November 30, 2022

Disregarding ESG standards is key to China’s rare earths dominance

Everyone knows – or, those who care about such things know – that China produces approximately 80% of current rare earths supply for essential “green” materials such as permanent magnets used in electric vehicles and offshore wind turbines. US and European governments repeatedly have stated publicly that this degree of market dominance poses a clear and present danger to their national security and economic development interests, and are providing a variety of incentives to hasten rare earth processing within their respective national boundaries while respecting ESG (environmental, social and governance) concerns.

It is worth examining how China attained its controlling market position. It is not because China has all the rare earth deposits, although they do have significant amounts. Rather, the answer lies in a variety of factors, including but not limited to: relatively low demand, until recently, for most rare earth elements, which meant that private mining companies were not incentivized into this segment of the mining market; relatively low geological exploration outside China until relatively recently, and China’s willingness to disregard ESG (Environmental, Social and Governance) principles which would have constrained its rapid production growth.

Not so long ago, the world was startled by images from major Chinese cities, including Beijing, of air pollution so bad that visibility was limited to feet, citizens masked up to try to breathe (some even resorting to gas masks) and birds fell dead from the sky, choked to death. These amazing images were reminiscent of the Great London Smogs written of in the 1800s, or of the pollution in Mexico City in the mid-to-late 1980s. In other words, not today’s normal.

2016 air pollution in Beijing as measured by Air Quality Index (AQI) defined by the EPA. Source: WikipediaCommons – Phoenix7777

But the willingness to forego or disregard ESG standards is fundamental to China’s rare earths dominance. The majority of known deposits coexist with highly radioactive thorium and uranium, making both mining and production dangerous and expensive. Storing thorium (which currently has few non-medical uses) is costly. So too is storing uranium, although processed uranium is useful for nuclear energy and certain other uses (mostly military). This poses a particular hurdle for US companies potentially interested in the rare earth space. Appropriate secure storage and/or construction and maintenance of impoundment ponds are subject to special licensing and impose significant additional project costs as well as heightened uncertainty that a project even could be permitted, as the Nuclear Regulatory Commission would then become party to the already lengthy permitting process (averaging 10 years in the US if no significant opposition to the project arises).

Recent discussions and increasing interest in building new nuclear power plants – particularly experimental mini-plants – could offer a new offtake solution for uranium but this remains years away. Similar and sometimes more restrictive regulations in the EU also have affected production there. All these measures, however, reflect the responsibility felt by Western governments to safeguard their populations and uphold environmental standards – in other words, balancing ESG and national/economic security interests.

The Chinese government has allowed no such qualms to hinder its aspirations, which is how it became the world’s leading producer of rare earth metals materials, but new, cleaner separation technologies being developed in the US offer hope of breaking China’s grasp.

Heavy smog hangs over the Shanghai skyline.

Research underway at the Critical Materials Institute, a U.S. DOE Energy Innovation Hub, Lawrence Livermore Laboratories (with DOD financial support) and various University labs focus on trying to develop “green separation” methodologies using amoebas, bacteria, proteins etc. This strand of research is best suited to rare earth deposits with little to no radioactivity, such as those of junior exploration/development company American Rare Earths Limited (ASX: ARR | OTCQB: ARRNF), which is providing feedstock to the above-cited labs from its La Paz and Halleck Creek sites. Other companies, such as MP Materials Corp. (NYSE: MP), the sole US-based rare earth miner, are working on setting up production facilities in the US. Initiatives such as these illustrate that it is possible to realize the goals of shortening and securing supply chains for vital rare earth processed materials while developing a “green economy” in the US based on sound ESG principles.

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6 responses

  1. Tracy Avatar
    Tracy

    Well done, thank you — enjoyed reading this.

  2. Saka Avatar
    Saka

    How many deposits would be considered to have low levels of radioactivity? My understanding is that most deposits contain a fair amount of thorium/uranium which is what makes extraction so hard in the US

  3. Nick Pingitore Avatar
    Nick Pingitore

    Hi, “…highly radioactive thorium…” Not sure that I would characterize a radionuclide with a half-life of 14 billion years as highly radioactive. Quite the opposite. Of course certainly not good to breathe a lot of the dust and thus mining/handling requires safety attention. 238U and 235U likewise have rather lengthy half-lives.

  4. Saka Avatar
    Saka

    I never actually used the words highly radioactive but I do believe deposits with low penalty elements are relatively rare, I suppose this is the real reason China with its lax safety laws has been such a market leader.

  5. Rare Earths Investor Avatar
    Rare Earths Investor

    “…and China’s willingness to disregard ESG (Environmental, Social and Governance) principles which would have constrained its rapid production growth…But the willingness to forego or disregard ESG standards is fundamental to China’s rare earths dominance…”

    If ESG standards solidification leads to both the EU and N. American markets requiring RE value chain entities to meet compliance to gain access to these two consumer huge markets, then China may very well need to up its ESG game. This is in terms of both rehabilitation of past degradation as well as transparency in present RE/related activities.

    Myanmar HRE feedstock to China is already a focus for compliance advocates and China may have serious issues re., social issues, never mind actual mining, worker and environmental concerns.

    IMHO, simply saying that China will undercut ROW value chain entities re., costs will no longer cut it if getting access to ROW markets means companies are restricted re., using certain prohibited entity production.

    This could become a major issue to consider for future RE/related entity services to both the Chinese and ROW markets. Seems some multinationals are already taking notice in the RE sector based on their recent moves.

    We will see.

    GLTA – REI

  6. Gordon Bracegirdle Avatar
    Gordon Bracegirdle

    Saying that a REE deposit is “lightly radioactive” is a bit like saying someone is lightly pregnant. It either is radioactive (above average crustal abundance) or not. The engineers still have to put a process or two in place to deal with it, regardless of concentration.

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