Can America Regain the Rare Earths Crown?
by Kidela Capital Group
A rare earth element is like air. It only seems to become important when you are running out.
With China suddenly cutting back on exports while controlling 95 percent of the world’s production of rare earth elements, the United States and other countries suddenly finds themselves vulnerable. This vulnerability has to do with the stability of the supply of these strategic commodities. Countries from around the world have suddenly woken up to the realization that the future of their high technology industries could be in the hands of one supplier – China.
In the USA, this realization comes at a time when the Obama administration has committed the United States to replacing more than a million gasoline powered cars with hybrid and electric cars by 2015. These cars – referred to as “green” vehicles – use A LOT of rare earth elements in their power trains. Reducing the US’s reliance on foreign oil is one motivation for moving to green cars. However, given the current situation, and unless alternative supply sources are found – soon – it appears that the US might be replacing a dependence on one commodity (oil) for reliance on a much more difficult to find and more expensive one (Rare Earth Elements – REEs). And these REEs are almost exclusively available from its main trade rival. Somewhat belatedly the USA has discovered the looming crisis in rare earth availability and has only recently begun to look at securing domestic supplies and rebuilding its supply chain.
“If we don’t think this through, we
could be trading a troubling dependence on Middle
Eastern oil for a troubling dependence on Chinese neodymium.”
Irving Mintzer, Senior Adviser, Potomac Energy Fund
American rare earth dominance ends only recently
And yet, it didn’t have to be this way. Given China’s near monopoly in rare earths production it might come as a surprise to learn that the United States was the world’s leading producer of rare earths as recently as 1995.
Until 1948, most of the world’s rare earths were mined in India and Brazil. In the 1950s, South Africa assumed the status of world’s leading rare earth source, but a single mine in the United States eventually overtook South Africa’s production output. From the late 1950s, into the mid-1980s the Mountain Pass rare earth mine in California was the world’s leading producer of REEs.
The deposits at Mountain Pass were discovered in 1950 by two prospectors who found a radioactive outcrop and assumed they had located a source of uranium. The prospectors were disappointed to learn that their claim did not contain uranium but rather flouro-carbonate bastnaesite. This mineral was completely worthless to them but was very interesting to the US Geological Survey. The Geological Survey undertook further surveys and discovered non-radioactive deposit of bastnaesite. One of the two original prospectors who found the deposit worked for MolyCorp (MCP) and he persuaded the company to claim the land although it didn’t exactly know what to do with its rare earth ore. MolyCorp spent the next two decades developing a market for the rare earth elements found in its mine: Cerium, lanthanum, samarium, gadolinium, neodymium, praseodymium and europium.
Throughout the 1970s and 1980s, the Mountain Pass mine produced more than 70 percent of the world’s supply of these valuable minerals. At the peak of its operations, the mine produced 20,000 tonnes of rare earth oxides a year.
However, during the mid-90’s commodity prices bottomed out and the mine found it increasingly difficult to compete with cheaper Chinese imported rare earths. In 1998, after hundreds of thousands of gallons of water carrying radioactive waste spilled into and around Ivanpah Dry Lake, the chemical processing at the mine was stopped and the mine shut its doors. After the California mined closed, China assumed the mantle of world leader in rare earth extraction.
Whether focusing on REEs was a deliberate and clever trade strategy or a happy accident, China now had firm control of the world supply of REEs. And while demand remained stable and China exported its REEs at low price points, the US became complacent. Remaining REE stockpiles around the country were sold off and the US as a whole let the REE market completely get away from them.
Scrambling to catch up
Fast forward to 2010, and we find that the demand for rare earths has risen considerably given all of the recent discoveries of additional technological uses for the minerals. Just as REE demand has started to ramp up, China began to restrict exports. The US, like other nations, is scrambling to react and get back in the game. However, ramping up a dormant industry is costly and requires a great deal of time. Obtaining a mining license and the associated environmental permits can be described as a regulatory equivalent of a very long cross country steeple chase.
“When you stop mining in this
country, as investment goes down, expertise
on cutting-edge technologies is exported as well.”
Carol Raulston, National Mining Association.
Restarting a mine is no easy task. Environmental regulations in 2010 are considerably more stringent than they were back in the 1970s, costs are multiples of what they were and there is also the challenge to find the expertise needed to mine and process these elements.
While there may be a number of prospective rare earth element sites around the world, the challenge mining companies have is that they have to pay for and put the infrastructure and processes into place necessary to mine and process them.
Until that time, relying solely on Chinese exports does not seem to be an option for the US any longer. The supply chain for a number of commercial and defense related industries has already begun to break down. A Government Accountability Office (GAO) report from April 2010 identified four rare earth element shortages that have already caused some kind of weapon system production delay.
