The Real Bottleneck in the West’s Rare Earth Supply Chain: Processing, Not Mining

Highlights

• Despite abundant rare earth deposits, the West struggles with processing infrastructure.
• The West relies heavily on China’s technical expertise and facilities for processing.
• Rare earth element (REE) separation is capital-intensive and technically complex.
• Processing is currently constrained by economic and strategic barriers.
• Government investments and emerging technologies, such as deep-sea mining, may help address the processing bottleneck in the critical minerals supply chain.

Despite political rhetoric and media focus on mining and exploration, the true constraint in the West’s rare earth supply chain lies in one overlooked fact: processing is the bottleneck. In a revealing July 4th report titled The Real Bottleneck in Western Rare Earth Processing Capabilities”, John Zadeh underscores that while the U.S., Australia, and others hold valuable rare earth deposits, they still rely overwhelmingly on China’s  infrastructure—where over 85% of global REE separation occurs, per the U.S. Geological Survey (2024).

The problem isn’t geological. As Zadeh correctly explains, it’s economic, technical, and strategic. REE separation is capital intensive (>$100 million per facility), technically demanding (requiring 1,000+ solvent extraction stages for HREEs), and dominated by Chinese patents and workforce know-how. Even flagship U.S. companies like MP Materials must still send material overseas due to domestic capacity shortfalls.

Denver-based Energy Fuels (opens in a new tab), for instance, ships monazite to Estonia for processing—a workaround that highlights the West’s continued reliance on external midstream solutions, despite growing mining output. The situation reflects a “minerals resource curse” of the 21st century: owning the ore but lacking the ability to capitalize on it industrially.

Zadeh’s analysis also dives into China’s decades-long strategic effort—from $20 billion in R&D to vertically integrated facilities like Baotou—and how Western environmental regulations add up to 30% in extra costs. Meanwhile, deep-sea mining, led by Japan, presents a potential breakthrough, though it faces ecological, legal, and economic uncertainties.

Key investor questions arise

• When will Western REE processing capacity reach critical scale?
• Can new public-private models close the knowledge and capital gap?
• Will deep-sea mining and recycling meaningfully compete with China’s entrenched dominance?

With the U.S. Department of Defense earmarking $1.2 billion for rare earth development in FY2025 and the EU committing over $1 billion via its Critical Raw Materials Act, momentum is building. But as Zadeh concludes, “processing—not mining—is the real frontier.”

For retail investors, this signals a strategic opportunity: watch for REE processors, not just miners. Firms that crack the processing code—or partner effectively with governments—will define the next decade of critical mineral competitiveness.  Rare Earth Exchanges (REEx) would add to the list magnet and other rare earth related component and assembly manufactures as well as disruptive recycling technologies and methods.

REEx empowers investors with insight across the REE and critical mineral value chain. Learn more at www.rareearthxchanges.com (opens in a new tab).  Visit the REEx Forum and for the world’s top rare earth mines (and soon processors/refiners and magnet manufactures see REEx Projects Database.

Citing “by John Zadeh, Discovery Alert, July 4, 2025