Inside The Messy Global Race for the Metals That Power Your iPhone

Driving from Los Angeles to Las Vegas, there is little to see across the flat expanse in the desert east of Barstow, California. Head to the state line and there are few gas stations and fewer towns. Most of the action happens underground: alongside I-15, near the Nevada border, in a tiny blink-and-you’ll-miss-it town called Mountain Pass, more than 350 people work around the clock to mine and process the rare earth elements essential to the smartphones and computers which run our world.

Mountain Pass is operated by a company called Molycorp. It’s part of an exclusive club – one that holds the key to a problem that vexes the tech industry, the military, and governments the world over: How to keep rare earth metals affordable.

The 21st century runs on rare earths. This is not an exaggeration; this is a simple fact. Rare earth elements–Scandium, Yttrium, Lanthanum, Cerium, Praseodymium, Neodymium, Promethium, Samarium, Europium, Gadolinium, Terbium, Dysprosium, Holmium, Erbium, Thulium, Ytterbium, and Lutetium–were initially used in cathode ray tube televisions to make colors brighter. Useful? Yes. Essential? Less so. But then the rise of the computer era in the 1980s ushered in the dawn of a new era when rare earths became invaluable. Suddenly they were being used to manufacture super-high-powered magnets and the tiny parts that keep smartphones, military weapons and hybrid vehicles running.

As the name suggests, rare earth elements (a.k.a. ‘rare earths’) aren’t easy to come by and, often, are very expensive to get out of the ground. Thanks to their highly magnetic nature, rare earths are fundamental to the hard drive in your smartphone and the motor in your hybrid vehicle. Other magnets aren’t as good; electronics constructed without rare earths run more slowly, are much bulkier, and are far more expensive than the ones we use today. Yet despite their precious nature, “rare earths” is actually a misnomer: Rare earths are actually everywhere. Writing this article from the mining un-hotspot of Park Slope, Brooklyn, I’m fully aware that trace elements of rare earths can be found in the soil just down the way in Prospect Park. The ‘rare’ comes because the 17 elements in this special corner of the Periodic Table are considered quite hard to find in quantities companies can actually mine and process. Once ore with rare earths is processed, it becomes a crucial part of the world’s electronic supply chain.

Rare earth elements are essential to the smartphones, hybrid cars and computers which run our world. – AP Photo/TPM Photo Illustration

But we don’t control where they’re found, or mined: The U.S. Geological Survey (the USGS) reports that approximately 110,000 metric tons of rare earths were mined worldwide in 2012; a mere 7000 tons of those came from Mountain Pass, currently America’s only rare earth mine. By contrast, 95,000 of those 110,000 tons were pulled from Chinese earth – a number that means China currently controls 95% of the world’s rare earth supplies. And the Chinese aren’t shy about using rare earths for geopolitical leverage – or market dominance. That’s why the California reserves matter. The United States, a distant second in rare earth mining to China, is attempting to build a strategic stockpile of rare earths and researchers at Japanese and American companies are working to find rare earth substitutes. Governments the world over fear that China could sharply reduce exports of rare earths to non-Chinese companies.

These aren’t just idle fears. On January 2, Chinese rare earth giant Baotou Rare Earth acquired nine regional rare earth firms as part of a government plan to consolidate the rare earths sector. That these rare earth firms deal primarily with mining rather than processing elements is no surprise; the move creates one gigantic supply chain for China’s rare earth production. The next day, China announced that a brand new organization under the aegis of the Ministry of Industry and Information Technology will coordinate production quotas, mining permits, and other rare earth policies for the entire country. While the popular global imagination among tech companies and policy wonks is that China is aggressively acquiring rare earth mines in foreign countries, the converse is more precise (and, perhaps, more important): Part of Chinese trade policy is to consolidate the world’s rare earths supply chain to ensure as much processing, let alone mining, takes place in the People’s Republic as possible.

