- Whether you’re planning to enter the mining industry or have a successful rare earth mining business, you’re going to need funding.
- Mining rare earth metals is especially challenging — but rare earth mining funding can be essential in seeing success in your business.
- Learn what rare earth metals are, the current opportunities in the industry, why you need rare earth metals mining financing, and the best options for funding in this article from Nav’s experts.
What Are Rare Earth Metals?
Rare earth metals, or rare earth elements (REE), are a collection of 17 minerals used to create many different pieces of technology that businesses, consumers, and governments rely on today. These metals are broken down into heavy rare earths and light rare earth metals, based on their atomic weight.
Rare earth metals are key components of renewable energy and energy technologies like electric vehicles (EVs), wind turbines, and solar panels. They are also essential in the functioning of many consumer electronics like smartphones, computer hard drives, and flat-screen televisions. Additionally, many defense tools like missile guidance, radar, and sonar systems use REE — in other words, these metals are important to most people, even if we aren’t aware of them. Once the metals are mined, they are used to create magnets or alloys that then go into the production of these products.
Several rare earth elements include terbium, neodymium, and lynas. The U.S. government also provides a larger list of 50 critical materials that are prone to supply chain issues. See a full list of critical minerals here.
These metals aren’t necessarily rare themselves, like the name implies, but the process for extracting and refining rare earth metals is difficult. Refining and processing operations can involve many steps. They can also be extracted from mining byproducts, industrial waste, and electronic waste for a more clean energy source.
State of the Rare Earth Metals Industry in 2023
As of 2022, China was producing higher levels of rare earth metals than any other country. China’s control over the rare earth elements market is a concern for staff in the U.S. Department of Defense (DOD) and the Pentagon. Because of worries over national security and the rare earth supply depending almost exclusively on China, the federal government plans to increase the domestic industrial base of rare earth elements. The Bipartisan Infrastructure Law (the Infrastructure Investment and Jobs Act, or IIJA) in 2021 outlined exact steps the government plans to take.
Companies are extracting rare earth elements (REE) in states like Texas, Wyoming, and California. MP Materials is the company that owns the Mountain Pass mine in California and has received millions of dollars in federal grants, for example.
Outlook on the overall mining industry is expected to improve in 2023 after a shaky previous year. However, the geopolitical conditions around the world will likely continue to affect the supply chain and the industry as a whole. For example, when Russia invaded Ukraine in 2022, the country had to close several facilities that produced noble gasses used to create specific microchips.
Is There Room for New Businesses to Enter the Industry?
Entering the mining industry in general is risky, because the price of metals fluctuates frequently and accessing the right equipment is a barrier to entry. This is especially true for rare earth metals, because China’s domination of the market means actions from Chinese companies can affect prices. However, it is possible to build a small mining company that becomes lucrative with the right tools — as long as you put the effort into planning before launch. The basic steps include:
- Complete detailed industry research
- Take classes to increase your know-how
- Establish your business
- Create a solid business plan
- Get funding
- Purchase equipment
- Hire employees
In terms of rare earth mining, the federal government is ramping up its focus on rare earth elements, which creates opportunities for businesses. The Bipartisan Infrastructure Law includes federal grants from the Department of Energy (DOE) that support rare earth projects. Businesses can apply for these grants for projects dedicated to research, recycling and reclamation, and security of critical minerals. These opportunities may be open to companies in the mining industry, as well as academic and research institutions. There are also other funding options that may be available to you.
Why Financing Is Necessary for Rare Earth Mining Businesses
Rare earth mining businesses experience big ups and downs in their value because of the volatility in how much metals cost. According to the research institution McKinsey & Company, mining companies can increase their “degrees of freedom” by taking out financing. This means that you’ll increase the stability of your mining company by using funding to cover costs during periods where your revenue is low. Financing can increase your chances of business success.
Types of Funding for Rare Earth Mining Companies
Before applying for funding, you’ll need to know what’s available to you. Here are the kinds of funding that may be right for your mining business.
1. Debt financing
Debt financing is taking out small business loans or other funding that your business pays back in installments over time, usually through monthly payments. McKinsey & Company recommends taking on debt when your business can afford the interest payments, usually when prices are higher or when interest rates are low.
2. Equity investment
It’s important to know the differences between debt and equity financing. Equity financing usually means that your business raises money by issuing stock to the public or by bringing on an investor. Rather than making a monthly payment, you’ll exchange a portion of ownership in your company and give up a percentage of your future profits. You can also look into private equity firms that invest in metals and mining businesses (typically junior or mid-tier companies).
3. Venture capital for rare earth mining startups
Another investment route you can choose is looking for venture capitalists who invest in mining businesses. Venture capitalists usually look for high-growth companies to invest in early and share a portion of the profits. By using a venture capitalist investor, you’ll get money to put toward your company goals in exchange for an agreed-upon portion of stake in your company.
4. Government subsidies: Critical minerals funding opportunities
Under the IIJA, President Biden announced the availability of federal grants, some of which are dedicated to critical minerals research, technology, and security. These grants mostly come from the U.S. Department of Energy and are meant to support research and innovation in rare earth mining. There are also grants related to rare earth security.
There are also related grants that support work to improve the rate at which batteries from electric vehicles are recycled or repurposed, which involves the recovery of critical minerals. See all of the current funding opportunities from the IIJA at whitehouse.gov.
5. Equipment leasing
Equipment financing and leasing are two great ways to build up the equipment you need for a new mining company. When you finance equipment, you take out a loan specifically for heavy machinery needed to perform mining operations. Once the loan is paid off, you own the equipment. With equipment leasing, on the other hand, you’ll make a monthly payment but will essentially be renting the equipment, which can be the right move, depending on your circumstances.
6. Business credit cards
Although you might not think of them first, business credit cards can provide access to capital that is essential to keep your business running during down periods. You’ll get a revolving line of credit that you can access as needed, and may be able to get a higher credit limit than you imagine. Keep in mind that the interest can be higher on business credit cards than other options.
7. Alternative funding options
If you can’t qualify for traditional funding, you can also look into alternative or online lenders. These lenders tend to have lower requirements for things like credit score, easy applications, and fast funding. Keep an eye on interest rates, however, since they may be higher than traditional bank loans.
This article was originally written on March 9, 2023.