Goldman's Mining Subsidiary Using China Fears To Get Taxpayer Money

Good news! You don’t have to worry about the Chinese monopoly on rare-earth metals — metals which are used in the green cars and advanced weapons systems of the future.

Says Arthur Kroes at FT’s DragonBeat blog, non-China production is set to ramp up.

Second, the prospect of declining Chinese exports means that foreign rare-earth mining companies are already boosting production and developing new mines, while high-tech producers are finding substitute materials for a number of rare earths.

US rare-earth company Molycorp Minerals plans to restart mining at its Mountain Pass deposit in California in 2012 with a proposed output equivalent to 15 per cent of global production in 2008, while Australian rare-earth company Lynas Corp plans to develop another major project in Western Australia by 2012.

Rare-earth mines are costly to bring to market and a number of planned projects still need to undertake feasibility studies—but non-Chinese rare-earth supplies and their alternatives should increase significantly over the next decade.

Molycorp Minerals… why does that sound familiar. Ah, yes, it’s the rare-earth mining company partly-owned by Goldman Sachs (GS), which just got a $3 million Congressional earmark, ostensibly because the menace of Chinese hoarding was grave enough that a domestic player warranted a taxpayer appropriation.

And yet, somehow we suspect Molycorp Minerals is just starting a long quest to get government cash.

To wit, check out this article, published just yesterday at DefenseNews.com titled: Battling a Mineral Monopoly: MolyCorp Ready To Step Up

Assuming this article is the product of the company’s well-designed PR, it appears MolyCorp is all about currying favour with the government by exploiting China fears.

China now controls 98 per cent of the world’s so-called rare earth oxides that are needed to produce sophisticated commercial and military components, such as electronics, lasers, optics, surveillance and communications systems, magnets and batteries.

The United States imports 100 per cent of the rare earths it needs, according to the U.S. Geological Survey (USGS).

As the American military depends more and more on high-technology weapon systems, it becomes ever more dependent on rare earth minerals – and China. That is raising alarms inside the Pentagon.

Enter Molycorp Minerals, which is ready to provide a hedge against China’s ever-increasing rare earth monopoly. The Greenwood Village, Colo.-based firm owns a rare earths mine in Mountain Pass, Calif., that is considered the richest deposit outside China. Owned by a private partnership, Molycorp is the lone U.S. rare earths firm.

For the Pentagon, “rare earths are simply indispensable,” said Mark Smith, Molycorp CEO. “While rare earths are a small part of these weapon systems, they absolutely have to be there – and we’re 100 per cent reliant on China right now to get them.”

So what’s Smith’s angle? They’re looking for government funding, naturally.

The company’s goal is to churn out 20,000 tons of rare earths by 2012, but without new sources of funding it could take up to 10 years, Smith said. 20 thousand tons, he said, “would be enough to meet all U.S. needs – including defence needs – as well as much of the rest of the world’s needs.”

Smith said it could take up to $450 million to bring the Mountain Pass facility back to its former ability to produce 20,000 tons a year.

Lifton, who visited Mountain Pass in June, called the need for a U.S. source of rare earths crucial, but said Molycorp will be challenged to reach 20,000 tons in three years.

“They haven’t been mining at Mountain Pass since 2002,” Lifton said. “You don’t start and stop mining like a truck.”

Company officials are exploring a number of options to raise the capital needed to hit the 2012 objective, including private-sector and government sources.

Smith said he has met with officials in Washington about a number of federal funding options, including some Energy Department loan programs. And he hopes to receive funding support from private-sector firms.

For now, we’d say you should ay attention to this one. You’ve obviously got a very aggressive campaign to create fear about a Chinese export clampdown, and you’ve got one very well connected, Goldman-owned company being held up as the saviour . Yes, they’ll be eating at the trough a lot over the coming years.

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