Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / Why Kazakhstan Is Becoming the Rare Earths Wild Card
Transcript
- Lucas: You've heard about the scramble for rare earths — those seventeen elements that go into everything from EV motors to fighter jets. China controls about 60 percent of global mining and 90 percent of processing. But there's a country that rarely gets mentioned that could be the real wild card in this story, and it's Kazakhstan. Luna: I saw a headline last week about a U.S. feasibility study on a rare earths deposit in Kazakhstan. That got my attention. I want to dig into that. Lucas: Exactly. The deposit is called Keregetas, in the south of the country. The U.S. government is funding an assessment through the International Development Finance Corporation. And the numbers are striking — Kazakhstan already produces 40 percent of the world's uranium. It's not new to critical minerals. But on rare earths, it holds the second-largest reserves outside China, after Vietnam. Luna: Second-largest. That's huge. So why aren't we hearing more about this? Why isn't Kazakhstan already the go-to alternative? Lucas: Partly because rare earths are a different game from uranium. Kazakhstan's uranium sector is state-owned, well-developed, and has benefited from decades of investment. Rare earths require complex processing — separating the elements is chemically intensive. China's dominance isn't just about mining; it's about having the refining capacity. And Kazakhstan doesn't have that yet. Luna: So it's a chicken and egg problem. You need refining infrastructure, but you need guaranteed demand to justify building it. Lucas: Right. And that's where the geopolitical tailwind comes in. Western governments are actively looking to reduce China risk. The U.S. Inflation Reduction Act and the E.U.'s Critical Raw Materials Act both create incentives for non-Chinese supply chains. Kazakhstan is landlocked, but it borders Russia and China — that's a logistical headache. But it also has decent rail connections and a history of exporting commodities. Luna: That's the tension: Kazakhstan has the geology but not the processing. And it sits between two giants. If this works, it could reshape the rare earths map. If it doesn't, it's another reminder of how hard it is to break China's grip. Lucas: Speaking of things that are hard to break — if today's episode made something click about the rare earths picture or how emerging markets fit into the global energy transition, that's exactly why we do these deep dives. And the way these stay ad-free, without any sponsor interruptions, is through listener support. If you found this useful, you can head to buy me a coffee dot com slash fexingo. That's it — no special offers, just keeping this going. Luna: Yeah, it genuinely helps. And we don't run ads, so that's the only way the show stays independent. Lucas: Back to Kazakhstan. So the feasibility study at Keregetas is expected to be completed by early 2027. If the U.S. government signs off, the next step would be a pilot processing plant. The estimated cost for a full-scale mine and refinery is around one point five billion dollars. That's not huge in mining terms, but it's a big bet for a country where the rule of law and corruption are still concerns for foreign investors. Luna: And that's the other side. Kazakhstan ranks 93rd on Transparency International's Corruption Perceptions Index. So even if the geology is there, the governance risk is real. How do investors hedge that? Lucas: A few ways. One is through partnerships with state-owned entities, like Kazatomprom for uranium. For rare earths, the government has set up a dedicated company, KazRareEarth, which is supposed to be the vehicle for foreign joint ventures. Another is through the U.S. government's involvement — that provides some political risk cover. And the third is simply that the alternatives are limited. Australia is slow, Canada is expensive, and China is not an option for Western buyers. Luna: So Kazakhstan becomes the path of least resistance, despite the risks. Lucas: Exactly. Now, let's look at what's happening in the broader emerging market space right now. The EEM ETF is at 65.70, down about 2.2 percent over the past five days. That reflects a general risk-off tone — the dollar is still strong, and the strong dollar headwind we've talked about before is still there. But within that, the INDA ETF, which tracks India, is flat at 49.56. India has its own rare earths resources, but it's mostly focused on building downstream manufacturing. Luna: India is interesting because it has rare earths deposits, but it doesn't export much. It's keeping them for domestic use, especially for its defense and electronics sectors. That actually reinforces the point — if every country hoards its rare earths, the supply