As China Curbs Exports of Rare Earths, U.S. Mining Firm Acquires Deposit in Africa

Len Bracken, Bureau of National Affairs, Inc.

A small U.S. metals mining firm announced Oct. 25 that it acquired a large-scale rare earth element deposit in Sierra Leone because of what it says is growing evidence that China will choke off supply of the minerals.

Sunenergy said in a press release that final documents are being prepared to close this acquisition and plans are under way to finance operations in Sierra Leone immediately, adding that tests show the rare earth elements contained in the heavy black sands of the Pampana River site include lanthanum, scandium, thallium, cerium, dysprosium, hafnium, lutetium, niobium, neodymium, praesodymium, tantalum, and zircon.

China will in fact further reduce quotas in 2011 for rare earth exports–by as much as 30 percent–to protect the precious metals from over-exploitation, according to an unnamed official from the Ministry of Commerce in an Oct. 18 statement. He added that the country is now facing the possibility that reserves of medium and heavy rare earths might run dry within 15 to 20 years if the current rate of production is maintained. The 17 rare earths elements are used in a number of high-tech processes ranging from wind turbines and hybrid cars to missiles.

While China cites the need to maintain its supply of the minerals, other factors are likely involved in the decision to further restrict exports. Legislation in Congress on the alleged manipulation of the yuan, the investigation by the Office of the U.S. Trade Representative into subsidies to the Chinese green technologies industries, and China’s territorial dispute with Japan over uninhabited islands “have not gone unnoticed,” Jeffrey Green, a rare earth industry representative, told BNA Oct. 20.

News reports quote a top Japanese spokesman saying Oct. 25 that his government has sent an official protest to China over the presence of patrol boats near the islands the previous day. Also on Oct. 24, the Japanese trade minister asked a visiting Chinese official to resume shipments of rare earth elements, according to numerous press reports.

Export Disruptions.

Green said that while China has not imposed an official embargo on exports of the minerals, some of his clients report that shipments have been disrupted by being held up in customs for several weeks. Other clients report no disruption.

The industry representative and former staff director for the House Armed Services Subcommittee on Readiness and specialist in acquisitions policy and industrial base issues for the full committee, Green said that the Chinese could be closing in on their quota of 8,000 tons for the second half of 2010.

Higher priced materials are being sold and shipped first, he said, adding that lower cost materials would be unlikely to move until they obtain a higher price. Green has previously spoken on the need for the Department of Defense to clearly outline its future needs of rare earth elements (204 ITD, 10/25/10).

Eileen Appelbaum, senior economist at the Center for Economic and Policy Research, agreed, telling BNA Oct. 22 that there is an important role for government to play in developing a rare earths supply outside of China. The Defense Department could let firms know that the materials will be sourced from them and the firms would in turn ensure supply.

Chinese Reserves.

The Ministry of Commerce statement said China has reduced 2010 production levels as domestic deposits dropped to 27 million tons by the end of 2009–an estimated 30 percent of the world’s total explored reserves–from 43 million in 1996.

Chao Ning, section chief of foreign trade with the ministry, said at a Beijing conference said that reserves of medium and heavy rare earths may only last 15 to 20 years at the current rate of production, which could lead to China being forced to import supplies.

Medium and heavy rare earth, also known as ion-absorbed-type rare earth, is more valuable than the lighter variety and is used in advanced areas such as missiles, according to the statement.

China’s verified reserves of ion-absorbed-type rare earth stood at 8 million tons in 2008, while reserves of light rare earth totaled 50 to 60 million, according to data from the Ministry of Land and Resources.

Call for Production in Other Places.

“China is not the only country that has these deposits, but it has been dominating the world’s supply market for more than a decade, thereby depleting its own resources,” Chao said. He added that strategic, environmental, and economic considerations mean that the country cannot afford to continue shouldering the burden of supplying the world.

The ministry statement said that some developed countries–such as the United States, which alone holds 15 percent of the world’s reserves–depend almost entirely on Chinese supplies.

“They ceased domestic production long ago because importation is more cost effective,” the statement said, adding: “Prices in China rose by fractionally more than 20 percent since 1979 to hit an average of $8,500 per ton in 2009. Prices started to pick up in the middle of that year as the government began to reform the industry by cracking down on illegal mining practices and by reducing exports. Some of the major rare earth oxides, such as neodymium, had rallied 80 percent from January to the end of September, the ministry statement said.

Appelbaum said that the United States has gone from self sufficiency before 1990 in all the stages of the rare earth material supply chain–mining and processing of rare earth materials into alloys and the advanced manufacturing applications that use these materials–to importing more than 90 percent of rare earth materials from China directly or indirectly by 2000.

“The country needs a real industrial policy that ensures we are not dependent on a single supplier for essential industrial inputs,” Appelbaum said. “In the case of rare earth materials, H.R. 6160, the Rare Earths and Critical Materials Revitalization Act of 2010, introduced by Rep. Kathleen A. Dahlkemper (D-Pa.), would help to ensure the country a stable supply” (188 ITD, 9/30/10).

She said, however, that the bill faces an uncertain future in the Senate after being passed overwhelmingly by the House, adding that the United States cannot have a trade policy in which lowest cost is the sole criterion determining production decisions.