Japan strikes a blow with rare earths deal

JAPAN Inc is fighting back against China's stranglehold on the global rare earths market through a financing and supply deal with rare earths project developer Lynas Corporation. The deal has the tacit endorsement of Canberra.

By InvestSMART · 25 Nov 2010

By InvestSMART ·
25 Nov 2010

In a move to be led by Japanese trading house Sojitz, $US250 million ($A255 million) in Japanese government agency financing will be made available for an accelerated expansion of Lynas's Mount Weld rare earths project near Laverton in Western Australia, and the project's associated processing facilities in Malaysia. The deal is underpinned by a supply agreement under which the Japanese market will be allocated a minimum of 8500 tonnes of rare earths annually for the next 10 years. That represents as much as 25 per cent of Japanese demand.

China's dominance of the rare earths market has come into sharp focus recently, with China suspending/delaying shipments to Japan in an extension of their territorial dispute in the South China Sea.

China controls the world's rare earths industry and likes to think it is to that sector what Saudi Arabia is to oil. Rare earths are increasingly found in high-end applications, including compact fluorescent light bulbs, flat panel displays and iPods.

Japan is the fourth largest consumer of rare earths and the stress of having to rely on Chinese supplies in the wake of Beijing's directive to hold back was an issue in Canberra earlier in the week.

Japanese Foreign Minister Seiji Maehara raised the issue during trade talks, leading Foreign Minister Kevin Rudd to say that Australia "understands the significance of rare earths globally."

"Australia stands ready to be a long-term, secure, reliable supplier of rare earths to the Japanese economy," Mr Rudd said ahead of the Lynas/Sojitz deal.

Somewhat ironically, it was the former Rudd government that blocked a proposal last year for China Non-Ferrous Metal Mining Company to acquire a 51.6 per cent interest in Lynas for what can now be seen as the knockdown price of $252 million.

The Chinese walked away after Canberra said CNMC would not be allowed to have more than 50 per cent of Lynas and would not be allowed to have board control.

Lynas is now a $2.5 billion company, meaning Canberra did Lynas shareholders a favour.