C.UT DEEP In the desert cliffs of southern California are the jagged plains of an open pit mine. Mountain Pass is North America’s only mine for rare earth metals, used in everything from fighter jets to electric car powertrains. In 2015, the Mountain Pass was closed and could not compete with rare earth producers in China. But a new chapter has started. MP Materials, which bought the mine in 2017, announced on March 18 that production had increased 40% in 2020. Further expansions are planned. With grants awarded by the US Department of Defense last year, MP Materials will build rare earth processing facilities to ensure supplies independent of China.
America’s support for the Mountain Pass suggests a broader phenomenon. The trade war with China and supply chain disruptions caused by covid-19 have sparked fears of reliance on foreign production for drugs, semiconductors, and more. Minerals have attracted particular attention both because they are essential to modern technologies such as batteries, laser-guided missiles and wind turbines, and because the supply chains of many minerals are controlled by China. In the face of muscular Chinese industrial policies, governments step in that have long trusted companies to manage their own supply chains.
In February, Joe Biden’s White House issued an executive order to review the vulnerability of supply chains that are vital to economic and national security, including critical minerals and batteries. In September the European Commission launched a public-private alliance to secure vital raw materials. In March, Australia unveiled a plan for processing critical minerals and urged companies to apply for public funding. Canada released a list of 31 critical minerals as part of a plan to increase supply. However, when minerals show governments’ increased appetite for intervention, they are also showing the limits of what that intervention could quickly accomplish. China is at least a decade ahead. Shenghe Resources, which is controlled by the Chinese state, owns approximately 8% of MP Material proportions. It’s also Mountain Pass’s only customer – the mine is sending all of its production to China for processing.
America has long protected itself from supply disruptions by hoarding minerals in a national supply. After the fall of the Soviet Union, the need for such seemed less urgent and most of its contents were sold; The proceeds went towards other military spending and the construction of a WWII memorial. What was left was of questionable use. In 2008, a National Research Council commissioned by Congress to assess remaining inventory levels concluded: “The Department of Defense does not appear to fully understand the need for specific materials or to have sufficient information on how to supply them. “America’s strategic plan was essentially nothing of the sort.
China took a different approach. In the 1980s, Deng Xiaoping realized the importance of the deposits of rare earths such as neodymium and praseodymium in the country. “The Middle East has its oil,” he said. “China has rare earths.” By supporting mines and processing domestically, China controlled approximately 95% of rare earth mining by 2010. The rest of the world was surprised when China tightened its exports of metals this year. The move was aimed in part at rationalizing a domestic industry plagued by illegal mining and environmental degradation. It is estimated that 300 square meters of topsoil were removed to reclaim every tonne of rare earths in southern China, with more than 150 square kilometers of forest being destroyed by mining near Ganzhou.
However, some observers saw the export restrictions as part of a dispute with Japan, a major importer, over the Senkaku Islands. Politicians in Japan, Europe and America awakened to the possibility that China could use its dominance in a key asset to punish rivals.
America, Europe and Japan prevailed against China’s export quotas in a dispute before the World Trade Organization. In recent years, however, concerns about the supply of rare earths have increased. This is in part because China has continued to invest not only in rare earths, but also in foreign mines of key metals that are being shipped to China for processing. China processes 72% of the world’s cobalt and 61% of its lithium. Center for Strategic and International Studies, a think tank, and BloombergNEF, a data group. This is also because total investment in key minerals does not seem in line with demand, even if governments in America, Europe, and Japan were familiar with China’s heavy mining and processing.
Given the growing ambitions for clean energy, the European Commission anticipates this EU In 2030, countries will need up to 18 times as much lithium and five times as much cobalt as they do now. “Europe’s transition to climate neutrality could replace today’s dependence on fossil fuels with a dependence on raw materials, many of which come from abroad and for which global competition is getting tougher,” argued the Commission in September. If the world tries to limit the temperature rise to 2 ° C above pre-industrial levels, the World Bank estimates that global production would have to be built up. By 2050, for example, the production of cobalt, graphite and lithium would have to be more than 450% higher than in 2018 to meet battery requirements. The bank believes recycling will help a little, but major investments in new mines are still needed. In a preview of what may come, increasing demand and limited supply have recently driven lithium, cobalt, and neodymium praseodymium oxide prices soaring.
A series of measures
Given these numbers, mining is likely to attract a flood of capital. Indeed the enthusiasm for Special purpose vehicles ((SPACs) has reached the dark metals in the lower rows of the periodic table. one SPAC helped raise over $ 500 million for MP Materials in November. However, overall investment could remain meager.
Mining projects are notoriously risky and investors are so volatile Commodity prices will jeopardize the profitability of a particular mine. Some metals like lithium don’t have a futures price yet, which further clouded the outlook. “The markets are not as transparent or fluid as oil,” says Morgan Bazilian of the Colorado School of Mines, “and there is no such thing as good pricing.”
