In the Southern California desert, a vast open-pit rare earth mine has become a battleground in the global race for industrial supremacy. Giant yellow trucks are back hauling ore from the Mountain Pass (MP) rare earth mine, which was once closed. “Our mission is to restore the entire rare earth supply chain to the United States,” reads a statement on the website of MP Materials, the mine’s owner.
The resurgence of this rare earth mine is a product of both political and commercial ambition. Mountain Pass is providing vital resources for strategic industries, from military equipment to the devices that power the green technology revolution.
The US government has provided support to revive the Mountain Pass mine, including funding from the Department of Defense, as part of Washington’s plan to rebuild its presence in a metals market that China overtook decades ago thanks to its low production costs.
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| In June 2023, China announced restrictions on the export of gallium and germanium. (Source: SCMP) |
Mutually bound
Mountain Pass’s new era includes key backers James Litinsky and Michael Rosenthal, who are now striking international deals to supply companies like Japan’s Sumitomo Corp. as the global race for rare earth self-sufficiency intensifies.
“Two hedge fund managers take over a rare earth mine,” said Mr. Litinsky. “The most common question is, what could happen? But I will tell you, from day one, we had a long-term vision. From the beginning, we had the goal of building a great American company.”
However, the MP Materials story also highlights the complexity of the US-China relationship and the interdependence that persists, despite rising political tensions.
MP's main customer and fourth-largest shareholder is Shenghe Resources Holding, a Chinese state-backed rare earth mining and processing company listed on the Shanghai stock exchange.
“Rare earths and many other minerals are the foundation of the green transition that we are seeing in China, the US and elsewhere. And there is no company that can compare to MP Materials in the US,” said Subash Chandra, an energy analyst at New York-based investment bank Benchmark Co.
According to a 2022 report by the US Department of Energy, China has about 89% of the world’s separation capacity, 90% of its refining capacity, and 92% of its magnet production. This near-hegemonic power has become a powerful weapon in Beijing’s diplomatic arsenal.
In 2010, the Northeast Asian nation temporarily cut rare earth exports to Japan after tensions rose over the Senkaku (also known as Diaoyu) Islands. The suspension alarmed Japanese companies and triggered government efforts to reduce dependence on China for the metals.
The threat of rare earth export restrictions resurfaced at the height of the US-China trade war in 2019. The Global Times called US dependence on the minerals “a trump card in China’s hand,” assessing that the dependence could be used to pressure Washington at that time.
Beijing has recently stepped up efforts to maintain its dominance in the face of U.S. moves to shore up its own rare earth industry. In April 2023, China’s Ministry of Commerce and Ministry of Technology proposed banning the export of certain rare earth magnet manufacturing technologies.
The country also recently announced restrictions on exports of gallium and germanium, two elements that are crucial for the production of semiconductors and other electronic devices.
In response to Beijing's move, James Litinsky, CEO of MP Materials, owner of the MP rare earth mine, said he was not too concerned about the possibility of China restricting rare earth exports. His company has "intentionally avoided purchasing major equipment and technology from China" for its Texas facility for this reason.
The tense relationship between the US and China is not the only challenge MP Materials faces. First, analysts warn, scaling up the various stages of rare earth processing and magnet production will be a major technical challenge.
“Techniques like fractional mining require years of experience and testing. Any other process like metallization cannot be established overnight,” said Leslie Liang, senior consultant at Wood Mackenzie, a global energy and natural resources consultancy.
Efforts to regain glory
The story of rare earths echoes that of chipmaking, an area where Washington is also trying to regain lost ground. The task is even more daunting given that the United States has always maintained significant capabilities in advanced chip design. By contrast, government data show that there was no domestic production of rare earth materials as recently as 2017.
In 2022, MP accounted for a full 14% of the US share of global rare earth production. The scale is still relatively modest: US rare earth reserves are just over 5% of China’s. The Asian superpower also remains dominant in other aspects of rare earth production.
Washington hopes that a radical change in policy will spur the recovery of US rare earth production. In 2021, US President Joe Biden ordered government agencies to assess the resilience and security of the country’s critical supply chains and identify weaknesses. They found that dependence on China for raw materials and rare earths was a “significant strategic vulnerability.”
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| Mountain Pass rare earth mine in California, USA. (Source: Reuters) |
In 2022, President Biden warned Americans about “what happens when we become dependent on other countries” for critical materials.
The Mountain Pass mine was once the world’s leading source of rare earths. By 1974, it accounted for 78% of global production. China began ramping up production in the mid-1980s, and Beijing took the lead over the United States in the mid-1990s.
Mountain Pass’s decline accelerated when a chemical spill in 2002 forced the mine to temporarily close. It then halted ore production as Chinese competition made it unprofitable. Mountain Pass restarted full operations in the early 2010s but soon suffered another blow when its parent company, Molycorp, filed for bankruptcy.
It looks like America's rare earth dream is over.
Joining the Mountain Pass rescue team were Florida-born investors Litinsky and Rosenthal. When they sat in meetings with Molycorp’s creditors in 2014, they had no idea it was the start of a journey that would see them swap their suits and ties for a construction outfit of dusty helmets, reflective vests and boots.
Mr. Litinsky runs his own venture capital fund, JHL Capital Group, while Mr. Rosenthal heads the global auto and China sectors at asset manager QVT Financial in New York.
The duo, who grew up together in Fort Lauderdale, won the race to take control of MP's operations by paying $20.5 million. They assembled a board with a strong strategy.
The board includes Maryanne Lavan, general counsel of Lockheed Martin, the US defense industry group. Another member is retired US Air Force General Richard Myers, former chairman of the Joint Chiefs of Staff.
A lack of a sustainable and reliable supply of rare earths in North America would “represent a single point of failure for economic and national security,” Mr. Myers said.
MP Litinsky, CEO, said he has always been “very optimistic about the future of rare earths.”
Mr. Litinsky and Mr. Rosenthal first hired a management team for MP but then decided to run the operation themselves. Employee stock incentives and a safety record that allowed continuous operation for three years helped turn around a mine that had been economically unprofitable.
In 2022, the company's revenue increased 59% to $527.5 million, while net income more than doubled to $289 million.
“Rare earths themselves are very common. They’re not that rare. But the challenge is putting together the right technology, extracting and separating them, turning them into products that are marketable and usable, and doing it efficiently,” said Tom Schneberger, CEO of USA Rare Earth, an Oklahoma-based startup that makes advanced magnets.
The second phase of MP Materials’ strategy is to build a facility to separate and refine some of the rare earth concentrates at Mountain Pass. The company said it expects to bring the new processing capacity online in the second quarter of 2023.
MP’s third phase project is to build a plant to produce refined rare earth metals and finished magnets. The company broke ground on the Texas project last year and expects to begin production later this year.
But even the management that has revived the mine does not believe the US will regain its rare earth hegemony anytime soon. With efforts to bring the chip supply chain back to the US, Washington and its allies face a long and difficult task to restore their lost strategic advantage.
“Let’s be clear that China dominates the rare earth supply chain and they will dominate it for many, many years to come,” Litinsky admitted.
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