The international mineral trade is becoming increasingly fractured. An escalating trade war between the US and China is threatening to deprive the former of a number of key commodities, including scandium, graphite and gallium, all of which are not produced domestically in the US and all of which are imported, predominantly from China.
Rare earth minerals are among the commodities most threatened by these increasingly hostile foreign policies. According to 2018 data from the US Geological Survey, the US is entirely reliant on imports for its supply of rare earth minerals, with 78% of all such imports coming from China, orders of magnitude ahead of the second-largest importer to the US, Estonia, which is responsible for 6% of imports. Demand for these minerals is also increasing dramatically due to their use in the construction of devices such as mobile phones and rechargeable batteries, and in military hardware. The global production of rare earth minerals increasing from less than 20,000 metric tons in 1970 to close to 140,000 metric tons in 2017.
The combination of this growing demand and uncertainties over the reliability of China as a source of rare earths has encouraged the US to look for new sources of the minerals, with a number of African projects emerging as a potential source to cover the Chinese shortfall. However, US optimism is dampened by the lack of formal agreements signed between the US and these promising operations, and the growing influence of China in African mining.
The US has identified Malawi-based Mkango Resources as a means to diversify its source of rare earth minerals. Mkango owns and operates the Songwe Hill mine, which was revealed to have rare earth grades of up to 2.2% over 6.7m in drilling studies completed last year. The $7.7m exploration costs were covered by Talaxis, a subsidiary of the Singapore-based Noble Group, so parties in the US are optimistic that Mkango will once again be open to working with foreign groups in the future.
Similarly, Malta-headquartered investor TechMet has funded a $3m rare earths separation facility at Rainbow Rare Earth’s Gakara project in western Burundi, which could be even more exciting from a US perspective. The company claims the mine is the highest-graded source of rare earths in the world, boasting grades of up to 67%, and the project has enjoyed early success with regards to production. Rainbow began commercial production in late 2017, and is targeting an annual production of 6,000 tonnes (t) per annum by the end of 2019 following the sale of 475t of concentrate within the first six months of operation.
While Rainbow’s annual reports found that the company’s losses actually increased from $1.4m in June 2017 to $2.5m in June 2018, these losses are mostly attributable to the operating costs of establishing a new mine, and Rainbow plans to begin breaking even in the second half of 2019. Other financial indicators are very strong, with the value of Rainbow’s assets increasing from $9.2m in June 2017 to $12.6m a year later, while the company’s share capital has more than tripled from $5m in 2016 to $16.7m in 2018.
Both of these projects will be attractive to US investors, in part because of these strong geological features and financial indicators, which makes them safe investments from a financial perspective as well as sensible projects to fill the US’s increasing demand for rare earths. Mkango noted that, according to analyst Adamas Intelligence, demand for rare earths “was approximately 125,000t in 2015 and will increase for individual rare earth oxides by 1% to 13% annually through to 2020.”
Critical minerals and national security
Struggling supply and escalating prices are encouraging the US to take increasingly dramatic action to ensure it has access to a supply of rare earth minerals. Last year, President Trump declared a number of minerals “critical”, making the trade and stockpiling of a number of commodities not simply a matter of economic need, but national security. In response, the Pentagon has been involved in securing a number of these minerals.
The Pentagon’s Defense Logistics Agency reported that it plans to buy 416t of rare earth minerals on the open market this financial year, according to SP Angel more than ten times the volume of tin the agency expects to purchase.
In a 2013 report, the US Congress called on the Government Accountability Office (GAO) to investigate US reliance on foreign imports of rare earth minerals, and concluded that not only was the US dangerously dependent on imports, but that replacing this supply chain with a more stable one would take considerable time and effort.
“GAO concluded that revamping the defence supply chain could take 15 years or more,” read the report. “Congress has required that the Secretary of Defense … conduct an assessment of the rare earths supply chain issues and develop a plan to address any supply chain vulnerabilities.”
However, this intensified desire for rare earths has not yet translated into formal trade deals, raising questions about the US’s ability to deliver on this increased demand. Despite the US Department of Defense claiming to have opened negotiations with Mkango, the company itself said that “detailed discussions have not yet taken place” in a press release published on the same day as the Department of Defense announcement. Similarly, there are no plans in place for US involvement in Rainbow, with the company having already raised $5.75m in funding in the last 18 months, suggesting that Rainbow is shifting its focus to the management of its established assets, rather than encouraging investors to back new ones.
A similar concern for the US is that the country is not currently involved in many of Africa’s most productive mineral operations. Cobalt shares a number of similarities with rare earth minerals, including its concentration in a single country and importance in newer technologies such as batteries. The US’s inability to engage with African cobalt production suggests it may struggle to effectively import rare earth minerals from the continent.
The Democratic Republic of the Congo (DRC) was responsible for around 90% of the world’s cobalt production in 2018, but was the 147th largest foreign supplier of goods to the US that year. DRC exports to the US were also valued at $50m in 2018, 42.2% lower than in 2017, and 81.4% lower than in 2008 according to the Office of the United States Trade Representative. This worrying decline suggests that as the DRC is expanding its cobalt production, the US is failing to engage with a potential trading partner.
Of greater concern, however, may be that China is actively engaging in trade with African mineral producers, effectively relocating the US-China mineral conflict to Africa, where China once again controls a greater proportion of resources and resource production. As the DRC dominates cobalt, Guinea dominates bauxite, with around 35% of the world’s reserves, and the production of the mineral accounting for 34% of the country’s exports. Already, China has aimed to capitalise on this, loaning Guinea $20bn in 2017 as part of a 20-year plan to encourage the development of the country’s mining sector.
As a result, Guinea’s mineral exports tend to head east rather than west, with the Observatory of Economic Complexity reporting in 2017 that 44% of Guinean exports went to China, goods valued at $1.29bn, compared to 0.15% going to the US. With China already expanding its influence in African mining, there will be even fewer opportunities for the US to secure favourable deals for rare earths produced in the continent.
In response to Trump’s declaration of “critical minerals” in 2017, the US Department of Commerce produced a report which listed six strategies for addressing the US’s reliance on imports for both critical and rare earth minerals. Two of these strategies involved reforming the country’s mineral supply chain, and working more closely with foreign producers to address the mineral trade deficit, but without significant progress made towards binding deals with African producers, it is unclear how the US will rectify its mineral dependency and continue to compete with China.