Carmakers look to Australia to hedge against China’s rare earth dominance

European automakers are in discussions with Australian rare earths explorer Arafura Resources about sourcing elements that help power electric cars from outside China, which dominates global supply.

The miner is developing the $1 billion Nolans project in the Northern Territory that will cover as much as 10 per cent of global demand for the type of rare earths used in permanent magnets for electric motors.

Crucially, Arafura plans to process ores close to its site, ensuring direct oversight of the treatment of toxic waste products at the project it bought in 2001.

Rare earth concentrate ready for processing. Electric cars require vast amounts of battery raw materials like lithium, nickel and cobalt.Credit:Trevor Collens

“We have engagement with European manufacturers to directly supply them with material,” Chief Financial Officer Peter Sherrington said in an interview, adding that he expects to ink deals before the end of the year because talks are advancing to volumes and price. New rules on sustainability and traceability “have opened carmakers’ minds up to the need of this.”

The shares jumped as much as 17 per cent in Sydney trading on Thursday, the most since January.

Rare earths are emerging as another source of concern in the transformation to electric cars. They’ll require vast amounts of battery raw materials like lithium, nickel and cobalt, which is leading carmakers like BMW, Volkswagen and Tesla to go directly to miners.

China, which controls two-thirds of mining and 85 per cent of refining of rare earths, according to BloombergNEF, is expected to put much of its production to use domestically in future.

Simmering tensions that previously made the elements — also important for applications in defence — a political pawn are spurring efforts to procure from outside China. Last year, the US Department of Defence committed funding for Australian producer Lynas to set up a processing plant in Texas that will cost an estimated $US30 million ($41 million) initially.

While carmakers including BMW and General Motors have sought to reduce the amount of rare earths — a vehicle uses an average of 3 kilograms — switching to alternatives tends to make motors less efficient. Tesla initially used induction motors that didn’t need magnets to power its electric cars, but switched gears with the Model 3.

“To have future safety of supply, you need to create your own,” said Joanne Jia, a vice president at China’s Hangzhou Permanent Magnet Group, which has developed magnets that can switch between two types of rare earths depending on price. “The material is critical but very small in quantity.”

A new law in Germany on supply chain responsibility has also spurred interest, said Arafura’s Sherrington. Starting from 2023, companies will be held accountable on social standards across their entire supplier network and including waste products, or face fines.

Efforts to establish supply are also underway in Europe, which is now the top region for EVs and is on course to become the biggest consumer of the elements. The European Union last year set up the European Raw Materials Alliance to help ensure there’s enough supply of critical raw materials fuelling the world’s most ambitious plan to fight climate change. In rare earths, the alliance has identified 14 projects in Europe for investment of €1.7 billion ($2.7 billion).

“There’s always been awareness about the dependency, but availability, at a price, was fine,” said ERMA Chief Executive Officer Bernd Schaefer. “That’s now changing to a mindset of the tremendous cost of not having the material.”


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