This company is America's best chance to loosen China's grip on rare earths

By Pamela Boykoff and Clare Sebastian

Mountain Pass, California -- Less than an hour from the glitzy casinos and high-rise hotels of Las Vegas, the miners at Mountain Pass are reviving an industry that nearly disappeared from American soil. 

This is the only mine in the country devoted to rare earths, elements essential to modern electronics. Rare earths are contained in everything from iPhones to wind turbines to Teslas.
"If there's going to be an American rare earths industry, it's gonna be led by us. We're it," said James Litinksy, the co-chairman of MP Materials, which owns the mine in Mountain Pass, California.
Shuttered after the previous owner went bankrupt in 2015, MP Materials has spent two years rebuilding the Mountain Pass operation. 

Two hundred people now work at the mine site, carrying out blasts, trucking the minerals out of the mine and milling them into a powdered concentrate that is packed into dozens of white bags on site.
MP Materials say they supply about 10% of the world's rare earths, a set of 17 minerals with magnetic and conductive properties that help power most electronic devices.
The rest of the rare earths industry is dominated by China, where labor costs are cheaper and environmental standards more lax.
The market for rare earths is expected to grow substantially over the next decade as the world becomes more and more dependent on high-tech products. 

With Washington and Beijing locked in a trade dispute, some in the US government and private industry want to see the United States develop an alternative supply of these essential elements -- first to increase mining of the minerals -- and eventually develop refining and production.
This Chinese dominance of such an important commodity has raised alarm bells in the Trump administration, particularly the defense department, which requires rare earths materials to build things like fighter jets, missile defense systems and satellites. 

Chinese state media stoked such concerns in May, when it hinted the country could restrict access to rare earths as a weapon in the trade war. 

Chinese dictator Xi Jinping even paid a personal visit to one of the country's high-tech rare earths processors.
"The Chinese have wanted to cultivate that dependence and use it as a lever, and so I don't think it's any surprise that they are considering using it more dramatically," said Eugene Gholz, associate professor of political science at the University of Notre Dame and former Pentagon senior adviser.
The Defense Department says its working with President Donald Trump, Congress and industry to try and mitigate US reliance on China for rare earth minerals.

The pit at the MP Materials' Mountain Pass mine in California. It's the only operating mine in the United States that provides rare earths, ingredients that are key for producing high-tech products like cell phones and electric vehicles.

It's easy to see how Mountain Pass could be central to this effort. 

Experts say the site contains one of the world's highest quality deposits of this type of material, with a high proportion of naturally occurring rare earths and little of the radioactive elements that can make this type of mining dangerous or environmentally damaging. 

The mine started operations in the 1950s by producing europium, which was used to make red colors in early televisions.
The trouble is that Mountain Pass currently has no ability to separate the rare earths into the type of products required for technological supply chains. 

All of its final product is exported back to China for processing.

Building capacity
Experts say this step is the true impediment to diversifying the supply chain. 

"Mining and concentration is actually one of the easier steps," said Roderick Eggert, an economics professor at Colorado School of Mines. 

"The real challenge is actually downstream in separations."
A US defense official told CNN Business that the Pentagon expects to soon receive additional authorities and resources from the Trump White House to begin developing non-China rare earth refinery options, with a focus on building up capacity within allied countries.
James Litinsky believes Mountain Pass is up for the challenge. 

He says the site will have its own separations facility operating by next year, allowing them to make rare earth oxides they can sell directly to global companies. 

They are taking advantage of $1.7 billion the previous owner spent to upgrade the site and make it environmentally friendly before abandoning it in the bankruptcy, including building a massive separations facility that currently sits unused. 

A minority non-voting stake in MP Materials is owned by a Chinese company that is listed on the stock exchange in Shanghai.
Someday, Litinsky hopes his company may be able to carry out the entire supply chain, from mining all the way into production of miniaturized magnets, motors and other rare earth products that go directly into consumer goods. 

