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Pentagon bankrolls rare earths plant as US plays catch-up to China

The United States Department of Defense has signed a $120 million deal with Australia’s Lynas Rare Earths to build one of the first onshore facilities to separate heavy rare earths, as part of Washington’s effort to reverse China’s dominance of critical supply chains for minerals.

Rare earth elements are vital for making magnets used in military equipment such as lasers and guidance systems, as well as components in electric vehicles, wind turbines, fiber optic cables and consumer electronics.

According to the International Energy Agency, China is responsible for nearly 90 percent of the world’s rare-earth metals refining and more than 50 percent of rare-earth mining.

The US has no commercial-scale operational processing facilities, raising concerns in Washington that the country could be cut off from these crucial minerals in the future if relations with China deteriorate further. Under the deal with Lynas, China would be completely bypassed from the production cycle.

The Australian Securities Exchange-listed company will export heavy Australian-sourced and refined rare earth carbonate to the US, where the individual elements will be separated for commercial use. Lynas, based in Perth, is the world’s largest producer of rare earths outside of China, according to Barrenjoey, an investment bank.

The deal, which is an extension of a pilot project first announced in 2020, is part of Washington’s drive to build supply chains and local manufacturing industries in semiconductors, batteries, critical minerals and pharmaceuticals.

Lynas said the $120 million investment would cover the full cost of plant construction, meaning the company doesn’t need to raise capital on its own. The plant is likely to be built in Texas and operational by 2025. The company also announced plans last year to build a light rare earth processing facility on the same site.

“The important thing here is that there is currently no separation of heavy rare earths outside of China,” Lynas executive director Amanda Lacaze told the Financial Times.

“Apart from any geopolitical issues, we’ve seen from the pandemic that there are risks associated with every single supply chain. So this is a great opportunity to address that risk,” she said.

Lacaze said she hoped the US government would also work to develop an onshore magnet manufacturing industry. “We want to have our facilities close to our customers and our customers close to our facilities,” she said.

Lynas processes most of its rare earths at a large plant in Kuantan, Malaysia, and is building another plant in Western Australia. However, the Malaysian plant only separates light rare earths and sends the less common heavy rare earths to China for processing.

Daniel Morgan, a mining analyst at Barrenjoey, said China’s dominance of this sector was a “strategic vulnerability” for the US.

“Right now there aren’t many options for the US military to get heavy rare earths that are needed in lasers and guidance systems. Without these heavy rare earths, the US military can’t have these things. It’s a strategic vulnerability,” he said. .

Australia has some of the world’s largest deposits of essential minerals needed in electronic devices and the energy transition, including nickel, lithium, cobalt and rare earths.

The Australian government under previous Prime Minister Scott Morrison developed a critical minerals strategy that sought to negotiate deals with non-Chinese trading partners, including the US, UK, EU, Japan, India and South Korea, while also providing government funding to local mines. and processing plants.

In March, representatives from Lynas and a number of other rare earths and cobalt mines traveled to Washington, DC, as part of a delegation with the Australian Secretary of Commerce to talk about building stronger trade relationships in these crucial minerals.

Video: Why China’s Control of Rare Earths Matters

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