Australian, Swiss & U.S. Bids Coming For Mountain Pass Rare Earth Mine

Within the vast outreaches of San Bernardino County is one of the richest known resources worldwide of material that is fundamental to the advancement of science and top-flight industry. So substantial is that treasure that within the last decade an investment approaching $2 billion was made to facilitate its retrieval and refinement. Yet, because of the vicissitudes of the international market place and a skewed international competitive field that favors companies operating in places without regard to environmental considerations, the Mountain Pass mine now lies dormant.
Nevertheless, the circumstance is right for a deep-pocketed investor to put up $40 million to $50 million to acquire the mine and leverage those substantial dormant assets into an operation that represents future earning potential at or exceeding a billion dollars per year.
The story behind the past success and current downturn in fortunes at the Mountain Pass Mine is one laced with chance, effort and hard work, bold risk, unfortuitous events, irony and poor timing both during the 20th Century and thus far into the new millennium. Nevertheless, there is some degree of confidence that the time is now propitious for the reinvention of the mine to fully occur, boosting with it the fortunes of San Bernardino County and the country as a whole.
Lanthanides, also known as rare earth minerals or rare earth metals, are a set of seventeen chemical elements, specifically scandium, yttrium, lanthanum, cerium, praseodymium, neodymium, promethium, samarium, gadolinium, europium, terbium, dysprosium, holmium, erbium, thulium, lutetium and ytterbium. They have a number of critical industrial and technical uses and applications, including serving as components in mercury-vapor lamps, high-temperature superconductors, lasers, microwave filters, high refractive index glass, hybrid electrical vehicles, flint products, battery-electrodes, camera lenses, carbon arc lighting, didymium glass used in welding goggles, polishing powder, ceramic capacitors, nuclear batteries, rare-earth magnets, memory chips, red and blue phosphors, green phosphors, fluorescent lamps, vanadium steel, x-ray machines and infrared lasers. Rare earth elements also facilitate hydrogen storage, fluid catalytic cracking, creating violet and yellow colors in glass or ceramics, catalyzing the refining of petroleum, oxidizing chemicals, neutron capture, and contrasting magnetic resonance images.
Because of their geochemical properties, rare earth elements are typically dispersed and not often found in concentrated and economically exploitable forms.
Until 1948, most of the world’s rare earths were mined in India and Brazil. In the 1950s, South Africa became the leading supplier of rare earth metals.
In 1949, the Mountain Pass Mine, which lies in the extreme northeast portion of San Bernardino County roughly 15 miles from the California-Nevada state line, was discovered by a uranium prospector. The Molybdenum Corporation of America bought the mining claims, and small-scale production began in 1952. Production expanded greatly in the 1960s, with the Mountain Pass facility becoming the world’s dominant producer of rare earth elements. From 1965 until 1995 it was an almost exclusive supplier of europium, which is used in color television screens. The Molybdenum Corporation of America changed its name to Molycorp in 1974 and was acquired by Union Oil in 1977.
In the 1980s, the company began piping wastewater from the mining operation 14 miles to evaporation ponds at Ivanpah Dry Lake. Ruptures in the pipeline resulted in radioactive thorium and radium leaking into the desert floor at least 60 times between 1984 and 1998, according to federal investigators, at which point the pipeline was shut down and chemical processing at the mine ceased. Unocal was served with a cleanup order and sued by San Bernardino County’s district attorney’s office in a civil lawsuit. The company paid more than $1.4 million in fines and settlements. The mine was shut down in 2002, by which time China eclipsed the United States as the leading supplier of rare earth metals. After Unocal in 2004 obtained a new operating permit for the mine, it was acquired the following year by the Chevron Corporation.
By 2005, 96 percent of the world’s rare earth elements were mined in China. In 2007, China restricted exports of rare earth elements and imposed export tariffs. In 2008, Chevron sold the Mountain Pass Mine to privately-held Molycorp Minerals LLC, based in Greenwood Village, Colorado, a company formed to revive the Mountain Pass mine. On July 29, 2010, Molycorp, Inc. became a publicly-traded firm by selling 28,125,000 shares at $14 in its IPO. On September 22, 2010 China quietly enacted a ban on exports of rare earths to Japan. Later that fall, Congress passed legislation to subsidize the revival of the American rare earths industry, including the reopening of the Mountain Pass mine.
Initially, Molycorp lost money. But by the second quarter of 2011, the company was showing a profit. Molycorp acquired processing facilities in Arizona and Estonia. In March 2012, Molycorp Inc. acquired Neo Material Technologies Inc., a Canadian rare earth processing company, for $1.3 billion. With the cost of rare earth metals skyrocketing because of the Chinese restrictions on rare earth exports, on August 27, 2012, Molycorp initiated Project Phoenix at the Mountain Pass Mine, which involved making a $1.7 billion investment to design and build a processing plant within a processing plant that would allow for the mining of 20,000 tons of ore per year in an environmentally advanced manner where the primary waste stream out of the process was salt water. This involved Molycorp’s creation of a chemical plant that used alkali and salt water at the front end of the process to convert the ore to a semi-processed product, facilitated by the addition of an on-site combined heat and power plant to provide low-cost, high-efficiency electrical power and steam for the company’s extraction processes. There proved to be some technical difficulties but by the fall of 2014 an onsite chlor-alkali facility, which uses processed waste water to produce hydrochloric acid and other chemical reagents used in rare earth production, was operational. Shortly thereafter, the company had ramped up the production process and completed the fourth quarter of 2014 with 1,328 metric tons of rare earth oxide equivalent production. That compared to 1,034 metric tons in the fourth quarter of 2013 and 691 metric tons in the third quarter of 2014. Full year 2014 production totaled 4,785 metric tons, compared to 3,473 metric tons in 2013. The company was expanding production well into the spring of 2015.
