Critical minerals in 2026: the rise of rare earths and lessons from the lithium boom

A shifting global landscape and strategic opportunities for 2026 12 min read

If 2024 left the critical minerals sector slightly battered and bruised, 2025 saw it return with vengeance. A number of factors drove this recovery:

• Greater long-term optimism around the demand profile for lithium resulted in a real and sustained price recovery.
• Shifting geopolitical sands generated a surge in rare earths investments (both upstream and downstream).
• Highly motivated market players continued to acquire and/or invest in high-quality copper assets.
• Western governments continued to demonstrate an appetite to deploy their full policy arsenal to address the strategic imperatives of critical minerals and rare earths supply chains.

In this Insight, we explore these factors in more detail and consider what awaits the sector in 2026.

Geopolitical tensions will continue to shape resource strategies

2025 marked a turning point in the evolution of the critical minerals industry. Having weathered bruising commodity prices, operating projects experienced renewed interest after resurgent pricing reemerged. However, the real game changer was rare earths. In the same way that investment in lithium was underpinned by a post-COVID electrification push, rare earths have become the latest in a long line of chess pieces being moved in the geopolitical manoeuvring between the United States and China.

As is the case for critical minerals generally, China controls a disproportionate share of global rare earths processing capacity. While the rocks in the ground are dispersed around the globe, the concentration of one part of the supply chain in a single country represents a substantial strategic vulnerability for the rest of the world. When the US imposed its 'Liberation Day' tariffs, China was swift to impose export controls on rare earths elements. This exposed the US (and the West more broadly) to an undeniable reality: if the status quo is unchanged, this vulnerability would persist.

And so, driven by the Trump Administration, the US and aligned countries (including Australia) have deployed a raft of policy measures to address this reliance (see below for more specific details). Taxpayer dollars around the world are being put to work in rare earths projects, processing and R&D.

While this investment is very welcome (and some would say overdue), the capacity required won't be created overnight. Processing and refining remain the significant bottlenecks in the global critical minerals supply chain, and rare earths, in particular, require highly complex separation processes that are technically challenging and capital-intensive. These challenges require a multi-year (and potentially multi-decade) investment to build sovereign refining capabilities.

In 2026, we expect governments to double down on policies to address these geopolitical vulnerabilities – more debt and equity investments, more significant commodity pricing interventions and long-term supply contracts to underwrite private capital investment. This is good news for Australian critical minerals industry participants (be they aspiring explorers or current producers).

Government investment and intervention intensifies

The first step in solving a problem is recognising there is one. Over 2024 and 2025, Western governments formed a consensus on the urgent need to increase control over materials that are critical for defence, the energy transition and advanced technology.

At the end of 2025, this consensus drove action. Globally, we saw the creation and growth of specialised investment vehicles with specific mandates to provide capital to mining projects from exploration to production, and to support emerging domestic processing capabilities.

In Australia, we've seen a number of new initiatives:

• The $4 billion Critical Minerals Facility provides financing for critical mineral projects that align with Australia's Critical Minerals Strategy through Export Finance Australia (EFA). EFA is collaborating with the Export-Import Bank of the United States (US EXIM) to create a streamlined, single point of entry (SPE) access for funding from both agencies.
• The Australian Government has further committed $15 billion to establish the National Reconstruction Fund to diversify and transform Australia’s economy through targeted investments in priority areas such as renewables and defence. In August 2025, the National Reconstruction Fund took a direct equity stake in Australian lithium producer, Liontown.
• In 2025, Australia joined a growing list of countries that have committed to establishing a $1.2 billion Critical Minerals Strategic Reserve. The details of this mechanism are yet to be finalised and, while time will tell, we expect it will be used as a tool to deliver more certainty to project developers.

