Malaysia's Rare Earth Push Faces a Test Over Rivers, Forests and Global Partnerships

RM747 Billion in Minerals, With Water and Forests at Stake

Malaysia's ambition to turn an estimated 16.2 million tonnes of rare earth deposits, valued at RM747 billion ($160 billion), into a major industry faces a sharp environmental test. In November 2025, authorities suspended a rare earth operation and two tin mines in Perak after complaints that part of the Perak River had turned bright blue. At the rare earth site, radiation readings reached 13 becquerels against a limit of 1 becquerel in the project's initial environmental impact assessment.

As of January 14, 2026, the country is pursuing a complete rare earth supply chain while maintaining a prohibition on mining in permanent forest reserves pending environmental and safety studies. Much of its mineral wealth lies beneath those forests. Malaysia is also balancing a critical minerals agreement with the United States against early discussions about a refinery involving a Chinese partner.

Rare earth elements are a group of 17 metallic elements used in electric vehicles, wind turbines, smartphones, advanced electronics and defense systems. Their importance comes from what they help equipment do, including producing powerful permanent magnets and supporting surveillance, navigation and threat detection. Defense uses include sonar, guidance systems, radiation detection and signal amplification.

Global rare earth demand doubled between 2015 and 2023. The International Energy Agency forecasts that demand will triple by 2030 and quadruple by 2040 to meet net zero emissions targets. Its broader estimate for critical minerals also points to demand potentially quadrupling by 2040 as countries reduce emissions. These projections give Malaysia a substantial commercial opportunity, alongside the task of protecting water supplies, forests and communities.

China controls approximately 70% of rare earth processing capacity and all refined heavy rare earth production. It briefly restricted exports to Japan during a trade dispute in 2010 and imposed restrictions on seven rare earth elements in response to U.S. tariffs in 2024. Such controls have increased pressure on Western manufacturers and governments to find other suppliers.

Building an Industry Beyond Raw Mineral Exports

Malaysia already hosts the Lynas Advanced Materials Plant, known as LAMP, in Gebeng, Pahang. The facility processes material from Australian mines and is described as the only industrial scale rare earth separation facility outside China. It produces neodymium-praseodymium (NdPr) metal alloys needed for permanent magnets in electric vehicles and wind turbines.

Malaysia wants to extend that position into a complete chain from mining to magnet production by 2030. Separating rare earths means extracting individual elements from a mixture so manufacturers can use them. A complete chain would allow more of the processing and manufacturing income to remain in Malaysia, rather than earning mainly from the sale of raw minerals.

The government has banned exports of unrefined rare earth minerals to encourage domestic processing. Under the New Industrial Master Plan, it aims to produce 30,000 tonnes of rare earths annually by 2030. Industry representatives have separately suggested potential production of 70,000 tonnes of rare earth carbonates a year. Carbonates are an intermediate material that requires further processing before reaching many final uses.

The Australian High Commissioner to Malaysia has highlighted the importance of diversified supply chains, Malaysia's developed local supply networks and its skilled workforce. More than 90% of equipment for heavy rare earth production is manufactured domestically, according to that assessment. These capabilities provide a starting point for further industrial development.

The international need is considerable. The United States sends more than 95% of its domestically mined rare earths to Asia for processing. New American mines take an average of 29 years to develop, while permitting and licensing smelting and refining projects takes an average of seven to 10 years.

Malaysia's 2030 production target is ambitious against those lengthy development cycles. China and Lynas took decades to reach their present production levels. Even with faster development and international partnerships, Malaysia would need years to make a substantial change to global supply, while demand for clean energy equipment and advanced electronics continues to grow.

American Market Access and Chinese Technology

In October 2025, Malaysia signed a critical minerals agreement with the United States during President Donald Trump's visit to Kuala Lumpur for the ASEAN summit. The agreement commits Malaysia to refrain from bans or quotas on exports of critical minerals or rare earths to the United States and to avoid restrictions on sales of rare earth magnets to American companies.

