Pentagon Invests in Strategic Metals Mine, Seeking to Blunt Chinese Dominance
U.S.’s sole rare-earths mine must rely on China to process extracted minerals
WASHINGTON—A remote mountain mine in the California desert is poised to get a boost from the Pentagon, which sees the metals it extracts there as vital for national defense—but vulnerable to Chinese dominance over the supply chain.
The Mountain Pass mine is the only domestic source for rare-earth minerals, which are needed for electronics, lasers, magnets and other applications used in weapons systems. The minerals require special processing after extraction, which is now done in China because the U.S. doesn’t have any facilities to do so.
To eliminate that dependence, the Defense Department is helping to pay for developing a processing facility at the Mountain Pass mine, which is controlled by the Chicago hedge fund JHL Capital Group.
The fund’s head, James Litinsky, first invested in Mountain Pass as a bet that growing rivalry between the world’s two largest economies would make its rare earths increasingly valuable. He said the Pentagon’s grant and growing U.S. government interest in his business validates that investment.
“These supply-chain issues are now front and center,” Mr. Litinsky said. While the U.S. is now grappling with the coronavirus pandemic, “the industrial policy is just as much of a long-term crisis,” he said.
The Pentagon is also providing grant funding to Australia’s Lynas Corp. and its partner, the U.S. chemical company Blue Line Corp., which want to build a plant in Texas. Both projects will be eligible for more grants to help with commercialization.
“The department continues to work closely with the president, Congress and the industrial base to mitigate U.S. reliance on China for rare-earth minerals,” said Lt. Col. Mike Andrews, Defense Department spokesman.
Mountain Pass, located about 15 miles west of the Nevada border, restarted production two years ago after the new owners started the company MP Materials to buy the site out of bankruptcy.
MP Materials had planned to start a larger processing business there this spring, but that is now delayed until 2021 because of the coronavirus pandemic and the retaliatory tariffs eating into company revenue, Mr. Litinsky said, although engineering work continues.
The Pentagon grant provides funding for feasibility and engineering studies of the processing plant, and to develop ways to extract and refine more of the mine’s most valuable, but toughest-to-separate minerals.
The companies and the Pentagon haven't disclosed the awards’ value. Some of the Defense Department contract materials published online say grants through these programs usually offer between $5 million and $20 million.
In materials for a related set of grants, the Pentagon says it is likely to award up to $40 million, but leaves it unclear whether that applies to only that program or its entire package of rare-earths projects.
The grants represent the Trump administration’s first step to put money behind an effort to break China’s control of the supply chain for these minerals, widely used in weapons systems, jet fighters, wind turbines and electric vehicles. Many regard them as potentially essential to the future of the military and a clean-tech economy, but there is very little capacity to process and build parts from these minerals outside China, according to industry analysts.
The administration may need Congress, too, because creating a lasting, rare-earths processing business effectively from scratch is likely to take years and a lot more money, analysts said. Processing facilities alone typically cost hundreds of millions of dollars each, and new U.S. plants will face stiff competition from state-backed Chinese companies, analysts said.
“Symbolically I think it’s huge,” Ryan Castilloux, who leads the rare-earths research firm Adamas Intelligence. “But at this point it’s yet to be seen that it will turn into anything tangible.” He called the new grants the government putting its “toes in the water.”
While the Trump administration did reach a partial detente in its trade war with Beijing, it remains concerned over the way China has grown to dominate some heavy industries and supply chains, often with backing from state coffers.
Chinese leaders haven't been shy about highlighting rare earths as a major advantage. During last year’s trade war with the U.S., Chinese President Xi Jinping and his top trade negotiator toured a region of China that calls itself a rare-earths kingdom. The trip was widely interpreted as a message to the U.S. that his government has leverage over high-technology industries critical to America’s economy.
But that message also galvanized bipartisan support in Washington to take action on rare earths, said Jane Nakano, a senior fellow at the Center for Strategic & International Studies.
The Defense Department put out two requests for information—an early step in the grant process—the following week, and Mr. Trump issued a series of executive orders later that summer authorizing use of the Defense Production Act to invest in rare-earth processing. Ms. Nakano called the first wave of grants a step in the right direction.
“The Chinese government sees value in pumping in money because they think that’s the frontier of economic competition, or economic competitiveness with Western countries,” she added. “If that’s the context in which this game is played, then it’s been about time for us to revisit how to push back and what are the tools in our toolbox.”