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The Australian government has increased its financial backing for the construction of the country’s first rare earths refinery as it looks to break China’s stranglehold on the critical minerals supply chain.
Australian miner Iluka Resources has been locked in talks with the government for a year over additional funding for the refinery in Western Australia.
An initial A$1.2bn ($770mn) loan facility was agreed in 2022, but the projected cost of construction increased to A$1.8bn, creating a funding gap that threatened to derail the project.
The Australian government said on Friday it would increase its loan by A$400mn, along with A$75mn more in potential funding to cover further cost increases.
The type of rare earths Iluka intends to process at the refinery are used to create magnets that help generate power in wind turbines, electric vehicles and weapons systems.
Australia wants to develop its rare earths refining industry to break China’s dominance of the supply chain. The country controls 70 per cent of the world’s rare-earths mining and 90 per cent of processing capacity, according to the International Energy Agency.
China’s control of commodities critical to the energy transition, including lithium and rare earths, has led to concerns that Beijing could weaponise its position.
This week, China banned shipments to the US of minerals and metals used in semiconductor manufacturing and military applications, including gallium, germanium and antimony, in what was viewed as retaliation against new export controls from Washington.
Australian Prime Minister Anthony Albanese said the country would continue to support the mining sector’s refining ambitions through production tax credits and its manufacturing stimulus programme, Future Made in Australia.
“Critical minerals are the building blocks for a clean energy future and we are determined to seize this economic opportunity to support local businesses and local jobs,” he said.
Iluka has publicly lobbied the Australian government to increase its commitment to the refinery, to be situated 300km north of Perth, over the past year by pointing to attempts by Chinese companies to build up stakes in Australian rare-earth companies.
In June, the Australian government ordered funds linked to a Chinese businessman to cut their stakes in rare-earths miner Northern Minerals, which will supply Iluka’s facility when it is complete, due to national interest concerns.
Gavin Mudd, director of the Critical Minerals Intelligence Centre in the UK, said there had been a “great geopolitical game” surrounding rare-earth development as a result of the minerals being used in military and energy transition technology.
“If people want that security then governments are going to have to pay for it,” he said.
Iluka’s shares dropped more than 8 per cent after the company revealed it would contribute more than A$200mn as part of the new funding structure.
A growing number of rare-earths projects have launched in Australia over recent years. Lynas Rare Earths, the Australian company that is one of world’s largest non-Chinese group in the sector, opened a rare-earths cracking and leaching facility in Kalgoorlie this year.
The government has also backed Arafura Rare Earths, which is part-owned by billionaire Gina Rinehart and has an offtake agreement with Hyundai, by offering an A$840mn package of loans and grants.
The US Export-Import Bank also signed a non-binding agreement to loan almost A$1bn to Australian Strategic Materials to back a project to mine rare earths in the New South Wales outback town of Dubbo.