Right now, nearly all of that final step is done in China or Japan.
He said the trade war between Washington and Beijing provided an additional impetus for the company to achieve its goal of creating "a real Western allied super major" -- an alternative supply chain to the current one monopolized by China.

A worker checks on operations at the processing facility at the Mountain Pass rare earths mine in California.

"There were a lot of people who doubted we could make this work and so we felt an extra burden and a duty," he said. 

"But I've said there has definitely been a heightened sense of awareness of what we are up to since the trade war started."
Litinsky won't discuss his specific contacts with the government but said some officials have visited the Mountain Pass site. 

Trade war or no trade war, he believes he's building a business that's economically viable and can compete in an open market. 

He hopes officials and corporations see the company's strategic importance and recognize the advantage Chinese producers have because of state subsidies and looser environmental regulations.
"We don't want a handout," Litinsky said. 

"We don't need that help. We just need a level playing field to compete."
The demand for rare earths is expected to grow alongside the market for high-tech products. 

Research firm Adams Intelligence estimates that between 2018 and 2030 the value of demand will quadruple, turning rare earths into at nearly $16 billion market.
Both Gholz and Eggert believe this growing demand and rising prices, combined with market pressure for a more diverse, sustainable supply chain, may bring the Chinese control of rare earths to an end, even without government intervention.
That shift seems to be what Mountain Pass is betting on.
"As a matter of national security we need to lead in these industries of tomorrow and I think that that's probably where the military is most focused," he said. 

"They actually ultimately make up a much smaller percentage of the market than electric vehicles, wind turbines all these significant industries of tomorrow that will lead to millions of jobs. That will be the arena with which this situation plays out. "

How China Could Shut Down America’s Defenses

Advanced U.S. weapons are almost entirely reliant on rare-earth materials only made in China
BY KEITH JOHNSON, LARA SELIGMAN
The Virginia-class fast-attack submarine USS Hawaii prepared to moor at the historic submarine piers at Joint Base Pearl Harbor-Hickam on June 6. Each Virginia-class submarine uses nearly five tons of rare-earth materials. 

President Donald Trump has often argued that China has much more to lose than the United States in a trade war, but critics say his administration has failed to address a major U.S. vulnerability: Beijing maintains powerful leverage over the warmaking capability of its main strategic rival through its control of critical materials.
Every advanced weapon in the U.S. arsenal—from Tomahawk missiles to the F-35 fighter jet to Aegis-equipped destroyers and cruisers and everything in between—is absolutely reliant on components made using rare-earth elements, including critical items such as permanent magnets and specialized alloys that are almost exclusively made in China. 

More worrisome is that the long-term U.S. supply of smart bombs and guided munitions that would have to be replenished in a hurry in the event of U.S. conflict in Syria, Iran, or elsewhere are essentially reliant on China’s acquiescence in their continued production.
Chinese threats to cut off U.S. supplies of rare earths, first floated by Beijing in late May, haven’t abated. 

Over the weekend, Chinese state media suggested that high-end, finished products using rare earths that the U.S. defense industry requires could be included in China’s technology-export restrictions, themselves a response to U.S. pressure on the telecoms giant Huawei. 

“China is capable of impacting the US supply chain through certain technical controls,” said an editorial in China’s Global Times that pointedly referred to processed rare earths.
“China has effectively altered the way we manage war, and potentially the outcome,” said James Kennedy, the founder of ThREE Consulting, a rare-earths consultancy focused on security implications.
For all the hints of a new cold war with China, Kennedy said, U.S. warfighting capabilities are in the hands of the one country that has come to be seen by U.S. national security officials as a peer competitor and a strategic rival.
“Rare earths are actually a hegemonic trigger. If the United States gets into a conflict, China is supplying the majority of the upscale weapons,” he said. 

“China can determine the outcome of the conflict, and that could result in a hegemonic shift.”
If rare-earth elements have become the key ingredient in all sorts of advanced civilian technology such as cell phones, electric cars, and renewable energy equipment, they’re doubly important for defense. 

