Seeking out ETFs for those hoping to capitalise on ‘critical minerals’
The world is in the midst of a major transition to clean energy. To make the changes as smooth as possible, ‘critical minerals’ are likely to play a huge role.
Critical minerals can be defined as metals and non-metals which are considered essential for the development of the world economy, while also having geological scarcity, as well as other supply constraints.
Depending on who you ask, the list of critical minerals can be as long as a piece of string.
This article will focus specifically on: uranium, cobalt, lithium and copper, outlining why they are so important, and also how investors may be able to capitalise via ETFs on their rising values.
They are four elements which the world will turn to as it seeks to head in the direction of net-zero carbon emissions.
North Shore Global Uranium Mining ETF
Uranium’s key function, and perhaps the most transformational use case out of all, is to power commercial nuclear reactors, thereby producing electricity, in addition to producing isotopes for medical, industrial and defence reasons across the world.
This is despite its long-standing reputation as being highly dangerous due to its involvement in historical tragedies. However, the chemical element is clearing up its name, day-by-day.
Uranium ETFs have been going nuclear as of late, aided by a meme-stock rally, as everything to do with uranium soared in the build-up to COP26.
The North Shore Global Uranium Mining ETF, which involves a basket of companies that are involved in the mining, exploration, development and production of uranium, is up by over 228% in the last 12 months.
With the oil price surging above $80 a barrel, the uranium sector and North Shore Global Uranium Mining ETF could be worth keeping an eye on.
VanEck Vectors Rare Earth/Strategic Metals ETF
Cobalt is critical for the production of lithium-ion batteries, which makes up around 50% of its demand worldwide. The batteries are needed to power portable electronic devices, electric vehicles and stationary storage cells.
Cobalt is a highly sought-after substance that is a key component in lithium-ion batteries used in electric vehicles and battery storage systems.#biofuel #electrcivehicles #cop26 #ClimateActionhttps://t.co/07uvQLGufR— Asia Financial (@Asia_Financial) November 13, 2021
Lithium has also seen a rise in demand, especially as more and more people buy electric vehicles, and continue to do so. Along with cobalt, it is used to make lithium-ion batteries.
Finally, copper is vital in electric wiring and transportation and is playing a growing role in the alternative energy sector, specifically in the production of wind turbines, solar panels and electric vehicles. Electric vehicles require four times as much copper as conventional gas vehicles.
Copper is essential for the renewable energy technologies needed to combat climate change, including solar panels and wind turbines, as recycling copper saves energy and reduces greenhouse gas emissions.— Sterlite Copper (@sterlite_copper) November 24, 2020
The green metal is expected to be the cornerstone of a low-carbon future. pic.twitter.com/9t6xoSzp7h
For those who would rather reduce their risk by investing in a diversified portfolio of a variety of minerals, the VanEck Vectors Rare Earth/Strategic Metals ETF offers exposure to lithium, cobalt and copper, among others.
Up by 175.46% over the past 12 months, the ETF’s top holdings by company are Zhejiang Huayou Cobalt Co Ltd (9.07%), China Northern Rare Earth (Group) High-Tech Co Ltd (7.42%) and Shenghe Resources Holding Co Ltd (6.64%).
Something to consider when discussing the rare earth and strategic metals sector in general is that America could be on top of vast undiscovered resources.
It has been estimated that Wyoming is sitting on 18m tons of rare earth resources which would go some way to rebalancing the US’s deficit with China, where the ETF currently focuses its investments.
This means there is potential for explosive growth in the future.
These use cases are a reality now and are growing at an exponential rate, according to the International Energy Agency (IEA). The IEA also says that in order for the world to meet its climate goals, governments must act to ensure the demand is met.
“Today, the data shows a looming mismatch between the world’s strengthened climate ambitions and the availability of critical minerals that are essential to realising those ambitions,” said Fatih Birol, Executive Director of the IEA.
“The challenges are not insurmountable, but governments must give clear signals about how they plan to turn their climate pledges into action. By acting now and acting together, they can significantly reduce the risks of price volatility and supply disruptions.”
⚛️The new @IEA report: 'The Role of Critical Minerals in Clean Energy Transitions' notes that "Along with hydropower, @nuclear is one of the low-carbon technologies with the lowest mineral intensity. "⚛️https://t.co/97S1dsd8Gg pic.twitter.com/z0s5XyoaKY— World Nuclear Association (@WorldNuclear) May 5, 2021
This means a possible wave of investment into critical minerals and related infrastructure, which represents an opportunity for retail investors.