While rare earth elements (REE’s) are relatively plentiful, they are rarely found in economically mineable concentrations. The 17 metal elements classified as rare earths are “light” (lanthanum to samarium) and the substantially more expensive “heavy” elements (europium to lutetium).

China is both the largest producer and consumer of REE’s, while Japan and the United States are the second and third-largest consumers. REE’s have many important uses, including computer memory, rechargeable batteries, cell phones, catalytic converters, magnets, lighting, wind turbines, hybrid vehicles, the defense industry and much more. The U.S. government also classifies several REEs as critical.

Over the past twenty years, demand for devices requiring REE metals has exploded, particularly in high tech and green technology. China is, by far, the world’s leading REE miner. Most Chinese production comes from China North Rare Earth Group Co. (formerly Inner Mongolia Baotou Steel Rare-Earth, Group, Hi-Tech Co). CNRE's giant mine in Bayan Obo, Inner Mongolia, produces more than the rest of world's REE mines combined as a by-product of iron ore mining. The Bayan Obo mine's more than 40 million tonnes of reserves, is an estimated 70% of the entire world's REE reserves. CNRE's annual processing capacity is 73,500 annual tonnes. In September 2010, China imposed export restrictions on REEs, triggering a rapid price upswing that spiked during 2011. In the U.S., Molycorp (owner of the Mountain Pass REE mine) became a stock-market star. Investors who bought into the company at the time of its July 2010 IPO at US$14 a share saw the stock touch US$79.16 in May 2011. Then, the REE boom ended almost as quickly as it began, with prices posting steep declines in 2012; the world faced an REE glut and prices have continued to fall since. The price collapse caused suspension of exploration and the elimination of possible new mines in the short term. Molycorp in the US and Lynas Corp in Australia were the main non-Chinese miners until Molycorp went into bankruptcy in 2015, leaving Lyna’s Mount Weld mine as the only major producer outside China. REE supplies and prices declined further when Beijing scrapped its export quota system after losing a U.S.-European-Japanese World Trade Organization challenge. A surge in exports from China since the WTO ruling has caused a further 20% to 65% slide in prices so far in 2016. In a recent news release, the Chinese Ministry of Industry and Information Technology said the country will limit its annual mining of rare earth’s to just 140,000 tonnes by 2020 (compared to 105,000 tonnes in 2015). The strategic move may be a way for China to bring REE pricing back to a sustainable level, as many analysts believe China producers today, are losing money.

Despite this, analysts expect the current low prices to prevent these countries from overtaking China's market share anytime soon. As a result, the US and Europe will continue to depend on China for more than 90% of their REE imports, and China is expected to retain its dominance for many years. Compared with the 2011 boom, there are currently limited opportunities for rare earth investment. While low REE prices could result in substantive gains; for an REE investor, timing is indeterminate and risk is high. However, the intensive demand for REEs in the high tech and green technology sectors suggest strong ongoing demand. One investment possibility is the Market Vectors Rare Earth/Strategic Metals ETF. With assets of just US$39 million, it peaked at US$112 in 2011 and is trading around US$16 today, down close to 20%, 2016 year to date. Lynas Corp (Weld mine in Australia) is widely seen as one of the few production investment options. It is currently trading at A$0.06 against a high of A$2.60 in 2011. Another potentially promising investment option over time is to invest in exploration and development companies, especially those with high in-the-ground heavy REE values. Since prices for the foreseeable future are highly dependent on China's REE export policy, rare earth investments remain speculative and high-risk. However, this dependence will likely decline over time with the development of REE deposits outside China. Before making any investment decisions in RRE opportunities, investors should seek advice from professionals with an in-depth knowledge of the industry. - Peter R Jones, Executive Vice President, Century Global Commodities Corporation