Since the recent episode of the tariff war between the USA and China, we have heard the term “rare earth elements” on an unprecedented scale. Since then, it has also started cropping up in our political commentaries. This article is an attempt to briefly analyse the item’s global dynamics and their relation with Pakistan on the basis of the data and information which is publicly available.
Rare earth elements (REEs) are a group of minerals, and China controls more than 80% of their ore production and 95% of processing, i.e. most of what is produced elsewhere is also refined in China. In the past few decades, due to their superior properties, the REEs have assumed central importance in the context of green energy and warfare technologies such as missiles and military aircraft.
Hence, when Trump, in a short period of a few weeks, ramped up the tariffs on Chinese goods to 127% on average, it compelled the Chinese to respond by placing some rare earth magnets and seven rare earth elements on an export control list. As around 70% of US REE imports come from China and more than 20 US entities which fell under the axe of the Chinese restrictions were linked to the manufacturing of defence technologies, the Americans were compelled to negotiate. As a result, they had to significantly retract the earlier arbitrary increment against a quid pro quo Chinese assurance of the uninterrupted supply of the REEs. Pakistan’s recent MOUs with US companies in this regard can be viewed in the context of the USA’s given vulnerability and its efforts to diversify the sourcing of REEs and other critical minerals.
Essential Fundamentals
The rare earths are 17 metallic elements which have unusual fluorescent, conductive, and magnetic properties. These make them very effective for several applications when alloyed with conventional metals. The applications include wind turbines, solar panels, electric vehicles, fibre optics, missiles, and communications systems.
The four REEs that are particularly important are a group called magnet REEs. This includes neodymium, praseodymium, dysprosium, and terbium. Out of the aggregate size of the global REE industry, they comprise 30 to 40% in terms of volume and more than 75% in terms of value. China controls more than 95% of their manufacturing.
Major Challenges
The analysis of the value chain would remain incomplete without discussing its major challenges. The foremost in this regard is that rare earth elements, because of their atypical chemical properties, are generally found entwined with each other. Thus, their separation after extraction requires extensive processing, comprising several stages and large amounts of energy, water, and chemicals.
An upfront understanding of the project timelines is essential for all the stakeholders to dispel any unrealistic expectations from those looking after the delivery of the project
The other factor which proves to be a major impediment in implementing REE projects is their high capex and opex vis-à-vis conventional mining projects; whereas the profits, apparently, do not always seem to wholly follow the conventional principle of demand and supply. Considering the overall size of the industry, the margins seem quite low vis-à-vis its growing centrality to the economy and the continued battle for supremacy in warfare technology among the global powers. Probably, the distortion is related to its politico-economic significance. This aspect would definitely need to be studied in detail and duly factored in while working out the economics of any REE project, especially by a perennially cash-strapped country like Pakistan.
The third and most pivotal challenge of the value chain is the fact that REE-bearing ores often contain radioactive elements like uranium and thorium. Hence, the extraction and processing of the ores generate large amounts of radioactive waste. Overall, for every tonne of rare earth, 2,000 tonnes of toxic waste are produced, which generally also contain naturally occurring radioactive elements. As a result, various studies indicate that globally over 70% of the rare earth mining sites, in addition to water contamination, are linked to significant habitat loss too. This backdrop obviously necessitates a very rigorous regime of environmental monitoring and waste disposal for any such project.
REEs and Pakistan
Credible references exist in the public domain about joint studies by Pakistan and China on the subject. This includes a national-scale geochemical survey, performed a few years ago, which involved the collection of 4,277 regular and 168 duplicate stream sediment samples encompassing, in aggregate, around 360,000 sq. km of outcrop regions. The results of the said elaborate reconnaissance exercise provided “leads” for possible REE resources at at least eight locations, which were identified for further exploration. As I understand, only after extensive geological and geophysical fieldwork, lab investigations, process simulation studies, and feasibility studies can the true resource potential of the said leads be established. Till then, it would be prudent to avoid any comments about their commercial significance, if any.
What is to be done
Based on the above, as a way forward, I recommend as following:
a) In view of the current status of the required homework and several unknown variables, it may help to first undertake a prefeasibility study. It can greatly help in chalking out the plans.
b) With China’s undisputed leadership in the field, collaboration with the USA may place us in a politically and technically, and thus also commercially, disadvantaged situation. A strategy to effectively manage this sensitivity needs to be in place from the start.
c) The existing status of the regulatory regime with respect to the required environmental regulations needs to be benchmarked, followed by addressing the pertaining gaps.
d) To realise optimal value for the country, the development of an integrated value chain should be preferred instead of extracting and exporting ores only. Our experience so far compels us to be very cautious at the negotiating table in this context.
e) This is a highly specialised industry. Even developed countries are facing a serious challenge of the shortage of professionals equipped with the required knowledge and skills. Hence, a gap identification and capacity development plan needs to be launched on priority.
f) The current aggregate global size of the industry is hardly 4 billion USD and projected to rise to 9 billion USD only by 2033. Thus, adequately risked and realistic commercial projections in the context of Pakistan seem essential to establish project economics.
g) The maturation period of a typical mining project generally remains in the range of 8 to 10 years, while REE projects, due to the associated complexity factor, generally take even longer. It is because, as I understand, a large portion of the initial phase of the project, spread over years, for any site is consumed in just establishing the commerciality, or otherwise, of the deposit. Hence, an upfront understanding of the project timelines is essential for all the stakeholders to dispel any unrealistic expectations from those looking after the delivery of the project.