China’s recent relaxation of export controls on certain rare earth metals shouldn’t cause anyone to get complacent about future access to that country’s extensive stores of critical minerals.
Another blowup in the trade relationship between the U.S. and China could quickly lead to the latter once more cutting off access to raw materials that are essential to the manufacture of everything from missiles to solar panels, electric vehicles, smartphones and laptops.
With that caveat in mind, the U.S. in October announced the “framework” of a deal to purchase rare earths and other critical minerals from mines in Australia. The agreement calls for $1 billion to be invested in the coming months for projects that would boost production of those raw materials for U.S. consumption. The two countries expect the deal to support a pipeline of some $8.5 billion of critical mineral projects.
China had previously set off warning bells by announcing that foreign-owned companies in China would need to secure approval from the Chinese government to export magnets that contained even a slight amount of rare earth minerals originating in China, or produced there. “This rule gives China control over basically the entire global economy in the technology supply chain,” U.S. Trade Representative Jamieson Greer said at the time.
The fact that China subsequently relaxed those strictures caused no one to breathe sighs of relief. On the contrary, calls for diversification of U.S. supplies of rare earth minerals — of which China has a virtual monopoly — grew louder.
The mining deal with Australia is one response to China’s chokehold on rare earth supplies. But one industry expert says it needs to contain crucial language to ensure that China isn’t able to manipulate prices of the commodities.
The contracts for purchasing materials from Australian mines need to include price floors that guarantee a minimum price the U.S. will pay, says Pini Althaus, chief executive officer of Cove Capital. That way, China can’t tank the deals by temporarily driving market prices down so low that extraction elsewhere doesn’t make financial sense. “I think taking away that arrow in the quiver of China to manipulate pricing is an absolute crucial first step in Australia and the West being able to develop critical minerals projects to meet our supply chain demands.”
Althaus says non-Chinese mining companies are facing high volatility in pricing for materials such as lithium, tungsten and rare earths — all areas where the Chinese “have such strong control over supply chains that they’re able to dump materials on the market.” China can take such actions just as projects are about to enter the development phase, he notes, forcing shutdowns and wasting early-stage expenditures.
The deal between Australia and the U.S. isn’t exclusive. “Companies will be free to make their own commercial decisions,” Althaus says, “but there’s a lot of excitement in the Australia minerals industry.” Australia is reaching out to other countries, just as the U.S. is seeking additional producers of critical minerals.
Besides Australia, Central Asia offers “the lowest-hanging fruit” for the U.S. as a potential source of materials, Althaus says, citing Kazakhstan, Uzbekistan, Tajikistan and Kyrgyzstan
as possessors of “vast resources” of critical minerals. In fact, Cove Capital recently announced a joint venture with the national mining company of Kazakhstan, to access what the company called “the largest known undeveloped tungsten resource in the world.” Total development costs are estimated at $1.1 billion.
The Kazakhstan arm of Cove Capital reportedly faced stiff competition from a state-backed Chinese firm that had offered to pay well above market price for the tungsten deal.
Russia, too, remains “very active” in seeking critical minerals in Central Asia, although countries in the region have been seeking to diversify their selling base, Althaus says.
Much more needs to be done if the U.S. is to wean itself from dependence on China for rare earths and other minerals. Althaus says China has built up its dominance in that area over the past 40 years, as the U.S. increasingly opted for cheaper supplies from foreign sources, and environmental concerns shut down domestic production sites. He calls the attrition of the American mining industry “perhaps one of the biggest errors the U.S. made from an economic standpoint in its history.”
Turning that around and reviving domestic sources won’t happen overnight. Over the next five to seven years, Althaus says, the U.S. doesn’t have nearly enough deposits to alleviate its dependence on China. Only a handful of domestic mining projects are at the development stage, and “there’s no investor appetite for greenfield exploration.”
Building price floors into deals such as the one recently struck with Australia could give investors the confidence they need to begin funding new domestic mining projects, even if such initiatives take as long as 20 years to bear fruit.
In the meantime, Althaus says, “it is crucial that America continues to invest in the long-term effort to develop other mining and processing projects, both at home and in friendly nations.”
Next: Securing the uranium supply chain.