What Are Rare Earths?
Rare earth elements (REEs) are 17 metallic elements crucial for producing magnets used in electronics, renewable energy, and defence technologies. Though not scarce, they are expensive and complex to refine. Australia ranks among the top five producers globally, but China dominates with almost half the world’s reserves (44 million metric tonnes compared to Australia’s 5.7 million).
Production And Processing
While exploration continues globally, China leads production and processing by a large margin, producing around 270,000 tonnes in 2024. The US follows with 45,000 tonnes, while Australia produces 13,000 tonnes. Processing capacity remains a key differentiator for investment potential.
Australia's Strategic Position
The new US–Australia Framework for Securing Supply of Critical Minerals and Rare Earths commits both nations to invest at least US$1 billion each to strengthen critical mineral supply chains and reduce reliance on China. These initiatives aim to diversify supply, accelerate approvals, and attract private investment through government-backed funding.
Investment Opportunities And Risks
The International Energy Agency forecasts that rare earth demand could double by 2040. Investors can gain exposure via:
- Direct investment in ASX-listed companies (e.g. Lynas, Arafura, Iluka)
- ETFs or managed funds focused on rare earths
- Private equity or venture capital, offering high-risk, high-reward potential
However, risks include geopolitical uncertainty (e.g. US policy changes), environmental challenges from extraction and processing, and potential price manipulation by China. Mines also have long development timelines, often up to seven years.
The Bottom Line
Rare earths are a growing but volatile sector, central to key industries like renewable energy and defence. While long-term growth potential is strong, short-term fluctuations are likely due to political and market forces. Investors should remain patient and consider their broader investment strategy before entering this space.
As always, if you would like to discuss the contents of this newsletter don’t hesitate to contact our office at 1300 720 696.
