U.S. Army will fund rare earths plant for weapons development

Texas Mineral Resources

11/12/2019 06:00

By Ernest Scheyder
    Dec 11 (Reuters) - The U.S. Army plans to fund construction
of rare earths processing facilities, part of an urgent push by
Washington to secure domestic supply of the minerals used to
make military weapons and electronics, according to a government
document seen by Reuters. 
    The move would mark the first financial investment by the
U.S. military into commercial-scale rare earths production since
World War Two's Manhattan Project built the first atomic bomb. 
    It comes after President Donald Trump earlier this year
ordered the military to update its supply chain for the niche
materials, warning that reliance on other nations for the
strategic minerals could hamper U.S. defenses. urn:newsml:reuters.com:*:nL2N24N1LH
    China, which refines most of the world's rare earths, has
threatened to stop exporting the specialized minerals to the
United States, using its monopoly as a cudgel in the ongoing
trade spat between the world's two largest
economies. urn:newsml:reuters.com:*:nB9N22701Z urn:newsml:reuters.com:*:nL8N23606C
    "The U.S. rare earths industry needs big help to compete
against the Chinese," said Jim McKenzie, chief executive officer
of UCore Rare Metals Inc  UCU.V , which is developing a rare
earths project in Alaska. "It's not just about the money, but
also the optics of broad support from Washington."
    The Army division overseeing munitions last month asked
miners for proposals on the cost of a pilot plant to produce
so-called heavy rare earths, a less-common type of the
specialized minerals that are highly sought after for use in
weaponry, according to the document.
    Responses are due by Dec. 16. UCore, Texas Mineral Resources
Corp  TMRC.PK  and a joint venture between Lynas Corp  LYC.AX 
and privately-held Blue Line Corp are among the expected
respondents, according to company officials and sources familiar
with the matter.
    The Army said it will fund up to two-thirds of a refiner's
cost and that it would fund at least one project and potentially
more. Applicants must provide a detailed business plan and
specify where they will source their ore, among other factors. 
    This latest move by the Army, a division of the Pentagon,
comes after a military study earlier this year on the state of
the U.S. rare earths supply chain. 
    The rare earths tension between the U.S. and China goes back
to at least 2010, when China limited exports to Japan after a
diplomatic dispute, sending prices for the niche metals spiking
and fueling concerns across the U.S. military that China could
do the same to the United States. urn:newsml:reuters.com:*:nL2N24N1LH    
    The U.S. Army Combat Capabilities Development Command
Chemical Biological Center and the U.S. Army headquarters did
not respond to requests for comment.
    The request does not give a specific financial amount the
Army could fund, though it is derived in part from the Defense
Production Act (DPA), a 1950s-era U.S. law that gives the
Pentagon wide financial latitude to procure equipment necessary
for the national defense.
    A rare earth processing pilot plant could cost between $5
million and $20 million, depending on location, size and other
factors, with a full-scale plant potentially costing more than
$100 million to build, industry executives said.
    "It's great to see interest in financially supporting the
industry from the Department of Defense," said Jon Blumenthal,
CEO of Blue Line Corp, which earlier this year signed a
memorandum of understanding to build a rare earth processing
facility in Texas with Australia-based Lynas Corp  LYC.AX . 
    Blumenthal declined to comment when asked if Blue Line will
respond to the Army's request. Lynas declined to comment.
    It is not clear how the Army will rank the responses given
that much of the rare earths industry expertise is now located
in China, though the modern rare earths industry itself had its
genesis in the United States decades ago.
    "Instead of providing funds for yet another study, this
allocates money toward establishing a U.S.-based rare earth
supply chain," said Anthony Marchese, CEO of Texas Mineral
Resources, which is developing the Round Top mine in Texas with
USA Rare Earth.
    After processing, however, rare earths need to be turned
into rare earth magnets, found in precision-guided missiles,
smart bombs and military jets and China controls the rare earths
magnet industry, too. 
    The Pentagon has not yet launched an effort to finance
domestic magnet manufacturing. 
    "Closing the magnet gap would do more to address the
nation's defense needs, and as well the needs of electric
vehicle makers and others," said Ryan Castilloux, managing
director with Adamas Intelligence, a research firm that closely
tracks the rare earths industry.    

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 (Reporting by Ernest Scheyder
Additional reporting by Melanie Burton in Melbourne
Editing by Marguerita Choy)
 ((ernest.scheyder@thomsonreuters.com; Twitter: @ErnestScheyder;
+1-713-210-8512; Reuters Messaging:
ernest.scheyder.thomsonreuters.com@reuters.net))