The critical minerals race from supply to resilience
How can companies secure the capital needed to extract, process and refine critical minerals and rare earths in Australia, as the global race to stockpile gains momentum?
Australia is embarking on ambitious plans to secure and trade rights to its production of the critical minerals vital for the future economy, defence technologies and high-tech manufacturing.
In January, the Federal Government announced early details of its AUD 1.2 billion Critical Minerals Strategic Reserve (CMSR) with the intention of securing the supply of key minerals, with a further AUD 150 million for selective “stockpiling” of minerals such as antimony, gallium and key rare earth elements.
Rather than a physical stockpile, the reserve will use mechanisms such as offtake agreements, forward contracts, contracts for difference and “selective stockpiling” to strategically accumulate key minerals, with the aim of tackling price volatility and demand uncertainty in the market.
The move is designed to promote certainty of supply for Australia and for trade with international partners, including Japan, South Korea, Europe, Canada, the United Kingdom and the United States. At the same time, it will further build the local strategic minerals industry, supporting big extraction and processing projects.
Underpinning this initiative is the need to counter control of the market by China, which in 2024 accounted for 91 per cent of the global separation and refining of magnet rare earths, a subset of critical minerals, according to the International Energy Agency.
Bolstering sovereign strength
While Australia has long been a supporter of free and fair trade that promotes its national interests, the Federal Government has determined more needs to be done to strengthen supply chain resilience, support strategically important projects and secure access to select critical minerals for Australia and its partners.
Countries around the world view critical minerals as strategic assets that are set to grow in importance with their value shaped as much by government policy and geopolitical alignment as by market fundamentals.
World leaders are looking beyond the energy switch – where critical minerals are key components in the manufacture of solar panels, wind turbines and batteries for renewable energy generation – to the proliferation of energy-hungry data centres and the uptake of electric vehicles.
In short, global demand for critical minerals and rare earth elements is now soaring alongside the energy transition and the rise in spending on defence, explains Alex Toone, Managing Director, Commodities, Trade and Transition at Westpac Institutional Bank.
The CMSR aims to shield allied defence and tech manufacturing from market manipulation, drive sovereign capability and create high-paying local jobs in the process, Toone notes.
"Australia combines a significant critical minerals resource base with established mining capability and strong relationships with key trading partners. That creates an opportunity to help develop more diversified and resilient supply chains for the energy transition, advanced manufacturing and defence," he says.
The opportunity outlook
Australia, home to some of the largest undeveloped resources and the most knowledgeable and experienced mining companies, is well placed to build a stockpile.
Mining and processing company Iluka Resources is building a rare earths refinery at Eneabba in Western Australia, in a partnership with the Federal Government that has provided a AUD 1.65 billion non-recourse loan.
Source: Illuka Resources Eneabba rare earths refinery, Western Australia
“The threat posed to Western and like-minded manufacturing by China’s near monopoly has been self-evident for some time,” says Iluka’s Chief Financial Officer and Head of Development, Adele Stratton. This risk was central to both the government’s approach and Iluka’s decision to partner to develop Australia’s first fully-integrated rare earths refinery, Stratton explains.
The refinery, with a commissioning target of mid-2027, will produce light and, critically, heavy rare earth oxides, including neodymium, praseodymium, dysprosium and terbium (PDF 758KB), essential to high-tech electronics and aerospace manufacturing. Securing supply of refined products is the foundation of an independent supply chain.
“The refinery puts us at the forefront of both the electrification megatrend and the diversification of supply chains, which is now accelerating,” Stratton says. “Previously, Australian and other rare earths would have to be refined by China.”
It’s a strategic asset that enables value-adding for rare earths domestically and brings industry-building potential. In time, it may also enable further steps along the supply chain, such as metallisation, the next stage of value-adding after oxide production and the essential precursor to magnet manufacturing. Iluka is currently undertaking a feasibility study into metallisation, Stratton reveals.
