NATO defense spending commitment to benefit mineral-rich Australia: panel

NATO's increased defense spending gives Australia an opportunity to leverage its abundant critical minerals endowment, panelists said during a local industry conference July 2.

The 32 NATO nations agreed June 25 to invest 5% of GDP annually on core defense requirements and security-related spending by 2035. EU nations will need mineral resources, providing trade leverage for Australia, panelists said at the Future of Mining Australia conference in Perth.

Australia was the world's top producer of lithium, rutile, bauxite, and iron ore in 2023, according to Geoscience Australia. The country also has the world's largest reserves and resources of heavy mineral sands, ilmenite, lead, rutile, zircon, scandium, zinc, tantalum, tin, titanium, uranium, and vanadium, according to S&P Global Market Intelligence data.

Australia's abundant critical minerals are "now [referred to as] strategic materials because of the defense issue, we have the opportunity of playing a significant role," said panelist Ross Lambie, chief economist at the Minerals Council of Australia.

"The only way we're going to play that significant role is if we do truly make Australia an attractive place for investment," Lambie said. "There is a lot of competition in that taking place at the moment elsewhere in the world... but we cannot afford to sit back and just take things for granted because we have the resource endowment."

Strategic minerals leverage

Prime Minister Anthony Albanese pledged A$1.2 billion ($800.56 million) for a critical minerals strategic reserve in April in response to US tariffs. Industry participants hope the stockpile acts as a trade bargaining chip with the US and the EU, which need Australia's critical minerals for defense and clean energy technologies.

"The [Australian] government has clearly signaled that it wants to do something on an offtake agreement on stockpiling [critical minerals] for friend-shoring... but I would pay close attention to the demand signal beyond that," Charles Edel, inaugural Australia chair at the Center for Strategic and International Studies think tank, told the panel.

Edel cited NATO's increased defense spending pledge that presents Australia with an opportunity to lift its own defense spending, while leveraging its critical minerals, including rare earths, which are "inputs to capabilities and platforms in the defense sector."

"We talk about the geopolitics which you're seeing in the energy market, particularly in the critical minerals which play a direct role in the defense sector... I think we'll see over the next 12 [to] 18 months, governments struggling to sharpen their pencils a little bit, before eventually figuring out more ways to subsidize" the metals needed for clean energy and defense, Edel said.

Rob Gray, chief commodity strategist at Resource Capital Funds, told the panel that the increased defense spending will need mined resources "across the periodic table -- it's iron ore, coking coal, steel, base metals," and rare earths, including dysprosium and terbium.

"It's a challenge at the moment, in terms of the fundraising environment, to do the right deals at the right time and to find value out there. But we're increasingly working with both Australian government-tied financiers as well as US government-tied financiers," Gray said.

New reality of uncertain, changing world

Australia "needs to comprehend this new reality... that the world has changed. It is becoming much more multipolar. Australia has certain opportunities and advantages, but equally, there are risks, and we need to play it carefully," Gray said.

In "a very fragmented and disrupted environment... we have to be a lot more clever and put a lot more effort into establishing new trading relationships that are going to be part of very valuable and secure supply chains," Lambie said.

Government and industry's "long, enduring and deep" relationships with Japan and South Korea provide salient examples of how Australia's resources sector has been built through investment flows and knowledge transfers that could be further leveraged in the future, Lambie said.

On July 1, Australia agreed with the US, India, and Japan to boost collaboration on securing and strengthening critical minerals supply with the launch of the Quad Critical Minerals Initiative in Washington.

This came just weeks after Kevin Rudd, Australia's ambassador to the US, told a policy conference in Detroit that Australia had a draft accord with the US on collaborating on mining, transportation, processing, and stockpiling of critical minerals.