Each Virginia-class attack submarine needs 9,200 pounds of rare-earth materials, while each F-35 needs 920 pounds, according to a 2013 Congressional Research Service report.
The defense industry, unlike most other sectors, doesn’t need low-end rare-earth materials that—contrary to their name—are actually commonly found in many places around the world. 

Rather, what the defense industry most needs are highly processed rare-earth products, especially permanent magnets, that are essentially made only in Japan and China. 

And while Japan, itself stung by a Chinese rare-earth embargo in 2010 and 2011, has made some progress emancipating itself from reliance on Chinese suppliers, its rare-earth value chain is still deeply enmeshed with China, leaving it with little ability to ramp up production volumes to bail out U.S. consumers while still meeting its own domestic needs.
The highest-end products are high-powered magnets, which are what make the guidance systems on smart bombs and cruise missiles work and what runs Aegis missile-tracking and secure communications.
But there are a host of other rare-earth products that the defense industry relies on, Kennedy said. Those include temperature-resistant coatings and alloys for jet engines and stealth coatings for fuselages, all advanced targeting systems, advanced radar and sonar, and even night-vision goggles.
The Pentagon has been grappling with the importance—and vulnerability—of rare earths in the defense industrial base for years. 

Successive administrations have sought to either revitalize the once-booming U.S. rare-earths industry, stockpile critical materials, or line up alternative suppliers—but with little success so far.
China often subsidizes its rare-earth firms and sells at or below cost, which makes it very difficult for private firms to make a go in the business. 

Alternative supplies of rare-earth ore abound, but China has a dominant position in the processed rare-earth products that the defense industry needs. 

The Department of Defense has no clear definition of just what critical materials are needed, and defense stockpiles of critical materials often are not in usable form.
“DOD has no comprehensive, department-wide approach to determine which rare earths are critical to national security, and how to deal with potential supply disruptions to ensure continued, reliable access,” concluded the Government Accountability Office in 2016.
The Pentagon most clearly outlined its concerns in a 2018 review ordered by the White House, which accused China of deliberately leveraging its monopoly on these minerals to squeeze the U.S. defense industrial base. 

The report specifically warned that China is the sole source or primary supplier for a number of critical materials used in munitions and missiles. 

For example, the United States used to make neodymium ion boron permanent magnets, the gizmo that helps guide guided missiles to their targets; today, they are almost all made in China, and none are manufactured in the United States.
In many cases there is no alternative for this material, and in others the time and cost to test and qualify alternatives would be “prohibitive,” the report found.
“China represents a significant and growing risk to the supply of materials and technologies deemed strategic and critical to U.S. national security,” the report concluded. 

And it underscored the potential national security vulnerabilities as Washington’s trade war with Beijing heated up.
“China’s trade dominance and its willingness to use trade as a weapon of soft power increases the risks America’s manufacturing and defense industrial base faces in relying on a strategic competitor for critical goods, services, and commodities,” the report said.
Former defense officials stress that despite years of attention to the potential vulnerability, it’s not clear that the United States yet has a solution.
“Rare-earth elements are critical for defense applications, and there are no easy alternatives for their functionalities, so we absolutely need them,” said Andrew Hunter, the director of the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies and a former senior Pentagon official. 

“It would be a major blow to the defense industrial base if we were cut off from rare earths.”
Having weathered one Chinese embargo on rare-earth exports nearly a decade ago, which led to price spikes but only temporary disruptions, many Pentagon officials put their faith in market solutions, Hunter said. 

“I sense that still holds, but I’m not sanguine that it will remain that way without more government intervention,” he said.
Still, it is far from clear that Beijing will make good on implicit threats to cut off U.S. access to certain critical minerals. 

Hu Xijin, the editor of the Global Times tabloid, which is owned by the Chinese Communist Party, said in late May that the government was considering the idea but cautioned that it may not act right away. 

