I’m a big believer in markets but every once in a while, something happens in our economy that demands more than a pure private sector response. This article from the Wall Street Journal (below) highlights the need for such a response in one critical area of the U.S. economy–namely, the need for rare earths that are used in advanced electronics and automobiles.
Molycorp is mothballing the only mine in the United States that produces rare earths, leaving the U.S. highly dependent on China. China has previously suspended the exports of its rare earths, or limited them, so it is not a good idea to be dependent on it.
Why not try a creative response? When the U.S. semiconductor industry was worried about Japanese competition in the late 1980s, the then-Republican administration created Sematech, which was a consortium of private companies and government entities. Sematech, which still exists today, played a big role in helping American semiconductor companies continue to innovate and maintain their position in the chip industry.
So why not try something similar with rare earths? Let’s say the Departments of Energy and Defense became members of this new consortium, along with the state governments of California and Nevada. The Energy Department, in particular, possesses a huge treasure trove of technologies that might help Molycorp produce and process its rare earths. Then the other participants in this consortium should be Molycorp’s largest customers. The precise modalities could be worked out. Perhaps private sector companies take pieces of Molycorp’s equity. Perhaps the government entities issue loan guarantees. The arrangement would have to work in a way that was in everybody’s best interests.
The American system is capable of creating those types of arrangements. Some critics may say it is “crony capitalism” or “industrial policy” but that’s what it takes at certain times and in certain industries to maintain strategic sectors of the American economy.
Molycorp to Suspend Production at California Mine
Firm, amid a price collapse for rare earths, to lay off almost 500 workers at Mountain Pass facility
Molycorp plans to put its Mountain Pass mine on the California-Nevada border on ‘care and maintenance.’ ENLARGE
By John W. Miller
Aug. 26, 2015 3:11 p.m. ET
1 COMMENTS
Molycorp Inc., the only U.S. producer of rare earths, intends to mothball its mine in California, laying off almost 500 workers and suspending the country’s sole source of the 15 elements used in magnets, batteries and other high-tech products.
The company said Wednesday that it would put its Mountain Pass mine on the California-Nevada border on “care and maintenance” by Oct. 20, although it would continue to produce at processing plants in Estonia and China.
Rare earths are essential to making products as diverse as cars and iPhones, but they are needed in such minuscule quantities that it doesn’t take much to oversupply the market.
That is what happened to Molycorp. Prices collapsed, forcing the company based in Greenwood Village, Colo., to seek protection from creditors in June. The chapter 11 filing represents one of the biggest corporate failures in a difficult year for mining companies, as they contend with slumping commodity prices and slowing demand from China, their biggest customer.
Molycorp said it could restart the mine depending on “market conditions and other factors that are difficult to forecast.” Demand is still relatively good for rare earths, especially from the clean-energy sector, the company said.
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A bigger problem is supply, which Molycorp said has been exacerbated by “an ongoing tsunami of rare earths that are produced via unregulated and illicit mines and processors in China.”
It has been a punishing downfall Molycorp. Fueled by restrictions on exports of rare earths by China, the world’s dominant supplier, the company’s stock-market value rocketed to more than $6 billion at the start of this decade.
But then China ended its limits on rare-earths exports, and battery and magnet makers found alternative materials, sending Molycorp into a prolonged slide.
The company hasn’t turned a profit since 2011.
Molycorp employs “just under 500 workers” represented by the United Steelworkers union, said Jim Sims, a company spokesman. “The overwhelming majority of those jobs will almost certainly be lost,” he said. Mr. Sims added: “It also represents a loss to the U.S. of intellectual capital and workforce skills that is difficult to measure.”
A USW spokesman declined to comment.
Rare earths are considered a strategic resource because they are used in military electronics. The U.S. government, however, has a large stockpile, and isn’t planning to bail out Molycorp.
In 2010, Molycorp—formerly a unit of Chevron Corp. and bought by private-equity firms in 2008 for $80 million—raised $394 million in a public offering.
Then, as rare-earths prices and its stock-market value soared, Molycorp overextended itself and took on debt. It committed to an expansion at the California mine, which after overruns cost $1.5 billion, and bought Neo Material Technologies Inc., a Toronto-based rare-earths-processing company, for $1.3 billion.
Write to John W. Miller at john.miller@wsj.com
