The value of Ukraine’s critical minerals is overstated

Anyone involved in Australia’s critical minerals industry would be rolling their eyes at the transaction still reported to be under consideration between Ukraine and the United States.

US President Donald Trump was initially asking for the first US$500 billion in proceeds from Ukraine’s minerals development. Preliminary discussions spoke about the country’s critical minerals reserves being worth ‘trillions of dollars’.

As Lynas Rare Earths chief executive, Amanda Lacaze, said to The Australian:

In the time that I’ve been involved in rare earths, I’ve heard about a rare earth race to the moon because there could be lots of mining on the moon to get rare earths.

I’ve heard about a sort of rare earths race to the sea floor because there’s lots of rare earths on the sea floor, which could be useful in the future. I heard about a rare earths race to Afghanistan at one stage.

In fact, Ukraine has no proven rare earths reserves—as distinct from deposits, which may or may not be economically recoverable. Its only established rare earths deposit, of unknown size or quality, is near Azov, a town currently under Russian control.

Ukraine does have some other critical minerals, but nothing established to the point that it would warrant the investment of billions of dollars, let alone hundreds of billions or trillions.

Ukraine’s geological survey agency claims 19 million tonnes of reserves of graphite, used for batteries. China was the major world supplier of graphite, but it restricted exports last October in response to US controls on sales of semi-conductors.

Australian listed company Volt Resources holds 70 percent of Ukraine’s major graphite operation, the Zavallivsky mine, which has been active since 1934. However, its output is not up to lithium-battery standards. The scale of its operation is indicated by Volt’s market value of just $18 million.

Ukraine has more substantial deposits of manganese, but its output is barely a tenth of Australia’s and would earn it little more than $200 million a year.  Ukraine’s claims of critical minerals riches mainly rest on Soviet geological surveys done 30 to 60 years ago, not nearly recent enough to justify investment by Western financial standards.

Trump said Ukraine ‘holds no cards’ in negotiations over its future. Ukraine’s government essentially invented its mineral riches to give itself a card to deal with Trump.

With considerable foresight, Ukrainian President Volodymyr Zelenskyy used the D-Day ceremonies in France in June to lobby a key Trump ally and rare Republican supporter of aid to Ukraine, Senator Lindsay Graham. Zelenskyy told him that Ukraine’s minerals were worth as much as US$12 trillion.

‘If we help Ukraine now, they can become the best business partner we ever dreamed of’, Graham said. ‘That $10 to $12 trillion of critical mineral assets could be used by Ukraine and the West, not given to Putin and China.’

Graham repeated those comments after leading a Senate delegation to Kyiv, a few weeks before Zelenskyy travelled to the US last September. Zelenskyy’s visit was controversial: the Republican leader of Congress, Mike Johnson, refused to meet him, and Trump was expected to do the same.

After making a personal appeal to Trump, Zelenskyy was granted an audience at Trump Tower in New York. During this meeting, he evidently sold the idea of a minerals partnership, mentioning the potential revenue of US$500 billion.

Ukraine doubled down on these claims at this year’s World Economic Forum in Davos, Switzerland, where its delegation spoke of critical mineral reserves worth US$12 trillion. Trump took the bait, but Zelenskyy could not close the deal, despite guidance from Graham on how to handle Trump ahead of the ill-fated televised meeting on 28 February.

While Trump responded to the appeal of large numbers, the reality of critical minerals mining, and particularly rare earths, is that it is painstaking work. It takes years to prove up deposits, to determine how to process them, to secure customers and then, and only then, to raise the capital for development.

Australia has been discussing collaboration with the US on critical minerals ever since former prime minister Malcolm Turnbull’s first meeting with Trump in February 2018.

There has been follow-up: the US Department of Defense helped fund a Lynas joint venture to process heavy rare earths in Texas; the US Export-Import Bank provided conditional letters of intent to lend $1.3 billion to two Australian rare earths miners; and there has been collaboration between Geoscience Australia and the US Geological Survey.

The Albanese government agreed on the Climate, Critical Minerals and Clean Energy Transformation Compact with former president Joe Biden in May 2023. However, it was not formally ratified by US Congress ahead of the new administration, which will likely not appreciate the compact’s climate change focus.

While Japanese government support was pivotal to the success of Lynas, the Australian government has been left to put up the risk capital behind the development of recent Australian rare earths processing capacity.  There has been no influx of US risk capital.