Chile’s push to become a major rare earth supplier faces a costly industrial gap as the country advances mining and metal production projects without the separation capacity needed to build an integrated supply chain, according to a new study by GEM Mining Consulting. The challenge came into focus with the Oct. 7 inauguration of a demonstration plant at Huachipato in Talcahuano, where Aclara Metals, a 50-50 joint venture between Aclara Resources (TSX: ARA) and Chilean industrial group CAP, is testing technology to convert rare earth oxides into metals and alloys. The facility can produce up to 175 kg of metal daily through molten salt electrolysis, targeting purity of at least 99.5%. The plant will initially process neodymium and praseodymium (NdPr), with dysprosium potentially added later. GEM’s study, Rare Earths in Chile: What if the Biggest Opportunity Comes After the Mine?, warns that developing metallurgical expertise without domestic separation facilities could leave Chile dependent on overseas processors. The findings underscore a broader challenge for countries seeking alternatives to China, which controls approximately 65% of global magnetic rare earth mining, 91% of separation and refining, and 94% of permanent magnet manufacturing, according to International Energy Agency data cited by GEM. The greatest opportunity may therefore lie in processing minerals rather than simply extracting more of them. Missing link GEM estimates that committed global mining supply could reach 107% of projected magnetic rare earth requirements by 2035. Yet existing and announced projects outside China could satisfy only 25% of non-Chinese separation requirements and less than 20% of magnet demand, even as mining capacity expands. The supply chain begins with concentrates or carbonates, which undergo chemical separation to produce individual rare earth oxides or combinations such as NdPr oxide. Metallization converts those products into metals for alloys and permanent magnets used in electric vehicles, wind turbines and industrial equipment. Chile has projects at both ends of that process, but GEM identified no industrial-scale domestic separation operation or permanent magnet manufacturing facility. (Courtesy of GEM Mining Consulting.) Aclara’s Penco Module in the Biobío region received environmental approval in June. An updated preliminary economic assessment released this week values the project at $243 million (C$344 million). The company plans to recover rare earths from ionic clay deposits but still requires additional permits and faces community opposition. In a February 2022 citizen-organized consultation involving more than 7,400 participants, 99% voted against the proposed development, according to Diario Concepción. Chilean Cobalt Corp. is also advancing its NeoRe project, having completed a second development phase in September that included a preliminary resource estimate and conceptual economic assessment. Heavy rare earths represent approximately 30% of its estimated resource basket, while initial carbonate production of about 50 tonnes annually is targeted from early 2027, subject to technical validation, permitting and financing. Neither development currently establishes a complete domestic supply chain. Aclara intends to separate carbonates from its Chilean and Brazilian operations at a proposed facility in Louisiana, US, where it is also considering commercial-scale metals and alloys production informed by the Huachipato trials. Processing economics Building competitive refining capacity remains difficult. GEM estimates that rare earth processing plants outside China can face capital costs 20% to more than 150% higher than Chinese competitors, alongside operating expenses approximately 50% greater. NdPr oxide traded at about $95 per kg in Europe and North America in August 2026 on a cost, insurance and freight basis, according to Benchmark Mineral Intelligence data cited by GEM. That compares with a $110-per-kg price floor under a 2025 agreement between MP Materials and the US Department of Defense. Australian producer Lynas also secured a proposed $110-per-kg minimum price under a March 2026 supply arrangement with the US government. Although these arrangements differ from spot market pricing, they illustrate the government support needed to encourage alternative processing capacity. Chile is seeking to capitalize on that strategic shift. Rare earths are included in its national critical minerals strategy, which aims to diversify the country’s mineral industry beyond copper and lithium. In March, Chile also signed a bilateral agreement with the US to strengthen cooperation on rare earth exploitation and commercialization, supporting efforts to develop supply chains outside China. The country’s vast copper mining industry offers another potential source of feedstock. Hundreds of historical tailings deposits contain material that could yield critical minerals, including rare earth elements, through new recovery technologies. Chile’s economic development agency Corfo has supported initiatives offering approximately $3 million to $4 million in project funding to investigate extracting cobalt and rare earths from mining waste, potentially turning legacy environmental liabilities into valuable resources. GEM’s study warns that tailings recovery must still demonstrate viable extraction economics and produce material suitable for downstream separation. Additional feedstock alone would not eliminate the industry’s processing constraints. The Huachipato facility, located at a steelmaking complex that ceased operations in September 2024, provides an industrial setting for testing advanced metallurgy. Its demonstration-scale output, however, does not establish the commercial viability of a larger operation. GEM identifies adequate feedstock, proven technology, competitive plant capacity, customer qualification and long-term supply and offtake agreements as essential conditions for investment. Chile’s next challenge is to determine whether it can establish commercially sustainable separation and manufacturing operations at home, capturing more value from its mineral resources rather than transferring dependence from Chinese processors to facilities elsewhere.
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