As the United States and China continue their trade war, the latter’s ‘real and present threat’ to stifle the global rare earths supply chain has Australian miners hopeful a crisis will bring about new opportunities.

Alarm bells started ringing in June when China’s National Development and Reform Commission publicly warned the US it would turn off  the tap on rare earths in retaliation for export tariffs imposed by US President Donald Trump.

Eyebrows were also raised when Chinese President Xi Jinping was filmed visiting a local rare-earth mineral processing facility.

Since then, trade tensions have cooled somewhat. At the G20 Summit in Osaka, where all eyes were on Mr Trump and Mr Xi, the two countries agreed there would be no further escalation in hostilities.

But while it was seen as step in the right direction, the agreement was only temporary and analysts have said there is still no clear path to solving the dispute.

Why would it be such a big deal if China banned rare earth exports?

Although only required in small amounts, rare earths are critical to the high-grade magnets that help power many of the world’s modern technologies.

The precious mineral is used in everything from fighter jets to wind turbines, smartphones, electric cars and power tools – and China dominates the supply chain.

According to the United States Geological Survey, China was responsible for 70 per cent of global production last year despite only holding 36 per cent of the world’s total known reserves.

The proportion of rare earths processed and exported out of China is even higher – most experts say it’s at least 80-85 per cent.

“They’ve played the card; they haven’t cut it o  yet, but it is a real and present danger,” Perth USAsia Centre Research Director Dr Jeffrey Wilson said.

“You can also think about it in another way – would anyone be happy relying on one supplier for 85 per cent of your input globally?

“The notion you should have 85 per cent supply from any country, let alone China, is ludicrous.”

Lynas Corporation is the only company outside China that processes rare earths on a commercial scale. ASX-listed Lynas mines its ore from Mount Weld in Western Australia’s north and ships it to Malaysia for processing.

The lack of diversity in the supply chain has countries like the US worried. In May 2019, the US Department of the Interior published a list of 35 critical minerals that included rare earths, as part of the executive order A Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals.

This is where an expanded Australia rare earths industry has the potential to step in and save the day if a supply crisis should happen.

Primed and ready

There is a small group of local players prepared to take the next step and go into commercial production.

Northern Minerals’ Browns Range operation is well on its way to becoming the first significant heavy rare earths project outside China.

The WA miner is operating a pilot plant 160km south- east of Halls Creek to process and separate the rare earth dysprosium.

Northern Minerals Managing Director George Bauk is hoping to eventually expand the project into a full-scale operation, but financial backing has been hard to come by.

Companies like Northern Minerals are up against state- owned Chinese companies who, according to Mr Bauk, don’t play by the same rules as Australian enterprises.

For Mr Bauk, it’s a matter of whether overseas manufacturers will continue to turn a blind eye and buy from Chinese companies that use unethical methods of production.

“It’s hard to be cost-competitive when you play against an illegal miner,” he said.

“Everyone gives a lot of lip about ethical supply chains. I challenge that and ask ‘is it a bit of lip service or are people real?’ If people are real, they shouldn’t acknowledge the cost of an unethical supplier.”

Mr Bauk said it would likely take more than just talk of a potential ban on rare earths exports for sentiment to change.

“The problem you have outside of this current crisis is China has lured the world into a really comfortable position,” he said.

“Individuals in supply chains don’t see a crisis because they’re currently having no problems sourcing the supply.”

Alkane Resources Managing Director Nic Earner said rare earths consumers wanted the security of multiple supply pathways but didn’t want to pay a premium for it.

“When these car companies look upstream, they say ‘I’m not paying cost plus that’,” Mr Earner said. “There’s still a disconnect. Until the car companies see the risk to them as worth that premium, I don’t see investment coming.”

Alkane is another local player looking to break into the rare earths market on a commercial scale. Its Dubbo project in central New South Wales is ‘construction-ready’ with all the environmental, federal and state approvals in place, but is also light on funding.

“We are waiting for the right amount of pain to come,” Mr Earner said. “The situation is well known by all and we are waiting for people to act.

“I would’ve thought the German Government would have been more motivated to secure a supply chain, given what it means for their car industry. I thought the US Government would have been more motivated, given its defence sector and manufacturing sector.

“The manufacturers are the ones who have got something to lose. The people who move first will have an excellent advantage.”

Lynas the right model

While Australia’s rare earths producers might sound a little pessimistic about talk of diversifying supply outside China, it’s not without reason.

This is not the first time China has played the rare earths card during an international dispute.

In late 2010, it banned rare earth exports to Japan in a move that sent shockwaves through the market.

The ban was eventually blocked by the World Trade Organisation after an appeal was lodged by the US and Japan and the problem seemingly went away.

“It’s been a long time since this crisis last presented itself,” Dr Wilson said. “It’s now 2019 and nothing has really happened.

“It went away, we forgot about it. Now we need to see government agencies saying what can we concretely do to help solve that problem.”

Dr Wilson said the fact the US Government refused to bail out Molycorp, its only rare earths miner, in 2015 showed talk was cheap the last time an export ban loomed.

“Molycorp had to file for bankruptcy and a Chinese company bought them out and asset-stripped them,” he said.

“It was a national security crisis in 2010, and in 2015 when Molycorp went bankrupt. Suddenly it’s not, and here we are in 2019 and it’s a national security crisis again.”

The only producer other than China who was able to break into the market during that period was Lynas, which received substantial backing from Japanese company Sojitz Corporation.

“In 2009, China produced 100 per cent of the world’s rare earths; now they produce about 85 per cent because the rest comes through Lynas,” Mr Wilson said.

“If it hadn’t been for the foresight of the Japanese financiers to back Lynas, we would still be at a 100 per cent situation.”

According to Dr Wilson, what the Lynas case suggested was an industry outside China was possible but required the same long-term, strategic approach.

“We need to see more of that from Japan and for the first time from Korea, Europe and the US,” he said. “Japan basically underwrote an operation that wasn’t in their country.

“There is a limit to what the Western Australian and Australian governments can do in this space because it fundamentally is someone else’s problem. I don’t think it’s the role of the Australian taxpayer to underwrite these projects.

“The party that needs the supply security has to be more involved.”

Image: Northern Minerals’ rare earths pilot plant south-east of Halls Creek.