A Rare Opportunity: Rare Earths Investing, Ex-China

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Rare earths are critical to defense, AI, electrification, and advanced manufacturing—but China’s dominance of the supply chain has elevated national security risks. Join Sprott and Nasdaq as industry experts explore how geopolitical shifts are accelerating investment into ex-China rare earths and how investors can gain targeted exposure.

Webcast Transcript

Jillian DelSignore: Good afternoon, everyone. My name is Jillian DelSignore. I'm the Head of Investor Distribution and Insights for Nasdaq. Thank you so much for making the time for us this afternoon to join our conversation, A Rare Opportunity: Rare Earths Investing, Ex-China, with our experts from Sprott and Nasdaq.

Just before we get into our conversation today, I wanted to give you some insight into what you can expect to take away. It's probably a new conversation for many of you, myself included, on rare earths.

We want to dive into a couple of main topics: 

• Why rare earths are going to be a strategic asset underpinning defense, AI, electrification and many other next-gen technologies shaping global competitiveness.
• How geopolitical tension and export controls are reshaping capital allocation towards ex-China in specific rare earths. 
• Why rare earth companies may benefit from government stockpiling, investor funding and general long-term industrial policy support.
• How investors can gain exposure to ex-China rare earths.

I think a lot of the reasons we're here today are to learn why, and then to learn how. How can you gain exposure to this particular space and those companies that may benefit from investment incentives in the U.S. and its allies? 

I'm so pleased to be joined by Steve Schoffstall, a Managing Partner and Head of ETFs at Sprott Asset Management, and by my colleague, Mark Marex, the Global Head of Index Insights at Nasdaq. Steve, Mark, thank you so much for joining me today.

Steve Schoffstall: It's great to be here. Thank you.

Jillian DelSignore: Absolutely. Steve, I think this is a really interesting, timely topic, and in the interest of time, we'd love you to kick off the conversation.

Steve Schoffstall: This is an area of the market that is probably unknown to many investors, though in the investing landscape, we've been hearing more about it over the last six to twelve months or so. We'll take some time going through the presentation.

We'll introduce you to Sprott very briefly for those who aren't aware of the firm, and then we'll talk through the demand drivers for rare earths, including what rare earths are and what that means for the overall economy. We'll take a look at China's role in the rare earth supply chain and what that means for economic expansion going forward.

And then there are several policies aimed at moving the rare earth supply chain outside China. We'll take a look through that, and then we'll also introduce our new fund, the Sprott Rare Earths Ex-China ETF (ticker: REXC). It's a new offering that we're very excited about. It was just listed yesterday, and we're seeing great traction out of the gate. It’s very much a differentiated product, but we'll talk about that as we go throughout the presentation. 

Steve Schoffstall, Slide 3, Introduction

For those who aren't aware, Sprott is a Canadian-based company, and we're listed on both the Canadian and U.S. exchanges.

We're an asset manager that is focused primarily on metals and mining. We've gotten notoriety over the years through our physical trusts. Those would cover things like gold, silver, platinum and palladium. We also have the world's largest physical uranium trust.

That's about $7 billion, plus a physical copper trust. We moved into the critical material space about five years ago. And with that, we've been strategically launching new ETFs in support of that initiative. We've significantly expanded our ETF footprint. We've grown from about two ETFs back in 2022. We're now at 13 ETFs with our latest launch.

We also have a number of our products available throughout Europe, taking advantage of the critical materials opportunity. In addition, we have managed equity capabilities, some active strategies and private strategies, which are available to larger institutions. All told, the firm's assets under management are about $60 billion, with most in exchange-listed products. 

Steve Schoffstall, Slides 4-15, The Rare Earths Investment Case

We'll just get started here, and apologies if this gives any bad flashbacks to ninth- or tenth-grade chemistry classes with the periodic table. Rare earths are a group of 17 chemically similar metallic elements. We'll talk through why they're so essential. But the main thing to know is that they have several properties that are unique to rare earths, making them unreplaceable, particularly in high-tech applications. They're not rare, even though they are called rare earths.

What makes them rare is that they're not usually found in high concentrations where they can be easily mined. And once they are found, they're typically found together. One of the most difficult aspects of mining rare earths is separating them from one another. This is one of the most challenging and energy-intensive processes in modern chemistry.

They're also divided into light rare earths and heavy rare earths. That's just basically talking about their atomic weight, which is how they're classified. What we tend to see is that heavy rare earths are much scarcer, so they are more expensive than the light rare earths. They're also very important for high-performance, high-temperature tech applications on the heavy rare earths side.

