KUALA LUMPUR – Malaysia is appealing to China for rare-earth processing technology in a bid to unlock up to RM1 trillion (S$284 billion) worth of the mineral deposits in the country that are crucial to high-technology applications.

This is despite Beijing having imposed a ban on exports of rare-earth extraction and separation technologies since December 2023, a move that has deep geostrategic implications.

China dominates the production of these elements that are necessary in the manufacture of military assets and smartphones – 90 per cent of the world’s supply is refined there.

The Straits Times learnt that the Malaysian Cabinet has tasked Science, Technology and Innovation Minister Chang Lih Kang to visit China at the end of April to seek out a company to invest in a rare-earth refinery in Malaysia.

In 2023, Malaysia shipped RM975 million worth of rare earths to China, making it the second-largest source of imported ore for the Asian giant behind Myanmar, according to trade statistics from Beijing.

“We are going to explore opportunities to play a greater role in the rare-earth supply chain,” Mr Chang told ST when reached for comment.

Natural Resources and Environmental Sustainability Minister Nik Nazmi Nik Ahmad had said in June 2023 that Malaysia has over 16 million tonnes of non-radioactive rare-earth elements that the government valued at around RM800 billion.

Some experts believe that with increasing demand, the value of these deposits would soon breach the RM1 trillion mark.

Building a rare-earth refinery at home will also help Malaysia curb rampant illegal ore exports. On March 12, Mr Nik Nazmi revealed in Parliament that only 3,000 tonnes, or less than a sixth, of the 19,000 tonnes of rare-earth oxide produced by China in 2023 from Malaysian ore came from legal exports.

In an effort to extract more economic value from these minerals, the government imposed a moratorium on exports of unprocessed rare earths from Jan 1.

The country’s sole legally certified mine in Kenering, Perak, which began mining in 2022, was given an exemption from this moratorium until the end of March.

Prime Minister Anwar Ibrahim had said the ban aims to “guarantee maximum returns for the country” by establishing downstream capabilities projected to add RM9.5 billion, or 0.5 per cent, to gross domestic product and 7,000 jobs in 2025.

His government has also promised to draw up a blueprint for the rare-earth sector that will outline plans for onshore processing and other related services, which will yield more value than simply exporting raw ore. The framework is still pending.

The export ban is unlikely to deter smugglers who already dominate the sector, but it will hurt the Kenering mine, which must decide whether to shutter or begin costly stockpiling after March.

“Fines for such (smuggling) offences can be as low as RM10,000, which a smuggler can make in a day,” an official source told ST.

Illegal mining has been reported in states such as Kedah, Negeri Sembilan and Pahang.

It was reported in July 2023 that the anti-graft agency had arrested a senior officer in a state-owned company in Kedah and a company director amid allegations of bribery worth more than RM13 million to facilitate illegal rare-earth mining.

According to Invest Perak board member Howard Lee Chuan How, the state earned RM40 million in revenue – half from royalties – in 2023 from Kenering. Extrapolating from this, the 16,000 tonnes of rare earths illegally exported to China would have been worth upwards of RM200 million in tax revenue.

Mr Lee, the Ipoh Timur MP, who was also appointed on March 13 to spearhead a new parliamentary caucus on critical minerals, told ST that Malaysia needs to have industry-specific rules instead of relying on general mining regulations.

Critical minerals refer to elements such as lithium, nickel and rare earths that are required to make crucial modern products such as computer chips, rechargeable batteries and high-efficiency magnets.

“We need to have a Petronas of critical minerals,” Mr Lee said, referring to Malaysia’s national oil company and only Fortune 500 company, which also regulates the oil and gas industry.

“If there is something similar to the Petroleum Development Act, then there will be enough incentive and resources for proper enforcement and moving up the value chain.”

Having an ore-processing facility in Malaysia will not only jump-start the sector, but it will also help curb the smuggling.

Selling ore at market prices to a nearby refinery will involve less cost than moving tonnes of the material to China, whether by legal or illegal means.

Malaysia already hosts the refinery of Australian miner Lynas in Pahang’s Gebeng Industrial Estate. It is the largest processing plant for rare earths outside of China.

But sources told ST that while Lynas – which has courted controversy for over a decade over allegations that its facility would cause radiation pollution – would be keen to handle Malaysian ore, it would need to build up different capabilities, and this is estimated to take two years to complete.

While many other countries have rare-earth processing technology, China is the only producer that has proven capacity across all 17 rare earths and has already been refining Malaysian deposits.

Malaysia also has all 17 elements in the ground, and thus, dealing with any other country would yield less value as not all the rare earths would be refined.

Although China would likely have the most efficient solution for a plant in Malaysia – given that it has already been processing the ore – it remains to be seen if Beijing would make an exception for Malaysia, which could open the door for a significant alternative supply chain.

Datuk Seri Anwar has courted Beijing to encourage economic ties since taking power over 15 months ago, announcing hundreds of billions in deals, decrying “China-phobia” in the West and even talking up Huawei’s involvement in Malaysia’s second 5G network despite no tender being opened yet for bids.

Said Mr Lee: “It is a credit to the visionary PM to target a RM10 billion rare-earth industry by next year. But we are falling behind due to external conditions and need to catch up soon.”