By Lisa Reisman
On Tuesday, The New York Times ran a story stating Molycorp, currently America’s only operating rare earth materials producer, will soon announce a heavy rare earth metal deposit right near its Mountain Pass operations. In addition, Molycorp has mining rights and regulatory approval for the deposit to “continue for decades.” According to the story, Molycorp CEO Mark Smith said in a phone interview on Monday that the company might be able to produce heavy rare earth metals in a little over a year. The heavy rare earths in the deposit include europium, terbium, dysprosium and yttrium, according to Technology Metals Research. But instead of celebrating the “new” discovery (clearly Molycorp owners knew of this ore deposit for some amount of time), a mild controversy has ensued around the timing and motivation of the announcement.
What About the Timing?
According to Technology Metals Research, some of the comments it has received from readers follow this line of thought: “It’s no secret that Molycorp recently has its investment rating cut from overweight to neutral by J.P. Morgan, and that the company’s share price is at a fraction of its 52-week high.” In fact, Technology Metals Research co-founder Jack Lifton had this to say about the announcement:
“…Let me get this straight: in a solvent exchange plant not yet built, not yet proven in, or run up to capacity after the proving-in bugs are worked out, Molycorp is going to run process leach solution (PLS) from an ore concentrate that it has not yet determined can be produced, with an extraction efficiency that it has not yet determined to be economical – this additional HREE-containing PLS will be run simultaneously or on top of the PLS derived from the Mountain Pass bastnaesite concentrate – which has not yet been run in the new plant. All this in a year…This is complete and utter engineering and chemical nonsense. Other than that – it’s a great story.”
In addition, TMR suggested:
“It’s something of an understatement to say that these communications from Molycorp contain some pretty bold claims. To be able to process the materials at the new HREE prospect in little over a year, as claimed by Mr. Smith, likely assumes that there are no modifications to either the budget, schedule or construction plans for the company’s new processing facility. Does this mean that Molycorp knew all along that it would potentially be including materials from this prospect, in its overall processing capabilities?”
We’ve heard stranger claims, but we take no position on the veracity of Molycorp’s announcement. What we do know for sure involves this – when manufacturers face a squeeze with their supply options, they respond with an engineering/problem-solving mindset.
So let’s assume we don’t view the world cynically. Why would Molycorp make this announcement at this time? The Times piece by Keith Bradsher offers up one compelling reason that we have discussed at length previously – “product substitution.” In other words, Molycorp may have gone to market with these findings to reassure a manufacturing buying audience that before it undertakes costly product engineering and re-design activities to drive substitution, an alternative, viable long-term source of domestic supply exists.
A second explanation for the announcement may simply involve timing. Molycorp may have wished to assure that same manufacturing audience that ample supply exists to counter the reduced global demand outlook for rare earth metals as quoted by the Times from industry expert Dudley Kingsnorth (click here to see a brief interview MetalMiner conducted with Dudley back in 2009).
No matter Molycorp’s rationale or timing of its announcement, buying organizations won’t wait around for alternatives. As we said at the peak of 2008, “nothing kills high prices like high prices.”