Rare Earth Elements: The Next Big Thing Is Buried

Will the Next Decacorn Come from a Mine?

In a world fixated on cloud and code, the next wave of generational startups might rise from something far less glamorous: the ground beneath our feet. That’s because much of the modern world runs on a set of 17 metals that sound like they’re out of the Scripps National Spelling Bee: neodymium, dysprosium, praseodymium.

Country of origin? Mostly China.

And while you’ve likely never needed to say “gadolinium” out loud, these rare earth elements (REEs) are the silent enablers of everything from our smartphones and EVs, MRI machines and F-35s.  Remove the metals, and our modern world collapses.

Right now, China controls ~90% of all REE metals on the planet. That’s not just market share; it’s leverage. A position they’ve shown willing to weaponize. Recent developments around tariffs, export restrictions, and the US-China trade war underscore the urgency of this issue.

At Ensemble, as investors in advanced technology companies like Saronic and CHAOS that are reliant on critical materials, we feel this urgency directly.

The global race for critical minerals is on, and the U.S. isn’t just playing catch up; we’re starting from behind, with fragmented infrastructure and decades of underinvestment. We need a fast track to sustainable capacity. The future depends on it.

This piece unpacks the "rare earths reality": 

• What are rare earth elements, and why do they matter so much?
• The global landscape: how has China built such a monopoly?
• What does it actually take to mine, process and build with these materials?
• And most importantly – where are the open lanes for founders to build enduring companies that reshape supply chains and strengthen US sovereignty?

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What are rare earths anyways?

There are a lot of metals in the ground – but only a handful are shaping the future of energy, computing, mobility, and defense. Think graphite, cobalt, lithium, manganese, nickel – and a particularly complex group known as rare earth elements, or REEs.

Rare earths are 17 metals with names most people can’t pronounce, but absolutely rely on. Neodymium, dysprosium, praseodymium, terbium… Rare earths get their name not because of their scarcity (most are actually fairly abundant in the Earth’s crust). They’re called “rare earths” because they’re rare in all the ways that make supply chains fragile: hard to find in usable concentrations, difficult to separate, and expensive to process at scale without creating environmental damage. That’s why they’ve become a choke point in global supply chains.

And yet, these metals quietly make up the invisible backbone of modern infrastructure. They make EVs move, missiles fly, phones buzz, and turbines spin. And nowhere is their importance more concentrated than in one key application: magnets.

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Magnets matter

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Rare-earth-magnets are the strongest permanent magnets in the world, pound-for-pound. They enable high power output in incredibly compact form factors. That’s what makes them so useful across everything from EV motors and drone rotors to satellite actuators and missile guidance fins. They’re small, light, and brutally efficient.

Here’s the kicker: there’s no easy alternative.

Without REE-based magnets, everything gets bulkier, slower, or less energy-efficient. And not just by a little – meaningful innovation in clean energy, aerospace, defense, and automation, slows to a crawl.

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The supply challenge gets worse when you break REEs down further:

• Light REEs (like neodymium and praseodymium) are slightly more common and used widely in magnets and electronics.
  
• Heavy REEs (like dysprosium and terbium) are rarer, harder to extract, and essential for high-temperature and high-performance magnets – especially in defense and aerospace applications.
  

China didn’t just stumble into dominance here – it invested early, scaled relentlessly, and tolerated the environmental costs others wouldn’t. Today, it controls the overwhelming majority of global REE refining, magnet production, and downstream supply.

So while rare earths may not be “rare” in nature, they are rare in ownership, capability, and control. And that’s where the opportunity lies. A world built on electrification and autonomy will need exponentially more magnets – and the materials behind them.

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The Materials Monopoly

It is impossible to talk about rare earths without talking about China. Today, China produces ~60% of global rare earth mining output and processes ~90%. This has given China a near monopoly.

Part of the reason for their dominance is simply geologic in nature. China holds an estimated 44m tons of rare earth reserves - the quantity of REEs that can be economically extracted from the Earth’s crust. That’s ~40% of the world’s total known supply. In comparison, the U.S. holds an estimated 1.5m tons which equates to just over 1%. That’s a commanding starting point.

Yet despite limited domestic reserves, the U.S. was once the leader in REE production. Leveraging advancements in refining and processing capabilities, and a leading position in the permanent magnet market, California’s Mountain Pass mine was the top REE source until the mid-1990s. But facing environmental violations and a flood of cheap Chinese supply, Mountain Pass shut down around 2002. Suffice to say, geology alone doesn’t tell the whole ascendancy story.

“The Middle East has oil, China has rare earths.”

 - former Chinese President, Deng Xiaoping, 1992.

Fifty years ago, China made rare earths a national priority. Propelled - yes by a rich natural endowment of REEs - but also dirt cheap labor and low production costs, China rapidly compounded their dominant natural position. Between 1978 and 1989, China grew their REE production by 40% annually, undercutting global competition. For China, this wasn’t just about pulling ore out of the ground ; they rightfully recognized the power they would have by controlling the entirety of the value chain - extraction through production.

Mining process: from rock to magnet

Accepting the severe health and environmental costs that the work required, the government poured investment into post-extraction ‘Processing’ and ‘Manufacturing’ capabilities, mirroring capability advancements that had been made in the U.S. and Europe.

Through decades of trial and error, China grew to not only a commanding position in extraction, but also in refining, alloying, and the turning of rare earths into magnets, batteries, and advanced materials. By the 2010s, China had complete rare earth control. And when conflict arose, they didn’t hesitate to use it. Following a dispute with Japan over the detention of a Chinese fishing trawler captain, Beijing cut off their rare earth exports. Prices spiked 500%. It was a wake-up call: the entire clean energy and defense industrial base was now at the mercy of a single supplier.

