PETALING JAYA: Malaysia aims to move up the rare earths value chain, but licensing bottlenecks, weak upstream supply and a lack of processing capacity risk stalling that ambition.
Rare earth elements (REEs), a group of 17 metallic elements, are critical to the production of electronics, electric vehicles, renewable energy technologies and semiconductors.
Based on studies conducted by the Minerals and Geoscience Department in 2019, Malaysia holds an estimated 16.1 million tonnes of in-situ non-radioactive rare earth element (NR-REE) resources across 10 states, valued at over RM809.6bil.
In a bid to force value creation at home rather than remain a low-value extractor, Malaysia imposed a ban on the export of raw rare earths from Jan 1, 2024.
However, industry experts caution that without clearer coordination and viable processing capacity, the strategy risks stalling before it gains traction.
Speaking at a Critical Minerals Ministerial in Washington hosted by the United States earlier this month, Foreign Minister Mohamad Hasan said Malaysia wants to deepen its role in global supply chains by anchoring cooperation in domestic processing, manufacturing and investment.
“Malaysia, therefore, seeks to work with partners to move beyond a purely extractive role and towards higher levels of value creation that are commercially viable and sustainable over time,” he said, adding that reliable supply chains “cannot be created by declaration alone”.
At home, however, experts say investment will not flow without clearer policy direction and more consistent execution on the ground.
The government is currently working on a new National Mineral Policy 3 (NMP3), which is expected to supersede the NMP2 introduced in 2009.
While the framework was discussed by the National Mineral Council in July 2024, it remains unclear whether the framework has received Cabinet approval or when it will be finalised.
Industry experts say the most immediate constraint lies upstream, where miners face significant difficulty securing exploration and mining licences.
“Miners want to mine, but they can’t even get access to areas to explore,” said a geologist and industry expert, noting that while companies are willing to invest, many struggle to obtain licences.
To begin operations, firms must first secure an exploration licence (EL), followed by a mining lease (ML), both issued sequentially by state governments.
An EL permits mineral exploration, while an ML allows extraction.
Environmental impact assessments (EIAs), a mandatory but costly requirement for mining projects, can be undertaken earlier.
However, companies typically defer the assessments until licence approvals are secured, as the studies carry significant financial risk if approvals are ultimately not granted.
Beyond EIAs, miners must also navigate overlapping requirements from multiple agencies, including planning approvals such as Kebenaran Merancang, which industry players say add costs without contributing to technical mining assessments.
“All these approvals cost money. Eventually, areas that are economically viable to mine become uneconomical,” the geologist said.
As a result, only a handful of players currently hold licences for rare earth mining in Malaysia.
Even then, not all licence holders are active or prepared to commit the substantial capital required for exploration and development, the industry expert noted.
“There are people who hold licences, but that doesn’t mean they are genuine miners,” he said. “Some are not willing to put millions into exploration.”
Compounding the upstream challenge is Malaysia’s limited technological capability in rare earth mining and processing.
According to Malaysian Chamber of Mines technical adviser Teoh Lay Hock, the country currently lacks proven, commercially scalable technology for environmentally friendly in-situ leaching (ISL) – a method widely used in China to extract rare earths from ionic clay deposits with minimal surface disruption.
“We don’t have that technology yet, so we need sustained research and pilot work,” he said.
At present, Malaysia has only one operating NR-REE mining project – an ion-adsorption clay operation in Kenering, Gerik, developed by MCRE Resources Sdn Bhd.
The project produces rare earth carbonate, a non-radioactive intermediate product.
However, there is no commercial-scale midstream facility in Malaysia capable of processing rare earth carbonate into separated oxides.
This includes Lynas Rare Earths, which operates one of the world’s few rare earth separation facilities outside China in Gebeng, Pahang, but is designed to process mineral-based concentrates imported from Australia rather than locally produced ionic clay carbonates.
