Critical minerals are to China what oil is to the Middle East. If Australia is to become a reliable source of critical minerals, we need to better position ourselves in the global critical minerals and rare-earth elements (REEs) market.
Critical minerals, including REEs, are the world’s building blocks for emerging and future technologies. They are essential to manufacturing, clean energy production, semiconductor production and the defence and aerospace industries.
The world looks to Australia as a source of critical minerals essential to the manufacture of advanced technologies including those needed to reach zero emissions. Australia needs to step up and adjust its policy settings if it wants to become the preferred supplier of downstream products to global markets.
Demand for critical minerals across the world will continue to increase driven by the decarbonisation of developed economies, the World Bank estimates that 3 billion tonnes of critical minerals will be required by 2050.
The world will need more mining, not less, to extract the critical minerals and REEs required to manufacture batteries, semiconductors and wind farms to meet net zero carbon emission targets.
A reliable source of critical minerals is now as important to a nation’s economic, defence and resource security as coal, oil, copper and steel have been for the last 100 years. Maintaining a resilient and sustainable critical minerals supply chain will be vital to building diversity and a prosperous industrial base and economy.
From a resource perspective, Australia is well-positioned with some of the richest critical mineral reserves. In fact, we have the second-largest reserves of both lithium and cobalt and the sixth-largest deposits of rare earths.
Financially there are some 81 critical minerals projects under development with an estimated value of $30 billion to $40 billion. However, this is insignificant compared to the potential value of downstream industries. Some estimates put this in the region of an uplift of an additional $140 billion in GDP.
Australia’s future prosperity and security will be determined by its critical minerals and REEs policies. China has ceased the supply of germanium and gallium, the key components of semiconductors, in the interest of its National Security. The global economy needs an alternate reliable source of critical minerals.
Critical minerals and REEs create value on shore for the nation and generate a sovereign critical minerals manufacturing capability. But Australia must rapidly grow both the mining and downstream industry sector from processing to manufacture of products.
The Albanese government released its Critical Minerals Strategy 2023–2030 in June 2023. The prime minister used his trip to Washington to announce an additional $2 billion funding investment in the Critical Minerals Facility, a key component of the strategy, and stated that the path to net zero carbon emissions runs through the Australian resources sector.
The Critical Minerals Facility is managed by Export Australia, and this announcement represents a $4 billion investment. Whilst $4 billion may seem like a large amount it does not go far in the resources sector. For example, Iluka Resources received $1.2 of the initial $2 billion to establish its critical minerals processing facility in Western Australia expected to be online in 2025.
The strategy is a step in the right direction as it aims to position Australia as a renewable energy superpower that will be both a significant raw materials producer and downstream processor of critical minerals. However investments by South Korea and the US in critical minerals plants to receive Australian ore indicate that Australia is not moving fast enough to position itself in the global critical minerals sector.
Australia is also working closely with the US and has committed to a joint alliance under a framework known as the Critical Minerals and Clean Energy Transformation Compact.
The Compact is a formal statement of strategic intent to establish climate, clean energy and a shared industrial base as a third pillar of the Australia-US alliance. It is designed to coordinate policies and investments to expand and diversify critical minerals supply chains to guarantee supply.
The Albanese government has also requested that Australia be afforded domestic status under the US Defence Production Act 1950. Domestic status would incentivise US companies to import more Australian critical minerals. To date, Canada is the only other country to be named as a domestic source under the Act.
A sustainable and reliable supply of critical minerals is the key to supporting both Australian and US manufacturing sectors and reducing reliance on China. Chinese-owned companies have dominated the world’s supply of REEs and many critical minerals for decades.
Today, China controls approximately 60% of rare earth ore, producing 85% of the oxides, and accounts for more than 95% of the rare earth manufacturing. The commercial viability of the Chinese reserves, access to state-backed financing, and lax environmental law have assisted in building this dominance in the global REEs market. Beijing also regularly adjusts its domestic production and manipulates the pricing structure to drive out any new competitors.
Foreign investment, control, and ownership provide unique access to Australia and Australia’s resources. The Government’s current policy settings were not designed for strategic competition, where some actors actively seek to undermine the rules-based global order and monopolise the global supply of critical minerals and REEs for national purposes.
The policies and incentives around the development of Australia’s critical mineral deposits need to be structured to mitigate the national security risks associated with Chinese control over global supply chains, production and processing.
Foreign ownership risks to supply need to be considered in future policy deliberations, with the aim to reduce the proliferation of foreign-owned businesses, or foreign-controlled resources, similar to technology transfers required for Defence purposes.
Australia’s policy settings have global implications and need to position the nation to take full advantage of its natural mineral wealth and take advantage of processing and downstream manufacturing to support the global transition to net zero.
By supplying the global economy with downstream products rather than raw materials Australia will become a price setter for end products rather than accept fluctuating commodity prices and reduced national prosperity.
The Iluka Resources refinery plant in Western Australia is one step in the right direction. Onshore processing rather than export of raw materials enables Australia to move away from its historical position of being the quarry for the rest of the world and just providing raw materials such as oil, coal, iron ore, and copper. With critical minerals the global economy needs Australia to be an alternative supplier, and this means realising the true value of our natural resources.
The Indonesian government, for example, is not allowing the export of raw materials and instead is welcoming investors to create value through downstream processing and manufacturing.
The ban will create jobs, increase profitability for the resources sector and reduce exposure to fluctuating commodity prices. But this has not been without resistance and the European Union has raised complaints through the World Trade Organisation.
The realisation of establishing a viable non-Chinese supply chain could take years if government investment and policy support, international co-operation and industrial collaboration is non prioritised. The question is: can we and the rest of the world afford to wait?
