Challenging China in Rare Earth Mining
The New York Times
April 21, 2010
By Keith Bradsher
On a high plateau wandered by burros and jack rabbits an hour’s drive southwest of Las Vegas, a chasm hewn from volcanic rock sits at the center of an international policy debate.
The chasm, in Mountain Pass, California — 400 feet, or 120 meters, deep — used to be the world’s main mine for rare-earth elements, minerals crucial to military hardware and the latest wind turbines and hybrid gasoline-electric cars. Molycorp Minerals, which owns the mine, announced Monday that it had registered with the U.S. Securities and Exchange Commission for an initial public offering to help raise the nearly $500 million needed to reopen and expand the mine.
Molycorp is making a big bet that its mine, now a rusting relic, can be made competitive again. Global demand is surging for the minerals. And customers, particularly the U.S. military, are seeking alternatives to China, which now mines 97 percent of the world’s rare-earth elements.
As part of reopening the mine, Molycorp plans to increase its capacity to mine and refine neodymium for rare-earth magnets, which are extremely lightweight and are used in many high-technology applications. It would also resume bulk production of lower-value rare-earth elements like cerium, used in industrial processes like polishing glass and water filtration.
But Molycorp, like other foundation stones of U.S. industrial pre-eminence that have cracked or eroded under the pressure of foreign competition, faces challenges that may prevent its bet from paying off.
Even riskier are efforts by nearly six dozen other companies in the United States, Canada, South Africa and elsewhere to open new rare-earth mines.
Worldwide sales of freshly mined rare-earth oxides, although growing more than 10 percent a year, are still worth only about $1.4 billion a year, limiting the potential sales from new mines. Molycorp and the other companies face a challenge in matching China’s low costs, a result of low wages and China’s willingness to tolerate heavy environmental damage from such mines, which have turned nearby areas into moonscapes.
Very low prices for rare-earth elements from China contributed to cutbacks at the Mountain Pass mine before it closed in 2002. They also discouraged most entrants to the industry until the past two years, when prices began to climb because of strong demand.
According to the Metal Pages database, cerium prices more than doubled to $4 a pound, or $8.80 a kilogram, in 2007 and have barely fallen since. Neodymium prices quintupled at the same time to $23 a pound and slumped before almost fully recovering over the past winter.
“The pricing of the rare-earths doesn’t make sense — they’ve been way too low for way too long,” said John Benfield, the senior chemical engineer at the Mountain Pass mine. As he spoke, he watched pumps removing from the bottom of the open-pit mine a deep pond of accumulated rainwater and seepage, dyed violent green by mineral contamination.
Molycorp’s plan for an initial public offering on the New York Stock Exchange coincides with a flurry of interest in Washington on whether the United States should reduce its dependence on China for rare-earth elements.
A U.S. Government Accountability Office report, released last week, concluded that American military systems, including army tank navigation systems and navy radars, rely on rare-earth elements from China. The report made no recommendations on what policy makers should do, noting that the U.S. Defense Department planned to finish its own review by the end of September.
Representative Ike Skelton, the Missouri Democrat who is the chairman of the House Armed Services Committee, announced on the same day the report was released that the committee would hold a hearing soon on the U.S. military’s dependence on imported rare-earth elements.
And a bill introduced in March in the House by Representative Mike Coffman, Republican of Colorado, calls for the creation of a national security stockpile and for government loan guarantees for companies that want to mine and process rare-earth elements in the United States. Similar legislation is being drafted in the Senate.
China raised concerns by reducing its export quotas for raw rare-earth elements from 2005 through 2009. A year ago, the Chinese government caused further alarm for Western corporations and governments by proposing a ban on the export of 5 of the 17 rare-earth elements, although no ban has actually been imposed.
China’s actions have ignited frenzied investor interest, as pinstriped investment bankers pack conferences and newsletters tout shares in rare-earth mining companies.