At that point, however, as the company was on the brink of having the United States emerge once again as a major competitor in rare earth mineral production, it was undercut by action the U.S. Government had previously taken in league with the European Union and Japan and some other nations, which had lodged a complaint against China with the World Trade Organization for limiting rare earth exports, which was alleged to be a violation of International Law. A decision favoring the complainants was made shortly after the Mountain Pass Mine was fully retooled, forcing China to export more rare earth metals, precipitating a substantial price drop. Thus, Molycorp, on the hook for approaching two billion dollars made in mine and plant upgrades and in need of servicing its now due debt, could not compete let alone profit or service its debt. In June 2015, the company filed for Chapter 11 bankruptcy protection.
On August 26, 2015, the company announced that as of October 20, 2015, it would transition its Mountain Pass Rare Earth Facility to a “care and maintenance” mode, putting the site, including machinery and equipment into suspension, such that it was maintained in a safe and stable condition, meeting government regulatory commitments, but available for relatively quick reinitiation of production. The rare earth pricing decline was cited as a key factor in the decision to suspend rare earth production at Mountain Pass, company officials said.
On November 3, 2015, acknowledging that its plan to reassert American primacy in the provision of materials crucial to high tech development and production had flamed out, Molycorp filed a joint plan of reorganization with its affiliated debtors at the U.S. Bankruptcy Court for the District of Delaware. That plan proposed an emergence from Chapter 11 through either a stand-alone reorganization that would substantially de-lever its balance sheet or a sale of substantially all of its assets.
In March 2016, Judge Christopher Sontchi confirmed Molycorp’s Chapter 11 exit plan that left production at the mine entirely in limbo and turned the company over to senior lender Oaktree Capital Management, giving unsecured creditors a minority stake in the company, which consisted thereafter as the Canadian, Arizona and Estonia processing facilities.
On August 31, 2016, Molycorp, Inc.’s fourth joint amended plan of reorganization became effective, with the company having rechristened itself as Neo Performance Materials, with executive offices in Toronto, Canada and subsidiaries organized under a holding company based in the Cayman Islands. It was set out as three business segments: Neo Chemicals and Oxides, Neo Magnequench, and Neo Rare Metals, continuing to market and produce materials in ten countries, including Japan, China, Thailand, Estonia, Singapore, Germany, United Kingdom, Canada, United States, and South Korea. Shares of common stock of the former Molycorp, Inc. were no longer available for trading on a public exchange. The Mountain Pass Mine and processing facility yet remained under a separate Chapter 11 bankruptcy under the care of Trustee Paul E. Harner of Ballard Spahr LLC after efforts to find a buyer failed. Earlier this year, Lexon Insurance Company put up $4.2 million to maintain the mine and continue the search for a buyer.
Harner, working with Batuta Capital Advisors LLP, sought to market the mine and solicit potential buyers. Late last month, it was announced that a so-called stalking horse bidder has emerged in the form of ERP Strategic Minerals LLC. A stalking horse bid is an attempt by a bankrupt debtor to test the market for the debtor’s assets in advance of an auction of them, the intent being to maximize the value of the assets or avoid low bids, as part of a court auction. Natural Bridge, Virginia-based ERP is considered as a serious contender to assume the company if no bids higher than the $40 million it is making come in. Interest has also been expressed by a Swiss firm, Pala Investment Ltd., and an Australian company, Peak Resources Ltd.
This week, at the recommendation of the county’s top in-house lawyer, County Counsel Jean-Rene Basle, the San Bernardino County Board of Supervisors voted to up its previous $100,000 retainer with the law firm of Harrison Temblador Hungerford & Johnson LLP by $150,000 to $250,000 for the provision of continuing legal services in connection with litigation regarding the Mountain Pass Mine. According to Basle, “The county is the lead agency under the Surface Mining and Reclamation Act for the Mountain Pass Mine (Mine) operated by Molycorp Minerals, LLC. Molycorp filed a Chapter 11 Bankruptcy proceeding in Delaware in 2015 so the mine has been under the control of a Chapter 11 trustee since then. The trustee has attempted to market the mine for sale but the funding available for these marketing purposes and to keep the mine in a “cold idle” state may soon be exhausted, in which case the bankruptcy proceedings will likely be dismissed.”
Basle continued, “As the lead agency, the county has certain statutory duties to see that the mine site is reclaimed. However, the assets available to accomplish the reclamation have been contested in the bankruptcy proceedings and the dismissal of the bankruptcy will require these disputes to be resolved. Harrison Temblador Hungerford & Johnson LLP has expertise in the Surface Mining and Reclamation Act and land use issues common to mining properties, which expertise will be relied upon to ensure that the county discharges its statutory duties without incurring liability.”
Reliable sources have informed the Sentinel that efforts to geologically characterize the land upon which the mine is located have established that the soil contains lanthanide concentrations to support the mining of 20,000 tons of ore per year for thirty years and that indications are the deposits in the area far exceed that, though those concentrations have not been characterized. -Mark Gutglueck

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