US invests $750 million in South Africa’s rare earths mining project despite diplomatic tensions

The U.S. International Development Finance Corporation invested $50 million in South Africa’s Phalaborwa Rare Earths Project in Limpopo province in 2023, officials said. The funding, part of a $750 million commitment through a partnership with TechMet, supports extraction of rare earth elements critical for electric vehicles and defense, aiming to reduce reliance on foreign sources.

The $50 million equity investment is part of a broader $750 million commitment by the U.S. International Development Finance Corporation (DFC) through its partnership with TechMet, a firm specializing in critical minerals, officials said. The funding was allocated following the commencement of construction on a processing factory at the Phalaborwa site, scheduled for early 2027, according to project director Alberto Bruttomesso. Full-scale production is targeted for 2028, with an anticipated operational life of approximately 16 years.

An interim economic study completed in December 2024 reported a post-tax net present value of $611 million for the project.

The Phalaborwa Rare Earths Project, developed by London-listed Rainbow Rare Earths (LON: RBQ), is located in South Africa’s Limpopo province on the site of a former chemical plant. The project is unique in its approach, extracting rare earth elements from phosphogypsum stockpiles—industrial waste generated by phosphate mining—rather than through traditional mining methods. This above-ground processing bypasses conventional steps such as crushing, grinding, and chemical cracking, according to company officials.

The project focuses on rare earth elements including neodymium and praseodymium, which are critical for electric vehicles, smartphones, and fighter jets. It also targets dysprosium and terbium, used in high-performance magnets for defense systems, wind turbines, and robotics. Rainbow Rare Earths CEO George Bennett emphasized the strategic importance of the defense applications in attracting U.S. investment, citing the project’s role in reducing reliance on foreign sources, particularly China.

Capital expenditure is estimated at $326 million, with an expected EBITDA margin of 70%. Operating costs average $40.83 per kilogram, positioning the project as a competitive, high-margin alternative to traditional rare earth mining, according to consultants at Argus. The project also aims to operate sustainably, with plans to utilize mostly renewable energy sources.

Construction is expected to begin by the end of 2027, contingent on securing necessary permits and financing, sources confirmed. The DFC’s $50 million funding will be deployed only after construction starts. In addition to the DFC investment, Rainbow Rare Earths raised $14.6 million in April 2026 from U.S. family offices and the Traxys Group, further supporting project development.

The Phalaborwa site contains approximately 35 million tons of phosphogypsum byproduct, which has undergone preliminary processing including crushing, milling, and heating by prior owners. This pre-treatment enables the direct extraction of rare earth elements, effectively turning industrial waste into a valuable resource. Project officials noted that this process also serves as an environmental cleanup effort by treating existing waste stockpiles.

The investment aligns with U.S. strategic objectives to diversify supply chains and reduce dependence on China, which dominates rare earth production and processing globally. The DFC’s involvement reflects a broader push to unlock Africa’s mineral potential to meet U.S. demand for critical minerals used in electric vehicles, defense, and high-tech industries. The commitment originated under the Biden administration and was maintained by the Trump administration amid ongoing supply chain concerns.

Despite diplomatic tensions between the United States and South Africa related to land reform and other policies, the investment has proceeded, highlighting the strategic priority of securing rare earth elements. The project primarily aims to supply the U.S. market, with defense applications cited as a key factor in sustaining American interest.

Construction and production timelines remain subject to regulatory approvals and financing arrangements. The Phalaborwa Rare Earths Project represents a novel approach to rare earth extraction and is positioned to contribute significantly to the supply of critical minerals for the U.S. and its allies in the coming decade.