Why rare-earth mining in the West is a bust

Forget the hype. In the global rush for energy-critical elements, our region can't compete.

 

Author’s note: Four years ago the future looked brilliant for Molycorp, the owner-operator of Mountain Pass, the United States’ only rare-earth mine. Rare-earth prices were sky-high thanks to Chinese market manipulation; in Washington, politicians were backing domestic production to the hilt; and investors were bullish. Measured by its stock price, Molycorp was a $6 billion company. As of this writing, on June 15, Molycorp was worth $101 million. Its shares have fallen from a high of nearly $80 to just 36 cents. The company is $1.7 billion in debt, unable to make payments, and likely to declare bankruptcy at its annual shareholders meeting June 25 in Toronto. If Vegas were giving odds, I’d be willing to bet that soon the U.S. will not have a single rare-earth mine in operation.

I’d also bet that we won’t have one again any time soon, nor a new lithium mine (to add to the single, small one now operating), nor a vanadium mine (despite promising new uses for the metal), nor any mine for any of the 62 so-called energy-critical elements. Each is vital to modern digital or energy technology. The U.S. contains potential sources for many of them, and powerful voices in politics and business insist that the country must exploit them. But despite skyrocketing demand for the energy-critical elements, would-be domestic producers just can’t compete with global forces. This then is a story of comprehensive failure — but not the obvious one. Molycorp’s impending demise reflects failure by politicians and the media to understand how weak China’s grip on the metals market really is, and failure by Wall Street to understand the most basic dynamics of supply and demand, and failure by Silicon Valley to distinguish between hype and hard numbers. Whatever happens next week in Toronto, Molycorp’s story shouldn’t be seen as singular. It should be seen as a warning.

Update, June 23: Molycorp has announced it will postpone its shareholders meeting from June 25 to some time later this year. 

Update, June 30: Molycorp has filed for Chapter 11 bankruptcy

Update, Aug. 25: Molycorp announces closure of its Mountain Pass mine.


Every Sunday at 7 p.m. ET, more than 12 million Americans sit down to watch CBS’ 60 Minutes. But on March 22, most of them were met by a surprise: Instead of the calmly authoritative voices of Morley Safer, Leslie Stahl and the rest of the crew, they encountered the verbal fireworks of basketball announcers. The annual men’s college tournament was in its second round, and several of the games had run long. When 60 Minutes finally came on, around 7:45, however, its viewers were duly rewarded. Stahl hosted an engrossing segment on California’s Mountain Pass Mine and the obscure metals it produces. Called the rare-earth elements, they are key to the production of electric cars, LED bulbs, smartphones, wind turbines and aerospace equipment.

The report’s formal title was interrogatory: “Modern Life’s Devices Under China’s Grip?” Its tone, however, was declarative, in a sinister way. “One country,” Stahl warned, “has a virtual monopoly — roughly 90 percent — of the mining, refining and processing of rare earths: China.” And: “The U.S. developed this technology, but China bought most of it right out from under us.” And, most gravely: “We are dependent on China for our weaponry.” CBS had just gratified one American passion — March Madness — and followed it up with another: the Red Scare.

The segment was good television. It was good politics — Alaska Republican Sen. Lisa Murkowski cited it the next morning in a call for more federal support of mining. But it was not good journalism.

Modern life, or at least its smooth functioning, does depend on rare-earth elements. But it’s absurd to single them out as uniquely vital to the U.S. economy, let alone as a unique vulnerability. American manufacturers in 2014 imported just $210 million worth of rare earths, or about 12,000 tons, just 8 percent of global production. (China’s share of those imports was 75 percent, not 90-plus.) No American manufacturer or defense contractor — not even the Pentagon itself — has ever indicated supply problems. Moreover, more than half of rare earths are simply used as catalysts in petroleum refining; most of the rest go into cars, digital devices and lighting. And the rest of the world is happy to sell America as much oil, autos and gadgetry as it wants.

