LYC Lynas Rare Earths Limited

By Rhiannon Hoyle 

SYDNEY--An American chemicals company and an Australian miner want to build the first rare-earths separation plant in the U.S. in years, seeking to shore up supplies of important commodities caught up in the U.S.-China trade conflict.

The proposal by Blue Line Corp. and Lynas Corp. illustrates how companies are growing increasingly worried by the trade rhetoric out of Washington and Beijing, while looking for opportunities to profit from tit-for-tat tariffs if they aren't short-lived. The companies aim to build the plant in Hondo, Texas, near where Blue Line is based.

Production of rare earths is dominated by China, but some of the world's biggest consumers are U.S. manufacturers of advanced technology such as electric vehicles, wind turbines and military equipment. That explains why the U.S. has been reluctant to impose tariffs on Chinese rare-earths shipments, despite the escalating trade rift.

China, however, has put the rare-earths trade squarely in its sights. The U.S. ships ore from its only active mine, in Mountain Pass, Calif., to China for processing. Starting June 1, those shipments will be saddled with a 25% tariff. That is up from 10%, making the operation less profitable than before.

Blue Line and Lynas signaled that the lack of supply options outside China played a key role in their decision to work together over the coming year on plans for the new plant. The joint venture would "help to ensure that U.S. companies have continued access to rare earth products by providing a U.S.-based source," management said in a joint statement.

The Trump administration worries a lack of domestic rare-earth supplies undermines a competitive modern economy and strong military. Last year, the U.S. Geological Survey designated 35 minerals as critical to the economy and national defense. The U.S. is nearly reliant on imports for more than half of them.

Rare earths are among the most extreme examples of such critical minerals, with China accounting for more than 90% of the world supply over the past decade, according to U.S. government figures.

China's control of the global rare-earths market has long been a concern of manufacturers, particularly after Chinese export quotas led to a price surge that in 2011 made some of the elements more valuable than gold.

Lynas has grown from a small Australian miner to become the largest producer of rare earths outside China in a decade. The company digs up ore in Australia's arid western region and ships it to Malaysia for processing. That unique supply chain recently led Australian conglomerate Wesfarmers Ltd. to make a $1 billion takeover offer for Lynas, despite uncertainty over the future of its operating license amid environmental opposition to the Malaysian plant.

Blue Line and Lynas said their proposed joint venture, which would be majority owned by the Australian miner, would focus on separating heavy rare earths such as dysprosium and terbium. That would make it the only large-scale producer of medium and heavy rare earths outside China, the companies said.

The plant could later be expanded to separate light rare earths such as neodymium and praseodymium, they said. Those elements are the main products of Lynas's Malaysia facility.

There are no separation plants in the U.S. for either heavy or light rare-earth materials after Molycorp Inc. sought chapter 11 bankruptcy protection in 2015. Blue Line buys separated rare earths, mainly from Lynas, that it processes further and sells to customers including automotive and electronics manufacturers.

Jon Blumenthal, Blue Line's chief executive, said the venture's aim was to provide "a secure source of rare-earth materials to both U.S. and international markets."

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

May 20, 2019 04:55 ET (08:55 GMT)

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