Seismic Deal Struck to Reshape the Rare Earths Industry

Terraced roads line the Molycorp Mountain Pass open pit mine in Mountain Pass, California, U.S., on Thursday, Sept. 10, 2009. Molycorp Minerals LLC, the only U.S. producer of rare earths, may spend up to $400 million expanding output by more than nine times to meet rising minerals demand from makers of hybrid cars, computer chips and televisions. China currently accounts for more than 90 percent of global rare earth output. Photographer: Jacob Kepler/Bloomberg

The Backdrop

The ability to source essential industrial and medical supplies and critical raw materials in a time of crisis is a key test of the robustness of a national supply chain. For many countries including the U.S., the COVID-19 pandemic highlighted that in crisis, supply chains controlled by non-aligned nations may be unable or unwilling to adequately deliver access to critical materials, chemicals, pharmaceuticals or key enabling technologies.

While the push to reindustrialize the United States has been a multiyear trend, the devastating impact of the pandemic is now rapidly accelerating this process, driven by both private and public interests. The supply chains that underpin the strength of U.S. defence, health services and industry are being re-evaluated, with secure domestic access now prioritized alongside quality and cost considerations.

The Deal

On July 15, investors penned one of the most technologically- and geopolitically-important deals of the decade.

MP Materials Corp. agreed to merge with Fortress Value Acquisition Corp. (NYSE:FVAC), a special purpose acquisition company, or SPAC.

MP Materials is the current owner of a mine called Mountain Pass in California. Mountain Pass, however, is no copper or gold mine. It extracts the vast majority of U.S.-produced rare earth metals.

Rare earths is the name given to 17 hard-to-pronounce elements at the bottom of the periodic table. They are, as the name suggests, rare. In fact, only one country makes up two-thirds of all rare earth production on the planet.

But no matter how rare these metals are, they are even more crucial to a wide range of technological applications including turbines, navigation systems and electric vehicles.

These metals carry properties you can’t find anywhere else. In EV batteries, for instance, neodymium and praseodymium (NdPR) are used for their magnetic properties.

As the production and demand for these kinds of technologies continue to grow, the rarity of these elements is becoming forefront in everyone’s minds.

Geopolitical Consequences of MP Materials

The one country that controls two-thirds of these metals’ production is China. Back in 2011, rare earths’ prices were skyrocketing on restrictions on China’s exports of these materials. That’s when Mountain Pass’ former owner, Molycorp poured millions into the site to get it up and running again.

When those restrictions eased, prices fell sending Molycorp out of business. MP Materials, a private joint-venture company between two major hedge funds, bought up these assets on the cheap in 2017. The problem, however, was processing all of this production.

It takes expensive equipment and facilities to process the roughly 26,000 tonnes of concentrated ore MP Materials digs up each year. As of now, China holds a near monopoly on this refining process too.

Currently, MP Materials ships nearly all of its production over to China to process into useable materials for all of these technologically-advanced applications. That is costly.

Still, as demand has risen for these technologies, rare earth prices have risen making MP profitable regardless of this added expense.

As you can imagine, domestic production and refining is something both politicians and technology companies would find important.

Just having access to the limited supply of rare earths no matter where it came from is on the minds of people like Elon Musk. He proudly stated back in 2017 that Tesla didn’t use any rare earths in its batteries. That’s changed. In 2019, it began using these metals to extend the range of their vehicles.

Musk has also recently announced that he’s looking directly at the mining of materials used in his batteries. He put out a call to any company that can mine nickel in a more environmentally sustainable way. Nickel isn’t a rare earth. But it does offer a glimpse at the importance of securing supplies to this transformational industry.

Other important geopolitical consequences of U.S. supply of rare earths include the U.S. government. These metals are used in many defensive, military applications like targeting and control systems. Congress and the Department of Defense have specifically mentioned Mountain Pass in reports on the importance of their supply chains.

How This Deal Changes the Game

MP Materials have already stated that it will use, at least in part, the roughly $345 million in cash and additional $200 million private investment from this deal to retrofit existing processing facilities to refine its production by 2022.

That’s an enormous undertaking. But it would also turn this already profitable company into a money-making operation of national importance.

Now, it isn’t the only mover and shaker in the rare earths field. Australia has recently opened up and increased production of its own domestic supply. And depending on where China-U.S. trade talks head from here, there’s no guarantee prices won’t come back down.

But demand is only going to rise. Domestic supply and production are now on the table with this deal. And the funding should hit MP Material’s balance sheet by the end of the year once this deal is completed.

The consequences of all of this could be huge for all kinds of technologies, including the booming EV industry.

Microcap Stocks Active in the Rare Earth Sector

Geomega Resources Inc (TSX Venture: GMA)

Based in Boucherville and St-Bruno, Canada, Geomega Resources has developed a proprietary, environmentally friendly ISR technology that recycles rare earth elements with focus on the permanent magnet industry and produces four high-demand, high-price, rare earth elements.

Ucore Rare Metals Inc (TSX Venture: UCU)

Ucore is focused on rare and critical metals resources, extraction and beneficiation technologies with potential for production, growth, and scalability. The company has a 100% ownership stake in the Bokan-Dotson Ridge Rare Earth Project, as well its wholly owned subsidiary, Innovation Metals Corp.

About Innovation Metals Corp.

IMC has developed the proprietary RapidSX process, for the low-cost separation and purification of REEs, Ni, Co, Li and other technology metals, via an accelerated form of solvent extraction. IMC is commercializing this approach for a number of metals, to help enable mining and metal-recycling companies to compete in today’s global marketplace. IMC is a wholly owned subsidiary of Ucore Rare Metals Inc.

Medallion Resource Ltd. (TSX Venture: MDL)

Medallion Resources has developed a proprietary process and related business model to achieve low-cost, near-term, rare earth element (REE) production by exploiting monazite. Monazite is a rare earth phosphate mineral that is widely available as a byproduct from mineral sand mining operations.

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