Paul Murray: Why WA should be wary of the Federal Government’s critical minerals deal with Donald Trump

Who owns all these critical and rare earth minerals in WA that the whole world seems to want?

Well, you do. The people of Western Australia, through the State Government representing the legal concept known as the Crown.

While Anthony Albanese is travelling the globe signing over the rights to these increasingly important resources, the real owners are being left out of the discussion.

For students of Australian political history there is a strong sense of deja vu in what Albanese is pursuing.

Think Kevin Rudd’s ill-fated mining tax which fell apart because the Federal Government didn’t have sovereignty over our mineral wealth and WA refused to roll over.

No surprise that Rudd is up to his ears in this latest charade.

And then think about Albanese’s hero Gough Whitlam and his disastrous plan in the 1970s to nationalise our nascent natural gas industry.

The High Court put paid to that in a landmark ruling about the legal and constitutional risks of government over-reach in resources development.

Just to make the distinction absolutely clear: By constitutional law, these in-vogue minerals in WA belong to every West Australian, not every Australian.

The Crown ownership is delineated by the boundary of WA.

Neither the law of federation nor native title has impacted the Crown ownership of minerals in WA. We own them.

Strategic minerals are not new. Australia once had a Canberra-imposed strategic ban on the export of iron ore.

It was overturned in 1960 by the work of WA leaders David Brand and Charles Court which set up this State and the nation for an unprecedented period of prosperity.

That was done by getting Canberra out of the way and allowing the State Government to regulate the industry while private enterprise financed and operated it.

In April, Albanese promised that a re-elected Albanese Government would establish a Critical Minerals Strategic Reserve “to stand up for Australia’s national interest”. It received scant scrutiny during the election campaign.

While some of these minerals undoubtedly have national security implications – but so do the ubiquitous copper and aluminium – Albanese is interfering in overwhelmingly commercial matters against established government practice.

Australia has 26 minerals on its critical minerals list: Antimony, arsenic, beryllium, bismuth, chromium, cobalt, fluorine, gallium, germanium, graphite, hafnium, indium, lithium, magnesium, manganese, molybdenum, nickel, niobium, platinum group elements including palladium and rhodium, rare earth elements including neodymium, praseodymium, dysprosium and terbium, scandium, silicon, tantalum, titanium, tungsten and vanadium.

Many of them have been mined for very long periods without any need for government intervention. But existing producers will now be subject to the government becoming a player in their commercial affairs and the commodity markets.

Having already promised $7 billion for his Critical Minerals Production Tax Incentive, designed to kick-start the processing and refining of those commodities, Albanese proposed an additional $1.2b for market intervention through two mechanisms:

The National offtake agreements - “Through voluntary contractual arrangements the Government will acquire agreed volumes of critical minerals from commercial projects, or establish an option to purchase at a given price, holding security over these assets as part of the Strategic Reserve.”

And selective stockpiling - “The Government will establish Australian stockpiles of certain key critical minerals produced under offtake agreements as required.”

Both mechanisms seek to interfere in global commodity markets in an unprecedented manner for an Australian government.

“The primary consideration for entering into offtake agreements will be securing priority critical minerals for strategic reasons,” Albanese said.

“The Reserve will be focused on a subset of critical minerals that are most important for Australia’s national security and the security of our key partners, including rare earths. “As its holdings mature, the Strategic Reserve will generate cash-flow from sales of offtake on global markets and to key partners. The Strategic Reserve will also accumulate stockpiles of priority minerals when warranted by market conditions and strategic considerations, but it is anticipated that these will be modest and time-limited in most cases.

“Minerals held by the Reserve will be made available to domestic industry and key international partners, with the mechanism and allocations to be determined by Government and subject to consultation.”

By anyone’s reasonable standards, that amounts to the quasi-nationalisation of an important segment of Australia’s mining industry. But by a government which has no constitutional powers over the mining of the minerals whose supply it is trying to control.

Investors in WA’s plethora of prospective rare earth mining companies must have trembled when they heard US President Donald Trump describing his deal with Albanese.

“About a year from now you’ll have so much critical minerals and rare earths you won’t know what to do with them,” Trump said. “They’ll be worth about $2.”

So is that in our best interests? WA’s resources being sold off for a song?

If they are, then there won’t be much in royalties flowing to the State Government.

Former Premier Colin Barnett downplayed Trump’s bluster in an interview on Sky last week: “To get rare earths to a marketable stage takes time, a lot of money and a lot of science to get there.

“China has a monopoly and 90 per cent of the world trade is Chinese. To supply a market like the US is great, but a little bit of reality is needed.”

Barnett, who fought Rudd’s Resource Super Profits Tax and Julia Gillard’s Mineral Resources Rent Tax, went back to his old playbook, suspecting Albanese had a hidden agenda.

“The first reality is that the Commonwealth Government doesn’t own the minerals – the State governments do,” Barnett said.

“I hope they told the Americans that. It is a pretty significant matter. The States – and particularly WA – manage from a government point of view the entire resources industry. So that’s not been mentioned at all.

“The geological structure of rare earths is incredibly complicated and they are incredibly difficult to process. Australian companies can mine it, that’s not difficult, and they can take it to the next stage of a mineral concentrate.

“Then you get into trouble. At that point concentrate is about 5 per cent, up to 50 per cent, but then you get into a chemical transition. And that is not traditional mining skills. That’s where China has got the advantage.

“They have got the science and technology to take it to that point. And that’s a big difference, to get to 99 per cent grade of rare earths. And then it’s not over.

“There’s a fourth stage and that is to have a cracking process to try to separate the individual rare earths from the complex compounds they are locked into. And that takes it to a saleable end product.

“(WA-based) Lynas Rare Earths is having a go at getting beyond those traditional two early stages. I hope they succeed because that would bring great credibility to the industry. A lot of others won’t get there.”

And that’s where Barnett believes some investors – and all taxpayers – will lose potentially billions of dollars. He was asked about the projects the Albanese Government had singled out for massive financial support.

“Well, I’m critical of that,” he said. “It is a case of picking winners and billions of dollars have already been given to companies in grants and loans and the like.

“Some of those companies will fail to get there and they won’t be able to repay the loans and therefore the public taxpayers’ money, billions of dollars, will be lost.

“If the proponents have got good deposits, and the capability of taking the processing through, they will get investment.

“And one of the critical reasons Australia has been so successful in mining, particularly here in WA, is because there has been a clear separation in the role of government, as the administrator of the industry, and private investment.

“The most beneficial thing the Australian Government could do is to sponsor very sophisticated research and development for this industry that all companies could share in. Because China is at least a decade ahead of us.”

Barnett told me later he believed the reserve was a clumsy attempt by Labor to assume ownership of the minerals. However, it was naïve to believe its meddling in commodity markets would work.

He branded the plan foolish and ideological.

And there’s another massive problem: Canberra has no track record of success in minerals trading because it has no direct experience in mining.

Barnett also noted that the processing and refining of rare earths required massive amounts of affordable, reliable electricity.

But, as the owners of the soon-to-close Tomago aluminium smelter in NSW have found out – crushed by the renewable energy transition – that’s another thing this Federal Government isn’t good at.

And the Chamber of Minerals and Energy’s pre-Budget submission this week, complaining about the “unsustainable” doubling of wholesale power prices in the past five years and constant power outages in the Goldfields, suggests WA Labor isn’t much chop either.