China’s Control and Coercion in Critical Minerals

The International Center for Settlement of Investment Disputes made orders in AVZ’s favour in January, but the company says the DRC government has failed to comply with them.

In the situation in Mali, Australian company Leo Lithium Ltd agreed in May to sell its stake in the large-scale Goulamina lithium project under development there to China’s Ganfeng Lithium, relinquishing project management. That followed a dispute with the government of Mali and its September 2023 suspension from the ASX. Leo Lithium’s shares were valued at 51 cents at the time of suspension, down from a high as $1.25 in mid-2023, shortly before the dispute emerged. Ganfeng Lithium paid Leo Lithium the equivalent of 43 cents a share. Leo Lithium said the sale was in the best interests of its shareholders in light of ‘challenging’ sovereign and security risks in Mali.

Australia, through its mining companies, has been the largest foreign investor in Mali and neighboring Burkina Faso. Russian influence in recent years has worsened Mali’s longstanding political instability and driven further deterioration in security for the population and businesses there. Security of mines in West Africa, which the Australian Department of Foreign Affairs and Trade has sought to support through its annual mine security conference there, has become ugly.

On 30 May, the US government sanctioned companies linked with the Kremlin-controlled Wagner Group operating in Mali and the Central African Republic (CAR), saying ‘Wagner Group personnel have engaged in an ongoing pattern of serious criminal activity, including mass executions, rape, child abductions, and other brutalities against innocents in the CAR and Mali.’ The Wagner Group has taken over several of Mali’s gold mines and allegedly is producing gold to fund the Russian regime.

Market manipulation is another method of coercion. China’s supply chain dominance for several critical minerals gives it the market power to crush competition, as industry leader Angus Barker points out.

China’s investment in low-cost but environmentally harmful nickel laterite mining and smelting in Indonesia has delivered cheap nickel for batteries and stainless steel made in China. This has driven down global nickel prices, threatening the viability of higher-cost but more socially and environmentally responsible nickel production. China’s investment in new lithium mining capacity in Africa and Australia and its domination of processing could distort the market for that battery mineral.

China-linked supply also dominates markets for several other minerals and metals, including rare earths needed for both the global energy transition and defense equipment. Australia’s Iluka Resources highlighted the situation at its recent annual general meeting, with managing director Tom O’Leary saying, ‘There are clear, ongoing efforts, including by Chinese state-owned entities, to extend their nation’s monopoly by controlling Australia’s rare earth deposits.’

China has used its virtual monopoly in rare earths to apply geopolitical coercion. In 2010 it withheld rare earths supply to Japan amid a territorial dispute. This helped to trigger Japanese investment in the Weld Range rare earths project of Lynas Rare Earths in Western Australia.

Recent Australian government crackdowns have targeted the use of some coercive actions. In 2023 the Foreign Investment Review Board (FIRB) rejected a bid by the Chinese company Yuxiao Fund for a higher stake in the Browns Range project in Kimberley, Western Australia, of ASX-listed Northern Minerals. In early June the government sanctioned associates of Yuxiao Fund after discovering they had tried to circumvent FIRB rules in taking up further shares. Just before this order to dispose of shareholdings, Yuxiao Fund had successfully petitioned for removal of Northern Minerals’ executive chairman after he reported the share buying by Yuxiao Fund’s associates.

It has now emerged that Northern Minerals suffered a malign cyber security breach and data theft in March. Coincidence? Possibly. But why was this particular small mining company targeted?

One explanation is that the output of heavy rare earths from Browns Range will be processed at the under-construction Eneabba rare earths refinery operated by Iluka Resources, also a heavy rare earths producer. This will be the only non-China production of this scarce product used in high performance permanent magnets essential to components of defense equipment such as guidance systems.

Rare earths mining and processing proposals in the United States, including the Lynas Rare Earths processing plant in Texas, have been subjected to fake social media attacks in recent years, seemingly designed to stir up local opposition.

Supply chain allies, including Australia, the United States, Britain, the European Union and Canada have taken some steps to counter coercion, but as part two of this article will explain, more concerted action is needed to assure more diverse and secure minerals supply.

Ian Satchwell is an adjunct professor at the Sustainable Minerals Institute at the University of Queensland, and a senior fellow at ASPI. This article is published courtesy of the Australian Strategic Policy Institute (ASPI).