Prized 'Rare Earth' Minerals Feel the Scorch of Tariffs
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