A new deal: inside Australia and South Korea’s critical minerals strategy

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ustralia has long relied on its national resource potential to support its economy, with mineral exports accounting for a whopping 12% of GDP in 2019. But as demand for coal – of which Australia is the world’s fourth-highest producer – spirals downwards, the government is eyeing production growth in critical minerals that are integral to the global clean energy economy, to help make up the shortfall.

As part of this aim, and to build on Australia’s considerable rare earths potential, the Australian Government penned a strategic cooperation agreement covering rare earths, lithium, graphite, cobalt and nickel with South Korea during a December diplomatic visit by President Moon Jae-in. South Korea is expected to be a major player in producing critical mineral-hungry technologies such as advanced permanent magnets and batteries.

Australia is already the world's biggest producer and exporter of lithium, a key component in batteries, and is expected to hold the second and the sixth-largest reserves of cobalt and rare earth elements respectively. And as outlined in its 2019 Critical Minerals Strategy, the government has plans to develop downstream processing and manufacturing by attracting investment, along with mining projects.

But without receiving those dollars now, projects won’t come online quickly enough to meet demand, says the government. Demand for these minerals is expected to increase 50-fold by 2050, according to the International Energy Agency, making this a critical time for Australian mining.

The South Korea-Australia alliance, lengthily tilted ‘The Memorandum of Understanding on Cooperation in Critical Mineral Supply Chains’, further ‘entrenches’ South Korea’s standing as an important energy and resources export partner. The state is already Australia’s third largest export destination, according to a Department of Industry, Science, Energy and Resources spokesperson.

The agreement also aligns with a call made in October 2021 by the head of the South Korean Government's new critical minerals planning team, which asked for greater engagement with Australia’s mining and processing capacity. Australia is keen for domestic battery companies to diversify and shore-up supply as global demand for the necessary minerals grows.

“There is a natural complementarity between Australia and the Republic of Korea, in that Korean advanced manufacturers will play an essential role producing permanent magnets and batteries at scale, and Australia can play a mutually supportive role by supplying them with the necessary processed critical minerals,” added the spokesperson.

Australia currently supplies 40% of South Korea’s rare earths elements and believes it can increase that. But China by far has the monopoly in supply of both rare earths and cobalt, producing or processing between 80% and 90% of the world’s supplies and has not been shy in using its strategic position of chief holder of these minerals to gain leverage in geopolitical spats. Most recently, it held back supply of rare earths against Japan in the long dispute over the Senkaku Islands in the East China Seas.

Dr Troy Lee-Brown from the College of Arts, Business, Law and Social Sciences at Murdoch University in Western Australia believes that the agreement between South Korea and Australia can therefore be viewed in the context of these potential strategic problems.

“The deal with Australia is for two main reasons: South Korea currently relies on Chinese supply of rare earths and it wishes to diversify its supply chain to guard against Chinese geo-economic coercion,” he explains.

“Second, China relies heavily on Myanmar for its raw supply of rare earths for processing in China (over 60%) and the political situation in Myanmar remains volatile. So, the Australia-South Korea agreement helps to guard against an intentional or unintentional lack of supply of rare earths to South Korea from China.”

The agreement could even be viewed as an extension of similar deals between likeminded states such as the Quadrilateral Security Dialogue between Australia, Japan, India and the US, forged to secure critical material supply chains, he adds.

“Australia and South Korea are both US allies and shoring up critical material supply chains makes strategic sense for the US and its allies as tensions with China remain heightened in recent years,” he adds.

The two countries also signed a A$100m ($72m) funding commitment for developing clean hydrogen, carbon capture and storage, and low-emissions steel and iron ore technologies.

President Moon, however, has been keen to say that South Korea, while it has similar values to Australia, with which it also signed a A$1bn ($717m) defence deal, seeks a "harmonised relationship" with China. The latter remains integral to South Korea’s dialogue with its hostile neighbour North Korea.

Australia also has reasons to want to diversify international economic ties away from China, its biggest mineral export partner. Relations between the two states have soured dramatically during the pandemic after Australia called for an independent inquiry into the origins of Covid-19 in 2020. Diplomatic ties declined further when the former became involved in a new military partnership to build nuclear submarines with the US and the UK designed to counter Beijing’s military assertiveness in the Asia-Pacific region.

China has reacted furiously, implementing an unprecedented wave of trade restrictions against Australia and Chinese importers were instructed to stop purchasing Australian coal, and electric utilities were encouraged not to buy liquefied natural gas on the spot market. Iron ore, the biggest commodity exported from Australia, was, however, spared.

Meanwhile South Korea investment in Australia continues to grow, having risen from A$12.8bn ($9.2bn) in 2011 to A$31.3bn ($22.5bn) in 2020. Australia’s critical minerals projects are expected to be a notable beneficiary, with several deals already penned.

In September, Australian firm Renascor Resources signed a memorandum of understanding for the purchase of up to 30,000 tonnes per annum of purified spherical graphite by South Korean conglomerate POSCO, which is Australia’s single largest customer. This follows similar deals made by Australian Strategic Materials, Queensland Pacific Metals and EcoGraf.

Overall, Korean corporates have committed to investing more than half a billion dollars with Australian mining projects in the form of multiple-year offtake agreements and memorandums of understanding, including a A$333.3m ($240m) investment in an Australian nickel producer, according to the government.

“In light of forecast growth in demand for various critical minerals, we would expect to see an increase in this trend in the near term,” the government spokesperson said.

“We are confident this partnership will continue and scale up through development of clean energy technologies,” they added.