For light rare earths, we tend to see them used in magnets, catalysts, glass polishing and all sorts of other applications, which we'll talk through as we go. One of the questions I get asked a lot, as we are in the critical materials space and some of our other products do have exposure to rare earths, is: are rare earths critical materials, or are critical materials rare earths? 

The easiest way to say that is that critical materials is the broader-based term, for these different materials like uranium, copper, silver, lithium, nickel, rare earths that are essential to electrification, energy storage, technology and other aspects of the economy. Typically, a material is considered a critical material if it has high strategic importance and significant supply chain risk.

Usually, those two things come together to classify something as a critical material. Rare earths are a subset of critical materials; the easiest way to say that is: all rare earths are critical materials, but not all critical materials are rare earths.

If you think of critical materials as the broader basket of metals, rare earths would provide more targeted exposure to some of these applications. This lists the 17 rare earths and provides a sense of how interconnected they are and how widely used across industry applications.

The main takeaway here would be to show that interconnectedness that we see. And many of the uses and topics we'll discuss throughout this presentation are about permanent magnets, and NDPR (neodymium and praseodymium) is often used, as it's a predominant magnet type. What you'll find with rare earths is that it seems like each name is harder to say than the one before.

These permanent magnets are the strongest commercially available type. The reason they're called permanent magnets is that they don't need an external energy source to remagnetize themselves. Some magnets can lose their magnetic properties over time. That's not the case with rare earths. We typically see permanent magnets widely used in clean energy technologies. In EVs, each vehicle uses about 4.5 pounds.

If you were to look at a wind turbine, you would see that over 1,300 pounds of rare earths are used in each wind turbine. But we'll talk a little bit more about that as we go as well. Some of the key areas where we see rare earths used really span all aspects of the economy. Obviously, being in the news recently would be the defense aspect.

If you were to think of an F-35 fighter jet, it's going to use about 900 pounds of rare earths. We also see them being used extensively in anti-missile defense and drone technology. It allows for guidance systems, whether that's anti-missile defense or guided missiles. Also, it enables communication through satellites and radars.

Typically, what we find with satellite and radar systems, and what we see with aerospace technology, is that rare earths can be added to different alloys to make something like a satellite much lighter, allowing it to reach space more easily with less fuel. We also see some uses in technology, particularly high-end technology. That would be around lasers, AI data centers and semiconductors. 

Another aspect that we tend to see is humanoid robots. If we think back twenty years, what we thought of as artificial intelligence was probably something like humanoid robots. It's a small area but expected to grow rapidly over the next decade as technology and artificial intelligence catch up with the sector.

Morgan Stanley estimates that the market may reach $5 trillion by 2050. There is significant growth expected here. I won't get too hung up on the dollar amounts or growth expected in humanoid robots. 

Rare earths depend, as part of that outpouring, on the adoption of humanoid robots, and that's an area we're seeing as a high-growth sector in many economic models. We also see, on the energy side, that the wind turbines, EVs, batteries and solar panels all use significant amounts of rare earths.

On the consumer side, we're seeing significant use pretty much in everything you come into contact with in your day-to-day life, whether it's the monitors you're looking at now, air conditioning or ceramics. There are many uses, and you're coming into contact with rare earths more than you realize every day.

One of the things that's really impacting rare earths now is the structural changes we're seeing across many of the sectors driving growth. Defense, energy transition and artificial intelligence are three sectors with very high growth. Currently, we've seen about $5 trillion spent annually on these three sectors alone. That represents about a 78% increase from 2020.

What this is doing is creating a new level of resilient demand that can make rare earth companies and those involved in the supply chain much better able to weather economic downturns and can also decrease price sensitivity. And the main thing is, when you start integrating rare earths into these aspects of the supply chain and the global economy, it becomes paramount to secure your supply chain and not leave it to a single nation to control.

When we start looking a little deeper at defense uses, it really comes down to the fact that modern defense can't function without rare earths. Magnets are going to make up about 50% of all rare earths.

These are very important in guidance systems, and the little movements you might see in missile interceptors make them agile and allow them to track their targets to defend buildings and human lives. That is made possible by rare earths, and these magnets account for almost 50% of their use, with a very significant portion going to many of these different defense applications.

We expect to see significant growth in this area in the coming years. I think it was in the last few weeks that the administration went to Congress and asked for a 44% increase in the defense budget, bringing it from about $1 trillion in annual spending to $1.5 trillion.

And one of the things the ongoing conflict with Iran has shown is that, in a few weeks, we were able to blow through those stockpiles that had been built up over several years. And with that, we expect to see some different initiatives.

