Vol. 1, Issue 9
Renewable energy, among other sectors, needs non-renewable resources to fuel growth.
e need to make better use of selected holes in the earth in order to support the alternative energy technologies designed to preserve it.
So say miners and processors of rare earth elements such as europium, lanthanum and neodymium, which lurk near the bottom of the periodic table but top the list of essential elements in such technologies as wind turbines, hybrid and electric vehicles, batteries and compact fluorescent lamps, among other products such as consumer electronics and defense systems applications.
Today, some 97 percent of the 125,000 tons of rare earths sold each year come from China, especially the Baotou region. And that nation knows what it possesses: Over the past few years, it’s taken steps to limit rare-earth exports, and has made it clear that companies needing an assured supply of these materials would be well advised to set up shop in China.
There are only two other generally recognized locations on the planet with rare earth deposits rich enough to be economically extracted: One is in Western Australia, and the other is in Mountain Pass, Calif., on the edge of the Mojave National Preserve just west of the Nevada state line. The U.S. Geological Survey once referred to the Mountain Pass rare earth deposit, in operation for the past 57 years, as “the greatest concentration of rare-earth minerals now known.” What’s more, it has all critical permits, including renewal of a 30-year mining and reclamation plan.
Previously operated by Chevron subsidiary Chevron Mining, the mine was purchased by an investors group on October 1, 2008, when Molycorp Minerals, LLC
, was formed to operate it. Mark Smith, CEO of the Colorado-based firm, plans to expand operations at the site tenfold, from a current output of just over 2,000 tons per annum (well under capacity) to 20,000 tons by mid-2012. What’s more, the company will create hundreds of jobs in the process, as it expands and integrates its scope of operations from today’s mining and production of ore and concentrates to an entire range of products such as metals, alloys and magnets.
“Right now we have 120 people in the company,” says Smith in a phone interview from Molycorp’s offices just south of downtown Denver. “We’ll probably grow that to 150 this year, as we ramp up production. By 2012, we should be a company that has roughly 1,000 employees.”
In addition, he says, the company will employ an average of 700 construction employees a day during the 18- to 22-month construction period.
The mine, located on 2,200 acres of private property, has been at low production levels since 2002, due to an inability to compete on price with the Chinese. It was during that same period that Magnaquench, the world’s largest producer of bonded Neodymium magnetic powders, was forced by cost considerations to relocate its operations and 225 jobs from Indiana to China in 2003.
But Smith says Molycorp has been perfecting processing capabilities in order to be cost-competitive with any rare earth producer in the world. One benchmark: “We will need less than half of the ore from the mine to produce the same amount of material we used to produce in the 1980s and ’90s.” Helping support future growth is a nearly complete study of the deposit itself, which Smith says shows “that the resource is larger than has ever been reported before.”
Talent and Technology: Resources Worth Cultivating
The mine complex expansion thus includes modernization efforts that involve demolition of old facilities and integration of commercial-scale operations and equipment that incorporates the new technologies.
“There will be some new buildings, and within those will be an enormous matrix of processing equipment,” says Smith. “That’s where the crux of business success is found, through the ability to process these rare earths and convert them in their elemental form. Their atomic weights are close to each other, and their chemical properties are the same, so it’s a complex process to separate out each of these individual elements.”
The rare earths mine operated by Molycorp in Mountain Pass, Calif., has been called “the greatest concentration of rare-earth minerals now known” by the U.S. Geological Survey. Molycorp is in the midst of ramping up production and expanding processing operations at the site.
Developing those innovative technologies came about as a result of a decision five years ago to expand R&D from a department of one to the company’s current technology group of 17 scientists and engineers. Because no university features a rare earths niche in its curriculum, Smith says, Molycorp chose to hire those with no experience and train them. Today, he says, “I’m as proud as I could be of these 17 people, and would compare them to anyone in the world.”
In the meantime, Molycorp is working with several universities on developing curricula addressing rare earth chemistry, processing and applications. “We’re also very interested in establishing once again in this country the long-term R&D facilities that used to exist for rare earth applications, and no longer do,” he says. “One of my biggest concerns is how we find the right professional people to run this program 10 years from now.”
But high-tech talent needs high-tech equipment. And as with every other industrial firm in the current economic climate, the cost of equipment and facilities is presenting Molycorp with another big concern: financing challenges.
“Absolutely,” says Smith. “Liquidity and credit are huge issues in front of every business right now. We have a $450-million mining-to-magnets project, including contingency. In order to fund that effort, there are several options. One is normal project financing. Near as we can tell, that would result in interest rates of nine to 9.5 percent, terms of five years or less, and it would finance only 50 percent of the value of off-take agreements with customers. That’s not very pretty, assuming you can get the liquidity and credit.”
Among the alternative financing sources is the U.S. Department of Energy, which is now administering two loan guarantee programs
with regard to wind power and hybrid-electric vehicles.
