Billions in rare earths for U.S. at risk

K. Warner, Metal Tech News | Last updated May 13, 2024 

Rainbow Rare Earths

At the Phalaborwa project, Rainbow Rare Earths will recover rare earth oxides from phospho-gypsum mineral stacks in South Africa.

Without investors, the future of South Africa's rare earth elements enriched Phalaborwa site may depend on Washington support.

Bordering South Africa's renowned Kruger National Park stands Phalaborwa, a mine sporting two rare earths-enriched phospho-gypsum waste piles that could mean over a billion in critical minerals for the U.S. – if the project can get enough support to run.

To challenge China's near monopoly on rare earths, Washington has committed funds to a little-known miner, Rainbow Rare Earths, but a 63% price drop for these minerals since the start of 2022 has called into question the project's ability to secure enough funding to get off the ground.

Even with continuing demand, fluctuating and plummeting prices in rare earths and battery minerals like cobalt, lithium, graphite and nickel have prompted layoffs, reduced production and stalled expansion plans among even major players with deep pockets from Albemarle and BHP to First Quantum Minerals and Glencore.

"My concern is that the worst of the 20th-century energy architecture will be repeated in the 21st century," said Amos Hochstein, the U.S. government's chief energy security advisor. "It would maybe be worse because, instead of a group of countries that control the supply, there'll be a single point of failure or a single point of ability to manipulate global supply and prices."


Can we afford not to?



Rainbow Rare Earths

Workers overlooking one of the two phosphor-gypsum piles on the larger Phalaborwa mine site. If funding continues, the project is expected to reach commercial production in 2026, only five years after work initially began.

The uncertain fate of the $300 million project at Phalaborwa represents overarching doubts about the West's ability to secure its own fair trade critical mineral supply chain in general. Mining policies can change markedly between election cycles, but this unique, rare earth cache has the potential for huge earnings, recovery of critical minerals from waste, and an admirable carbon footprint.

The site contains viable quantities of the four most important rare earth elements used to make permanent magnets – neodymium, praseodymium, dysprosium, and terbium.

Breaking Chinese dominance is a global priority and a high-stakes geopolitical battle. China is currently home to 70% of rare earths mining resources and nearly 90% of processing capacity, according to the International Energy Agency, and the U.S. is heavily reliant on these imports.

This covers the makings for permanent magnets used in everything from EVs and fighter jets to smartphones and headphones. China also controls the greater percentage of other clean energy resources such as cobalt, graphite, and nickel.

The U.S. is pushing to establish its own future supply, domestically sourced where possible and extracted and processed through fair trade allies if not. The government's Development Finance Corporation (DFC) has invested $105 million into TechMet, a billion-dollar critical minerals private investment company, which has pledged $50 million of equity for Rainbow when – or if – it is ready to start building this year.

DFC deputy chief executive Nisha Biswal said the state institution expected to increase investments in African critical minerals. "This is just the start," she said, expecting to exceed last year's $700 million outlay.

An international recycling project

Just before the Covid-19 pandemic hit, South African mining veteran George Bennett bid on two historic waste piles of phosphor-gypsum, left over from decades of phosphate mining.

With more than 20 mining projects under his belt already, sample analyses of Phalaborwa caught Bennett's attention – those waste stacks held a treasure trove of the rare earth minerals needed to make the permanent magnets used to power the green transition.

Rare earth minerals aren't especially rare, but locating sufficient concentrations to be economically viable is difficult, and having a ready supply already aboveground is definitely unique.

According to Bennett, Rainbow Rare Earths would be a key source of crucial energy-transition materials outside of Chinese influence. The company expects to generate a net present value of more than $1 billion, making it one of the biggest, lowest-cost producers of rare earth oxides in the world.

Today, Phalaborwa is close to completing a feasibility study on the economics of extracting minerals from the gypsum waste generated by old phosphate mines – but it still needs to raise another $250 million.


Where the money comes from



NASA

Satellite image of Phalaborwa and the two mineral stacks centered on the landscape.

Beyond the DFC funding, Washington is providing incentives for the construction of processing plants like Rainbow through the Inflation Reduction Act.

Investors may consider these projects at risk from price fluctuations because U.S. efforts to support the sector are still hit and miss compared to China's multi-decade lead, which has provided ample infrastructure, price control and resource stockpiles. Chinese producers are also often paired up with processors while potentially receiving state-backed financing, enabling them to ride out commodity downturns.

The U.S. Department of Defense does have a National Defense Stockpile of minerals, but its value has dropped from $9 billion in 1989 to less than $1 billion, below 0.3% of global annual demand as of March 2023.

Bennett argues that Washington needs to strategically increase those stockpiles by guaranteeing a minimum price for producers through long-term supply contracts. His company would be agreeable to such a deal despite it creating a price ceiling mines could charge. Projects such as this will be crucial to similar security in the West.

"Your green energy, wind turbines, electric cars, drones and handheld cell phones all have rare earth elements in them," said Bennett. "Sources outside of China to give the West some kind of independence are very important."

"Recent U.S. legislation supporting the critical minerals sector, and supply chain investments by major automakers, represent significant steps forward," said TechMet's CEO Brian Menell in a statement.

Other U.S. miners and automakers have already set a precedent, securing supply purchase deals like General Motors and MP Materials signing a long-term agreement including a facility in Fort Worth, Texas, that will supply alloy and finished magnets for more than a dozen GM models, sourcing materials from California.

"The U.S. government needs to become the buyer of last resort," said Bennett.

Without supply, you can't build manufacturing capability, and without a buyer, you can't create a reliable supply.

The Phalaborwa preliminary economic assessment has already confirmed strong baseline economics, a net present value of $627 million and a payback period of less than two years.

If funding continues, the project is expected to reach commercial production in 2026, as little as five years after work initially began.