Rare Earths:

Molycorp's Smith discusses company's role in boosting U.S. competitiveness

With President Obama weighing in on the controversy surrounding Chinese rare earth exports yesterday, the discussion over mining and regulation in the United States is heating up. During today's OnPoint, Mark Smith, CEO of Molycorp, a U.S. rare earth metals mining company, discusses Molycorp's role in helping keep the United States competitive. He also addresses questions surrounding his company's ability to meet aggressive production targets.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Mark Smith, CEO of Molycorp, a U.S. rare earth metals mining company. Mark, it's great to have you on the show.

Mark Smith: Thank you, Monica. Pleasure to be here.

Monica Trauzzi: Mark, though we've been covering this topic for some time now, the rare earths issue is really getting a lot of attention in Washington recently and the president even spoke about it, talking about enforcing the U.S.'s trade rights compared to China. Why has this emerged as such a critical issue?

Mark Smith: Well, number one, rare earths are a very, very critical part of our economy. A lot of people don't understand that, but, you know, almost everything electronic, the new permanent magnet generators on wind turbines, the hybrid cars, the little magnets that they use in those cars, they all depend on these rare earth elements. And China currently has a market position of about 95 percent for these elements. So, that's our job right now as Molycorp, is to bring that U.S. production online and become a very meaningful player in the rare earth production side again.

Monica Trauzzi: Is this part of a broader sort of assault on China and its trade practices or does the rare earths issue…is it significant enough to sort of carry itself in the story?

Mark Smith: Well, Molycorp is going to work on this on a commercial basis and we are not going to get engaged in the battles between countries at the WTO level. But we do have a project that we think is very important. It's our number one priority in the company and that project will bring up to 40,000 tons of production into the rare earth market, which the world needs today.

Monica Trauzzi: OK, so you recently acquired Neo Material Technologies, which is a processing company. How significant of a step is that in terms of ramping up the U.S.'s production and helping the U.S. meet some of its goals?

Mark Smith: Well, we think it's hugely important, but first let me say that we've signed a definitive agreement, we still have to close the deal. So, just a minor technicality, but it's an important technicality. What Neo does for us is it really takes our resource production capabilities and matches it up with processing capabilities. And why that's important is that that rare earth ore that we take out of the ground has to be separated into the individual rare earth elements and there are 17 of those elements. So our job is to pull the ore out of the ground, separate it as much as we can and then send these materials to Neo Materials, who has the absolute technology, know how, intellectual property and really good capabilities to purify these materials so that the end-use customers will actually buy them. That high purity level is just a very important aspect that a lot of people don't understand. Neo Materials is the best in the world at purifying these elements.

Monica Trauzzi: So, when all is said and done, what's the potential for your company and how competitive can you help the U.S. become against China?

Mark Smith: Well, by producing the amount of material that we're going to produce we can take care of almost all of the needs in the United States. The area that we need additional help in is the heavy rare earth area and those are into your really rare, rare earths and they're difficult to find, they're difficult process. And, again, that's where the Neo Materials transaction comes in to benefit us as a company and as a nation, because Neo Materials knows how to process those heavy rare earths into the highly purified components that they need to be to be used in these electronic applications, magnetic applications, etc. And they know how to do that. So, what we need to do is to make sure we get them the materials that they can process. They know how to do it and then we can bring those materials back into the U.S.

Monica Trauzzi: This is not without controversy though. There's a pending federal class-action lawsuit against your company. Investors say that you've hyped your company's ability to mine these materials and that you don't actually have the numbers to back that up. You've said that you can increase production from 10,000 metric tons to 40,000.

Mark Smith: Correct.

Monica Trauzzi: Do you have the capacity to do that?

Mark Smith: Well, once Project Phoenix Phase 1 and Phase 2 are completed, we will have that capacity. That is the design capacity of the facility. Phase 1 is just starting up right now, a sequential startup operation that we go through. We will be producing at the rate of 19,050 metric tons per year by the fourth quarter of this year. And then we will have Phase 2 mechanically complete by the end of 2012 and we'll start ramping up our ability to produce a total of 40,000 tons per year.

Monica Trauzzi: So, what happened at the end of 2011 and why did you perhaps not meet some of the targets that investors were expecting?

Mark Smith: Well, I think we actually did meet the targets. Our revenue levels for the calendar year 2011 I think were remarkable actually. We had almost $400 million of revenue. This is in what we call an early stage development company and that's the kind of early stage development company I like to be in, is one that's generating $400 million of revenue.

Monica Trauzzi: How does this lawsuit affect your production goals if investors are backing out?

Mark Smith: You know, I'm not going to comment on the lawsuit itself. I stay focused on how we're going to run the company and our production goals are stated in all of our press releases, our quarterly reports, our annual reports and we're going to stick to those production goals. We've met every goal that we have put forth and that will be our job as managers of this company, to make sure that we continue to execute on everything we say we'll do.

Monica Trauzzi: There's talk in Congress right now about moving some kind of legislation that would promote rare earths materials in the United States. Have efforts fallen flat at this point or do you think that the conversation is getting to a level where we might actually see some policy move this year?

Mark Smith: You know, I think it's wonderful that we're speaking about the issue of rare earths at this level, especially out in Washington, D.C., right now. But I think we also have to keep in mind that the attrition that has occurred with manufacturing capabilities that involve rare earths has occurred over the last 10 to 15 years, so it isn't something that we're going to be able to repair overnight. But it is something that if we continue to stay disciplined with it and we continue to attract the attention and care of our elected officials in Washington, D.C., I think the job of replacing what has -- we've lost through attrition, will be much easier.

Monica Trauzzi: There have been reports that Molycorp has invested about half a million dollars in lobbying in Washington. What kind of lobbying push are you guys making here in Washington?

Mark Smith: You know, that's interesting that you have to report it as lobbying. What I consider it to be is informing. We do make special efforts to make ourselves available to elected officials, agency officials, administration officials because we want them to have the facts as they're making these policy decisions concerning something very important to us called rare earths.

Monica Trauzzi: All right, we'll end it there.

Mark Smith: OK.

Monica Trauzzi: I appreciate you coming on the show.

Mark Smith: Thank you, Monica. It was my pleasure.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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