Molycorp CEO Treads Carefully In Regards To Chinese Rare Earths Monopoly

By: Anthony_David

Rare earth metals company Molycorp, Inc. (MCP) owns the largest deposit of rare earth minerals outside of China and its Mountain Pass deposit in California is the only deposit of any significance in the western hemisphere. MCP is one of the two companies that plan to operate rare earth mines within the next two years in an effort to meet the huge demand expected. MCP’s announcement to reopen its mines has more than doubled its share prices over the second half of this year.

Analyst Hunter Hillcoat at Investec Bank Australia Ltd said, “There’re only two genuine new companies coming on-stream that can offer a meaningful level of production and that’s Molycorp in the States and Lynas in Australia.” He opined that the only risk is that “you have to assume they can bring on production seamlessly and that the price is still at the same level by the time they’re in production.”

China produces almost 97% of the world’s rare earth metals and the continuous tightening of its export quota has nations scrambling to find alternative sources. In such a scenario, companies such as MCP stand to make tremendous gains if they play their cards rights. MCP plans to produce 20,000 tonnes per year of rare earth metals from 2012 and may even raise that capacity to 40,000 tonnes per year.

Speaking at a recent conference in China, Shigeo Nakamura, President of Advanced Material Japan Corp., said that China might further restrict its export quota next year, contributing to an already rising price curve. The primary concern now is the short and medium term supply since no other major project is likely to begin production before 2015–16.

Amidst global criticism of China’s increasing supply restrictions, CEO Mark A. Smith of MCP played down China’s role and commented, “There’s enough reason for what they’re doing that one could argue they aren’t using it as a weapon.” He said that China has been reducing its export quota by an average 6% over the last nine years and although this year’s quota has been stricter than earlier years, the move is not a new one. He appreciated the fact that China is making every effort to regulate production and prevent smuggling while trying to meet its domestic demand. Smith said, “I really admire what they are trying to do to correct the industry as a whole.”

Reacting to international concerns, spokesman Zhu Hongren of China’s Ministry of Industry and Information Technology said, “China will not use rare earths as an instrument for bargaining. Instead, we hope to cooperate with other countries in the use of rare earths on the basis of win-win outcomes and jointly protecting this un-renewable resource.”

By Anthony David

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