Government policy should be designed to solve market failure, not just compensate for it, potentially indefinitely, says ABx Group (ASX:ABX) CEO Dr Mark Cooksey.
Speaking to Mining.com.au in a wide-ranging interview, Cooksey notes government interest in rare earths is often framed as unequivocally positive – but there is a line between helpful policy support and market distortion.
The rare earths value chain is dominated by a single country, which has led to artificially higher barriers to entry for new market participants, the CEO says.
“This is a form of market failure, so it is appropriate that governments intervene. However, from a national budget perspective, it is preferred that government intervention is limited in time and scope, (that is) temporary intervention to address market failure so that the rare earths value chain can then function on its own merits,” Cookey tells this news service.
“Government policy should be designed to solve market failure, not just compensate for it, potentially indefinitely.”
His comments come amid unconfirmed reports last week that US President Donald Trump could abandon the price floor of rare earths, which spooked markets, raising doubts over America’s commitment to breaking China’s stranglehold on global supply chains.
Up until Trump’s comments, there were high expectations all US producers would receive the same floor price incentive offered to US company MP Materials (NYSE:MP) in July, which guarantees to buy key REEs for at least $US110 per kilogram – above market pricing.
Innovation over intervention
When asked whether he worries that heavy government intervention risks picking winners too early in a sector that still needs innovation, cost discovery, and competition to mature properly, Cooksey is clear in his standing.
“Inappropriate intervention can lead to negative impacts, such as the wrong horse being backed, or too much money being spent backing too many horses. Close consultation between industry, the finance sector and government is required to design optimum government policy,” he explains.
In an upcoming special feature, Mining.com.au delves deeper into ABx’s vantage point about what ‘smart intervention’ actually looks like in rare earths — and what concerns the CEO most.
In this special report, Cooksey explains to this news service that the strength of the Western economic system is adaptability – “people can identify opportunities and challenges, and have the freedom to take risks and seek rewards”.
“Our government interventions should support these strengths. Large-scale, sustained state intervention is more politically difficult in the West and may not be the best strategy,” he adds.
An example of policy with some risk is a price floor. In the short term, Cooksey says this is likely to provide additional revenue to the producer, which is a good thing.
“However, it means that a true market price cannot be determined, making it difficult for other participants to innovate. This is a missed opportunity to use the strengths of the market economy,” the CEO says.
Federal Resources Minister Madeleine King says the Australian Government remains committed to investing billions into the domestic rare earths market and is working to attract more foreign capital in order to help build secure Western supply chains.
Last month, the Minister reiterated hopes to establish a floor price for some key minerals, although there‘s been no mention of a specific dollar amount.
On 29 January, the government announced potential deposits of rare earths elements have been identified in early results of its $3.4 billion Resourcing Australia’s Prosperity program.
An early assessment of results has found high potential sites for heavy REEs, such as dysprosium and terbium, in remote areas of Western Australia and the Northern Territory. These are crucial for clean energy and defence applications, such as sonar and jet engines, to name a few.
The initiative, led by Geoscience Australia, is a 35-year program to fully map Australia and provide free data to help identify minerals, groundwater and resources to support exploration and development.
Meanwhile, ABx is focusing on economic studies to identify the optimum project design at its Deep Leads project in northern Tasmania, and is conducting metallurgical work in-house and with partners to support these studies, as reported.
Exploration will also continue, to grow the resource and identify the preferred starting location for the project. ABx continues to engage with several customers and is aiming to secure binding agreements with some of these customers.
Investment into ABx is also being discussed, Cooksey tells this news service.
Write to Adam Orlando at Mining.com.au
Images: Unsplash
