Investing in ASX rare earths shares

Demand is growing for rare earths elements as industries discover more uses for them across a wide range of technologies.

A male geologist wearing a white hardhat and orange high vis vest talks on a walkie-talkie while staring at a rock showing mineral deposits

Image source: Getty Images

What are ASX rare earths shares? 

Companies listed on the Australian Securities Exchange involved in rare earths exploration, mining, production, refining, or distribution are considered ASX rare earths stocks. 

Rare earths comprise a group of 17 chemically similar metallic elements on the periodic table. They react with other elements in a way that makes them indispensable in many electronic, optical, magnetic, and catalytic applications. 

As such, industries use them in many modern technologies, including smartphones, wind turbines, electric vehicles (EVs), and defence applications.

Why invest in them? 

Investing in rare earths shares provides exposure to growing demand for the elements and the industries that rely on them. 

Many modern technologies use rare earths and demand will likely grow as the global economy becomes increasingly technology-driven and green-focused. 

Rare earths elements are less common than other minerals and metals, and their production is concentrated in a few countries, meaning supply is limited. This can lead to higher prices and potentially significant profits for companies involved in their production and distribution.

However, investing in these shares can be risky because the rare earths market is highly volatile and subject to fluctuations in supply and demand. Additionally, regulatory and environmental risks can be associated with rare earths mining and production.

Top rare earths stocks on the ASX  

More than 30 rare earths stocks are listed on the ASX, ranging in size from micro to large-cap companies. 

Junior explorers such as Nova Minerals Ltd (ASX: NVA) and Prospect Resources Ltd (ASX: PSC) have market capitalisations below $100 million.

Here are three of the top ASX stocks ranked by market cap from highest to lowest.

Company Description 
Lynas Rare Earths Ltd

Operates one of the world's premier rare earths deposits in Western Australia,

as well as the world's largest single rare earths processing plant in Malaysia
Iluka Resources Limited

Is building Australia's first fully integrated rare earths refinery, which will

have the capability to produce both light and heavy rare earths oxides
Arafura Rare Earths Ltd

Is developing the Nolans Project, a globally significant and strategic neodymium

and praseodymium project

Lynas Rare Earths

Lynas operates the Mt Weld mine in Western Australia, acknowledged as one of the world's premier rare earths deposits. The company also operates the world's largest single rare earths processing plant in Malaysia. It produces high-quality separated elements for export to manufacturing markets in Asia, Europe, and the United States.

The company's rare earths are used in many high-tech and future-facing applications. These include electronics, wind turbines, and hybrid and electric vehicles. As part of its 2025 growth strategy, Lynas is expanding its industrial footprint with a planned processing facility in Kalgoorlie, Western Australia.

Iluka Resources 

Iluka is building Australia's first fully integrated rare earths refinery, with the capability to produce both light and heavy rare earths oxides. As Iluka's rare earths are co-products of its mineral sands products, it will have a significantly lower mining footprint than many existing producers. 

Industries will use the rare earths produced at Iluka's refinery to create powerful permanent magnets essential to the performance of wind turbines and EVs. The strong outlook for these applications is expected to drive growing demand for the oxides. 

Other rare earths minerals produced by Iluka's refinery are necessary to manufacture catalytic converters. These are used for vehicle emission control of hybrid and petrol-fuelled cars, in modern rechargeable batteries, and as an alloying agent to create high-strength metals in aircraft engines.

Arafura Rare Earths 

Arafura operations focus on the Nolans Project, which will encompass a mine and processing plant. The project is located 135km north of Alice Springs in the Northern Territory. It is a globally significant and strategic neodymium and praseodymium project. 

These two rare earths are the key raw materials in ultra-strong permanent magnets. Once developed, the Nolans Project will become a major supplier of these critical minerals to the high-performance neodymium permanent magnet market.

Project construction will begin this year and take approximately two years to complete. Arafura also has other exploration projects in the Northern Territory and Western Australia.

Pros of investing in rare earths shares 

Increasing demand: A wide range of industries use rare earths metals, including renewable energy, electronics, defence, and medical technology. As these industries continue to grow, the demand for rare earths is expected to increase, creating potential investment opportunities.

Innovation: The sector constantly evolves, with rare earths companies developing new technologies and processes for extracting and refining these elements.

Diversification: Investing in rare earths stocks allows investors to access a sector that is not closely tied to traditional industries such as finance, energy, or manufacturing, so they can provide diversification benefits for a portfolio.

Environmental benefits: Rare earths metals are essential components in renewable energy technologies such as wind turbines and EVs. Investing in rare earths shares may support the transition to a more sustainable, low-carbon economy.

And the cons 

Volatility: The rare earths market is volatile, with prices and demand subject to rapid fluctuations. This can make investing in rare earths shares a high-risk proposition, as sudden changes in market conditions can lead to significant losses.

Environmental risks: Rare earths mining and production can have significant ecological impacts, including generating toxic waste, water pollution, and habitat destruction. These risks can lead to regulatory scrutiny, public opposition, and reputational damage that can harm the performance of rare earths shares.

Concentrated supply: The production of rare earths is concentrated in a few countries, particularly China. This can lead to supply chain disruptions, price manipulation, and political risks that can negatively impact performance.

Technological advances: The market for rare earths is constantly evolving, with new technologies and materials that compete with traditional rare earths products. This leads to shifting demand patterns and price pressures.

Are ASX rare earths stocks a good investment? 

Whether ASX rare earths shares are a good investment will depend on your financial goals and situation, investment strategy, time horizon, and risk tolerance.

They may not suit conservative investors who dislike large share price fluctuations due to volatility. On the other hand, if you have a lengthy time horizon and are willing to grin and bear the volatility, rare earths shares may offer some impressive long-term returns. 

With limited supply and growing demand, rare earths companies have the potential to earn high profits. However, the industry can be risky, and subject to fluctuations in demand, supply disruptions, and changes in government policies. 

This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a 'top share' is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a 'top share' by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

Motley Fool contributor Katherine O'Brien 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.