Rare Earth Recycling: Risk to Sector or Investment Opportunity?

As investors focus their attention on new projects aimed at increasing rare earth supply, a growing number of manufacturers are choosing to channel their efforts and capital toward recycling rare earth elements (REEs).

Japanese auto maker Honda announced that it has established the world’s first process to reuse rare earth metals extracted from nickel-metal hydride batteries to “recycle precious resources.”

It has been extracting an oxide containing rare earth metals from used nickel-metal hydride batteries at the plant of Japan Metals & Chemicals Company, according to a company update. Until now, auto manufacturers have had to rely heavily on rare earths; that is why an increasing number have been examining alternatives to reduce or replace the REEs that they use. Honda’s press release explains that by applying molten salt electrolysis to the extracted oxide it has successfully extracted metallized rare earth that can be used directly as negative-electrode materials for newly manufactured hydride batteries.

High extraction levels; high purity

Under the newly defined process, Honda is able to extract over 80 percent of rare earth metals from the used batteries at more than 99-percent purity, which is the same level as products traded directly from mines after refining.

News of the project’s success has been a long time coming, with the manufacturing giant first alerting investors to its plans last year. At the time the move was considered as unsurprising as the Japanese manufacturing sector sought alternative means of REE supply on the back of China’s continuous indecision surrounding REE export quotas. Market uncertainty eventually led to Japan, the United States and European Union forming an alliance that moved in on the World Trade Organization (WTO) to challenge China’s restrictive export policies.

The company confirmed a mass test run has been scheduled whereby it will extract rare earth metals collected from 386 Honda hybrid vehicles that were damaged in the Great East Japan Earthquake in 2011. This extracted material will then be sent to a battery manufacturer, who will reuse them as negative-electrode materials for new hybrid vehicles.

Following this, and as soon as a sufficient volume is secured, it says it will then begin applying the same process and recycle metals extracted from used batteries collected by dealers around the globe. It concluded the ultimate goal is to extract metals not only from batteries, but all other components in its vehicle lines too.

A rush for alternatives

While Honda has impressed investors by succeeding in its recycling goals and its plans to commercialize this recycling process, it is not the only company focused on innovation. Since the industry underwent a severe shake up in 2008, more and more manufacturers have begun seeking alternative solutions aimed at either decreasing their dependence on rare earths, or securing their own REE supply.

In 2012, Toyota announced that it had developed a method to manufacture hybrid and electric vehicles (EVs) without the use of rare earth metals, while General Motors Company confirmed it was “close to a breakthrough” that would reduce its need for dysprosium, a rare earth in especially high demand. Japan’s Hitachi has been clear of its intentions to move away from the use of REEs, announcing¹⁶ in April last year a highly-efficient permanent magnet synchronous motor that employs an iron¹⁷-based amorphous metal in the core – and, crucially, no REEs.

Also, Ford  announced that its nickel-metal-hydride batteries will be replaced with lithium-ion alternatives in a move that could see the company cut 500,000 pounds of REEs from its manufacturing process annually, while the US Department of Energy’s (DOE) Ames Laboratory confirmed that it too is working towards creating a method to remove neodymium from the mix of other materials in magnets.

                  

What does this mean for investors?

While manufacturers are showing a clear indication to wean themselves off REE dependence, the fact remains that these alternative processes and solutions are still in the very early stages. As these companies attempt to remain one step ahead of their competitors in the hunt for alternative sources of rare earth metals, they remain a long way off being able to rely on these methods completely.

With that said, the auto industry is famed for innovation and its ability to progress projects at a faster pace than other sectors, especially that of junior exploration firms, and this is something that is likely to play on the minds of investors. Honda’s latest announcement is a case in point, whereby it successfully managed to streamline its REE recycling process to a level that it claims is commercially viable within the space of only 12 months. If it is able to follow through on its goals of implementing this process on a commercial scale it could be destined for great things in the market.

Taking into account that the vast majority of REE projects are still years away from production, investors would do well to keep up to speed on progressions relating to recycling processes like these. Most will be unwilling to invest in a one dimensional company banking solely on schemes such as this and instead many will be looking to diversify their portfolio by adding companies that are focused on recycling processes, as well as securing an adequate source of supply.

One such company/partnership to watch is Toyotsu Rare Earth Canada, a subsidiary of the Toyota Motor Group, who entered a joint venture with Matamec Explorations  in which it is able to acquire a 49 percent undivided interest in the Kipawa heavy rare earth element (HREE) Deposit, based in Quebec. Matamec and Toyotsu’s agreement will not be the only instance of a partnership like this with manufacturers well aware that they cannot afford to rely solely on REE reclamation.

There is money to be made in all of this. A bearish market has led many to question the future of the rare earth sector, with auto manufacturers offering an enticing alternative. In the short term, potential near-term REE producers will likely remain investor favorites; however in the longer-term manufacturers will likely draw in a larger share of commodity-focused investors.

If certain sectors, such as the auto manufacturing industry, is able to wean itself off its reliance on REEs, investors will be lining up to follow companies that have led the way in seeking alternatives, with Honda, Toyota and Ford likely to prove definitive in the direction in which the REE market moves forward in the long term. Investors need to think long term and while manufacturers might make up the lions share of the supply chain today, they could very well be leading the market in the future.


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