Rare earths – a hidden but strategic battleground between the US and China
While the trillion-dollar US military and intelligence apparatus dissipates our wealth fighting lightly armed men in the Middle East, China makes wise and large moves to become a great power. Here we see the modern form of interstate conflict — and insights about the characters America and China.
Rare earths are obscure, vital, and scarce light metals used in a wide range of electronics (including military devices). China supplies 85% – 95% of global demand, having cut prices and driven most competitors out of business. One large alternative source is the Mountain Pass mine in California (inactive since 2002 due to environmental issues). This was owned by Unocal. In 2005 the China National Offshore Oil Corporation (CNOOC) attempted to buy it, a potential masterstroke, but was accidentally foiled by nationalist sentiment in the US (without any awareness of the stakes).
Goldman Sachs, Resource Capital, Pegasus Capital, and Traxys bought Molycorp (which owns the mine) in 2007 for $80 million, amidst rising concern about China’s lock on the supply of these valuable minerals. With rising interest by the government, these politically well-connected players prepare to get richer. That’s how America works. Defense is just another means to convert power into wealth.
The most recent chapters of the game show this clearly. The GAO publishes a report about this problem on 1 April 2010. Two weeks later Molycorp announces an inital public offering (led by Morgan Stanley and JP Morgan), estimated to value the company at $1.5 billion. Quite a coincidence, this wonderful timing!
We’ll have to wait to see the next moves. We’ll have to do better if we hope to stay in the big leagues.
These articles tell the tale so far:
- Wikipedia entry about rare earth elements.
- “Rare-Earth Industry Overview & Defense Applications“, James B. Hedrick, U.S. Geological Survey, 18 February 2005
- Wikipedia entry about CNOOC’s 2005 all-cash $18.5 billion offer to buy American oil company Unocal Corporation, topping an earlier bid by ChevronTexaco
- “Rare Earth May Be China’s Checkmate“, Clint Cox, The Anchor House, 10 October 2006
- “China: All Your Rare-Earth Metals Belong to Us“, Nathan Hodge, Wired, 26 August 2009
- “China Tightens Grip on Rare Minerals“, New York Times, 31 August 2009 — “China is set to tighten its hammerlock on the market for some of the world’s most obscure but valuable minerals”
- “China’s Ring of Power“, John Lee, Foreign Policy, 9 September 2009 — “While nobody was paying attention, Beijing was busy cornering the market on a little-known, but much coveted, strategic commodity.”
- “Battling a Mineral Monopoly“, John T. Bennett, DefenseNews, 12 October 2009 — “As China Tightens Grip, Molycorp Ready To Step Up”
- “Rare Earth Materials in the Defense Supply Chain“, General Accountability Office, 1 April 2010
- “Molycorp Plans To Sell Up To $350 Million In IPO“, Wall Street Journal, 16 April 2010
- Molycorp’s IPO Filing Answers Some Longstanding Questions, Jack Lifton, Seeking Alpha, 19 April 2010
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