Rare earth mine becomes indicator of US mining policy

Rare earth mine becomes indicator of US mining policy

A site near South Africa’s Kruger National Park is becoming a testing ground for U.S. attempts to combat China’s global dominance in critical minerals.

Washington has pledged to finance a little-known London-listed miner hoping to extract rare earths – a collection of 17 minerals critical to clean energy technologies – from chalk stacks outside the safari park, as the United States seeks to challenge China’s runaway advance in access. metals on a global scale.

But a 63% drop in rare earth prices since the start of 2022 calls into question the project’s ability to raise funds. The fate of the $300 million Phalaborwa mine could echo that of other mines aimed at extracting vital minerals for the West, and raises questions about whether U.S. support is enough to constitute a counterweight to Beijing.

The project, whose site is visited by kudu, springbok and buffalo, is close to completing a feasibility study into the economics of extracting minerals from gypsum waste generated by old mines of phosphate – but it still has $250 million to raise.

“The question is, ‘Given the basket price of rare earths, does it make sense to move forward?'” said Andrew Breichmanas, an analyst at Stifel.

For the White House, fighting Chinese domination is a strategic priority: China is home to 70 percent of rare earth mining and 90 percent of its processing capacity, according to the International Energy Agency.

This gives Beijing a near monopoly on permanent magnets used in electric vehicles, wind turbines and fighter jets. China also controls the supply of other clean energy resources such as graphite, cobalt and nickel.

Washington is looking to invest in its own future supply. The US International Development Finance Corporation (DFC) has invested $105 million in TechMet, a $1 billion critical minerals fund, which has pledged $50 million in equity for Rainbow Rare Earths, the company to the origin of the mine, when it is ready to start raising funds to build the factory later this year.

Nisha Biswal, deputy director general of the DFC, said the state-owned entity planned to increase its investments in African critical minerals, with this year’s total likely to exceed last year’s $700 million. “This is just the beginning,” she added.

A key part of this is funding projects such as the Lobito Corridor Railway to connect an Angolan port to the region’s copper mines. And beyond the DFC, Washington offers incentives for building U.S. processing plants through the Inflation Reduction Act.

Yet the recent drop in prices for lithium, cobalt, nickel and graphite – all ingredients in electric vehicle batteries – has prompted Western producers to close mines, reduce production and scale back expansion plans. . Among major miners, BHP plans to close Nickel West in Western Australia; Albemarle, the world’s largest lithium producer, has cut spending plans; and Glencore is reducing its cobalt production.

Analysts say such projects are threatened by price fluctuations as Western efforts to support the sector remain piecemeal and imperfect compared to China’s decades-long lead.

A man holding a bag of sulfates
Rainbow Rare Earths says projects like its will be vital to Western energy security © Rainbow Rare Earths

Chinese producers are often integrated into industrial operations or receive state-backed financing, allowing them to move forward even during a commodity downturn.

Rainbow Rare Earths says projects like its will be crucial to Western energy security. “Your green energy, your wind turbines, your electric cars, your drones and your cell phones all contain rare earth elements,” said George Bennett, chief executive. “Sources outside of China are very important in giving the West some kind of independence.”

Amos Hochstein, the US government’s chief energy security adviser, said the future energy market could fall into traps similar to those encountered with fossil fuels.

“What concerns me is that the worst of 20th century energy architecture is happening again in the 21st century,” Hochstein said. “It might be worse because instead of a group of countries controlling supply, there will be a single point of failure or a single point of ability to manipulate global supply and prices.”

Chart showing China's rare earth production continues to eclipse efforts elsewhere

In particular, investors fear that China will flood the rare earth market, as it has done periodically since the 1980s. Beijing influences supply and prices through tax policies, quota systems and restrictions exports, but denies exercising control likely to harm its competitors.

Beijing’s Foreign Ministry said: “The alleged claim that China controls market prices through dumping and other means is completely unfounded.” In the era of globalization, the interests of different countries are deeply integrated.”

He added that global supply chains reflect the “operation of economic laws” while China “always adheres to the principles of openness, coordination and sharing, playing a positive role in the security and stability of production and global supply of critical mineral resources. chain”.

Yet prices remained volatile. Prices for neodymium-praseodymium oxide, a compound of two of the most important rare earths for permanent magnets – of which China is both the largest supplier and consumer – are hovering just above $53,000 per year. ton, after reaching the lowest level in more than three years. in March, according to Argus, a data provider.

Such pricing “puts non-Chinese producers and exploration projects at serious risk,” said Ellie Saklatvala, head of nonferrous metals pricing at Argus.

Rainbow’s Bennett says Washington needs to consider stockpiling rare earths and other critical minerals by guaranteeing a minimum price to producers through long-term supply contracts. He would be willing to sign such an agreement even if it also capped the prices the mine could receive.

Other Western mining companies have entered into supply purchase agreements with companies: Australia’s Lynas, which received concessional financing from Japanese government entities, entered into one with Japanese conglomerate Sojitz, while that MP Materials in the United States signed an agreement with General Motors.

This month, Gina Rinehart, Australia’s richest person, revealed she had taken minority stakes in Lynas and MP Materials, fueling speculation that merger talks between the two largest land groups rare outside China, which ended in February, could resume.

Line chart of Praseodymium-Neodymium Oxide ($ per ton) showing rare earth prices have fallen to a multi-year low

Stifel’s Breichmanas said the Phalaborwa project “justifies” its development, but that “supply purchase agreements are going to be really, really important.”

“The U.S. government must become the buyer of last resort,” Bennett said. “It’s a chicken and an egg [problem]. You can’t build [manufacturing] capacity because you don’t have a reliable supply. You can’t create a reliable supply unless you find a buyer for it.

It would also solve another strategic problem for the United States, Bennett said. The country has no rare earth alloy producers or magnet makers, but all downstream producers would need reliable supplies of affordable materials to secure their own financing.

Rainbow Rare Earths Metallurgical Pilot Plant at Mintek in Johannesburg
The US International Development Finance Corporation invested $105 million in TechMet, which pledged $50 million in equity for Rainbow Rare Earths. © Rainbow Rare Earths

For its part, Beijing is no stranger to stockpiling during times of market glut, making record purchases of cobalt last year for its strategic reserve.

The U.S. Department of Defense stores critical minerals in the National Defense stockpile, but their value has fallen from $9 billion in 1989 to less than $1 billion, or less than 0.3 percent of global annual demand. , in March 2023.

“For U.S. and European supply chains to be built, you need a guarantee from the government,” said Matthew Ashley, senior cobalt trader at Traxys, a Luxembourg-based trading house.

Brian Menell, TechMet’s chief executive, said that despite the efforts of funds like his, “the problem of future shortages and Chinese control is getting worse by the day.”

He added: “This is the product of manipulation and short-sightedness of Western markets. »

Additional reporting by Wenjie Ding


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