Trump beating China on rare earths is easier than you think

Tokyo’s response was swift. Mining safety agency JOGMEC, in partnership with Japanese trading company Sojitz, provided Lynas with discounted funding of US$250 million in 2011 to help advance plans to mine rare earths in Australia, process them in Malaysia and distribute them through Sojitz. Another $200 million was added in 2023 to begin production of heavy rare earth elements such as dysprosium and terbium, which are the main focus of China’s threatened export controls.

For Japan, this forward-thinking injection of capital turned rare earths into a mostly solved problem. Thanks to its secure supply of raw materials, the country now has approximately three-quarters of the world’s rare earth magnet production capacity outside China. Assume that each dollar of government funding can mobilize $4 of private money and that the entire program probably costs $90 million from the public purse, about 0.01 percent of Tokyo’s annual budget spending.

Japan is not alone. The Mountain Pass mine in California’s Mojave Desert was the world’s largest producer of the element for decades. It was also in the cheap financing market in the early 2010s. Unlike Lynas, he was rejected for a US government loan and instead financed himself with junk bonds, just before a surge in supply in China crashed prices and forced him into bankruptcy.

The current owner is MP Materials Corp. The company, revitalized under gold, remained on a stronger footing by holding net cash to protect itself from market downturns. Thanks to growing concerns in Washington, it has taken out $550 million in loans and equity capital this year, as well as purchases and price guarantees from the U.S. government, to advance its hefty rare earth plans.

Iluka Resources, known in Australia for producing titanium oxide pigment used primarily in white paint and toothpaste, realized there was money to be made from landfills. It could transform itself into another rare earth producer by reprocessing its discarded waste, and may even have the capacity to purify other companies’ ore.

It aims to make first production in 2027 with a government loan of $1.65 billion. Acting as banker, Canberra should get back hundreds of millions of dollars more than it invested. Barring default, loans priced at 3 percent above benchmark short-term interest rates should yield a significant profit for the government.

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It is common to argue that addressing the widely occurring low-level radioactive wastes of thorium and uranium, as well as rare earth elements, is an extremely difficult problem in environmentally conscious democracies. Not so: MP Materials and Iluka plan to process their waste on site in landfills protected from groundwater intrusion and dust emissions. Similar wastes are a common byproduct of the phosphate fertilizer industry.

These facilities, and others vying for concessional loans worth several hundred million, are more than capable of meeting the world’s rare earth needs, even if Beijing uses the nuclear option of an all-out embargo. The current US war against wind power and electric vehicles, the largest consumers of rare earth magnets, makes it much more costly to support this supply chain, but even now it is not impossible.

China may have the largest reserves, but it only achieved its current dominant producer status by presenting itself as the cheapest and most stable source of long-term supply. Geopolitical fights in recent months appear to have permanently destroyed that reputation, as dozens of rival miners and processors have moved to replace it.

Unless advanced democracies forget the lesson of this moment, Beijing will regret ever thinking it could hold the world ransom for a pile of dung.

Bloomberg L.P.