More broadly, modern life depends on the energy-critical elements, or ECEs. Taken together, they underpin many of the technologies that fall under the “green” or digital umbrellas. In addition to the rare earths, they include the familiar metal lithium, used in the batteries that power phones, laptops and hybrid cars; the obscure metal rhenium, which strengthens the turbine blades of latest-generation, super-efficient jet engines; and vanadium, employed in megawatt-capacity batteries that help rationalize the variable output of wind farms and other zero-emission electricity sources.

On paper at least, the Western half of the United States has rich deposits of these elements, and given that global demand for ECEs is generally rising, communities from Alaska to Wyoming to Texas are filled with the hope that a new mining boom is just around the corner. Among politicians and executives concerned with domestic mineral resources, the same facts have led to two broad strains of thought. One is optimistic –– innovation-focused, investor-oriented and extensively (and too often ingenuously) championed by the tech media. Because the U.S. is rich in ECE deposits, these enthusiasts say, exploiting them is merely a matter of uniting Silicon Valley venture capital with desert-rat elbow grease.

Molycorp’s Mountain Pass rare-earth facility in California’s Mojave Desert.
John Gurzinski

The other strain of thought is more pessimistic, and typified by the 60 Minutes report. People in this camp (including the National Mining Association, the National Association of Manufacturers and members of Congress of both parties) insist that America’s reliance on foreign sources of ECEs threatens our economic and national security. Their solution is predictable: Deregulate and subsidize the mining industry.

But if the camps apprehend the situation differently — a confident “we will dig” versus a fretful “we must dig” — they share two basic assumptions. Both are certain that America’s chief prospects for producing energy-critical elements lie in the West, the nation’s mineral breadbasket. And both believe that the West is just the stroke of a pen away from yet another resource boom.

Dispassionate assessment, however, reveals a bleak picture. Several of the most-hyped newcomers to American ECE extraction have quietly closed up shop in recent months, and many others — including Mountain Pass — are confronting skeptical investors and uncertain futures. Over the past five years, numerous nations have brought new ECE supplies to market, eliminating most threats of monopoly control. (The brief Chinese monopoly on rare-earth elements has long since been broken.) Mining industry analysts see little evidence that the market will fuel a burst of American ECE production, and little reason to believe that one could or should be ignited through policy.

In short, a new American mining boom is nowhere in the cards, and the global nature of ECE production means that neither Silicon Valley nor Washington, D.C., can do much to change that. The Intermountain West, whose mines supplied the raw materials for every economic revolution of the 20th century — copper for electrification, coal for industrialization, uranium for the Atomic Age — faces something completely unexpected in the green and digital 21st: the prospect of a comprehensive bust.

Jim Sims, vice president of corporate communications for Molycorp shows the vats that hold solvents for extracting elements at the Mountain Pass rare-earth facility in California’s Mojave Desert.
John Gurzinski

Every story on American rare-earth production begins in the same place: hard beside I-15 in eastern California, where Mountain Pass — the nation’s sole operating rare-earth mine — sits on a ridge in the bare lands between beyond Barstow and Baker. I visited in April on a rare rainy day; desert-bound and drought-struck, the mine is usually baked by the sun.

Not much to look at — few mines are — Mountain Pass is also not much to walk across. There’s an open pit a few hundred yards wide, a power plant, a water-purification plant, and a short chain of processing facilities ensconced in dun-colored warehouses, all perched on a hillside covered in sage and Joshua trees. About 400 people work there. Low brown mountains rise on three sides; to the west, Baker’s gas stations gleam dully beyond a pink-and-white salt lake. Jim Sims, vice president of corporate communications for Molycorp, which owns the mine, showed me around, and at one point, weighing the mine’s physical scale against what I knew of its importance, I began to remark, “It’s so —.” I intended to say “small.” Sims, open-faced and energetic, completed my sentence with an enthusiastic, “Big!” It’s a matter of perspective; Mountain Pass is larger than many desert towns, but the whole thing would fit easily inside any neighborhood in Vegas or Phoenix.

