Rare Earths, Mother Earth and the Return of a Once-Dead U.S. Industry

Rare earth mine in Australia
Rare earth mine in Australia

Renewable energy and electric cars are eco-friendly. Mining operations? Not so much. But inside wind turbines and electric-car batteries are components made from a family of elements called rare earths. An international political battle has been brewing over supply of these increasingly vital and sought-after raw materials (an Australian mine is pictured here). And it's spurring what could be the revival of an industry once left for dead in the U.S.

China now produces over 95% of the world's rare earth elements, though it holds only a little over a third of the world's deposits. The country said this week that it plans to cut its rare earth exports by 35% and levy higher taxes on some of the elements in 2011, Bloomberg reports. China already cut the quota by 72% in 2010, causing a hike in prices and alarming big users of the minerals in Japan, the U.S. and Europe.

Reports surfaced in September that China had in effect banned all shipments to Japan amid a dispute over ownership of islands in East China Sea. The ban was later lifted. U.S. officials said last week they were considering filing a complaint about China's export reductions with the World Trade Organization.

Not So Friendly to Mother Earth

Seventeen elements are classified as rare earths, according to the U.S. Geological Survey. The term is something of a misnomer because many of them are actually abundant in the Earth's crust. However, they're generally difficult to mine at a commercially viable scale and come from only a handful of sources.

China is able to produce more abundant and cheaper rare earth elements partly because their production is a by-product of iron mining. But mining operations aren't known for being environmentally friendly, and the Chinese government has cited the environmental impact of these operations as a key reason for its curb on rare earth exports.

The government reportedly wants to issue tougher regulations for these mines and plans to form an industry association to better monitor and oversee operations. And, of course, Beijing also wants to make sure China's rare earths go first to its domestic manufacturers, which are investing heavily in clean-energy technologies. China began setting production limits in 2009.

Getting the U.S. Back On-Line

All this is getting a big reaction around the world, and particularly in America. Colorado-based Molycorp (MCP) has taken advantage of the political wrangling and growing demand by holding an initial public offering to finance the reopening of an abandoned rare earth mine in California. Molycorp raised around $394 million from the IPO this summer. The mine is the first new U.S. source for producing these minerals in more than a decade.

News of China's export cuts for 2011 has bumped up Molycorp's shares, which rose 6.76% to close at $49.30 per share Wednesday.

Molycorp's California mine contains bastnäsite, which can be processed into neodymium for making magnets used in many technologies, including wind turbines. The U.S. Department of Energy released a report this month that counted dysprosium, neodymium, terbium, europium and yttrium as critical for producing eco-friendly technologies such as wind turbines, electric cars and efficient lighting.

Teaming Up With Japan

Molycorp says it can currently produce 3,000 tons of rare earth minerals per year, though the minerals are coming from a stockpile accumulated before its mine was closed, reports MIT Technology Review. Molycorp is modernizing its mining process and expects to complete the overhaul by the end of 2012, when it plans to start producing 20,000 tons per year.

Earlier this month, Molycorp announced it will form a joint venture with Hitachi Metals in Japan to produce rare earth alloys and resulting magnets. A week before that announcement, Molycorp had said it was embarking on $531 million plan to build a factory near its mine to produce magnets from the rare earth minerals.

Also in early December, Japan's Sumitomo said it will invest $130 million in equity and debt to in Molycorp, which in return will ship processed rare earth compounds to Sumitomo over the next seven years.

Uncle Sam to the Rescue?

The U.S. government has invested billions of dollars in clean energy development in the past two years in order to rescue the sagging economy and promote technologies that can reduce greenhouse gas emissions. The money, coming from the stimulus package, has gone to a variety of research, manufacturing and renewable-energy-generation projects

For one project alone, the government has distributed $2.4 billion to a myriad of car and battery companies to build electric cars and charging networks.

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In another $3 billion program, the government awarded grants to companies that build renewable-energy power plants. In that program, wind-farm developers have been among the big winners. Congress recently extended this grant program for another year, prompting the The Wall Street Journal to pen an editorial calling on Republican lawmakers to get rid of what it calls "green pork."

One man's pork is another man's staple, however, and in the coming battle to produce the next generation of energy-sipping technologies, the U.S. is betting that it's wiser to not let the rare earth and renewable-energy industries starve in this country.

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