Malaysia’s Kelantan eyes rare earth riches. Can it dig its way out of debt?

Kelantan’s rare earth reserves offer a potential lifeline for the impoverished Malaysian state, promising a path to slashing debt and driving much-needed economic development. But experts warn it will need to secure more federal funding to build the infrastructure needed to unlock billions of dollars in projected revenue.

The Kelantan state government signed a preliminary deal with Australian mining giant Lynas last week to explore the state’s capacity to supply rare earths to the company’s processing facility in Pahang – the largest rare earths plant outside China.

Lynas’ advanced materials plant in Pahang state currently refines minerals sourced exclusively from its Mount Weld, Western Australia. These include neodymium-praseodymium oxide, as well as heavy rare earths such as dysprosium and terbium – all critical components for high-performance magnets used in electric vehicles, wind turbines and advanced semiconductors.

But Kelantan will first need to convince the federal government – led by a rival political coalition under Prime Minister Anwar Ibrahim – to overlook its mountain of outstanding debt and hand out even more financial support or loans to modernise its public infrastructure, critical for large-scale mining and material transport.