China is, in part, able to do this because it’s not a democracy. Taking ore deposits and converting them into materials usable in magnets, batteries, and the electronics supply chain in general is a messy, incredibly toxic process. In fact, America’s Mountain Pass facility originally opened in 1952, and closed in 2002 due, in large part, to heavy environmental damage to the area. Nine years later the facility reopened under new owners who spent tens of millions of dollars putting new safeguards in place. While Mountain Pass is small by the standards of industrial mining, it’s the first spearhead in America’s new rare earths race; several other rare earth deposits are awaiting government approval for mining operations. That’s because rare earth deposits aren’t simply found in geographically awkward locales; they are also are typically found in ore that’s full of uranium and thorium–the most radioactive element on the planet.

China made a conscious choice to proceed with rare earth mining and processing as state policy in previous decades nonetheless. But even China began cracking down on rampant environmental violations at rare earth facilities this year. And rare earth toxicity caused its first international incident a few months ago – a diplomatic row between Australia and Malaysia – foreshadowing what might come if we ramp up rare earth mining production in our own country.

THE MALAYSIAN INCIDENT

In November of 2012, the Australian Lynas Corporation began shipping massive amounts of rare earth concentrate by sea to a processing plant near Kuantan, Pahang, Malaysia. The concentrate came from ore mined at Mount Weld in Western Australia, which Lynas claims is the richest known individual deposit of rare earths in the world.

There was only one problem, though: while Mount Weld is even more isolated than Mountain Pass, sitting more than 40 miles from the nearest town, the Lynas plant in Malaysia was only twelve miles away from Kuantan, a city of approximately 600,000 people.

The 21st century runs on rare earths. This is not an exaggeration; this is a simple fact.

And, according to the Australian government agency Geoscience Australia, Mount Weld’s rare earth deposits have significant thorium content. Thorium has been linked to an increased risk of developing lung and pancreatic cancer. Processing facilities handling it for industrial uses, like lightbulb manufacturing, typically take extensive safety precautions.

Precautions or not, once plans for the Malaysian plant were announced, local residents mobilized: they were aware of rampant environmental violations in Chinese rare earth processing facilities and wanted no part of it. Tan Bun Teet, a schoolteacher who spoke with journalist Mike Ives for a Yale University project, said that “We are not against rare earths processing. We’re only against the inappropriate choice of site, and the way they’re going to keep the waste.” Reports spread of widespread problems at the Lynas plant, which is built on top of a reclaimed swamp.

Rare earth processing facilities create massive amounts of toxic waste which, unless safely handled, can cause huge community health issues. Lynas plans to expand the Pahang facility into the world’s biggest rare earth processing site, and the plant will eventually be able to process 11,000 metric tons yearly of concentrate. But making a facility of this size environmentally friendly by American standards can be incredibly expensive. To wit: at Mountain Pass, Molycorp spent a staggering $26.8 million in 2012 alone on environmental expenditures; $22.1 million of that went towards the removal and disposal of wastewater. Molycorp spokesperson Jim Sims told me “we expect this California facility to be cost competitive with any rare earth producer in the world. That’s saying a lot for a facility that is so environmentally advanced and operates in a state where environmental regulations are so strong.” Part of the reason China dominated the rare earths industry is that for a long time Chinese regulators turned a lax eye to costly safety and environmental protections, which kept prices low.

While Kuantan’s residents jumped into a frenzy of Not in My Back Yard opposition, Australian politicians worked feverishly with their Malaysian counterparts to guarantee the facility would operate as planned. Malaysia and Australia’s governments both have a vested interest in Lynas’ operations; the continued operations of the Pahang site mean Malaysia will have considerable geopolitical pull and Australia can partially free itself from the Chinese rare earth supply chain; both countries would also gain considerable leverage over the multinational electronics corporations that purchase rare earths on the commodities market.

As Lynas encountered regulatory snag after regulatory snag enacted by environmentally- and populist-oriented Malaysian agencies, school teacher
Bun Teet led a delegation to Malaysia’s parliament which handed a petition to Deputy Science, Technology and Innovation Minister Abu Bakar Mohamad Diah. In the petition, Bun Teet’s organization demanded Lynas’ temporary operating license be revoked and the facility shuttered. Diah’s response? He told the petitioners that “I give my word that the factory is very, very safe; I would like to invite every one of you to come to Lynas anytime you like. I can provide you with buses, I can provide you with lunch.”

