Newly appointed Minerals Council of Australia chair Amanda Lacaze. (Photo: Kristie Batten.)
Government support for rare earths projects will remain necessary for years as Western countries work to counter China’s long-standing dominance of the sector, industry leaders said at the AFR Mining Summit in Perth last week.
There has been growing debate over state intervention in critical minerals markets, but speakers agreed rare earths remain a special case because of decades of market distortion driven by Chinese supply and pricing influence.
“The rare earths market has been a distorted market for decades, and so the government intervention that we have seen by the US, Japanese and Australian governments actually is more about correcting that dysfunction,” outgoing Lynas Rare Earths (ASX: LYC) CEO and newly appointed Minerals Council of Australia chair Amanda Lacaze said in January.
“Government participation in addressing this dysfunction is ultimately good for the market.”
The comments highlight how governments are increasingly shaping critical minerals supply chains as Western nations seek to build alternative sources of strategic materials used in electric vehicles, defence systems and advanced manufacturing.
Floor prices a game changer
Arafura Rare Earths (ASX: ARU) managing director Darryl Cuzzubbo credited the US government’s investment in MP Materials (NYSE: MP) and the introduction of a rare earths floor price with accelerating the sector’s development outside China.
“But they’re kind of learning as they go, so it’s a bit of a wild ride,” he said. “Without that US leadership, I’m not sure we’d be in the sort of fast-paced transition that we are in.”
Bank of America head of natural resources equity research Australia Kate McCutcheon said floor prices had removed China’s incentive to flood the market and drive down prices.
“When we have really big markets like steel or iron, we can use tools like tariffs, which is what we’ve seen in the US and Europe, to decouple that supply chain,” she said.
“Whereas, in smaller markets like rare earths, what we’ve seen is money really helps that problem, and we’ve seen those floor prices have actually forced that China price in line with the ex-China price for rare earths,” McCutcheon said. “In the fullness of time, will government support be needed? It’s here for the foreseeable future.”
BlackRock portfolio manager Olivia Markham said government involvement extended beyond direct funding to permitting, infrastructure and maintaining stable fiscal regimes.
“Governments are getting much more involved in this entire space,” she said.
The risk
Rowena Smith, CEO of Australian Strategic Materials (ASX: ASM), currently subject to a $300 million takeover by Energy Fuels (TSX: EFR), said that government support should be reserved for projects capable of standing on their own commercially.
“You don’t want to subsidize a project that’s never going to be economic to operate,” she said.
Cuzzubbo agreed intervention was needed to address market failures but warned against creating permanent support mechanisms that distort competition.
Last month, Arafura approved development of its $1.9 billion Nolans rare earths project in the Northern Territory, backed by financing from nine lenders across five countries, most of them government-backed institutions.
“Can you imagine a world where everyone gets a floor price? That is not a functioning market,” Cuzzubbo said. “If everyone gets a floor price, then uneconomic projects will get up.
“You will then flood the market, you’ll push down real prices, and government’s picking up the tab, so the floor price was absolutely essential to circumvent China, but it is not the long-term answer.”
The debate underscores a broader challenge facing governments and industry alike: supporting the emergence of independent rare earths supply chains without creating permanent market distortions. As new projects move toward production, participants increasingly see transparent and liquid pricing mechanisms as the eventual path to a self-sustaining market.
Cuzzubbo and Smith both endorsed the development of independent pricing indices, although they said greater trading volumes would be required to make them credible. In the meantime, Smith argued temporary measures such as floor prices remain necessary to support a growing but still fragile industry.
“We need some sort of scaffold in the interim, and I think floor prices have played an important role,” she said. “We’ve got to be pragmatic about how high this floor price is.
“This comes back to we can’t be supporting and subsidizing projects that are not inherently economic as we establish this emerging alternate supply chain, but for us, we’re excited because that market, whilst it’s small, is growing.”
