WEBVTT - How China took over the world’s critical minerals

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<v Speaker 1>I'm Daniel James, and you're listening to seven AM. When

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<v Speaker 1>Anthony Alberinezi met with Donald Trump. This week, the two

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<v Speaker 1>leaders cut a deal on critical minerals worth thirteen billion

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<v Speaker 1>Australian dollars. Australia has them and the US needs them.

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<v Speaker 1>And as we're settle into a new phase of a

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<v Speaker 1>relationship with our most important ally, this is our crucial

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<v Speaker 1>bargamanship as the US tries to break China's grip and

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<v Speaker 1>the supply chain of critical minerals. China's global domination has

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<v Speaker 1>been in the works for decades, a grand plan that

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<v Speaker 1>gives China ready access to materials essential for everything from

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<v Speaker 1>fighter jets to wind turbines. It also gives Beijing extraordinarilyverage

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<v Speaker 1>over Western economies and defense forces. Today, columnists for Australian

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<v Speaker 1>Foreign Affairs Ian Verenda on China's long game on critical

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<v Speaker 1>minerals domination and the old pile of mining waste in

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<v Speaker 1>Western Australia which could upend it. It's Sunday, October twenty sixth.

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<v Speaker 1>This episode was originally published in July, and we keep

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<v Speaker 1>hearing about China's stranglehold over the critical mineral supply globally.

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<v Speaker 1>How did that happen? Can you take me back to

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<v Speaker 1>where this story began for them?

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<v Speaker 2>Look, it began way back, more than thirty years ago, really,

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<v Speaker 2>And I guess the first inkling that we had that

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<v Speaker 2>this was about to take place was a speech that

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<v Speaker 2>Deann Jhaping gave in around nineteen ninety two on a

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<v Speaker 2>tour of China.

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<v Speaker 3>At this crucial point in China's reform and opening up,

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<v Speaker 3>Dong Chaoping once again demonstrated that he possessed the political

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<v Speaker 3>courage and wisdom needed to guide China along the right path.

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<v Speaker 2>He was never the president, but he was really the

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<v Speaker 2>leader of China at the time, and he made this

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<v Speaker 2>announcement at at a gathering where he said, the Middle

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<v Speaker 2>East has oil, China has rare earths.

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<v Speaker 3>His comments were a declaration that projected China's reform and

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<v Speaker 3>opening up into a new era and once again placed

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<v Speaker 3>China onto the fast track of development.

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<v Speaker 2>And from that point on, China went down this path

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<v Speaker 2>of exploiting the rare earths that it had, which was

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<v Speaker 2>a fairly fast sighted kind of vision for den because

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<v Speaker 2>you know, rare earths aren't really all and rare. They're scattered, right,

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<v Speaker 2>across the Earth's crust, but they're not usually a needing

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<v Speaker 2>form of concentrated way to extract easily. So you know,

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<v Speaker 2>mining becomes economic when you've got large quantities enriched like gold,

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<v Speaker 2>oars or something like that, whereas rare earths are just

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<v Speaker 2>scattered in very very minute quantities across a broad range,

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<v Speaker 2>so they're very difficult to mine economically, and then when

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<v Speaker 2>it comes to the processing of it, it becomes a

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<v Speaker 2>really dirty, difficult task. They often run alongside things like

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<v Speaker 2>uranium and thorium, which are really quite toxic things to

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<v Speaker 2>mine with. So it was an incredible, I guess, vision

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<v Speaker 2>to be able to see this and to take advantage

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<v Speaker 2>of it to the extent that they've really become absolutely

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<v Speaker 2>vital to the modern economy. So the Deng saw that

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<v Speaker 2>China had an advantage with rare earths in China, but

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<v Speaker 2>what he did was he then insisted that they not

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<v Speaker 2>just extract, but they refine and manufactured using those goods

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<v Speaker 2>as well.

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<v Speaker 1>So they not only have the minerals, they also have

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<v Speaker 1>recognized the power in dominating the processing of those minerals.

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<v Speaker 1>So how did they go about monopolizing that.

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<v Speaker 2>The state has not held back in ensuring that it

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<v Speaker 2>retains its dominant position. And they've dominated by really quite

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<v Speaker 2>overt use of strategies where they really tend to manipulate

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<v Speaker 2>market prices, put all kinds of stress and strains on competitors,

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<v Speaker 2>usually through market forces, and also by running propaganda campaigns

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<v Speaker 2>as well. There's a good example. And America really only

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<v Speaker 2>had one rare Earth's mind. It shut down I think

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<v Speaker 2>round about in the eighties nine. As it was reopened

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<v Speaker 2>round about twenty ten, a company called Molly Corp decided

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<v Speaker 2>to reopen it. Rare earth prices at that stage were

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<v Speaker 2>really very strong.

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<v Speaker 1>Let's find out what's ahead for Maleycorp and the rare

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<v Speaker 1>earth metals market. We have Mark Smith.