It doesn’t help that many mines tick the wrong boxes when investors are more concerned about environmental, social, and governance factors. The cobalt mining is focused on that Democratic Republic of Congo, long plagued by corruption and child labor. Countries with well-established legal systems are theoretically more attractive, but have their own problems. Lithium Americas, a Canadian company, plans to build a lithium mine in northern Nevada. There is litigation going on over the impact on local groundwater and the greater sage grouse. By the mid-2020s, according to Andy Leyland of Benchmark Mineral Intelligence, a research group, a mineral deficiency for lithium-ion batteries could reverse the long drop in battery prices. Raw materials account for around two thirds of their costs.
Rare earths illuminate the problem. “If you have a rocky backyard, you have a rare earth mine,” says James Litinsky, the executive director of MP Materials. “The challenge is profitability.” China’s control of the manufacturing industry has had a huge impact on rare earth prices, which has prevented investments in other countries from rising. If that wasn’t deterrent enough, the separation of rare earths has historically been both complex and environmentally harmful – rare earth minerals are often found alongside radioactive minerals. And while rare earths are essential to huge sectors like defense, transportation, and personal electronics, which together are worth trillions of dollars, the market for rare earth oxides is only about $ 5 billion, according to Adamas Intelligence, a research group.
The result is that rare earths attract some investment, but not enough. According to Litinsky, Mountain Pass can produce and separate rare earths in a sustainable way. These are the first steps in creating a secure supply chain. However, Adamas estimates that by 2030 the world will face a neodymium-praseodymium oxide deficiency equivalent to roughly three times the annual production of Mountain Pass. In the meantime, Adamas expects a price increase of 5-10% per year.
Japan provides an example of how governments outside of China could intervene. After China stepped up exports of rare earths, Japan became more determined than the governments in America or Europe to support supplies. Most importantly, in 2011 the government-sponsored Japan Oil Gas and Metals National Corporation (JOGMEC) and Sojitz, a Japanese trading company, said they would provide $ 250 million in loans and equity to Lynas, an Australian rare earth miner. In return, Japan would receive about 8,500 tons of rare earths each year, which is about 30% of Japanese demand.
Japan’s support for Lynas is widely viewed as a success. However, the strategy carries risks. After Chinese exports eased and rare earth prices fell, Lynas was on the verge of collapse in 2016 JOGMEC and Sojitz agreed to restructure the company’s debt. The Lynas processing facility in Malaysia has faced controversy over radioactive by-products. JOGMECOther efforts to secure rare earths, such as those begun over a decade ago in Canada and Kazakhstan, have so far borne little fruit.
Some automakers are starting to think more seriously about battery supply chains. Tesla has signed off-take agreements with Glencore, which mines cobalt in the Democratic Republic of the Congo. in March it became an advisor to a nickel mine in New Caledonia. His boss, Elon Musk, has even proposed mining his own lithium in Nevada using novel techniques. However, this plan met with skepticism from the mining industry itself. The general situation seems unsustainable enough for politicians to step in in America and Europe. “There is a return to the preference for a more interventionist policy in activities that could be viewed as strictly commercial,” argues Roderick Eggert of the American Critical Materials Institute.
In Europe, mining and processing projects can now be funded by the European Investment Bank. Recent US Department of Defense grants include not only Mountain Pass grants, but Lynas grants to build a rare earth processing facility in Texas. Last year, the American Development Finance Corporation took its first direct stake in a company: It invested USD 25 million in TechMet, a company whose projects include a nickel and cobalt mine in Brazil.
Such steps are not without controversy. Europe’s public-private efforts to support critical minerals include a rare earth project in Greenland in which Shenghe Resources is involved. Concerns about the environmental risks of this project sparked an election in Greenland due to take place on April 6th. In America, senators like Ted Cruz and John Barrasso are brimming with support for overseas mining and processing, not government interference. (Messrs. Cruz and Barrasso, both Republicans, represent states that have their own potential rare earth projects.) Marco Rubio, another Republican senator, prefers to found an American rare earth cooperative that is exempt from antitrust policy. Mr. Leyland of Benchmark Mineral Intelligence expects some increase in American mining with limits. “These will be global supply chains,” he says, “because you can’t change the geology.”
Mr Biden’s order on supply chains could increase government involvement. By the beginning of June, MEPs have to submit recommendations to support such chains. JOGMEC continues to show how government activities could expand: Recent investments include mining cobalt from the Japanese seabed.
This can produce results. The oil embargoes of the 1970s led to impressive innovations in oil drilling and alternative energies. However, progress then as now can be slow. Investing in recycling and alternatives to scarce metals are both worthwhile and can take a decade to achieve the result you want. Leyland estimates that a typical mine can take at least five years to go online, sometimes a lot more.
That’s a problem. Governments are facing two sources of intense time pressures: the uncomfortable reliance on China as tensions escalate and the urgent need to limit climate change through the use of clean energy technologies. “Hopefully China will have more competition,” says Brian Menell, TechMet’s general manager, “but it has a big head start.” The main risk to clean energy adoption, argues Erez Ichilov of Traxys, a trading house that supports mines with important battery metals, is supply shortages. “It takes time to develop the mines. It takes time for the plants to develop. ” ■
A version of this article was published online on March 28, 2021
This article appeared in the Finance & Economics section of the print edition under the heading “Mission Critical”.