There have been more discussions about using the Defense Production Act, which would compel industries to help replenish these stockpiles. In our view, those actions would be positive not only for the short-term demand for rare earths but also for the longer-term demand.

When we start looking at defense spending and just sticking with that topic for a moment, the graph on the right does a pretty good job of showing how that's changed now over the last several decades. Coming out of the Cold War, we were seeing defense spending as about 4 to 4.5% of global economic spending. It cratered between 2% and 2.2%.

What we've seen now is that NATO has agreed to increase its defense spending from 2.5% of GDP to 5% of GDP. We're already seeing significant increases in global defense spending over the last eight to ten years, which now tops about $2.6 trillion.

A lot of this has to do with the rising geopolitical tensions we're seeing. And given the nature and the way conflicts are now being fought, next-generation systems, such as drones, guidance systems and interceptors, are heavily reliant on rare earths, and we expect that to be a significant driver of demand going forward.

One of the things we'll talk through is the actions the administration's taken over the last 12 to 14 months or so. But what militaries across the globe are waking up to is that they can't just rely on China as a virtual monopoly for many of these rare earths.

The U.S. Department of War and other agencies are exploring ways to establish a mine- to-magnet supply chain for rare earths, so we're not dependent on any one foreign power. Let’s go back to the consumer side of things for a moment.

If you think about your cell phone, you'll see that rare earths are used in many ways. They are used in the vibrant colors you get from your phone. Anytime you see a very compact speaker, whether it's in your phone or your earbuds, it's using rare earths, so there's very significant exposure there. Whenever your phone vibrates, it's the magnets made with rare-earth materials that cause it to vibrate.

A lot of uses in your everyday life that you might not have necessarily realized are very much dependent on these critical materials. Another aspect gaining a lot of traction here is the AI buildout and what it's doing, not only for critical materials in general but also for rare earths across the board.

This is an area where we've seen significant buildout over the last several years. The five largest hyperscalers increased their capital expenditures (CapEx) by 72% in 2025.

Just those top five are now expected to spend about $400 billion in CapEx. We see a very significant spending boost, and we'll talk about some of the actions as we go through here later, how that's directly impacting rare earths, and how large technology companies are adapting to the need to secure the supply chain.

Typically, one reason rare earths are so important for the AI data center buildout is that they help keep everything much cooler than it would be without them. And that's a very high cost for data centers, where, if you look at their total electricity consumption, about 20% is dedicated to cooling.

There's a vested interest among many of these data centers and hyperscalers to use rare earths to keep electricity costs much lower. That's also a headline risk for many data centers as they seek to expand capacity.

One of the first considerations is how you will source electricity. Anything they can do to keep electricity costs lower makes it easier to roll out these new data centers. Another area where we see them being used is in the magnets for the storage infrastructure. It's what allows the semiconductors to read and write data. When we start looking at communication, fiber optics and other high-speed communication methods use rare earths.

It's expected that by 2030, these data centers alone will consume about 3% of the world's permanent magnets. We're seeing significant growth in this space and sector as well.

Another area where we're seeing significant growth is the energy sector. The energy transition spending just last year has now topped about $2.3 trillion. We've seen significant growth since 2021, when spending topped $1 trillion for the first time. Typically, we see these permanent magnets used in electric motors.

What that does is allow many of these motors to run without gears. And despite what we're seeing in the U.S. with slow EV adoption, globally we're still seeing very strong adoption. About 24 million EVs are expected to be sold just this year alone. To put that in perspective, in 2020, only 3.2 million were sold.

There is very significant growth in EVs, even though we don't necessarily see that in the U.S. Other countries, like China and Europe, have strong clean energy mandates or, in China's case, are looking to diversify away from reliance on fossil fuels.

And given the urban nature of much of the rest of the world, we do see much higher EV adoption rates than we do in the U.S. An area where we expect to see, maybe a stepping stone for the U.S., would be hybrids.

They use rare earths, though not to the same extent as in EVs, and they remain a significant component, particularly in the battery. I mentioned earlier that each wind turbine uses 1,300 pounds of rare earths.

Rare earths allow them to operate without a gearbox. And what that does is increase the reliability of the wind turbine's underlying mechanics.

But at the same time, because reliability increases, it can help extend the life and reduce maintenance costs. This becomes particularly important when you start thinking about offshore installations.

As we move forward over the next several decades, demand is expected to increase by over 300% for some of these rare earths, which are key to many of the technologies used here. There’s very significant growth and an important aspect of the economy that we're seeing here.

