The Increasing Rarity of Rare Earths


The phrase "rare earths" is both an honesty and a falseness: rare earths are extremely uncommon, but if you dig up a spade full of your backyard you'll find a few millionths of a gram of metals like yttrium. Some rare earths are worth more per ounce than gold or platinum due to the high difficulty of 1) finding 2) extracting and 3) processing metals with funny-sounding names like bastanite and praseodymium. You may recall some of these metals from 9th grade chemistry class lurking around the bottom of the periodic table, but for the world electronics industry they're bigger names than iron or copper. What should you know about the investment potential for rare earths, which will be in higher and higher demand for the foreseeable future?

From Less-Than-Humble Beginnings

Yourself, myself, your computer screen, the Grand Canyon, and basically every other thing on the good planet Earth originally formed at the atomic level when a massive star, significantly larger than our own, went supernova. A main sequence star like the sun will happily churn out the fusion process of hydrogen to helium (if you call 27 million degrees hot "happily") for the vast majority of its life. During the final few million years, the star's fusion goes into overdrive, turning the helium into heavier elements -- first lithium, then berylium. This trends upwards to oxygen and then the star can no longer maintain the pressure pushing outwards with its mere mass alone. The heaviest elements in the galaxy are formed in the resulting explosion, from gold to ununoctium, including rare earths. Since these elements are heavy, they have the tendency to sink in Earth's crust, which is overwhelmingly lighter carbon. As such, there's plenty of rare earth metals at the very center of the planet (a balmy 6000 degrees in comparison to the sun) and significantly less on the crust, where we happily live in temperatures that rarely exceed triple digits. Thus, we have superstar explosions both to thank for the components of handy technology like Google Glass, but also their selfish nature for the rarity and resultant high cost of such components.

The Most Popular Elements In School

If rare earths had no more conducting power than silicon or no more tensile strength than titanium, then they would all remain buried in minute concentrations and investment markets would care no more for them than they do for the other small particles in dirt, like old beer bottles and dinosaur fossils. However, rare earths have a bevy of beneficial characteristics that make them the perfect solution for a number of electronical problems. Most hand-held technology relies on magnets to one degree or another, usually for storing data in a hard drive, but magnets have the unfortunate side effect of wiping a hard drive in close proximity (you can do an experiment with a $1 magnet and a $3000 computer to see which one turns into a useless pile of plastic and circuits if you so choose). Rare earths mitigate this thorny issue by condensing the magnetic field into a much smaller and lightweight package so that they store data without corrupting said data. Since select rare earths are good conductors but also act as resistors when chemically engineered, they can provide the necessary electrical conduction for a hybrid battery to both send and receive charge. A hybrid car's battery will include two dozen pounds worth of lanthanum which, at a price of $8 per gram, makes the battery's lanthanum worth about $4000. Rare earths are rare, but they're also all around you, making them especially valuable.

Scale Of Price, Scale of Demand

Ten years ago, you could have paid for enough dysprosium to power a computer's CPU with the change in your pocket. Today, the same rare earth metal costs you over $300 per pound. That figure isn't because the world is running out of dysoprosium but because absolutely everyone and their dog wants the parts for better computer CPUs. It's a runaway market that the mining community can't hope to satiate -- and certainly doesn't want to, not at their current profit margins. The world leader in rare earth mining is China, supplying the rest of the globe with some 97% of the total world's consumption fo rare earths, in totals of about 70,000 tons annually. That might sound like a lot until you realize that China mines over one billion tons of iron in the same stretch of time. It's further complicated by the fact that China plays the game of international economics by doing first what they want and long down the list doing what the rest of the world wants. That's a particular truism of rare earths: in a particularly nasty political jab five years ago the Chinese cut off Japan from rare earth exports for a full month, sending the stock prices of electronics companies like Sony, Mitsubishi, and poor Nintendo tumbling.

Why Supply Cannot Catch Up

After living through peak oil and (possibly) peak gold, investors may be wary of putting money into precious metals at a time when their value is at a historical high. It's a fair point to make, but there's a major difference between rare earths and other valuable metals, the most important of which being that it's extremely difficult to recycle rare earths once they have been processed. Platinum is never thrown away, but 130 million cell phones are tossed in the trash each year in the US. While some recycling programs allow cell phone owners to sell off a phone for (surprisingly valuable) rare earth scrap, most experts agree that less than 1% of all rare earths are re-used in circulation. As such, they're the perfect investment: their demand will remain high unless the greatest technology breakthrough in the history of human civilization replaces electricity as our mode of energy, communication, transportation, entertainment. The supply will remain painfully low because it's impossible to find high-yields and almost no metal is returning to the circulation. As such, investments in rare earth commodities like cerium, holmium, europium, and all others mentioned in this article make for a superb stake in the future of the technology industry.

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