Resource Rich, Industry Poor: Australia’s Critical Minerals Strategy

Australia is seeking to become a major player in the global critical minerals market. Critical minerals, also known as rare earths, are metals and non-metals that are vital for a number of current and emerging technologies, but whose supply is limited either by geological scarcity, geopolitical issues, or the capability to extract them.

These critical minerals have become an essential part of our modern lives. They are used to create mobile phones, computers, televisions, and cars, as well as modern medical devices, communication systems, and renewable energy technologies like solar panels and wind turbines.

The Australian government has identified the critical minerals used in the production of electric vehicles, batteries, wind turbines, and smartphones as a strategic industry. In 2019 Australia’s Department of Industry, Science, Energy and Resources released an update to its Critical Minerals Strategy, and in March 2022 the department released an update to this strategy aiming to capitalize on the demand from Japan and South Korea for Australia’s resources. Both countries have recently signed memoranda of understanding with Australia for the supply of these minerals.

Alongside their economic value, these critical minerals are also subject to strong geopolitical competition. The extraction and refining of these minerals is currently dominated by China, something that makes many countries nervous. In 2010, China placed an export embargo on critical minerals after Japan detained a Chinese fishing trawler captain whose vessel had been fishing in waters around the disputed Senkaku/Diaoyu Islands. This has clearly spooked both Japan and South Korea and both are seeking new sources for critical minerals.

Yet China’s advantage is natural, with its territory holding around 50 percent of known global deposits. This reliance on China is compounded by other holders of large deposits – Vietnam, India, and Brazil – currently having underdeveloped industries. Australia is the sixth largest holder of critical mineral deposits, but only accounts for around 3 percent of the global total. However, due Australia’s highly developed mining industry, Australia is currently a reliable source.

Earlier this year the Northern Australia Infrastructure Facility – a government agency tasked with investing in Australia’s under-developed north – granted a $77 million loan to the Yangibana mine in Western Australia’s Gascoyne region. Yangibana is estimated to have the resources to facilitate around 6 to 8 percent of global demand for neodymium and praseodymium, which are used to manufacture the magnets used in electric vehicles.

Yet alongside this investment, last year the government also established the $1.5 billion Critical Minerals Facility to provide loans to projects and businesses specifically focused on these resources. In February, the Critical Minerals Facility issued its first loans to two Australian companies.

These two loans were delivered to companies that are seeking to produce spherical graphite – also known as battery-grade graphite – an essential component of lithium-ion batteries, which are used in mobile phones, tablets, laptops, electric vehicles, and solar power storage. One of these companies is aiming to become the first integrated spherical graphite mine and processing facility outside of China.

While mining remains Australia’s forté, Australia’s critical minerals strategy and government support should be less focused on the things the country already does well, and instead focused on developing the advanced manufacturing economy that Australia currently lacks.

Australia’s economy is currently based around digging things up and shipping them overseas, only to buy back the finished manufactured goods. According to the Harvard Kennedy School’s Center for International Development’s Atlas of Economic Complexity, Australia ranks 86th out of 133 countries surveyed. Australia sits alongside countries like Uzbekistan and Cambodia that have only a fraction of Australia’s national wealth.

Australia has a glaring innovation deficit. Countries that Australia would see as economic peers in terms of GDP per capita, like Japan or Germany, are at the forefront of creating new technologies. The enormous wealth generated by Australia’s iron ore, coal, and gas hides an economy that has failed to develop the industries one would expect from a country that consistently ranks in the top 10 of the Human Development Index. This not only limits Australia’s economic growth, but ties its wealth to fluctuating commodity prices.

If Australia’s Critical Minerals Strategy is to be successful, it has to be more ambitious than simply being a source of material for Japan and South Korea. There needs to be a focus on investing in the development of a high-end manufacturing capability of its own. The Critical Minerals Facility shouldn’t be investing in things Australia already knows how to do, like mining. It needs to have a broader and more sophisticated ambition.