Molycorp, a Rare Earth Mining Firm, Is to Merge With a Processor, Neo Material – by Keith Bradsher (New York Times – March 8, 2012)

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HONG KONG — One of the West’s two main rare earth metal mining companies announced on Friday that it was buying one of the world’s two main rare earth processing companies for $1.3 billion, the latest in a series of deals that are rapidly consolidating the industry.

Molycorp, which operates the big American mine now being reopened and expanded in Mountain Pass, Calif., is buying Neo Material Technologies of Toronto, which makes specialty chemicals from rare earths at factories in China and Thailand.

Rare earth metals are vital for making a wide range of high-tech products, including smartphones, smart bombs, large wind turbines and electric cars. Rare earths are also needed for oil refining and the production of high-quality glass for cameras and other applications.

Molycorp is paying 71 percent of the cost of the deal in cash and the remaining 29 percent in shares. Molycorp valued its offer at 11.3 Canadian dollars for each share of Neo Material. That is a 42 percent premium to Neo Material’s closing price of 7.97 Canadian dollars on Thursday.

Constantine Karayannopoulos, the chief executive and president of Neo Material, said that the deal started with an unsolicited but friendly offer from Molycorp on Jan. 24, and that the two companies’ boards worked quickly to figure out the details.

The industry has been at the center of protracted trade and geopolitical disputes for the last two years, giving it a visibility far beyond its actual size.

China, which mines and processes more than 90 percent of the world’s rare earths, halted shipments to Japan for two months starting in September 2010, during a territorial dispute over islands in the East China Sea.

The embargo prompted an accelerated effort in the West to develop alternatives to China. The two main rare earth mining companies in the West are Molycorp, which is headquartered in Greenwood Village, Colo., and recently bought a small rival in Estonia, and Lynas, which is based in Sydney, Australia.

Many Chinese companies also mine rare earths. The Chinese government is now trying to consolidate dozens of small rare earth mining companies into three state-owned giants. This could make the heavily polluting industry easier to regulate, but could also make it easier for the Chinese authorities to curb smuggling and restrict exports during international crises.

The narrowest bottleneck in the global rare earth supply chain lies in taking fairly pure rare earths from the mining companies and processing them into high-tech materials of extremely high purity for electronics manufacturers, defense contractors, oil refiners and other companies.

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