In a conference room in the mine’s office, a quiet space with neutral shades, vinyl wood and acoustic tiles, Sims outlined the mine’s history. At some point, I remarked that every mine office seems to share the same style; call it Extraction Modern. (It’s conclusively identified by a closet filled with hard hats and goggles for visiting journalists.) Sims laughed.

The Mountain Pass rare-earth deposit, Sims explained, was discovered in 1949, when exploratory geologists sent a curious rock sample to the U.S. Geological Survey. They were hoping it contained uranium, which it did, along with thorium, though both in very low concentrations. It also contained rare-earth elements — in quite extraordinary amounts. Concentration in the original sample area topped 40 percent. Further exploration revealed a book-shaped ore body sloping into the earth, with an average 8 percent concentration in the easily accessed portion. For comparison, copper ore is generally economically viable at 0.6 percent. By any measure, this was rich stuff.

The problem was that nobody had much use for it in 1949.

The rare earths are a tight-knit family of 17 elements. Fifteen of them fill out a single row near the bottom of the periodic table; two others, higher up, complete the total. All feature an outer shell containing two electrons, which helps account for their similar and curious chemical properties. They tend to be magnetic, and they tend to phosphoresce — to give off light or other forms of electromagnetic radiation — when bombarded with subatomic particles or charged with electricity. Geologically, they travel in a pack: Where one is found, all are found. Sixteen of these elements are not even particularly rare; proven reserves alone are in the millions of tons. The name “rare earth” refers rather to the fact that they don’t often form concentrated mineral deposits. Mountain Pass has one of the best deposits of rare earths on the planet.

But decades ago, when “high tech” meant automats and automatic transmissions, their curious properties had no obvious economic utility. The founders of Mountain Pass got by in the 1950s by supplying the defense and scientific communities with oddments for general research. Then, in the early 1960s, everything changed: A compound containing europium was found to emit a brilliant red light when bombarded with electrons. Almost overnight, it turned early color TVs from muddy affairs into Technicolor wonders, and Mountain Pass, which contains europium in abundance, became a figurative gold mine. Over the next four decades, the mine flourished as uses were found for other rare earths: in medical scanners, lasers, and especially in fluorescent lights and microchips. Individual bulbs and chips used micrograms of rare earths. Multiplied by the billions, they used kilotons.

Sims and I toured the facilities in his black SUV. Dodging Caterpillar dump trucks carrying 100-ton loads of ore and overburden — the waste rock that’s dug up to expose the ore — we crept up the muddy mine roads, keeping to the posted 14 7/8 mph speed limit. (The official limit is 15 mph, of course, but the signs “keep us honest,” Sims said.) At the very top of the mine, a crusher reduced chunks of ore to pea-sized gravel. A humming conveyor belt transferred the peas to a warehouse, where a spinning, barrel-shaped ball mill, loaded with iron spheres, pounded them to fine powder. Hissing compressors squeezed the powder into dry, crumbly cakes. Beyond that lay alchemical mystery: The cakes vanished into the processing facilities, where, hidden inside various proprietary acid vats and solvent extractors, the ore was slowly dissected into its constituent rare-earth oxides.

After the raw outside air, the warehouse was pleasantly warm. It was also thunderously loud, so when I tried to thank the mill operator for his comfortable reception, I had to bellow my gratitude. He smiled. The building, he yelled back, has a brand-new ventilation system that keeps it comfortable year-round. In the old days, the humidity sometimes got so bad that in summer, the warehouse filled with fog. Winter was worse: On really cold days, it snowed indoors.

The real surprise, though, was that there was anything brand-new at Mountain Pass. The constant noise and bustle made it hard to imagine, but for most of the past 15 years, there was nothing happening at the mine at all.

