VINACHEM

Attempts by Australia and others to boost their role in rare-earth elements face numerous challenges even though China's grip is expected to loosen in the coming decade.

Australia announced this month that it will back a second large rare-earth project, providing a loan of 840 million Australian dollars ($550 million) to the Australian miner Arafura to build a mine and processing facility in the Northern Territory. The loan, provided largely by the government's Critical Minerals Facility, comes two years after another miner, Iluka, was given AU$1.25 billion to build a rare-earth processing plant in Western Australia.

Australia, long an exporter of raw minerals, is supporting projects like these in order to boost its midstream and downstream industries and become a global supplier of materials used in clean energy technologies. The country has also partnered with the U.S. in a broader effort to reduce reliance on China, which dominates the global market for critical minerals.

But analysts and experts have raised concerns about this strategy, including questions over Australia's ability to compete with lower-cost producers in Asia and Africa. Oversupplies of the battery metals nickel, lithium and cobalt have already hurt existing projects and impacted development plans.

Prices of rare-earth elements -- 17 metals used to make permanent magnets for technologies such as EV engines and wind turbines -- have dropped recently as well. The Australian company Lynas, the world's only rare-earth supplier with supply chains outside China, reported a 74% fall in half-year profit in February, though the company says it is optimistic about longer-term demand growth.

China currently accounts for about 60% of the global mined supply of rare earths, a figure that is expected to fall to 50% by 2035 as mines elsewhere expand and new sources enter the market, according to Wood Mackenzie analyst Ross Embleton.

At the refining stage, China accounts for 85% of the global market. While this is expected to fall to about two-thirds over the same period, Embleton said, new projects face numerous hurdles in terms of cost, financing, technical expertise and inflation. A lack of downstream customers able to turn rare-earth minerals into finished products is another hurdle to establishing supply chains outside of China, he said.

"Ultimately, developing projects have to be able to compete with China on a cost basis (or get as close as possible), which is very challenging in the current climate," Embleton said in an email.

"We expect a level of success for developing projects" outside China, "and Australia will certainly have its part to play, though [as] with all developing projects in the mining industry, there will be challenges," he added.

The question for projects like Arafura, which counts Australian mining magnate Gina Rinehart as a shareholder, and Iluka is whether their strategic importance outweighs the economic challenges.

David Fair, a director in PwC's Energy Transition Advisory group, says government support is critical if Australia wants to increase its share of the value chain.

"It's not about pure [return on investment], which is what the stockbrokers will look at," Fair said. "It's about how do we, from one project, make a large impact for the Australian economy?"

The Iluka project is already expected to exceed its originally forecast cost of AU$1 billion to AU$1.2 billion. Estimates are now in the range of AU$1.7 billion to AU$1.8 billion. Chief executive Tom O'Leary said in February that Iluka was in talks with the government about "a pathway to deliver the refinery."

"As we contemplate funding, both we and [the] government are really cognizant of the risks of the project but also its strategic importance, not only from a geopolitical and defense perspective but also from the perspective of its contribution to facilitating global decarbonization," O'Leary said.

Others are more skeptical.

Dylan Kelly, a mining analyst for Terra Capital who focuses on critical minerals, said there is an "extremely low" chance of either project meeting its proposed budget or time frame.

"When combined with the prevailing price for the commodity, there is no economic case to warrant investment," he said, contrasting the situation with that of Lynas a decade ago.

"Lynas had a distinct cost and technical labor advantage, as [its facility for processing ore] was located in a large petrochemical industrial park in Kuantan, Malaysia," Kelly said. "Comparatively, the Australian projects are isolated and far higher-cost."

Lynas has been backed by the Japanese government, which moved to secure supplies of rare-earth minerals for its magnet manufacturing industry after China temporarily restricted imports in 2010.

Julie Klinger, an assistant professor at the University of Delaware who studies the rare-earth industry, says hundreds of projects launched since 2010, in the wake of China's brief halt in exports, had failed.

She said that although China has proved to be a reliable supplier in the years since, the discourse around supply chains appears to be shifting and other trends are also emerging amid the broader backdrop of geopolitical tensions.

While China has moved to reduce the environmental impact of its own industries, elsewhere planning and government subsidies are "beginning to make a comeback" as policymakers focus more on securing critical raw materials and achieving an energy transition.

"I think there's a sense now that if you want to build yourself into any kind of superpower, including a renewable energy superpower, that is a matter of major public investment," Klinger said.  – Source: Nikkei –