Deal Shows China’s Sway in Rare-Earth Minerals – by James T. Areddy (The Wall Street Journal – March 12, 2012)

http://online.wsj.com/home-page

SHANGHAI—Molycorp Inc.’s $1.3 billion deal to acquire a key processor of rare-earth minerals has sparked a warning from industry officials that it could reinforce China as the main source for specialized magnets used in consumer electronics and sophisticated weapons.

Molycorp said Thursday it plans to buy Toronto-listed Neo Material Technologies Inc., one of the world’s leading experts in chemistry needed to transform rare earths—minerals used in applications that range from car batteries to advanced weaponry—into specialized magnets. Molycorp said the deal creates the most diversified rare-earth company outside of China, which dominates the industry.

The transaction, said Mark A. Smith, president and chief executive of Greenwood Village, Colo.-based Molycorp, links a world-class miner with a world-class processing company.

But the deal also paves the way for Molycorp to ship minerals from its California mine to the Chinese operations of a Neo Material arm called Magnequench, in a reminder of how much technological rare-earth capability resides in China.

Ed Richardson, president of the U.S. Magnetic Materials Association, says the plan is worrisome. The U.S. is already “dangerously dependent on China” for rare-earth-magnet materials, including to supply its weapons systems, Mr. Richardson said in an email. Molycorp’s “export of U.S. rare earth assets into China will only exacerbate this problem,” he added.

Mr. Smith played down political and historical implications of the deal that now ties Molycorp, Magnequench and China. He said sending rare-earth oxides to China is a bid for “higher volume, higher margin” that will only reduce production costs in the U.S. and by implication boost supply of the metals for industrial users. “It does not in any way deplete our ability to serve the market outside of China whatsoever,” Mr. Smith said.

While much of the debate over China’s hold on the rare-earths market has focused on mining, the Molycorp deal highlights China’s ability to process mined oxides into metals that help electric cars hold their charge, make wind turbines turn and bring precision to military gyroscopes.

Like most developments in the tiny but critical rare-earth industry, the merger is a response to China’s market supremacy. Companies such as Molycorp and Australia’s Lynas Corp. are trying to provide supply alternatives to China, which has 90% market share in many aspects of the industry. It comes as analysts predict a formal challenge of China at the World Trade Organization over its rules to limit export of some rare-earth materials, rules that Beijing says are meant to protect the environment but Washington labels a trade barrier.

For the rest of this article, please go to The Wall Street Journal website: http://online.wsj.com/article/SB10001424052702303717304577274882847317306.html