Sun Sentinel Palm Beach Edition
China’s trade threat lacks teeth
‘Rare earths’ access not easily choked off
MOUNTAIN PASS, Calif. — Rusty tin shacks are all that remain of the gold miners who once prowled this desert hillside about an hour’s drive southwest of Las Vegas. Almost a century later, their modern-day descendants are prospecting for the more exotic materials that have become the latest flash point in the U.S.-China trade war.
This is Mountain Pass, the only mine in the United States that harvests rare-earth elements, the raw ingredients used to produce hightech products such as smartphones, wind turbines, electric vehicles and fighter jets.
China dominates the global market for these materials and has been threatening to take them hostage in the deepening trade conflict. Just the suggestion that Beijing could starve American factories of essential materials has sent rare-earth prices soaring over the past month, with dysprosium oxide, used in lasers and nuclear-reactor control rods, up by onethird.
But the alarm overlooks the rise over the past decade of alternative sources of rare earths — including Mountain Pass — and ignores the difficulties China would face in implementing a ban, including the prospect of widespread smuggling and the likelihood of hurting countries that Chinese authorities may prefer not to alienate.
“We have an absolutely worldclass resource,” said Michael Rosenthal, chief executive of MP Materials, which operates the California mine. “That’s our competitive advantage.”
President Donald Trump, fresh from an immigration dispute with Mexico, pivoted Monday to his stalled China trade talks. In a CNBC interview, the president — expected to meet Chinese President Xi Jinping later this month in
Japan — said their “differences can be worked out very easily.”
But Xi shows no sign of caving and may use rare earths as a bargaining chip. In the latest sign that China might reprise its 2010 cutoff of exports to Japan, the powerful National Development and Reform Commission said on June 4 it would set new limits on sales outside China.
A U.S. Commerce Department report this month fanned industry worries, warning of a dangerous dependence upon imported materials, including rare earths, and calling for “unprecedented” action to bolster domestic stockpiles.
Mountain Pass, which began post-bankruptcy operations only last year, represents the United States’ best hope of weathering any Chinese materials blockade. Along with new output from countries such as Australia and Myanmar, the U.S. mine helped cut China’s share of global production to 71 percent last year from more than 97 percent in 2010, according to the U.S. Geological Survey.
“We can make the Chinese threat become a hollow threat very quickly by letting market forces take care of it,” said Douglas Paal, a China expert at the Carnegie Endowment for International Peace and a former vice chairman of JPMorgan Chase International. “China does not have us by the throat.”
From the rim of the open-pit mine, bulldozers, excavators and 70-ton trucks can be seen chewing through layers of ebony and chocolate earth more than 500 feet below. Exploratory drilling has penetrated more than 1,800 feet without finding the end of the rare-earth deposit here, an indication of its untapped potential.
Officials have begun contingency planning to accelerate production in the event of a Chinese cutoff, Rosenthal said. Though Mountain Pass could not fill all domestic needs, it could boost output of substances needed for oil refining and some specialized magnets.
Yet the mine’s role at the center of the U.S.-China faceoff over 17 elements with names such as neodymium, terbium and europium is not without irony.
Mountain Pass ships its main product — a powdery substance that looks like crushed cocoa — to China for processing before it is sold to Chinese customers. A Chinese rare-earths producer, Leshan Shenghe, holds a nonvoting 10 percent stake in the U.S. mine.
Since June 1, the mine’s shipments to China have been hit with a 25 percent tariff from China, retaliation for Trump’s latest import tax. For now the company is absorbing the added costs, so officials are squeezing savings out of their suppliers, searching for cheaper shipping companies and making sure they are not paying uniform-rental fees for workers who have quit.
Even as the trade war intensified, the Americans and Chinese here continued cooperating. Rosenthal, 41, who speaks fluent Mandarin, says the Shenghe team provides advice on the mixtures to use in the ore’s chemical bath. Zhou Jihai, 66, a senior Shenghe engineer, says the Chinese company is learning from MP about automation.
Speaking through an interpreter, Zhou acknowledged that some industry colleagues in China criticize Shenghe for helping the Americans. But he waved off trade-war questions.
“It does not affect too much our cooperation. It only affects the relations between the two countries,” he said.
In July 2017, JHL Capital Group, a Chicago-based hedge fund, and QVT Financial, a New York investment firm, spent $20.5 million to bring the site out of bankruptcy.
Production last year exceeded any under the previous owner, Molycorp, and the venture now is operating at a profit. Performance over the past six weeks has been the best to date, Rosenthal said.
MP’s hopes of competing with Chinese rivals — mostly stateowned enterprises that receive government subsidies and face lower labor and environmental costs — rest on the quality of its ore deposit and the relative ease of distilling it into salable products. Despite the tariff head wind, the mine is profitable, Rosenthal said.
“That says something about our ability to compete,” he added.
The Mountain Pass operation is as simple as digging a big hole in the ground and as complex as the most sophisticated industrial chemistry.
James Litinsky, founder of JHL, the hedge fund that led the formation of MP Materials, said the mine reflects a shift away from the mutual vulnerability. Trump’s 2017 executive order requiring the government to “reduce the nation’s vulnerability to disruptions in the supply of critical materials” bears him out.
“The world needs to protect against a single point of failure in the supply chain,” he said. “In the context of rare earths, that happens to be China.”