Australia will offer cheap loans to critical minerals and rare earths projects as it champions a joint strategy with the US to challenge China’s dominance in supplying materials used in the defence and high-tech sectors.
The government said on Thursday it would offer state-backed concessional loans, provide A$4.5m ($3m) in funding for scientific research and establish an office to help develop up to 15 mining projects in Australia that have struggled to attract commercial funding.
The move comes as Australia and the US prepare to sign a joint action plan on critical minerals and rare earths in Washington next week that will identify strategically important minerals that can be sourced from Australia.
“These measures will play a vital role in supporting a secure, ethical and sustainable supply of critical minerals and, in doing that, help deliver the capability that keeps Australians safe,” said Linda Reynolds, Australia’s defence minister.
Rare earths are a group of 17 obscure metallic elements such as lanthanum and related elements, scandium and yttrium, which are embedded in most technology products. The initiative will also cover other critical elements such as cobalt, magnesium and tungsten.
Rare earths have been thrust into the centre of the US-China trade war following warnings by Beijing that it could cut off supply as leverage.
China accounts for almost 80 per cent of the global mined supply of rare earths. As part of efforts to reduce the reliance of western companies on Chinese supplies, Canberra and Washington are working together to extract, process and develop rare earths.
US concerns about its reliance on Chinese rare earths and critical minerals have intensified following the 2015 collapse of Molycorp, which operated the Mountain Pass rare earths mine in California. In 2016, Lynas, the last big non-Chinese supplier, was saved when shareholders including state-owned Japan Oil, Gas and Metals National Corporation, agreed to a debt restructuring. The Australian group controls just over 10 per cent of the global market.
Australia’s government has identified at least 15 mining projects that it believes could provide the US with an alternative supply of rare earths and critical minerals. They include plans by Sydney-listed Northern Minerals to build a mine and processing plant in Western Australia. The company’s shares rose 2.6 per cent in morning trading on Thursday.
Matt Canavan, the minister for resources, said Australia could supply the US with at least nine of the 14 critical minerals it needed to power its high-tech and defence industries and would make investments to enable that.
He said projects would become eligible for state-backed financing through Export Finance Australia, a government agency that manages a A$3bn facility that aims to co-fund investments by military contractors.
Dylan Kelly, an analyst at Ord Minnett, a Sydney-based broker, said the new funding facility would help some projects to secure funding but was unlikely to be able to provide all the cash needed for all 15 projects.
“These projects tend to be really capital intensive, often requiring up to A$1bn to develop, and are often not able to attract the debt or equity funding needed, Mr Kelly said. “Government financing should help to attract other private funding sources to the sector.”
He said the Australian-US partnership on rare earths and critical minerals reflected a strategic need to diversify supply in the face of continuing geopolitical tensions with China.
The Minerals Council of Australia, an industry lobby group, welcomed the government’s funding plan, saying it could help unlock Australia’s potential to become the world’s biggest supplier of rare earths and high-performance metals.
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