Washington's aim is to secure alternative supplies for defense and advanced manufacturing. Malaysia, meanwhile, is in early talks about a joint venture refinery with China. Reported discussions involve sovereign wealth fund Khazanah Nasional and a Chinese state owned company, with Malaysian mineral reserves potentially exchanged for access to processing technology.

China has historically banned exports of its rare earth processing technology to preserve its industrial dominance. A technology transfer for a Malaysian refinery would therefore represent a substantial policy departure. Access to Malaysia's untapped deposits could also help China limit competition from Australian rival Lynas Rare Earths.

Malaysia's engagement with both countries reflects its neutral geopolitical stance. Chinese technology could speed the development of processing capabilities, while American partnerships could open Western markets and bring investment. Maintaining regulatory independence while serving partners with competing strategic interests presents a diplomatic challenge.

Investment, Trade and Industry Minister Datuk Seri Tengku Zafrul Abdul Aziz has said Malaysia will retain its ban on raw rare earth exports to protect domestic resources, despite the American agreement. Malaysia also maintains exceptions for pilot projects intended to establish national operating and licensing guidelines. Its policy therefore combines a domestic processing priority with a specific commitment concerning exports to the United States.

The refinery discussions remain at an early stage. Malaysia's commercial opportunity depends on turning proposed partnerships into working facilities while maintaining its own environmental requirements and national priorities.

What Happened Along the Perak River?

The November 2025 suspensions followed complaints about bright blue water in the Perak River, the second longest river on the Malaysian peninsula. Initial investigations found discharges at a rare earth site operated by MCRE Resources Sdn Bhd that matched the color of the affected river water.

Natural Resources and Environment Minister Johari Abdul Ghani told parliament that investigators were examining the chemicals used at the mine and whether the operation had accurately described them to regulators.

The investigation is now focusing on the type of chemicals used in the mining process and whether it is consistent with the information that has been reported to the authorities,

The site's radiation reading of 13 becquerels was 13 times the 1 becquerel limit permitted in its initial environmental impact assessment, or 1,200% above that limit. A becquerel measures radioactive activity. Malaysia's binary compliance approach treats specified numerical limits as a pass or fail test: breaching a threshold can trigger an operational suspension without another legislative process.

MCRE used in situ leaching technology shared by Chinese rare earth companies. This method introduces a chemical solution into deposits underground to release rare earth elements for collection. Investigators' attention to chemical use placed containment, treatment and compliance at the center of the response.

The enforcement action also covered two tin mining companies. Their violations involved effluent discharge, inadequate erosion and sediment controls, and failures in chemical management. Effluent is wastewater leaving an operation; erosion and sediment controls help keep disturbed soil from entering waterways.

Local fishermen near rare earth operations have reported changes in water quality and fish behavior, suggesting pollution upstream. Environmental activists have also raised concerns about groundwater and forest reserves. The Perak incident brought these concerns into immediate focus and showed that a strategically important project can still face an abrupt suspension when environmental limits are breached.

How Clay Extraction Works, and What Studies Found

Malaysia has substantial ion adsorption clay deposits containing valuable heavy rare earth elements. In these deposits, rare earths are attached to clay particles. Compared with mineral deposits extracted through hard rock mining, which typically contain substantial radioactive thorium, these clays generally have lower radioactivity.

Operators commonly extract the elements through in situ leaching. Solutions containing ammonium sulphate or dilute sulphuric acid are injected into formations holding the minerals. The released rare earths are collected and processed. The method requires less excavation than an open pit mine and can reduce disturbance at the surface.

Groundwater remains a central concern because injected chemicals can move beyond the intended extraction area and reach underground water sources. Containment and treatment systems, alongside compliance with environmental standards, determine how an operation manages that risk.

At the Kenering pilot project in Perak, state authorities said only 4% of the designated project area needed clearing for a hydrometallurgical plant, a facility that uses liquid chemical processes to recover minerals. Industry proponents cite that small cleared share as evidence that clay extraction can avoid extensive excavation.

