In 1787, Catherine the Great took a tour of New Russia, the territories recently annexed from the Ottoman Empire, in modern-day Ukraine. To show off the wealth of the newly acquired lands, Catherine's lover, the Russian general Grigory Potemkin, supposedly had new villages hastily built along the route, then dismantled once the Empress had passed by. 

This week, US Treasury Secretary Scott Bessent arrived in Ukraine like a modern-day Catherine the Great, and president Volodymyr Zelenskyy wasted no time in spinning up a few Potemkin mining opportunities to win him over.

Donald Trump has spoken repeatedly in recent weeks of his interest in Ukraine's rare earths, suggesting that continued US military aid could be secured on these resources. Zelenskyy and his government have been keen to encourage this interest, signalling they are open to such a deal. 

It is now expected that the terms of such an agreement may be announced at the Munich security conference that will run over the coming weekend. 

Good diplomacy

A rare earth deal makes for good politics. Zelenskyy gets some much-needed leverage with the White House, while Trump gets to demonstrate some of his famed deal-making expertise. There are only two problems with the proposal: Ukraine isn't producing rare earths and probably never will; and even if it did the benefit to the US would be marginal.

The first point is very simple. Ukraine has no rare earth mines, it has no proven reserves, and it has no commercial exploration stage projects. Geologists have pointed to some formations that could prove theoretically exploitable, but there is no sign that they are any more promising than dozens of other such formations all over the world. 

Current rare earth prices simply do not justify spending money on developing anything but a tier one resource in a tier one jurisdiction, and even then the economic case is highly questionable. It is possible, if unlikely, that Ukraine will turn out to hold a tier one resource, but even then, it remains a highly unattractive jurisdiction. 

The only way for the US to get access to Ukrainian rare earths in the foreseeable future would be to directly fund a new mine, or offer huge tax incentives to US companies to put up the cash themselves. 

The question would then be, if the US is funding the project, what does it even get out of the deal? The Ukrainian state retains ownership of all mineral rights. It could theoretically hand over the rights to rare earth projects to the US in exchange for military support.

But in effect, all that would mean would be waiving or transferring the right to levy a royalty on mined minerals. Given that Ukrainian subsoil rents for non-ferrous metals are just 6.25%, this would be represent a very small concession. 

Limited demand

But the second, bigger question is why does the US want Ukraine's rare earths in the first place? Firstly, some numbers. US rare earth imports run to about $200 million per year. 

In comparison, Trump has claimed the deal will cover some $500 billon in rare earths. US military aid to Ukraine has been worth tens of billions since the start of the war. Lynas, the only major non-Chinese rare earth producer, reported revenues of $293 million last year. 

There is no way to make these numbers add up to anything more than smoke and mirrors. 

Politicians and media have a curious fixation on rare earths. They are fundamentally no different to a host of other minor metals: they have small markets, and opaque supply chains, and both supply and demand is highly concentrated in China.

Despite attempts by Western policy hawks and sometimes Chinese officials to depict this Chinese control of the market as a geopolitical strategy, the reason is simple.

China controls the rare earth supply chain because it has by far the greatest demand for these metal, almost entirely driven by the mundane needs of manufacturing industry. Although rare earths do find their way into the defence sector, that remains a very small share of the market. By weight, far more rare earths end up in fridge magnets and lighter flints than get used in missiles and lasers. 

The US simply lacks the sort of large manufacturing sector that could absorb a significant slice of the global rare earth supply, no matter how bullishly one projects future demand from wind turbines and electric vehicles. 

Critical minerals

In a bid to make sense of the US fixation on Ukrainian rare earth, some commentators have suggested that something is being lost in translation, and Trump actually has his sights set on other critical minerals. But even then, the argument is unclear. Despite being widely hyped, Ukraine's lithium resource has been estimated at just 500,000t.

In comparison, the US has 1.8Mt in reserves, and 19Mt in measured and indicated resources, according to the USGS.

Ukraine does boast a historically significant mineral sand industry. But the 5.9Mt ilmenite reserves, as estimated by the USGS, make up around 1% of the global total, with Australia alone boasting 180Mt in reserves. 

The same story is true across a host of other minerals. Ukraine is a big country, with plenty of mining potential, but there simply no mineral prospectivity that is significant enough to tip the geopolitical scales, apart from coal, iron ore and steel industry, which has been devastated by the war. 

Friends of Kyiv will be hoping that a rare earth deal will help Ukraine in peace negotiations. But any effect on global minerals markets is likely to be muted to non-existent.