Australia leads upstream rare earth financing efforts

The Australian government is leading upstream financing commitments towards the development of an ex-China rare earths supply chain, critical for the national and economic security of Western nations.

This week Australia’s National Reconstruction Fund (NRFC) agreed to invest a further A$450 million ($283 million) in Arafura Rare Earths, to support the development of its mine and processing facility in Northern Territory.

“We are witnessing a surge in capital investment announcements in the rare earth sector, totalling US$3.1 billion globally in 2024. 84% of these investments were government-led, spanning mining to recycling,” said Neha Mukherjee, senior rare earths analyst at Benchmark.

“Australia has dominated financing for upstream projects, while Europe leads in recycling initiatives and the US has committed towards magnet manufacturing. This underscores ex-China efforts to diversify and mitigate supply vulnerabilities,” Mukherjee added.

Australia key to West’s de-risking strategy

Australia is leading efforts to counter China’s dominance over the rare earth supply chain, which captured over 90% of global rare earth processing capacity in 2024, according to Benchmark.

In November, Lynas Rare Earths opened the Kalgoorlie Rare Earths Processing Facility in Western Australia, marking a significant milestone as the country’s first rare earth processing facility and the largest facility outside China. The project was the recipient of a A$20 million ($14 million) Australian government grant back in 2023.

The US too has committed financing to projects in Australia: the US Export-Import Bank (EXIM) signed a $600 million non-binding Letter of Interest with Australian Strategic Materials in 2024, to help progress the Dubbo project in New South Wales.

Meanwhile, Australia has also signed a Critical Raw Materials (CRM) partnership with the European Union, facilitating the shipment of upstream mined material to support Europe’s incoming capacity for rare earth processing.

Rare earth price premium?

But questions remain over the short-to-medium term viability of developing an ex-China rare earth supply chain without more robust mechanisms to support the higher prices required to make Australian projects economical.

Last year, rare earth prices fell to historical lows as China opted to increase its annual rare earth production quotas despite the market’s oversupply, suppressing prices. The downturn had a sharp impact on ex-China producer margins, while stifling investment into new greenfield projects globally.

Arafura executives have suggested that offtake partners are prepared to pay a premium above the current price to avoid sourcing from China. The company has signed offtake agreements with automaker Hyundai and wind turbine manufacturer Siemens Gamesa.

However, it is unclear whether such a premium will materialise without policy intervention; Australia’s nickel industry was ravaged by the Indonesia-driven low price environment in 2024, as calls for the establishment of a ‘green premium’ to support mines with higher ESG standards fell on deaf ears.