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Metals Make the Metaverse Go Around: The Elements of Power
“You have probably never heard of most of the rare-earth elements, yet they have insinuated themselves deep into the fabric of modern life - in ways of which most of us are completely oblivious.
More than 85% of the world's supply of rare-earth metals comes from China.
And practically 100% of the "heavy" rare earths - at the farther end of the periodic table - come from China.”
I recently conducted an informal survey among friends and a few folks in my Twitter community. I asked everyone to name one or two elements they thought their cell phone might contain.
The most common answers were:
· Copper
· Silica
· Lithium
· Aluminum
· Tin
Other responses included glass, petroleum, and sand. I wouldn’t expect people to know some of the more obscure elements on the periodic table, of course -- but I do believe most would be rather surprised to discover some of the elements in their phone that make the technology possible. Without them, we would all still be walking around with the 70’s version of the cell phone – somewhat akin to holding a brick next to our ear.
The Oxford dictionary defines a smartphone as a “mobile phone that also has some of the functions of a small computer.” That typically means the ability to check your email, browse websites, and use software that require the internet.
Where cell phones gave us the ability to call and text without a physical phone line, smartphones provide us with full online access and much richer functionality.
The technological advances that made your smart phone possible are the same ones that enabled you to watch Netflix on a flat screen TV last night, instead of that clunky old CRT set you had growing up.
"There are between 15 and 17 of rare earths, depending how you classify them, including such exotic sounding substances as holmium, praseodymium, cerium, lutetium, ytterbium, gadolinium or - my own personal favourite - promethium.
They may be obscure, but they have been transforming all sorts of industries. Wind turbine manufacture is a good example.
They are known as "rare" because it is very unusual to find them in a pure form, but it turns out there are deposits of some of them all over the world - cerium, for example, is the 25th most common element on the planet. The term "earth" is simply an archaic term for something you can dissolve in acid.”
According to David Abraham, author of the terrific and prescient book “The Elements of Power” about the struggle for a sustainable future in the rare metal age, your smart phone relies on nearly half the elements on the planet, enabling the devices to be smaller and more powerful. Awareness of rare metals is lacking because we don’t directly buy them like we do other commodities, such as gas or corn. Still, they are essential to almost every gadget we use.
“Rare metal digital technologies have transformed not only the way we travel, communicate, and shop but also our expectations. We have come to demand that technologies will become cheaper, more accessible, and more advanced each year – and that they do far more than many once thought possible…we use far more total resources. We don’t realize this dynamic because we pay little attention to the increasing complexity inside our gadgets. Nor do we understand the tenuous supply lines that support our habits.”
Some of the elements in your phone that allow the magic to happen are:
Indium - the invisible link, a transparent conductor between the phone and your finger
Europium & terbium - provide brilliant red & green hues on your screen
Tantalum - regulates power within your phone
Cerium - buffs the glass smooth to the molecular level
So if you’ve remained oblivious to these incredible resources found inside your indispensable device, why should you care now?
Apple is now accelerating plans to move a significant portion of its iPhone production away from Beijing’s influence. Chinese production has been “one of the linchpins to Apple’s historical success.”
It is estimated that China controls up to 90% of the refining and processing of critical minerals in the supply chain, more than 55% of the world’s rare earth mining, and 85% of the refining process of rare earth elements. To get a sense of the world’s dependence on China, critical figures show that the United States imported 98% of its processed REE from China in 2018, and China provided 98% of the EU’s supply of REE in 2021. While the world scrambles to secure supply chains for critical minerals and rare earths, China has long had a head start in the “race” through orchestrated and coherent strategic policies.
Since the discovery of rare earth deposits in Inner Mongolia in 1927, China has invested heavily into research and development of rare-earth technologies. In 1990, the Chinese government declared rare earths as a protected and strategic mineral. Projects on rare-earth mining and smelting required approval from the State Development and Planning Commission (SDPC), where foreign investors could only participate in joint ventures with Chinese firms.
Arguably, China’s control of the supply chain and protectionist measures contributed to the dynamic condition of today’s critical minerals and REE market. However, it is nonetheless true that more than two decades of strategic dependence on China accommodated its orchestration of a consolidated and meticulous strategy planning.
The US is prioritizing the “revival of its rare earth processing and production, as it once led the industry back in the 1960s. Tax credits were given to rare earth magnet companies and would increase to $30 per kilogram if all the component material is produced within the US. The European Battery Alliance has set the goal of sourcing 80% of Europe’s lithium demand from European sources by 2025. In 2022, Australia has established the Critical Minerals Strategy to develop a thriving and durable Australian critical minerals sector.
Environmental regulations are generally more stringent in the US, EU than in China. Competition in the industry is fierce as well, as western companies will have to compete against subsidized Chinese suppliers. In the near future, it is expected that the trend of securing domestic supply of critical minerals will lead to a tendency of increasing state-backed competition.
As the West seeks to decrease their supply chain dependence on China, investors would be wise to remain on the lookout for opportunities found in the rare earths industry.
I currently don’t hold rare earths in my portfolio, but companies on my watchlist are Lynas ($LYSCF), Energy Fuels ($UUUU), and Neo Performance Materials Inc. ($NEO.TO).
Though Neo currently operates dual supply chains inside and outside of China, its expertise in the sector as well as operations outside of Asia offer domestic growth opportunities. Neo plans to build up a Western rare earths supply chain (mine to magnet powders) and is already doing this with Energy Fuels supplied rare earth carbonate. Their SEDI filings present a small red flag for me, and I will be performing further DD on the company but they definitely remain of interest to me.
Steven Takascy of Lester Asset Management named Neo a top pick on December 5th's BNN marketcall:
Please DYODD and I would love to hear of rare earth opportunities on your radar!
I’m always happy to answer any questions that I can :)
BNN
Stephen Takacsy's Top Picks
Stephen Takacsy, president, CEO and chief investment officer at Lester Asset Management, discusses his top picks: Neo Performance Materials, Tecsys, and Northland Power.
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