But with the exception of Molycorp and Lynas, an Australian company, most of the companies lack environmental permits and mineral processing equipment, much less the experience to handle safely the radioactive thorium and uranium that almost always contaminate rare-earth ore.
With each start-up typically raising $10 million to $30 million and signing up one or two long-term customers, the ventures are fragmenting the market’s search for reliable supply sources beyond China. A result could be that few mines actually open outside China, which would remain the dominant supplier.
“The customers and the industry are not being discerning enough, and we’re going to end up with 70 rare-earth companies employing geologists and rare-earth directors and no more than five new mines by 2020,” predicted Dudley J. Kingsnorth, the best-known consultant in the industry and an adviser to some of the start-ups.
The Kaiser Bottom-Fish Online index of share prices of rare-earth companies soared eightfold last year and has kept most of its gains. That has encouraged worries about a possible bubble.
“Most of them will get nice share prices for a while, and then what goes up, comes down,” said Judith Chegwidden, a managing director and longtime rare-earth specialist at Roskill Consulting Group in London.
Canadian and Australian producers like the idea that the U.S. government might buy rare-earth elements for a stockpile, supporting prices. But they hate the prospect that Congress might use government-backed loan guarantees to help American producers.
Nicholas Curtis, the executive chairman of Lynas, which is based in Sydney, said that Australia should be considered as reliable a supplier as if it were the 51st state of the United States.
Meanwhile, Molycorp hopes to turn the various business, geological and political forces to its advantage. The company’s Mountain Pass mine, discovered in 1949 by uranium prospectors who noticed local radioactivity, dominated rare-earth element production through the 1980s. Europium from the mine made the world’s color televisions possible.
But a reporter who recently visited the mine site noted that everything, including the processing equipment and the buildings’ door frames, was rusty. Molycorp plans to replace most of the gear by raising as much as $350 million through the sale of a minority stake in an initial public offering and borrowing the rest, using government-backed loans if they are available.
The Mountain Pass mine shut down in 2002, even as researchers elsewhere were perfecting a welter of green energy applications for rare-earth elements. It closed because China’s production costs were lower, because a mine pipeline leaked faintly radioactive water in a nearby desert and because state regulators temporarily delayed renewal of its operating permit.
China increased production in the 1980s, initially hiring American advisers who had worked at Mountain Pass. Cnooc, a government-controlled Chinese oil company, tried to buy the mine in 2005 as part of Unocal, which owned Molycorp then. But Congress effectively blocked the Unocal transaction.
Mark A. Smith, the longtime chief executive of Molycorp, said that after Chevron bought Unocal, Chinese companies were rebuffed in two attempts to buy the mine from Chevron. A group of private equity firms and Mr. Smith bought Molycorp from Chevron in 2008. Goldman Sachs was one of the investors, but it sold its stake to the others last month.
Molycorp hopes to improve safety and environmental protection at the Mountain Pass mine while using new technologies to drive operating costs below the level of those for Chinese mines. The Mountain Pass mine plans to recycle more of the costly acid used in ore processing; use a separate recycling system to reduce the need for fresh water to 30 gallons, or 114 liters, a minute from 850; and install a natural gas power plant to reduce its need to buy costlier, less reliable electricity from distant cities.
At the same time, Chinese costs may be about to rise if the Chinese government follows through on recent pledges to start requiring the rare-earth industry to reduce pollution.
Whatever efficiencies Molycorp achieves, many specialists say that an American national renaissance in rare-earth elements may be a long time coming. The Government Accountability Office said that even if the Mountain Pass mine reopened, the United States had already lost much of its technical capacity to use rare-earth elements in manufacturing.
Molycorp has trimmed its staff of industrial chemists to six, from 30 before the mine closed eight years ago. Chinese rare-earth institutes in Beijing and Baotou have hundreds of researchers.
“They have more employees in rare-earth research,” Mr. Benfield said, “than we’ll ever have.”