HyperdriveAutomakersLook to Hedge Against China Rare Earth...

Hyperdrive

AutomakersLook to Hedge Against China Rare Earth Dominance

By

Elisabeth Behrmann

23September 2021, 09:01 GMT+10 Updatedon 23 September 2021, 18:11 GMT+10

Developer Arafura holds supply talks with European carmakers

New sustainability and traceability rules add to pressures

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Europeanautomakers are in discussions with Australian rare earths explorer Arafura Resources Ltd. about sourcing elements that help power electric cars from outside China, which dominates global supply.

The mineris developing the A$1 billion ($728 million) Nolans project in Australia’sNorthern Territory that will cover as much as 10% of global demand for the typeof rare earths used in permanent magnets for electric motors. Crucially,Arafura plans to process ores close to its site, ensuring direct oversight ofthe treatment of toxic waste products at the project it bought in 2001.

“We haveengagement with European manufacturers to directly supply them with material,”Chief Financial Officer Peter Sherrington said in an interview, adding that heexpects to ink deals before the end of the year because talks are advancing tovolumes and price. New rules on sustainability and traceability “have openedcarmakers’ minds up to the need of this.”

The sharesjumped as much as 17% in Sydney trading, the most since January.

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Rareearths are emerging as another source of concern in the transformation toelectric cars. They’ll require vast amounts of battery raw materials likelithium, nickel and cobalt, which is leading automakers like BMW AG, Volkswagen AG and Tesla Inc. to go directly to miners. China, which controls two-thirds of mining and 85% of refining of rare earths, according to BloombergNEF, is expected to put much of its production to use domestically in future.

Simmeringtensions that previously made the elements -- also important for applicationsin defense -- a political pawn are spurring efforts to procure from outside China. Last year, the U.S. Department of Defense committed funding for Australian producer Lynas Corp. to set up a processing plant in Texas that will cost an estimated $30 million initially. Other companies advancing projects include Hastings Technology Metals Ltd. and Peak Resources Ltd.

Whilecarmakers including BMW and General Motors Co. have sought to reduce the amount of rare earths -- a vehicle uses an average of 3 kilograms (6.6 pounds) -- switching to alternatives tends to make motors less efficient. Tesla initially used induction motors that didn’t need magnets to power its electric cars, but switched gears with the Model 3.

“To havefuture safety of supply, you need to create your own,” said Joanne Jia, a vicepresident at China’s Hangzhou Permanent Magnet GroupLtd., which has developed magnets that can switch between two types of rare earths depending on price. “The material is critical but very small in quantity.”

A new lawin Germany on supply chain responsibility has also spurred interest, saidArafura’s Sherrington. Starting from 2023, companies will be held accountableon social standards across their entire supplier network and including wasteproducts, or face fines.

Read More: EV Makers Eye Bigger Battery-Metals Role by InkingMining Deals

Efforts toestablish supply are also underway in Europe, which is now the top region forEVs and is on course to become the biggest consumer of the elements. TheEuropean Union last year set up the European Raw Materials Alliance to help ensure there’s enough supply of critical raw materials fueling the world’s most ambitious plan to fight climate change. In rare earths, the alliance has identified 14 projects in Europe for investment of 1.7 billion euros ($2 billion).

“There’s alwaysbeen awareness about the dependency, but availability, at a price, was fine,”said ERMA Chief Executive Officer Bernd Schaefer. “That’s now changing to amindset of the tremendous cost of not having the material.”