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Pentagon challenges Chinese rare earths

The Pentagon and Toyota are trying to crack China’s global monopoly on mining the most valuable rare earths used in unmanned military drones and electric-car motors.

The U.S. Department of Defense and Asia’s biggest carmaker are working with Canada’s Ucore Rare Metals and Matamec Explorations, which are developing North American mines that would boost supplies of heavy rare earths. Those are the less abundant members of a group of 17 chemically similar elements critical to make a host of products from wind turbines to high-performance magnets for cars and weapons.

Foreign buyers are being driven to find alternative producers after China slashed exports in 2010, partly to conserve material for its own industries. The Asian nation today supplies about 95 percent of global demand, triple its market share of 1990, presenting a risk for foreign makers of the next generation of wind turbines and environmentally friendly lighting technology.

“People won’t make a decision on manufacturing something if they don’t know their supply is reliable,” said Jack Lifton, a senior fellow at the Institute for the Analysis of Global Security, which studies the links between energy and security. “If you had a reliable American supply of heavy rare earths, General Electric might decide to make magnets in the U.S.”

Of more than 400 proposed rare-earth mines around the world that are tracked by Technology Metals Research, only five or six have enough heavy rare earths and are sufficiently advanced in their development to have a shot at making it into production, said Gareth Hatch, a co-founder of the Carpentersville, Ill.-based firm.

“The race is which deposit will be first at the finish line,” said Andre Gauthier, chief executive officer of Montreal-based Matamec.

There are risks in early-stage mining projects like those planned by Matamec and Ucore. Development requires raising hundreds of millions of dollars of funding. Mining rare earths is “incredibly complex,” said Chris Berry, founder of New York-based researcher House Mountain Partners LLC.

“The major risk is the understanding of the metallurgy and successfully separating each of the rare-earth elements,” he said.

Toyota Tsusho, Toyota’s trading unit, has a 49 percent stake in a joint venture with Matamec and is funding the feasibility study at the Kipawa project in Quebec. Toyota will harvest dysprosium from the mine, while other deposits on the same property also could be developed, Gauthier said.

Ucore’s Bokan Mountain deposit in Alaska may produce about 3,000 tons a year of rare earths by 2016, including enough dysprosium to meet domestic needs, CEO Jim McKenzie said.