One Company's Plan to End China's Monopoly on Rare-Earth Elements [UPDATE]

China's monopoly on rare-earth minerals -- valuable elements used in just about every modern-day device from cell phones and laptops to hybrid cars and cruise missiles -- has raised the hackles of the U.S. military and cleantech industry for years. And yet little has been done to correct the problem, even though the U.S. also has vast reserves.

Molycorp Minerals, the only rare-earth oxide mining company in the U.S., hopes to change that by raising $500 million to restart the Mountain Pass mine in California, once the world's largest producer of rare earths. Molycorp announced plans recently to sell an estimated $350 million in an initial public offering filed with the SEC.

Molycorp purchased the mine from a unit of Chevron (CVX) more than two years ago. But it has yet to reopen the mine. In fact, the mine hasn't been in operation since 2002. However, Molycorp was able to generate $7.1 million in sales in 2009 by processing rare earths from existing stocks.

A lot is riding on Molycorp's success. If the mine can be restarted and Molycorp is able to lower costs of production enough to maintain competitive, it will be the only rare earth oxide operation in the Western hemisphere. And it has a decent chance, since existing infrastructure is already in place and Molycorp said in the IPO filing that it has improved the technology used in production to reduce water and energy use. And Molycorp intends to buy a company that already has the technology to produce rare earth metals and alloys in the U.S. and secure a joint venture agreement with magnet manufacturer. This means Molycorp would be able to mine the ore , separate out the rare earth minerals and then turn them into usable products.

The U.S. military and cleantech industry are certainly paying attention. Rare earths are crucial to defense and weapons systems. For example, magnets made from rare earths are used in precision-guided munitions. Lasers, detection devices for underwater mines, radar systems and optical equipment like night vision goggles all use rare earth. Magnets made from rare earth are used in wind turbines and electric cars.

UPDATE: And if the stakes weren't high enough already, China recently proved that it's willing to use its rare earth mineral power as a means of punishing other countries, in this case blocking shipments to Japan over a diplomatic dispute. The implications are not only disturbing for Washington, my BNET colleague Erik Sherman notes, but for every company that is in or uses high tech.
The problem isn't in the abundance of rare earth minerals in the U.S. In fact, they aren't even rare and are as common as copper or nickel. There are two main issues: Rare-earth minerals are costly and complicated to extract. And processing them is even more complex. The U.S. doesn't even have the facilities anymore to turn rare-earth minerals into usable materials. These days, China produces about 97 percent of rare-earth oxides used in the world.

The U.S. government is particularly worried because China has decreased its export quotas on rare-earth material, pushing prices up even higher. Bringing the U.S. back into the rare-earth industry won't be easy. A recent Government Accountability Office report estimates to will take 15 years to rebuild a U.S. rare earth supply chain.
A list of a few of the 17 rare earth elements and where they're used:

• Neodymium: makes strong permanent magnets used in cell phones, portable CD players, computers, sound systems, hybrid electric motors and hybrid batteries.
• Cerium: Element used in environmental protection and pollution-control systems in cars and oil refineries. Also used as a diesel fuel additive and is the active ingredient in polishing compounds for glass, television face plates, mirrors and disk drives.
• Europium: used in color televisions and computer screens as well as fluorescent lighting