 

The pit mine at the Molycorp Mountain Pass rare-earth facility in California’s Mojave Desert in April.
John Gurzinski

Beginning in the early 1990s, after 30 years of unchallenged domination of the rare-earth market, Mountain Pass ran into difficulties. Repeated spills from its wastewater pipelines contaminated the Mojave National Preserve — a vast saltbush-and-saltpan wilderness, home to the endangered desert tortoise — with small amounts of lead and trace amounts of radioactive barium, uranium and thorium. In 1997, federal and state authorities brought legal action against Molycorp. (Environmentally, rare-earth mining is generally low-impact. Extraction is chemical, not thermal — no fuel-hungry furnaces — and the chemicals involved are easily neutralized or contained: common acids and bases, water and oils. The chief concern is the trace amounts of mildly radioactive elements that occur in all rare-earth deposits. Modern best practices contain these effectively, and Westernized nations and, increasingly, the Chinese government enforce these practices. The nightmarish tailings lake in Baotou, Inner Mongolia, is a legacy of China’s earlier unregulated industry.)  

About the time that Molycorp ran into trouble, China initiated a state program to develop its own extensive rare-earth deposits. For the first time, Mountain Pass faced serious competition. In 1998, battered by unfavorable prices and threatened by huge cleanup costs, Molycorp shut down the processing facilities. The excavation and concentration of ore continued for a few more years, but in 2002, Mountain Pass shut down entirely.

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Meanwhile, Chinese production boomed, bolstered by demand from two new technologies: LED light bulbs and, especially, the small but powerful magnets found in hard drives, smartphones and the generators of hybrid vehicles and wind turbines. As demand for both products intensified in the 2000s, China found itself in the catbird’s seat: It already dominated their production, and now it dominated the supply of their raw materials.

And so things might have continued, but then China, with 97 percent control of the rare-earth market, did the one thing that could change the situation: It deliberately sent prices into the stratosphere.

In 2009, it announced export controls on its rare earths, cutting them by 40 percent. Then, in September 2010, a Japanese naval vessel interdicted a Chinese fishing boat near the disputed Senkaku Islands and arrested its captain. The islands are little more than rocks, and the dispute had more to do with historic Sino-Japanese conflicts than modern state interests. Still, the Chinese government responded ferociously. It ceased all exports of rare-earth elements to Japan, a lighting and automotive powerhouse. The market for rare earths panicked, and prices spiked as much as 2,000 percent.

Immediately, the world’s media were agog over what they called a “captive” global market. “China’s lock on market for rare earth elements: Why it matters,” read a representative Christian Science Monitor headline. But that is pretty much where the popular narrative on rare earths ended. (“They’d been working on that story for two years,” Sims said when I approached him, coincidentally, a few days after the 60 Minutes segment aired.)

Of course, the mining industry sprang into action, and back-page stories soon noted the consequence of high prices: increased supply. In December 2010, just two months after the naval incident, Mountain Pass began processing ore again. That same month, the Japanese conglomerate Sumitomo invested $130 million in Molycorp to upgrade the mine’s facilities. The new Mountain Pass opened in 2012. (Among other improvements, Sims emphasized its closed-loop water system and encapsulated, dry tailings impoundment, which eliminate the chance of further wastewater spills.) By 2014, America’s only rare-earth mine was producing 4,700 tons a year.

But the mining industry operates without any particular loyalties. Australia opened the Mount Weld rare-earth mine in 2011; at full capacity, it may add 22,000 tons of annual supply to the roughly 150,000 tons of annual demand. A joint partnership between Japan and Vietnam began producing small amounts in 2012; it may eventually produce 10,000 tons per year. Worldwide, nearly 60 rare-earth deposits in 16 countries are currently in advanced development. Far from controlling global supply, China no longer even controls its own: It’s estimated that Chinese wildcatters add 40,000 tons of black-market material each year to the 95,000 tons the country officially produces. From a near-monopoly of 97 percent in the late 2000s, China’s market share has fallen to 86 percent, and seems destined to fall further. More importantly, all the new global production has caused rare-earth prices to collapse from their 2011 peak.

As Sims spoke of Mountain Pass’ recent history, we left Extraction Modern behind and found ourselves contemplating Extraction Eternal: a muddy verge on the edge of a brown hole spewing nondescript dirt that might conceivably be transformed into riches. Rain pattered on our heads. “To be honest,” Sims said, “we are price-takers. And frankly, the Chinese are price-takers, too.” His tone matched the weather.