The next logical question then becomes: what's making all of this so essential at the moment? And I think the biggest single thing here is that, if you look at global electricity demand, it's expected to increase by about 155% to160% over the next couple of decades. With that, countries are scrambling to have energy independence, so they're not reliant on fossil fuels, which are typically trade-dependent.

Just anecdotally, once the conflict in Iran started, natural gas prices in Europe spiked by almost 70% immediately. The news is flooded with stories about how China and other parts of Asia, particularly, are sourcing most of their oil and natural gas from the Middle East, and how the closure of the Strait of Hormuz has impacted that.

By moving toward renewable energy or other sources such as nuclear energy, these countries can help defuse some of the geopolitical tensions that arise when conflicts flare up in mineral- and resource-rich regions of the globe. When you start looking at electrification, in our view, this is really the only way to scale up energy diversification.

And when you start looking at China, for example, this is what the graph here shows: their growth in clean energy and adoption. And what that means on a global scale is that they're becoming major consumers of many of these critical materials used to build things like wind turbines, solar panels and nuclear power plants.

All of these are being heavily relied upon by China to diversify away from fossil fuels. They're doing this not necessarily for clean energy purposes, as you might see in Europe, but more for an energy resource and security perspective. Either way, the outcome is the same. 

Jillian DelSignore: Steve, before you pivot, those use cases are wild because everything you named is everything we're all engaging with every single day, or you can clearly see directionally up into the right in terms of need for all the things you just mentioned, whether it's EVs or AI or all of the technological and energy-related items. That's going to take a lot of rare earths.

What is the mining of that going to look like? How are we going to solve for that piece of this story? I'm sure our audience is probably thinking the same thing. I'm very curious about your thoughts there.

Steve Schoffstall: We have a whole section dedicated to that. Many international efforts and allied partnerships are emerging to really solve this problem. We'll talk through that in one of the sections here as we approach it. Great question.

Jillian DelSignore: It was very much on my mind after you went through all those use cases, because it's so dramatic in terms of the need, given how we're positioned currently as an economy.

Steve Schoffstall, Slides 16-20, The Rare Earths Investment Case: National Security in a China-Dominated Supply Chain

Steve Schoffstall: It is, and it's a great question, particularly when you look at it in view of China's dominance, which is our next section here.

Let’s look at how China controls the supply chain. About 69% of rare earth mining is conducted by China.

They have some of the world's largest deposits of rare earths, though not all the deposits. And when you look past mining and start looking at things like refining and magnet production, they control over 90% of those industries as well.

If you look back at the recent history of rare earths, as recently as the early nineties, the U.S. dominated the global market. We were the primary rare earth producer from mine to magnet, which is what we're trying to get back to now.

In 1991, China passed a law that began classifying rare earths as strategic and began restricting foreign mining companies from working with local companies at certain sites within China. This is one of those areas where we've seen China ahead of the curve in securing resources globally.

The way we see that play out today is that they're increasingly investing in Africa and its mineral resources, trying to make inroads in South America, and other parts of Asia. But this started way back in the early nineties.
These Chinese state-like companies obtained U.S. government permission to acquire key rare earth businesses in the U.S. Often, that was done under the guise of establishing their own domestic rare earth capabilities.

They were hiring U.S. engineers to be consultants. They would learn the technology, take it back to China, and then close down the assets they bought in the U.S. What was left was a flood of technology and human capital, and we didn't really invest in the U.S. for a while.

China spent the last two to three decades basically building out this rare earth supply chain, and they've really gotten to a point now where they'll use that to weaponize their leadership position in this aspect, and we'll talk about that a bit on the next slide. But it's really raised some very important national security concerns, and we're seeing national and economic initiatives that affect everything from defense to energy to consumer electronics.

And if you look at how dependent major economies are on China, about 70% of the rare earths imported into the U.S. and Japan come from China. If you look at the European Union and Europe in general, about 98% of their imports come from China.

They have a stranglehold on the largest economies, both in this and in the broader economy. One of the things that I mentioned was the weaponization of rare earths, and we really saw this play out, most recently last year.

But as geopolitical tensions began to flare, China implemented several policies last year, including export controls that restricted the movement of not only rare earths but also technology related to producing magnets, refining or separating materials for export from China. They've also expanded that beyond Chinese borders, and it's now the case that if you have a processing plant in India or another country, if it contains more than 1/10 of 1% of material that originated in China, it also falls under the export controls.

It's a very far-reaching aspect of the supply chain, which is why we're seeing heightened security and attention to rare earths over the last 12 months or so. This isn't anything new. We've seen in the past how they've really weaponized the rare earth space, and the playbook is typically repeated. Looking back at 2009, we saw that China restricted rare-earth exports and cut off shipments to Japan.