“Lynas is not a miner in Malaysia. It processes mineral concentrates, not ionic clay carbonates,” Teoh said, adding that while limited laboratory work is possible, there is no commercial-scale capability to process carbonate feedstock.
Still, while some private companies possess carbonate processing technology, Teoh said they lack sufficient raw material to justify scaling up testing and commercialisation – a constraint that circles back to upstream licensing delays.
“This creates a chicken-and-egg problem,” Teoh said. “Without raw materials, you cannot justify building a midstream plant. But without a midstream plant, miners have nowhere to send their product.”
An analyst said Malaysia’s rare earth challenge is not the absence of regulation, but weak coordination across the value chain.
According to Institute of Strategic and International Studies Malaysia analyst Qarrem Kassim, the country already has laws governing upstream rare earth exploration and mining, including standard operating procedures (SOPs) developed by the Natural Resources and Environmental Sustainability Ministry (NRES) for NR-REE projects.
“The issue is not weak regulation, but uneven implementation and a lack of alignment across the value chain,” Qarrem said.
Mining and land matters fall under state jurisdiction, while industrial strategy, environmental oversight and broader policy coordination sit at the federal level, he noted.
“The result is a coordination deficit that requires stronger convergence between state and federal policy.”
While the federal government sets overall industrial direction, states retain authority over licensing, royalties and land use, resulting in wide variations in environmental safeguards, enforcement standards and commercial terms.
Federal influence, he added, is largely indirect and exercised through approvals rather than direct control, making alignment slower and more complex.
“This fragmentation is evident in the uneven adoption of the NRES SOPs, which have only been formally implemented by a limited number of states,” Qarrem said.
Malaysia’s ionic clay deposits are promising, with NR-REE resources estimated at 16.1 million tonnes and a notional value of between RM800bil and RM1 trillion.
However, Qarrem cautioned that these are geological estimates, not proven commercial reserves, adding that commercial extraction is far from guaranteed.
Many deposits lie in environmentally sensitive areas, including permanent forest reserves, where mining restrictions apply.
“Where mining is prohibited, the economic value of those deposits is effectively zero,” he said.
While the states most frequently cited as having commercially promising deposits include Terengganu, Kelantan, Kedah and Perak, Qarrem said many projects remain at an early stage of exploration, with environmental, social and community acceptance issues yet to be resolved.
He said a potentially important development is the Lynas–Kelantan memorandum of understanding, which would test whether locally mined carbonates can feed into Lynas’ existing refining capacity.
“If such upstream-to-midstream linkages are successfully established, and if offtake commitments are secured, this could materially alter the domestic REE landscape,” he said.
“Without guaranteed processing pathways however, upstream mining remains commercially constrained due to the prohibition on exporting non-beneficiated material.”
Asked where Malaysia stands regionally, Qarrem said Australia is clearly ahead in upstream mining scale, technological maturity and integration into global supply chains, making it a “natural technology and logistics partner for Malaysia.”
Vietnam, meanwhile, is more advanced in downstream segments such as metallisation and magnet manufacturing, largely due to significant Japanese investment, he said.
Despite this downstream strength, Vietnam faces governance bottlenecks in scaling domestically sourced upstream production and separation – challenges similar to Malaysia’s.
“Malaysia’s challenge has been less about technical capability and more about ecosystem integration and investor confidence,” Qarrem said.
“Policy clarity and credibility are therefore critical to positioning Malaysia as a reliable and investable node within diversified mineral supply chains.”
While Malaysia holds promising rare earth resources, Qarrem said realising their full economic value depends on building a complete ecosystem – from mining to processing to manufacturing.
What matters most is not speed, but strategic clarity, he said.
Strategic autonomy, Qarrem stressed, should not be equated with export bans alone.
He said it depends on Malaysia’s ability to build credible upstream supply, viable processing capacity and clear policy alignment.
Without that clarity, the country risks remaining stuck between aspiration and execution in a sector where credibility matters as much as resources.
