Battling A Mineral Monopoly

by Admin on October 12, 2009

in China, In The Media, Rare Earths

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by JOHN T. BENNETT – DEFENSE NEWS – Published: Oct 12, 2009

As U.S. Defense Department officials complete a comprehensive review of the components used to build most U.S. weapon systems, analysts and industry officials say the Pentagon will discover it is almost entirely dependent on China, its chief economic and military rival, for some key minerals.

Beijing possesses a substantial amount of the Earth’s rarest elements within its borders, and Chinese officials have been aggressively buying other such deposits across the globe. The Asian giant uses its monopoly position to raise market prices by cutting production and exports, in part to encourage companies to relocate manufacturing plants there.

China now controls 98 percent of the world’s so-called rare earth oxides that are needed to produce sophisticated commercial and military components, such as electronics, lasers, optics, surveillance and communications systems, magnets and batteries.

The United States imports 100 percent of the rare earths it needs, according to the U.S. Geological Survey (USGS).

As the American military depends more and more on high-technology weapon systems, it becomes ever more dependent on rare earth minerals – and China. That is raising alarms inside the Pentagon.

Enter Molycorp Minerals, which is ready to provide a hedge against China’s ever-increasing rare earth monopoly. The Greenwood Village, Colo.-based firm owns a rare earths mine in Mountain Pass, Calif., that is considered the richest deposit outside China. Owned by a private partnership, Molycorp is the lone U.S. rare earths firm.

For the Pentagon, “rare earths are simply indispensable,” said Mark Smith, Molycorp CEO. “While rare earths are a small part of these weapon systems, they absolutely have to be there – and we’re 100 percent reliant on China right now to get them.”

“Rare earth mining is practically extinct in the West,” said Jack Lifton, a minerals analyst and consultant. Though he said several firms could be ready to begin producing rare earth oxides in “five or 10 years … Mountain Pass is basically the last hook into this.”

Winning Approval

Molycorp slowed production at Mountain Pass in the early 1990s, when China increased its rare earth production and exports. Other Western and American companies exited the business altogether.

“We slowed production to … see what Chinese officials were going to do,” Smith said. The company also was working to obtain a new mining permit from the California state government, a process Smith said took about 15 years.

During that time, Molycorp did not make any major facility upgrades because California regulations only allow equipment to be replaced with nearly identical systems – not the most advanced – until Sacramento approves a new permit. Its old permit expired early this decade, and mining had to stop until a new one was in hand.

Molycorp in 2004 got that new permit and a California-approved 30-year mining plan. Now, the U.S. firm is ready to upgrade Mountain Pass and significantly ramp up production there, Smith said.

The company’s goal is to churn out 20,000 tons of rare earths by 2012, but without new sources of funding it could take up to 10 years, Smith said. Twenty thousand tons, he said, “would be enough to meet all U.S. needs – including defense needs – as well as much of the rest of the world’s needs.”

Smith said it could take up to $450 million to bring the Mountain Pass facility back to its former ability to produce 20,000 tons a year.

Lifton, who visited Mountain Pass in June, called the need for a U.S. source of rare earths crucial, but said Molycorp will be challenged to reach 20,000 tons in three years.

“They haven’t been mining at Mountain Pass since 2002,” Lifton said. “You don’t start and stop mining like a truck.”

Company officials are exploring a number of options to raise the capital needed to hit the 2012 objective, including private-sector and government sources.

Smith said he has met with officials in Washington about a number of federal funding options, including some Energy Department loan programs. And he hopes to receive funding support from private-sector firms.

In the end, Smith said he expects to raise the needed funds from a mix of public and private sources.

The company’s 30-year mining plan envisions potentially doubling the annual 20,000-ton production rate, he said.

A ‘Sea Change’ At DoD

Company officials also have met with Pentagon officials, aiming to educate them about the rare earths market and China’s dominance.

Smith said he does not seek military funding in these meetings. Rather, his message is that government officials should take steps to lock in sources of rare earths from outside Chinese control.

For years, the issue has not received high-level attention in the Defense Department because “these components are so far down the supply chain,” Smith added.

But that is changing, sour-ces say.

“This is going to be an issue that’s going to get a lot of scrutiny” from the Obama administration’s Pentagon team, one DoD official said last month.

Pentagon officials have launched a comprehensive study to assess the origin of all raw materials and other components that go into American weapon systems, according to sources.

Lifton said he has seen a “sea change” in how Pentagon officials view rare earths in the last year.

Before, defense officials “felt like, ‘We only need a small amount, and we can always get a little bit,'” Lifton said. But in recent months, he said, Pentagon brass came to understand that “it doesn’t matter what the price is if China refuses to give us any.”

The price of most rare earth materials has traditionally hovered around $4 or $5 per pound, but Chinese officials hiked prices to about $17 per pound last summer. Beijing has said it soon will usher in further production cuts and exports. Those moves are expected to again raise prices for most key rare elements.

“DoD needs to do something to get that [Mountain Pass] mine back into production” Lifton said, “because the military needs those metals.”

Copyright © 2009 Army Times Publishing Company

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