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RPT-COLUMN-U.S. finds its Chinese rare earth dependency hard to break: Andy Home

Wed, 29th Jul 2020 02:00

(Repeats story from Tuesday, no changes to text)

* Global rare earths mineral production 2019: https://tmsnrt.rs/3hHvXJz

By Andy Home

LONDON, July 28 (Reuters) - The U.S. Department of Defense
has just committed funding for two rare earth separation plants
on U.S. soil.

It's one small step towards the Trump administration's
stated goal of breaking the country's dependence on Chinese
supplies of critical minerals.

But the direct involvement of the Pentagon underlines the
scale of the task associated with creating from scratch a
non-Chinese rare earths supply chain.

The United States was almost totally dependent on imports of
rare earth compounds and metals last year, just as it was the
year before and the year before that. China remained the largest
supplier to the tune of around 80% of all imports, according to
the United States Geological Survey (USGS).

That reliance on China for minerals with critical uses
across a wide spectrum of civilian and military applications is
becoming ever more problematic as Sino-U.S. relations
deteriorate.

However, to break it, as the United States is finding out,
requires a mix of direct government support, alliances with
like-minded countries, and a long-term focus on the six-stage
process chain from ore to rare earth magnet.

LINKING THE CHAIN

The United States now produces rare earths at the reopened
Mountain Pass mine in California, bought out of bankruptcy in
2017 by MP Materials, an investment vehicle backed by U.S.
funds JHL Capital Group and QVT Financial.

The mine produced 26,000 tonnes of light rare earth oxide in
concentrate form last year, accounting for 12% of global
production, according to the USGS.

China's dominance of the first-stage of the global rare
earths chain is weakening, partly due to the return of Mountain
Pass and partly due to a displacement of highly-polluting heavy
rare earths mining from China to Myanmar, which last year
produced 22,000 tonnes of concentrate.

However, China's control of global processing capacity is
almost total, with the exception of Australia's Lynas Corp
which operates a separation plant in Malaysia.

What's currently mined at Mountain Pass gets shipped to
China to be upgraded into compounds and products which are then
shipped back to the United States.

MP Materials is one of the three companies chosen to receive
direct government funding for a separation plant, albeit only
after a review into its Chinese shareholder, Shenghe Resources.

Lynas, meanwhile, is teaming up with Texas-based Blue Line
on a heavy rare earths separation plant.

The problem, though, is that the oxide generated at both
separation plants may still have to go to China for further
processing.

As the United States pursues China up the rare earths value
chain, it is finding that each segment poses its own problem all
the way through to finished product.

The country currently has virtually no capacity to produce
neodymium-iron-boron (NdFeB) magnets, the most common end-use
application for rare earths and one that is set for exponential
growth as the global automotive industry migrates to electric
vehicles.

Ironically, General Motors, which held one of two
original patents for such magnets, sold the rights to China.
Japan's Sumitomo sold the other to Hitachi,
which is now the primary supplier outside China.

"China is where most magnets are made," Pol Le Roux,
vice-president of sales and marketing at Lynas Corp, told Argus
Media. ("Argus White Paper: How to build a rare earth supply
chain", July 2020).

"So where do we expand? In the U.S. and Europe? But there is
very little magnet manufacturing there. So if we make more
oxides, the only customer is China," Le Roux said.

THE MARKET IS NOT ENOUGH

To build the full mine-to-magnet chain will need customer
and government support, according to Le Roux.

Market forces were why Mountain Pass closed and the United
States exited the rare earths business.

Market forces actively work against the reconstruction of
that domestic capacity, with car companies incentivised to
choose lower-priced Chinese magnets over higher-priced, start-up
Western rivals.

Lynas' own Mt Weld project in Australia only made it thanks
to the support of the Japanese government, which extended loans
and lowered interest rates during the difficult start-up phase,
Le Roux said.

The key takeaway is that the Japanese "have a different
approach to the supply chain - they put a higher value on the
stability of supply", Le Roux added.

The U.S. is playing catch-up and the Department of Defense's
mandate to directly invest in separation capacity is a
recognition of the nurturing role government will have to play.

So too is U.S. Senator Ted Cruz's proposed bill to provide
funding to both rare earth production projects and massive tax
breaks for companies using U.S.-made magnets.

METALLIC ALLIANCES

The United States is also learning that it's going to need
allies if it is to regain some control of the rare earths
sector.

"I think it is clear at this stage that if you really want
to build a rare earth supply chain outside China, there will
have to be cooperation between countries," said Ian Higgins,
managing director of UK neodymium producer Less Common Metals,
also talking to Argus.

Lynas' involvement in the Texas project brings together a
rare earths compound maker with the only company outside China
to have experience with commercial-level separation of rare
earth concentrates.

The United States has been busy building potential alliances
with both Australia and Canada across a range of critical
minerals.

It's pretty clear that if it is it going to fill its
domestic magnet-making void it will need Japanese help.

Not only is Hitachi the only non-Chinese player of size, but
Japan is further along the path of cutting rare earth links with
China having found itself at the hard end of a Chinese export
ban a decade ago.

Japan's shepherding of Lynas through its early start-up
problems was born out of that supply shock.

It's taken a decade for Japan to loosen China's grip on its
rare earths supplies and the United States also faces a long
haul.

"Multi-billion dollar supply chains do not move overnight
(but) the supply chain transition has to happen, and it will
over time," said James Litinsky, co-chairman of MP Materials,
who also gave an interview to Argus for its white paper.

The Department of Defense's funding for MP Materials and
Lynas/Blue Line is an important step on that road, but it's set
to be a very long road.

(Editing by David Holmes)

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