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Race for Rare Earths in Central Asia

Guest article by Sebastien Peyrouse

In this guest article, Dr. Sebastien Peyrouse of George Washington University provides an overview of key developments in rare earth minerals development projects in Central Asia. Dr. Peyrouse participated in the inaugural event of the Rare Earths Research Consortium, at the University of Queensland.

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Mining’s Troubled Legacy in Central Asia: Equipment from old mines used in Tajikistan’s Civil War. Photo from Wikimedia Commons

Whereas China has decided to reduce significantly its exports of Rare earths metals, the consumer countries, mainly Japan, South Korea, the United States and Germany, are looking for alternative partners, and have thus been eying Kazakhstan, Kyrgyzstan, and even Tajikistan. For these three countries, it is a global conjuncture that is at once an economic opportunity to boost state revenues, and a strategic opportunity, as producing rare earths could give them unprecedented visibility on the international arena. They have therefore made forays into the exploration and exploitation of rare earths, even if many questions still remain up in the air in terms of foreign investment conditions in these states, of corruption, and of respect of ecological norms.

Kazakhstan

Faced with the increase in world demand, in 2012 Kazakhstan officially announced its intention to increase its production of rare earth ore to 1,500 tons per year, and to more than double its production of beryllium by 2014. Its resources are located, among other places, on the Kundybay site close to Kustanay in the north of the country, which contains yttrium – a rare earth element. The Soviet infrastructure, which might have contributed to the extraction of rare earths, is today closed or obsolete, but as the world’s largest uranium producer, the country has the technical capacity to extract them from its uranium ore at a reasonable cost. The authorities have nonetheless largely looked to foreign investors. At present three-quarters of Kazakh ores are exported to Russia and 20 percent to China. Other international players are therefore trying to act quickly in order to prevent more of Kazakhstan’s reserves from going to Beijing. The main interested parties are Germany and Japan.

In April 2011, Kazakhstan’s state-owned nuclear company Kazatomprom announced it would invest US$800 million to develop rare-earth metal mining through partnerships with Rosatom, Toshiba, and Sumitomo. Toshiba and Kazatomprom announced the creation of KT Rare Metal Company, 51% being owned by Kazatomprom, 49% by Toshiba. In April 2012, Sumitomo, the third largest Japanese commercial company, Japan Oil, Gas and Metals National Corporation, and Kazatomprom signed a new agreement for the exploitation of rare earths and a technology transfer to Kazakhstan. Within this purview, Kazatomprom and Sumitomo created the Summit Atom Rare Earth Company (SARECO), based in Ust-Kamenogorsk 51% of which is owned by Kazatomprom and 49% by Sumitomo. Sareco has built a $30m factory in Stepnogorsk, near the Kazakhstani capital Astana. The plant will produce 1,500 tons of rare earth oxides a year, with plans to increase output to 3,000 tons by 2015. By 2017, capacity is expected to be boosted to 5,000 or 6,000 tons a year. Almost all will be Japan-bound. According to Kazatomprom, the Stepnogorsk plant would mainly produce heavy rare earth elements such as dysprosium.

The Federation of German Industries (BDI) also hopes to gain access to Kazakh rare earths in order to secure its supply and limit its dependency on China. In February 2012, Angela Merkel and Nursultan Nazarbayev agreed a strategic partnership worth a total of €3 billion, which guarantees German companies the right to explore and exploit Kazakh rare earths and other raw materials in exchange for technological investments. France and Kazakhstan have also increased their cooperation in this domain. During Nazarbayev’s visit to Paris in September 2011, the Bureau of Geological and Mining Research (BRGM) concluded a strategic partnership agreement with Kazatomprom for the purpose of identifying production opportunities and creating a Franco-Kazakh laboratory for rare earths to develop new extraction technologies.

Kyrgyzstan

Kyrgyzstan has twenty rare earth sites, which are located in the Issyk-Kul, Talas, Chu, Jalalabad and Osh regions. The majority of them, however, require additional geological studies. The main site now under exploitation is that of Kutesay-2, in the Chu region, which produced 80% of Soviet rare earths (about 750 tons per year after recovery losses), most of which were headed for the Soviet nuclear program between the 1960s and the Union’s collapse. In 2009, Stans Energy Corporation, acquired a license to exploit this mine for twenty years. In 2011, it announced the purchase of the Heavy Rare Earth Element Processing Complex situated close by, and an investment of US$5.5 million for buying the factory’s railway terminal, which is situated about 21 miles from the mine, the aim being to boost exports to China. Stans also intends to increase its production to 2,000 tons per year; the mine is particularly interesting as it contains the five most profitable rare earth metals (neodymium, europium, terbium, dysprosium, and yttrium).

Kyrgyzstan suffers, however, from its image as an unstable country with a legal framework that is too uncertain for foreign investment and too subject to the political hazards of the moment. This limits Bishkek’s ability to attract the necessary funds. Stans Energy has had to contend with delays due to a prolonged period for obtaining approval for a license to develop Kutessay II from the Kyrgyz Agency for Geology. The company’s CEO denounced the corruption of specific Kyrgyz deputies in 2013, whom he accused of having cooperated with China to create an obstacle to this exploitation.

Other countries have however continued to show their interest in Kyrgyz rare earths. In July 2013, Japan declared that it will begin exploring for rare earth metals in Kyrgyzstan. South Korea, which is heavily reliant on rare earths for its production of high technology, has also made known its interest in the Kyrgyz sites and has launched a prospection program. The visit by Posco holding’s representatives to Kyrgyzstan in May 2012 confirmed South Korean interest.

Tajikistan

Despite its limited reserves, Tajikistan is trying to take advantage of the current conjuncture. Dushanbe would like to be seen as a contender and has indicated that the former Vostokredmet mining complex near Khudjand in the country’s northern region could potentially participate in this world race for rare earths. Operational since 2011, the Kazakh-Tajik Private Equity Fund set up by the Kazakhstani Samruk-Kazyna Sovereign Welfare Fund intends to finance, among others, investments in Tajik rare earths. The Russian-based Converse Group also plans to start production of recycled vanadium at Vostokredmet. However, the global conditions for extracting minerals in Tajikistan seem too complex to be financially viable, at least for now, and the Tajik authorities have been slow in providing a secure legal framework for foreign investment in the mineral industry.

Conclusion

If the exploitation of rare earths appears as a new financial Eldorado for those countries that have them, it raises many environmental issues. They seem especially important as the countries of Central Asia do not give environmental questions high priority and their extraction industry, dating from Soviet times, already pollutes a lot. Poor states such as Kyrgyzstan, which is massively in need of financial resources due to the depth of its social and economic crisis, risk attempting to develop these kinds of resources without taking the necessary precautions. Lastly, the new world race for rare earths happens to reinforce logics of rent-seeking by established elites and does not push the countries to reorient their economies around other sectors that are more innovative than mineral extraction. Only Kazakhstan seems to be able to envision technology transfers and thus to enable itself to be not only a producer of raw materials but also a seller of more finished products.

The necessity for those industrialized states most dependent upon rare earths to find new sources of supply opens up several new economic opportunities for Central Asian countries, opportunities that will nevertheless contain substantial risks for the environment and often involve dysfunctional development rationales. It is desirable that Kazakhstan, Kyrgyzstan, and Tajikistan succeed in finding some balance between the urgency to gain access to a new financial manna, environmental preservation, and their requirements in technology transfers.