Benign neglect: Black Ops II, Obama and Molycorp

Colorado Republican congressman Mike Coffman managed to tie together a popular video game, US President Barack Obama and rare earth mining in an op-ed published in The Washington Times last week.

Even by the not very high standards of current US political discourse, Coffman's polemic is a little thin on logic.

Call of Duty: Black Ops II is set to break sales records when it goes on sale later this year and the latest installment of the war game features a storyline where America is pitted against China over the supply of rare earth elements.

China mines roughly 95% of the world's rare earths, used in critical components of the automotive, high tech, green energy and defence industries.

Coffman writes "although players have many options to win in the game, it is unclear whether the Obama administration, which is neglecting proven mining and development strategies that could develop a domestic rare earth supply, is playing to win in the real world."

While Obama's relationship with the resource sector is not a happy one – vide the scraps with the coal lobby, oil pipelines and the uranium mining ban – weak links in the rare earth supply chain can hardly be blamed on his administration.

The fact is domestic supply is being developed. Molycorp, a company in Coffman's home state is in the process of restarting full-scale mining and processing at its Mountain Pass rare earth mine in California.

Last week Molycorp announced it is already halfway in reaching its ultimate production target of 40,000 tonnes per annum and at the same time increased reserves 36%.

China's export restriction on rare earths is currently before the World Trade Organization after the EU, Japan and the US complained (Coffman says the WTO action is just a way for Obama to avoid the real issue). The export quota in question is 31,130 tonnes per annum.

A single US mine could therefore make up any supply shortfall even if China stops all rare earth oxides at its border.

Coffman is also of the opinion that Molycorp's mould-breaking deal with Neo Material Technologies, a rare earth and metal processor, is a bad idea because Neo Material sells to China which is also the number one consumer of rare earths.

"They then would be subject to Chinese export restrictions should U.S. industry need them back. Whether they would be allowed to return to the United States remains an open question," writes the congressman.

Based on this reasoning what also remains an open question is whether Coffman thinks the US should not export its domestic supply. It's an irony that would not be lost on the Chinese.

In a plot twist that may stretch credulity even in a shoot-em up video game, Coffman also calls into question an official report from the Pentagon that showed that even at the height China's clampdown US defence contractors never faced a shortage of rare earths.

The truth of the matter is that the one force that is really at work in the rare earth industry is a collapse in prices.

The declines in rare earth oxide prices have accelerated this year with some more abundant rare earth elements such as lanthanum crashing by more than 70%. While heavy and scarcer REEs such as dysprosium have generally held up better, many have also experienced price declines of 50% or more.

If Obama is guilty of neglecting rare earth mining, it is benign neglect. And the correction in prices is a sign that the free market is at work in the rare earth industry. Something that should please your average Republican member of congress.