The Commonwealth Government has announced the creation of a “Strategic Reserve” which will purchase, own and sell critical minerals found in Australia. Is this a good idea? 

Making purified critical minerals is complex and Australia currently has limited capacity and expertise.

Making base metal concentrates, or precious metal bullion, is relatively simple. Mining might cost a few tens or hundreds of dollars, and processing might also cost tens or hundreds of dollars. The techniques are well known, and Australia is good at it! The product is easily saleable to numerous buyers, and markets are transparent and fair.

For any base or precious metal, the quality of the orebody can be a major competitive advantage, if it is high grade, large and easy to process. However, in critical minerals it is invariably the processing which creates the value add and the competitive advantage, rather than the quality of the orebody per se. Australia has deep experience and a competitive advantage in making base and precious metals products, plus iron coal, coal and aluminium, to name a few. But Australia has only embryonic expertise in the processing of critical minerals, which is where value is added.

China by contrast, has formidable critical minerals expertise. To illustrate – China’s main rare earths scientific association has been in existence for over 45 years and has more than 10,000 registered technical and scientific experts (in rare earths alone!).¹

Markets are opaque and power is in the hands of the buyer.

Critical minerals products often have “bespoke” specifications, tailored for a particular use or buyer. They are not a homogenised commodity. The producer may be very dependent on an individual buyer – and in the current environment that buyer will almost invariably be Chinese. There are limited or no clear pricing benchmarks. Pricing power, and margin capture, is in in the hands of the buyer.

The markets can be politically driven.

China has long seen the processing of minerals as providing geopolitical leverage. A fact which is explicitly declared. So, it’s not just done as an economic or profitable exercise. For example, the refining or rare earths may involve hundreds of purification cycles, and even in China that is expensive. But it confers political leverage. It is questionable whether any of these refining activities can ever be viable under western economics, if the objective is simply to be profitable.

The idea of a critical minerals reserve is welcome however, as it recognises the need to unshackle supply chains from China.

To date most government incentives have been on the supply side, mainly in the form of grants, loans and potential tax breaks to encourage the establishment of production facilities. This is quite high risk, and often entails to picking of winners, which is very risky. The critical minerals reserve might be a good building block building out the demand side and in creating non-Chinese supply chains.

However, Australia cannot go it alone, and the idea of a non-Chinese supply chain will only work if it’s a multinational effort. The good news is the many of Australia’s allies are also keen and highly motivated to create transparent and fair supply chains. So the idea needs to go further to create new markets and supply chains, and to engage our allies around the world. Australia is in a unique position to take the lead.

We also need to define what the scope of this reserve is. If the concept is focussed on refined critical minerals, we need to recognize that we have very limited incumbent capacity or expertise. Building that capacity and expertise will take many years of effort. It may not be economically viable in the conventional sense, unless some value is recognised for supply chain robustness and independence.

Some context to remember.

Many critical minerals are relatively niche, with quite small global markets. To keep the scale of opportunity in perspective, Australia’s combined exports of coal, iron ore, copper, gold and alumina totalled nearly $ 300 billion in 2024, whereas the entire global market for graphite, scandium, rare earth oxides and high purity alumina combined (to take some topical examples!) totalled a mere $24 billion.²

Therefore, we must not neglect our existing huge mineral activities, where we have expertise and competitive advantage. These employ hundreds of thousands of people, pay billions in taxes and royalties, but are under siege from factors such as high power and labour costs, inflexible industrial arrangements, and glacial permitting and approvals timelines.

¹The Chinese Society of Rare Earths (CSRE), founded in 1979, is a rare earth scientific and technological researchers’ organization in China. There are more than 10,000 registered experts in CSRE, which is the biggest academic community on rare earth.

²Australia’s annual production: Copper $ 15 billion, gold $ 33 billion, iron ore $ 140 billion, coal $ 90 billion, alumina $ 8.5 billion
World production: cobalt $ 11 billion, graphite $ 12 billion, scandium< $ 1 billion, vanadium $ 3.5 billion, rare earth oxide $ 2 billion (ex-mine), HPA $ 5.5 billion.