Rare earths have been getting a lot of mentions lately as demand continues to soar for the group of metals.
This has seen an uptick in demand for rare earths stocks, but not so much for the underlying metals themselves.
Curiously, rare earths actually aren't all that rare.
They are, however, absolutely critical in the production and manufacture of a broad array of products. These products span segments ranging from defence to convection heating and of course, electric vehicles. Primarily, rare earths are used in magnets for each application.
It should come as no surprise, therefore, to see the boutique and well-known investment advisory firm Jevons Global (JG) laying out its investment thesis on the "rare earths complex" in a recent report.
Rare earths to flourish
In the analysis from JG, Dr Kingsley Jones provides a deeper insight into the functions of rare earths. He describes their critical nature to society, and of course, the value proposition at hand.
Dr Jones notes that whilst China is the number one global producer of rare earths, Australia sits in sixth spot "but ranked as the leading reserve nation amongst the developed world mining jurisdictions".
As part of the report, JG has developed a core basket of active producers, advanced development projects, and exposure to "promising downstream ventures".
JG chose companies based on their current production status, on the quality of feasibility studies, and how close they are to a final investment decision.
Within that group, five stocks are listed, and immediately two names stand out.
Why this advisory backs Lynas shares
First is Lynas Rare Earths Ltd (ASX: LYC).
Perhaps one of Australia's better known rare earths miners, Lynas shares have caught a bid lately following recent company updates.
Last week Lynas announced a $500 million expansion at its Mt Weld operations in Western Australia. Just prior to this, it posted its Q4 FY22 earnings report.
Both updates were received positively by the market.
Meanwhile, JG also names Iluka Resources Limited (ASX: ILU) in its core rare earths basket. Iluka has a unique exposure to the rare earths segment.
It is a major exporter of mineral sands. This is a class of minerals that contains a number of essential ingredients for the manufacture of industrial metals and goods.
It also mines monazie and xenotime, both of which fall under the rare earths umbrella.
"Lynas Rare Earths and Iluka Resources enjoy very strong positions as anchor firms for an integrated mines to metals strategy," Dr Jones writes in the report.
"Whilst the dominance of these 2 players may distract investor attention from worthy new entrants, we consider the health of the industry will depend on a portfolio approach to investment," he added.
Lynas and Iluka shares are up 61% and 6% over the past 12 months of trade respectively, as seen below.
