Australian Spotlight - October 2024

When you think of Rare-Earth Minerals (REMs), you probably think of China but did you know that Australia ranks 5th in the world for its proven reserves of REMs with over 3x the reserves of the US? These reserves will be critical in meeting rising future demand but also in diversifying the supply-chain of REMs outside of China. Key allies agree.

The importance of rare earth minerals

REMs have unusually high levels of magnetism, electrical conductivity and incandescence. These properties make them essential for building electronics and vital to the world’s green-energy future. For example, each EV (Electric Vehicle) requires around half a kilogram of REMs while a wind turbine requires around 300 kilograms of neodymium.

REMs are also a critical input in many military applications such as radar, laser-guided missiles, stealth aircraft and naval vessels. One US Virginia class submarine requires over 4 tonnes of REMs.

“Without rare earths and the miniaturization capabilities they provide, computers would be the size of classrooms instead of the size of smartphones,” Julie Michelle Klinger, assistant professor of international relations, Boston University.

China’s stranglehold

While REMs are not that rare, they are about as common as copper and tin, it is rare to find them in concentrated deposits. Of those concentrated deposits, China has the most (see chart below). China also leads the world in production.

While the US was the early leader in REM production in the 1960s and 1970s, China began to overtake them in the 1980s as investment and state assistance began to develop China’s large reserves and its processing capability.

As China’s output increased, it flooded the market, driving down prices and driving out other international competitors. The same approach can be seen with solar panels and now EVs.  

Starting in the 1990s, China also began to secure exclusive access to key foreign deposits. So while its global share of mining in 2022 was 71%, its share of global processing was 90%.

With its foresight, China now sits in pole position in many of the races for green energy and other future technologies.

China is not afraid to use its REM dominance diplomatically. In 2010, China unofficially blocked REM exports to Japan after a scuffle involving a Chinese fishing boat and the Japanese coast guard. They are also threatening to do it again if Japan continues to block the sale of chip-making equipment to China. 

China is also using REMs in a trade dispute with the US and EU. In December 2023, it banned the export of technology for mining and processing REMs, largely in response to US bans on the export of advanced chips and chip-making technology to China. In June 2024, in response to US and EU restrictions on imports of Chinese EVs, China introduced regulations that tightened state control over the REMs sector and its production. A key input for a greener future is becoming a bargaining chip in a global game of trade poker!  

Australia’s rare earth bounty

As is the case with iron ore, lithium, uranium and coal, Australia is blessed with a rich endowment of REMs.

Australia has the fifth largest reserves at 4.9% and ranks 3rd in terms of production in 2023.

The jewel in the Australian REM crown is Lynas Corporation’s Mount Weld mine in Western Australia. The mine sits in a 2 billion year old volcanic plug and currently produces nearly all of Australia’s REM production. Its ore is unusually high-grade and close to the surface. It is particularly rich in dysprosium, neodymium and praseodymium, which are predominantly used for making magnets.

At the moment Lynas sells its production to China but as of next year, it will begin to process its own ores in its processing facility in Malaysia.     

But this is just the beginning because Australia’s mining entrepreneurs have now focused their attention on REMs and the race is on to find and develop new deposits. From the red dust of the West Australian outback to green pastures in South Australia, old mining towns in NSW and the tropics of north Queensland, there is a flurry of activity.

In June 2023, the federal government released its Critical Minerals Strategy 2023-2030. This includes increased financing through the Critical Minerals Facility and the establishment of the cross-institutional Australian Critical Minerals Research and Development Hub.

The Critical Mineral Facility has already announced a AUD 1.25 billion loan to Illuka to build a REMs refinery in Western Australia and a AUD 840 million package for the Arafura REMs project in the Northern Territory.

In addition to efforts in developing Australia's high-grade deposits, the Research Hub is also identifying low-grade REM deposits in clay, which would greatly increase Australia’s reserves. One of its institutions is also developing a pilot plant to improve the extraction of low-grade REMs.

“It doesn’t have to be about making magnets or electric vehicles domestically. It’s just about getting to the point where we can separate them, then turn them into metals, and then suddenly you have a product that is immediately marketable to Europe or the US. “ Dr Chris Griffith, Principal Consultant, ANSTO Minerals.

A strategic alliance

“Our trade and investment partners are increasingly looking to Australia to provide critical minerals, including rare earth elements, that will feed diversified global supply chains in the energy transition.” Madeleine King, Minister for Resources and Minister for Northern Australia.

Australia’s endowment of REMs in this new world of friend-shoring is a welcome boon for the US and its allies (of which of course, Australia is one). While Australia cannot replace the importance of China in the sector, it can become part of a portfolio of countries that can lessen China’s stranglehold and the leverage it provides China. The US is also desperate for its military to source REMs from outside of China.

In return for playing ball, Australia is lobbying for increased foreign investment and preferential treatment of its REM exports from its allies. With increasing Chinese supply and a recent fall in demand from EV makers, REM prices have fallen dramatically over the last 2 years. As a result, Australian and other REM miners are also currently desperate for funds. 

Japan’s investment in developing Mount Weld is a story Australia hopes to replicate across its deposits. In contrast, the federal government is hoping to steer Australian REM companies away from their recent reliance on Chinese investors. For example, in June, the Treasurer ordered Chinese-linked investors to divest from Australian REM miner Northern Minerals.   

The early signs are good. In 2022, 11 countries (including the US, Japan, EU and Australia) formed the Minerals Security Partnership (MSP) to help build a critical-metals supply chain in parallel to that of China’s. The MSP also has a strong commitment to the environment. REMs need to be done the right way.

MSP membership has now increased to 14 countries and a broader “MSP Forum” has been created to engage with select countries with large reserves of critical metals, including countries in Africa, South America and central Asia.

So far, support for 13 projects has been announced. Another 32 are now in the pipeline thanks to an agreement among MSP members in September to make it easier to co-fund projects among members.

MSP projects in Australia include:

●       USD 600 million in potential funding from the Export-Import Bank of the United States for a REM and critical metals project in Dubbo, NSW - Australian Strategic Minerals.

●       USD 900 million in financing from Australian, Canadian and German agencies for a nickel and cobalt project in Townsville, Queensland - Queensland Pacific Metals.

●       A USD 105 million commitment from Germany’s KfW IPEX-Bank for Australian company EcoGraf’s graphite project in Tanzania.

Final thoughts

When it comes to friendshoring, Australia is a rare friend for the US. Australia has 3x the REMs reserves of the US, a long history of mining expertise, and is among the US’s closest allies.

China’s dominance of the sector will take years to build around and the sector will likely require government support and protection for many years. However, Australia shows that it can be done, so long there is a little bit of help from some friends.