Himpunan Hijau (Green Gathering) protesters stage a protest near Merdeka Square in Kuala Lumpur, Malaysia, to oppose start-up of the Lynas rare earth plant in Pahang state, Malaysia. – AP Photo

But Diah’s blithe response was a promise he couldn’t keep. Australia’s ABC television network reported in October that Lynas then told visitors a tour of the plant would in fact not be possible at all because of what a representative called “teething problems.” The full transparency promised suddenly became very opaque. As of press time, the plant is still being protested by locals and 1.2 million Malaysians have reportedly signed an anti-Lynas petition.

CHINA’S GAMBIT

When Australian and Malaysian officials met to talk about Lynas, China was on their minds. Back in 1992, Chinese leader Deng Xiaoping elegantly summarized his country’s future wealth generating potential by saying “There is oil in the Middle East, and there are rare earths in China.” At that time, China had just overtaken the United States as the world’s top producer of rare earths and observers believed China was using the deposits to jumpstart their country’s own electronics firms. Since then, many observers believe China has deliberately pursued a policy designed to assert the country’s dominance over the rare earths marketplace, and to make sure Chinese companies–and Chinese capital–are at the top of the food chain. A 2012 report by the Congressional Research Service dryly noted a strain of thought that “China’s rare earth export policies are intended to induce foreign rare earth users to move their operations to China, and subsequently, to transfer technology to Chinese firms. China denies that its rare earth policies are political, discriminatory, or protectionist, but rather, are intended to address environmental concerns in China and to better manage and conserve limited resources.”

Speaking before an U.S. Army audience in a class on Chinese economic strategies, Cindy Hurst of the U.S. Army’s Foreign Military Studies Office was very blunt about how China’s rare earth policy impacts America and the world. “Chinese rare earth companies are given the best price and the highest priority for rare earth products,” she asserted. “The second priority companies, who pay a somewhat higher price, are western companies that move some operations to China. Lastly is the rest of the world, which pays the highest price for materials and are the last priority to receive them. What this ends up doing is forcing foreign companies who need rare earths to move their production into China.”

By 2007, China’s rare earth output capacity rang in at 80,000 tons after years of steady increases in the number of mines and processing facilities that opened. But then, in 2010, the rising power suddenly drastically cut rare earth exports; the Chinese Commerce Ministry cut rare earth mineral exports by 72% in a bid to shore up prices and boost Chinese industry. Global impact was immediate, and frightening: The United States went to the World Trade Organization to formally complain, shares for foreign companies such as Molycorp and Lynas sharply rose, and prices for rare earth-using devices like fluorescent lightbulbs rose as well. With one last moment of swagger, China then temporarily shut off rare earth exports to Japan altogether as part of a dispute over fishing rights. As of 2011, rare earth output capacity for raw materials was over 90,000 tons.

A man works at the site of a rare earth metals mine at Nancheng county, Jiangxi province. – REUTERS/Stringer

And yet, despite their global dominance, China has begun importing rare earths more and more in the 2010s. That’s because the metals have a complicated supply chain; as the Lynas example indicates, it’s routine for rare earths to be mined in one country and processed in a second. Molycorp, which runs the Mountain Pass complex, has extensive manufacturing holdings in China and Estonia. Following the 2010 scare, which was mitigated by rising Chinese exports in following years, electronics manufacturers, national governments, and rare earth manufacturers began stockpiling rare earths. These stockpiles meant it was often cheaper for China to buy back already mined rare earths from foreign firms than to get them from the ground. In addition, China’s domestic rare earth market was weakening due to both rumored systematic smuggling and falling commodity prices. But for the United States, global multinationals, and other players, the lesson was clear: If China could throw the rare earth commodities market into turmoil once, she could easily do it again.

BUILDING AMERICA’S RARE EARTHS INDUSTRY

When the Mountain Pass facility first began production of rare earth materials in 1952 “there were very few uses for unseparated rare earth minerals, where all of the rare earth elements are still mixed together,” Sims, the Molycorp company spokesman told me. “The overwhelming majority of rare earth-bearing minerals contain nearly all of the lanthanide rare earth elements, which is why the principal challenge is in separating them from one another and purifying them into engineered materials.” That raw material was once used in lighter flints. Production of separated rare earths began in earnest with the rise of color television in the 1960s. “It was found that a small amount of Europium provided bright red hues to early color televisions,” said Sims. “Demand for Europium, and other separated rare earths, grew rapidly from then on.  At one point, Mountain Pass provided the bulk of the world’s Europium for color TVs.” For fifty years, the remote mine played an important but unheralded role in America’s electronics industry.