Research by Universiti Kebangsaan Malaysia and Universiti Sains Malaysia at Kenering found no radiation risks under the Atomic Energy Licensing Act 1984, which governs activities involving radioactive materials. The studies also found groundwater within national quality standards and no evidence of chemical leakage.

Abdul Hafidz Yusoff, an associate professor at Universiti Malaysia Kelantan specializing in mineralogy and environmental studies, said researchers were developing monitoring tests to track whether injected chemicals move outside their intended zone. Environmental advocates continue to call for strong enforcement and monitoring, particularly following the Perak River incident.

Most Promising Deposits Lie Beneath Protected Forests

Terengganu, Kelantan, Perak, Kedah and Pahang are the five states with the greatest potential for rare earth discoveries. Across these states, up to 80% of deposits lie within permanent forest reserves, where mining is currently prohibited.

Terengganu holds 7.19 million tonnes, or 44.4% of Malaysia's estimated deposits, with 70% in forest reserves. Kelantan has 2.56 million tonnes, or 15.8% of the national total, mostly within forest reserves. Together, those two states account for 9.75 million tonnes and 60.2% of the national estimate, making forest policy central to the industry's development.

Permanent forest reserves are designated for conservation and sustainable forestry under the National Forestry Act 1984. The Act allows excision, meaning the removal of protected status from part of a reserve, for mineral deposits judged to have substantial national value. An equivalent area must be designated as forest elsewhere to maintain Malaysia's commitment to 50% forest cover.

Meenakshi Raman, president of Sahabat Alam Malaysia, also known as Friends of the Earth Malaysia, argues that replacing a protected area on paper cannot replace its ecology.

Environmentally sensitive areas and ecosystems cannot simply be replaced. Efforts should focus on expanding protected zones, not reducing them.

Her organization wants a federally mandated, legally enforceable prohibition on rare earth mining in permanent forest reserves, environmentally sensitive areas, water catchments, watersheds, core biodiversity zones and customary indigenous territories. Water catchments and watersheds are areas where rain and streams feed a shared water system.

In August 2025, Acting Minister of Natural Resources and Environmental Sustainability Datuk Seri Johari Abdul Ghani said rare earth mining would not be allowed in permanent forest reserves until federal environmental and safety studies were completed. Illegal activity has nevertheless been reported, including mining operations in the Bintang Hijau Forest Reserve in Hulu Perak that authorities raided.

A Study Through 2029, With Rules Split Between Governments

The federal study covers five years and follows conditions before, during and after mining. Its phases provide the next dated milestones for assessing whether operations can proceed safely in sensitive areas.

• 2024 to 2025: The study's phase before mining examines initial conditions.
• August 2025: Johari announced that mining in permanent forest reserves would remain prohibited pending environmental and safety studies.
• October 2025: Malaysia signed its critical minerals agreement with the United States.
• November 2025: Authorities suspended the Perak rare earth operation and two tin mines following the river complaints and regulatory findings.
• 2026 to 2027: The federal study examines the mining phase.
• 2028 to 2029: The study examines conditions after mining.
• 2030: Malaysia targets annual production of 30,000 tonnes and a complete chain from mining to magnet production.

Malaysia's federal structure requires mining approvals and licenses from both state and federal authorities. Different responsibilities and priorities have produced inconsistent implementation of environmental safeguards. State governments seeking revenue may be less willing to designate land and forests as totally protected conservation areas.

M.S. Anuar Mahmod, secretary general of the Rural Consumers and Ecology of Malaysia, has called for explicit legal amendments banning rare earth mining and prospecting in protected zones and removing exceptions. His proposals cover the Environmental Quality Act 1974, the National Forestry Act and the Town and Country Planning Act 1976.

