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China may be cut fromcritical minerals deals

Resources Minister Madeleine Kingsays “like-minded” foreign investors will be welcome to invest in Australian critical minerals projects, as those developing the next generation of Australian mines warn against excluding China.

The Albanese government will soon release a critical mineralsstrategy to address national interest concerns over China’s dominance of supplychains for minerals like rare earths.

Critical minerals are essential for decarbonisation and defenceapplications and Ms King will tell an audience in Darwin today that thegovernment’s strategy will push back against the “concentration” of criticalminerals industries in China.

“Market concentration leads to fragility, volatility, andunreliability of key materials, like critical minerals and rare earths. Thiscreates a strategic challenge for Australia, and for our allies,” Ms King willtell the Australian Strategic Policy Institute’s Darwin Dialogue.

“Like-minded partners can build new, diverse, resilient andsustainable supply chains as part of a global hedge against concentration.

These comments build upon adiscussion paper issued in November and during the first visit by a senior Chinese government official in six years, amid rising hopes for a thaw in Chinese trade bans that crippled $20 billion in exports.

China produces more than 80 per cent of the world’s separatedrare earths and was the destination for 96 per cent of Australia’s lithium lastyear. China also has more than 70 per cent market share in the processing andmanufacturing of other critical minerals like antimony, bismuth and tungsten.

In a reference to Russia’s invasion of Ukraine, Ms King willpoint to “recent events” where “geopolitical tensions” had spilled over “intoarmed conflict” and proved that concentration of supply chains was unhealthy.

Addressing ambassadors from Japan, the US, India and theNetherlands, Ms King will stress that Australia will need allies to help fund the new generation of mines that could reduce China’s dominance in critical minerals.

“We don’t have the capital to develop the nation’s criticalminerals projects on our own,” she will say.

“Foreign investment from like-minded partners will be crucial togetting Australian projects off the ground. Just as it was critical to get ouriron ore and LNG industries going decades ago.”

While Ms King did not flag a ban on Chinese investment in localmines or supply contracts, her reference to “like-minded” partners comes afterTreasurer Jim Chalmers flagged last year that he would become more assertive in ensuring foreign investment in critical minerals aligned with the national interest.

Dr Chalmers acted upon that threat in March when he prevented a major supplier of minerals into China from taking a bigger stake in Australian rare earths aspirant Northern Minerals.

The government’s rhetoric echoes changes to Canadian foreigninvestment policy in 2021 which made it harder for “foreign controlledstate-owned entities” to invest in critical minerals projects; a policy thatled to three Chinese investors in Canadian lithium mines being forced to divest their stakes last year.

Global Lithium is developing a mine inWestern Australia that will supply lithium to Chinese battery manufacturerSuzhou TA&A Ultra Clean Technology. The Chinese battery maker also owns7.74 per cent of Global Lithium’s ASX-listed shares.

Global Lithium managing director RonMitchell said ahead of the minister’s speech that the government needed toremember that China was an important trade partner.

“I like the carrot over the stickapproach. I prefer to see a government to be [incentivising business] to becomemore diversified in terms of who we contract with, as opposed to a big stickwhere ‘you can’t go China or we’ll bash you over the head’,” he said on thesidelines of the Future Facing Commodities conference in Singapore.

“That’s very reactionary, and I thinkquite frankly, inflammatory.

“China is still a very important tradepartner. Let’s not forget that.”

Mr Mitchell said governments couldinstead offer incentives like tax breaks for miners that struck deals andsupply agreements with allied nations such as Japan, Korea and the US.

“Most businesses, if they’re honest,they want to have a diversified [sales] book. It’s not just a case of when Isell everything to China because they’re paying the highest price,” he said.

Chinese rare earths company Shenghelast year struck a preliminary deal to buy 60 per cent of the rare earths thatVHM Limited plans to produce at its Goschen project in Victoria.

That deal is due to be formalisedwithin three weeks and VHM managing director Graham Howard said there would befew places for Australian rare earths to be turned into magnets if Chinesecustomers were turned away.