Sovereign resilience, as well as uplift in trade, were behind the recent legislative changes to the remit of Export Finance Australia (EFA), which now has new powers to underwrite purchases, introduce a floor price mechanism to protect domestic producers, secure offtake agreements with other countries and selectively stockpile essential materials, including critical minerals, fuel and rare earths.
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A slice of the action
The race to shore up critical minerals has also led to Australia signing a AUD 4.6 billion deal in 2025 with the United States that guarantees long-term supply of minerals and rare earths considered critical to defence and electric vehicle manufacturing.
Under the deal, Australia and the US each agreed to pump at least USD 1 billion of investment towards a USD 8.5 billion priority project pipeline, including USD 200 million to a West Australian gallium plant owned by Alcoa and USD 100 million to the Arafura Nolans rare earths mine in the Northern Territory.
The US is accumulating reserves of critical minerals through its Project Vault initiative, while other nations, including Japan, Canada and members of the European Union (EU), are also stockpiling. The Australia-EU trade agreement will eliminate EU tariffs on Australian critical minerals when it comes into force.
Ink is now drying on an AUD 220 million offtake deal between Iluka and an unnamed “globally recognised automotive company”, the first customer for its AUD 1.8 billion Western Australian refinery. Iluka’s first binding rare earths offtake is a four-year take-or-pay agreement from 2028 for 1,200 tonnes of magnet rare earth oxides. It provides minimum revenue of USD 155 million, with pricing set at the higher of agreed minimum or market-linked prices.
Further evidence of phenomenal mining sector growth also has come with Alcoa’s Q2 2026 posting of record quarterly revenue of USD 4.0 billion. Alcoa has agreed to acquire South32’s interests in selected bauxite, alumina and aluminium assets, subject to shareholder and regulatory approvals.
Funding for the future
The shift from a globalised to a multipolar world presents massive opportunities for Australia. While final details of the CMSR are yet to be released, time is of the essence when it comes to securing funding for critical minerals projects, says Andrew Strongman, Global Head, Mining and Metals at Westpac Institutional Bank, although questions remain about how to best mobilise the necessary capital to bring these projects to life.
Critical minerals projects can face financing constraints that differ from those in established bulk-commodity markets. Long development timelines, construction and technology risk, concentrated customer bases and limited price transparency can make future cash flows harder to assess.
Government mechanisms such as long-term offtake agreements and contracts for difference can help address price and demand uncertainty in selected markets. Their role is not to replace private capital, but to improve the conditions under which it can participate.
"The challenge is not simply the availability of capital," Toone says. "Projects need credible sponsors, robust execution plans and bankable revenue arrangements. Long-term offtake and appropriately designed government mechanisms can help reduce uncertainty and mobilise private finance."
Westpac can support eligible projects through corporate and project finance, transaction banking and market-risk solutions, subject to the characteristics and stage of each project and the bank's normal assessment and approvals.
“Banks have extensive resource sector expertise, while some critical minerals projects present less mature markets, limited price discovery and processing risks,” Strongman notes.
While mining companies have recognised the challenges of unlocking these projects, pricing is “a complex beast” as the value for commodities is being determined by government policies and international alliances rather than standardised market prices.
“Targeted government mechanisms can improve bankability where market structure does not yet provide sufficiently durable price or demand signals. Westpac is committed to working with government and industry to support bankable projects through financing, transaction banking and risk management, subject to normal assessment and approvals,” Strongman adds.
Westpac’s Commodities team brings deep experience in financing and mining and is currently working with clients across the sector on financing and risk management solutions.
“Depending on the project and its stage of development, that can include corporate or project finance, transaction banking and products to manage commodity price, currency and other market risks,” Toone says.
“The challenge is not simply the availability of capital. Projects need credible sponsors, robust execution plans and bankable revenue arrangements. Long term offtake and appropriately designed government mechanisms can help reduce price and demand uncertainty and mobilise bank finance.”
In the highly competitive market for critical minerals, with nations across the world now building stockpiles, every day counts, concludes Strongman. “Coordinated policy, credible offtake and disciplined project development are needed to convert resource potential into operating supply chains.”
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