Molycorp’s blow to the rare earth sector
And then there was one.
Now Lynas Corp remains the only rare earth mine operating that is owned by a Western listed company. This after the news that Molycorp is placing its Mountain Pass rare earth mine on care and maintenance. In other words, it is mothballing America’s only rare earth mine. Who knows when it will ever re-open.
This is dreadful news. Not for Molycorp so much: the company has already sought Chapter 11 protection and, after all, it did in March warn that with rare earth prices being what they were, they could not guarantee that they would stay in business. The Chinese and Estonian operations will keep going, but that is scant comfort. No, the news is not the sort of thing that the promising future producers of REE need right now.
Its continuing losses, and Lynas’s problems (not to mention falling rare earth prices), have contributed to many investors fleeing the REE sector. The market will not take kindly to this latest development, Molycorp saying last month that a complete shutdown was not an option. Indeed, these were Molycorp’s words on July 2: “The company now has the funds to continue its operations and to move forward on releasing funds to pay post-petition suppliers and some pre-petition essential suppliers, as previously approved by the Court. Employees will continue to work their usual schedules, and purchasing of goods and services can move forward to ensure Molycorp’s customers can be serviced. Between now and the final hearing, the Mountain Pass facility will continue to run in an orderly and controlled way.”
This makes it all more urgent for some – any – of the advanced projects to get into production and show that rare earth mines can work. Fortunately, by and large these are not encumbered by the overheads that faced Molycorp. As The Atlantic magazine pointed out in 2009, Molycorp’s “effort to turn Mountain Pass into an environmentally friendly producer—call it the Whole Foods of premium free-range sustainable neodymium—comes with costs (its) Chinese competitors don’t have to pay: for starters, $2.4 million a year on environmental monitoring and compliance”.
The company went public in 2010. Two years later it outlaid $1.3 billion for Neo Materials Technologies Molycorp carries $1.7 billion in debt.
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The environmental issues were a burden, and that challenge does not confront other emerging producers. In 1998 processing at the mine site was halted after radioactive wastewater flooded the nearby Ivanpah Dry Lake. Then the mine was closed in 2002, the operation not being able to bear the environmental costs as rare earth prices tanked as the Chinese had pushed production in the 1990s and undercut Western mine costs. Then Beijing in 2009 dramatically reduced export quotas (from 50,000 tonnes down to 30,000 tonnes) and suddenly Molycorp and a growing number of Western countries saw their chance. But China – as usual – miscalculated, the soaring REE prices turning end-users to their “recycle, reduce and replace” efforts. (See Christopher Ecclestone’s post yesterday on InvestorIntel outlining the bungle that China has made of its minerals policy, especially the REE sector.)
And here we are.
It’s all a long way from those heady early days. There was great optimism in 1952 when the Los Angeles Times reported that “production from the world’s richest rare earth deposit, discovered several months ago near Mountain Pass, San Bernadino County, is expected to get underway next month”. As the paper noted at the time, “prior to the California discovery of rare earths, the United States was dependent on Brazil and India for these unusual minerals”.
By 1965, the same newspaper was reporting that Mountain Pass, which had been struggling to stay alive, was now a “boom town”. And it predicted that the big deal would be the europium oxide, used in manufacturing tubes for colour television sets.
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