Perth, Australia – Several small Australian mining companies specializing in rare earth elements have defied a broader global market downturn, registering significant gains following China's imposition of stricter export controls on these critical materials last Friday. The move by Beijing has been widely interpreted as an escalation of its trade dispute with the United States.

Shares in Lynas Rare Earths, Northern Minerals, and Arafura Rare Earths experienced a surge in investor confidence, fueled by speculation that these Australian firms could emerge as crucial long-term suppliers for Western nations seeking the materials vital for advanced energy and defense technologies.

Over the past week, shares in both Lynas and Northern Minerals have climbed by more than 10 percent, a stark contrast to the widespread sell-off observed among other mining companies listed on the Australian Securities Exchange (ASX).

For over a decade, Australia has strategically positioned itself as a key potential source of critical minerals, including the rare earth elements essential for the production of electric vehicles and wind turbines. However, analysts note that China's long-standing dominance in the sector has presented a significant barrier to entry for Australian producers.

The recent export restrictions implemented by China have seemingly created an opportunity for Australian companies. Perth-based Lynas Rare Earths stated that it is "ideally positioned," alongside its domestic peers such as Northern Minerals and Iluka Resources, to capitalize on the disruptions now affecting the global rare earth supply chain.

Tom O’Leary, Managing Director of Iluka Resources, emphasized the potential for Australian companies to provide a secure and reliable source of these essential materials to global manufacturers. “The need for a sustainable rare earths industry is clearly intensifying,” Mr. O’Leary commented.

China's latest measures target the export of seven specific rare earth elements and permanent magnets, focusing on the so-called medium and heavy rare earth metals crucial for the defense, robotics, and renewable energy sectors.

According to a note from stockbroker Ord Minnett, the practical implications of these restrictions suggest that while automotive companies operating factories within China are likely to maintain adequate material supplies, their manufacturing facilities located elsewhere may face significant shortages.

“The message would be that if the US wants high-end permanent magnets, the factories need to be in China,” the Ord Minnett note asserted. It further suggested that defense firms should "forget" about alternative supplies, stating, “China does not want its rare earths returned in the form of missiles.”

Shane Hartwig, Chief Executive Officer of Northern Minerals, which is actively developing a rare earth deposit in Western Australia, highlighted the new Chinese controls as evidence of the extensive dependence of global companies across various critical sectors – including defense, energy, transportation, and medical – on a single source of supply.

“It is evidence of the ability of China to assert that dominance. It helps to provide evidence that single-source supply chains are a risk, from China or anyone else,” Mr. Hartwig stated.

Currently, Chinese mines account for approximately 60 percent of global rare earth production. However, the nation's dominance is even more pronounced in processing, where it handles nearly 90 percent of the world's rare earth elements.

Geologists indicate that Australia possesses some of the world's richest deposits of high-grade rare earth elements, a group comprising 16 metallic elements. The country is already involved in mining heavy rare earths, including dysprosium (Dy) and terbium (Tb), often referred to collectively as DyTb. These elements are indispensable in the manufacturing of high-performance magnets capable of operating in the extreme temperature environments found in electric vehicle motors.

Industry analysts point out that the next crucial step for Australian companies is to establish domestic or offshore refining capabilities for these metals. However, such endeavors are expected to require significant time to become operational.

Lynas Rare Earths, which benefits from the backing of Japanese investors keen on diversifying their rare earth sources away from China, specializes in lighter rare earth elements. The company mines these in Western Australia and conducts its refining processes in Malaysia. In February, Lynas reported a record 22 percent increase in the production of neodymium and praseodymium (NdPr) – key light rare earths – reaching 2,969 tonnes in the six months ending December.

While Lynas is not currently refining heavy rare earths, the company is slated to commence production of DyTb at its Malaysian facility for export to magnet manufacturers by mid-2025.

Furthermore, Lynas is in the process of constructing a rare earth separation plant in Seadrift, Texas, with funding support from the U.S. Department of Defense. Ord Minnett suggests that this project, previously delayed by U.S. regulatory hurdles, is now likely to be expedited in light of China's recent export controls.

Iluka Resources also has ambitious plans to begin refining DyTb by 2027 at a newly established heavy rare earths refinery in Eneabba, a remote region of Western Australia. The project received a significant boost last year with A$1.6 billion (US$960 million) in loan funding from the Australian government.

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Daniel Morgan, an analyst with Barrenjoey, views Lynas as strategically well-positioned. However, he suggests that the A$7 billion company's valuation has not yet fully reflected its strategic importance in its efforts to become the largest rare earth supplier outside of China. Despite expansion and increased production, Lynas reported an 85 percent slump in net profit for the six months ending December 31, primarily due to the continued volatility of rare earth prices.

Gavin Mudd, Director of the Critical Minerals Intelligence Centre at the British Geological Survey, argues that greater government support is necessary for Australia to effectively build a robust rare earth supply chain.

“If we are to create diversified, resilient and responsible supply chains for rare earths, governments of the world need to make sure that we build not only mines but refineries, manufacturing plants and recycling facilities,” Dr. Mudd stated.

In response to the Trump administration's recent imposition of a 10 percent tariff on Australian imports, Canberra has already announced its intention to establish a strategic critical minerals reserve. This reserve could potentially serve as leverage in future trade negotiations. Notably, the U.S. has recently targeted rare earth deposits in Greenland and Ukraine as potential alternative sources. The strategic reserve could also play a significant role in establishing benchmark prices and non-commercial demand for rare earths, thereby providing crucial support to the burgeoning Australian industry.

Shane Hartwig of Northern Minerals concluded, “It’s an opaque market that is dominated by a single supply chain. Some form of support would be helpful for us.”

This recent surge in the fortunes of Australian rare earth miners underscores the growing geopolitical significance of these critical materials and the potential for Australia to play a more prominent role in the global supply chain as Western nations seek to reduce their reliance on China.