The Californian Rare Earths Mine Caught Between Trump and China

(Bloomberg) -- The only operating rare earths mine in the U.S. - and once the world’s biggest -- is caught up in the crossfire of the Trump administration’s trade war with China.

Rare earths, an esoteric group of materials used in everything from Tesla Inc. automobiles to high-tech military equipment, were dropped this week from the U.S.’s final $200 billion catalog of tariffs on Chinese goods, but China didn’t reciprocate on its own hit list.

For MP Mine Operations LLC, the U.S. consortium that owns the Mountain Pass mine in California, that’s a problem because it ships semi-processed output for refining in China, which plans a 10-percent tariff on these imports, rising to 25 percent next year.

“The ten-percent tariffs provide a real challenge, and the prospect of 25 percent is daunting,” James Litinsky, chief executive officer of JHL Capital Group LLC, the majority owner of the Mountain Pass consortium, said by email. “We believe that we can compete without tariffs, and we don’t understand why there would be tariffs on us, when there are no tariffs on Chinese producers.”

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The rare earths trade between the world’s top two economies is largely one-way, with America reliant on China for about 80 percent of its supply, according to the U.S. Geological Survey. The Asian nation’s control of rare earths has long been flagged as a risk for advanced manufacturers in developed nations. Countries, including the U.S., took China to the World Trade Organization earlier this decade to force the nation to ease export restrictions.

There have been calls for Mountain Pass to be nationalized. Read more here.

In the case of rare earths, observers have speculated that China’s reaction to U.S. trade measures could extend beyond the simple imposition of tit-for-tat import duties to cutting sales outright. It could use “targeted export restraints” to disrupt U.S. corporate supply chains as part of its response to Trump’s broader push on tariffs, Macquarie Group Ltd. analysts wrote in a recent note that cited previous rare earths export restrictions as a precedent.

In the U.S., the Trump administration has pushed for measures to promote domestic mining of what it calls critical minerals.

Under current plans, the Mountain Pass owners ultimately aim to process rare earths domestically for use in electric vehicles, wind turbines and other clean-energy sectors. “Our self-sufficiency will serve as a foundation for an American-based rare earths industry,” Litinsky said. The mine restarted in January this year and MP Materials employs about 175 people directly, he said.

‘Utmost Importance’

JHL Capital owns 65 percent of the Mountain Pass venture, which does business under the name MP Materials. New York-based QVT Financial LP has a 25 percent share, while Chinese firm Leshan Shenghe Rare Earth Co. holds the rest.

The owners want Mountain Pass to build processing capacity in the U.S. in about 18 months, Litinsky said. The mine restarted this year after being mothballed in 2015 when its previous owners Molycorp Inc. entered bankruptcy.

Asked if his company has consulted with the U.S. on the tariffs, Litinsky said: “We’ve had a number of discussions with people in government and we believe they are certainly receptive to us. There’s a strong bipartisan view that creating an American rare earths industry is of utmost importance.”

To contact Bloomberg News staff for this story: Martin Ritchie in Shanghai at mritchie14@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Keith Gosman

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With assistance from Editorial Board