China’s recent threat to use rare earth mineral exports as leverage in its ongoing trade war with the US has, once again, accentuated concerns over the one-party state’s dominance of several key minerals that are used in everything from smartphones to electric vehicles.
In a bid to tackle the issue, in November 2019 the US and Australia decided to formalise an ongoing partnership between the two countries to develop new sources of these so-called critical minerals, including rare earths, cobalt and tungsten. Through the agreement, the two nations plan to foster ‘mutual supply and demand arrangements’, close knowledge gaps, and fast track innovation.
The deal, signed by Geoscience Australia and the United States Geological Survey, further cements over a century of ‘mateship’ between the two countries that was first established in World War I.
It is also part of a wider effort by the Australian government to develop new industries for these new energy minerals. It has already launched a Critical Minerals Strategy and a Critical Minerals Facilitation Office, which will open in January 2020, to help miners secure investment, financing and market access for relevant projects.
‘Critical minerals’
Minerals covered in the arrangement are labelled critical by several industrial nations due to their use in military and modern technologies, but also because, in some cases, China monopolises around 80% of supply, as is the case with cobalt.
According to Dr Chris Vernon, program director for mineral processing at the Commonwealth Scientific and Industrial Research Organisation, China decided to exploit its rare earth minerals to dominate every part of the value chain – and now the rest of the world is playing catch-up.
“Chinese supply has up until now been cheap and plentiful enough we’ve ignored the fact there is no substitute for these materials, and there is, for all practical purposes, just one place to get them,” he says.
Australia, however, on the face of it, is well positioned to develop its own resources of these critical minerals. It is estimated, for example, that Australia holds the world’s sixth-largest resource of rare earth minerals.
Vernon says while it’s often looked like too hard a task for Australia to establish its own rare earths industry, the new partnership with the US should be seen as ‘a terrific opportunity’.
Market challenges
Mining rare earths is tricky, both environmentally and economically. The prospectivity of a resource is determined by several factors, including grade, cost of processing, impurities and the relative concentration of the rare earth elements in greatest demand.
As outlined in a 2018 report authored by Professor Dudley J. Kingsnorth from the Western Australian School of Mines, China’s production of rare earths is trusted to six state-owned enterprises, which effectively gives the Chinese state government control of the industry. Its grip on the group of 17 elements is such that it often keeps prices artificially low, making it difficult for projects outside the country to be economically viable.
“The reality is governments have not offered any assistance and investors are not interested in financing promised projects, when a realistic economic assessment demonstrates there will be no return,” says Kingsnorth.
Another issue, says Kingsnorth, is that all rare earths contain uranium and thorium, meaning environmentalists in Australia will likely object to their processing. In China, environmental laws are not enforced with the same vigour.
These factors make a case for rare earths and similar minerals to be treated differently, says Vernon.
“I hope policy treatment could be quite different between a commodity where there are many suppliers competing into the market, versus something declared strategic, or critical, and therefore more important,” he says.
The question, asks Vernon, is do governments commit to stockpiles for a guaranteed market? Or do they offer to level the playing field by paying for the higher environmental standards? Or do they take a financial stake in mines and process plants to guarantee funding?
Tania Constable, chief executive officer at the Minerals Council Australia, says because rare earths and critical minerals projects will be eligible for financial support through Export Finance Australia, the Defence Export Facility and also the Northern Australia Infrastructure Facility.
“Access to finance has been a barrier, so the government’s commitment to help industry extract and process critical minerals in Australia should be commended,” she says.
How will the new US-Australia partnership change things?
Considering these factors, it will remain difficult for Australia to economically develop its rare earth resources, even with collaboration from the US. Kingsnorth emphasises this difficulty will be particularly apparent as the country lacks the capability for value-add processing, which is where most of the profit in rare earths’ lies.
“Exchanging geological information and investing in research and development processes will take many years to commercialise and will not prevent the decimation of the global automotive industry outside China, [especially] if the country achieves its goal of manufacturing 50% of the global demand for hybrids and EVs by 2025,” he says.
“This target is based upon a 20-30-year strategy of progressively dominating the downstream processing rare earths, which are essential to EVs and hybrids,” he adds.
Currently, the only operating US rare earths mine, Mountain Pass in California, ships its product to China for processing.
Lynas Corp, the largest supplier of rare earths outside China, however, has a processing plant in Malaysia. The company owns Mt Weld – one of the world’s highest-grade rare earths mines, located 35km south of Laverton in Western Australia – as well as the Mt Weld Concentration Plant, commissioned in 2011 and located 1.5km from the mine site.
Speaking of the partnership between Australia and the US, a Lynas Corporation representative says: “We believe governments are well placed to support sustainable and resilient Rare Earths supply chains through both policy settings and careful funding solutions.”
Lynas’ integrated manufacturing facility, which separates and processes rare earths materials, is located in the Gebeng Industrial Estate near the Port of Kuantan in Malaysia.
The facility, however, has received objections from local residents, with many calling for it to be closed due to the fear of radiation, which Lynas denies is an issue.
According to an August report by Reuters, citing US officials, the U.S. Department of Defense is in talks with Australia to host a rare earths processing facility. Lynas is also reportedly planning to build a processing plant in Texas.
Going forward
For Australia, Vernon hopes this second shock to the market, caused when China said it could restrict rare earths supply, ‘has reminded us that the supply chain for the minerals is very fragile.’
“Australia won’t ever compete with Chinese economics, as we will insist on tighter environmental controls, but if or when China imposes restrictions on export, Chinese prices will be a meaningless concept; we’ll need an alternative supply, even if the cost is higher,” he says.
The international community, led by the US, certainly seems focused on diversifying the supply of rare earths and other critical minerals. In this respect, the US is also in talks with Canada, which is a leading producer of nickel and cobalt and is part of the newly-established Energy Resource Governance Initiative (ERGI), which aims to find friendly critical mineral sources outside China. But it remains to be seen if, together, the US and Australia can succeed in getting any new projects off the ground.
