US-Australia Deal to Boost Rare Earths Supply Chain, Open $8.5bn Funding Pipeline

A US-Australia critical minerals framework aims to boost Western rare earths supply chain development, reducing reliance on China. The deal includes $8.5bn in ready-to-go projects, $1bn funding from each country, and $2.2bn in potential US Export-Import Bank financing. The framework may mark the start of more transparent project developments involving Australia, the US, and potentially Japan.

The U.S. and Australia have signed a landmark Critical Minerals Framework, a strategic move to bolster Western supply chains and reduce dependence on China. This agreement, finalized after five months of negotiations, is aimed at accelerating the development of resilient mineral supply chains and minimizing reliance on adversarial actors. The framework includes $8.5 billion in ready-to-go projects, $1 billion in funding from each country, and $2.2 billion in potential financing from the U.S. Export-Import Bank Unpacking the U.S.-Australia Critical Minerals Framework Agreement^[1].

The agreement leverages existing policy instruments such as strategic stockpiles and employs price-support mechanisms and targeted financing to fast-track mining, processing, and recycling projects. Both nations will invest at least $1 billion in projects within six months, focusing on priority commodities. This swift capital injection aims to produce end products for offtake to buyers in both markets, a critical step towards securing minerals essential for the next generation of defense technologies Unpacking the U.S.-Australia Critical Minerals Framework Agreement^[1].

One of the key objectives of the framework is to curb China's acquisitions of new mines. Australia and the United States have pledged to use domestic investment screening and coordinated diplomatic efforts to limit China's expansion in third-country markets. This move is crucial given China's recent rare earth export restrictions and its significant influence on global markets Unpacking the U.S.-Australia Critical Minerals Framework Agreement^[1].

Price support mechanisms are a critical component of the framework. The U.S. and Australia plan to collaborate on creating standards-based trading systems that allow participating countries to trade freely within a stable pricing framework, including mechanisms such as price floors. This is a direct response to China's market manipulation tactics, which have made it difficult for Western countries to compete Unpacking the U.S.-Australia Critical Minerals Framework Agreement^[1].

Australia is a pivotal partner for the U.S. in securing critical minerals. The country holds world-class geological reserves, strong capital markets, and deep human capital, making it an indispensable ally. Australia hosts 89 active rare earth exploration projects, far outpacing other nations, and is investing heavily in processing capacity Unpacking the U.S.-Australia Critical Minerals Framework Agreement^[1].

The framework may mark the start of more transparent project developments involving Australia, the U.S., and potentially Japan. Australian firms are playing a pivotal role in developing the U.S. domestic mining industry. Companies like BHP, South32, Rio Tinto, and Lynas Rare Earths are significant foreign investors in the U.S. mining sector, contributing to the rebuilding of the U.S.'s domestic mineral base Unpacking the U.S.-Australia Critical Minerals Framework Agreement^[1].

The U.S. Export-Import Bank is set to issue seven letters of interest worth a combined $2.2 billion in financing, potentially catalyzing up to $5.0 billion in total investment aimed at strengthening supply-chain security. This includes support for the development of Alcoa's advanced gallium refinery in Western Australia, a trilateral effort between the United States, Australia, and Japan Unpacking the U.S.-Australia Critical Minerals Framework Agreement^[1].

The deepening of U.S.-Australia minerals cooperation is a natural extension of the longstanding defense partnership between the two nations. Australia has been a steadfast ally, contributing significantly to U.S. defense efforts. The new framework complements existing defense commitments, including the purchase of unmanned underwater vehicles and Apache helicopters, and investments in the U.S. submarine industrial base Unpacking the U.S.-Australia Critical Minerals Framework Agreement^[1].

This agreement underscores the importance of strategic cooperation in securing critical minerals and highlights the significance of Western alliances in countering China's dominance in the global market.