As we all know Lithium giant saysChina will remain pivotal to...

As we all know

Lithium giant saysChina will remain pivotal to local mining projects

Chinese investment will still be needed to bring new criticalminerals projects to life despite threats from the Pentagon to excludeAustralian miners from vast subsidies, says Arcadium Lithium chairman PeterColeman.

Mr Coleman was the former chief executive of Woodside Petroleumand now chairs Arcadium, one of the world’s largest lithium producers which islisted in New York and Australia.

He said China was “key to starting up a number of the minersthat today are significant – both significant investors and significantemployers in Western Australia

I think we’ve pulled back a bit, and probably reflected on whatthat [the China] relationship needs to look like,” he told The AustralianFinancial Review Mining Summit in Perth on Wednesday.

“But I just can’t see a future where you don’t co-investtogether. You’ve just got to understand there is a coexistence that needs tooccur.

Local miners are torn between China,their dominant customer and investor of the past two decades, and the lure ofsubsidies from the United States, Australia’s biggest defence ally, which untilrecently has had less of an involvement in the critical minerals sector.

Worried that China could weaponise its dominance over rareearths crucial for defence equipment and minerals critical for clean energy,the White House and Pentagon have unleashed a swath of subsidies.

Under incentives programs such as the Inflation Reduction Act,the US considers China, Russia, Iran and North Korea to be “foreign entities ofconcern” and has sought to ensure critical minerals that are “subject to the control” of those nations are not eligible for the subsidies offered.

Battery and car makers in the US can access tax breaks if theysource a defined proportion of their battery components from Australia andCanada, but many Australian lithium projects would be ineligible under thecurrent industry structure given close to 90 per cent of it is processed inChina.

Final rules published by USofficials this month also make clear that a company is disqualified if it is 25 per cent owned by Chinese interests

Laura Taylor-Kale, the assistant secretary of defence forindustrial base policy, told the Summit that the US intended to “leverageexisting bilateral and multilateral relationships to expand production andreduce reliance on potentially adversarial nations” – without specificallysingling out China.

“We know it will require strong partnership among our closestallies to achieve each of these priorities,” she said, pointing out theCongress had added Australia to the Defence Production Act as a domesticsource.

“I want to emphasise how much of a milestone this is,” MsTaylor-Kale said. “Of the nearly 75-year history of the Defence Production Act,this is only the second time that we’ve added countries as a domestic source.The first time was Canada, in 1985, and now Australia and the UK.”

This means that the US can make direct investments in Australiancompanies the same way it can in domestic firms.

“This news reflects the enduring commitment of the US governmentto partner with key allies over the long term,” Ms Taylor-Kale said, addingthat her office was on track to create a “mine-to-magnet” supply chain capableof supporting all US defence requirements by 2027.

Rare earth permanent magnets are an essential component in arange of defence capabilities, including the F-35 Lightning II aircraft, theVirginia-class submarine and unmanned aerial vehicles,” she said.

Ms Taylor-Kate singled out her office’s $US288 million ($432million) investment in ASX-listed Lynas Rare Earths – to be used to establish asecond commercial scale oxide production capability by 2026, in addition to a$US30.4 million grant to build a processing facility in Texas.

When these projects were complete, Lynas would produce about 25per of the world’s supply of rare earth element oxide, she said.

Unlike Mr Coleman, AustralianSuper’s senior portfolio managerLuke Smith said he believed the next wave of local mining projects could“absolutely” be developed without Chinese money.

Chinese investors and governments had far longer-term views fordeploying capital into critical minerals, Mr Smith said, but Australia wascatching up.

He said it was more than a decade ago that Chinese and UScompanies were bidding and taking ownership of Greenbushes, one of the world’slargest lithium mines, now owned by New York-listed Albemarle, Chineseindustrial giant Tianqi and Australian-listed IGO Limited.

That was even before we started investing in lithium. It tellsyou people were starting to see these opportunities and thinking long term,” MrSmith said, pointing to Lynas as another firm that was backed by Japaneseinvestors before major support from the US was made available.

“It comes down to where countries see it, and the Japanese inparticular have been fantastic, and Western Australia knows that from the earlydays of the iron ore industry.”

Mr Smith said the US defence agencies had become “fairly agile”more recently, including at Jervois Global, an ASX-listed, Idaho-focused cobalthopeful where they had provided funding for more exploration.

Speaking on the same panel, Export Finance Australia chiefexecutive John Hopkins said that, because critical minerals were “hugelycapital intensive”, it would require investment from around the world – notjust governments.

“What we’re seeing with the likes of the [the IRA] andAustralian government initiatives is that it provides that sort of directionfor where we want that capital to be spent,” he said.