Made in Australia: why is the Pentagon investing in Australian rare earths?

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ou can buy a lot of things for $30m. If you’re Netflix, you can splash that cash on a documentary about rapper and fashion designer Kanye West. If you’re West himself, $30m covers about 50% of the mansion you live in with Kim Kardashian, whom you are currently in the process of divorcing.

If you are not Kanye West, but are in fact the United States Department of Defense (DoD), you’ve opted to spend about $30m on a rare earths refinery as part of attempts to reduce Chinese dominance of the metals. Each to their own.

The deal between the DoD and Lynas has been a while in the making; recognising a need for domestic production of rare earth metals, the US Government signed a contract with Lynas to begin initial work on a heavy rare earths separation facility in July 2020.

That collaboration has continued with the DoD providing approximately $30m in funding for Lynas to construct a commercial separation facility for light rare earths – the more common type of rare earth elements. The collaboration between state and business is sponsored by the Defense Production Act, the presidential authority used to expedite and expand the supply of materials from US industry for purposes of national defence.

The Defense Production Act, an invention of the Korean War, was invoked in the 1950s to establish domestic aluminium and titanium industries in the US – materials needed to counter growing Russian influence on the world stage.

That the Act has been invoked again to spur a rare earths capability in the US shows the gravity of the issue. China provides more than 85% of the world’s rare earths, and the country has reportedly been exploring whether it can hurt western defence contractors by limiting supplies to the US or Europe.

Rare earth elements are used in everything from iPhones to F-35 fighter jets; more than hurting wallets, China restricting access to rare earths could pose significant national security threats.

From the perspective of the US, China’s dominance of rare earths means it holds too many cards if tensions or conflicts escalate – rare earth elements have applications in nuclear energy in addition to their applications in military equipment and weaponry.

Even the sole operating rare earths mine in the US, Mountain Pass in California, ships over 50,000 tonnes of concentrated rare earths to China each year due to outdated processing facilities at the site. MP Materials, which operates the mine, received Pentagon funding last year to establish domestic processing facilities for light rare earths.

The Texas facility is expected to produce around 5,000 tonnes per annum once it is operational, and will be able to receive rare earth carbonate directly from Lynas’ proposed Kalgoorlie facility in Western Australia.

Lynas owns and operates the Mt Weld rare earths mine in Western Australia. One of the biggest rare earths deposits in the world, the Mt Weld concentrator is a flotation plant designed to process 240,000tpa of ore, producing up to 66,000tpa of concentrate, containing 26,500tpa of rare earth oxides.

Australia has its own quarrels with China – exacerbated by the Australian Government calling for an investigation into China’s initial handling of the Covid-19 outbreak in Wuhan – that have seen China imposing taxes of up to 212% on Australian wine and Chinese investment in Australia plummeting 61% in 2020. China has been Australia’s biggest trade partner, meaning tensions are between the two are hardly ideal.

So closer collaboration between nations looking to reduce reliance on China for rare earths makes sense – the US and Canada have already committed to establishing a North American supply chain for critical minerals to reduce reliance on overseas imports.

Lynas’ Texas light rare earths processing facility, along with the heavy rare earths facility if that contract goes ahead, will serve the defence industrial base as well as the growing commercial market – including electric vehicles and green technologies.

With President Biden’s administration committing to decarbonisation targets and investing in green technologies at home, Lynas could potentially have a lot to gain from establishing itself in the American supply chain.

In a statement announcing the contract with the DoD, Lynas CEO and managing director Amanda Lacaze said: “Rare earth materials are critical inputs to many industrial supply chains, including electric vehicles, electronics, and several defence applications. While demand for rare earth materials continues to grow, Covid-19 has exposed the risks within global supply chains of the single sourcing of critical materials.”

China’s muscling over various commodities, and its dominance over those as critical as rare earths, naturally has governments around the world concerned.

Japan is reportedly set to increase funding for rare earths exploration, and is considering lifting the 50% ceiling on government funding for resource exploration work by the end of this year. It would mean that state-backed companies like Japan Oil, Gas, and Metals National Corporation can stump up more than half of the money required for exploration work – a move that may spur foreign involvement and a Japanese rare earths capability of its own.

The DoD’s involvement in funding domestic projects, like the contract with Lynas and working with MP Materials to establish domestic processing at Mountain Pass, marks a change from the American preference of letting the invisible hand of the market resolve things.

Reuters last year reported that a Pentagon review determined that funding domestic rare earths projects was in the best interest of the US Government.

The collaboration with Lynas could even open the door to more work between the US and the Australian rare earths industry. Australia is believed to host a not in-significant amount of rare earth deposits that are yet to be exploited.

The Australian Government has been mulling the use of public money to get these projects off the ground, and an ever hungrier American market could further accelerate Australia’s rare earths development.