Loosening China’s grip on critical minerals warrants decisive action

Federal Treasurer Jim Chalmers recently turned his gaze on the threat of China controlling critical minerals, which are crucial to the green energy revolution underway.

That’s no revelation on its own, but Chalmers’ commentary highlights the challenge of the role Australia wants to play in the race for critical minerals. And just how assertive the federal government intends to be to ensure foreign investment, including that from China, aligns with Australia’s national interests.

“Foreign investment is a good thing when it’s in our national interest,” Chalmers said in a speech last week. “But as investment interest grows, and as the sources of that investment interest grow, we’ll need to be more assertive about encouraging investment that clearly aligns with our national interest in the longer term.”

Treasurer Jim Chalmers talks with US Treasury Secretary Janet Yellen during a recent G20 meeting.Credit:AP

While he did not specifically name China as the target of this newfound assertiveness, the good news for Australian rare earth players is that national interest and investment interests are starting to align, with the United States shaping up as a major benefactor.

Even before US President Joe Biden turbocharged investment in the green economy with the Inflation Reduction Act, the US government was looking at investing in Australian companies to create a supply chain of critical minerals to bypass China.

This includes a $US120 million investment by the US Department of Defence (DoD) with Lynas Rare Earths. Meanwhile, graphite producer Syrah Resources will receive up to $US220 million from the US government, while lithium producer Ioneer told investors this month that it is in final negotiations for up to $US500 million from the US Department of Energy.

The investment splurge is designed to help the rest of the world catch up with China.

Lynas chief executive Amanda Lacaze this week chided western governments for creating a scenario where China was almost encouraged to take control of the supply chain for these minerals.

She described western government planning on securing critical metals as “policy ADHD”.

Lynas boss Amanda Lacaze accused western governments of “policy ADHD” when it comes to critical minerals like rare earths. Credit:Eamon Gallagher

“The west is almost offended by China’s dominance in this industry. Their dominance in the market is a result of 30 years of the west saying we just want (China market) access.”

When Lynas was on its financial knees, and struggling with its quest to become the only rare earths miner and processor outside of China, it was Japanese government money that kept the struggling company afloat with cheap loans.

The cheap loans are still in place, and as Lacaze told to investors this week, they ensure the Japanese industry effectively gets first right of refusal to Lynas’ rare earths.

Japan’s lesson with China is now being learned by western governments like the US and Australia. There are no signs that the federal government is looking to intervene directly in limiting Chinese investment into rare earths, but post-pandemic geopolitics may yet play a decisive role in shaping the road ahead for the likes of Lynas, with China no longer the only game in town.

“We’ve had the geopolitics, we’ve had the pandemic, and it’s reminded everyone that maybe that’s not quite the best strategy,” Lacaze said.

And Chalmers agrees.

He noted that China produces 75 per cent of all lithium-ion batteries. It also produces 80 per cent of the world’s graphite, mines 60 per cent of the lithium market and accounts for even more of the lithium processing market.

“In 2022, you don’t need to look that far back, or that far forward, to appreciate the challenges and risks that such concentration can pose,” Chalmers said.

“What we are seeing with the supply of gas now, we have seen plenty of times before with supply of oil – where supply and price become hostage to geopolitical competition, conflict, or circumstance.”

And he is well aware of the challenges the sector faces – beyond funding – when it comes to disentangling itself from China’s ecosphere.

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