Important, unheralded, and messy: the original Mountain Pass facility suffered from ongoing ecological problems. Water from Mountain Pass was piped into evaporation pools up to 15 miles away by operator Unocal; an ongoing federal investigation in the 1990s found that radioactive mineral deposits full of Thorium and Radium had spilled on its way to the pools from 1994 until 1998. Unocal never reported the spills and had to pay more than $1.4 million in fines and settlements; the facility then tapered down operations as a result of the lawsuit and wild variations in the price of rare earths reportedly caused by Chinese commodity policy. Many of the new Chinese rare earth mines and facilities that were driving commodity prices down had lax environmental regimes overseeing waste disposal. Many of them also reportedly initially hired advisers who used to work at Mountain Pass.

The new Molycorp complex at Mountain Pass is both processing leftover ore from the original Unocal facility and conducting new, ongoing mining. The complex, according to Sims, anticipates hitting a production rate of 23,000 metric tons yearly by the fourth quarter of 2014–an exceedingly large figure for a single facility, and Molycorp’s 2012 annual report maintained that the complex’s goal is to one day offer lower production cash costs than those publicly reported by Chinese government officials or reported for non-Chinese rare earth projects. But while Molycorp works at bringing the sunbaked complex into full operation, they also have to deal with more prosaic worries: Thanks to the volatility of rare earth prices among other things, they had a 27.3% decline in revenue for Q3 2013 compared to the year before.

Meanwhile, other players in the United States are attempting to build and develop rare earth facilities. U.S. Rare Earths (USRE), an exploration and claims acquisition firm that counts Ret. General Tommy Franks and former Senator Bob Kerrey on their board of directors, owns more than 25,000 acres of mining claims for rare earths in Colorado, Idaho, and Montana. The company sees a rich market in developing an American rare earth industry. Kevin Cassidy, U.S. Rare Earths CEO, told me that while the company is “using fully compliant methods” for its new projects (It doesn’t, however, actually mine the sites), many of the deposits they are examining had been mined previously for non-rare earth purposes. “Fortunately,” he said “historic underground workings exist that can be used to help USRE gain underground access to the Critical Rare Earth deposits we are currently investigating. We consider these deposits to be a national treasure.”

“There is oil in the Middle East, and there are rare earths in China.”

U.S. Rare Earths again mentioned a potential decline in Chinese rare earth exports; the company cited a study by the Industrial Mineral Company of Australia which projects Chinese export quotas to gradually increase by a third in 2016. But establishing mines of any sort–let alone rare earth mines–is a complicated multi-year process; U.S. Rare Earth’s business is to explore and secure rare earth deposits, rather than to run mines and processing facilities. One non-rare earths mining industry figure, American Vanadium CEO Bill Radvak, emphasized in a conversation with me the difficulty of processing rare earths compared to many other industrial metals.

Projected success aside, both Molycorp and U.S. Rare Earths face significant obstacles when it comes to pushing their rare earths projects forward. The United States and other world powers are eager to loosen their dependence on China–even frenemies such as India and Japan would like to see that particular balance of power disrupted. But China’s rare earth caps in 2010 set off an unforeseen wave of paranoia among stakeholders. Rather than increasing mining (which takes time), most governments and militaries decided the sensible – and fastest – thing to do would be to stockpile as much as possible.

This is why, earlier this year, the Defense Department asked Congress to help acquire rare earth metals. In a partially classified January 2013 report, the Pentagon found a $1.3 billion shortfall in U.S. rare earth assets that primarily affects “essential civilian sector demands.” Rare earths, along with other strategic materials, are already stored as part of the National Defense Stockpile (NDS). But the NDS is too small for civilian needs; alongside the strategic stockpile, they urge researchers to find substitutes.