What resulted was a two-and-a-half-year spike in prices, about 26 times what they were before these export restrictions. When we see large price increases, particularly ones that persist for a while, as they did back then, you tend to see a supply response from some of these other countries. Now these supply responses aren't immediate. It takes time to find rare earth assets, develop them and build out facilities to mine and process the material.

When China started to get wind of countries and other companies going down this route, they flooded the market with cheap material. It cratered prices, and what we're left with is an industry that never got off the ground because they were basically boxed out.

This is a playbook we've seen over the last few years, and something they're attempting to do again. We'll talk in a couple of slides about why we believe it's a little bit different this time and what that might mean.

But when we look at what this is doing from a geopolitical perspective, China may be overplaying its hand, as signs indicate its grip is loosening and is expected to do so in the coming decades. If we focus on the left graph, it shows the axis, which shows the overall production of rare earths. The main takeaway here is that we're seeing significant new rare-earth supply entering the market from 2020 to 2024. As we move forward, we expect it to continue to increase.

The interesting piece is that we continue to expect China's hold on this industry to decrease over the same period, as the industry outside China is being incentivized and supported. We'll take a look at the changing policy landscape in the slides ahead and why we believe we're starting to see some structured, well-supported investment opportunities outside of China.

Steve Schoffstall, Slides 21-26, Policy Catalysts Support Ex-China Rare Earths

When we think about critical materials, every country, particularly developed countries, maintains a list of them. Some call it strategic lists, others critical minerals or critical materials; all the same thing at the government level.

And what this does is look for industries that are at high risk, highly susceptible to supply shocks and extremely important to economic health, continued economic growth and prosperity. Rare earths are included on the critical minerals lists of all major economies, as shown in the globe below.

The important thing to look at, and I think the UK does a good job of summarizing it in the chart on the right. If you were to look at the top right quadrant, materials that are over here are extremely important from an economic standpoint, and they're also extremely at risk for supply disruption.

You can see rare earths marked with a green star; they fall in the upper echelon of that classification. They’re very important to global economies and, at the same time, very much subject to supply disruptions, as we've seen from past actions with China.

What does that mean from a policy perspective, and how are those supporting industries outside of China? I think the first thing to realize is that, while China mines about 69% of the world's rare earths, most of the reserves are not located in China.

On a global basis, China holds slightly less than 48% of the reserves. When you look at other countries like Brazil, India and Australia, they tend to have more favorable relations with the U.S. and also have very significant reserves.

We also have some reserves here in the U.S., and a country that came up a lot in the news six months ago, Greenland, also has significant rare earth reserves, and I think that's one of the reasons you were hearing so much about it. Last year, the administration launched a Section 232 review of markets, which is essentially a review of critical materials and the national security threats they pose.

The review found that imports of critical materials posed a threat to national security and that pursuing options to secure supply chains for different critical materials would be a focus for this country going forward. We're seeing that cascading through allied nations as well. We've seen similar discussions in Europe and elsewhere.

But a few things to highlight from that are: last October, the final round of Chinese export restrictions on rare earths took effect. During a trip through Asia, the U.S. signed a framework agreement with Australia. They're providing financing for various critical materials projects, including rare earth mining, separation and processing facilities.

There's also a commitment there to help accelerate and streamline permitting timelines. This is an aspect of mining that typically takes mines a very long time to go from discovery to production.

We're also seeing potential to add price floors across some of these rare earths, and we've seen some financing result from that. We've also seen on that same trip, it was actually a few days later, there's a very similar framework between the U.S. and Japan. We expect this to continue as we move forward. Just a week and a half ago, news broke that similar discussions are now underway between the U.S. and the European Union. There is a lot of activity on this front, and we expect to see these agreements move beyond mere agreements and into action behind each of them. 

Price floors are an area that has changed, particularly in the U.S., in how governments operate when standing up new industries. Price floors are emerging as a primary policy tool to incentivize domestic production. Last year, MP Materials, one of the leading U.S. rare earth companies, locked in a 10-year price floor with the Department of War. 

At the time, the $100-per-kilogram price floor was well above the current prices of rare earths. A similar agreement was reached with Lynas Rare Earths, which is an Australian firm with a Japanese counterpart. We're also seeing that the G7 and EU economies are considering price floors and how they can use that to build up their industries. In our view, this is something that can not only incentivize capital expenditures but also improve planning certainty, which is of utmost importance and also decrease volatility in the space.

The export controls China enacted did one major thing that is really helping stand up the allied nations and Western mining jurisdictions in their rare earth pursuits. And that's really bifurcated the pricing we're seeing for rare earths. In some cases, we're seeing rare earths from outside China commanding prices four to six times higher than those for material originating in China. 