“If the U.S. government wants wind energy and hybrid and electric vehicles to be successful in this country, you have to have rare earths, and the magnets that go inside [those products].”
The DOE loan guarantee program’s terms are significantly more attractive, with interest rates of 3.5 to 4 percent, and terms as long as 30 years. For now, though, it’s a waiting game, as the DOE slowly ramps up the new programs.
“With any new program, there are growing pains and learning curves,” says Smith. “I do believe the U.S. government is serious about making this happen, and I have every confidence in the world that the DOE will be successful. But it’s probably going to take longer than any of us would like.”
The current federal government, whether via the EPA or the Dept. of Interior, also has issued its share of recent new regulations and laws concerning resource development and emissions. But Smith recognizes the big picture, especially when compared with the well-documented safety and environmental conditions at Chinese rare-earth operations.
“For the better part of my career, I’ve been cleaning up past mistakes from companies in the U.S.,” says Smith, noting that the Mountain Pass operation has gone four and a half years without a lost-time or restricted-duty accident. “The additional regulations or laws have a cost associated with them. But on the other hand, if it makes us more sustainable, and makes the non-renewable resources last longer, we have to balance the costs with the benefits. I’m very proud to talk about how we do things here in the United States from a safety and environmental standpoint. We’ve all had our trouble historically, but we move forward. Sometimes those costs are worth it. I sure like how we treat our employees, and it’s a cost I’m glad to absorb.”
Drawn Together by Clean Energy
Among the projects Molycorp is pursuing is a joint venture announced in July 2009 with New York-based Arnold Magnetic Technologies
to manufacture rare earth magnets. Arnold, a 100-year-old company, operates facilities in Europe and Asia, as well as six facilities in the States, including locations in Illinois and Ohio.
Asked about the status of the project, Rob Strahs, Arnold vice president and general manager, writes in an e-mail, “Arnold Magnetic Technologies currently manufactures rare earth magnets in Lupfig, Switzerland, and has for over 30 years. Our goal within the next several years is to begin production here in the United States at a location that is still to be determined to support green energy intiatives as well as other uses. We announced an intent to form a joint venture with Molycorp last summer and are continuing down that path, although we are also making further investments in our Lupfig facility to increase
Arnold Magnetic Technologies’ headquarters in Rochester, N.Y.
PHOTO: ARNOLD MAGNETIC TECHNOLOGIES
our product offering and help us shorten the learning curve for ultimate production in the U.S. Our final site selection will depend on a variety of factors including proximity to our customers, power availability and cost, skilled worker access and potential economic considerations.”
“We have a default position in Mountain Pass,” says Smith, “but we’re certainly open to other facility locations, depending on what the total cost of the facility looks like. To be more direct: You need a good source of reliable low-cost electricity, so we’re keeping our sites open for cheaper and more reliable electricity.”
It comes as no surprise then that, as Smith has traveled to the nation’s capital nearly every other week over the past year to call attention
to the rare earth supply crisis, various elected officials are calling his attention to their districts and states as fine places to locate clean energy manufacturing.
“I anticipate political as well as cost considerations as we move forward,” he says.
Figure It Out
How urgent is the rare earths supply situation? In Smith’s view, the 97-percent domination of the $1 billion to $2 billion worth of annual rare earths production by China is made worse when one considers the expanded supply chain of products using rare earths, such as magnets.
“There’s not a laptop in the world that doesn’t have a rare earth magnet,” he says of a niche that is valued at more than $4 billion of revenue a year. “Eighty percent of these magnets are produced in China, and 20 percent in Japan. But 100 percent are made with Chinese rare earth materials.”
Employment comparisons with China are always difficult because of that nation’s tendency to employ many more people and pay them much less. But Smith observes that one rare earth extraction operation in the Baotou area has over 5,000 employees, and that there are hundreds of rare earth processors throughout China employing thousands.
“It’s the growth that comes from the use of these materials that China has really been targeting,” he says. “What China realized 15 to 20 years ago was that rare earths were an indispensable element you had to have to make end-use products such as iPhones and Blackberries. You can make sure you get all the rare earths you need if you move the cellphone manufacturing facility to China. So there’s a multiplier effect in terms of employment in China because of the rare earths industry.”
Asked how rare earths supply concerns are influencing facility growth decisions by Molycorp’s customer base, Smith says, “People are getting it. They’re starting to understand that although for the last 10 to 15 years, all you had to do was place an order and they showed up, that is changing. These elements are all becoming difficult to obtain. So people are starting to think about this strategically. But they’re just starting.”
Smith says only a couple companies have thought strategically enough to be well ahead of the game. “One is trying to enter into a 10-year off-take agreement with us,” he says. “In exchange they’d like to provide us with a significant interest-free loan for that period. That is somebody thinking about the future and wanting to make sure their business is protected.”
Whether the U.S. rare earths cache gets supported and protected enough to sustain a host of domestic industrial operations is an open question. The answer may go a long way to determining the future health and growth of many current and potential clean-energy companies.
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