Why Rare Earths Are the New Strategic Frontier

When it comes to the 24-hour financial news cycle surrounding technology, semiconductors often dominate the headlines. However a group of 17 chemically similar elements known as Rare Earth Elements (REEs) serve as the “silent engine” behind the modern global economy. In a recent Metals in Motion episode, Steve Schoffstall, Head of ETFs at Sprott Asset Management, highlighted the growing opportunity in the rare earths market. It’s currently valued at $14 billion, and is on track to more than double by the mid-2030s.

See More: Rare Earths vs. Critical Materials: Navigating 2 Distinct Opportunities

Strategic Importance of REEs

Referred to in the interview as the “vitamins of modern industry,” REEs are not only rare, but essential due to their unique magnetic and conductive properties. Schoffstall cited specific sectors driving REE demand like AI, defense, and energy. As such, demand for REEs has surged 78% since 2020.

The defense sector, in particular, is heavily reliant on these minerals. To provide an example, Schoffstall noted a single F-35 fighter jet requires 900 pounds of rare earth materials to build the aircraft’s guidance systems and engines. Additionally, the burgeoning field of humanoid robotics, permanent magnets required for wind turbines, and electric vehicles (EVs) have turned rare REEs into a matter of national security due to their economic importance.

REXC: A Rare Earths Opportunity

While the growth prospects for REEs presents a potential investment opportunity, a risk to consider is supply chain concentration. While the U.S. dominated the market until the 1990s, China now controls 69% of mining as well as over 90% of refining and magnet production.

“China has shown a history of looking to weaponize their ownership over the supply chain,” Schoffstall warned, citing export restrictions imposed on Western countries.

In turn, Western nations are “friend-shoring” the supply chain. The U.S. government has begun taking direct stakes in rare earth miners while the G7 is exploring “price floors” to protect new Western mines from Chinese price manipulation.

To navigate this evolving landscape, Sprott launched the Sprott Rare Earths ex-China ETF (REXC). As Schoffstall mentioned, REXC provides investors with:

• pure-play exposure to rare earths by maintaining a targeted 95–96% allocation to rare earth companies.
• vertical integration by investing across the entire supply chain, including exploration, mining, and the critical downstream separation and refining processes.
• ex-China exposure by intentionally excluding Chinese companies, aligning with the strategic re-shoring efforts of Western allies.

As demand for REEs increases, REXC offers investors a targeted way to capitalize on the structural demand for these indispensable materials while mitigating the geopolitical risks that could affect the supply chain.

For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Content Hub.

Disclosures

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Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance.

Sprott Asset Management USA, Inc. is the Investment Adviser to the ETFs. ALPS Distributors, Inc. is the Distributor for the ETFs and is a registered broker-dealer and FINRA Member. ALPS Distributors, Inc. is not affiliated with Sprott Asset Management USA, Inc. or VettaFi.

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