State-backed organisations are also playing a growing role in early-stage funding and risk-sharing. For example:

• The US$1.8 billion-backed Orion Critical Mineral Consortium was established by Orion Resource Partners in partnership with the US International Development Finance Corporation and ADQ, an Abu Dhabi-based investment firm. This vehicle is designed to invest in and develop near-term critical minerals assets, secure offtake agreements and deploy scalable mineral technologies across emerging jurisdictions. It prioritises existing or near-term producing critical minerals projects to meet demand from the US, allied nations and industries such as advanced manufacturing and artificial intelligence.
• Japan’s Organisation for Metals and Energy Security (JOGMEC) provides financial support and guarantees to diversify Japan’s supply chains and reduce dependence on foreign suppliers. JOGMEC's initiatives include direct funding for Japanese companies (such as partnering with Sumitomo on its investment in Tivan's fluorite project in Western Australia) to reduce project risk and accelerate development, while also providing debt guarantees for development financing to make critical mineral projects more bankable.

In addition to direct market participation, like-minded governments are pursuing bilateral action to align economic and geo-strategic interests. The signing of the United States-Australia Framework for Securing of Supply in the Mining and Processing of Critical Minerals and Rare Earths in October 2025 (US-Australia Framework) was a milestone for international alignment on policy and investment priorities in the critical minerals industry.¹ In the short term, this ought to result in commitments from both Australia and the US to invest $1 billion to rare earths projects before the end of March this year.

We are in no doubt that investment by, and collaboration between, governments will accelerate this year. The real question is whether the rivers of public money will be followed by private capital dollars. Given the scale of the supply chain exposure, we question whether Western governments can achieve their objectives alone.

Rare earths will turbocharge Australian M&A 

After two years of uneven momentum, Australian M&A activity rebounded in 2025. Total M&A transactions (by number) in critical minerals rose sharply in 2025 to its highest level in six years, while total deal value recovered to around $25 billion. Similar figures have not been seen since the 2022 post-COVID surge. This indicates a market where confidence is returning, but dealmakers remain value-conscious. Our research shows that more transactions are completing, but those transactions are on average more moderate in ticket size. 

In our equivalent publication last year, we correctly predicted an increase in critical minerals M&A activity in 2025. This prediction was based on global mega trends: the ongoing energy transition, an increased uptake of electric vehicles, and a broader re-pricing of supply-chain risk following years of geopolitical tension. They delivered.

Activity during 2025 was heavily skewed towards copper. This steep climb can be attributed to, amongst other factors, copper's long-term role in electrification and grid infrastructure. A projected 30% copper shortfall over the next decade, due to declining ore grades, rising production costs, and extended development timelines, supports continued activity.² We expect that the competition for high-quality copper assets in Australia and other copper exposure will only intensify across public and private markets.

Separately, nickel, lithium and rare-earth elements attracted renewed attention after a muted 2024. Predictions for this year are challenging given the uneven supply outlook. Broadly speaking, nickel, cobalt, graphite and rare earths are expected to meet demand if current projects progress as scheduled. Lithium supply appears adequate in the immediate term, but deficits are anticipated in the medium to long term as electric vehicle penetration accelerates and energy storage requirements expand.

Once the dust settles on the US-Australia Framework, we expect valuations to start to settle, which could fire the starter's gun for significant M&A activity. We predict 2026 will be another active year across critical minerals, and especially rare earths.

Equity markets remain strong

We need look no further than Australian equity capital markets for a demonstration that rare earths are in vogue. Capital raisings were strong throughout 2025, consistent with the activity in 2024. While activity was dominated by copper (330 copper-related deals), 2025 also saw more than 100 rare earths deals. This can be compared to 2024, during which rare earths did not feature in the top-10 critical minerals for Australian capital raisings.

The wave of government support, particularly in the second half of 2025, drove an unprecedented level of demand for rare earth equities, with explorers and developers capitalising on burgeoning investor confidence, underpinned by government capital commitments. The rare earths train shows no signs of slowing down.

Creative financing structures gain traction

Australia’s critical minerals sector continued its turn towards innovative debt structures in 2025, expanding the use of convertible notes, streaming agreements, royalties and offtake-linked deals, along with government investment, to supplement the limited availability of traditional bank debt attributable, in part, to opaque commodities markets. While these alternative funding pathways have long existed in Australian mining, they are now being specifically leveraged in rare earths, lithium and copper projects to secure early-stage capital while markets develop and long-term supply-demand dynamics crystallise.

