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Australia is caught between China and the United States, holding one thing they both need: rare earths

Business Insider Australia logo Business Insider Australia 16/12/2021 Jack Derwin
Every new electric vehicle (EV) demands roughly 1 kilogram of rare earths. (Kevork Djansezian, Getty Images) © Provided by Business Insider Australia Every new electric vehicle (EV) demands roughly 1 kilogram of rare earths. (Kevork Djansezian, Getty Images)
  • Controlling much of the global supply of rare earth minerals, China has repeatedly threatened to cut off other countries like the United States and Japan from the critical resource.
  • Rare earths are required for everything from renewable energy to military hardware and electric vehicles, granting China significant strategic leverage via its dominance of the market.
  • Due to its own natural resources, Australia has emerged as the West’s best hedge against the threats, with plans escalating to turn the country into a global hub.
  • Visit Business Insider Australia’s homepage for more stories.
Northern Mineral's then-CEO George Bauk. (Photo by Jack Derwin, 2019) © Provided by Business Insider Australia Northern Mineral's then-CEO George Bauk. (Photo by Jack Derwin, 2019)

Iron ore and coal exports might make a handsome contribution to Australia’s economy, but it’s a very different type of rock that could really set the country apart.

Rare earth minerals are needed for just about every bit of modern technology you could imagine – as well as the kind of military hardware you couldn’t.

With names that sound like they were ripped straight from science fiction, like neodymium and praseodymium, you’d be forgiven for not being familiar, even if your mobile phone is full of them.

The Northern Minerals' flagship mine in Browns Range, Western Australia. (Photo by Jack Derwin) © Provided by Business Insider Australia The Northern Minerals' flagship mine in Browns Range, Western Australia. (Photo by Jack Derwin)

But boasting a list of utilities as long as your arm, they have become essential to the technologies we rely on today and will require tomorrow. They make up the building blocks of everything from electric vehicles and wind turbines to missiles and fighter jets.

Considering the strategic nature of these technologies from waging war to powering cities, there is a growing appetite for these elements that cannot be denied.

Every new electric vehicle (EV) demands roughly 1 kilogram of rare earths. (Kevork Djansezian, Getty Images) © Provided by Business Insider Australia Every new electric vehicle (EV) demands roughly 1 kilogram of rare earths. (Kevork Djansezian, Getty Images)

But while Chinese demand might help move other commodity markets like iron ore, it is Chinese supply of rare earth minerals that borders on monopoly. Repeated threats to cut off adversaries like the United States carry weight, leading the Pentagon to strike a deal with Australia’s largest rare earths miner Lynas to build a separation processing plant to guarantee America’s supply.

With rare earths set to become even more vital in the 21st century, Australia finds itself in a unique position, being among just a few nation that could help break China’s quasi-monopoly.

Rare earth minerals aren’t actually all that rare

Despite what the name would suggest, rare earth minerals are abundant – far more than gold, for example. By 2017, the world was pulling 130,000 tonnes of rare earths out of the ground annually, valued at around $US415 million. Around 80% came out of China, with the nation also proving the world’s biggest consumer.

However, the ‘rare’ part of its name comes from the fact that the minerals can often be difficult to find in commercially viable concentrations. They also tend to be found with other kinds of ores, making their extraction and processing more complex.

But as you’ll see, the market isn’t a matter of geography and nothing else.

Nor is China’s dominance borne out of luck. According to estimates, the country is home to just 37% of the world supply, largely sourcing it from Bayan Obo, an enormous mine in Inner Mongolia, and another in southern China.

The remainder is scratched together from various allies, most notably Estonia, Japan, and France.

Australia, on the other hand, might hold only the sixth natural largest source, but it has one major advantage: stores of the stuff are located close to the crust, ripe for mining.

The United States ranks as the second largest home of rare earths and one of its most dependent markets and yet produces next to nothing, partly as a result of bankruptcies and a lack of investment.

Yet the demand is global, with tech hubs like Japan practically running on the minerals.

China caught the world napping

To understand how China gained its advantage, we have to move one step further down the supply chain, from mining to processing.

That means taking ore from the ground containing less than 10% of what is useful and extracting a quantity of the mineral that actually can be used. This involves grinding ore to powder and then separating the minerals from other material.

In this respect, China has effectively monopolised the market, processing as much as 90% of the global supply.

Lynas, an Australian mining company, essentially takes care of the remainder with its own processing plant in Malaysia. Other processing nations like France are hamstrung due to antiquated and inefficient equipment that proves too expensive to run in order to compete.

Northern Mineral’s then-CEO George Bauk. (Photo by Jack Derwin, 2019) © Provided by Business Insider Australia Northern Mineral’s then-CEO George Bauk. (Photo by Jack Derwin, 2019)

In fact, as the demand for and production of the minerals has increased, China’s position has improved. According to official Chinese statistics, the country’s exports of rare earth oxides have almost doubled over the past five years.

China’s gradual ascent in the rare earth space meant that even a Texas processing plant has come under Chinese ownership in recent years.


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It would have left many scratching their heads as China has sought to throw its weight around in the space, threatening to cut off the supply to multiple nations including Japan and the United States. More recently, arms manufacturer Lockheed Martin was warned it could have supply lines cut after it signed sizeable contracts with Taiwan.

At a time when Beijing has shown little hesitation jettisoning a tranche of trade deals with Australia, the posturing cannot easily be dismissed.

