Rare-Earth Mining Rises Again in United States

May 11, 2012 (Source: Wired) — The fight over the minerals that run the electronic world entered a new phase in March when the United States, the European Union and Japan collectively filed a case against China, accusing the rare-earth powerhouse of violating world trade rules to manipulate mineral prices.

At the heart of argument are 17 little-known elements with whimsical, little-known names like europium and praseodymium, that are found in everything from mobile phones and computers to smart bombs and large wind turbines. Traces of the metals can be found around the world, but rarely in high enough concentrations for mining to be convenient or profitable.

China now controls 95 percent of total rare-earth supply. A figurative sneeze on its export policy is all that’s needed to shake global markets, and in 2010 China began restricting rare-earth exports. International prices spiked, reaching near-dizzying levels last summer before crashing in the fall. In the wake of the World Trade Organization case, they’ve perked up again.

Foreign companies buying rare earths from China must now pay more than twice the rate paid by companies inside China. The tiered pricing encourages companies to move factories and jobs to China, where they can be sure of supply and lower prices. Beyond the extra economic boost for China, this has made it easier for Chinese companies to steal foreign intellectual property. Businessmen and politicians worry that China’s dominance over these 17 elements is a strategic vulnerability, discouraging innovation and threatening national defense.

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That may soon change. Encouraged by rising prices and political support, new mines are starting up around the world, most notably in Malaysiaand in California, where a company called Molycorp has reopened what until the 1980s was the world’s flagship rare-earth mine.

“In five years there will be rare earths produced all over the world and China will lose its edge,” said mining analyst John Kaiser, editor ofKaiser Research Online. “Molycorp is part of that equation. They’re putting back into production what was once the largest rare-earth mine in the world. And this is a good thing because it takes away power concentrated in China.”

Located in Mountain Pass, California, about an hour west of Las Vegas, the mine sits atop mineral deposits discovered in the late 1940s by geologists looking for commercial-grade uranium. They found some of the world’s richest reserves of bastnasite, a mineral containing higher-than-usual concentrations of rare-earth elements like cerium, lanthanum and yttrium.

Rare-earth mining began at Mountain Pass in the early 1950s, and by the mid-1980s the mine supplied 60 percent of global demand and 100 percent of U.S. needs. But as Chinese production increased, operations at Mountain Pass dwindled.

Environmental problems also played a role. Salty, radioactive water kept leaking from waste evaporation ponds, leading to the mine’s closure in 2002. Mining for rare earths is classically a very environmentally destructive process, and China’s market domination is due in part to disregard for health, safety and environmental controls. The country has recently started cleaning up its  messiest mines, adding to export controls in pushing rare-earth prices up.

“They were cheap,” Kaiser said, “because China was willing to subsidize the price by producing things with lower environmental and health and safety controls — all the things that we over here don’t allow.”

Six years after the Mountain Pass closure, a group of private investors purchased the mine from Chevron. Molycorp is now giving the mine a $781 million overhaul, and claims it can be both profitable and environmentally responsible, operating without sucking the area dry of water, requiring massive electrical draws or leaving behind a toxic trail.

While those promises will be difficult to fulfill, one promising sign is Molycorp’s response to pressure from the Center for Biological Diversity, an environmental group that initially opposed renovation. Molycorpaddressed their major concern: Rather than transporting waste water offsite through a potentially leaky pipeline, the company will recycle hydrochloric acid and water used in mining, eliminating the need for waste ponds and saving on chemical costs.

While the new technique’s details are proprietary, few doubt Molycorp’s method will genuinely be cleaner than the older extraction method.

 

“The mining regulations in California are probably the strictest in the world,” said Navid Mojtabai of the New Mexico Institute of Mining & Technology. “If they’ve got the permits to operate then they’re already much cleaner than the Chinese.”

As China deals with its own environmental concerns and legal complaints at the World Trade Organization, Molycorp has its own lawsuit to contend with. In February an investor filed a class-action lawsuit against Molycorp, claiming the company overstated demand for its products and its production capabilities.

While none of the lawyers contacted in connection with the case would comment, several analysts dismissed it. According to rare-earth industry analyst Judith Chegwidden, director of the Roskill Consulting Group, the market volatility of 2011 left rare-earth buyers wary, temporarily reducing demand in a way that’s frustrating to investors but not evidence of Molycorp malfeasance.

Meanwhile, Molycorp is ramping up production at Mountain Pass, and looks set to produce 40,000 tons annually by the end of 2013. As the mine begins cranking out neodymium, lanthanum and other materials by the ton, the strategic vulnerability that’s caused so much concern should be eased.

On May 10 Molycorp announced larger-than-expected profits for the year’s first business quarter. All of the the material Molycorp expects to produce in 2012 has already been spoken for, said Molycorp CEO Mark Smith. “Our customers need our product,” he said. “We’re selling everything that we’re producing before it’s even out of the ground.”


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Asher Berube

About Asher Berube

Asher Berube has nearly half a dozen years of professional experience in the online media sector. He started with InvestorIntel in 2011 as the online content manager and now he provides regular posts and commentary as both a contributing writer and editor.
  1. Mining in the U.S, yes.
    Processing and making things of value, well, that’s going straight to China.
    Naive press.

