U.S., Japanese Officials Meet To Talk Rare Earths

Representatives of the Japanese government are in the United States, meeting with their counterparts at the Department of Energy and the U.S. Geological Survey, to discuss new sources of rare earth minerals.

But while the U.S. has supplies of the strategically vital elements, it does not have any extant mining operations and won't have them until 2012 at the earliest.

Rare earths are a group of 16 elements that have magnetic and chemical properties that make them ideal for high-tech applications. All were discovered in the 20^th century, and are used in applications such as magnets for hard drives, lasers, and oil refining.

In September, the New York Times reported that China had cut off rare earth shipments to Japan, amid a diplomatic dispute. Chinese officials denied that they had ended shipments, but they did say they had reduced rare earth export quotas due to environmental concerns. China currently supplies 96 percent of the world's rare earths.

As eager as Japanese companies and the government are to work with the U.S. on supplying rare earths, they may be disappointed.

A report from the United States Geological Survey says that there are supplies of rare earth elements in the United States, and enough to satisfy current demand. The report says that total proven reserves in the U.S. -- those that could be expected to enter the market in the near future -- are about 1.5 million metric tons. Adding the reserves in Canada, Australia, and South Africa, which are unlikely to stop shipping them to the U.S., gives 13.8 million metric tons.

But while the reserves that look promising in the U.S. are large, there are a number of caveats. One of those is how many companies are willing to shoulder the cost of mining them. Another is that many of the areas that look promising are just that -- promising, but unexplored.

Extraction Is Difficult

While they are called rare some rare earths, such as Cerium, are more abundant in the Earth's crust than copper. But the separating them from the minerals they are in is complex and costly. Many precious and base metals can be found in their pure state; rare earths never are. To get rare earth metals requires a multi-step process that involves separating the elements as oxides from the ore before purifying them. Gold, iron or copper are much simpler.

Most mines, the report says, produce rare earths as a byproduct. The Chinese mines are largely iron mining operations. Two areas in the U.S. that show large concentrations of rare earths are similar, as they are in abandoned iron mines in Missouri and upstate New York. In the latter case, the rare earths might be separated from the tailings - the waste left over after a mine is dug.

But no one has tried extracting rare earths that way, at least in the U.S. Sumitomo Corporation has embarked on a project in Kazakhstan to recover rare earths from the tailings of old uranium mines.

Rare earths often occur together in the ore, but since they all have different chemical properties separating them is time consuming and costly. Another issue is that rare earths often show up near deposits of thorium, a radioactive element. Mining anything with thorium requires costly waste management methods.

Dan Cordier, one of the authors of the USGS report, notes that despite the difficulty, there is a lot of activity now surrounding the known deposits, and many companies seeking funding. But that is no guarantee that the relevant elements will be worth mining. Everybody who had a gold or uranium deposit is now saying it's a rare earth mine, he said. But investors want a return.

Risky Business

The USGS report lists 1.5 million metric tons of proven reserves in the U.S., with another 10 million tons that are unproven, though possible, spread between 15 different areas. Several companies are exploring them, however, but it isn't clear whether they are economically feasible.

US Rare Earths, for example, is exploring the Lemhi Pass district in Idaho, and the company says the deposits there are some of the largest in the U.S. But no mining activity has begun yet. US Rare Earths has sampled another part of the state, near a place called Diamond Creek, but that area has never produced any rare earths at all, nor has there ever been mining there.

In some cases there has been extensive mining, as in Alaska at a place called Bokan Mountain. Uranium mining was done there until 1971, and Ucore Rare metals has been exploring the region for the last two years, and last week received a $10 million private placement on the strength of its reported findings of rare earths.

The Wet Mountains, in Colorado, is estimated to have some 59,000 metric tons of rare earth oxides, and the USGS report says it is promising with highly concentrated deposits. But there has never been any mining there except for some exploratory work in the 1950s.

Perhaps the closest mine to production is the Mountain Pass deposit and mine, owned by Molycorp. Molycorp produced rare earths there until 2002; it is set to re-open the mine in 2012. The reserve there is estimated to be nearly 2 million tons of rare earth metals. Molycorp went public in July at $12 per share; it now trades at $28, in no small part on the promise of that mine.

But most of these entail risks. Mining consultant Jack Lifton says that the USGS is often looking at the geology of a site - which has less to do with how economically viable it is. He says it's unlikely that most U.S. producers can compete with the Chinese on a price basis. If they can sell niobium for $2.50 per kilo, then the Chinese will be buying it from you, he said. That said, the mining business has a long list of prospectors who came up empty.