A few years back, during the market run of 2011, the bellwether in the rare earth element (REE) space was arguably Molycorp Inc. with its Mountain Pass Mine in California, USA.
Having been a producing mine (1950/60s to 2002), that continued to produce from stockpiles even after closure, Mountain Pass was the western project (i.e. non-Chinese) best positioned to capitalize on the rapidly ascending REE prices. Unfortunately on June 25, 2015, Molycorp announced it was filing for Chapter 11 bankruptcy, bringing an end to the Mountain Pass Mine and the once heralded saviour of REE to the non-Chinese world.
The immediate question that comes to mind is: How could this happen? And, if Molycorp could not succeed, how in the world can any other REE junior, with a non-Chinese REE deposit, hope to succeed?
This article seeks to answer these two fundamental questions, with a straight up comparison between Molycorp’s Mountain Pass Mine and Commerce Resources’ Ashram Deposit, but it will also pose another set of questions that all relate to “Why does the world continue to allow itself to be dominated by China”?
Prelim Bout – China the Schoolyard Bully
Let us begin in reverse order and look at the history of the REE bubble and consider first the questions “Why does the world continue to tolerate a commodity bully?” and ”When is the next crisis going to occur, that will again drive REE prices skyward?”
It has been said that “power corrupts and absolute power corrupts absolutely” and I believe that with the market events that started this week with China basically pulling the rug out from the rest of world’s markets – and their own people – everyone’s mind should be occupied with the issues of how this happened, and what is everyone going to do so that this does not happen again.
We know who the losers were when Molycorp went from $76 a share to Chapter 11, but who were the winners? The clear winners throughout the whole REE bubble are certainly the ones who continue to dominate the market and who manufactured the reasons that caused the bubble – the Chinese.
As China is the country that dominates the global REE market, they have benefited the greatest when REE prices soared over 1,000% and in some cases 3,000%, and they still benefit today. The ‘reality’ of prices falling for the last 4 years is that prices are still up 100%, 200%, and as much as 300% over the last 6 years for many of the REEs but especially for the magnet feed materials (MFREE; i.e. neodymium, praseodymium, terbium, and dysprosium). What other commodity has seen this kind of appreciation in this time frame?
The “Fishing Boat” incident in September 2010:
“The 2010 Senkaku Boat Collision Incident (or the Minjinyu 5179 Incident) occurred on the morning of September 7, 2010 when a Chinese trawler, Minjinyu 5179, operating in disputed waters collided with Japanese Coast Guard’s patrol boats near the Senkaku Islands.”
What were the concerns of the Chinese, over and above gaining the release of the crew and Captain of this potentially illegal fishing vessel operating in disputed Japanese territory? Was China concerned about their national security? Were they concerned about an expansionist west through the proxy of Japan? No, I believe that China saw an opportunity to address a long held interest to gain more value from the one commodity that they are dominant in – the REEs – and to increase their value-add for this commodity, which would ultimately bring more manufacturing to China and creat more jobs for Chinese citizens. And all they had to do was cut off Japan for supplies of REEs for a short period of time.
It would be hard to imagine a more successful effort at instilling anxiety and fear in the rest of the world than this incident, which was so simple and so inexpensive, and so very, very effective.
This shot across the bow was one that was heard by the whole world, imprinting in everyone’s DNA the need for alternate sources of REEs. And the take away from this event is still very valid: Why allow one country to dominate any commodity? Do Albertans wake up every day and say a prayer in the direction of OPEC?
And besides the market machinations of this week, what about the increasing tensions along the Korean peninsula? Does anyone believe that Kim Jong-un does anything of significance without the tacit approval of Beijing? Is this the new “crisis”?
The western world needs new sources of REEs. Unfortunately, this is not Molycorp. Fortunately, we still have Ashram.