Would-be miner of rare earths bets on electric cars
Sale of largest US deposit of elements used in zero-emission vehicles due Wednesday
When Tom Clarke first heard about rare earths a year ago he had to look up what they were on Wikipedia.
Now the coal miner is leading a bid by a consortium to reopen a California mine that is the only major US deposit of rare earths — elements that are poised to benefit from increasing demand due to their use in magnets that go into electric car motors.
“The more I got involved in rare earths, the more I realised these elements are going to be in increasing demand [in electric vehicles],” says Mr Clarke. “So our hope here is to help facilitate the re-opening of the mine. We think there is a reliable market for it.”
The Mountain Pass rare earths mine, located about 50 miles south of Las Vegas, was owned by Molycorp, a US natural resources group that filed for bankruptcy in 2015.
The mine is now due to be sold at auction on Wednesday, and Mr Clarke’s ERP Strategic Minerals has teamed up with Swiss private equity firm Pala Investments and Australian rare earths exploration group Peak Resources to offer $1.2m.
A rival bid is expected from a consortium involving hedge funds that are among Molycorp’s creditors — including JHL Capital Group and QVT Financial of the US — and Chinese rare earths mining company Shenghe Resources. JHL declined to comment on behalf of the consortium.
The auction is due to be closely watched by the US authorities, because rare earths are used in the defence industry — for example in missile guidance systems. The Committee on Foreign Investment in the US, which reviews certain proposed purchases of domestic assets by overseas buyers, could potentially have a role scrutinising the acquirer of the Mountain Pass mine.
Contrary to their name, rare earths such as neodymium and dysprosium are not unusual. But they are widely used in consumer electronics products, as well as industrial goods such as wind turbines.
Molycorp, which once had a market capitalisation of $6bn, symbolised the boom and bust in the rare earths market.
Rare earth prices soared in 2011 as China, the country with the largest rare earth deposits, tightened export restrictions and buyers scrambled to find alternative sources. They then collapsed as manufacturers reliant on these elements used less of them, or turned to substitutes.
Molycorp invested $1.5bn in the Mountain Pass mine, but a person involved in one of the bidding consortiums says the former owner produced a “failed chemistry set” by focusing on cerium, a rare earth that is in plentiful supply.
Some industry observers say the Mountain Pass mine has good prospects. “The deposit itself is world class in terms of size and grade,” says Ryan Castilloux, founding director of Adamas Intelligence, a rare earths consultancy.
If the mine comes close to reaching the operating cost target Molycorp tried to achieve, it would be the most profitable asset in the sector, adds Mr Castilloux.
Furthermore, prices of several rare earths have started to pick up this year amid increasing demand for industrial magnets and reduced Chinese production due to a crackdown on polluting mines.
In a report last month that looked at General Motors’ Chevrolet Bolt electric car, UBS analysts said rising demand for electric cars could cause a “demand shock” for rare earths that would push up prices.
They estimated the global fleet of electric cars will grow from about 2m today to 14.2m by 2025.
Meanwhile, Mr Clarke suggests a novel approach to try to inject some price stability into the rare earths market: collaboration with China.
If the ERP-led consortium wins the auction for the Mountain Pass mine, it could talk to Chinese rare earth producers about creating a “micro-Opec for rare earths”, he says, in a reference to the global oil cartel.
That could help support prices. “It would have to be a transparent process,” adds Mr Clarke.
He says if rare earth prices go back to the mid-point of where they were over the past five years, the Mountain Pass mine will be “very profitable”.
However, David Abraham, author of The Elements of Power, a book about rare earths, says the mine is unlikely to be as cheap to operate as those in China. Buyers and users of rare earths will not be willing to pay a premium for US supply over Chinese alternatives unless there is a sudden shortage or some form of industry crisis, he adds.
“It’s unclear to me how this project would work,” says Mr Abraham. “You had a billion [dollars] go into it — with some of the best technology and [Molycorp] couldn’t do it — what is a coal miner going to be able to do here?”
“I don’t see Mountain Pass as economically competitive,” adds David Merriman, analyst at Roskill, a consultancy. “If prices really shoot up then it will be economic but it wouldn’t be one of the top picks.”
Any new owner of the Mountain Pass mine would have to invest in infrastructure, given that it has been mothballed for two years, as well as pick up the cost of cleaning up the site once its rare earth deposit has been exhausted.
But Mr Clarke hopes he can replicate his success with US coal, where he has bought unwanted deposits since 2014, and seen prices rise more than 30 per cent over the past year partly due to reduced Chinese production.
“I still pinch myself, we actually bought at the bottom of the market,” he says.