 

A man works at the site of a rare earth metals mine at Nancheng County, Jiangxi Province in 2010, when prices had spiked.
Reuters

“Price-taker” is an economist’s term, but you don’t have to be an economist to understand it. You only have to be a conscientious shopper. I am writing these words in early May in New York City, and my grocer is offering twin-packs of mediocre corn-on-the-cob for $3 apiece. By July, I’ll be able to buy a dozen ears of dripping-fresh Silver Queen corn for the same price. Today, my grocer is a price-setter: Because he controls a rare commodity, he dictates the price I pay. In July, he’ll be a price-taker: Every farm on the East Coast will have more corn than it can sell, and he’ll take whatever he can get.

Fundamentally, price-taking is a matter of supply and demand, but in the mining industry its tangles resemble those of the Gordian knot. The interplay of supply, demand and non-market factors is so complex that many thinkers are attempting to quantify it. Tom Graedel of Yale University ranks high among them. With a handful of colleagues at Bell Labs in the 1970s, Graedel — today the picture of emeritus professorhood, then a young expert in satellite-communications technology — founded the field of industrial ecology: the study of the life cycle of materials. At Yale, he has focused on obscure naturally occurring materials that, though unfamiliar to most consumers, nonetheless are vital to their lives. In an influential 2011 report from the American Physical Society, he and his colleagues identified 28 of them, and gave them a name: the energy-critical elements, or ECEs. Graedel has since expanded the list to 62 elements. They include the 20 under consideration here, which the U.S. contains in quantity — rare earths, lithium, rhenium, vanadium — and several dozen more, many with unpronounceable names. Ytterbium, anyone?

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A few weeks ago, in the Proceedings of the National Academy of Sciences, Graedel published a method of untangling the knot of ECE supply-and-demand curves — a way, that is, of supplementing neutral analysis of their industrial ecology with a predictive analysis of their markets.

Graedel’s model assigns a value to each of three factors that affect energy-critical element supply: the risk of non-market restrictions, like China’s 2009 limits on rare-earth exportation; the risk of market-based bottlenecks, such as those due to demand spikes from popular new technologies; and environmental costs that may eliminate existing sources or pre-emptively cut off prospective ones.

The model is not a predictor of day-to-day ECE prices. Rather, it’s designed to help mining firms, analysts and governments rationally assess medium-term (months to years) and long-term (decades) trends. The picture it gives is generally calm: No energy-critical element faces the triple threat of high supply risk, volatile markets and extreme environmental costs. Many measure low on every scale.

Lithium, for example, is widely distributed and plentiful, takes little energy to produce, leaves no nasty waste behind, and faces predictable (steadily rising) demand. Vanadium mining also incurs low environmental costs; its supply-and-demand volatility is moderate at worst. Rhenium measures extremely high on environmental costs, but that’s a bit misleading: It reflects the energy-intensive nature of copper production, of which rhenium is a byproduct. (In fact, it’s a bit of an afterthought: When I spoke with a representative of the Copper Alliance, the industry’s lobbying group, I had to explain what rhenium is.) The rare earths measure high in one area of risk: vulnerability to geopolitical manipulation. But that, of course, is changing rapidly. And they are plentiful and environmentally inexpensive.

When Sims described Molycorp as a price-taker, then, he could have been speaking for energy-critical element producers as a whole. The global ECE crop is abundant, which means that for the foreseeable future, ECE consumers will have the price advantage and producers will be under immense price pressure. For domestic producers, that’s bad news. America could theoretically provide many of these materials, but in reality it can’t do so as cheaply as many other countries can. Never mind we will mine or we must mine. Basic market realities strongly suggest that we won’t mine, for the same reason I won’t find cheap corn in New York in spring. Domestically, it simply isn’t the right time to harvest.