Convertible notes offer a semi-debt, semi-equity solution—lenders receive interest with the option to convert to equity at a later stage. This flexibility is highly attractive in early-stage critical-mineral projects where cash flow is uncertain, but the upside potential is sizeable. This year, companies have increasingly turned to convertible instruments to attract institutional investors well ahead of production.

Streaming arrangements and offtake prepayments—pre-selling a portion of future production in exchange for upfront capital—have also gained traction. These structures provide immediate liquidity and reduce the pressure on project balance sheets. Alongside traditional royalties, these products enable producers to monetise assets early while preserving upside when commodity prices rally.

Public-sector support reinforces these financing innovations. The Western Australian Government’s interest-free loans and grants to companies like Liontown and Pilbara Minerals have been welcomed in the industry. The Federal Government has allocated $1.2 billion to purchase, own and sell strategic critical minerals and shown willingness to take equity stakes, as evidenced by the National Reconstruction Fund’s $50 million investment in Liontown.

Traditional bank financing remains critical for later-stage projects, with lenders still bullish on the sector. However, 2025 saw Australia’s critical minerals landscape evolve from reliance on pure offtake and royalty models, to a richer tapestry of hybrid financing—a convergence of debt, equity, advance payments and structured streams. This dynamic approach improves financial resilience, accelerates project timelines and offers investors diverse pathways to participate in—and profit from—the critical minerals frontier. Financiers prepared to think outside the proverbial box can look to be rewarded.  

FIRB guidance tightens

It continues to be the Australian Government's stated position that critical minerals investments will face enhanced scrutiny to protect the national interest. There has been no better demonstration of this mantra than the Treasurer taking action in the Federal Court in June 2025 to enforce orders previously made requiring certain PRC-linked shareholders to dispose of a ~10% shareholding in Northern Minerals Limited. This was, significantly, the first case brought by a Treasurer before the Federal Court for an alleged breach of Australia's foreign investment laws.

In the past year, there have been a number of FIRB-approved transactions involving foreign investors from the UK and Japan, including the acquisition of Arcadium Lithium and the joint venture with Tivan. The government's International Partnerships in Critical Minerals program has supported projects involving industry partners from the US, Japan, South Korea and Canada.

The government's preference to work with, and grant FIRB approval to, investors from 'like minded' countries will continue into 2026. In particular, we anticipate more investment from US investors given the new US-Australia Framework.

However, we expect continuing close scrutiny of foreign investment proposals following the government's October 2025 discussion paper on potential reforms to Australia's foreign investment framework. These reforms include a proposal to improve the ability to designate emerging sensitive sectors to enliven mandatory notification and approval requirements. It would be no surprise if critical minerals were added to that list, such that all 10%+ investments in critical minerals companies will trigger a mandatory FIRB approval requirement. The discussion paper also canvasses a proposal permitting the Treasurer to use the foreign investment framework to scrutinise offtake contracts and other sale agreements, in addition to the current scrutiny of equity investments. Any such proposal will likely cover the critical minerals sector.

Federal environmental law reform

Reforms to Australia's Federal environmental laws could significantly impact approvals for critical minerals projects. 

Australia's primary national environmental law, the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) has undergone a once-in-a-generation reform following the passage of amendments to the EPBC Act in late November.

The EPBC Act reforms are intended to improve and streamline the Federal environmental assessment and approvals process, while maintaining strong environmental protections. For rare earths projects, the reforms have the potential to improve the current process, which is generally recognised as slow, complex and inconsistent, and provide a faster, clearer and better coordinated system. 

However, whether the reforms deliver on this potential will depend on how they are implemented. In particular, with the legislation passed, attention must now shift to developing the regulations, National Environmental Standards, policies and guidelines that will underpin the reforms to ensure they are robust and workable.