By Stuart Burns
Potentially the biggest shakeup to the U.S. rare earths market in years was announced this month, in a move by the U.S. to bolster the country’s rare earth supply chain that has been almost totally reliant on an increasingly belligerent China.
It would be convenient to think the Pentagon’s announcement that Australian rare earth miner Lynas Corporation (OTCPK:LYSCF) had secured U.S. government funding to design a A$50 million ($36 million) processing plant in Texas was in response to recent threats by China to withhold material supplies to Lockheed Martin (LMT).
But the reality is an agreement has been cooking for months.
Road to a Lynas deal
Last year, the Australian government earmarked funding to help raise investment for new rare earths mines in the country. Fifteen have been identified as being commercially viable.
However, it wasn’t until this year that plans for the refining operation in the U.S. finally came together.
According to the Financial Times in April, the U.S. Department of Defense approved funding for a joint venture between Australian-listed Lynas Corp. and MP Materials. The JV called for a Texas facility to process rare earths for military use.
However, the Pentagon subsequently put the funding on hold pending review. Congressional lawmakers argued only U.S. companies should receive funding.
Eventually, common sense carried the day. In cooperation with U.S.-based MP Materials, owner of the California Mountain Pass mine, the project has been given the go-ahead.
Challenges for non-Chinese rare earths mining firms
Lynas is the only major non-Chinese producer of rare earths after the 2015 collapse of the debt-laden Mountain Pass refining operation in California.
Now, MP exports 26,000 tons a year of concentrate to China for refining, on which the Chinese have levied a 25% tariff during the current trade war.
In fact, in 2016, shareholders, including state-owned Japan Oil, Gas and Metals National Corporation, agreed to a debt restructuring of Lynas, saving it from collapse.
The challenge for Western miners and refiners is China’s dominance of the market (at over 80%). If China chooses to raise production or flood the export market, rare earths prices collapse and challengers are bankrupted.
Although rare earths are in reality not rare, the processing is environmentally and technically challenging. In short, it’s expensive.
But the metal oxides are so critical to so many key industries and technologies. As such, it is inconceivable in an increasingly hostile trade environment that the West cannot support and subsidize, if necessary, its own supply chain.
As such, Australia and Lynas make ideal partners. The country holds a sixth of global rare earths deposits. The Australian government is making investments to support the mining of at least nine of the 15 rare earth elements.
Combined with Mountain Pass, a wider suite of light and heavy could be available. Both firms have prior refining experience on which to build.
Lynas also operates a separation plant in Malaysia. The plant takes ore from its Mount Weld mine in Australia to produce light rare earths.
Mountain Pass, on the other hand, is undergoing investment to produce heavy rare earths from the concentrate it currently exports to China.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.