara Minerals Limited is one of the best stocks in Rare Earth Metals over the past two years. The organization is focused on the cost-effective production of lithium. Due to its large reservoirs and increasing production, the company is growing very fast. In fact, the expected revenue growth for next year is almost 200%. Unfortunately, this is also already calculated into the share price. This potentially best rare earth metals stock has risen particularly hard. The financial valuation is less attractive at the moment, but with a justified price correction this could be a different story.
Lynas Rare Earths (LYC: ASX)
Lynas is an Australian Securities and Exchange-listed company as an S&P/ASX 200 company. It is basically a rare-earth mining company. It has concentration and a mining plat at Mount Weld, Australia. Besides this, it also has a refining facility at Kuantan, Malaysia. It is one of the companies that have great potential for investment.
Arafura Resources Limited (ARU)
Chances are you've never heard of this potentially best stock for Rare Earth Metals. It is a small Australian mineral exploration company that has been publicly traded since 2003. Its market capitalization is currently only $373 million. In our opinion, it is definitely interesting to examine this company closely based on its future potential within rare metals.
Australian Strategic Materials Limited (ASX: ASM)
ASM's desire to capture a larger share of the value chain, including the production of specific metals by ASM and partners, is a distinctive and critical success factor. It is a "mines to manufacturer" essential metals company, as opposed to certain other rare earth companies.
It is an innovation visionary company that strives to discover something new and unique to the market. To date, they have:
- Neodymium iron boron (NdFeB) alloy from an ASM ferro-neodymium (FeNd) permanent magnet alloy
As far as the future projects are concerned, they are expected to begin production at the Dubbo rare earth mine in late 2023.
Rio Tinto (RIO)
Rio Tinto (NYSE: RIO) is a world-level famous mining company with a diversified portfolio. Its primary concentration is on the production of industrial metals. They are hugely engaged in the production or processing of copper, aluminum, and iron ore.
If you are looking for serious investment in aluminium, remember that Rio Tinto is the world's biggest manufacturer of aluminium. The firm runs alumina refineries, smelters, and top-quality bauxite mines. Putting their attention on reducing the cost, they introduce the use of low-cost carbon-free hydroelectricity to power its aluminium production. The firm is a leading producer of iron ore- to make steel.
Rio Tinto is not so much a best stock until Rare Earth Metals, but it is an interesting one as a "resource company". Its financial valuation and profitability are good, but its future growth is less attractive. A similar stock is that of ArcelorMittal (MT), which of course we as Dutch know better. MT, like RIO, has a favorable valuation and profitability, but analysts expect moderate growth.
Nucor (NYSE: NUE) is one of the top-notch steel and steel products companies based and operates in North America. The products that the company deals in include:
- Steel Bars
- Plates and Beams
- Steel Fasteners
Besides new metal, the company also deals in scrap metal businesses that recycle and export steel.
Nucor is special for its innovation in the steel business. They are not like the conventional steel business. They are specialised in the operation of minimills that use electric arc furnaces in the melting process of scrap steel. This method of recycling is relatively cheaper than the conventional methods. It uses natural gas instead of coal to fuel up industrial operations.
The company has been able to turn a profit in various economic conditions due to its normally environmentally benign and low-cost operations. Also, Nucor is not so much a best stock for Rare Earth Metals as it is for steelmaking. It has a good current valuation, profitability and momentum. Only its projected growth is less impressive.
Of the stocks mentioned in this article, Nucor seems to have the best cards for short-term price appreciation.
Wheaton Precious Metals (WPM)
It is an international streaming company that deals in precious metals. The company is based in Canada. According to reports, they have approx. Produces 26 million ounces of gold. Besides that, they sell over 29 million ounces of silver mined as a byproduct.
The company has a handsome portfolio and long-term contracts by the end of 2025, and the company has the right to purchase silver and gold at an average per ounce price of USD 5.81 and USD 451, respectively. It is a great opportunity to sell those at market price then and earn significant profits. Wheaton profited handsomely from its precious metal streaming contracts, with gold finishing in 2021 around USD 1,800 per ounce and silver over USD 22. Wheaton's low-cost business approach makes it an appealing option for precious metals investment.
On the other hand, its shares currently offer an unfavorable financial valuation. It would be safer to wait for a potential price correction.
Tip: WPM is not one of our best buys. Check here our best gold mine stocks.
Best ETFs for Rare Earth Metals to Consider
Investing in Rare Earth Metals is not easy. It is also difficult to determine what the best stocks for Rare Earth Metals are for the long term. We believe that for long-term investors who want to invest in rare metals, it is smarter to choose an ETF. This offers significantly less risk compared to individual stocks. In addition, it increases the likelihood of long-term price returns.
Any novice investor will be better off with one of the best ETFs for Rare Earth Metals instead of individual stocks.
VanEck Rare Earth and Strategic Metals ETF (REMX)
REMX is, in our opinion, the best ETF for Rare Earth Metals. This fund focuses specifically on mining companies that mine rare metals. Also, they focus on companies that provide raw materials for clean technologies and carbon reduction. But we don't exactly see this as a sustainable ETF right now.
REMX is a high-risk ETF. It owns only 20 positions, of which the top 10 holdings have about 60% weight. Moreover, these are mostly mining companies from Australia and China. This is far from our home, so it takes more knowledge to understand whether REMX is a good long-term investment. Finally, the fund is relatively larger with $8.6 billion of capital. The expense ratio is 0.59%.
VanEck Global Mining ETF (GDIG)
This is currently the only European ETF that offers investors global access to metals and mining stocks from developed and emerging markets. The ETF offers a broadly diversified portfolio of the major mining companies engaged in the extraction of basic commodities such as gold, silver, copper, nickel, zinc, lithium and iron ore.
VanEck Global Mining ETF is not so much one of the best ETFs for Rare Earth Metals. Instead, it is much more diversified into other commodities as well. For example, it contains 168 positions, of which the top 10 holdings have about 45% weight. This ranges from large mining companies like Vale SA and Rio Tinto to Whitehaven Coal and Allkem limited (rare earths).
For the long-term investor, we consider GDIG to be a better ETF than REMX, because it offers more diversification and therefore higher long-term profit opportunities. REMX can potentially give higher returns, but will also have higher volatility.
Note: if you are young, then consider these best ETF's for young investing as long-term buys.
Aberdeen Standard Physical Palladium Shares ETF (PALL)
In addition to REMX, there are specialized mutual funds for Rare Earth Metals. One example is the PALL ETF. This fund focuses purely on the underlying value of palladium. Just like this is with gold ETFs that follow the underlying value of gold. Its expense ratio is 0.60%. It has $319 million under its management.
Which fund do you think is missing from the best ETFs for Rare Earth Metals? Let us know in the comments below.