Rare earth elements have geochemical properties that make them typically dispersed and not often found in concentrated and economically exploitable forms [Wikipedia]. These metals are used in many hi-tech devices. In particular, rare earth elements are used in clean energy applications such as wind turbines, electric vehicles, photovoltaic cells and energy-efficient fluorescent lighting. Clean energy technologies currently constitute only about 20 percent of global consumption of critical materials. However, their share of total consumption is expected to grow as the use of these clean energy technologies is expected to grow rapidly.
Source: Critical Materials Strategy, U.S DOE, 2010.
Export restrictions placed by China for rare earth metals have raised conserns of supply disruptions. However, the Critical Materials Strategy published by U.S Department of Energy in December 2010 points out that only a handful of rare earth elements are actually at risk of supply disruptions in medium term (5-15 years).
Table 1. Critical materials for clean energy technologies (Data source: Critical Materials Strategy published by U.S Department of Energy in December 2010)
The table 1 summarizes the key data in the DOE report in my opinion. The materials that are either listed as critical (red) or near critical (yellow) are bolded. The ”criticality”-factor in the table is a sum of “supply risk” (1 = low; 4 = high) and “importance to clean energy” (1 = low; 4 = high) as determined by DOE in their report (see pictures below from the report for reference). Higher number indicates higher risks.
Short term Criticality Matric. Source: Critical Materials Strategy, U.S DOE, 2010.
Medium term Criticality Matric. Source: Critical Materials Strategy, U.S DOE, 2010.
If you want to know more about these critical materials I suggest that you check this rare earth primer, this excellent article about lithium and information about the periodic table.
Only five metals continue to be critical in terms of supply risk in medium term (5-15 years).
• Dysprosium (Heavy REE) is used in permanent magnets for wind turbines and vehicles with electric drive trains.
• Neodymium (Light REE) is used in batteries for vehicles with electric drive trains and in permanent magnets for wind turbines and vehicles with electric drive trains.
• Terbium (Heavy REE), Yttrium (Heavy REE) and Europium (Medium REE) are used in fluorescent lighting phosphors.
Most rare earth mines in operation provide lots of Lanthanum and Cerium as will do those mines that are the most likely to come online in the next 5 years. Therefore, Lanthanum and Cerium supply situation looks rather good compared to many other strategic materials.
Table 2. Projects that have possibility to come online in the next 5 years (Data source: Critical Materials Strategy published by U.S Department of Energy in December 2010)
The most attractive rare earth elements are naturally the ones with the highest risk of supply disruptions in medium term (5-15 years): Neodymium, Europium, Terbium, Dysprosium and Yttrium. These metals are highlighted as red in the table above. In terms of critical REO content out of total REO, the projects can be ranked as follows:
1. Alkane Resources: Dubbo Zirconia project (32,3%)
2. Avalon Rare Metals (AVARF.PK): Nechalacho project (29%)
3. Great Western Minerals (GWMGF.PK): Hoidas Lake project (24,3%)
4. Arafura Resources (ARAFF.PK): Nolans Bore project (22,3%)
5. Lynas Corporation (LYSCF.PK): Mount Weld project (15,7%)
6. Molycorp (MCP): Mountain Pass project (12,2%)
7. Vinacomin/Sojitz/Toyota-Tsusho: Dong Pao project (10,7%)
I happened to notice that Lynas Corporation has reported a bit different distribution of REO materials in their investor presentation from March 2010. Based on that report, the percentage of critical REO out of total REO is 19,1%. Nevertheless, I decided to go with DOE figures to be consistent as it was not possible for me to get data from all these corporations regarding exact REO content. Before investing in any of these companies, I suggest a thorough review of their resources and other projects as well as funding.
Lithium and two other metals determined as “near critical” to clean tech by DOE
Three metals are determined to be “near critical” in medium term (5-15 years).
• Lithium is used in batteries for vehicles with electric drive trains.
• Indium and Tellurium are used in photovoltaic thin films for solar cells.
Regarding Lithium the U.S. DOE reports: “Lithium is the only key material that shifts into a higher criticality category from the short to medium term. This change is due to the rapid increases in market penetration projected for vehicles using lithium-ion batteries, which increases lithium’s importance to clean energy. This market penetration would significantly increase demand even as lithium production capacity increases, thus increasing supply risk slightly.”
Lithium is best played in my opinion with Global X Lithium ETF (LIT) that includes lithium miners and battery manufacturers. The valuations of most companies included in the ETF are quite reasonable when compared to rare earth companies that are not even producing anything yet.
Full disclosure: Long LIT.
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