Australia's New Strategic Reserve Targets China's Rare Earth Grip

All three of the minerals nominated for Australia's strategic reserve can be used to produce“dual-use” technologies for both civilian and military purposes.

Antimony can be used in flame retardants, lead-acid batteries, night-vision goggles and ammunition. Gallium has applications in integrated circuits, optical devices, semiconductors, radar systems and solar panels.

And rare earths are needed for permanent magnets (used in fighter jets), metal alloys, medical imaging and lasers.

With the strategic reserve, Australia will use its export finance credit agency to enable buyers to make“offtake agreements.”

This is where buyers – which in this case will include the government itself – agree to buy the minerals as security, in some cases before the mining has begun. Buyers can then sell the minerals to Australia's international allies and partners.

Currently, the West is not as competitive in establishing off-take agreements for critical minerals.

Chinese investors are more willing to provide equity and long term off-take agreements early in mining projects. China also has cost and technical knowledge advantages over Western companies.

Australia's decision to announce details of the reserve before this week's G7 plus meeting was no accident. The G7 comprises the United States, Britain, Canada, France, Germany, Italy and Japan.

Ministers from India, Mexico and South Korea were also invited.

Short for“Group of Seven”, the G7 began as an informal meeting of the world's largest economies (though all except the US have been overtaken by China). It has enabled financial decisions to be made quickly, without being hampered by a formal agreement or treaty.

Australia is not part of the G7, but often aligns on positions taken by the group.

Critical minerals mining and processing requires significant investment from both public and private sources using a range of financial tools, including export credits and development finance. Export credits, often provided by national agencies, include providing credit, loans or guarantees to aid companies selling goods overseas.

That's important, because entering these markets is risky. For example, lithium mining in Australia boomed as a result of the high demand for elective vehicles (EVs) using lithium-ion batteries. But the market went bust when EV sales slowed, leading some mines to stop or scale back production.

With the announcement, Australia has signalled it's willing to intervene in critical mineral markets to further the needs of its allies and like-minded states.

Perhaps above all, Australia is seeking to reassure the US it's a reliable partner for providing critical minerals. The US is urgently seeking critical minerals, even threatening to acquire Greenland for its minerals and strategic position in the Arctic circle.