Halls Creek Boom Could Break China’s Rare Earth Monopoly

Wednesday, 07 December 2011

Background

The Shire of Halls Creek, in north-west Australia, is experiencing a rare earth mining boom. In the most recent example, George Bauk, Managing Director of Northern Minerals, announced in late November that the company hopes to start mining Rare Earth Elements (REE) in Browns Range by 2015. Australia’s expanded role in REE extraction comes at an opportune time, as China attempts to exploit its current monopoly over the market. To ensure industry viability, however, issues within the supply chain must be resolved.

Comment

The REEs are 15 metallic elements that are essential inputs to the production of green energy technologies, sophisticated consumer goods and sensitive military hardware. Found in a mineral “cocktail”, rather than as free metals, the commercialisation of deposits requires separation of the REEs into individual, high-purity metals, a complex and, accordingly, expensive operation.

Production expenditure, coupled with a perceived lack of commercially viable reserves, has acted as an impediment to increasing REE extraction, allowing China to capitalise on low production costs and abundant supplies. Although possessing only slightly more than thirty-six per cent of world REE reserves, China is responsible for over 97 per cent of global production. Understandably, China also leads REE demand, consuming over fifty per cent of total production. Japan consumes an additional twenty-four per cent, with the remainder destined for manufacturing markets in Europe and South-East Asia.    

Despite China’s impressive REE export ratio, significant challenges in its local sector remain, creating concern over a shortfall in demand. REE projects are plagued by poor management practices and unregulated development. In response to environmental degradation and illegal mining activities, China has recently announced export quotas and tariffs, consolidation schemes for existing projects and strict environmental regulations. Critics contend that these latest developments are just as much about controlling supply of the commodity, effectively allowing China to become the “sole OPEC” (Organization of Petroleum Exporting Countries) equivalent of REEs. As China attempts to reorganise the industry, potentially decreasing supply, continued urbanisation and industrialisation will drive up demand for consumer goods requiring REEs. Within this context, Australia could capitalise on continued demand for REEs, with relative industry efficiency and greater market transparency.

Were Australia to expand its strategic share in REE exports, investment should be spread across the sector to ensure increased opportunities are realised. REE production consists of mining, separation, refining, alloying and manufacturing. Northern Minerals, and other REE companies, may experience significant issues in refining, alloying and fabrication, due to cost and expertise deficiencies, forcing operations off-shore. Such a development would represent a missed opportunity. For Australia to fully realise its REE potential, and challenge China’s commodity monopoly, the industry must be supported by government policy and initiatives to maximise employment, material and investment prospects. 

Paradoxically, for Australia to mitigate projected challenges and provide impetus to the nascent REE sector, off-shore support is essential. Australia should leverage Japan’s concerns over Chinese REE policy to promote joint venture and investment opportunities, a relationship within which Japan and Vietnam have invested in the development of REE deposits.

Similarly, synergies could be created with the United States, which is equally concerned over the future prospects of REE resources. In September 2011, a Congressional Research Service report titled “Rare Earth Elements: The Global Supply Chain”, raised the prospect of establishing a government-run stockpile. Given the strong state of bilateral relations, Australia should seek to become a major partner if such a prospect becomes reality.

Finally, scope even exists to develop a quid pro quo REE relationship with China, as Australia has successfully managed to do with other resources. To ensure China does not depart from its current policy, and flood the market with cheap REEs, Australia should seek to engage China in areas of mutual benefit. Australia could promote best practice sharing, particularly in the fields of sustainability, recycling and efficiency. Such developments will smooth Australia’s entry into the REE market, ensuring short-term viability and long-term security for the emerging industry.

Liam McHugh

Manager

Northern Australia & Energy Security Research Programmes

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