Such a curtailment would be seen in Beijing and Washington as an extremely provocative step—especially after China has spent the last decade trying to rebuild its reputation as a reliable supplier of critical rare earths.
“I think Chinese government won’t do this immediately,” Hu wrote on Twitter, “but it’s seriously evaluating the need to do so.”
China has had a laser focus on rare earths and their importance to advanced technologies since the Deng Xiaoping years—the former Chinese leader reportedly likened the leverage it gave Beijing to the Middle East’s control of oil supplies.
And that industrial dominance has come to complement China’s breakneck race to match the U.S. military’s technological dominance, put on explosive display during the Gulf War, when smart bombs revolutionized modern warfare. 

That development convinced Chinese leaders they would have to catch up technologically to pose a credible threat to U.S. military might, and Beijing has spent the last 30 years doing just that, noted former U.S. Deputy Defense Secretary Robert Work and his former Pentagon colleague Greg Grant in a new study for the Center for a New American Security on China’s own “military-technical offset.”
It didn’t used to be this way. 

From the 1960s into the 1980s, the United States dominated both the mining and processing of rare earths. 

But that started to change, partly because of challenging economics in what is still a niche industry, and partly because China’s lax environmental standards give it an advantage in the dirty business of extracting the stuff, which is often mixed with radioactive material.
One important blow to the U.S. industry was a 1980 regulatory change regarding the handling of thorium, a radioactive element, that drove conventional miners of iron, zinc, and other raw materials—once the source of most rare-earth production—to dispose of rare-earth ores rather than use them. 

Combined with China’s state subsidies, lax standards, and desire to corner the market, it amounted to a wholesale shift in who controlled what would become one of the key building blocks of the modern economy—and modern militaries.
The shift of rare-earth dominance to China happened to coincide with a revolution in military affairs, where high-tech weapons using ever more difficult-to-acquire materials became the go-to arrows in the U.S. quiver. 

Tomahawk missiles, for example, are about the most ubiquitous and most used weapon in the U.S. arsenal, but they can’t read terrain and find their targets without the critical materials now controlled by China.
Next-generation weapons will likely be even more reliant on highly processed rare-earth materials, Kennedy said, including hypersonic missiles, directed-energy weapons, and even quantum computing.
The Pentagon does maintain a stockpile of lots of different critical materials and rare earths—but mostly in raw or intermediate form, not in the highly processed finished form that defense platforms actually require. 

Rare-earth oxides, for example, still must be further processed or refined into metals, alloys, and eventually the permanent magnets that run guidance systems for missiles or navigation systems for American Abrams battle tanks. 

The United States has very little rare-earth processing ability, and it would take years to rebuild it.
“The critical materials stockpile is a joke,” Kennedy said.
The Trump administration and many lawmakers are redoubling efforts to restart domestic rare-earth mining, and the Department of Commerce this month released a report calling for the United States to address its reliance on imported critical minerals.
The Defense Department recently asked Congress for federal funds to bolster domestic production of these minerals. 

The Mountain Pass mine in California is currently the only operating U.S. rare-earths facility. Notably, China’s Shenghe Resources Holding Co. is a minority investor, and MP Materials, the owner of Mountain Pass, ships the roughly 50,000 tons of concentrate it extracts from California each year to China to be processed, according to Reuters.
At least three U.S.-based companies are planning to open rare-earth processing plants, including one at Mountain Pass mine set to open next year that will reportedly produce about 5,000 tons of rare earths a year, Reuters reported.
But more mines and intermediate processing facilities likely won’t blunt China’s control of the whole production chain—from mine to magnet. 

Even highly touted announcements, such as Lynas Corp.’s decision to build a rare-earth separation plant in Texas, don’t solve the Pentagon’s problem, because the oxides must still be shipped overseas to be turned into alloys or permanent magnets.
One possible solution that has been rattling around Washington for years, which Kennedy advocates, is to allow technology firms to create a cooperative. 

That would be a way to provide soup-to-nuts rare-earth services: mining the stuff, separating it, processing it, and finally turning it into advanced metals, magnets, and more, without risking the serial bankruptcies that have plagued the sector for decades.
Some House Republicans have been urging the administration to take such a step, and the White House could issue an executive order essentially dictating the same measures.
But for now, the United States is still left without an answer to its rare-earth dilemma.