➤ 2022 is a "watershed" year for relations between Australia and Japan, whose economic ties are underpinned by mining and energy.

➤ "Political will and courage" are needed to attract Japanese investment to develop Australia's critical minerals, which are key for defense and decarbonization.

➤ Japanese entities are likely to take larger positions in projects targeting critical minerals and rare earths Down Under compared with during the 1960s, when the Asian country helped grow Australia's iron ore industry.

Australia Japan Business Council (WA) Chair Richard Sandover. Source: Richard Sandover

The Australia Japan Business Council (WA), or AJBC, was launched in March to develop strong bilateral relations and trade and investment opportunities between the countries' enterprises.

Founding chair Richard Sandover, who spent 43 years working with the resources sector as a lawyer and partner at commercial law firm Jackson McDonald, said the launch proved to be a forerunner for a year of major collaboration between the countries on defense and economic matters, the future of which looks to hinge on rare earths.

Japanese Prime Minister Fumio Kishida visited Western Australia in October, meeting with Australian Prime Minister Anthony Albanese at BHP Group Ltd. unit BHP Billiton Nickel West Pty. Ltd.'s Kwinana nickel sulfate refinery. During the visit, the leaders issued a renewed bilateral Joint Declaration on Security Cooperation to guide their countries' relationship over the next decade. They also formed a partnership to build secure critical mineral supply chains to help advance Japan's advanced manufacturing industry and meet the countries' respective emissions targets.

Madeleine King, minister for resources and minister for Northern Australia, met Kishida in Perth in October ahead of holding talks with Japanese government and industry leaders in Tokyo and Osaka in November, inviting further investment in critical minerals and hydrogen.

S&P Global Commodity Insights spoke to Sandover on the timeliness of the group's formation given current geopolitics, and the role that metals and mining investment will play in the vision the two countries' leaders share for increased regional security. The following conversation has been lightly edited for clarity and space.

S&P Global Commodity Insights: What was the trigger for the startup of the Australia Japan Business Council (WA)?

Richard Sandover: Over 90% of Australia's exports to Japan by value come from Western Australia, and over my career it was obvious that — apart from our proper focus on increasing mining trade with China, which has been massively successful for Australia — we also continue to focus on and develop the energy and mining with Japan, amongst others, particularly emerging critical minerals, rare earths and green energy. Yet other Australia-Japan dialogue groups had become more focused on other sectors and had shifted focus away from Western Australia. So there was a vacuum that needed to be filled.

In 2020, the Western Australia government flagged the need for a group focused on the Australia-Japan relationship based in Perth. Given the successful development of Australia-China trade, Australia seemed to have taken the Japan trading relationship developed in the 1960s and 1970s a little for granted. Australia is a trading nation and increasing the diversification of our markets is critical. This was a view shared by AJBC (WA) Deputy Chair Mayumi Laughton-Smith, and together in support of the state government's proposal we identified a board of like-minded people and founded AJBC (WA) as a not-for-profit business council.

Japan was instrumental in growing Western Australia's iron ore industry in the 1960s. What can be learned from that experience to facilitate the next major wave of mining investment into the state?

The establishment of both the iron ore and liquefied natural gas industries in Western Australia's Pilbara region required not only massive capital, which significantly was made by Japanese investment, but also political will and courage by successive state and federal governments alongside the development of sound policy on which long-term, large-scale investment decisions can be made.

Sound policy is crucial if Australia is to optimize its advantages in the emerging critical minerals and rare earths industries essential for the development of widespread electrification of our modern economy in a green renewables environment. Without these industries, we cannot develop the necessary batteries to underpin the green economy. It is pretty simple, but I believe not widely understood by Australians who are on board with zero emissions but not supportive of the mining industries needed to turn it into a reality.

Hamersley Iron Pty. Ltd. specifically targeted the Japanese market, enabling Nippon Steel & Sumitomo Metal Corporation, now called Nippon Steel Corp., to pioneer the first cargo of iron ore from the Pilbara to Japan in the 1960s.

This decade, the same political will and courage will be required to attract investment for the mining and downstream processing of critical metals and related rare earth materials that will underpin the modern communications, defense, space and satellite systems at the heart of the various strategic agreements signed between Australia and Japan in 2022.

It was no coincidence that Prime Minister Kishida met Prime Minister Albanese in Western Australia, where a significant proportion of the world's iron ore, LNG and lithium are produced. This visit capped off what has been a watershed year between their governments.

While the investment for rare earths and other critical minerals is not going to be on the mega scale of iron ore, as they are different types of industries, it will still require substantive, serious long-term investment. For this reason, we are going to have to significantly increase the Japanese involvement.

What skill set does Japan bring to the table in critical minerals projects, and how will the way they are developed differ from when Japan facilitated Australia's iron ore industry in the 1960s?

In the 1970s and 1980s, Japan's economy surged forward on the electronics industry, and now on the back of those massive investments, they have stepped up their research in robotics, renewables, critical minerals and importantly rare earths processing, along with the natural sciences generally.

While there is no question Japan will do some processing as it is just as eager as Australia to boost skills and build a new workforce on the back of these new technologies and industries, part of the discussions between our prime ministers was around how to share that knowledge.

It is well understood by Japan that if Australia can supply a stable critical minerals and rare earths supply chain, there's going to be a "quid pro quo." From our trading history with them, we know that once Japan gets on board to co-develop these projects, they will be doing so long term, and for that reason Japan is a valuable partner for Australia.

Do Australian and Japanese governments and entities need to change how they engage and invest compared with how they combined efforts for the Western Australian iron ore industry?

Yes. Japanese companies are more likely this time to want to take larger positions in our critical minerals and rare earths projects. Australia is going to demand that we get access to Japan's cutting-edge technology, and that a substantial part of processing is done in Australia utilizing Australian green energy.

Japan and Australia are going to collaborate more closely. Some of the actual infrastructure and other elements of the critical minerals supply chains haven't been created yet outside China. I have been a long-time advocate that processing, as far as possible, needs to occur locally.

Given Australia's advantages with respect to the production of relatively cheap green energy needed in the process, Australia, with support of sound government policy, has an opportunity to develop a comparative advantage in this area, which was not available when the Pilbara iron ore industry was developed. In some respects, the [downstream] processes that need to be applied need to be created or refined for what is still an emerging industry, hence the need for stable long-term partners such as Japan to assist.

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