Its reports that a new research institute for rare earths is to be built in Ames, Iowa. The US Department of Energy will provide $120m for the Critical Material Institute.

The US wants to reduce its dependency on China, which produces more than 95% of the world's rare earth elements, and address local shortages.

According to the US Geological Survey, there may be deposits of rare earths in 14 US states.

"The Critical Materials Institute will bring together the best and brightest research minds from universities, national laboratories and the private sector to find innovative technology solutions that will help us avoid a supply shortage that would threaten our clean energy industry as well as our security interests," he said in a statement.

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Chinese price manipulation has taken its toll on the U.S. economy

Rare earth metals are an increasingly integral part of everything from automobiles to television sets.  But the precious metals are tightly controlled by China, with an excess of 95 percent of current suplly coming from Chinese-owned mines and refineries.  The degree of control has allowed China to manipulate prices, cutting back on demand to sell less material for the same amount of profit, any businessperson's dream.

I. New Private-Public Partnership Sets Aim on Chinese Mineral Hegemony

The problem is that it takes several years or more to bring rare earth metal mines and refineries online; and the capital costs of such facilities are very high.  It took China decades of clever planning to set itself in its current peachy position of rare earth hegemony.  Now the U.S. is racing to try to recover, before Chinese price manipulation deals too much of a blow to the U.S. economy.

The U.S. Department of Energy has committed a relatively large investment of $120M USD to establish an Energy Innovation Hub under the supervision of Ames Labs to research ways to expand domestic rare earth production and otherwise cut reliance on Chinese rare earth supplies.

The new lab, dubbed the Critical Materials Institute (CMI), will be a joint effort between a number of large domestic firms in the private sector, universities, and top government research labs. 

Corporate partners include General Electric Comp. (GE), OLI Systems Inc., Spintek Filtration, Advanced Recovery, Inc., Cytec Industries, Inc. (CYT), Molycorp Inc. (MCP), and Simbol, Inc. (Simbol Minerals).

II. Attacking the Problem From All Angles

Among the research projects will be:

    Improve rare earth recycling/reuse
    Improve extraction processes
    Develop rapid deployment mining techniques
    Develop rare earth material substitutes
    Study and optimize supply chains to minimize waste

Top targets for domestic rare earth production include neodymium -- used in neodymium iron boron (NeFeB) hard drive magnets and cell phone components -- and samarium -- used in samarium cobalt (SmCo) drive magnets.  Currently the U.S. has no domestic neodymium producers and only one domestic samarium producer.

The Government Accountability Office (GAO) in a 2011 research report [PDF] suggests that the U.S. rare earth supply chain, phased out in the 1980s at a time when the 17-element family looked non-critical, will take approximately 15 years to rebuild.  The new lab aims to assist in that slow and arduous recovery.

The U.S. also will continue to purse action against China before the World Trade Organization (WTO) where it has filed complaints about the Chinese price manipulation.

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In an age where cell phones, car radios and fluorescent lighting reign supreme, the world starts to look a bit bare without the aid of rare earth materials to build many modern technologies.

“You wouldn’t have very much of anything,” said Alex King, director of U.S. Department of Energy Ames Laboratory.

King received a phone call on Tuesday informing him that Ames Laboratory had received part of a $120 million grant over a period of five years to fund the hiring of 60 personnel and purchasing of equipment to advance research in the area of rare earth materials.

The grant is part of the U.S. Department of Energy Hubs, or a large series of projects to ensure sustainable energy in the future, announced to the public on Wednesday.

The funding will add an additional 20 percent to U.S. Department of Energy Ames Laboratory’s $40 million annual budget, with King estimating receiving about $8 million a year over the five-year period. With the funding of the Critical Materials Institute, a virtual institute collaborating between several national labs and universities, King is hoping to have an impact on the rare earths industry, saying the institute will be “ready to hit the ground running on day one.”

“We’ve always done rare earth research at Ames Lab; we’re kind of rare earths central for the [United States] if not the world,” King said. “All the best rare earth specimens come from the Ames Lab; we purify them better than anybody else.”

The opportunity to gain federal money for rare earth research had been on King’s radar for two years. When the U.S. Department of Energy formally gave the funding opportunity announcement last spring, Ames Laboratory staff pulled together a 1,600-page proposal within a period of 90 days.

Bill McCallum, senior material scientist at U.S. Department of Energy Ames Laboratory and co-principal investigator of the grant, anticipated the funding announcement in a few more months.

“I didn’t expect to hear the announcement for quite some time yet,” McCallum said. “It was very pleasing and very surprising when we got the announcement.”

After the paperwork is filed, Ames Laboratory will begin the arduous task of what King describes as “starting up a $25 million dollar a year business from scratch.”

Nearly as important as hiring personnel is the purchasing and upgrading of research equipment. Brandt Jensen, assistant scientist at Ames Laboratory, stresses the importance of finding the right balance of materials to create rare earth products.

“The basic form of the magnet is three metals, so we have to carefully weigh them in the right ratio,” Jensen said. “It’s a long process. To get a magnet you first have to melt them all together ... but it’s not complete yet, the atoms aren’t in the right location on the atomic level.”

In order to create a rare earth magnet to fit in a simple earphone, the magnet needs to go through several processes and characterizations to make sure it is just right.

Producing alternatives to and conservative use of rare earth materials is just one side of Ames Laboratory’s research. A new field called the economic forecasting and life cycle management of materials will give a holistic view of how different materials are being used and when scientists can start expecting those materials to be scarce.

“What we’re looking for is trying to understand the supply and demand dynamics of the rare earths ... but also using the economic analysis to try and predict what other materials are going to go critical suddenly without our being ready for it,” King said. “Today we’re dealing with the rare earths; tomorrow we’ll be dealing with something else.”

The economic analysis will take into account the political atmosphere in which materials are being produced in addition to predicting which areas are more at risk for large scale natural disasters.

Although he hasn’t had much time to himself since the announcement, King is enjoying the atmosphere of excitement that has overtaken the Ames Laboratory staff.

“We were all very excited,” Jensen said. “There’s going to be a lot more research opportunity, there’s going to be staff we train with, it’s going to open up a lot of doors.”

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Released date - January 10, 2013 - A fund for one of the more exotic mining bets the average investor can make is falling Thursday, keying off a big loss by a single stock.

Market Vectors Rare Earth/Strategic Metals ETF (REMX)  is down by one percent. Rare earths are tough-to-mine metals with a number of high-tech uses, including in cell phones and semiconductors. One of the fund’s components, Molycorp (MCP), said it “anticipates lower than expected revenue and cash flow for 2013, and is evaluating its capital needs for 2013.” Shares of that company are plunging 22% this afternoon.

Molycorp makes up about six percent of the rare-earth fund. Thompson Creek Metals (TC), another firm with a 5.5% weighting in REMX, is down 1.2%.

Rare-earth metals’ importance in high-tech manufacturing hasn’t translated into stock-market success. The Market Vectors fund had an eleven percent 2012 loss that was preceded by an even bigger tumble — 32% — the year before.

Molycorp’s stock woes exemplify the trend. The stock dipped near $8 this morning, a level it hasn’t seen since November. The longer trend exaggerates it: The stock traded close to $80 after its late 2010 initial public offering.

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