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Rare earths are an untold sustainable investment story – RWC’s Fenton

Investments in rare earths sit at the perfect intersection of a drive towards a more sustainable energy infrastructure globally, presenting an ideal investment opportunity, according to RWC Partners’ Clark Fenton

With emissions from burning fossil fuels exacting an unsustainable cost in the form of climate change and its adverse consequences, Fenton says new sources of energy are critical in order to navigate a more sustainable course to power the economy and support the population.

Key materials, such as copper, nickel and uranium, will play a critical role in transitioning to cleaner energy and Fenton is particularly positive about opportunities within rare earth commodities.

“Unlike many commodities, rare earths do not have traded futures, so the investment opportunity lies in companies extracting and refining the materials.  Currently, both the demand and supply sides are converging to boost the price of rare earths significantly”.

Rare earths, particularly Neodymium and Praseodymium (NdPr), are used to produce some of the world’s most powerful permanent magnets. While useful in a variety of technologies, permanent magnets are key components in electric vehicles (EVs) and many wind turbines, both high-growth segments in the race to reduce emissions.

Fenton commented, “Both EVs and wind power have a major role to play in the sustainable energy transition. Announcements such as Boris Johnson’s in the UK that new petrol and diesel cars will be banned for 2030 draws a clear pathway for EVs to become the go-to option in car manufacturing.

“Rare-earth (NdPr) magnets feature in more than 90% of EVs, and magnets in EV powertrains are anticipated to grow by 15x over the next decade. By 2035 it is estimated that EVs alone could consume 100% of current annual NdPr production.[1] Furthermore, demand for magnets to supply to wind turbines is expected to grow at a 9.4% compound annual growth rate[2].”

“What makes this investment opportunity particularly compelling is not only this demand dynamic for the materials themselves, but also the limited way investors can participate. There are only a handful of companies listed outside of China with meaningful rare-earths productions,” says Fenton.

“Companies which seek to mine and refine these critical components in a more environmentally friendly manner will benefit greatly from the move to a more energy aware world.”

[1] MP Materials company presentation, July 2020

[2] Bloomberg NEF, “Rare-Earth Demand in Clean Energy”, September 2020

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