Last night 60 Minutes ran a segment on how American industry, and more importantly, the American defense industry, is prostrate before a Chinese monopoly of rare earths production. This is of course very worrying for all sorts of Very Serious People and something no doubt should be done.
There is a slight problem with the analysis 60 Minutes presented though: that problem being that their analysis was wrong. And I say this as someone who works in that rare earth industry, someone who has, at times, been a near monopoly supplier of one of the rare earths and, even, a supplier to the US defense industry of non-Chinese rare earths.
Here are the most important lines in the 60 Minutes report:
But trouble is once again looming for the U.S. rare earth industry. Since restarting operations two years ago, Molycorp’s mountain pass mine has yet to turn a profit, and so deeply in debt that just last week, its own auditor warned it may not be able to stay in business.
That part is, as far as anyone in the industry knows, true. Molycorp, which runs the only producing US domestic rare earths mine, is deep in the financial doo doo and may well go bust without a recapitalisation. As was true of the major Australian rare earths miner, Lynas Corporation, until a recapitalisation a few months back (Sept 2014).
You do not have to be excessively cynical to note that shareholders might prefer to have some government support rather than having to put more of their own money into such companies. That call for support, unless there truly is some important defense interest, should be rejected of course. For making losses as these firms are doing is the universe’s way of telling you to stop doing what you are doing.
However, on to the detail of what 60 Minutes tries to tell us about rare earths.
“What do cars, precision-guided missiles and the television you’re watching right now have in common? They all depend on something called rare earth elements, unusual metals that are sprinkled inside almost every piece of high-tech you can think of. Most people have never heard of them. But we have become so reliant on rare earths that a few years ago, an intense global power struggle broke out over their free flow.
The reason is that one country has a virtual monopoly – roughly 90 percent — of the mining, refining and processing of rare earths — China. And in 2010, it used that power to disrupt the world’s supply. It’s especially troubling, because it was the United States that started the rare earth revolution in the first place.
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