The European Union has launched a new action plan seeking to reduce its dependence on China’s rare earths. CNBC’s Sam Meredith breaks down what this "RESourceEU" initiative could mean from the factory floor of Europe’s biggest magnet maker.

Europe is intensifying its efforts to reduce reliance on China for rare earth materials, which are critical for technologies such as electric vehicles and defense systems. A major step includes the EU's Resource EU Action Plan, which aims to mobilize approximately three billion euros to support projects like NEO's Rare Earth Magnet Factory in Narva, Estonia—the largest facility of its kind in Europe.

While the EU's initiative has been met with both optimism and skepticism, significant challenges remain, especially given the region's continued dependence on Chinese supplies. Japan's experience in diversifying its rare earth sources is cited as a model, though even after 15 years, it still relies heavily on China. Additionally, the strategic location of new European facilities near the Russian border raises security concerns, though local expertise and EU and NATO membership offer some reassurance.

Europe scrambling to reduce dependence on China’s rare earths

Yeah, good morning Steve. That's right, it really is scrambling to keep up and that's part of the reason we've come out here to Narva in Estonia to take a look at NEO's Rare Earth Magnet Factory. It's a highly strategic one, it's the largest of its kind in Europe. If I could take you through some of the process of what they're doing here, they start off with some rare earths that look a little bit like this, kind of like alloyed kind of corn flakes or razor sharp jigsaw puzzle pieces and then through a highly technical, highly complex process of crushing and grinding and pressurising, you end up with a magnetic block that looks a little bit like this and these are critical to the function for modern technology. Primarily electric vehicles for this company specifically, but also defence applications, offshore wind turbines, the list goes on from there. And it's in this context as well that the EU has announced this Resource EU Action Plan that you alluded to, looking to mobilise about three billion euros or three and a half billion dollars over the next 12 months to support critical raw material projects just like this one. The reaction to it though has been decidedly mixed, there are those that see it as a major step in the right direction and have welcomed it with cautious optimism, to others who see that there's much more that still needs to be done and actually it risks becoming something of a rebranding exercise. Ultimately however for the EU, actually escaping China's mineral orbit remains a massive challenge. Back to you. Who should the West be, I mean obviously the role model out there is do what the Chinese did, but we're 25 years too late for that as well. Is there another nation in the West, I don't know, that is doing this really well and that you should kind of try and mimic as well, maybe the Japanese, the Americans, is there a big nation out there? Exactly, yeah Japan is an excellent example for this. They've been something of a canary in the coal mine when it comes to trying to reduce their concentration risk from Chinese rare earths and diversify away from Beijing and improve their supply chain resilience. It really stemmed about from 2010 when they had a territorial dispute with China and as a result China put export restrictions on rare earths to Tokyo, lasted for about two months or so, so not too long, but it was enough to put policy makers into panic mode and start delivering on that promise to diversify supply chains and they've managed to get from a reliance of more than 90% on Chinese rare earths to about 60%, which is a meaningful difference and huge progress really, but it still is something of a sobering lesson for the EU that in 15 years Japan still gets most of its rare earths from China. Sam, I'm going to go back to a question I asked you earlier on as well. If you were trying to improve the resilience and safety of European rare earths you could probably not pick a place that's more geopolitically concerning than right on the Russian border in the Baltics. Is there any concern about where we are building our, and again there's a great map on the screen now, you can't see it Sam, but it's basically just showing Narva is on the border with Russia as I'm sure you're aware. Is there any concern about where we're placing our facilities? Yeah, it's a question worth asking. I mean we had a look at the border crossing yesterday, it really is directly on Russia's doorstep, so there is a security challenge there I suppose, but when I put this question to NEO's CEO he pointed out that the company already has an infrastructure presence here, they have a facility about 30 minutes drive away that they're able to work together with. They stressed that Estonia is a NATO member, it's a member of the European Union as well, and the local population understands how these very complex materials work, so they're happy to be based where they are.

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