 

A front-end loader moves rocks from the pit at Mountain Pass Mine.
John Gurzinski

American hustle, however, is always in season. For much of the 20th century, California’s Imperial Valley, down near the Arizona and Mexico border, was known as America’s melon capital. Cantaloupes and honeydews thrived in the desert sun. Beginning in the 1990s, however, the valley became known for a second, unlikely export: electricity. Deep beneath the Salton Sea lies a vast pool of superheated, briny groundwater. Pumped to the surface, the brine flashes into steam. Channeled through turbines, the steam generates green electricity (400 megawatts in the latest tally) at 11 geothermal energy plants.

Then, in 2007, came news of a possible third local crop. A company called Simbol Materials announced plans to produce lithium from the power plants’ brine. Backed by millions of dollars from Silicon Valley venture capital firm Mohr Davidow, for the next eight years Simbol enjoyed glowing media coverage. “This is not for the faint of heart: the technology is complex,” then CEO Luka Erceg told Wired in 2008. “It doesn’t surprise me that we’re the only ones looking at it right now.” “Lithium: The New California Gold Rush,” gushed Forbes in 2011. Later stories described a pilot facility, attached to EnergySource’s Featherstone geothermal plant, producing hundreds of tons of lithium. On Jan. 15 of this year, The Desert Sun ran a headline that must have thrilled the hardscrabble towns that ring the Salton Sea: “Lithium Plant to Bring 400 Jobs to Imperial Valley.” Less than three weeks later, though, on Feb. 4, the story had changed: “Lithium Plans in Doubt as Simbol Materials Fires Dozens.”

The Desert Sun reported that Simbol fired only the 40 or so employees who staffed its pilot plant. But my later reporting revealed that the company apparently fired everyone. The multiple voicemails I left at its Bay Area headquarters requesting comment went unanswered. My attempts to directly contact Simbol’s executives failed or were rebuffed. EnergySource, too, declined to speak.

But the new California gold rush didn’t just fail to thrive; it may never have begun. “I personally do not think they ever had anything,” Ed Anderson, founder and CEO of the lithium consultancy TRU Associates, told me. Potential investors hired Anderson to analyze Simbol’s supposed revolutionary extraction method; he was twice given the runaround. “I had a chat with the chief executive of that company, and he couldn’t explain to me his technology,” he said.

Simbol is not unique. In 2013, a similarly hyped startup, American Lithium, went completely bust after years of aggressively promoting lithium-brine prospects in Nevada and Utah. It never actually produced anything, and Anderson considers it “a prime example of a company that ripped off — and you can quote me on this one — that basically ripped off American and international investors.” That same year, Rodinia Minerals, an established lithium producer mostly active in Argentina, abandoned its 1,012 Nevada brine claims as economically unviable. Anderson also cast doubt on the viability of a fourth much-hyped prospect owned by Western Lithium, which is exploring lithium-rich clay in northern Nevada’s King Valley. The company estimates its per-ton production costs at almost $3,500, far above the cost of brine production; lithium contracts average around $4,500 per ton delivered. The potential profits don’t look promising. 

That leaves a single active American lithium producer, Albemarle’s insignificant Silver Peak brine operation, west of Tonopah, Nevada, and of it Anderson was equally pessimistic: “I’m actually surprised that it is even continuing.” The only U.S. prospect he considers potentially viable is in Arkansas, where Albemarle claims to have developed a process to extract lithium from brine at its existing bromine plant. The technology was announced in 2011; no lithium has been produced.

Hype is part of these disappointments, but price pressures ultimately decide the day. Other countries, especially Chile, Argentina and Bolivia, have vast lithium-rich brine sources, low labor costs and political and regulatory regimes that favor maximum production. They don’t need hype. And they set the price.

Hype-plus-price also explains American Vanadium. It was positioning its Nevada deposit as North America’s only domestic supply of the raw material used in high-capacity vanadium-based batteries. Demand for the batteries, however, failed to meet projections, and existing vanadium sources, primarily in South Africa, Russia and China, more than meet its demand as a steel-alloying agent. American Vanadium shut down its mine project in February; its director has resigned, its stock price has cratered, and nobody has answered the phone at its Vancouver headquarters for months.

