The Scramble to Secure Rare Earth Elements

Christian is a Project Manager at Minespider.
Christian Ecker
Rare earth elements (REE) have been dominating the news recently - 17 key minerals used to create everyday technologies - A whopping 80% of which are produced in China. Can the US, who was once the world leader in REE production, return to their former glory? Can the EU or Australia launch processing facilities quickly enough to play catch up? This in-depth article explores the global timeline of REE production and processing, all the geopolitical factors at play, and the future market outlook.
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Do you know what Neodymium, Praseodymium, and Dysprosium are?

Odds are you held them in your hands in one form or another in the past days. They are part of a group of 17 elements collectively referred to as rare earths or rare earth elements (REE), used in virtually every tech device, from wind turbines to smart phones to aircrafts.

And the power politics around them are back in the headlines. After reports that China is evaluating whether to limit exports of rare earth minerals to the United States and the European Union, US officials told reporters that President Biden will be signing an executive order to launch the development of a national strategy to secure supply chains and critical raw materials.

This has been a hot topic for quite some time. But the importance of rare earths for national security was propelled to the forefront after China reportedly looked specifically into how curbing exports would affect the defense sectors — specifically, the production of the F-35 Fighter Jets. Like lots of other high-tech weaponry, those jets cannot be produced without rare earth metals.

To be more precise, an estimated 435 kg of them, per aircraft.

The dependence on those elements, especially for equipment as strategically important as military equipment, makes the critical role of China in their production all the more remarkable.

A whopping 80% of global rare earth supplies are produced in China — depending on the source you consult, and whether you are talking about refined metals or concentrates.

This is by no means a new phenomenon. Already in 2010 the US Government Accountability Office (GAO) compiled a report, admonishing the strategic importance of secure rare earth supply chains for the US defense industry and military. A shift to resource sovereignty, the report estimated, would take about 15 years.

However, a decade later all roads leading to rare earth metals arrive in Beijing. China’s willingness to flex its “resource muscle” can halt entire industries across the globe.

As the GAO indicated in 2010, diversified supply chains are possible and necessary. The reason for that is, while the Chinese reserves are big and their expertise in the processing sector outstanding, raw earth metals can also be sourced and processed elsewhere.

According to the US Geological Survey, in 2020 China had about 44 million tons of reserves. Brazil and Vietnam had about 22 million, respectively, Canada 15 million, Russia 12 million, and the US 1.7 million. The great unknown are North Korean reserves, which are estimated to be as high as 216.5 million tons.

So, there are more countries involved, and within that a lot of industries — basically many perspectives to consider. Let’s take a step back and look at the rare earth industry from several angles, starting with the US and China, then going to Canada, the EU, and Australia and closing with a glimpse of the investors’ perspective. But first, a clarification on what exactly rare earths elements are, and why they are important.

The Seeds of Technology.

Rare earth metals is an overarching name for 17 chemical elements that are often found in compounds. As a matter of fact, they are not actually rare. If you dig up a shovel full of dirt in your backyard, depending on where in the world you are, it’s not unlikely that you are holding rare earth elements in your hands.

The problem is finding REE in concentrations that make mining them economically feasible.

They are important because of their wide application in industry, for example conductors, magnets, catalytic converters, and many more. The defense industry is certainly not the only sector which needs them to produce their goods. Smart phones, turbines, LED lights, solar panels, batteries, cars — name anything related to electricity or magnets and the odds are pretty high that you will find one of them in there. That’s why they are also called “The seeds of technology.”

Looking at our world’s degree of dependency on electronic devices, coupled with the ongoing shift to renewable energy, it is obvious that these elements are not only the seeds of technology, but truly the foundation of our global economy.

Virtually everybody wants them, and the US military is not alone in their concerns about securing their procurement in the future. Even China is concerned about satisfying their demand: a key reason for restricting exports has been to ensure there is enough supply for domestic industry. What’s more, the effects of the coup in Myanmar (from where China imports about fifty percent of its rare earth concentrates) have yet to be seen.

The US: From Riches to Rags.

For most of the second half of the 20th century, the United States was the world’s leading producer of rare earth metals and its manufacturing industry their biggest consumer. In the 1940s, the United States relied almost entirely on India for the supply of monazite, one of the REEs. After India started to interrupt shipments to build its own industry, the United States began to foster domestic production through government funding, private sector investment, and extensive research.

Over the next decade, the Ames Laboratory, set up by the Atomic Energy Commission in order to research mining, processing, and industrial use of rare earth metals, became known as “the birthplace of the modern rare-earth industry”, and “the Mecca of rare earths”.

In the 1980s, the US company Molycorp supplied 70% of the world’s rare earth supply. And all from just one mine, Mountain Pass in California. In REE mining, processing, manufacturing, and research, the United States was the global leader.

But things changed over the course of just a few years. As the sourcing and processing of REEs soared, as well as their use in the domestic industry, the US government, after being very supportive of the industry in the 50s and 60s, gradually scaled back the financial support of R&D.

Simultaneously, increased environmental regulation made production ever more expensive. These developments initiated a gradual change in the RRE hegemony, as Chinese producers, backed by massive state funding and unrestricted by environmental concerns, pushed forward into the global market.

In 1998, a broken pipe at the Mountain Pass Mine resulted in an environmental disaster and effectively forced the owners to close it down. At the turn of the millennium, China held a de facto monopoly in the rare earths industry.

In recent years, having recognized the need to act, the US is trying to revamp their industry. Mountain Pass restarted operations in 2017 — but exports all its produce to Singapore’s Shenghe Resources, as stipulated in an offtake agreement that should run through 2024, when the offtake advance is expected to be repaid.

