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It is part of a government-backed scheme to shift focus from mining minerals to manufacturing value-added products from rare earth elements, says Kirsty Hollis, the chief technical officer of the New Zealand Institute for Minerals to Materials Research.
In 2015 it was announced the Institute would drive a "step change in value and thinking" in how New Zealand's mineral resources are used.
The research was given $11 million by the Ministry of Business Innovation and Employment which said the sector was worth $3 billion a year, with $400 million of that generated by industry on the West Coast.
The new lab project is also backed by Development West Coast.
Ms Hollis says it will be built at the former Solid Energy site for the now-closed Spring Creek underground coal mine near Greymouth - hopefully inside an area called the "bath house", which is ideal for the wet experiments planned.
"There's a need for technical support here - not just on the Coast but wider New Zealand," she says.
"As well as needing to support the projects we've got going, we've got people coming to us saying, 'look, we've got this issue, can you help us with it,' and without having the research capability in terms of a laboratory, we can't provide that support. It has to go off overseas."
The lab will help the local industry by providing technical support. It will handle sample preparations and have metallurgical and heavy minerals separation capabilities.
Ms Hollis hopes the laboratory will drive job growth on the Coast for experienced experts, newcomers to the industry and graduates.
"We want to build the skills and capabilities on the Coast. We want to enable our own research and development - we'll provide technical support for regional and national mining operations, and we'll promote local employment."
The project is part of the sector's strategy for long-term financial sustainability.
A local company is helping to get the lab equipment needed, which is expected to be secured by the end of October, with the goal to open the laboratory by March next year.