By Adam Currie — Exclusive to Rare Earth Investing News
The global rare earth market has been witness to an eventful month, with attention being shifted to the recent announcement by US Congress that domestic rare earth supplies will sufficiently meet the US defense industry’s needs by 2013.
This assessment was given much needed emphasis recently when Molycorp Inc. (NYSE:MCP) announced that its proven and probable reserves of rare earth minerals at its Mountain Pass, California facility have increased by 36 percent.
Updated resource estimate
The updated estimate, undertaken by independent consulting firm SRK Consulting, expanded Molycorp’s reserves to 18.4 million short tons of rare earth ore at an ore grade of 7.98 percent and a cut-off grade of five percent. Many feel that the announcement is likely to have an influential effect on the market as it is a substantial increase on the previous estimate of 13.6 million short tons.
SRK estimates that the proven and probable component of Mountain Pass’ ore body contains approximately 1.3 million metric tons of contained rare earth oxide (REO) equivalent. The estimate was based on analysis of an updated mine plan that calculated material volumes, tonnes, in-situ grades, and concentrate tonnes.
At a time when consumers are searching for sources of rare earth elements (REEs) outside of China, the deposit presents an enticing market opportunity.
Location and history
The company’s Mountain Pass facility is situated on the southern flank of the Clark Mountain Range and just north of the unincorporated community of Mountain Pass, California. The mine has had a colorful history in that it once supplied most of the world’s REEs and is now seeking to re-emerge as a major global supplier.
The rare earth carbonatite complex was discovered almost by accident in 1949, when two prospectors, using a borrowed a Geiger counter, staked a series of claims on a radioactive outcrop that they believed had potential as a uranium resource.
Samples sent to the US Geological Survey (USGS) for analysis were identified as the rare earth fluorocarbonate bastnaesite. The USGS immediately undertook a detailed field survey of the area and found a much larger, non-radioactive deposit of bastnaesite on the adjoining land.
One of the two original prospectors, a metallurgist for Molycorp, urged the company to claim the land. The corporation was acquired by Union Oil in 1977, which in turn became part of Chevron Corp. (NYSE:CVX) in 2005.
According to a company description, the Mountain Pass deposit is in a 1.4 billion year old Precambrian carbonatite intruded into gneiss, and contains eight to twelve percent REOs, mostly contained in the mineral bastnasite. Gangue minerals at the site include calcite, barite, and dolomite.
The Mountain Pass facility “dominated” worldwide REE production from the 1960s to the 1980s, with the deposit mined on a large scale between 1965 and 1995, during which time it supplied most of the global supply of rare earth metals.
Mountain Pass production suspended
Issues relating to the facility’s economic sustainability were threatened in the early 1990s when Chinese politician Deng Xiaoping famously compared China’s abundance of rare earth to the Middle East’s oil reserves. The introduction of Chinese REEs to the global market had a profound effect on pricing. Mountain Pass was unable to compete, and given the mine’s growing ecological costs as a result of a halt in chemical processing in 1998 on the back of a series of wastewater leaks, operations were ended in 2002.
The mine remained inactive after 2002, though processing of previously-mined ore continued at the site.
A second chance
Chevron sold the facility to privately-held Molycorp Minerals LLC in 2008, a company specifically formed to revive the mine. In 2010 Molycorp became a publicly-traded firm and announced that it had secured all the environmental permits needed to begin Project Phoenix, an $895 million expansion and modernization project at the site. The project was aimed at transforming the mine’s capabilities and dramatically increasing the amount of rare earth material to market.
The company has estimated that the Mountain Pass deposit has an expected mine life of 30 years, and that by the end of 2012 it will have the capacity to produce up to 40,000 metric tonnes of REO per year.
From a production perspective, lanthanum, cerium, neodymium, and praseodymium products will make up the majority of commercial output from Mountain Pass. However, Molycorp has also stated that the high volume of ore processed, coupled with high recovery rates, will enable it to produce commercially significant quantities of heavy REEs including europium, terbium, dysprosium, and yttrium.
If the latest estimates prove to be accurate, the Mountain Pass deposit has the ability to become a market game changer. From an investor perspective, the timing could not be better in that total proven and probable reserves now add up to approximately eleven times current global demand at a time when the company’s closest competitor, Lynas Corporation Ltd. (ASX:LYC), faces permitting delays at its processing facility in Malaysia.
Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.