“There are currently limited offtakealternatives for rare earths outside of China. If the world wants to buyrefined rare earth elements for the next few years, they will be processed atsome point in the supply chain by Chinese companies,” he said.

Federal taxpayers have already loanedmore than $1 billion towards Iluka Resources’ development of Australia’s firstrare earths refinery at Eneabba, Western Australia, which should startproducing separated rare earths like neodymium and praseodymium by 2025. Bothelements are used to make magnets for wind turbines, electric vehicles anddrones.

‘Welcome all forms of support’

Mr Howard said VHM would “welcome allforms of support” from Canberra that helped diversify the global rare earthsindustry.

”We have seen many officials in the USand eurozone commenting on building an alternative supply chain but to date,this has not materialised,” he said.

“This is where we believe the quality,size, and scale of the Goschen project presents an opportunity for Australiaand internationally. We are firmly committed to unlocking the value of ourassets, and we would welcome all forms of support from the government.”

Prime Minister Anthony Albanese has astated goal of building more critical mineral processing and batterymanufacturing capacity on Australian soil, and those ambitions will be a majorpart of the critical minerals strategy due for publication later this year.

“We can build on our advantages,countering national and regional supply risks by building our processingcapabilities and moving up the value chain,” Ms King will tell the DarwinDialogue.

“By establishing new sources of supplyfor critical minerals, and by playing a greater role in onshore processing, wecan help make these markets stronger, more efficient, more resilient, and moretransparent.

“These projects give Australia aprocessing base to further grow our manufacturing sector.”

Rare earths explorer OD6 Metals hastenements near Esperance in WA and managing director Brett Hazelden said alliednations needed to create the missing links in the processing chain before theystarted imposing limits on Chinese participation.

Mr Hazelden said Australian rareearths sold to European customers would in most cases go via China for part ofthe manufacturing process.

“There is no one else we could sell toat the moment down the chain other than really selling to China, hence thereneeds to be some sort of international co-ordination,” he said.

“If you prevent the money coming infrom China to do some of these works, or the ability to send our material toChina ... we need to develop industries in co-ordination with the rest of theworld, so we have actually got an industry that can do the whole supply chain,not just part of it”.

The Minerals Council of Australia saidin a submission that the government should actively encourage foreigninvestment in local critical minerals projects, but noted the foreigninvestment regime must also manage “national security risks”.

The MCA said Australia should workwith partners like the US, South Korea and Japan “to establish preferentialpolicy linkages” that supported investment and “the reliable and secure supplyof minerals and their manufacture”.

Iluka managing director Tom O’Learysaid the strategy was a “transformational opportunity” for Australia and hebelieved “sovereign capability” in heavy rare earths like dysprosium andterbium was particularly important.

“Australia must avoid the mistakes of thepast when it comes to exporting commodities – leaving other nations toundertake the value addition,” he said.

Government portion

Mineral Resources managingdirector Chris Ellison has previouslycalled for the government to offer streamlined approvals, instant tax write-offs and low-cost, long-term loans if it wanted to foster a local critical minerals and battery-making sector.

TinOne is trying to develop tinprojects in Tasmania, and executive chairman Chris Donaldson said the Albanesegovernment could assuage China’s dominance by taking a portion of offtake fromany critical minerals mine developed domestically.

“If the government was to take a stakeand say ‘OK, we get first right on the supplier of your concentrate’, thatwould make sense,” he said.

“This way, you’re not blocking out theChinas of the world. But at least you’ve got the first right to access thecritical mineral.”

Mr Hazelden said he hoped thegovernment’s critical minerals strategy would help streamline approvalprocesses for the next wave of Australian mines.

Mr Hazelden said a single process forclearing both state and federal approvals would be particularly important at atime when the federal government was reforming the Environment Protection andBiodiversity Conservation Act and as state governments were introducing newlaws to protect Indigenous cultural heritage.