So, can the U.S. catch up?

Since then, moves have been made to diversify and de-risk the supply chain. China still enjoys huge advantages – from large deposits to fully integrated companies and skilled labor pools – but the de-China-fication of rare earths is underway:

• Restarts & New Mines: Mountain Pass is back online under MP Materials. New mining projects are under development in Australia (e.g. Lynas’s Mt. Weld), the U.S. (Texas’s Round Top deposit) and Canada. However, opening a new rare earth mine is a heavy lift; the pipeline is limited and timelines are long.
  
• Allied Processing Capacity: The U.S. Department of Defense is funding rare earth separation plants on American soil. MP and Lynas are both building in Texas. Japan moved fast post-2010 and now gets much of its supply from Australia. Europe’s building regional capacity too. “Friendshoring” (e.g. sourcing from allies) is now the strategy.
  
• Policy Tailwinds: The CHIPS Act and Inflation Reduction Act (IRA) include billions in subsidies and credits for domestic rare earth and critical mineral production. There’s a 10% tax credit for U.S.-made magnets and tougher sourcing rules for EV batteries. The Defense Production Act is being used to unlock funding. This isn’t just policy – it’s industrial strategy.
  
• Permitting Reform: Both the Trump and Biden administrations have recognized the broken permitting system and have pushed for the streamlining of approvals for mining projects. In the U.S., it can take over a decade to open a mine. That’s now getting attention, with a push to expedite timelines without blowing past environmental safeguards.
  

So while we won’t completely decouple from China anytime soon - it’s estimated that between 2020 - 2023 the U.S. still relied on China for ~70% of rare earth imports - by the end of the decade, the world will be less dependent. A multipolar supply chain is starting to materialize – with over 200 rare earths projects currently underway globally. Lynas, MP Materials, and others could supply 20 – 30% of global demand from outside China. Add in recycling and rare-earth-free alternatives, and the leverage gap starts to close.

Digging In: The Mining Opportunity

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For founders, our need for a fast track to sustainable capacity provides a crucial window of opportunity. The critical mineral supply chain is underbuilt, underserved, and suddenly urgent. What used to be a sleepy corner of mining is now on the front lines of industrial strategy. This isn’t just a race for materials – it’s a moment to build category-defining companies.

Innovation is emerging across every stage of the mining and materials value chain, though not every part of the stack is equally suited for venture capital. Thus at Ensemble, we’re focused on the areas where technical differentiation, speed, and scale can unlock real advantage. Below are the categories we believe are best aligned with the venture model, and where we’re particularly excited to invest:

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1) Prospecting & Exploration

Why it matters:

Before you can mine critical materials, you have to find them. And traditional exploration is expensive, slow, and uncertain. Typical exploration timelines can take up to 5 years, and cost millions in capital - for an unknown return. Modern tools can compress this cycle and improve success rates dramatically and thus exploration has become one of the areas in which we are seeing the most innovation.

What we’re excited about:

Subsurface Discovery

• Software & Sensors: Startups like VerAI, Terra AI, and Ideon, are using AI, geospatial analytics, hyperspectral imaging, and machine learning models to improve mineral targeting and exploration. They’re pulling signals from noisy historical drill logs, satellite data, and magnetic surveys to identify promising zones faster and with greater confidence. The goal: reduce drilling, lower costs, and compress timelines.
• Integrated Exploration: Some teams like KoBold Metals, Earth AI, and Durin, are going full-stack – building vertically integrated platforms that combine software, sensing hardware, and on-site exploration services. Think exploration-as-a-service, often bundled with proprietary data layers and autonomous or semi-autonomous rigs. These models aim to deliver turnkey discovery for majors and governments while compounding proprietary datasets over time.

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2) Mining, Processing & Refinement

Why it matters:

This is where raw materials become usable, and where the rare earth supply chain is most vulnerable. Mining brings REEs to the surface, but without the ability to concentrate, separate, and purify them, they’re just rock. Extracting usable minerals from ore involves dozens of complex chemical steps, most of which (~90% of total REE refining) is currently done in China using outdated and polluting methods. Without scalable domestic processing, mining is meaningless.

What we’re excited about:

Innovative Processing and Refinement

On the processing side, startups are developing modular, lower-waste separation technologies that use membranes, electrochemical systems, and biotechnology to isolate rare earths more efficiently. These solutions aim to shrink environmental impact while making small-scale processing more viable and distributed. Innovators pioneering novel and sustainable solutions for processing and refinement include Mangrove Lithium, Nth Cycle, Endolith, and Alta.

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3) Sustainability

Why it matters:

The cleanest supply chain is one you don’t need. While there are no perfect drop-in replacements for critical materials and REEs in magnets or optics yet, even partial substitution can reduce dependency on volatile sources and shrink the fragility of supply.

What we’re excited about:

Substitutes & New Materials

Startups like Magrathea Metals and Niron Magnetics are working on carbon free metals, rare-earth-free motor designs, novel magnetic materials, and better materials modeling software to predict new candidates. These technologies are still early but could shift demand curves dramatically if they scale.

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At Ensemble, we’ve felt the pain of critical mineral dependency firsthand. Our portfolio companies like Saronic and CHAOS rely on these materials to operate.  That’s why we’re actively investing in the future of mining and critical minerals.

The mining supply chain is overdue for reinvention, and the next great companies in this space will be built by those willing to take on the complexity that others avoid.

If you or someone you know is building this future, or thinking about it, we’d love to hear from you.

‍Collin West (collin@ensemble.vc)

Conrad Shang (conrad@ensemble.vc)

Ian Heinrich (ian@ensemble.vc)

Aidan Gold (aidan@ensemble.vc)

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