• Geoff Donald

The Geopolitics of Rare Earth Minerals

Rare Earth Minerals

With the COVID-19 pandemic exposing the unsteadiness of global supply chains first in medical supplies and now for vaccines, the issues of rare earth minerals, their importance in today’s world and the challenges of their supply chains are topics that public policy makers have begun to turn their attention to.


Rare earth metals are a group of 17 elements referred to as the lanthanide series in the periodic table of elements and deemed critical to modern society.


Theses minerals are a crucial subcomponent to electric vehicles, computer chips, the clean energy sector, and the defence industry. While most rare earths themselves are not actually rare, a primary challenge is that China controls 80% of the rare earth metals refining process.


And China uses this control of the refining process to leverage their economic power in both setting the price of rare earth metals by limiting the supply thereby increasing prices or by flooding the market to lower prices to keep out competitors. China’s control over the global rare earth metals supply is also used to for their geopolitical purposes with the most visible example being China’s restriction of exports to Japan over a territorial dispute.


As China continues grow so too will its internal demand for products that use rare earth metals. To meet this demand China will continue to take steps to secure its own supplies, thereby putting additional strain on the availability of these metals.


For innovation and manufacturing-based countries, this centralized control over a key resource represents a strategic challenge forcing them to develop strategies to secure rare earth metals supply chains.


Why are they important?

As the world looks to shift to clean energy and to adopt other high-tech innovations, rare earth metals are crucial input.


Research suggests that to meet the Paris Climate Agreement, the demand for component minerals in electric batteries could increase by 450 percent by 2050 while the European Commission believes that EU countries will need up to 18 times as much lithium and five times as much cobalt in 2030 as they use now.


In February 2021, President Biden ordered an immediate review of the vulnerabilities in America’s supply chains for critical minerals and batteries. This Presidential order builds on the strategy developed by the previous Administration that viewed securing rare earth metals as an issue of national security and economic competitiveness.


While the United States does have access to rare earth metals supplies either domestically or through Canada and Mexico, like most countries the United States lacks the domestic capacity to process and refine these supplies. Instead, rare earth metals from the United States are shipped to China for processing. It is this lack of domestic processing and reliance on China that could impact the US (and other countries) ability to remain competitive in the advance technology world.



Challenges

For countries looking at the strategic challenge of rare earth metals, there are three primary challenges: Access to the rare earth metals, China, Risk. Let’s look at each in turn.


1. Access to Rare Earth Metals

While the U.S. Geological Survey describes rare earth metals as "relatively abundant in the Earth's crust" and are available globally, some of these critical metals are highly concentrated in a few countries. For example, more than 80% of the world’s lithium comes from three countries; while the Democratic Republic of Congo (DRC) is responsible for over half of the world’s supply of cobalt; and South Africa, Australia and China are responsible for 60 percent of the global supply of manganese.


While recycling of the rare earth metals used in other products and innovations allowing for substitutes are being developed, the high levels of geographic concentration of rare earth metals deposits poses a challenge to business and public policy makers who are looking to access supplies. As demand for these resources continues increases, this lack of easy access will result in an increase in prices of rare earth metals and increase the geopolitical competition to secure them.


2. China

No country has greater control over the rare earth metals market than China.

The Chinese government identified rare earth metals as a key component to economic growth in the 1980’s and has taken steps to be the major player in rare earth metals market. While China has rare earth metals reserves located inside its borders, it is its control of 80% of the rare earth metals refining process that allows the country to have an oversized influence on this strategic product.


As other countries or companies have attempted to enter the rare earth metals refining industry, China has used its dominant position to the flood the market with rare earth metals thereby lowering the price of rare earth metals thus making any new entrants unprofitable. As a result, there has been a limited amount of additional rare earth metals refining capabilities added to the global supply over the past decade.


China’s influence on the rare earth metals market is not just at the refining process but also at other stages in the rare earth metals supply chain. An example of this influence can be found in the DRC where Chinese enterprises, including state-owned enterprises, have invested heavily in the cobalt mines and cobalt smelting projects. As a result of this investment, Chinese enterprises control 40% of the cobalt mining output in the DRC which allows China to have secure and stable access to cobalt resources while at the same time preventing other countries from accessing this key resources.


Additionally in 2020, DRC became of a partner of China’s Belt and Road Initiative under which it received financial loans from the Chinese government. In other countries similar loans under the BRI program are backed by guarantees of natural resources production to China.


