Molycorp woes cast shadow over U.S. mining efforts

By Manuel Quiñones | 03/23/2015 01:02 PM EDT

When Molycorp Inc. reopened an old rare earth elements mine in California in 2010, policymakers and technology firms saw it as America’s answer to Chinese limits on exports of the coveted materials.

This story was updated at 9:44 a.m. EDT March 24.

When Molycorp Inc. reopened an old rare earth elements mine in California in 2010, policymakers and technology firms saw it as America’s answer to Chinese limits on exports of the coveted materials.

Now the company is dangerously close to bankruptcy due to weak prices and an oversupply of at least some rare earths. Other proposed U.S. mines have yet to come online.


Industry executives continue to tout the importance of ongoing development efforts. And despite a sharp drop-off in legislative attention to the issue, Capitol Hill aides say bills are forthcoming.

But only a handful of U.S. projects remain potentially viable, and analysts question whether those rare earth companies can secure necessary financing.

In Securities and Exchange Commission filings and during a conference call last week, Molycorp said accountants were concerned about the company’s "ability to continue as a going concern."

Debt is a major problem, largely from projects focused on modernizing extraction and processing at the Mountain Pass mine, plus an aggressive growth strategy that gave the company a global reach but also strained its balance sheet.

"As we have discussed," said Chief Financial Officer Michael Doolan, "we have incurred and will continue to incur operating losses due to continuing softness in product pricing, inconsistent or depressed demand for our products, and the delayed ramp-up and operations at our Mountain Pass facility."

Molycorp’s misfortunes mirror what some observers see as the rare earths frenzy that began five years ago. The company’s stock price (NYSE: MCP) peaked at more than $70 in 2011 after China implemented export controls. Technology firms worried about rare earth supplies, lawmakers introduced a flurry of bills, and companies moved to capitalize with plans for new mining.

But the company is now trading for less than $1. China abolished export quotas after losing a World Trade Organization case, and lawmakers have not introduced a single major bill on the issue so far this year.

For months, industry observers have been debating whether the rare earths supply crisis continues — or whether it was overblown and is firmly in the past (Greenwire, Oct. 23, 2014). Companies argue that despite low prices and sluggish demand, they remain relevant.

Asked to assess the industry’s future, Molycorp CEO Geoff Bedford said, "I’ve been in this industry a long time, and I remain very bullish about rare earth in general. Rare earths are important, and they go into a number of applications that would not be as efficient or effective without them."

Colorado-based Rare Element Resources Ltd. wants to open a new rare earths deposit in the United States. But the company’s most recent year-end report to investors outlines the tough landscape — illegal mining in China, a weak global economy and technology firms looking to reduce their use of rare earths.

CEO Randy Scott said, "The number of real projects out there has been winnowed down" from the 2010 and 2011 frenzy. "We’re really only talking about two or three," he said.

Companies like Scott’s used to differentiate themselves from Molycorp and Australian-based Lynas Corporation Ltd. by touting deposits of coveted heavy rare earths rather than light ones, based on their atomic signature. "I think we’ve left that narrative," Scott said.

Now his company is focusing on what researchers and analysts consider to be the most critical of the rare earths, based on potential demand and supply crunches, and on where market demand is going.

"We believe that it is absolutely necessary for those projects to come on stream in order to satisfy the demand not only of the U.S. but also global," Scott said. "The fastest-growing segment of rare earth usage in the world right now is in permanent magnets" used in a number of technologies.

‘Crunches one way or another’

Scott touts the company’s Bear Lodge project in Wyoming as a low-cost solution to future rare earth needs. The company, which has strong support from local leaders, is trying to build a pilot plant to show off its technology and woo investors.

Ucore Rare Metals Inc., which wants to develop a deposit in southeastern Alaska, announced this month it had managed to separate different rare earths from raw feedstock, an important step in commercializing a development.

Texas Rare Earth Resources Corp. is working on developing an area called Round Top Mountain in western Texas. U.S. Rare Earths Inc. is focused more on Colorado deposits.

But a well-known independent analyst, who spoke on background to be candid about the situation, doubts whether companies will get the necessary financing to become full-fledged operations.

He said Molycorp may end up filing for bankruptcy protection. But he believes the company, or at least its deposit and technology, has a viable future.

Karl Gschneidner, distinguished professor and researcher at the Ames Laboratory and one of the most well-known experts on rare earths in the country, echoed the sentiment about Molycorp.

"The mine is going to keep going," he said during an interview last week. "That source of rare earths is going to continue."

But when it comes to other companies wanting to come online, like Rare Element Resources, he likewise said the question is whether companies can get financing or make enough money for mining projects.

Gschneidner said many technology firms moved to boost recycling or reduce usage of the more critical rare earths. But new companies will be free of Molycorp’s financial history.

"Other companies may not have their burden on their back," he said. "The demand for rare earths is probably going to go up."

Evidence of that is China’s search for new deposits around the world. Even though it lifted export restrictions, analysts say the country is unlikely to make rare earth exports easy, worried about its own supplies and economic growth.

"The Chinese are very active in trying to find new mines. It’s going to be a competitive market," Gschneidner said. "There’s going to be some crunches one way or another."

Bills imminent

After a flurry of legislation in previous Congresses, this year has brought no bills on the topic.

But aides say that the continued Chinese dominance of rare earths and its ability to attract downstream high-tech users means lawmakers will continue looking for ways to improve the U.S. supply chain.

Boosters have pointed to Department of Defense waivers allowing the use of Chinese minerals in the F-35 fighter jet. The Pentagon has said global supplies are enough to meet its needs.

"From my perspective, this is not just a matter of what China has done to pull ahead, but what our nation has failed to do in falling behind," said Energy and Natural Resources Chairwoman Lisa Murkowski (R-Alaska).

"Our foreign mineral dependence is a serious challenge, decades in the making," she said, "and we urgently need to reform federal policies all along the supply chain."

Lawmakers have managed to pass some rare earth measures in recent years through broader legislation, including riders calling on the Department of Defense to study its needs. They have also funded the Department of Energy’s Ames research hub.

Murkowski has for years been pushing a broader reform package, which had languished in the Democratic-controlled Senate. She will push for more action now that her party controls both chambers.

House lawmakers are also focused on the issue, with legislation coming aimed at reducing U.S. dependence on imports for minerals and reforming the mine permitting process.

Even though members from both sides of the aisle support the general effort, many Democrats are skeptical of efforts by pro-mining lawmakers to deal with permitting timelines.

Rare Element Resources is hoping for a decision from the Forest Service on its mining plans by next year so it can commission the project by 2017.

"The critical path for our project right now runs right through the permitting process," Scott said. "Those are the kinds of things that just kill us."