IF YOU CAN’T BEAT ‘EM, SUBSTITUTE ‘EM

Countries that don’t have significant rare earth deposits, along with companies that aren’t thrilled with China controlling huge parts of their supply chain, are particularly enthused by the idea of building substitutes for rare earth elements. It’s currently possible to build smartphones without rare earths and florescent lightbulbs with non-rare earth phosphates: they’re just incredibly expensive. As of 2011, the Department of Energy’s Oak Ridge National Laboratories in Tennessee alone has spent $1.4 million researching non-rare earth magnets.

General Electric and Toyota have made minor progress towards developing rare earth substitutes. Following China’s 2010 export restrictions, both companies intensified research into substitutes for rare earths in automobiles and lightbulbs. In 2011, Toyota publicly announced plans to substitute the neodymium magnets in vehicles like the Prius with non-rare earth induction motors. However, induction motors waste far more energy than engines with neodymium magnets; they also sharply reduce range on electric vehicles. Meanwhile, GE is hard at work developing rare earth substitutes for industrial applications. Researchers at GE Global Research in Niskayuna, New York received more than $2.25 million from the Department of Energy to build rare earth magnet substitutes out of nanomaterials in a study that concluded in September 2013.

Researchers at both companies found that non-rare earth magnets simply are less versatile and perform less well than their counterparts. A newly published study helmed by Yale University’s Thomas Graedel found that no rare earth substitute performs as well as a real rare earth product. Much more worrying for electronics companies and militaries, Graedel’s team discovered that six rare earth elements with industrial uses simply have no good substitute.

Meanwhile, BMW is trying another tactic: in the summer of 2013, the German automaker publicly released their new eDrive motor–which sharply reduces the use of rare earths–in their i3 and i8 models. But BMW is also introducing a new electric model called the Zinoro 1E aimed squarely at the Chinese consumer, a market the car maker sorely wants: The country is full of customers with growing wallets who want to buy the latest and best in technology. Even if the eDrive reduces buying needs for rare earths for North American and Western European consumers, the growing Chinese market means they’ll need more rare earths anyway.

BMW, Toyota, and other companies like GM all rightfully worry about what happens if the supply of rare earths runs dry. In the event of China sharply reducing export quotas or even shutting them off altogether like they attempted to do to Japan, the price of electronics – computers, cars, industrial equipment – would sharply rise. It’s not inconceivable to imagine a rare earth version of the OPEC oil boycott that, on the occasion of some geopolitical imbroglio, could wreck economic havoc for non-Chinese companies or Western companies that do not process or handle rare earths in China. Without non-Chinese countries opening rare earth mines, governments worldwide stockpiling rare earths, and metallurgical breakthroughs to create rare earth substitutes, the rare earth question remains a sword of Damocles hanging over the global electronics industry.

Ren Limin, a worker at the Jinyuan Company’s smelting workshop, pours the rare earth metal Lanthanum into a mould near the town of Damao, in China’s Inner Mongolia Autonomous Region. – REUTERS/David Gray

THE GREAT GAME

No matter where they are found, large quantities of rare earths have a knack for showing up in places that are remote and difficult to mine. In China, the bulk of rare earth deposits are located in Inner Mongolia; the remote region accounts for more than half of the planet’s rare earths. Surveyors with the United States Geological Survey (USGS) found strong indications of a massive rare earth lode in Helmand Province, Afghanistan; despite the region’s mineral riches, it’s currently far too lawless for any mining companies to wade into the muck. Huge rare earth deposits were also estimated in Africa; earlier this year, geologists found a suspected rare earth deposit in Kenya worth more than $60 billion that would take years of investigation, analysis and infrastructure-building to begin mining at.

But it is Greenland where the rare earth rush and its complicated geopolitics are showing up most acutely. Climate change has meant sharply retreating icecaps and fishery problems for the Danish dependency. But retreating icecaps also mean easier access to Greenland’s mineral riches. One of the world’s largest deposits of rare earths sits outside the southern village of Narsaq. Greenland is desperately poor and economically dependent on Denmark, which colonized the island centuries ago. Rare earth mining could disrupt longstanding patterns of life and invite ecological catastrophe; it also, tantalizingly, could make many Greenlanders (and foreign mining companies) rich.