This is but one example of China acquiring or taking partnership in foreign assets to dominate the rare earth metals supply chain.

3. Risk

The third challenge relating to the rare earth metals industry is risk. Whether it is project, financial, environmental, or regulatory, there are numerous types of risks at play in this sector.

With their long investment time and construction periods, fixed locations, volatility of commodity prices, political risks, and lack of information on future prices, rare earth metals mining and refining projects are very risky. The high level of risks means that accessing the finances needed to develop these projects comes with higher rates and thus higher costs to develop the project. Photo Roger Kisby for Wall Street Journal


A growing risk in the rare earth metals industry is that as stakeholders’ and investors become more concerned about environmental, social and governance factors, many rare earth metals projects have a poor track record. Despite their importance in developing a clean energy world, the mining and refining process of rare earth metals carries environmental costs whether that is the emissions generated by the construction and operations of the facility or the by-products during the extraction and mining process. As many of the current mines and refineries are in jurisdiction with looser environment regulations, there is room for improvement in the rare earth metals industry to moving to a more sustainable process.


Finally, there is significant risk of regulatory risks associated with both the rare earth metals and mining industry. While most countries have a legal and institutional framework for mining sector, the functionality and effectiveness of those frameworks remains questionable especially in developing countries.


On those countries that do have effective frameworks, mining companies need approval from various levels of government before a new project can begin. As multiple governmental agencies, non-governmental organizations and the public are often involved in the processes there is often a significant time delay to starting these projects once a company receives authorization. Even then changes in government, litigation and other factors will often prevent a mining or refining project from going forward.


What does it mean for Canada?

Canada has some advantages in the rare earth metals industry such as rare earth metals located inside its territory, geographical access to the largest economy in the world, a competitive and experienced mining industry including a financial sector that is supportive of mining, and a strong desire to play a key role in developing and producing clean technology. As a country, Canada is well placed to take on a leadership role in the rare earth metals sector and the clean tech supply change, but it will not be easy.


First, Canada needs to accept that rare earth metals access is economic, environmental, and national security issue. By acknowledging the importance of rare earth metals to the future of Canada on multiple levels, a national strategy can be developed around rare earth metals.


Second, Canada needs to establish policy consultation and research and development cooperation with its key trading partners. The U.S., Australia, Japan, and India are working together to build a rare-earth supply chain and Canada should engage with the these and other countries to develop additional rare earth metals refining capabilities.


Third, Canada should look to use its direct access to rare earth metals and other competitive advantages to develop additional Canada-based rare earth metals refining capabilities. While a rare earth metals refinery does contain an environmental cost for the local region in which it is based, these costs would be balanced against the positive impact through the adoption of clean technology.


In addition to the national and global impacts, by having rare earth metals refining capabilities Canada would an integral part of the supply chain for clean technologies and a welcome partner from other countries and companies that are looking to reduce their dependence on China.


Finally with our own rare earth metals capabilities reduces the risk of rare earth metals supply disruptions, secures supplies for our key sectors including the Canadian defence industry.


Fourth to develop additional refining capabilities the Canadian governments needs to provide support to help private companies offset the risks associated with the complex projects. Recent new pipeline, LNG and mining developments provides a regulatory framework under which a rare earth metals refinery could be developed but the number of delays and cancellations associated with recent projects means that if Canada is looking to develop its rare earth metals capabilities it may have to adapt its existing framework.


Canadian government will also have to provide financial support for these projects to lower the financial risk especially as in the past China has used its dominant position to increase rare earth metals supplies and lower the prices to crowed out additional competitors. This financial support would allow the Canadian government to a set amount of the refined metals for its own needs.


It is undeniable that rare earth metals will increase in importance to the global community as the worlds continues to adopt additional higher technologies to manage climate change, improve our economies and to make our lives better. The fact that one country has a such a dominant position in the rare earth metals industry, and they have used their dominant position in the past to restrict supplies to other countries, means that Canada needs to develop additional options for accessing both raw and refined rare earth metals.


While there are significant environmental costs associated with the mining and refining of rare earth metals, these products are crucial to Canada’s economic and environmental future in addition to being of critical importance to our national security. By developing both a multilateral approach for engaging with key trading partners and increasing its own internal rare earth metals refining capabilities, Canada would be well positioned to be part of the rare earth metals supply chain.

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