The discovery of Europe’s first major source of rare-earth oxides in Sweden raises hopes for the continent’s clean-tech ambitions, but making use of the new find will take years and will require creating facilities to handle a complex production process.

A mining company owned by the Swedish government, Luossavaara-Kiirunavaara Aktiebolag, or LKAB, said it found an estimated one million metric tons of rare-earth metals, Europe’s largest such deposit, in January. These minerals typically are used to make the magnets used in offshore wind turbines and electric vehicles.

The find is adjacent to the company’s Kiruna iron-ore mine, an operation that would eventually be expanded to extract the rare earths plus phosphorus, a critical mineral for fertilizers. LKAB is testing the new deposit and plans to apply for an exploitation concession, an early step in seeking approval for a mine, later this year. The company said it would take 10 to 15 years to start recovering the rare earths.

The company is likely to face significant hurdles to mining the rare-earth metals, analysts said. Part of the challenge arises from the low concentration level of the oxide in its mine. Beyond that are factors that might be beyond LKAB’s control, including the need for manufacturing hubs and facilities that can handle the multistep processing of these oxides.

The rare-earth supply chain is long. Mined rare earths are typically processed to produce a concentrate that is then refined into a carbonate, which is then separated into oxides, which are then used to produce magnets.

On top of this, the high cost of production and dearth of expertise creates more barriers. 

“That is the key crux of the problem,” said Suzanne Shaw, head of energy transition and battery raw materials at consulting firm Wood Mackenzie.

Roughly 60% of rare-earth mining happens in China and the rest is spread across the U.S., Myanmar, Australia and other countries, according to the Centre for European Policy Studies, a Brussels-based think tank. 

China controls much of the rare-earth supply chain. It handles 91% of refining, 87% of oxide separation and 94% of magnet production, according to CEPS.

Of the 13% of rare-earth oxide separation done outside China, 2% takes place at a facility in Estonia run by Canada-based Neo Performance Materials Inc. and the remaining 11% is mostly produced in Malaysia by Lynas Rare Earths Ltd., according to CEPS. 

LKAB’s new find will extract rare earths from the mineral apatite, while most current projects involve the minerals monazite and bastnaesite, which businesses understand how to mine and process, said Ross Embleton, a rare-earth research analyst at Wood Mackenzie. 

“There’s a significant level of de-risking that still needs to be required on this project before you can even contemplate production,” Mr. Embleton said. 

Also, LKAB reported that its find has a total rare-earth oxide level of 0.18%, a low level of concentration.

In comparison, a rare-earth mine in California operated by Las Vegas-based MP Materials Corp. has a concentration level of 7%.

LKAB said the deposit, a mix of iron ore, phosphorus and rare-earth minerals, would be profitable from the iron-ore production alone. 

As LKAB explores how to mine its new find, other rare-earth projects are making progress. U.K.-based Pensana PLC aims to mine rare-earth concentrates in Angola, before separating and processing them in the north of England. Projects in Norway and Australia also are making headway.

Still, the rare-earth business has many hurdles, executives said.

“The capital costs to build a refinery outside of China are enormous. Policies such as the Inflation Reduction Act are a big help, but the economics only work when you can produce a high-quality concentrate or carbonate at scale,” said Matt Sloustcher, a spokesman for MP Materials.

MP Materials’ California mine produced more than 34,000 metric tons of rare-earth oxides in the first nine months of 2022. It is also developing separation and alloy production facilities to make rare-earth magnets and has signed an agreement to supply them to General Motors Co.

Write to Yusuf Khan at yusuf.khan@wsj.com