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<v Speaker 2>He is Maleykorp's chief executive.

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<v Speaker 1>Mark, thanks so much for coming in. Good to see you.

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<v Speaker 2>Finally, by twenty fourteen, Molycorp had gone broke and was

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<v Speaker 2>forced to shut down. Do you believe that prices are

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<v Speaker 2>being manipulated by Chinese producers? The market was suddenly flooded

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<v Speaker 2>with all kinds of rare earths, and so Molecorp just

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<v Speaker 2>could not compet against this.

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<v Speaker 4>Chinese producers have been very clear about two things. They

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<v Speaker 4>are going to continue to restrict the export of these

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<v Speaker 4>materials to the rest of the world, and we can

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<v Speaker 4>expect an irreversible trend, as they call it, for higher prices.

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<v Speaker 2>The mine has since reopened, by the way, but it

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<v Speaker 2>just goes to show that the extent of the power

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<v Speaker 2>that China was exerting. Then a few Australian companies have

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<v Speaker 2>come under pressure as well. An Australian company called Linus

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<v Speaker 2>opened an operation in Malaysia. Suddenly there was a propaganda

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<v Speaker 2>campaign running right through that area of Malaysia talking about

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<v Speaker 2>the environmental impacts of the refining process, and it turns

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<v Speaker 2>out that it was being run by a Chinese group

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<v Speaker 2>called Dragon Bridge. This whole propaganda campaign, which incidentally has

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<v Speaker 2>been running another propaganda campaign against Linus with its proposed

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<v Speaker 2>refining operation in America at the moment. But it just

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<v Speaker 2>goes to show that the pressure that China exerts is

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<v Speaker 2>firstly against any competitors, and then they'll take retaliatory action

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<v Speaker 2>against any country or any company that threatens its future

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<v Speaker 2>well being. You've seen it in lithium. Lithium prices have

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<v Speaker 2>collapsed in the past eighteen months. You've seen it in

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<v Speaker 2>nickel nickel prices have crashed. China has basically exercised its

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<v Speaker 2>power with nickel by pouring vast amounts of money into Indonesia.

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<v Speaker 2>Indonesia ten years ago provided around about six percent of

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<v Speaker 2>the world's refined nickel and now provides around six percent.

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<v Speaker 2>So that's just in a decade. And as a result,

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<v Speaker 2>Australia's nickel operations have shut down. I mean, Andrew Forrest,

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<v Speaker 2>who you know, the person behind Fortescue, who's one of

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<v Speaker 2>Australia's biggest iron ore miners, spent around three quarters of

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<v Speaker 2>a billion dollars just two and a half three years

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<v Speaker 2>ago to buy up a whole lot of nickel operations

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<v Speaker 2>in the West and was forced to close them within

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<v Speaker 2>a year.

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<v Speaker 1>So as it stands in China succeeded in fulfilling Deng

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<v Speaker 1>Jiaoping's vision beyond probably beyond what he could have even imagined.

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<v Speaker 1>So how would you describe China's position when it comes

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<v Speaker 1>to critical minerals right now?

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<v Speaker 2>Look, it's absolutely dominant in the space of critical minerals,

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<v Speaker 2>and the domination depends on what part of the rare

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<v Speaker 2>earth spectrum you're talking about. I think it's anything from

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<v Speaker 2>about seventy percent from the lower end of the rare

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<v Speaker 2>earth spectrum up to total domination one hundred percent when

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<v Speaker 2>you get what's known as heavy rare earths. So it's

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<v Speaker 2>a what's known as a monopsony. It's the big player,

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<v Speaker 2>it's the elephant in the room when it comes to

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<v Speaker 2>this industry.

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<v Speaker 1>Coming up after the break, how a pile of mining

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<v Speaker 1>waste in Western Australia could hold the key to upbending

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<v Speaker 1>China's stranglehold of the rare earth industry. And why does

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<v Speaker 1>it matter if China dominates the rare earth supply chain?

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<v Speaker 1>How does that affect us?

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<v Speaker 2>Well, I mean it'll be not just to Australia's advantage,

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<v Speaker 2>but to the world's advantage if there is an alternative source,

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<v Speaker 2>you know. I mean, at the moment, we're seeing all

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<v Speaker 2>these negotiations take place between America and China over trade

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<v Speaker 2>and over a range of other areas. What people don't

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<v Speaker 2>realize is that America's defense, and particularly it's aerial defense,

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<v Speaker 2>the flagship of the defense fleet, the FA thirty fives,

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<v Speaker 2>require huge amounts of these magnets that China manufactures out

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<v Speaker 2>of rare earths that only it produces, you know, refined

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<v Speaker 2>rare earths. So America's defense is largely dependent upon getting

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<v Speaker 2>these components from China. So if there was ever any

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<v Speaker 2>kind of conflict between America and China, China really does

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<v Speaker 2>send to hold the Whipan.