It is one of the aspects that really helps when we start to look at some of the other levers that are being pulled, whether it's these strategic alliances, direct investment, financing, and then you throw in the price floors, and then the permitting process, which is working to stand up these assets outside of China. Another aspect we're seeing particularly is that MP Materials is the poster child for this, but the U.S. government, through the Department of War, is looking to build out magnet production from mine to magnet.

They've taken an equity stake in MP Materials. They signed a ten-year offtake agreement and said they'll take all the material if they can't find a buyer. And with this equity stake, they now own 15% of the company. Similar commitments that we've seen for companies like USA Rare Earths. That's another investment that follows a similar pattern. But it's not just governments that are investing.

We see that JPMorgan and Goldman have facilitated a billion-dollar loan agreement with MP Materials. Apple committed about $500 million around the same time. Late last year, JPMorgan rolled out a $1.5 trillion initiative focused on economic and national security, supporting that within the U.S. That includes mining and all industries where rare earths are paramount, such as aerospace and defense.

Jillian DelSignore: Before we turn it to Mark, who's going to take a deep dive into the index of the ETF, there’s a question aligned with the one I was asking earlier around the availability of such critical materials.

Someone was asking, and you noted, in more of a general term, that it takes a long time to get it out of the ground and move forward. Someone was asking, you look at the gold and silver timeline, they say, it's ten years. Do you have a sense of the timeline from getting it out of the ground to a material state?

Steve Schoffstall: It could take fifteen years or more. Some of the production facilities, not the mining aspects but downstream, are looking to go online, hopefully within the next year to two. 

Assuming the technology and equipment are available, that aspect wouldn't take as long as the mining aspect. It can vary drastically across the industry, but a good rule of thumb is probably ten to fifteen years, generally for mining. It could be a little more, a little less, depending on the permitting process and how far along the production process is.

Jillian DelSignore: Thank you, it was extraordinarily helpful. I think it's timely and topical for those of us who see the ways that you might not have realized. I certainly didn't know the role these materials play in daily life and the trend going forward.

With that, welcome Mark into the conversation, who, as I mentioned, can go through the index for which this product is tracking now that we've set up the investment case.

Mark Marex, CFA^®, Nasdaq Sprott Rare Earths ex-China™ (NSREXC™) Index

Mark Marex, CFA^®: Thank you, Jillian. And thank you, Steve, for providing the expert-level quick lesson on understanding this market.

I feel like a lot of people in the audience, probably like myself, have heard a lot about rare earths in passing, especially over the last year or two, and sort of understood the investment case, and a lot of the use cases, but not at that level of detail. It's important, at least from my perspective, to stress that this is a metals and mining type of strategy at the end of the day.

It is a commodity exposure, but a thematic one more than any other. When I think about it at a high level, the things that Steve emphasized in his presentation, especially talking about defense, energy transition, electrification, grid infrastructure, and, of course, AI, which is everybody's front of mind, thematic that people are paying attention to day to day.

This is a way to get exposure from an equity standpoint. You're investing in equities to get underlying commodity exposure to some of these megatrends and megathemes that are really driving, not just economic growth in the 21st century and all the opportunity associated with that, but, a lot of these really significant policy changes and, movements that I think are going to influence the direction of different pathways from a sector and geographic perspective of how to generate, returns in equity and commodity markets alike. I really appreciated that. I thought it was a powerful way to summarize the investment case, and so I'm not gonna rehash that.

I'm going to talk about the index that we launched here at Nasdaq just under a month ago. I'm going to talk about how we construct the index, with Sprott playing a leading role.

And I'll emphasize for the audience: this is a well-trodden model that we've had here at Nasdaq for close to two decades in launching what we think is an industry-leading lineup of thematic indexes, where we don't necessarily do all the work at Nasdaq. We bring in external research contributors, in this case Sprott, to help us scan the universe of companies. We look for those that may be doing something related to rare earths, pure-play mining companies, or more diversified mining companies. Then we try to construct an index with thematic purity in mind, casting a wide enough net so you are really getting the right type of exposure and the right levels. 

The most important thing I think people should take away from this is that this is a Nasdaq-constructed and Nasdaq-maintained index, we're calculating it day in and day out. However, Sprott is the research and subject-matter expertise partner for this index, in that it must classify a company as a rare earth company to even qualify for index inclusion.

