Tokyo’s response was swift. In partnership with Japanese trading house Sojitz, its mineral-security agency JOGMEC provided Lynas with $US250 million of discounted funding in 2011 to help advance its plans to mine rare earths in Australia, process them in Malaysia and distribute them via Sojitz. In 2023, another $200 million was added to start production of so-called heavy rare earths such as dysprosium and terbium, the main focus of China’s threatened export controls.
For Japan, that far-sighted injection of capital has turned rare earths into a mostly solved problem. Thanks to its secure supply of raw materials, the country now has about three-quarters of the world’s rare-earth magnet production capacity outside China. Assume that each dollar of government funding can mobilise $4 of private money, and the whole program has probably cost $90 million or so from the public purse – about 0.01 per cent of annual budget spending for Tokyo.
Amanda Lacaze, chief executive officer of Lynas Rare Earths, at the company’s processing plant in Kalgoorlie, Western Australia.Credit: Bloomberg
Japan isn’t alone. In California’s Mojave Desert, the Mountain Pass mine was for decades the world’s biggest producer of the elements. It was also in the market for cheap finance in the early 2010s. Unlike Lynas, it was turned down for a government loan in the US and financed itself with junk bonds instead, just before a surge in Chinese supplies crashed prices and sent it careening into bankruptcy.
Revived under current owner MP Materials Corp., it stayed on stronger footing by holding net cash to protect itself from downturns in the market. Thanks to rising concerns in Washington, this year it extracted $550 million in loans and equity from the US government, along with purchase and price guarantees, to advance its heavy rare earths plans.
In Australia, Iluka Resources – mainly known for producing the titanium oxide pigment used in white paint and toothpaste – noticed there was money to be made from its waste dumps. By reprocessing its discarded tailings, it could turn itself into yet another rare-earths producer, and even have capacity to purify other companies’ ore.
With $1.65 billion in government loans, it’s aiming for first production in 2027. By acting as banker, Canberra should get back hundreds of millions more than it put in. Barring default, the loans priced at 3 per cent above benchmark short-term rates should net the government a handsome profit.
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It’s common to argue that handling of the low-level radioactive thorium and uranium waste that commonly occurs alongside rare earths is a prohibitively difficult problem in environmentally minded democracies. Not so: MP Materials and Iluka plan to handle their tailings on site, in dumps protected from groundwater intrusion and dust release. Similar waste is a common byproduct of the phosphate fertiliser industry.
These facilities, and others scrounging around for a few hundred million in concessional loans, are together more than capable of meeting the world’s needs for rare earths, even if Beijing were to employ the nuclear option of an all-out embargo. The current US war on wind energy and electric vehicles — the biggest consumers of rare-earth magnets — makes it far more costly to support this supply chain, but even now it’s not impossible.
China may have the biggest reserves, but gained its current dominant producer status only by presenting itself as the cheapest and most stable source of long-term supplies. The geopolitical sabre-rattling of recent months appears to have permanently immolated that reputation, as dozens of rival miners and processors step up to take its place.
As long as developed democracies don’t forget the lesson of this moment, Beijing will come to regret thinking that it could ever hold the world to ransom over a pile of dirt.
Bloomberg L.P.
