Weaponizing Rare Earths: Investing in Critical Minerals for National Security

The modern world runs on technology, and technology runs on critical minerals. Among these, rare earth elements (REEs) stand out as essential components in everything from smartphones to advanced military hardware. However, the concentration of REE mining and processing in a few nations raises concerns about supply chain vulnerabilities and the potential for weaponization. This article explores the strategic importance of rare earths, the risks associated with relying on single-source suppliers, and the investment opportunities emerging as countries seek to secure their access to these vital resources.

The Strategic Importance of Rare Earths

Rare earth elements are a group of 17 metallic elements that possess unique magnetic, conductive, and luminescent properties. Despite being labeled “rare,” these elements are relatively abundant in the Earth’s crust. However, they are difficult and costly to extract and refine, leading to a concentrated supply chain.

REEs are indispensable in various high-tech applications, including:

Defense Systems: REEs are used in electronic displays, guidance systems, lasers, radar, and sonar systems. The F-35 fighter jet requires over 900 pounds of rare earth elements, while a Virginia-class submarine needs over 9,200 pounds.
Renewable Energy: REEs are essential for manufacturing wind turbines and electric vehicle (EV) components.
Electronics: REEs are used in smartphones, computer hard drives, and flat-screen monitors.

The broad application of REEs across critical sectors makes them vital for economic growth and national security.

The Risks of Single-Source Dependence

Currently, China dominates the rare earth supply chain, controlling approximately 60% of rare earth mining operations and over 85% of processing capacity. This dominance gives China significant leverage over the global supply of these critical minerals.

The risks associated with single-source dependence include:

Supply Disruptions: Geopolitical tensions or policy changes could lead to export restrictions or disruptions in the supply of REEs. In 2010, China cut exports to Japan after a dispute, highlighting the potential for weaponization.
Price Volatility: A lack of competition and control over supply can lead to price manipulation and volatility, impacting industries that rely on REEs.
National Security Vulnerabilities: Dependence on foreign sources for critical minerals can compromise a nation’s ability to produce essential defense systems and technologies.

The F-35 fighter jet incident in 2022, where its engine required a rare earth magnet produced only in China, vividly illustrates the significance of critical minerals and the vulnerabilities in western industrial supply chains.

Investing in Critical Minerals for National Security

To mitigate these risks, governments and private companies are investing in developing diversified and secure rare earth supply chains. This creates investment opportunities across the entire value chain, from mining and processing to recycling and manufacturing.

Government Initiatives:

The U.S. Department of Defense (DOD) has awarded hundreds of millions in contracts to establish domestic rare earth element supply chains, including mining, separation, and refining.
The U.S. government is also streamlining the regulatory approval process for mining permits and increasing research and development in rare earth technologies.
The Minerals Security Partnership (MSP) is an initiative by several governments to establish alternative supply chains for critical minerals.

Private Sector Investments:

Mining companies are exploring and developing rare earth deposits in countries outside of China, such as the United States, Australia, and Brazil.
Companies are investing in innovative technologies to improve the efficiency and environmental sustainability of rare earth extraction and processing.
Recycling companies are developing methods to recover REEs from electronic waste, providing a secondary source of these valuable materials.

Investment Opportunities:

Rare Earth Mining Companies: Investing in companies involved in the extraction and production of rare earths can provide exposure to the growing demand for these minerals. Examples include MP Materials, which operates the Mountain Pass Mine in California.
Rare Earth Processing Companies: Companies that specialize in separating and refining rare earth elements are also attractive investment opportunities.
Rare Earth Recycling Companies: As environmental concerns grow and technology advances, companies that recycle rare earth elements from electronic waste are poised for growth.
Exchange-Traded Funds (ETFs): Investing in ETFs that hold a basket of different stocks related to the production of rare earth elements can provide diversification and reduce risk. The VanEck Rare Earth/Strategic Metals ETF (REMX) is one such option.

Advice

Diversification: Diversifying investments across different companies and stages of the rare earth supply chain can help mitigate risk.
Due Diligence: Thoroughly research companies before investing, considering their financial stability, technical expertise, and environmental practices.
Long-Term Perspective: Investing in rare earths requires a long-term perspective, as the development of new supply chains and technologies can take time.
Stay Informed: Keep abreast of geopolitical developments, policy changes, and technological advancements that could impact the rare earth market.

Conclusion

The weaponization of rare earths is a real and growing concern for national security. Investing in critical minerals and securing diversified supply chains is essential for mitigating risks and ensuring access to these vital resources. By understanding the strategic importance of rare earths and the investment opportunities emerging in this sector, investors can contribute to a more secure and sustainable future.