Meet the company that looks to gain a foothold where China dominates — rare earth elements

When it comes to rare earth elements — critical for many industries — it’s all about China. And more and more companies are trying to break the stranglehold the country has over its supply.

Rare earth elements, or REEs, are a group of 17 elements that are used in many industrial applications, most notably in fighter jets, robots, MRI scanners, and automobiles.

REEs are split into two categories: hard and soft. And while China is the major industry player in both the mining and refining of these elements, it especially dominates in hard rare earths like dysprosium and terbium, common in permanent magnets for electric motors and wind turbines.

With news this week that China is allegedly dumping REEs into the market to hurt US and foreign companies, developing an “ex-China” supply chain for companies like automakers and defense contractors is paramount.

That’s where Brazilian Rare Earths (BRE.XA) comes in. It’s one of many companies looking to meet that demand and provide non-China-based REEs.

The company acquired land in northeast Brazil, which it claims is a “globally significant … mineral province housing substantial volumes of both heavy and light rare earths.” BRE says its operation will be functional by 2028 for REE production and it will have its processing plant ready in 2030, which is significant. As Jefferies notes, it can take 10 to 15 years to bring a mining operation to viability.

In an interview with Yahoo Finance, BRE CEO Bernardo da Veiga discussed why it was so important for BRE and other firms to break China’s monopoly as Western governments and China’s other rivals look to “decouple,” as da Veiga puts it.

China is limiting the supply of raw materials and using those resources to produce its own high-value goods to boost its own economy and get out of the low-cost supply game.

“China doesn’t want to sell you rare earths, they want to sell you cars,” da Veiga said, meaning China wants to sell higher-margin finished goods to the world, as opposed to cheap materials. China wants to sell more cars in the global market, and that means keeping rare earths away from competitors.

“And that’s where we come in, because you need Western companies that have deposits that are located outside of China, or in friendly countries, to be able to develop these,” da Veiga said.

BRE isn’t the only operation in Brazil; the US government itself invested in the Serra Verde project in central Brazil.

“Rare Earth Magnet Demand is expected to grow substantially, driven by electric vehicles (EV’s), robotics, and advanced air mobility,” Jefferies analyst Mitch Ryan wrote in a note last week. “In the US, magnet demand is projected to increase fivefold by 2035 (albeit from a low base), with [EVs,] robotics, and new technologies such as drones and humanoid robots leading the way.”

Numerous companies in the US, Australia, and other REE-rich areas have announced deals for new fundraising, and even with government backstops or buying equity stakes in companies like MP Materials (MP).

BRE’s da Veiga argued that what sets his company apart is the high purity, or grade levels of the REEs in its tenements, meaning they’re cheaper and less environmentally intrusive to mine because the company doesn’t have to dig up so much earth to produce a given amount of metal.

“When we talk about grade, we say, ‘My grade is X percent.’ That is a summation of an entire line of the periodic table, and that’s problematic, because some of those elements are virtually worthless, and some of those elements are worth over $1,000 a kilo,” he said. “So what’s actually important is for you to look at each individual element, and what makes up the total grade to see how these projects compare from an attractiveness point of view.”

With hard REEs more rare than soft, the key is to make sure the grade of a certain project contains a decent amount of hard REEs, generally a ratio of 20 or 30 to 1 soft to hard.

BRE says it has one of the highest ratios outside of China. And that’s why BRE’s stock has been on a tear this year, up over 80%. It’s a bet on the company’s ability to viably produce and process REEs at scale.

That said, victory isn’t assured.

Headwinds include the possibility that permitting won’t come through on time, or China suddenly deciding to flood the market with REEs to take down its competition — which allegedly just happened.

Da Veiga doesn’t foresee any issues with the permitting process in Brazil, as the tenements are not in geographically sensitive areas.

In terms of growth, BRE recently concluded a 120 million AUD ($78 million) fundraise in October and has struck a strategic partnership with French REE mining firm Carester for technical expertise in producing and processing REEs at its site.

The Carester relationship is a great way to get BRE up to speed and de-risks the company from a technical standpoint, da Veiga said, but the relationship is mutually beneficial.

“They’re getting a consulting fee, but what they really want is the off-take. So part of the products that we make will go to them, and they will then further process that themselves,” he said.

It’s that “off-take,” or excess capacity, that Carester wants — and it’s why BRE investors are willing to pay up for the stock of a company that hasn’t mined anything yet.

Pras Subramanian is the Lead Transportation Reporter for Yahoo Finance. You can follow him on X and on Instagram.

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