There are no stand-alone rhenium prospects anywhere on earth, and therefore no busts, either. But, as a byproduct of copper mining, it, too, is under price pressure. Copper demand, driven skyward by China’s industrialization in the 2000s, has lately cooled along with China’s economy. At $5 or even $3.50 a pound, which copper commanded as late as 2013, American mining prospects like Alaska’s Pebble or Arizona’s Resolution looked like slam-dunks. Today, with copper hovering between $2.50 and $2.75, Pebble is moribund and Resolution’s fate is uncertain, while the more profitable Andean copper industry is thriving. Meanwhile, the jet-engine industry, rhenium’s chief user, has figured out ways to use far less of it. If there ever was an American rhenium lobby, its services are no longer necessary.

As for American rare-earth mining, the future looks bleak. In addition to the fully operational Mountain Pass, there are only four rare-earth deposits officially in development: Bear Lodge in Wyoming, Bokan in Alaska, and La Paz and Round Top in Texas. None is anywhere close to commercial production. Each, however, has a handsome website, enthusiastic profit projections, and a long-term stock chart that dives asymptotically toward sea level from a heady peak during the 2010 and 2011 price spike. (The geology of hype, to warp Stegner’s great phrase.)

The stock chart for Molycorp, which alone among the five operations actually produces rare earths — and revenue — is the ugliest of all: From a high of nearly $75 on Tax Day 2011, it had fallen to 57 cents on Memorial Day 2015. A week later, it plummeted to 43 cents on the news that Molycorp had defaulted on its $32.5 million semiannual loan payment. As we cruised around Mountain Pass, Sims hinted a few times at “challenges,” referring diplomatically to Molycorp’s increasingly desperate financial situation. In the first quarter of this year, the price of its particular “basket” of rare earths fell 8 percent. The company reported a negative cash flow of $73 million, and warned that without the restructuring of its debt, the mine might be forced to close some time this year. On June 3, the Wall Street Journal and others reported that the company plans to file for bankruptcy this month. Challenges, indeed.

 

Jeff Adams, control room operator for the mill at the Mountain Pass rare-earth facility.
John Gurzinski

Crushed rock is conveyed into the mill where it will be turned to powder for further processing.
John Gurzinski

In a bad market, corporations tend to turn to Washington, D.C. Molycorp is no different: Last year, it sent Sims to testify before the Senate Committee on Energy and Environmental Resources in support of the Critical Minerals Policy Act, sponsored by Alaska’s Murkowski, then the committee’s ranking member. Murkowski’s bill, which never made it out of committee, proposed promoting U.S. mineral independence by a number of routes: encouraging efficient use of critical elements, developing alternative materials, offering education and workforce training (“The U.S. lags behind many nations in this area, which in turn can negatively impact investment decisions by private sector companies in critical materials supply chain development,” Sims said), and of course, streamlining or stripping down the permitting process.

With regard to the last, Sims noted good-humoredly that Molycorp had to get “more than 500 permits” to reopen Mountain Pass. However, he emphasized, “The most significant barrier to entry for new rare-earth producers is undoubtedly the capacity to take mixed rare-earth minerals out of the ground and chemically process them into separated, usable rare-earth products.” Similarly, at Mountain Pass, he repeatedly mentioned the mine’s technical difficulties with its novel solvent-extraction and reagent-regeneration processes as the company’s main obstacles to growth. With regard to permitting, he noted that Molycorp voluntarily exceeded many environmental regulations in the name of good stewardship and good public image. As he spun them to me, at least, regulations weren’t a burden to bear; they were a benchmark to surpass.

