Molycorp and Hitachi have signed an agreement that could lead to the production of rare earth magnets in the U.S. by next year.
You can thank the Chinese government for this one.
The two companies have entered into an agreement to form a joint venture that will focus on the production of neodymium-iron-boron (NdFeB) alloys and magnets. If all goes well, the joint venture could exist by April and magnets could start popping out by the end of next year. The raw materials for the magnets would come out of Molycorp's Mountain Pass, California mine. It is not operational at the moment, but the company held an IPO earlier this year to raise the cash to get it moving again.
Molycorp CEO Mark Smith told us last month that the company was negotiating with large conglomerates about a magnet venture. Molycorp is a mining company, but wanted to move into magnet production.
A Japanese conglomerate is a natural. Japan is one of the world's largest producers of hybrid cars, electric motors and other items that require rare earth magnets. In October, China, which controls 97 percent of the world supply, began to threaten to curb exports. In response, Mitsubishi and the University of Tokyo began to tout efforts to recycle magnets from old appliances while Toshiba talked up a plan to get rare earths from uranium. Meanwhile, in the U.S., NovaTorque is trying to popularize an electric motor that doesn't need rare earths.
Worldwide demand for rare earth minerals comes to around 50,000 to 55,000 tons a year, according to Smith. In 2009, China's export quotas sat at approximately 50,000 tons. This year, China dropped it to 30,000 tons and further cuts next year could drop it to 24,000 tons.
“This is an immediate concern,” Smith said in November. “A lot of people we are signing long-term agreements with are very tired of not knowing day to day. You have no idea what to expect.”
Demand, moreover, is slated to continue to rise. A 2.5-megawatt wind turbine contains approximately 4,000 pounds of magnets. Rare earth materials account for one-third of the weight of those magnets. LCD TVs and medical imaging equipment rely on rare earths, too.
Electric cars contain around 10 pounds of rare earth materials. Even if China shifts from exporting raw rare earth materials to finished goods containing rare earths, domestic consumption will invariably curb total exports to the West.
“Internal consumption [in China] tracks GDP growth,” he said.
The Mountain Pass mine in California contains ores with an average grade of 8.24 percent rare earth content. That’s the second richest average ore grade in the world, Smith asserted. The mine also contains one of the largest deposits in the world.
“There are over 200 reports on deposits for rare earth elements with over 100 in Canada, but no one is able to find large enough deposits or high enough ore grades,” he said. “If you have an ore grade of 2 percent, you will have a difficult time making money.”
And Molycorp has got real estate. The mine exists on 55 acres. The company also owns 2,222 acres and has mineral rights on 8,000 acres.
The mine itself has been around for 58 years. Chevron acquired the mine through its purchase of Unocal in 2005, which had lost money for years. In September 2008, the oil giant spun it out to a group of investors for $80 million. Molycorp, the new company, raised nearly $400 million in an IPO in July. While the stock wallowed in the $13 range, it began a steep rise after China’s saber-rattling.