On October 24, Greenland’s parliament narrowly voted to overturn a decades-old prohibition on mining radioactive materials, thus making it legal to mine rare earths. Greenland’s Prime Minister, Aleqa Hammond, told local newspaper Sermitsiaq that “We cannot live with unemployment and cost of living increases while our economy is at a standstill. It is therefore necessary that we eliminate zero tolerance towards uranium now.” According to the Financial Times, the Narsaq deposit could eventually supply a quarter of the world’s rare earth – and Chinese, Canadian, and Australian firms are all jockeying to be first in line to develop it.

Exactly what the Narsaq mines will supply – rare earths or uranium (which is much cheaper to process and less subject to wild market fluctuations) – is still an open question, but, either way, Greenlanders know that mining is coming. It is not necessarily a win for the people: In 2012, Chinese President Hu Jintao spent a surprising three-day visit in Denmark; China has also been asserting their rights as a “near-Arctic” state to join the Arctic Council as an observer. These two moves, along with rumors of Chinese construction workers moving to Greenland en masse, have stirred considerable fears in the capital of Nuuk that rather than secure their future, rare earths may mean the island will soon become a pawn in a game of geopolitical tug-of-war.

The rare earth deposits around Narsaq are expected to be developed by two Australian companies which edged out rivals from Canada and China to develop the fields; Greenland’s Bureau of Minerals and Petroleum has seen a sevenfold increase in license applications for mineral exploration. But while Chinese companies have been outmaneuvered by the Australians for access to Greenland’s rare earths, they may have succeeded in securing more everyday resources: Mining at a $1 billion iron ore deposit near Narsaq is expected to be financed and staffed mainly by Chinese firms. If mining can create an economically viable independent Greenland, it’s conceivable that Chinese investment and foreign aid could move the island into Beijing’s sphere of influence.

THE FUTURE

Over the weeks that I spoke with geologists, executives, traders, and researchers for this story, one reoccurring theme arose: Treating the rare earths market as an us vs. them, Chinese vs. The World narrative is simplistic and inaccurate. Rare earths are a global game and nearly everyone is trying to get in on it. Days after the Greenland vote in 2013, the government-funded Canadian Rare Earths Element Network (CREEN) was announced at a Montreal conference. CREEN is an industry consortium of rare earths companies working together to establish a production chain within Canada for both mining and processing of rare earths. Modest rare earth deposits have been found at several remote sites in Quebec and the Yukon Territory; more importantly, the Canadian government has been upfront about wanting to create a non-Chinese supply chain for rare earths. Deputy Minister of Natural Resources Serge Dupont is on record as wanting to “support development of alternative global supply channels” for rare earths.

No matter where they are found, large quantities of rare earths have a knack for showing up in places that are remote and difficult to mine.

There is a commodities market for rare earths (even if it is a tremendously geopolitically fractious one), and commodities markets are transnational by definition. Molycorp, an American company, operates production facilities in China, Germany, Estonia, Thailand, and many other countries. Greenland’s nascent rare earths industry is dominated by Australians rather than the Canadians next door. India, which has had difficult trade relations with China, is relying on foreign expertise to develop its own rare earths mines. But all parties involved have to deal with the fact that rare earths are subject to the ebb and flow of the commodities marketplace. Even those non-Chinese rare earth mining companies that have their own plans to develop mines outside of the People’s Republic, are subject to both those fluctuating prices and reported Chinese interference. China’s government, which loves to steer rare earths to Chinese firms at preferential prices, depends on foreign companies to create the electronics produced in China that the increasingly wealthy Chinese population loves. In short: Despite the environmental damage, and Chinese citizen outcry, China depends on its own rare earth mines to feed domestic demand. They want to make sure that Chinese manufacturer demand for rare earths never suffers at the expense of another country, even if it causes diplomatic friction.

Thanks to a lucrative combination of state policy and geological randomness, China controls the bulk of the world’s available rare earths; if that supply was to somehow be restricted, the price of your phone, your car, and your computer would all skyrocket. But opening rare earth mines and adding processing facilities, whether in Malaysia, China, or Greenland, carries a heavy environmental cost–and there is always the not-insignificant chance, as the Malaysians in Pahang suspect, a facility will endanger the health of locals. Those in the path of new – and old – rare earth mines already suspect that keeping the cost of your next iPhone upgrade low isn’t worth the risks. Only problem is, it may not be up to them.

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