Why Rare Earths Matter in Our Changing World

By Patricia Miller

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Rare earths are seeing rising demand as they’re used in many aspects of the green energy transition and modern life. They’re crucial and without them, many modern technologies taken for granted would simply not exist.

Rare earths consist of 17 obscurely named elements found in the periodic table. They must be mined and are often found clustered in geologic deposits Here, we discuss rising demand for rare earths in relation to Lucid Motors (NASDAQ: LCID), HP (NYSE: HPQ), Toyota Motor Corp (NYSE: TM), Tesla (NASDAQ: TSLA), and Defense Metals Corp. (TSXV: DEFN) (OTCQB: DFMTF) (FSE: 35D).

Rare earths are seeing rising demand as they’re used in many aspects of the green energy transition and modern life. They’re not as widely recognized as lithium or cobalt, but they’re crucial and without them, many modern technologies taken for granted would simply not exist.

Neodymium and Praseodymium Rule

A quick search through many electric vehicle (EV) company’s quarterly reports will show mention of rare earths such as neodymium (Nd) and praseodymium (Pr). For instance, Lucid Motors’ (NASDAQ: LCID) latest 10-Q, states supply interruption or shortage of any of these elements could materially and adversely impact its business. It’s not alone; similar wording appears in Volvo’s Polestar filings.

Meanwhile, Panasonic uses Neodymium magnets in its wearable immersive gaming speaker system. While HP’s (NYSE: HPQ) HyperX also uses neodymium magnets in several of its products.

Natural resources such as lithium and cobalt have enjoyed a booming run of investment in recent years. Escalating demand with tightness in supply leads to scarcity, causing prices to soar.

Elevated prices also lead to innovative new ways of working, from advanced extraction methods to more efficient use of the resource, encouraging competition. Since EV adoption has increased, innovation in lithium battery production has risen too.

Toyota Motor Corp (NYSE: TM) is leading the way in solid-state battery production with over 1,000 solid-state battery patents in play. That’s more than any other car maker. Solid-state batteries consist of solid electrolytes rather than liquid. Toyota believes this technology is a potential cure-all for many drawbacks facing EVs running on conventional lithium-ion batteries. For instance, the distance traveled on a single charge plus the time it takes to charge.

In contrast, Tesla (NASDAQ: TSLA) remains a fan of the traditional lithium-ion technology but is also making changes in how it commissions batteries. For example, Tesla has said it will start using lithium iron phosphate (LFP) batteries in its standard-range vehicles, also eliminating the need for cobalt.

Rare Earths Have Staying Power

While innovation is evident in the broader lithium and cobalt market, it’s yet to become a problem in rare earths. Indeed, the price of rare earths would have to exponentially rise before explorers and producers would see innovation as a cause for concern.

Defense Metals Corp. (TSXV: DEFN)(OTCQB: DFMTF)(FSE: 35D) is an advanced mineral exploration and development company operating in the rare earths space. The company has a distinct competitive advantage as its Wicheeda deposit has the potential to become a globally significant producer.

A recent Independent Preliminary Economic Assessment (PEA) commissioned by Defense Metals offers significant insight into the untapped potential of Wicheeda.

The PEA is based on 4000 meters of drilling, yet Defense Metals has already surpassed that. The company completed an additional 5,300 meters of drilling and has just begun a further 5,000m drill program.

Defense Metals has envisions approximately 25,000 metric tons per year of production for 16 years (as per PEA). The company expects its production outlook will grow, based on the success of their 2021 drill campaign.

Moreover, the PEA was based on $100/kg Neodymium and Praseodymium (Nd and Pr) long-term prices, which gives Defense Metals a net present value of more than $516 million. However, Nd and Pr are currently already over $150/kg. At $150/kg Nd and Pr, the company is valued at $1.6bn – beyond that, the upside potential is extensive. Current pricing is hovering around the $200 mark.

Defense Metals’ Wicheeda deposit would represent approximately 10% of the current global production of vital rare earths if it were in production today. And Defense Metals plans to get that to production within the near term.

Putting this in perspective, the current production of rare earths Neodymium (Nd) and Praseodymium (Pr) is going to have to grow by 100% in the next 10 years just to accommodate the electric vehicle (EV) production estimates that government EV adoption targets have mandated.

But that’s just the EV numbers. These rare earths are also required to generate renewable energy. So, to meet this mounting demand from several sectors, global production must ramp up much harder and faster if it hopes to keep up.

Conservatively Managed

Defense Metals compares favorably with several significant players currently operating in the rare earths space. That’s because competing companies face higher infrastructure CAPEX for their projects before they even begin building production facilities.

In contrast, Defense Metals is conservatively managing CAPEX while plans for refining processing facilities have been factored into the PEA.

The US recently passed a bill, ‘Restoring Essential Energy and Security Holdings Onshore for Rare Earths Act of 2022’. This aims to block defense contractors from using Chinese rare earths, which may prove beneficial to companies based in North America.

The defense industry is a major consumer of the elements, and the US wants to avoid shortages and reduce China’s dominance in the sector.

Lucid Motors (NASDAQ: LCID) is a Californian EV maker. It has set new EV standards for the longest-range, fastest-charging EV on the market in North America. Now it plans to expand in the European market. This includes two versions of its Lucid Air Dream Edition.

HP (NYSE: HPQ) is a personal computing company based in California. Two of its newest additions are business-ready Chromebooks, including one with a smart card reader. Warren Buffett’s Berkshire Hathaway recently purchased 121 million shares of HP.

Toyota Motor Corp (NYSE: TM) manufactures and sells motor vehicles and parts. In May, Toyota rolled out its first mass-produced battery EV in Japan for lease only. This is a strategy it says will help ease driver concerns about battery life and resale value. Toyota aims to lease 5,000 of these SUVs in the current financial year.

Tesla (NASDAQ: TSLA) relies on the continued supply of lithium-ion battery cells for its vehicles and energy storage products. It currently relies on suppliers such as Panasonic and Contemporary Amperex Technology Co. Ltd for its cells. In May, Tesla recalled certain 2021-2022 Model S and Model X vehicles and 2022 Model 3 and Model Y vehicles due to concerns that the infotainment CPU may overheat during fast-charging.

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