And they apply something called an intensity score, which is basically just a fancy way of saying, "What is the revenue attribution to the rare earth industry of an individual company? You must have an intensity score of at least 25% to qualify for index inclusion, meaning at least a quarter of your revenue that you earn in a given year comes from rare earth activities.” We have a bunch of additional eligibility criteria on top of that. A lot of it is focused on China, and this is an ex-China strategy.

You can't be domiciled or incorporated in China. Doesn't include Hong Kong or Taiwan, but that is a major rule, and you can't be listed in China on either the Shanghai or Shenzhen stock exchanges. You can't have a bunch of special share classes for a company that serves only the Chinese market. All that is formulaically systematically screened out.

There are also eligibility criteria regarding minimum size and liquidity. We target around $30 million for new adds, $20,000 in minimum daily trading volume, and you have to be seasoned for at least three months.

So, at least three months of trading on an exchange track record. And then in terms of how we weight the index on the right-hand side, the right-hand funnel here, that also largely relies on Sprott's subject matter expertise, the intensity score.

We split companies into those we consider more pure-play types in group one. You've got more than 50% of your revenue coming from rare earths, versus group two, where you've got somewhere between 25-50%.

And then we weight the companies in those two groups, specifically according to those classifications. In group two, you're capped out at 15%, in aggregate. And then your max security weight for individual companies within group two is capped at 4.75%.

It's not a straight market cap weighting. We adjust the weighting based on your intensity score. Let's say I have a market cap of $10 billion. You have an intensity score of 25%, compared to 50% for another company.

So those adjusted market caps become $2.5 billion or $5 billion, respectively, for the purposes of weighting those companies differently. The company with more revenue exposure basically ends up getting a more proportional weight in the index if you're in group two.

In group one, there's no adjustment. You are weighted by your unadjusted free-flow market cap, with a single-security cap of 20%. And there are some other caps on top of that to limit the amount of concentration that we have in the index for all the names that are greater than 5% individual weight. We rebalance the index quarterly and reconstitute it every six months. That's when Sprott updates its list of eligible index constituents.

I'll now turn to a quick, cursory glance at how performance looks in the rare earths and critical materials space versus some of the broader commodity benchmarks we like to look at. I've also got the S&P 500 here in purple.

Looking at year-end 2021 through March, you can see the S&P 500 up 37% during that period. And then you've got the Bloomberg Commodity Ex Precious Metals Index, which is a broad commodity basket excluding gold and silver. That's up about 14.5%. And then you've got the Bloomberg Industrial Metals Index, in the white or the light gray there.

That's about flat. And then you've got this UBS Rare Earths & Critical Minerals Index that we showed as a directional benchmark.

But this shows you directionally that this type of product trades very independently of something like the S&P 500, the broader equity market. It trades according to its own rhythm and can be a very good diversifier in a broader portfolio, which is why you might think of it as an alternative sleeve rather than a standard equity sleeve.

I'll end by giving you just a picture of what the exposure actually looks like today. There are 34 companies in the index. The top two names, which Steve referred to earlier, are Lynas, the big name out of Australia, and then MP Materials, the big name out of the U.S. Those two together have been capped at 20% each.

You see their weights after trading for a few weeks. They're a little bit over or under 20%, but those are your top two biggest holdings in the index of about 40% in total. And then you've got other companies clustered around that 5% area, while the smallest companies have been lumped together. That gives you a sense of this index being a little bit top-heavy.

There's a handful of companies at the top with market caps in the several-billion-dollar range, Lynas and MP being the biggest. But you've also got names like Ramaco Resources, which is not a pure play but is a pretty substantial miner with over half a billion dollars in revenue in 2025.

There is a good mix of names in that space. And then, on the right-hand side, it shows you geographic exposure. You can see Australia figures very prominently here, with about half the exposure. The U.S. is about 30%. Canada, the UK, and New Zealand round out the remaining 20%. It’s a nice, diversified anglosphere mix of exposure here for the rare earth miners.

Hopefully, that gave you a sense of what the index looks and feels like. Steve, I'll pass it back to you.

Steve Schoffstall, Slides 27-32, Sprott Rare Earths Ex-China ETF Fund Overview

Steve Schoffstall: Thanks, Mark.

We'll take a quick two to three minutes to run through the fund itself, since you did a great job running through the strategy that underlies the fund. The first thing to note here is that REXC is the only ETF focused specifically on rare earths.

There are other funds out there that may include exposure to rare earths. This is the only one with that dedicated focus. As Mark mentioned, there's a pure-play screen that underlies this fund. We're targeting 50% of a company's revenue or 50% of its assets, to be dedicated to mining, exploration, development, separation, refining and the production of rare earths.