Anuar also advocates a national registry of areas closed to mining, coordinated federally and supported by an integrated digital map accessible to the public. Such a registry would make the boundaries of protected areas visible to communities, operators and regulators.

Some states have embraced pilot projects and development plans, while others have maintained stricter protections. That variation creates uncertainty for investors and operators and leaves environmental protection dependent partly on local enforcement. The Perak suspensions demonstrated the federal government's willingness to intervene when violations occur.

Industry Says Small Surface Footprints Are Possible

Teoh Lay Hock, a professional geologist and technical adviser at the Malaysian Chamber of Mines, argues that forests differ in ecological sensitivity. He believes regulated mining using in situ leaching and strict standard operating procedures could coexist with conservation in areas of lower ecological value. Industry representatives also argue that prolonged indecision would delay development and bring substantial economic losses.

Industry calculations describe a typical mine producing 7,000 tonnes of rare earth carbonates annually as occupying about 2,000 hectares, with only small patches cleared for settling tanks and related infrastructure. At that production rate, reaching the industry's proposed 70,000 tonnes annually by 2030 would require approximately 10 mines nationwide.

Industry representatives estimate that 20 years of production at that rate would affect only 0.003% of permanent forest reserves, assuming operations remained contained and were properly rehabilitated. Their argument centers on the difference between the wider area used for extraction and the smaller area physically cleared.

Datuk Sia Hok Kiang, executive chairman of Malaco Mining Sdn Bhd, identifies several conditions requiring rigorous assessment before mining begins: disturbance to local commodities and existing economic uses of land, slope stability, soil quality, groundwater quality, and plants and animals.

Malaco is working with the Perak government on a pilot for sustainable mining technology. Its approach seeks to avoid tree removal, limit surface clearing and use more environmentally friendly leaching agents instead of ammonium sulphate.

Industry proponents also call for progressive rehabilitation, restoring vegetation and ecological function during or after operations. They advocate continuous monitoring, reporting and verification of water quality, soil condition and biodiversity in real time, with operators required to adjust or pause operations when problems emerge. They argue that these safeguards could protect even sensitive areas such as water catchment forests.

Bukit Merah's Radioactive Waste Legacy

Malaysia's debate is shaped by the experience of Asian Rare Earth at Bukit Merah, Perak. The facility was a joint venture between Mitsubishi Chemical and a Malaysian company. Its history includes operations from the 1980s until a reported closure in 1992 and a shutdown in 1994 associated with illegal disposal of radioactive waste containing thorium.

Thorium has a half life of about 14 billion years, meaning it takes that long for half of a quantity to decay. Bukit Merah became one of Asia's largest radioactive waste cleanup sites. Local physicians reported that thorium contamination from the plant led to increased leukemia, lung cancer, pancreatic cancer and other illnesses among nearby residents.

The experience created lasting skepticism toward new rare earth projects, particularly about radioactive waste and possible health effects. The Fukushima nuclear power plant accident in 2011 added to public concern in Malaysia about activities involving radioactive materials or waste.

Tan Bun Teet, a retired schoolteacher who leads a citizens' group opposed to the Lynas plant, has focused his objection on location and waste storage rather than processing itself.

We are not against rare earths processing,

We're only against the inappropriate choice of site, and the way they're going to keep the waste.

Tan's organization, Save Malaysia, Stop Lynas!, has raised concerns about toxic wastewater reaching groundwater and storage ponds facing monsoon rains that strike the swampy coastline every autumn. The Gebeng plant is in an industrial zone on reclaimed swampland, 12 miles from Kuantan, a city of 600,000 people.

These concerns create political challenges for projects producing radioactive byproducts, even when their expected economic benefits are substantial. Malaysia's current plans must address both the chemistry of newer deposits and the public memory of earlier waste management failures.

What China's Cleanup Costs and Australia's Refinery Show

China's dominance developed alongside extensive environmental damage. A 2014 assessment of rare earth mining and refining impacts on water resources estimated cleanup costs of approximately $314 million for a small segment, less than 10%, of the Dongjiang River watershed, where southern China's rare earth refining industry is concentrated.

