*

Ethnic army controls area accounting for nearly half of

global

heavy rare earths production

*

Rebels seek leverage against Beijing, which invested

heavily in

rare earths and supports Myanmar's junta

*

Price of key mineral used in EVs and wind turbines has

soared

since rebel takeover

*

India has expressed interest in the rare earths but faces

major

challenges

By Devjyot Ghoshal, Poppy McPherson, Amy Lv, Neha Arora

BANGKOK, March 28 (Reuters) - When armed rebels seized

northern Myanmar's rare-earths mining belt in October, they

dealt a blow to the country's embattled military junta - and

wrested control of a key global resource.

By capturing sites that produce roughly half of the world's

heavy rare earths, the Kachin Independence Army (KIA) rebels

have been able to throttle the supply of minerals used in wind

turbines and electric vehicles, sending prices of one key

element skyward.

The KIA is seeking leverage against neighbouring China,

which supports the junta and has invested heavily in rare earths

mining in Myanmar's Kachin state, according to two people

familiar with the matter.

Chinese imports of rare earth oxides and compounds from

Myanmar dropped to 311 metric tons in February, down 89%

compared to the year-ago period, according to Chinese customs

data that hasn't been previously reported. Most of the fall came

after October.

Reuters spoke to nine people with knowledge of Myanmar's

rare earths industry and its four-year civil war about turmoil

in the mining belt.

One of them described the move by the KIA, which is part of

a patchwork of armed groups fighting military rule, as an

attempt to drive a wedge between the junta and China.

"They want to use rare earth reserves as a leverage in their

negotiation with China," said Dan Seng Lawn, executive director

of the non-profit Kachinland Research Centre, which studies

Kachin socio-political issues.

Three of the people also detailed previously unreported

interest in the sector by India, China's regional rival, which

they said in late 2024 sent officials from a state-owned rare

earths mining and refining firm to Kachin.

The KIA is one of the largest and oldest ethnic militias in

Myanmar. It fights for the autonomy of the Kachin minority, a

mostly Christian group who have long held grievances against the

Bamar Buddhist majority.

The group has imposed a hefty tax on the mostly

Chinese-operated rare-earth miners working around Panwa and

Chipwe towns in Kachin, according Dan Seng Lawn, whose institute

is based in the state, and a Chinese mining analyst.

China has been one of the staunchest international backers of

Myanmar's military since it deposed a civilian-led government in

2021 and ignited a bloody civil war. Beijing continues to see

the junta as a guarantor of stability along its frontier, though

the military has been ejected from most of the borderlands since

a major rebel offensive in 2023.

A spokesperson for China's Foreign Ministry said the

department was not aware of the specifics of the situation in

the mining belt but it continues to "actively promote peace

talks and provide all possible support and assistance for the

peace process in northern Myanmar."

India's external affairs ministry, the KIA and a junta

spokesperson did not return requests for comment. Bawn Myang Co

Ltd, which the U.S. government previously identified as an

operator of mines in the area, couldn't be reached.

PRICE SPIKE

Chinese spot prices of terbium oxide , whose

supply is concentrated in Kachin, jumped 21.9% to 6,550 yuan per

kg between late September and March 24, data from Shanghai

Metals Market show.

Prices of dysprosium oxide , which is also largely

mined in Kachin but was in lower demand over the last six

months, eased 3.2% to 1,665 yuan per kg during the same period.

Most rare earths from Kachin are processed in China, so a

protracted stalemate would have global implications.

"A prolonged shutdown would likely lead to higher,

potentially more volatile rare earth prices in China, and a

reshaping of market dynamics in the near term," research firm

Adamas Intelligence said in a February note.

EXPORT PLUNGE

Chinese miners started building up major operations in

Kachin in the 2010s, after Beijing tightened regulations on

domestic mines.

Kachin's often unregulated mines steadily expanded after the

2021 coup with the tacit approval of the junta, according to the

U.K-.based Global Witness non-profit.

But the growth came at a heavy cost, ravaging the

environment and leaving Kachin's hills pock-marked with leeching

pools, according to witness accounts and satellite imagery.

Since the KIA's takeover, a 20% tax imposed by the rebels has

made it effectively impossible for local operators to run

profitable mines.

The KIA wants China to stop pushing it to set down arms

against the junta and to recognise the rebels' de facto control

of the border, said Dan Seng Lawn, adding that the parties had

met at least twice in recent months.

The KIA has full control of the border in areas where it

operates and anti-junta groups rule most of the rest of

Myanmar's frontier with China.

Beijing appeared reluctant to accept the KIA's demands, though

it risked its monopoly on Myanmar's rare earth reserves if it

doesn't position itself pragmatically, Dan Seng Lawn said.

Reopening the minerals sector would be a major financial

lifeline to the rebels: Myanmar's heavy rare earths trade stood

at around $1.4 billion in 2023, according to Global Witness.

The KIA has told miners in Kachin it will now allow shipments of

existing rare earth inventories to China, Reuters reported

Thursday.

But to resume operations at full capacity, the KIA needs an

agreement with China, home to thousands of workers with the

know-how, said Singapore-based rare-earths expert Thomas

Kruemmer.

"Without them, this won't work, full stop," he said.

INDIA ALTERNATIVE?

Amid the ongoing tussle, India has attempted to deepen its

influence in Kachin, with which it also shares a border,

according to Dan Seng Lawn and two people familiar with Indian

official thinking.

India's state-run mining and refining firm IREL in December

sent a team to Kachin to study resources there, according to one

of the Indian sources, who spoke on condition of anonymity due

to the sensitivity of the matter.

Indian authorities have reservations about operating in an

area with armed non-state actors, but the Kachin desire to

diversify away from China and New Delhi's need for resources

have pushed the two parties to talk, the Indian source said.

IREL did not return requests for comment.

An Indian delegation that included IREL also held an online

meeting with the Kachins in December to discuss their interest

in reopening the rare-earths sector, said Dan Seng Lawn, who

attended the discussion.

They were willing to pay higher prices than China, he said.

Any India deal faces multiple obstacles, said Kruemmer and

Dan Seng Lawn.

There is only skeletal infrastructure along the mountainous

and sparsely populated Kachin-India frontier, making it

challenging for commodities to be moved from Myanmar to the

neighbouring northeastern states of India. Those states are also

far removed from India's manufacturing belts in the south and

west.

India also doesn't have the ability to commercially process

the heavy rare earths and transform them into magnets used by

industry, according to Kruemmer and the Indian source.

Some 90% of the world's rare earths magnets are produced in

China, which has brought the sector under tighter state control,

followed by Japan.

Nevertheless, if Beijing does not recognise the "changing

power dynamics," Dan Seng Lawn said, the KIA "will have to open

alternative options."

(Additional reporting by Shoon Naing; Editing by Katerina Ang)