Mineral Monday: What you need to know about rare earths and which ASX shares are cashing in on them

The Australian government has designated rare earths as critical elements.

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Key points

  • ASX shares involved with rare earths have broadly outperformed over the past 12 months
  • Rare earths are designated as critical minerals by the Australian government for their vital role in high tech devices
  • China is still responsible for more than half of the annual global rare earths production

ASX shares exploring for and producing rare earths have delivered some of the best gains on the index over the past 12 months.

The miners have received some healthy tailwinds as the West moves to secure supplies of the diverse range of metals outside of China. To give you some context, in 2020 China was responsible for around 60% of global rare earths production.

The Australian Federal Government lists rare earths among its critical mineral designation.

According to the government website:

A critical mineral is a metallic or non-metallic element that has two characteristics:
1. It is essential for the functioning of our modern technologies, economies or national security and
2. There is a risk that its supply chains could be disrupted.

The government reports that Australia has a high geological potential for rare earths with a 2020 Economic Demonstrated Resource of 4.2 million tonnes. In 2020 Australia produced 20,000 tonnes of rare earths out of a total global production of 240,000 tonnes.

Below, we look at three of the bigger ASX shares hunting for and digging up rare earths.

But first…

What are rare earth elements?

Taking the broader definition, there are 17 different rare earth elements, with exotic (and hard to spell) names like praseodymium and ytterbium.

While rare earths are actually found in abundance, they're also generally found in very limited concentrations. That means miners need to do a lot of digging and sorting before extracting the valuable metals.

Rare earths' unique electronic and magnetic properties make them indispensable in developing many of today's technologies. Technologies like satellites, computers, smartphones, lasers, electric motors, and a wide range of military tech, from submarines to aircraft.

Hence the critical minerals designation.

So, which three ASX shares are producing rare earths?

Three ASX shares cashing in on rare earths

Starting with a mid-cap stock, we have Arafura Resources Limited (ASX: ARU), which has a market cap of $420 million.

Arafura's flagship Nolans Project is located in the Northern Territory. According to the company, the project (under development) has the potential to supply "a significant proportion" of the world's neodymium and praseodymium (NdPr) demand.

The company received a welcome boost last month when it announced an offtake agreement with global vehicle manufacturer Hyundai Motor Company.

The Arafura share price is up 119% over the past 12 months. That compares to an 11% loss posted by the All Ords over that same time.

Moving on to the second ASX share cashing in on rare earths we have Iluka Resources Limited (ASX: ILU), with a market cap of $3.7 billion.

Iluka prospects globally for rare earths, with projects across Australia and in Sierra Leone. It is currently developing its Eneabba rare earths refinery in Western Australia. The company expects construction to commence in the second half of 2022, with the first rare earth production slated for 2025.

The Iluka share price is up 10% over the past 12 months.

This brings us to our third, and biggest, ASX share in the rare earths space, Lynas Rare Earths Ltd (ASX: LYC), with a market cap of $7.6 billion.

Headquartered in Perth, Lynas is the world's second-largest producer of rare earths. It is currently the only significant producer outside of China.

The ASX share operates in Australia and Malaysia. Its Australian concentration plant is located at Mt Weld, Western Australia. Additionally, it has an advanced materials plant in The Gebeng Industrial Park in Malaysia.

The Lynas share price is up 57% since this time last year.

You can find out which ASX shares are cashing in on cobalt, lithium and vanadium in more of our 'Mineral Monday' series.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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