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<v Speaker 1>And you've been reporting on how Australia is trying to

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<v Speaker 1>shore up its own supply chains. Can you tell me

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<v Speaker 1>about what's been happening in our back western Australia.

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<v Speaker 2>Yeah, look about about thirty years ago, there is a

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<v Speaker 2>company called Aluka. It actually had a different and name

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<v Speaker 2>back then, but it was a sand miner essentially, and

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<v Speaker 2>it was basically getting you know, mineral sands, refining them.

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<v Speaker 2>And one of the byproducts was a think called monozite,

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<v Speaker 2>which contains rare earths, and there was a market for

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<v Speaker 2>it back then and it was being used I think

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<v Speaker 2>for fluorescent lights. Suddenly that market collapsed and nobody knows

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<v Speaker 2>that I look at these days who was responsible for it.

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<v Speaker 2>But someone with a lot of foresight decided that rather

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<v Speaker 2>than just dump all this stuff, they would store it.

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<v Speaker 2>So they did this huge pit and started storing all

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<v Speaker 2>this monocite. And what's happening there now is that it's

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<v Speaker 2>building a refinery that will be capable of refining not

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<v Speaker 2>just ordinary rear earths, but what's known as heavy rare earths,

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<v Speaker 2>which are very difficult to obtain, elements that are required

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<v Speaker 2>for super high end uses in wind turbines, in aviation,

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<v Speaker 2>and particularly in defense purposes as well. And so we

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<v Speaker 2>we have this Australian company which is now going to

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<v Speaker 2>have a refinery which will be the only refinery outside

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<v Speaker 2>of China that can produce this kind of stuff. In

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<v Speaker 2>the past few weeks, in fact, Linus, the other Australian company,

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<v Speaker 2>has announced that it is also trying to upgrade its

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<v Speaker 2>refining processes. Possibly they've got a couple of little operations

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<v Speaker 2>in West Australia and the big one in Malaysia as well,

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<v Speaker 2>so it looks like they're going to try and be beat.

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<v Speaker 2>I look it to the punch to seeing who can

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<v Speaker 2>be the first refiner outside of China to be able

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<v Speaker 2>to compete with the Chinese. Will provide the Western world

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<v Speaker 2>with an alternative source. So we would be providing for

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<v Speaker 2>the world for the first time a competitive source and

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<v Speaker 2>an alternative source of these really valuable minerals.

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<v Speaker 1>So there's clearly advantages to Australia being a bigger player

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<v Speaker 1>in the critical mineral space. We know that both Morrison

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<v Speaker 1>and Albanezi governments has spent billions backing the Luke and Mine.

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<v Speaker 1>So what does it say about how our governments thinking

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<v Speaker 1>about this industry.

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<v Speaker 5>We can't just sit back and allow ourselves to be

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<v Speaker 5>at the end of global supply chains. We need to

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<v Speaker 5>put it simply. We need to make more stuff here.

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<v Speaker 5>That simple.

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<v Speaker 2>So the other and easy government in recent times has

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<v Speaker 2>suggested a kind of reserve of these minerals that the

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<v Speaker 2>government would stand behind it the industry and buy up

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<v Speaker 2>these reserves when the price was low.

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<v Speaker 5>We have some of the world's largest reserves of critical

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<v Speaker 5>minerals and the new strategy will set a vision for

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<v Speaker 5>the sector.

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<v Speaker 2>And there are some people in the industry who think

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<v Speaker 2>that's a great idea. The chief executive of LINEUS she

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<v Speaker 2>thought that it wasn't a terrific guide here at all

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<v Speaker 2>because I think she considered that this might print profits

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<v Speaker 2>at some stage, but the economic benefit is vast. Let's

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<v Speaker 2>not kid ourselves there, and so there's an economic incentive

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<v Speaker 2>to maintain that power. But the geopolitical advantage of having

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<v Speaker 2>domination out of some of these things, there's just difficult

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<v Speaker 2>to imagine just how significant that is, because if you

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<v Speaker 2>have domination over the components that are required for defense situations, well,

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<v Speaker 2>that puts you in an extraordinarily powerful political position as well,

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<v Speaker 2>particularly when it comes to negotiating well anything from trade

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<v Speaker 2>to defense packs to where you'd think you might be

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<v Speaker 2>in the world pecking order.

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<v Speaker 1>And fascinating stuff. Thank you so much for your time, pleasure.

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<v Speaker 1>I'm Daniel James seven am will be back on Monday

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<v Speaker 1>with an episode on the National Anti Corruption Commission. The

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<v Speaker 1>NECK is over two hundred employees and then your budget

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<v Speaker 1>of over sixty million dollars and has received over five

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<v Speaker 1>thousand submissions, but as yet to land a single major finding.

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<v Speaker 1>We look at how NAK is defending itself and whether

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<v Speaker 1>there is any hope of regaining public trust. See you then,