  2. “Guanxi”(Connecting/Networking)
    I asserted above that Chinese managers actively pursue outside ideas, form alliances and partnerships, pay attention to what the markets are saying and make personal sacrifices in order to attain longer term goals. Importantly, and perhaps invisibly from a Western point of view, their activities are strengthened by the culture of “Guanxi” (connecting).
    In business the word “Guanxi” is understood as being a network of relationships/connections among parties that cooperate together. In its simplest form this boils down to exchanging favours, actions which are culturally expected to be done regularly and voluntarily. If you are part of a “Guanxi” (network) then you can expect to both give and receive favouritism, and patronage. “Guanxi” can take many forms, including gifts of money and exchanges of information. Having the right “Guanxi” will make a significant difference to the chances that a business or transaction will be successful. Without it organisations are likely to experience greater risks, frustrations, barriers and disappointments when doing business in China than those who have taken the time (years) to develop the right “Guanxi”. These connections and expectations of behaviours are not only useful for keeping benefits inside the network; they also make it difficult for outsiders to get in. Without the right “Guanxi” outsiders may face formidable difficulties and progress will be more difficult.
    The concept of “Guanxi” is imbedded within the corporate culture. Chinese companies form networks with their suppliers, retailers, banks, and local and high ranking government officials. A universal characteristic of “Guanxi” is that Chinese people feel obligated to do business with their friends first. Given that “Guanxi” is vital to any successful business in China, it is perhaps not surprising that many western businesses feel that the deck has been stacked against them but may not understand exactly why.
    Corralling/ Kettling of Trade
    A disturbing new feature of Chinese commerce is a phenomenon I will call trade corralling, or kettling. Under this way of doing business, Chinese enterprises control the entire trade chain from production to consumption by only dealing with enterprises within the same corral. This practice removes trade from the global marketplace. This practice enables the overall monitor of the corral to obtain its commodities and supply its goods without the inconvenience of having to deal with competitors in the marketplace. Like a wall it keeps insider in and outsiders out. It is arguable that corralled trade is a hardened version of “Guanxi”.
    Western capitalism is based on the idea that buyers and sellers exchange goods in a marketplace at negotiated prices. Corralled trade has its own dynamics. Everything about the trade can be controlled and dictated by someone other than the direct participants. The role of market prices becomes redundant.
    In March 2011 China’s Industry Minister Miao Wei said that his country’s government would buy up foreign iron ore mines to better control iron prices and wean itself from the grip of the world’s major miners. Mr Deng Qilin, President of Wuhan Iron & Steel, told The Australian newspaper that his company is aiming to supply itself with ore, moving away from the “monopolies” of Australia-based BHP Billiton and Rio Tinto and Brazilian giant Vale. He set a target of three to five years to become self sufficient.
    This practice is not limited to iron ore. For example corralling can occur where Chinese enterprises purchases foreign farms or coal mines and then export the commodities produced directly back to China.
    The practice of trade corralling, should it become widespread, will have major implications for Western interests. Some of the possible implications are: 1. the global marketplace for sellers is reduced, 2. the global marketplace for buyers is reduced, and 3. pricing can be opaque
    The global marketplace for sellers is reduced
    Currently ‘China’ is the major customer for BHP & Co. Should China expand the practice of buying up its own mines, BHP’s business would diminish. Given China’s ever proportion of world trade it would be increasingly difficult for BHP to find an equivalent replacement customer.
    Alternatively, should Chinese enterprise establish retail outlets in Gambia, which only sell Chinese sourced products, then faced with a monopoly retailer Gambian and other producers would face a much more difficult struggle to sell their goods.
    The global marketplace for buyers is reduced
    Should corralled enterprises, for example, purchase apple farms in Australia and then export the apples grown directly back to China, then it would prevent Australian consumers from purchasing those apples.
    Pricing may become opaque
    If enterprises with a corral agree to transfer good between countries at prices that do not reflect market prices how should the profits on those transactions be taxed? For example, if a Chinese miner located in Peru is able to produce copper at 1 cent per pound and sells it to a smelter in China at 1.1 cents per pound (well below the global market price), how can the Peruvian government fairly tax the transaction?
    The general effect of corralling trade is that it increases China’s commercial security while simultaneously diminishing opportunities for others. The practice gives China a much higher level of certainty over both the price and supply of commodities but less certainty to others.
    It is difficult to estimate what the overall consequences will be if it becomes a central feature of world trade. However, that said, it is not difficult to imagine how by sideling some of the current major players remaining world markets will thin and prices and quantities will become much more volatile.
    Just as China did not set out to deliberately enrich the rest of the world by trading with it, if China embraces corralling as its preferred trade strategy then the resulting invisible fences may enable China to continue to flourish while those outside become impoverished.
    I note that the practice of trade corralling echoes the focus of China’s inward looking era when it strived for self-reliance and economic independence.

  3. Be wary of “joint venture” Chinese partners?
    Like your “intellectual properties”?
    Like a guy come to your house door and say, “may I have a drink of water”?
    After an hour he tells the homeowner: you leave!
    Beware big dragon “bearing gifts”?
    Never think Win-Win

  4. Oh Iowa farmers:
    We coming to buy up your farm land.
    Why not?
    Buy 1/3 of all Iowa farm land: 8k times 10 million acres = only 80 Billion USD
    Need get rid of USD paper.

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