problem gets worse. Lucas: And that's why Kazakhstan's potential is so strategic. It's not just another supplier — it's a supplier that could serve both Western and Asian markets without picking a side too aggressively. At least for now. The government has maintained a multi-vector foreign policy, balancing Russia, China, and the West. That could be an asset — or it could become a liability if tensions escalate. Luna: Let's talk about the timeline. Even if everything goes perfectly, how long before we see significant rare earths output from Kazakhstan? Lucas: Realistically, five to seven years before commercial production. The feasibility study is step one. Then you need environmental approvals, financing, construction, and then the ramp-up. The processing technology is the bottleneck — you need to separate the elements, and China has a huge head start in that know-how. Some companies are developing new processes that skip some steps, but those are unproven at scale. Luna: So it's not a quick fix. But if the U.S. and Europe are serious about de-risking, they have to start somewhere. And Kazakhstan may be the only option that checks enough boxes: large deposits, existing mining culture, and government willingness. Lucas: There's one more angle worth watching: the role of the Chinese companies already in Kazakhstan. China owns stakes in some of the oil and gas fields, and they've been investing in infrastructure along the Belt and Road. If Kazakhstan builds a rare earths industry, will Chinese firms try to buy in? That could create a conflict of interest for the government — or an opportunity to play both sides. Luna: That's the chess game. The West wants to reduce dependence on China, but Kazakhstan's economy is deeply tied to China through trade. In 2025, bilateral trade hit 41 billion dollars. So Kazakhstan has to balance its desire for Western investment with its existing relationship with Beijing. Lucas: To put a finer point on it: the Keregetas deposit could produce ten thousand tons of rare earth oxides per year at full capacity. That's roughly five percent of global demand today. Not a game-changer on its own, but a meaningful addition. And if Kazakhstan also builds processing capacity, it becomes a precedent for other countries like Mongolia, which has similar deposits but even less infrastructure. Luna: I want to come back to the investment angle. If I'm looking at emerging market equities, how do I play this? Direct mining stocks are thin. Are there any ETFs that capture Kazakhstan? Lucas: There's the VanEck Rare Earth and Strategic Metals ETF, ticker symbol R-E-M-X, which is the closest proxy for the sector. But it's heavily weighted toward China — about 40 percent. There's also the Global X Critical Materials ETF, but again, China and the U.S. dominate. Kazakhstan-specific exposure is tough. The Kazakhstan Stock Exchange is small, and most of the mining companies are either state-owned or private. For now, it's more of a thematic tailwind than a direct ticker play. Luna: So it's a story to watch, not a stock to buy today. But it feeds into the bigger narrative of supply chain reconfiguration, which is one of the most important emerging market themes for the next decade. Lucas: Exactly. And that theme is already showing up in the data. Look at the trade-weighted dollar index — it's at 120.9, down from 121.06 last week. Still very strong, but maybe peaking. If the dollar weakens, that's a tailwind for emerging markets broadly. And within that, the countries that produce critical minerals — like Kazakhstan — could see disproportionate inflows. Luna: One last thing before we wrap: the headline about OPEC+ approving further output increases. That's positive for oil importers like Kazakhstan, which is a net exporter. Higher oil prices help its fiscal position, but they also complicate the inflation picture globally. For Kazakhstan, it's a net positive — it gives them more resources to invest in the rare earths project if they choose to. Lucas: Good point. So the story isn't just about rare earths in isolation. It's about a country that sits at the intersection of energy, minerals, and geopolitics. Kazakhstan isn't going to replace China anytime soon. But it might be the most realistic first step toward a more diversified supply chain. And for emerging market investors, that kind of structural shift is exactly what to look for. Luna: I'll be watching the Keregetas feasibility report. Next episode, maybe we check in on how the digital yuan experiment is going in trade finance — that's another angle that ties into this. Lucas: That's a great idea. We've covered the digital yuan before, but with the recent headlines about cargo vessels in the Red Sea and the Hormuz shipping disruption, trade finance is getting more attention. We'll connect those dots next time.