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Problem: Material extraction is the core of any technology product. In order to create magnets, hardware, batteries, and more individuals must extract raw (and often rare) materials from the earth. According to Modor Intelligence,

Rare are earth elements are used in loudspeakers, telescope lenses, studio lighting, and computer hard drives to enable them to be smaller and more efficient. They are used in screens and displays as they can produce different colors. Rare earth elements usually have high electrical conductivity, and they naturally occur together in minerals. Rare earth elements are the strongest magnets available today. The rare earth elements market is segmented by elements, applications, and geography. By element, the market is segmented into cerium, neodymium, lanthanum, dysprosium, terbium, yttrium, scandium, and other elements. By application, the market is segmented into catalysts, ceramics, phosphors, glass and polishing, metallurgy, magnets, and other applications.

Grandview Research estimates that “the global rare earth elements market size was valued at USD 2.80 billion in 2018 and is estimated to witness a CAGR of 10.4% from 2019 to 2025." However, the market is extremely fragmented. It is centralized in China (at present, around 85% of the world's supply of these high-value rare earth originates from China, making the global rare earth elements market supply sensitive to changes in China’s manufacturing sector), but there are a number of players in the market.

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Solution: This business would take a 3-pronged approach to extract value in the rare earth mineral extraction industry:

  1. Diversifying the industry away from China; primarily through investments in Africa.

  2. Implementing a roll-up strategy to aggregate powers of smaller institutions out of China.

  3. Connecting technology to the mining industry for prediction and efficient operating of mining sites.

We’ll dig into each strategy below.

Diversifying away from China: One of the most mineral-rich regions in the world is Africa. For instance, the Democratic Republic of the Congo (DRC) was responsible for about 90% of the world’s cobalt production in 2018, but often fails to engage with many different American corporations for trading. Primarily, China is actively engaging in trade with African mineral producers and is seeing huge financial benefits from doing so. According to Mining Technology, a publication focused on the promotion of mining, there is an opportunity for the US or any corporation

Rare earth minerals are among the commodities most threatened by these increasingly hostile foreign policies. According to 2018 data from the US Geological Survey, the US is entirely reliant on imports for its supply of rare earth minerals, with 78% of all such imports coming from China, orders of magnitude ahead of the second-largest importer to the US, Estonia, which is responsible for 6% of imports. Demand for these minerals is also increasing dramatically due to their use in the construction of devices such as mobile phones and rechargeable batteries, and in military hardware. The global production of rare earth minerals increasing from less than 20,000 metric tons in 1970 to close to 140,000 metric tons in 2017.

the US Department of Commerce produced a report which listed six strategies for addressing the US’s reliance on imports for both critical and rare earth minerals. Two of these strategies involved reforming the country’s mineral supply chain, and working more closely with foreign producers to address the mineral trade deficit, but without significant progress made towards binding deals with African producers, it is unclear how the US will rectify its mineral dependency and continue to compete with China..

If government moves too slow, private corporations can profit and create true change in the industry.

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Roll-up Strategy to Consolidate Existing Companies: The mineral extraction market is extremely fragmented. As described by Business Wire,

The market is fragmented, and the degree of fragmentation will accelerate during the forecast period. Alkane Resources Ltd., Arafura Resources Ltd., GREENLAND MINERALS Ltd., Hitachi Metals Ltd., Iluka Resources Ltd., Lynas Corp. Ltd., Neo Performance Materials Inc., Northern Minerals Ltd., Shin-Etsu Chemical Co. Ltd, and SHOWA DENKO K.K. are some of the major market participants. The rising demand for electronic appliances will offer immense growth opportunities. To make most of the opportunities, market vendors should focus more on the growth prospects in the fast-growing segments, while maintaining their positions in the slow-growing segments.

Realistically, however, the business could even do one better by acquiring those companies thriving in slow-growing segments to streamline operations and double down on investments in growth opportunities. This, ultimately, is the basis of a roll-up strategy as demonstrated in the image below.

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Technology-enabled Mining: One of the uses of rare mineral extraction is in use-cases like electric cars, magnets, and more. In fact criminals have started to recognize this. MotorTrend details the effect,

Catalytic converters contain precious metals which are rapidly increasing in value, including platinum (currently worth about $1,100 per ounce), palladium ($2,400 per ounce), and rhodium ($24,000 per ounce). A contributing factor could also be that many cars have been sitting quite a lot during the pandemic, what with so many commuters now working from home or otherwise reducing their outings. Combine the two, and you have opportunity for bad actors to do their things.

The L.A. Sheriffs valued their 250-converter haul at $750,000, which sounds a bit high to us, while in San Bernardino the police estimated their 400 converters at $100,000, which seems a bit low. In reality, replacing a stolen converter will likely cost you between $1,000 and $3,000 depending on the type of car. As for those stolen converters, they can be sold to recyclers for $50 to $250, according to the NICB.

The New Times also covered the case 2 months ago. My argument is that mining and rare minerals (which used to be fringe) are becoming mainstream. As described by Mckinsey in their August 2018 report, some of the major areas where the industry could innovate is in artificial intelligence (AI) and machine learning, automation and robotics, mobile digital, the Industrial Internet of Things, and modern data architecture (including cloud). Essentially…. Everything a modern enterprise needs in terms of technology! The major areas of growth are in using technology to reduce the industry’s environmental footprint, move workers out of harm’s way, turn uneconomical reserves economical, and make work less repetitive and strenuous.

As part of finding new mineral reserves and rolling-up existing enterprises, the application of novel technology could also become a secret weapon for growth.

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Monetization: Sales (B2B) of minerals to enterprises.

Contributed by: Michael Bervell (Billion Dollar Startup Ideas)

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