Australia's miners seek price collar for rare earths in A$1.2 bil reserve

Australia's miners want the federal government to adopt a price collar to ensure certainty for producers of rare earths, which will be the initial focus of the country's critical minerals strategic reserve, along with gallium and antimony.

On Jan. 12, the government announced the inclusion of the commodities in the A$1.2 billion reserve, which will be operational in the second half of 2026. Australia has the sixth-largest economic resources of rare earths and antimony, according to the government, which is still studying the country's potential for gallium.

It will also introduce legislation giving Export Finance Australia new powers, enabling "offtake agreements with fixed or floating prices, trading in forward offtake agreements and intermediary demand and supply aggregation, as well as stockpiling and contracts for difference," Minister for Resources Madeleine King told the media in Rockingham, Western Australia on Jan. 12.

The Department of Industry, Science and Resources will oversee strategic reserve transactions, with oversight by the resources minister.

While welcoming the new details on the strategic reserve, the Association of Mining and Exploration Companies said the reserve could be optimized with a Rare Earths Production Scheme, which the group designed with 10 rare earths developers.

The scheme was launched on Jan. 3 to build on the critical minerals framework that Australian Prime Minister Anthony Albanese signed with US President Donald Trump in October 2024.

The new model "leverages a 'contract for difference' with a price collar to provide targeted support to both heavy and light rare earths projects, while minimizing downside risk for taxpayers," according to AMEC's Jan. 12 statement.

The scheme would ensure "commercial bankability, limited taxpayer fiscal exposure and consistency with the government's policy objectives," according to the statement.

The price collar structure would see the government cover any gap when the spot price falls below an agreed floor and receive a negotiated proportion of revenue when the spot price rises above an agreed ceiling, according to the report launched Jan. 3.

"The referenced spot price may be the higher of the market price on either the Shanghai Metals Market or an ex-China index (if operational). Volume for the scheme will be allocated through a tender process, and prices will be set via a reverse auction," according to AMEC.

Arafura Rare Earths Ltd. believes that the model, centering on the use of a "contract for difference" with a collar price, "appropriately balances risk and reward for the government and investors," Managing Director and CEO Darryl Cuzzubbo told Platts, part of S&P Global Energy.

"When prices are low, the government pays; when prices are high, the government shares in the profits. This ensures the appropriate balance of industry support and taxpayer protection," Arafura said in a Jan. 12 LinkedIn post.

The government wants the strategic reserve to "use a number of tools" to help "set a minimum price so that we can encourage more investment, create stability in the market, but also as prices rise -- and we think they will -- that there is the opportunity for the Australian taxpayer to get the upside," King said.

The key objective of the stockpile is "intended to offset some of Beijing's influence on critical minerals markets," Neil Welsh, head of metals at brokerage Britannia Global Markets, said in a Jan. 12 note. The aim would be to "establish a floor for critical mineral prices, to help protect producers against future market slumps driven by surges of cheap supplies from China," Welsh said.

The reserve is expected to aid global efforts to secure long-term sources of critical minerals as global demand accelerates across applications including solar panels, defense and high-tech manufacturing, according to a Jan. 12 statement from Larvotto Resources Ltd.

"The strategic reserve will secure rights to Australian-produced minerals and on-sell to allied countries, strengthening Australia's role in global supply chains and economic partnerships," according to Larvotto.

First production is due mid-2026 from Larvotto's Hillgrove project in New South Wales, which is Australia's largest antimony deposit, targeting production of about 5%-7% of global mine supply. In October 2024, the company rejected a takeover offer from US government supplier United States Antimony Corp.

Growing recognition

The Minerals Council of Australia welcomed the government's ongoing support for the country's "fundamental role in the global supply chain of the very minerals and materials the world requires, particularly rare earths, gallium and antimony."

"Australia has many opportunities to unlock. Encouraging new operations to contribute to a voluntary strategic reserve, is an important tool in the broader kit of productivity reforms that can deliver a more internationally competitive mining industry," the council said in a Jan. 12 LinkedIn post.

"There is growing recognition around the world that Australia's abundant supply of critical minerals will be essential for global supply chains, with both strategic and economic importance," Victory Metals Ltd. said in a Jan. 12 LinkedIn post.

Victory Metals CEO Brendan Clark is in Washington briefing the Trump administration on the miner's North Stanmore project in Western Australia, Australia's largest and most advanced heavy rare earths clay project, which includes gallium, according to the post.