Rare earths deal likely to ‘set off alarm bells’

Lou Kilzer, Pittsburg Tribune-Review

A proposed deal would send rare-earth elements from America’s single major mine to factories in China, bending if not breaking the idea of full American independence in the strategically vital materials.

“I would be surprised if this doesn’t set off alarm bells in the Defense Department,” Washington-based rare-earth consultant Jeff Green said. The deal was announced this week.

That’s because manufacturers use the 17 rare earths found on the periodic table and other materials to make magnets, iPads, hybrid vehicles, smart bombs, lasers and sonars.

Colorado-based Molycorp Inc., owner of a huge rare-earth mine in California, announced a $1.3 billion plan on Thursday to buy Neo Material Technology Inc., which converts rare-earth raw materials into commercial powders, primarily in China.

Chief executive officers for both companies said in a conference call on Friday that their representatives are talking about the deal with regulators in Beijing and Washington.

Although most of its factories are in China, Neo Material is headquartered in Toronto, where its shares are traded.

Rare-earth prices fell about 50 percent in the past six months. Aprice explosion in 2010 and 2011 was caused by export quotas from China, the world’s largest rare-earth miner.

That produced a buyer’s market for rare-earth properties by Molycorp, which is backed by investment banks Morgan Stanley and Credit Suisee, Green said.

“The transaction will give Molycorp greater exposure to the world’s largest and fastest-growing rare earth-consuming nation — China,” Molycorp said in its announcement.

Molycorp CEO Mark Smith said he doesn’t anticipate that U.S. officials will resist because his mine would produce enough rare earths to satisfy customer demands in America, Japan, Europe and China.

The Tribune-Review first reported in early 2011 a possible deal in which Molycorp would send rare earths to Neo Materials in China. At the time, Smith said he would approach such action with great trepidation because of the political sensitivity of strategic rare earths.

Neo Material CEO Constantine Karayannopoulos said then that there was “a certain amount of jingoism” in American reservation about sending U.S. rare-earth materials to China.

Smith said the deal could be approved in the second or third quarter of this year.

Ed Richardson, president of the U.S. Magnet Materials Association, told the Trib that once rare-earth material gets to China, it can be problematic to get it out.

“Is the government just going to sit by as rare earths are shipped to China? Really?” he said. “To me, that’s stunning.”

Smith said that shipping Molycorp’s material to China is a smart move because China produces most of the world’s rare earths and consumes 70 percent of them.

Molycorp promised a “mine-to-magnets” approach in America since it went public in 2010. How much of that it can accomplish within U.S. borders is unclear. An earlier deal to accomplish that by cooperating with Japan’s Hitachi fell through.

Business considerations will determine whether to put any of Neo Materials’ technological expertise into practice within the United States, Smith said.