Yet the morning after the 60 Minutes report, when Murkowski — now chair of the Energy and Environment Committee — issued a long statement on American mineral “dependence,” regulation was her chief scapegoat. She quoted Sims’ aside about “500 permits” prominently, as though it were the mining industry’s central concern, and blamed U.S. policy failures for China’s supposed dominance of energy-critical elements. “I’m grateful that 60 Minutes investigated the depth of America’s dependence on China for rare earths, and has now shared that story with its millions of viewers,” she wrote. “Our foreign mineral dependence is a serious challenge, decades in the making, and we urgently need to reform federal policies all along the supply chain.” That day, Murkowski introduced the American Mineral Security Act of 2015 (S.883). It would direct the White House and the officers of its Cabinet (particularly Interior, Agriculture and Energy, including the Bureau of Land Management, USGS and Forest Service) to “facilitate” domestic production of energy-critical elements through all available means. As with her stalled Critical Minerals Policy Act, the rule changes are broad and vague, but they address education, quantitative assessment, research, and permitting reform — initiatives, frankly, that a Democratic administration could easily bury in bureaucratic sediment, and that a Republican administration could wield like bulldozers. Despite its 2015 dateline, Murkowski appears to be hanging her bill’s impact on the outcome of the 2016 presidential race.  

But her effort already faces deep skepticism from an unexpected quarter. In December 2011, when the panic over Chinese rare-earth export controls first reached Congress, economist Derek Scissors of the conservative Heritage Foundation read a statement before the House Energy and Environment Subcommittee. Its thesis, as indicated by its title, could not have been more blunt: “Energy-Critical Elements: The Market is Working.”

Now at the equally conservative American Enterprise Institute, Scissors has not changed his views. “China does not have market power,” he told me. “They cannot strangle us. We do not have to have government involvement in production of these strategic elements.” Scissors agrees with Murkowski that the Department of Defense must ensure that supplies of rare-earths and other ECEs are available — but unlike Murkowski, he is confident they are: “What I’ve been trying to figure out with the DOD is, ‘What’s the stuff you’re worried about in the short term?’ And the answer still appears to be: ‘Nothing.’ ” Scissors considers the Murkowski camp to be “lost in old, very statist thinking.” Federal initiatives (and spending) are “just not the way we need to fill our strategic mineral needs.”

Nor is skepticism limited to politicized think tanks. Gareth Hatch is a founding partner of Technology Metals Research, an independent consultancy that advises governments and businesses on energy-critical elements. He agrees with Murkowski that American regulations slow development of domestic mineral resources, critical and otherwise; Australia, for example, brings new mines into operation in an average of two to three years, versus seven to 10 in the United States. But when we spoke, he also reiterated that “dominance” of any given ECE, by any country, is at best temporary and in most cases illusory. He mentioned, pointedly, China’s little-noted capitulation to the capitalist reality of the rare-earth market: Last New Year’s Eve, it eliminated all export quotas on its rare earths, and in April it eliminated export tariffs. Now it simply lists them among items whose exportation must be licensed. As Hatch wrote acidly in January, “Perhaps the fact that REEs (rare-earth elements) can be found cheek to jowl alongside live cattle, frozen meat, tungsten, sand, motorcycles and paraffin, to name but a few of the commodities listed, will finally correct the notion that some folks have of REEs as unique, precious snowflakes in the grand scheme of nefarious Chinese strategy. Or perhaps not.”

Or certainly not. Given the politicization of the extraction industry, Washington will continue to make hay — and rake in re-election dollars — over the false threat of foreign domination. But the rest of the world has moved on. The night after I visited Mountain Pass, I drove back to Las Vegas to catch my flight home. With hours to kill, I cruised the Strip. Every casino seemed to be named for a faraway El Dorado: the Venetian; the Luxor; the Bellagio; Paris; Mandalay Bay; Caesars Palace; Treasure Island. The nation’s wagering capital, like its political capital, has long since recognized that there is big money to be made in the American West. Unlike Washington, it has also recognized that the hottest action often lies beyond American shores.

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Tim Heffernan writes about heavy industry, economics and the environment for The Atlantic, Popular Mechanics and other magazines. In 2013, Esquire honored him as one of its Best & Brightest for his reporting on what he terms “big analog”: the industrial underpinnings of the so-called digital economy. He lives in New York. You can follow him at twheffernan.com and 

This coverage is supported by contributors to the High Country News Enterprise Journalism Fund.