Kazakhstan’s efforts to attract foreign investment in its rare earth ambitions face a series of challenges as the country seeks to position itself as a viable alternative to China in the supply chain.
While Kazakhstan's abundant resources make it an attractive investment destination, it remains well behind China in the critical minerals race because it is landlocked, has Soviet-era equipment and lacks advanced refining.
“Kazakhstan is not a realistic substitute for China in the foreseeable future,” said Temur Umarov, a fellow at the Carnegie Russia Eurasia Centre.
China has a tight grip on the critical minerals supply chain, wielding about 60 per cent of global rare earths output and up to 90 per cent of refining capacity.
Because of this, China can control the global critical minerals and rare earths supply chains at will, as shown by expanding export restrictions on rare earths last year. Those restrictions are currently shelved until November.
The US and other countries are racing to diversify their critical mineral supply chains. Recent analysis from the International Energy Agency estimated that public financing commitments for new projects more than quadrupled to $65 billion between 2023 and 2025.
Enter Kazakhstan
The world’s largest landlocked nation is rich with mineral reserves. It is a leading uranium producer, a top exporter of copper and zinc, and its government claims to have more than 9,500 deposits of minerals including lithium, tantalum and other minerals. It also has proven resources or active production of about half of the minerals listed by the US that are considered critical for electrification and national security.
This includes, according to Kazakh estimates, about two million tonnes of tungsten, a dense metal used in Patriot and THAAD missiles that are part of a dwindling US munitions stockpile.
Last year's Zhana Kazakhstan discovery, about 420km from the capital Astana, injected new fervour into the country's ambitions. The deposit is estimated to have more than 20 million tonnes of rare earth metals. But this does not necessarily translate into production.
“While the discovery may be strategically important, its ultimate impact will depend on how quickly Kazakhstan can attract investment and develop processing and transport infrastructure,” Mr Umarov said.
In June, the US Export-Import Bank and International Development Finance Corporation wrote letters of interest adding up to $1.6 billion to finance a deal with US-based Cove Capital and Kazakhstan's state mining company to develop two tungsten deposits in Northern Katpar and Upper Kairakty.
Kazakhstan and Saudi Arabia signed an agreement to increase co-operation in mining and mineral resources. Abu Dhabi's ADQ is also part of the $1.8 billion Orion Consortium exploring investment opportunities in Kazakhstan and across Central Asia.
The moves show how Gulf nations are becoming increasingly focused on critical minerals as part of their economic diversification agendas.
Meanwhile, Kazakhstan has remained engaged in US-backed diplomatic efforts including the C5+1 summits, the Pax Silica initiative and the Abraham Accords.
Speaking at the C5+1 Dialogue on Critical Minerals in Astana, Kazakhstan's Minister of Industry and Construction, Yerssaiyn Nagaspayev, said mining companies Rio Tinto and Barrick Gold were among the firms to enter the Kazakh market. Investment in geological exploration has exceeded more than $1 billion since 2018, local media quoted him as saying.
Because of its abundant sources, Kazakhstan has the potential to become an important alternative source for rare earths, said Said Bakr, a research fellow at the Arab Gulf States Institute.
New money, same problems
Despite such promise, Kazakhstan faces challenges in loosening China's grip on global supply chains. "It is still far from being near a complete substitute for China," Mr Bakr added.
The country's mining industry continues to rely on outdated equipment and it lacks the processing and separation facilities for rare-earth oxides, as well as environmentally friendly technology. It also must contend with a weak regional energy grid.
Its geography adds another layer of difficulty. Because it is landlocked, Kazakhstan relies on the Middle Corridor for its exports. The route contains more than 4,250km of rail lines, making it costly and time consuming to move exports.
Exports could alternatively travel through Russia, although that is a non-starter for Washington's security interests.
“We obviously can't take geopolitics out of this equation,” said Cullen Hendrix, a fellow at the Peterson Institute for International Economics.
All of those factors magnify the existing challenges within the industry. Mining projects operate at low margins, require enormous amounts of capital up front and can take up to 15 years to become operable.
“It is going to require investment in low margin, brute force, energy-intensive economic activities that US capital markets do not have a significant appetite for, absent a durable, policy-driven price environment,” Mr Hendrix said.
Conflicts arise
A new challenge has recently arisen against this backdrop: American politics.
The New York Times reported in late June that the families of President Donald Trump and Commerce Secretary Howard Lutnick could profit from the $1.6 billion tungsten deal. The Trump Organisation denies the claims.
Democratic politicians have opened investigations into the critical minerals deals. Those efforts could gain momentum if the party retakes either or both of the chambers of Congress in elections in November.
Regardless, Mr Trump will be out of office before the tungsten mine becomes operational. Production is expected to begin in three and a half years, at which point a new president will be in power and whose interests could differ from Mr Trump's.
Bloomberg Economics
“There's no guarantee that the defence of the investments will continue into a new administration and … that's a long-standing problem for western companies not being able to necessarily count on the US government to back them up when there is a change in policy,” said Chris Kennedy, lead for economic statecraft at Bloomberg Economics.
The Trump administration's approach towards mobilising investment has differed from former president Joe Biden's administration. Instead of relying on grants and loans, the US government is taking equity stakes in companies across the value chain, from exploration and development with Trilogy Metals, to mining through MP Materials and refining through ReElement Technologies.
“I think they can feel confident that their investments are safe so long as the president is in power,” Mr Kennedy said. "But we've seen how different administrations approach questions of defending private US investments abroad."
