This month (February), mining professionals will descend on Cape Town for Indaba, one of the largest mining investment conferences in the world. At the top of the agenda for many of these attendees will be Africa’s capabilities as the next global provider for rare earths.

Global demand for rare earth production continues to increase. Ernst & Young has estimated the value of the market by 2015 as between $4 billion and $6 billion. The greatest demand comes from Japan – annual imports are estimated as being in the region of $500 million.

China currently meets this demand, supplying over 90 per cent of the world’s rare earth. We may see even more rare earths coming out of China now too, as earlier this year it was reported that the country’s strict export quota has been dropped to comply with the World Trade Organisation’s ruling last year. The country had initially introduced the quotas to combat what it called an unfair return on rare earths due to the very high environmental costs.

From as early as 2010, Africa has been hailed  as the potential answer to the problem around China’s dominance of the rare earths market. Australia and Canada possess some rare earth deposits but it is thought Africa has the most potential, with more than half of the world’s carbonatite deposits on the continent (the rock formation which yields rare earths.) Looking back even further, South Africa was probably the largest supplier of rare earths in the world. Today, as least two projects in  South Africa, Steenkampskraal and Zandkopsdrift have been re-opened and should  re-commence  production  soon.

Other countries in Africa have the potential to produce even more rare earths - the Nuguala project, located in Tanzania has been called the largest, highest grade rare earth undeveloped project outside China. Wigu Hill is another rare earth project in Tanzania owned by Montero Mining & Exploration. Bordering Malawi also has significant  potential as does Mozambique, Kenya, Tanzania, Somalia and Namibia.

That said, although there are a few projects up and running in Africa, capital for exploration remains scarce. One reason for this is offtakers are reluctant to enter into long-term supply contracts to support exploration and other early stage activity. Price instability for most rare earth elements means that incentives for producers to sell into the spot market can be substantial. This reduces the length of supply contracts, which were previously one - five years long to three months or less.

A further problem, not just for African countries, but for any country with rare earth deposits is that there is no standard process for the extraction and beneficiation of rare earths. This inevitably makes it a lengthy process and is in stark contrast to the lead time for the developments of other metals – the pre-production of a gold mine can be as little as two years compared to seven for a rare earth project. In order to optimise profits a unique processing system is needed so that the relative proportions of the various rare earths found in each ore body are extracted.

Environmental concerns are also a factor when considering extracting rare earths. It’s been reported that in Baotou, China, where a large proportion of the country’s rare earth extraction is carried out, a mine’s tailing pond has been leaking into groundwater and is threating a major water supply for Northern China. Processing one ton of rare earths produces 2,000 tons of toxic waste.

So, when the opportunities afforded by the supply and demand imbalance are set against the challenges faced in connection with the development of a rare earth deposit, can Africa be part of the solution here?

In short, yes. It is clear that there are opportunities for the development of rare earth projects in Africa. Just last Autumn, mining company Cortec announced it had found deposits worth $62.4 billion in Kenya. However, it is a telling statistic that at present there appear to be only three projects at feasibility study or pre-feasibility study stage. The dearth of capital, when coupled with the difficult market supply and demand model, is bound to make the development of projects difficult for those in the junior mining sector. However, there is no doubt at all as to the quality of the prospective resources.

One potential answer lies with technology assistance from foreign end-users. In May 2013 the Malawi government launched a project to explore for both rare earths and natural gas, a project supported by rare earth technology from Japan Oil, Gas and Metals National Corporation. This type of technological assistance is likely to be of great importance if Africa is to be able to develop opportunities in the rare earths sector. It is also likely to be key for those countries which, unlike China, have yet to develop significant ties with host governments in Africa.

This article was first published in the Financial Times on 10th February 2015