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How Molycorp Minerals Is A Test Case for US, China

With the increased strain in China’s relations with the west, and the west’s reliance on China for both raw materials and technology, many in the west have belatedly recognized that from China’s point of view, the west is, at best, only seen as an export market for China green energy goods. From rare earth production to processing and manufacturing of finished goods, China intends to dominate the value chain.

Funny how this largely happened without most in the west noticing it until it was too late, isn’t it?

Now, Molycorp Minerals in the US is attempting to raise more than US$500 million re-open a mine which was used up until the early 1990′s and then was shut down for environmental reasons. Part of the irony of rare earth mining is that it uses hydrochloric acid and other hazardous materials to separate the rare earth oxides out of the soil. So the process used to get these materials used in green energy are not environmentally friendly at all.

For these reasons, the US decided to outsource this environmentally hazardous mining to China, which did not have these qualms at the time. And China has leveraged that it into a trade advantage with its tight control over rare earths. In fact, North America could be completely independent of Chinese supplies if it opened a few North American mines. This is a classic case of how Chinese leadership in a sector was ceded to China by dumb policies. (Sorry, there is no other way to describe them. The Chinese just took the opportunities which were presented to them.)

The big question now is whether Molycorp will be able to raise the money needed to re-open the mine? If it is successful, it will be a sign that the US is serious about getting back into the game, and not letting China have a complete monopoly on rare earths. If it is not successful, it will send a signal of weakness to the Chinese, making the Chinese think that it is all just talk.

Let’s hope the US doesn’t send the wrong signal.