Tag Archive for: rare earths

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.

We need a third pillar of AUKUS: critical minerals

Australia has the chance to resolve the problems the AUKUS partners and their friends and allies have with critical minerals, particularly with rare earths, in the face of what is now effectively Chinese monopoly and dominance in processing—a product of skilful statecraft.

Australia will need to overcome that statecraft with some of our own. We have to do that with skilled help but we must lead, and have that leadership accepted by our partners. Though AUKUS Pillar 2 references supply chains, it is insufficiently prioritised. Being clear cut in designating critical mineral supply chains as an AUKUS ‘Pillar 3’ will give an appropriate level of focus for the job to be done.

We must not look for an American lead, we must do it ourselves.

The United States faces huge demands on its national security efforts. Its financial resources are massively stressed. Currently the US spends about 3.5 percent of its GDP on defence with a budget of around US$900 billion. However, if it was spending at Cold War levels, it would be closer to $2 trillion. China is a pacing power virtually non-existent during the Cold War. Russia, under pressure from its war on Ukraine, is returning to Cold War levels. The US cannot.

A sobering article in the Economist recently pointed to US difficulties. In 1992, the US debt to GDP ratio was 46 percent. Now it is 96 percent. The Trump and Biden administrations have seen 9 percent added each year. In 30 years’ time, this will be at 166 percent. The Economist article pointed to an International Monetary Fund argument that US borrowing was so vast, it was endangering global financial stability. S&P and Fitch credit rating agencies have downgraded US debt and Moody’s is threatening to do so.

The next administration will face huge challenges. The Trump tax cuts reach their sunset next year. The trusts helping underpin US social security and Medicare will probably look at running out in the next four to six years. Burgeoning debt features nowhere in the current US political debate. President Joe Biden’s promise on the continued tax cuts limits them to incomes below $400,000, a saving of about one third. He also plans further taxes on high-wealth individuals and a raft of tax breaks, but he will spend most of that money.

Former President, and now candidate, Donald Trump is opaque on all of this, but he is proposing substantial tax cuts. All US debt is in US dollars so they can print money. However, that would be a decision fraught with dangers. Hence the IMF fears. They would envy Treasurer Jim Chalmers being able to announce in his budget a debt to GDP ratio of 35 percent. However, we play Lilliput to the US Gulliver.

It is one of life’s ironies that the critical minerals vital to the technologies essential for dealing with climate change are the same that are vital for the effectiveness of weapons systems. Some 3400 US weapons systems use rare earth products vital for permanent magnets, which determine accuracy and effectiveness. They are vital too for batteries. Other critical minerals are important for a range of strengthening metals in industrial and weapons systems. Lithium’s properties are well understood for its value in batteries production. That accounts for around 74 percent of its use. The other 26 percent is useful for strengthening materials in tanks, missiles and a number of other weapons systems.

Globally, a large number of nations identify the presence of critical minerals. Probably many of the claims are valid. Rare earths, for example, are not rare. Most will go nowhere but, if viable, they can count on Chinese miners eager to participate. In the end, virtually all of it goes to Chinese processing. Through massive stockpiles, China can manipulate pricing, if other countries choose to try to leave China out of the process.

We are party to 26 bilateral and multilateral agreements, including five with the US. These agreements offer collaboration on mining and processing work and commitments to engagement in supply chains. Almost nothing is built on any of them, but membership is fashionable. Australia, for example, produces 53 percent of the world supply of lithium, but it goes to China for processing.

We have, however, certain advantages. Firstly, we know what to do. As befits a mining giant, we have the education and skills of long standing. The Colorado School of Mines probably just pips our West Australian School of Mines at undergraduate level, but ours is superior in postgraduate studies. Both are well ahead of the next group.  On mining engineering, the third, fourth and fifth places for excellence go to Australian universities. Canada’s McGill is sixth. When it comes to the difficult task of processing rare earths, for example, the Australian Nuclear Science and Technology Organisation and the CSIRO know what to do.

On top of the know-how, we have massive potential and actual supplies of critical minerals. The US designates 50 minerals as critical. Thirty of them we have in substantial amounts and a further 14 in modest amounts. Biden has just announced a series of heavier tariffs on a range of Chinese goods, including batteries, citing Chinese dumping. Australia has twice the amount of China’s reserves in battery minerals.

ASPI senior fellow Ian Satchwell points out: ‘Australia’s critical minerals sector, measured by exploration investment reserves and capital expenditure, is the largest of any nation other than China. Further mining companies in Australia producing critical minerals as primary outputs operate 54 mines and processing plants.

‘An additional 28 operations produce critical minerals as secondary products. There are currently 457 exploration projects targeting critical minerals and exploration in 2023 totalled US $342 million or 18 percent of global exploration budgets for critical minerals.’

We are world leaders in ethical mining practices, including environmental and indigenous concerns. We are easy partners for those with such worries. The recent budget builds on a growing array of assistance to processing and explorational activity looking into ‘A future made in Australia’ initiatives for 31 critical minerals to drive processing in Australia. That is through a production tax credit.

In addition, $566.1 million over 10 years will go into a new program run by Geoscience Australia—named Resourcing Australia’s Prosperity—which will map Australia’s prospective regions and further afield. Despite growing strength in our critical minerals performance, we are still only 20 percent explored.

In terms of our own version of statecraft to drive decisive competition with China, two examples stand out in rare earths processing. One is the work of the Australian company Lynas at Laverton in Western Australia, where the Japanese government helped the company to produce rare earths through to end-use—surviving repeated Chinese efforts to destroy them.

The other is Australian company Iluka’s project at Eneabba in WA, which is developing the capacity to process permanent magnet type heavy rare earths. This includes production of terbium and dysprosium essential for permanent magnets. Iluka’s production of heavy rare earth oxides will, according to their claims, produce 90 percent of the rest of the world’s supply of oxides outside China by 2027. Increasing funding could see them extend production through to metallisation.

The point is that Australia represents capability and quantity for a major capacity with heavy government support. As an AUKUS third pillar, we would have the focus. If we work with Canada and Japan on the third pillar, we would together be transformative. It is up to Australia to ensure that the AUKUS partnership can harness the resources to do the job and that the US is well linked-in. We can expect its support—indeed we have a joint Australia-US task force established already.

This can finally put some teeth into our plethora of agreements.