At first glance, many analysts cheered China's announcement earlier this month that it would allow another 15,738 metric tons of rare earth material exports, bringing the year's total to roughly 30,000.
Think again, says the man responsible for one of the world's most lauded mining projects, meant to lead the world to rare earth independence from China -- the country currently responsible for almost all global output.
"Everybody seems to be relaxed because the year-on-year number for 2011 versus 2010 is basically the same amount of materials, roughly 30,000 tons of export quotas," Molycorp Inc. CEO Mark Smith said in an interview. "The discrepancy is created because China continues to add more products that are covered by the quotas, but we never seem to want to take that into account."
Doing an apples-to-apples comparison, Smith says, China's export quota is really closer to around 20,000 tons. Meanwhile, he predicts the global demand to be much higher.
U.S. and E.U. officials criticized China's quota announcement, which came days after a World Trade Organization ruling against the country for export controls of other materials -- a development many analysts see as a sign of how the WTO may view similar complaints related to Chinese curbs on rare earth exports (ClimateWire, July 6).
The Office of the U.S. Trade Representative, according to a statement obtained by Reuters, believes the latest Chinese export quota announcement amounts to a 40 percent decrease from 2009 levels because of the new products included in the allotment.
Dudley Kingsnorth, executive director of the Industrial Minerals Company of Australia and arguably the world's foremost expert on rare earths, said he generally agreed with critics who say China continues to strangle the market for its own benefit. People should not be surprised, he says, because China has made its intentions clear to look after its own interests.
"The industry talks about supply and demand in terms of rare earths oxide, whereas the quota is in terms of product," he said in an interview from Australia. "They've increased the scope of the quota."
Kingsnorth said the world is in the long process of becoming self-sufficient from China for rare earth elements -- used in everything from cars and defense systems to smart phones.
Of the advanced rare earth projects around the world, two consistently rank as the most coveted -- Lynas Corp. Ltd.'s Mount Weld mine in Australia and Molycorp's site in Mountain Pass, Calif. (Land Letter, July 22, 2010).
Kingsnorth said, "There's a whole lot of pressure for Molycorp and Lynas to get started up."
"Where we are going to start to feel some of these pressures is when companies can't get these products anymore and have to survive," Smith said. "People have been able to survive on either illegal material coming out of China, of their working inventories or a national stockpile in the case of Japan."
Secrets of success
Molycorp is ramping up operations from the 4,000 to 6,000 tons it is selling to the market this year to 19,000 metric tons per year by the end of next year -- to an eventual 40,000 tons.
"We really like the position that we're in, being a low-cost producer, staying in the downstream businesses to be the highest-margin capture company," Smith said.
Molycorp has been lobbying significantly in Washington as lawmakers and agencies discuss ways to make the U.S. rare-earth independent and develop downstream industries, which right now are mostly overseas, particularly in Asia. Smith was in town last week meeting with Energy Secretary Steven Chu and officials on Capitol Hill and at the White House.
"We're just trying to keep people informed on what our project is doing, how well it's going," Smith said.
It does have things to boast about, including a high ore grade and technology to process the materials and separate them into the different rare earth elements.
Molycorp has also been making efforts to secure a downstream use for its raw material, including buyouts. In the rare earths business, even with higher prices and increased demand, it's not enough to simply produce raw material and expect companies to buy it.
"The companies that are going to be successful are going to need to be vertically integrated," Kingsnorth said.
In April, Molycorp acquired Santoku America Inc., a producer of rare earth alloys and metals. The company also bought AS Silmet, a rare earths processing facility in Estonia.
"We viewed it as a necessary part to make sure we had metal production capabilities in our company. They have three neodymium metal furnaces at the facility there. We just finished refurbishing them," Smith said. "Silmet also has about 3,000 tons of solvent extraction capacity, which is the ability to separate the rare earths out from the concentrates into their elemental individual forms."
"Most of the other companies that are advocating for themselves can't get past the first step, which is a reasonable ore grade," he added. "The cost of the facility to produce the low ore grades is astronomical."
While many analysts see China as the low-cost provider, Molycorp aims to win that title by a significant margin -- and protect the environment in the process. It has pressed for new technology that eliminates evaporation ponds. A closed-loop recirculating system reduces emissions and the use of acids and bases.
But will Molycorp actually be the lowest-cost provider?
Kingsnorth called it a "very difficult question" and said the company at least "will be amongst the lowest."
He predicts the world may be independent of China for light rare earths by 2016.
Heavy rare earths -- like yttrium and dysprosium, both much in demand -- are another question. Alaska's Bokan Mountain project is one potential source of heavy rare earths (Greenwire, June 28).
Even with the need for more heavy rare earths, Kingsnorth said, the likes of Molycorp are "going to make it very difficult for other projects to compete."