- The need for a strategic rare earth reserve
- Why China owns the rare earth market
- How investors can benefit
Tom Vulcan, rare earth metals reporter for HardAssetsInvestor.com, recently had the chance to speak in Washington, D.C., with Mark Smith, CEO of Molycorp Minerals LLC. With its mine at Mountain Pass, Calif., Molycorp currently owns and runs the Western Hemisphere's only rare earth ore mining operation.
Tom Vulcan (Vulcan): Is Molycorp the only producer of the rare earth metals in the Western Hemisphere?
Mark Smith, CEO, Molycorp Minerals (Smith): Actually we don't produce metals as of today. We mine the ore out of the ground, crush and mill the ore to create a concentrate, and then we go through a very sophisticated processing step to produce the rare earth oxides. There is only one country in the world today that can take the oxides and convert them to metals, and that's China.
Vulcan: Has that always been the case historically?
Smith: No, as a matter of fact, at one point the U.S. did have rare earth metal production capacity. However, it hasn't had that capacity for probably about 10 years now. Japan had that capacity for quite some time as well. It was probably in the last three to five years that Japan stopped making rare earth metals, largely because of the high cost of electricity.
Vulcan: What would you say was the major factor leading to the demise of the U.S. rare earth metals industry?
Smith: I would suggest that the demise was due to the fact that more and more of the rare earth manufacturing supply chain moved from the United States to China, including metal production, alloying, strip casting, magnetic powder production and, ultimately, magnet production. We do not make any neodymium iron boron magnets in this country today.
Vulcan: Have we ever made any?
Smith: Yes, the U.S. actually invented the technology. It was a combined research effort between the Air Force and General Motors that discovered neodymium iron boron magnets. They created a new company called Magnaquench, which was located in Indiana. In the early 2000s, a Chinese company came in and bought Magnaquench. Within two years, they had shipped all of the manufacturing equipment over to China. That was our last capability of producing neodymium iron boron magnets.
Vulcan: Goodness!
Smith: I want to make sure, however, that we make one point absolutely clear on behalf of Molycorp Minerals, and that is that we have no hostility and no bad thoughts whatsoever about the Chinese rare earth industry. The Chinese have a wonderful rare earths resource in their country. They have done an excellent job for the last 20 years of taking the ores out of the ground, producing oxides, metals, alloys, powders and magnets.
In the last 10 years, they've taken what used to be a 40,000 tonne per year market for rare earth oxide equivalent, and turned it into what is now about a 125,000 tonne per year market worldwide.
Worldwide demand is predicted to be over 200,000 tonnes by about 2014. China has done an outstanding job of making those rare earths available and expanding the uses of rare earths. Our concern isn't the Chinese and their production capabilities, our concern is the Chinese and their consumption capabilities. Many experts have predicted that the Chinese will be internally consuming many of those rare earths, if not all of them, by about 2014.
