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Raring to Go Mining in Greenland: Shenghe and the Kvanefjeld Rare Earth Project


Kvanefjeld Rare Earth Project


August 30, 2020


Despite its small population (56,000) and remote location, Greenland has been attracting a lot of attention lately. Over the past twenty years, climate change has caused irreversible damage to its glaciers, resulting in unprecedented ice sheet melt and contributing to the global sea level rise. U.S. President Donald Trump (facetiously?) expressed interest in buying it, but ultimately settled for opening a consulate in the capital city of Nuuk. Greenland, a colony of Denmark until 1953, which voted for home rule and greater autonomy in 1979, is also on China's radar. Chinese companies have explored several ventures in Greenland, including the Kvanefjeld Rare Earths Project, leading to increased scrutiny by Denmark and pushback by the U.S.


The Kvanefjeld Rare Earths Project is nearing approval and Greenland Minerals expects to find out the ruling on its environmental impact statement in mid-September 2020, which will determine the venture's future. Originally the review was scheduled to be completed on August 26th, but Greenland's Environmental Agency for Mineral Resources Activities (EAMRA) announced that there would be a brief delay. The Danish Center for the Environment is carrying out the review on EAMRA's behalf.


If the project moves forward, the Kvanefjeld mine would be the world's second largest source of rare earths and the fifth largest uranium mine (uranium is a byproduct of rare earths mining). Potentially, mining activities (rare earths, uranium, and zinc) at Kvanefjeld could bring in $1.59 billion for the country, which would increase Greenland's GDP ($3 billion in 2018) by 5o percent. Currently, Greenland relies on subsidies from Denmark for more than half of its GDP, which prevents it from becoming truly independent.


Greenland's location gave it an important strategic role in World War II and the Cold War , and it remains significant for NATO operations today. NATO member Denmark retains responsibility for Greenland's foreign and defense policy as well as its monetary policy. Now Greenland is also at the center of global economic competition with China, which produces two-thirds of the world's rare earths. At stake is a key rare earths mine near Narsaq (see map above) in southern Greenland, which an Australian company, Greenland Minerals, has been seeking permission to develop since 2007. Rare earths are rare only because they are hard to extract; in fact these minerals are ubiquitous in all of the technologies of modern life, from smartphones to guided missiles.


The controversy began when a Chinese company, Leshan Shenghe Rare Earths, entered into a partnership with Greenland Minerals in 2016, injecting a geopolitical dimension into an already fraught decision about the mine. Shenghe now has a 10.5% stake. Originally, it was reported that Shenghe could acquire up to 60% of the venture in the future, but it is unclear if this remains the case.


For Greenland, the rare earths mine in Kvanefjeld is highly controversial. While the project would create jobs, bring in a major new source of revenue, and potentially halt or reverse the out-migration of young people, Greenlandic residents have expressed reservations about the uranium mining required by this project to extract the rare earths. Other possible mining projects would not require such complications, and Greenlanders complained/protested about the lack of transparency and information about the potential social and environmental impacts.


Narsaq, the town closest to the mine, has a population of 1,500. This means that additional labor would need to be brought in for the project, most likely from China. In Greenland, opposition has arisen over the use of foreign workers as well as the possibility of underpaying imported labor, which would bring down local wages.


Greenland's Glaciers Will Continue to Shrink Even If Climate Change Halts


Where's the Risk?

Risks to China


Rare earths give China a market niche but are also highly polluting, requiring infusions of chemicals to separate the rare earth metals which contaminate the water and soil. In May 2019 Xi Jinping visited Ganzhou, in Jiangxi province, a city marked by polluting rare earth mining, and pledged to address its environmental problems which could require up to $5 billion. As Chinese officials attempt to redress the damage to their own rare earth mining centers, Chinese companies increasingly have sought out investments in overseas mining opportunities in Greenland as well as in several African countries.


Shenghe, the minority investor in the Kvanefjeld Rare Earths Project, has suffered from recent devastating floods in Sichuan Province in August 2020, and its stock price has declined by more than 10 percent. Initial estimates of loss to inventory and equipment ranged from $56 to $75 million. The floods required the evacuation of more than 100,000 people in the region.

Leshan Buddha Gets His Toes Wet in August 2020 Floods


A negative vote on the Kvanefjeld project would be a setback for China's ambitious Arctic plans. Since China attained observer status on the Arctic Council in 2013, Chinese companies have sought to invest in energy, mining, and infrastructure projects in several Arctic states, but few have been successful. Should Shenghe and Greenland Minerals succeed, however, concern about China's intentions in the Arctic region would only increase.


Global Risks


The United States and the EU are seeking to decrease their reliance on Chinese rare earths, but the Kvanjefeld project would involve a Chinese company in processing rare earths in one of the few mines operating outside of China. In 2019, a U.S.-led consortium operating the Mountain Pass rare earths mine in California, the only one in the U.S., also sold a minority stake (10%) to Leshan Shenghe Rare Earths. This has created security headaches for the U.S. government. Although rare earths from the mine are used in U.S. military technologies, the U.S. Department of Energy forbids its scientists from collaborative projects due to the Chinese connection.


The European Union is even more dependent on China for rare earths--100% of the EU's rare earths come from China. Hu Zesong, Chairman of Shenghe Resources, the parent company of Leshan Shenghe, tried to assuage those fears by pledging to shift some rare earths processing to Europe if the Kvanefjeld project moves forward since Europe would be the key market.


The U.S. was the leading producer of rare earths until the 1980s, when the industry ran afoul of environmental regulations, as processing technologies are harmful to the environment. By the 1990s, Chinese companies dominated the rare earths market, and accounted for 8o% of processed rare earths and 37% of rare earths reserves.

China's dominance of the rare earths market is not the only concern--Chinese officials have used their position as leverage in unrelated disputes in other countries. Deng Xiaoping realized the advantage of rare earths production back in 1987 when he stated that "the Middle East has oil, China has rare earths." Xi Jinping visited a rare earths processing facility as the trade war with the U.S. developed, and China's authoritative newspaper People's Daily floated the possibility of involving rare earths in unspecified countermeasures to U.S. actions.


There is already some precedent for this. In July 2020, the Chinese government stated it had imposed sanctions against Lockheed Martin in response to a U.S. arms deal with Taiwan, which may involve China cutting off rare earth supplies needed in aircraft production, the Chinese nationalist tabloid Global Times predicted. In 2010, China slowed down deliveries of rare earths to Japan as tensions mounted over fishing and sovereignty in waters they dispute, which led Japan to seek out other suppliers. The U.S. and Japan are now collaborating in exploring less polluting processing methods for rare earths.


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