The US government is examining its options. Some of these include: stockpiling REEs supplies, securing other suppliers from around the world and allocating and redirecting REE purchases for defense and national security purposes.
US mining industry lobbies for domestic support
Given its past dominance, it is argued the US has the reserves and capacity to more than meet its domestic needs. Similar efforts have been undertaken in Canada and Australia and both countries are in the early stages of rebuilding the necessary infrastructure.
According to the U.S. Geological Survey, there are 13 million tons of extractable rare earths in the United States, 5.4 million in Australia, and 19 million in Russia and neighboring countries. In 2009, China had 36 million tons.
The US mining industry is acutely aware of the challenges in restarting the US rare earth industry including securing large amounts of investment capital in this rough economic climate. Other challenges include the need to develop and implement advanced mining techniques, and the need to meet stringent environmental impact stipulations. There is also a pressing need for greater domestic research and development efforts related to refining techniques. The process will be a long one and it is has been expected that the return of the US REE industry to former levels will take a decade or more.
“I would say conservatively the
earliest that we could open a mine has to be six to seven years.”
Edward Cowle, President and CEO U.S. Rare Earths
Not your grandfather’s rare earth mine
MolyCorp’s rare-earth separation plant at Mountain Pass, resumed operations in 2007. This year, MolyCorp began using stockpiled rock that was mined under a previous permit and employed new separation technologies. The company expects to sell 3,000 tons of rare earths in 2011 and by 2012. MolyCorp expects to eventually produce 20,000 tons a year, and produce rare-earth products at half the cost of the Chinese. However, the company cannot use the processes used in the mine’s heyday: processes that are both economically and environmentally unsustainable. According to the company, their new techniques are both more environmentally sound and save money, techniques such as eliminating the production of waste saltwater. MolyCorp will use a closed-loop system, converting the waste back into the acids and bases required for separation and eliminating the need to buy and transport dangerous chemicals. The company will also install a natural-gas power co-generation facility on site to cut energy costs.
“We want to be environmentally
superior, not just compliant.
We want to be sustainable and be here for a long time.”
Mark Smith, CEO MolyCorp
MolyCorp is upbeat, but there are still challenges in getting the mine up and running. Memories of the poor environmental record are long and environmentalists state that they and the regulators will be looking long and hard at their start up plans. There is also the key problem that processing the raw product is a costly time consuming exercise. MolyCorp claims it spends only about 10 percent of its budget on actual mining. The big cost is in the process to chemically separate the rare earths from the minerals that carry them. Rock is milled first into gravel, then sand, and then must be separated by repetitive mixing with solvents sometimes tens of thousands of times. Rare earth oxides are useful in some industries, but items like magnets require pure metals which requires even more processing and which can produce even more environmentally hazardous by-products.
To help fund its quest to reestablish a rare earth mining industry in the US, MolyCorp went public this year and has also appealed to the US government for loan guarantees, and financial assistance for research and development.
MolyCorp expects to reach its peak production capacity by producing 20,000 metric tons of cerium, lanthanum, praseodymium, and neodymium. The mine will also produce small amounts of other critical rare earths – samarium, europium, gadolinium, terbium, dysprosium, and erbium. This production output may be enough to sustain many of the domestic needs of the U.S. MolyCorp is also planning to re-establish domestic supply chains by partnering with domestic magnet producers.
The US mining industry is poised to ramp up its domestic rare earth production but the question remains; can the US wait for the 10 to 15 years it will take to bring the rest of the REE industry fully online in the US? Even with support from US lawmakers, will the broader industry be able to be internationally competitive? The costs might be too high for some in this industry. For example, Molycorp has to pay some $2.4 million a year on environmental monitoring and compliance, costs. Until monitoring and regulations to curb their negative environmental impacts take effect in China, Chinese companies do not have these same cost burdens.
Much is riding on how the US weathers the next couple of years. Get
it wrong and it could prove to be very rough going. Get it right, and
the vast majority of people will never know they almost ran out of
vital commodities that are at the very heart of the technology that
keeps the world humming and their homeland safe. As we type this, there
are many dedicated and talented people who are taking great strides to
rebuild their country’s REE
infrastructure and knowledge base in hopes of once again becoming a
world leader in REE
Disclosure: No Positions.
Kidela Capital Group Inc. is a
diversified research, consulting, communications and investor relations
firm. We are dedicated to assisting early to mid-stage companies
achieve their goals by delivering a range of innovative and effective
value added services.
Rare Earths Cripple the Green Economy? Part 1 and Part
2 (Eamon Keane, September 2010)
Rarer Rare Earths Are Not Going To Sink The Wind Power Sector (Charles Morand, Aug 2009)