This goes a bit beyond just mining. There's about 13%, or so that's in that midstream, separation, refining and production aspect of rare earths. And as Mark mentioned, we do have a small potential allocation in the 25% to 50% revenue test. That's not a significant holding in the index.

Currently, companies in that bucket account for about 4% of overall exposure. When you look across the entire fund, you're getting about 95% exposure to rare earth miners and production-type companies.

It’s concentrated in rare earths, and I think the pure-play strategy we have there has well-positioned the fund to deliver on that exposure. That pure-play is extremely important because, when you look at more diversified strategies, you can end up with unintended exposure, which is why we favor the pure-play route.

And as Mark mentioned, the other unique aspect of this and as it's in the name, it excludes China. So those companies are domiciled in China, or some of those Chinese securities might be listed on other exchanges, but our Chinese securities are all excluded from the index.

This is a theme that, in our view, has gained a lot of attention over the last twelve months or so. Typically, you'll see a lot of ETFs marketing themselves as rare earth strategies. But when you start to look under the hood, they generally have very minimal exposure to rare earths. In some cases, we can see it at around 10% or even lower, though they may market themselves as a rare earth strategy.

In one instance, there's a competing strategy with about a 50% exposure to lithium, yet it emphasizes the rare earth exposure it does have. There's a lot of due diligence to do, and I would say this for any product: understand what you're investing in, look past the name, and look at what the fund seeks to achieve.

And just one last aspect here of how the index looks from a market cap perspective. You can see pretty even weights between large-cap and small-cap companies here, about 45% apiece, with some mid-cap exposure as well. As I mentioned, over 95% exposure to rare earths. That 4% is what you're seeing from that 25% to 50% revenue bucket.

The index's market cap is about $49 billion across 34 issues or names And what you'll find is that if you were to look at this strategy versus competing strategies and other ETF strategies, you would find a very low overlap, given that we are so concentrated in the rare earths sector.

I'll thumb through some performance and disclosure slides here. The fund just launched yesterday, so no performance to report. This would be a look at our entire ETF lineup. If you like a more diversified approach, two funds I would point you to are SETM, our Sprott Critical Materials ETF, which allocates about 14% to rare earths, uranium, battery metals, copper and silver, and METL, an active, diversified metals and mining ETF. This provides some exposure to rare earths. Similar to SETM, there are some differences there, but it is an active ETF wrapper. Jillian, as we flip through some disclosure slides, I'll hand it back to you.

Jillian DelSignore: One of the questions we had came through was about competing strategies, and I think it's important what you just said. I always said in this industry, know what you own. Pop the hood. Understand what you're investing in and make sure that it matches the title. And I think in this case, you made an incredibly elegant point about that.

One point I think would be important for us to end on is the distinction between short-term and long-term potential. What are your thoughts on folks investing in it now and the opportunity to take advantage of something today, and what we're seeing by way of opportunity in the markets outside of China, given the dominance they have today versus what we're going to see in the future? 

Steve Schoffstall: Great question. One thing we always focus on, and one of the first things we look at from a product development standpoint, is the long-term picture.

Is this a strategy we think would, over the long term, benefit investors to have exposure to? If the answer to that is yes, we move on to the next step and look at the universe and say, is there a way we can improve upon that? And if so, we'll continue the process. And if we launch a fund, it's in a sector we believe has long-term potential, and we also feel it is differentiated from other offerings. We often get asked what that looks like short-term, and I say that, for all the critical materials, you should expect some volatility in your allocation.

That comes with the territory when you're investing in something that's more emerging, and the news flow is changing rapidly. In the immediate term, higher oil prices have weighed on mining stocks a bit here, though they've continued to perform very well over the last couple of months despite that.

And I think a lot of that owes to the fact that there are a lot of tailwinds behind critical materials, and it doesn't take producing material out of the ground to start to see investment flow into these underlying companies, whether it's through public or private partnerships. For example, Apple, Goldman Sachs and JPMorgan are making billions of dollars available.

Those capital inflows can benefit these companies in the shorter term while also setting them up for success in the longer term. But I think the biggest thing I would say is, regardless of your time horizon, just be comfortable with some volatility, as the market continues to adapt and we start to see how the future's playing out in a lot of these critical materials and what the structural changes the economy impact are having on those critical materials.

Jillian DelSignore: That's a great answer. I think, in addition to Mark's earlier points, these are ways to play some of the most important themes we're seeing in the market today and in the future.

Thank you both, Steve and Mark, for an incredible conversation over the last hour. I hope our audience took away as much as I did from this important topic and the groundbreaking strategy you all have put in place here. Thank you, everyone, for joining us. We really appreciate it.