“The Chinese very smartly dominated the rare earths space while everyone [else] was falling asleep,” George Bauk, the former CEO of Australian rare earths project Northern Minerals, told Business Insider Australia.

Only when the issue began to be understood as a clear strategic threat were moves made to remedy that vulnerability.

“China’s got a plan and they’re working towards it. The rest of the world has got to have their own plans [as well],” Bauk said.

“Sometimes there needs to be crisis before there’s action.”

Australia’s unique positon

With the West now acutely aware of the lopsided status quo that has developed, there’s nothing stopping Australia and others from remedying the disadvantage.

While new projects are now popping up around the world, Canada and Australia are of the most interest to the US, with Washington and Canberra signing an agreement to work together on rare earths in 2019.

“Australia could be part of the solution,” CSIRO research scientist Chris Vernon said. “Depending on how you measure it, Australia has maybe 10% of the rare earths of China, but that could be a very useful strategic resource.”

In September Ellen Lord, the Pentagon’s under-secretary of defence for acquisition and sustainment, told reporters that Australia was “one of the highest potential avenues” toward rare earth supply.

What strategists and pundits mention less is the significant head start China has, as well as the obstacles to actually building Australia into the resource the Western world badly wants.

The Northern Minerals’ flagship mine in Browns Range, Western Australia. (Photo by Jack Derwin) © Provided by Business Insider Australia The Northern Minerals’ flagship mine in Browns Range, Western Australia. (Photo by Jack Derwin)

As Vernon points out, Australia has “only one active mine at the moment” in the form of Lynas’ Mt Weld. But while other projects could be scaled up, a much larger conundrum remains.

“What do you do with your rare earths once you’ve got them out of the ground? If you have to sell it to China to get it processed then it’s kind of hopeless,” Vernon said.

“If the US wants to become at least partially independent of China, then somewhere in the world we’ve got to establish all of that processing infrastructure that really currently only exists within China.”

Vernon says it’s “absolutely” possible that Australia does that, with the technology required already available here and able to be deployed at mines from Dubbo to Northern Mineral’s Browns Range project.

Yet again, there’s another big leap Australia may need to complete to truly achieve its potential: taking processed minerals and turning them into metals or magnets used in electric vehicles.

“If we want to make magnets then – I won’t say the technology doesn’t exist, but it will require a very brave company to try and take that on,” Vernon said.

One may have just reared its head. Australian Strategic Metals late last year acquired South Korea’s Ziron Tech which claims it can now do just that.

“If Australia could make magnets, then others like Japan, Korea, the US, and the EU could make metals from it, sidestepping China altogether. It is possible, but gosh, it requires investment.”

Australia is finally waking up

Whether or not the federal government is prepared to stump up the initial investment remains to be seen.

It has been, after all, a lack of support and appetite among early investors and governments that has curtailed Australia’s footprint in the sector so far.

Perhaps it’s no wonder. Valued potentially at just $10 billion with development, the West has failed to appreciate the value of the global rare earths market compared to other major commodities. Iron ore, for example, contributed more than $100 billion to the Australian economy last year.

A lack of forthcoming investment is ultimately the reason why the Browns Range mine is a pilot project rather than full blown operations. The early funding to get those same mines off the ground often did come from Chinese investors, with Bauk telling reporters in 2019 that it wasn’t as if there was anyone else willing to chip in.

Lynas CEO and managing director Amanda Lacaze is spearheading Australia’s rare earth efforts. (Fairfax Media) © Provided by Business Insider Australia Lynas CEO and managing director Amanda Lacaze is spearheading Australia’s rare earth efforts. (Fairfax Media)

But it could be time Canberra stepped up to the plate.

“I’m a big believer in the free market economy, but if you decide something is strategic then you shouldn’t treat it as just a worldwide tradable commodity. If it’s strategic, perhaps you should ensure you have supply,” Vernon said.

While he adds that he isn’t suggesting government underwrite entire projects, he does note governments could offer preferential funding and guaranteed loans to help build out an industry that is clearly in need of it.

“Sustained performance for Australia’s critical minerals industry, including rare earths, is dependent on Australia developing cost competitive operations,” Lynas CEO and managing director Amanda Lacaze told Business Insider Australia. “Government support, including in the form of  cost-effective shared infrastructure, will be essential to developing this.”

“Outside China, the market is easily distorted and simply relying on market forces will likely not deliver the desired outcome.”

Other nations are certainly depending on Australia’s miners to deliver, with renewed cooperation helping produce the latest Lynas agreement with the United States. The deal will see the US Department of Defence and the ASX-listed mining compnay both kick in up to $US30 million each to build a Texas processing plant.

It in turn will receive semi-processed minerals directly from Lynas’ Kalgoorlie plant, churning out 5,000 tonnes a year, with a particular focus on neodymium and praseodymium.

Those minerals are essential components of most electric vehicles, with another supplier Peak Resources estimating that for every EV that replaces a conventional engine, a further kilogram of the stuff is added to global demand.

“While demand for Rare Earth materials continues to grow, COVID-19 has exposed the risks within global supply chains of the single sourcing of critical materials,” Lacaze adds.

“This agreement is consistent with the US Government’s commitment to rebuild the domestic industrial base, while working effectively with partner nations. The Texas plant will ensure the U.S. has a secure domestic source of high quality separated rare earth.”

It’s clear that with demand slated to soar in the coming years, and as China continues to assert itself, Australia can expect plenty of buyers. The question now is whether it is ready to supply it.

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