The critical minerals opportunity

Deng Xiaoping famously, and probably apocryphally, said “the Middle East has oil; China has rare earths.” It heralded a change in how China looked at mineral resources and focused foreign policy around an era of global industrialisation and economic growth.

As China makes aggressive noises over Taiwan and there are signs that President Xi Jinping’s problematic economic policy is faltering, it is vital that the UK rises to the challenge of developing its own resources-led trade strategy that is not dependent on China.

How will the UK secure independent and reliable supply chains for the green energy transition, supporting the growth of its automotive and aerospace manufacturers while meeting its defence commitments?

Rare Earths are among the most abundant minerals on earth, but the difficulty is in processing those metals that are needed as magnet materials. Processing is complicated because mined rare earth oxides frequently contain radioactive metals. This makes it not only challenging environmentally, but also technologically and financially to compete with China’s industry on a level playing field.

China is home to around 85% of the world’s rare earths oxide processing capacity, but it only operates that needed to meet domestic demand from magnet makers and downstream OEMs (original equipment manufacturers). It does not allow overseas investment in any part of its rare earths industry and fiscal policy makes it difficult to export mined production. Increasingly, it is building up its offshore resources base too.

Plus, earlier in 2023 it made it clear it intends to prohibit and restrict rare earth and rare earth permanent magnet related exports of technology used in wind turbines, mobile phones, and electric vehicles.

There is a similar picture for other metals that are key ingredients in the components used to make solar panels, MRI imaging devices, F-35 fighter jets, as well as required for gigafactories and many other cutting-edge products. These will be vital for economic growth as we transition to renewable forms of energy, AI, and greater digitisation, and we can’t afford to take them for granted.

A year ago, the UK launched its Critical Minerals Strategy, which sets out to “boost domestic capability in a way that generates new jobs and wealth, attracting investment and playing a leading role in solving global challenges with our international partners”. This is set to accelerate growth of the UK’s domestic capabilities and resulted in the Critical Raw Material Act being passed earlier this year.

The UK government is picking up the pace, but it still needs to work harder to catch up to the USA, Australia, Japan, Canada, and the EU which are making substantial financial commitments globally.

One solution would be for the government to back financially a mining and metals investment fund, which would co-invest in securing the critical metals required by UK manufacturers, provide export guarantees,
inject more money into developing processing and recycling technology, and encourage investment from the fossil-based sectors back into mining. The UK could strengthen bilateral links with major mining nations, particularly by moving processing to the southern hemisphere. It is also important not to isolate China as a result of this, but to find common and shared purpose. Some small investment schemes have been established by the UK government, but they are still only pennies compared to the amounts our western allies are spending.

Only recently Paul Atherley, Chairman of UK rare earths mining company Pensana, said the UK is not doing as well as other countries in providing the capital incentives needed to invest. He pointed to the scheme in place in the USA through the Inflation Reduction Act, which provides tax incentives to develop critical minerals, as well as support for companies looking to develop mine processing capacity by Australia and the EU.

Japan may provide an example that the UK could emulate. After the 2010 rare earth supply shock,
it moved speedily to use diplomacy in Asia to target state-led investment in the rare earths sector. Japan has directed substantial government funds to support mining projects and has secured the rights to metals through off-take agreements needed to support its domestic automotive sector.

This is a golden opportunity for the UK to take a global leadership role and back development, particularly in Africa, which will provide the rare earths and other metals vital to secure the UK’s future industrial growth while rebuilding strategic partnerships in the region through trade and development programmes. The recent UK-Zambia Clean Energy Partnership is a start.

As the race to develop new supply chains less reliant on China accelerates, African nations are hosting
a ministerial meeting this autumn on critical metals. This will set out to establish an African Organisation of Critical Metals to reshape the production landscape across the continent and foster deeper regional cooperation. There has never been a more pertinent time for the UK to take a pivotal role in the international minerals resources sector.