In 2019, China's Ministry of Industry and Information Technology estimated that cleaning up illegal mining sites nationwide would cost $5.5 billion. These figures show how pollution can leave costs extending far beyond the operating life of a mine.

Bayan Obo, China's largest rare earth project, has operated for more than four decades. Its waste pond covers 11 square kilometers, about three times the size of New York City's Central Park, and contains toxic sludge with elevated thorium concentrations.

China's State Council described environmental problems from rare earth operations as growing in severity, using the following words:

increasingly significant

The council identified severe damage to surface vegetation, soil erosion, pollution, acidification and reduced or eliminated food crop output. China's tighter environmental regulations and the movement of some polluting refining methods to neighboring countries such as Myanmar show how environmental restrictions can influence where industrial activity takes place.

Australia provides a contrasting regulatory setting. Lynas chose to process its Australian minerals in Malaysia because it received tax incentives. Australian environmental standards are considerably stricter, and the country is developing its own processing capacity with stronger environmental protections.

Iluka Resources is building Australia's first rare earths refinery in Western Australia. It is designed as a zero liquid discharge facility, meaning it will release no water to the environment at any point. For Malaysia, these experiences put both the cost of pollution and the design of waste controls at the center of industrial planning.

Communities, Reuse and Tracking Minerals to Market

Orang Asli families from Pos Lanai in Pahang have opposed a rare earth mining project since 2019 because they fear pollution of their main water source. Possible displacement and disruption of traditional livelihoods add social risks to the environmental debate. Consultation with affected communities and fair compensation are part of the challenge facing developers and governments.

Malaysia's business strategy focuses particularly on local ion adsorption clay deposits, whose radioactive waste problems are smaller than those associated with hard rock deposits. Alongside extraction methods, companies are exploring ways to turn processing byproducts into useful materials for agriculture and construction.

Malaco's plant demonstrating separation technology in Perak uses a different chemical route that produces no solid residue. Its only waste is a fertilizer solution that can be used as a byproduct. This approach forms part of a circular economy strategy, in which materials are reused rather than discarded.

Malaysia is also exploring traceability systems that follow rare earth materials from a mine to the final product. Similar systems are being developed for other critical minerals. Their purpose is to verify legal, ethical and environmental standards and give buyers and governments more visibility into how materials were produced.

International investors and technology partners increasingly require demonstrated environmental performance before collaborating. The Perak suspension shows how enforcement can interrupt production regardless of a project's strategic value. Consistent regulation could also build Malaysia's credibility with investors focused on environmental, social and governance standards, commonly called ESG.

The federal study and continuing forest restrictions may delay some economic benefits, while providing information intended to prevent irreversible damage and social conflict. Malaysia's challenge is practical: develop processing skills, secure markets and investment, protect water and forests, and ensure that promised safeguards work throughout an operation's life.

Key Points

• Malaysia has an estimated 16.2 million tonnes of rare earth deposits valued at RM747 billion ($160 billion).
• The government targets 30,000 tonnes of annual production and a complete chain from mining to magnet production by 2030.
• Malaysia hosts the Lynas processing plant in Gebeng and has banned raw rare earth exports, with exceptions for pilot projects.
• A November 2025 enforcement action suspended a Perak rare earth operation and two tin mines after river pollution complaints and regulatory findings.
• The rare earth site's radiation reading reached 13 becquerels against a permitted limit of 1 becquerel.
• Up to 80% of deposits in the five leading prospective states lie within permanent forest reserves.
• Mining in permanent forest reserves remains prohibited pending federal environmental and safety studies running through 2029.
• Malaysia signed a critical minerals agreement with the United States in October 2025 and is pursuing early refinery discussions involving a Chinese partner.
• Clay extraction can reduce surface clearing, while chemical containment, groundwater protection, waste management and community safeguards remain central concerns.