HT GanzoAs the world addresses climate change, rare earth metals play a leading role. Aside from applications in EVs and other clean energy initiatives, rare earth metals are critical inputs in electronics, aerospace, and defense. Manufacturing permanent powerful magnets are the single leading end use of rare metal metals.
However, lights, screens, glass, catalysts, batteries, steel alloys, and many other manufactured products require the elements. Periodic Table of Elements (rareelementresources.com)Rare earth elements are 17 chemical elements in the periodic table, specifically the fifteen lanthanides plus scandium and yttrium. Scandium and yttrium are rare earth elements because they occur in the same ore deposits as the lanthanides and exhibit similar chemical properties.
In a September 8, 2022, Seeking Alpha article, I highlighted the REMX ETF product that holds shares of the non-Chinese companies that produce, refine, and recycle rare earth and strategic metals and minerals. On September 8, REMX was at the $99.44 per share level; on December 27, the price was lower at $77.16. In that article, I highlighted the Chinese supply and processing monopoly in rare earth metals and how the U.S.
and its allies are scrambling to increase output as 'national security concerns will likely support rare earth metal production that reduces Chinese dominance.' Lynas Rare Earths Limited (OTCPK:LYSDY) is an Australian producer with interests in Australia and Malaysia. LYSDY delivered a far higher percentage gain than REMX since the March 2020 low In March 2020, as the global pandemic gripped markets across all asset classes, causing fear, the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) fell to a $23.91 per share low. Chart of the REMX ETF Product (Barchart)The chart shows that at $77.86 on December 27, 2022, REMX had gained 225.6%.
In April 2022, REMX reached a high of $127.50 per share, a 433.2% gain from the early 2020 bottom. Meanwhile, Lynas Rare Earths Limited ADRs fell to 55.08 cents per share in March 2020. Chart of LYSDY Shares (Barchart)At $5.3750 per share on December 27, 2022, LYSDY shares were 875.9% higher than the March 2020 low.
At the April 2022 $8.73 high, the shares appreciated 1,485% from the early 2020 low. LYSDY ADRs outperformed REMX on a percentage basis since the pandemic's lows. Lynas is an Australian mining and processing company Lynas Rare Earths Limited's company profile states: LYSDY Company Profile (Seeking Alpha)The company's website stresses that it was 'established as an ethical and environmentally responsible producer of rare earth metals and is the world's only significant producer of separated rare earth materials outside of China.' LYSDY's Mt Weld mine in Western Australia is one of the world's premier rare earths deposits, and the company operates the world's largest single rare earth processing plant in Malaysia, where it produces high-quality separated rare earth materials for export to manufacturing markets in Asia, Europe, and the United States.
As China produces and processes the lion's share of rare metal elements, LYSDY is a critical mining company for countries that have trade and political issues with China. At $5.375 per share on December 27, LYSYD had a $4.815 billion market cap. An average of 91,428 shares change hands daily.
Revenues and operating expenses, and income have been on an upward trajectory: LYSDY Income Statement (Seeking Alpha)The results justify the rise in the share price, and a continuation of the recent trend could push LYSDY shares higher in 2023 and beyond. REMX holds an over 6% exposure to LYSDY shares REMX is the most liquid rare earth and strategic metals ETF product. REMX's top holdings include: Top Holdings of the REMX ETF Product (Seeking Alpha)The chart highlights REMX's 6.09% exposure to LYSDY, its fifth-leading holding as of the end of November 2022.
Investing in rare earth metals is challenging as the leading producers are Chinese companies with requisite risks. While the metals are critical strategic commodities, they do not trade on any futures exchanges, preventing direct investment. REMX's top holding is Pilbara Minerals, another Western Australian mining company.
Pilbara produces lithium and tantalite but no rare earth minerals. REMX holds 8.31% of its assets under management in Pilbara shares. Of the companies in REMX's portfolio, LYSDY stands alone as a leading non-Chinese rare earth metals producer and processor.
The global bifurcation between nuclear powers makes rare earth production critical In February 2022, Chinese President Xi and Russian President Putin shook, creating a 'no-limits' alliance. A few weeks later, Russia invaded Ukraine, starting the first major war in Europe since World War II. Meanwhile, China has declared its plans to force reunification on Taiwan and has conducted aggressive military exercises over the past months.
The Chinese-Russian alliance has bifurcated the world's nuclear powers. China's control of the rare earth metals market poses a national security threat to the United States, Europe, Japan, Australia, and their allies. In the September 8 Seeking Alpha piece, I highlighted Chinese dominance in rare earth metals and how the Trump and Biden administrations ordered the Defense Department to fund more at-home output of rare earth elements for military-grade products and clean energy technologies.
Rare earth elements' technological applications make them a national security issue. The deterioration of relations between Washington, DC, and Beijing has only made the need for sourcing these metals more crucial. Risk is always a function of potential rewards The demand for rare earth metals will grow, but mining and processing continue to present environmental challenges.
One of the reasons why China leads the world in extraction and processing is the leadership makes environmental concerns secondary. The U.S., Europe, and their allies emphasize climate change and the harmful impact of mining and processing activities. While Lynas extracts rare earths in Australia, the company processes the elements in Malaysia.
At the $5.40 per share level on December 27, LYSDY shares could have lots of upside potential. However, the risk is always a function of potential rewards, and while LYSDY shares are nominally inexpensive, they traded below the 60 cents level in early 2020. When investing in rare earth metals, the critical commodities of the present and future, LYSDY is one of the purest non-Chinese options.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.