Pri­zed 'Rare Earth' Mi­ne­rals Feel the Scorch of Ta­riffs

L'Opinion - - The Wall Street Journal & L'Opinion -

Two Trump-ad­mi­nis­tra­tion po­li­cies have put a “rare earth” mi­ne­rals mine in Ca­li­for­nia bet­ween a rock and a hard place.

Six months af­ter a hedge fund control­led by 40-year-old fi­nan­cier James Li­tins­ky be­came ma­jo­ri­ty ow­ner of the Moun­tain Pass mine and brought it out of ban­krupt­cy, Pre­sident Trump an­noun­ced an exe­cu­tive or­der that would seem like its gol­den ti­cket: The U.S. should stop buying key mi­ne­rals over­seas, and ins­tead pro­mote do­mes­tic sup­plies, as a mat­ter of na­tio­nal se­cu­ri­ty.

Moun­tain Pass is the on­ly cur­rent U.S. source of rare earths – cri­ti­cal to high-tech ap­pli­ca­tions, in­clu­ding mi­li­ta­ry equip­ment. M. Li­tins­ky’s mine stood to be­ne­fit from any re­sul­ting in­crease in de­mand from the new U.S. po­li­cy, an­noun­ced in De­cem­ber 2017. But as is of­ten the case with glo­bal trade, the si­tua­tion is com­pli­ca­ted. M. Li­tins­ky’s ope­ra­tion first ships its ore to Chi­na, home to most of the pro­ces­sors, re­fi­ners and parts-ma­kers that turn rare earths in­to pro­ducts for cus­to­mers all over the world, in­clu­ding the U.S.

That ex­po­sed it to pro­blems when Wa­shing­ton in Sep­tem­ber an­noun­ced ta­riffs of up to 25% on Chi­nese im­ports en­te­ring the U.S., as a pe­nal­ty for al­le­ged un­fair tra­ding prac­tices. Chi­na re­ta­lia­ted with its own ta­riffs on U.S. goods – in­clu­ding M. Li­tins­ky’s ore. And the hos­tile trade rhe­to­ric hasn’t let up.

M. Li­tins­ky’s group spent $20.5 mil­lion to buy the mine out of ban­krupt­cy, and rough­ly $200 mil­lion to­tal on the pro­ject, a bet the tech re­vo­lu­tion would create en­ough de­mand to make the mine viable. By this past sum­mer, less than a year af­ter the dor­mant mine reo­pe­ned, Moun­tain Pass’s work­force had grown to rough­ly 200 from just eight.

But the ta­riffs are ero­ding pro­fit mar­gins. And that eats in­to the mo­ney Moun­tain Pass would be rein­ves­ting in­to up­gra­ding the fa­ci­li­ty so that it can ac­tual­ly pro­cess the rare earths it­self, the on­ly way to les­sen de­pen­dence on the Chi­nese pro­ces­sors. The ta­riffs do en­cou­rage them to go fas­ter on the up­grades, said Co­lin Nex­hip, the mine’s chief exe­cu­tive, but they al­so raise doubts about fi­nan­cing the ex­pan­sion cri­ti­cal to com­pe­ting with Chi­na. M. Li­tins­ky’s pre­di­ca­ment is an example of two Trump ad­mi­nis­tra­tion po­li­cies wor­king at cross­pur­poses. A mine that is rea­dy to pro­duce mi­ne­rals it sees as cru­cial to na­tio­nal se­cu­ri­ty is caught up in the go­vern­ment’s other goal of pu­ni­shing Chi­na for what it sees as un­fair tra­ding prac­tices.

“The cur­rent dis­rup­tion puts us at risk,” said M. Li­tins­ky, whose Chi­ca­go hedge fund JHL Ca­pi­tal Group has a 65% stake in MP Ma­te­rials, which runs the mine.

“Ma­ny cor­po­ra­tions are in a si­mi­lar bind,” said Es­war Pra­sad, a Cor­nell Uni­ver­si­ty eco­no­mist

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