Another company, USA Rare Earth, is hoping to raise up to US$500 million for a mine and processing facility in Texas that is expected to be up and running by 2023. The US Department of Defense just closed a contract with the Australian mining company Lynas to set up a processing plant in Texas.

These are just a few examples to underscore the US desire to win back some of their independence. What is also clear, however, is that this will be a slow uphill climb. Due to the concentration of the industry, there is a significant dearth of top-notch experts, scientists and research institutions in this area outside of China. It will take time to get to the same level of output as Chinese companies, not only in terms of quantity, but also quality.

Why is production concentrated in China? A brief historical recap.

The pivot of the industry to China was the result of decades of development. China gained its prominent position as a global REE hub not only as a consequence of geological endowments — but more so due to strategic planning.

While the US industry was bustling, something was happening on the other side of the Pacific.

China started to invest significantly in REE-related R&D, beginning a concerted effort to source, refine, and sell those elements. It is reported that by 1985, around 3,000 scientists and engineers at more than 300 research institutes and 40 universities dedicated their work to rare earths research. Recognizing their global importance, in 1990 China declared them a strategic resource, nationalized most companies involved in the industry, and started to dictate pricing in 1994.

Recognizing their importance, Deng Xiaoping famously said in 1992:

“The Middle East has oil. China has rare earths.”

In the 1990s, China increased their output by more than 450% and sold their produce on an international market where nobody could compete with the low prices Chinese companies offered — and if other producers tried, they were routinely outbid.

In parallel, China had grown a bustling manufacturing sector and started restricting the export of those elements once it reached its quasi-monopolistic position — not only to show strength and bully competitors, but to satiate the demand of its ever growing domestic market.

China’s real strength is not only sourcing primary concentrates, but refining them for industrial use. The fact that it imports 50% of its concentrates from Myanmar underscores that assessment. Mines from all over the world deliver their rare earth oxides to China in order to have them processed there.

China never stopped its investment in research, but on the contrary has been working to increase it, being a global reference not only in the industry but also among the scientific community.

And the others…?

Other regions of the world are addressing this situation as well. The European Union ranks RREs highly on their list of critical raw materials but, as with most natural resources, they are struggling with their lack of deposits. At the same time, the EU’s tech based industry cannot operate without them. The EU’s approach to this dilemma has traditionally been resource diplomacy, where they deploy diplomats to ensure continued access.

Companies are developing new facilities in Europe as well. One exemplary project noteworthy in this context: Pensana Rare Earth’s has submitted a planning application for a processing plant in Hull, UK. The site would employ around 100 people and produce oxides that are vital for wind turbines and electric cars. The input (neodymium and praseodymium) will come from a to-be-developed mine site in Angola.

Production will be undoubtedly more pricey than in China, but also more environmentally friendly — an acknowledgement that the EU’s proposed new green economy cannot be built on unsustainably sourced and produced materials, as the company’s chairman pointed out.

The Australian mining company Lynas, which has recently made headlines for the aforementioned project it landed in Texas, is also mining REEs in Australia and processing them in their facility in Malaysia. Currently they are setting up a processing facility in Kalgoorlie. In Canada, Appia Energy Corporation is developing a deposit and setting up a rare earth metal processing plant in the province of Saskatchewan. Here, too, the plan is to extract, as well as process the concentrate. Not out of geopolitical concerns, but also because the growing demand makes it a lucrative business.

And then there are, of course, the supposedly massive North Korean deposits, untouched so far. Given the importance of REEs, coupled with the country’s delicate geopolitical position, tapping them will surely send waves through the industry and generate new dynamics and dependencies.

The Investor Perspective.

This brief overview of mining and processing projects portrays an intricate scenario. Yes, Chinese exports are dominating the world market, and yes, Chinese reserves are huge. The examples listed above illustrate that governments and companies elsewhere are poised to increase their output, as the demand keeps growing.

What remains to be seen, however, is how far these and future projects are economically feasible. As pointed out above, industry officials acknowledge that Chinese production is generally more cost efficient which, absent strong governmental support and funding, will likely deter investors. Sending concentrates to China for processing makes much more sense from an economic standpoint.

To posit one hypothesis, by incurring higher costs due to regulatory obligations, companies could distinguish themselves by producing responsibly, adhering to the highest social and environmental standards. As consumers are increasingly demanding responsibly sourced materials, and politicians are acknowledging the need for increased due diligence, producing compliantly can become a lucrative business in the long run.

Looking ahead: A shift in global REE strategies.

From wind turbines to watching Netflix, from aircrafts to smartphones — many people’s everyday life is shaped by devices that rely on rare earth elements.

This is a scenario where depending on a single source — be it from Chinese, US, or Canadian companies — is never a wise choice. Companies and governments have recognized that and are increasingly investing in securing their supplies through diplomacy or building domestic capabilities.

The interesting catch here is that China’s dominance is not only a result of their natural resource endowments — they are without a doubt significant — but there are considerable reserves in other countries too. Rather, Chinese companies are very advanced in the processing of rare earth elements, which is the consequence of decades of massive investments in R&D.

After years of absence from the market, companies and governments in the US, Canada, Europe, and Australia are determined to return to the stage. This is going to be an uphill battle, but no country can afford to have their supply of those critical raw materials cut off. The financial and technological viability of those projects, as well as the scalability, remains to be seen.

However, there is a clear shift in mentality, away from pure cost effectiveness to more diversified, secure, and eventually responsibly sourced supplies.

About the author
Christian is a Project Manager at Minespider.
Christian Ecker
Christian is a Project Manager at Minespider. He focuses on the implementation of traceability processes and sustainability policies, with an interest in local-level human rights & environmental impacts.

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