Pentagon backs Lynas to break China’s rare earths stranglehold

Lynas Corp has secured US government funding to design a A$50m ($36m) processing plant in Texas that aims to break China’s stranglehold on the commercial separation of heavy rare earths materials widely used in high-tech industries.

The contract approval comes as concerns grow in Washington that Beijing could use its dominance of the rare earths supply chain to pressure US arms suppliers, after China this month threatened to impose sanctions on Lockheed Martin.

In April, the US Department of Defense approved funding to Australia-listed Lynas for projects aimed at processing rare earths for military use. But it subsequently put the contract on hold pending review, after a group of lawmakers in Congress argued funding should only be offered to US companies.

The news of the US funding contract sent shares in Lynas up 11 per cent on Monday.

“Western governments have been coming to an understanding of the importance of supply chain resilience and this is a good indication of their preparedness to really support the development of our industry,” Amanda Lacaze, Lynas chief executive, told the Financial Times.

She said Beijing’s threat of sanctions against Lockheed highlighted the risk of relying on a particular nation or company for critical supplies. The coronavirus pandemic had also underscored to governments the importance of supply chain resilience, said Ms Lacaze.

Lynas is the only major rare earths producer outside of China. It is seeking to expand beyond supplying mainly light rare earths to producing heavy rare earths — key raw materials for high-performance magnets used in high-tech products, including military applications as well as electric vehicles.

The company plans to develop the heavy rare earths separation facility in Texas with US joint venture partner Blue Line Corp. Lynas said it would provide supplies of heavy rare earth material to the processing plant sourced from its Mt Weld mine in Western Australia.

Lynas has not given any details about the overall cost or the amount of funding involved in the Pentagon contract, but analysts estimate the Texas facility could cost A$50m to design and build.

China accounts for almost 80 per cent of the global mined supply of rare earths — a group of 17 obscure metallic elements that are used in most technology products including mobile phones, electric vehicles and wind turbines.

Concerns that Beijing could use its dominance of the sector to pressure US companies have grown after China said this month it would impose sanctions on Lockheed in retaliation for American arms sales to Taiwan.

“News of Pentagon funding for the Lynas/Blueline JV ‘suddenly’ restarting should come as no surprise to investors given recent geopolitical developments [China vs Lockheed],” said Dylan Kelly, analyst at Ord Minnett, a Sydney-based broker.

Ms Lacaze noted in April that supply chain diversification was beginning to happen, with Japanese magnet makers investing at home and in south-east Asia with the help of funding from Tokyo and Washington.


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