Rare earth prices have been moving higher and could explode higher over the next few months depending on what happens in the trade war with China. I’m hearing rumors circulating that the Pentagon is planning to use its black budget to finance the development of rare earth metals production in the United States.
The rumor is that the heads of big defense corporations like Raytheon, Northrup Grumman, General Dynamics, Lockheed Martin, and others have been secretly contacted by the Pentagon to explain what their supply needs are for rare earth metals.
The rumor also states that the Pentagon secretly contacted mining firms and asked them how much money and expertise they need to begin developing rare earth metals mines.
The rumors are that the US military has an unlimited black budget when it comes to defending the U.S. and so money will not be a limiting factor.
The rumor is that the Pentagon has given all companies until July 31, 2019, to respond.
The source of these rumors are likely coming from this Reuters article.
Without rare earth metals, the U.S. loses the 5G race to China because so much consumer tech requires rare earths.
Even if China doesn’t block all rare metal exports to the U.S., they could increase what is required for domestic (China) supply which would cause prices to soar higher.
The U.S. government and private industry have been trying to restart what was once Molycorp’s Mountain Pass Rare Earth Mine in California.
I had a position in Molycorp years ago that fortunately I sold before the company filed for bankruptcy. The stock collapsed when the communist Chinese flooded the market with cheap rare earth metals as a direct result of how they subsidize their corporations with tax dollars in China.
Today, 80% of the rare earth metals we need for technology and defense comes from communist China.
How did the U.S. completely lose control of rare earth prices? Once again, it can be traced back to corrupt politicians.
In 1995, China bought the biggest American rare earth magnet company, Magnequench, which was based in Indiana. In doing this, China took control of the most important portfolio of rare earth patents in the world. This sale should have been blocked on the grounds of national security. Hindsight is 20-20.
The Chinese took our magnet technology and began subsidizing their own rare earth metals industry. We know that this was a coordinated plan to take over the global rare earth elements market by China because of what then Chinese president, Deng Xiaoping, said in 1992, “the Middle East has oil, China has rare earths.”
After acquiring rare earth patents from the U.S. and setting up their own magnet rare earth elements separation facilities, China then began buying up rare earth miners around the world and systematically bringing the world’s rare earth sector under its umbrella of state-owned companies.
In 2010, after gaining control of the world’s rare earth sector, China tightened its export quotas, shrinking supplies to the rest of the world. China also imposed duties of 15–25% on its rare earth products. Prices for rare earth metals shot through the roof as a result. Clearly China was cornering the technology market by making it much cheaper to produce smart phones (using domestic (China) rare earth elements and thus lower rare earth prices) within China. After all, if a company wants to produce smart phones outside China, they will need to pay the higher 15–25% duty on rare earth metals. This in turn makes smart phones produced outside China more expensive. By controlling the supply of rare earth metals and thus rare earth prices, China by extension controls where smart phones and other tech products are made if they are to be competitively priced: in China.
How was China allowed to buy the biggest rare earth metals magnet company and all their patents in 1995? You know the answer. The Chinese bought our government officials and specifically, Democrats and Bill Clinton.
Chinese money and influence continues within the U.S. government today. Recently we have Chinese influence with Joe Biden.
Chinese money and influence continues with Republican Mitch McConnell’s wife Elaine Chao.
Corruption, crony-capitalism, payoffs, bribes, are all reasons why today the U.S. has virtually no rare earth metals infrastructure or production capability.
What China did to collapse Molycorp was especially sinister. Molycorp was America’s top rare earth producer. The company ran up $1.7 billion of debt when China restricted rare earth supplies in 2010. Molycorp rapidly expanded production to make up for the supply that China was restricting. Things looked extremely bright for the company and so lots of debt was extended to the company. Suddenly, China crashed the price of rare earth metals by ramping up production. Molycorp couldn’t make enough money to service their $1.7 billion debt and had to file for Chapter 11 bankruptcy protection in 2015 and now focuses on refining rare earth metals, as opposed to mining them.
China can manipulate rare earth prices up and then suddenly down and knock any rare earth mining operation out of business.
The U.S. government under President Trump’s leadership is keenly aware of what communist China has done to corner the global rare earth metals market. Therefore, the rumors that the Pentagon and U.S. military are now involved in trying to create a sustainable U.S. rare earth metals industry make a lot of sense and are probably true.