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Molycorp Spending Big to Cope With China

Thursday, 20 Oct 2011 | 7:03 AM ET

Some of the businesses that depend on so-called rare earth metals reportedly are now considering moving production facilities to China.

A host of technology and green technology industries rely on rare earths, and in the last two years, China has limited exports and shifted quotas, injecting a frightening volatility in both pricing and availability.

The companies are so concerned about supply that they're willing to consider relocation as a way to gain easier access to key elements in their production processes.

Outside of China, only two companies are considered viable alternatives at present: U.S.-based Molycorp and Australia's Lynas. However, both remain about a year from bringing any meaningful volumes to the global market.

On Thursday, Molycorp is announcing a plan to change that and respond strongly to the threat of customers moving to China.

The company will spend an additional $114 million to accelerate the completion of its mining and processing facility in Mountain Pass, California.

"There is a serious threat of our non-Chinese customers moving to China," Molycorp CEO Mark Smith told CNBC. "We want to send a very strong message that we are doing everything in our power to get volumes to market as soon as possible.

Instead of opening the facility next July, the company expects that to happen in early April. That means the company can begin bringing meaningful volumes of processed rare earths to market sooner—hopefully placating a nervous set of companies.

"We want people to know that we hear what they're telling us and we're working on it," Smith said.

That means more workers will be hired, more work will be done, and more equipment will be purchased. Even though that April date is months away, there is a sense of urgency now.

Sources told CNBC that the businesses in question—and possible lost customers for Molycorp—come from a range of sectors, including magnet and polished-glass makers as well as manufacturers of catalytic converter.

"It's a lot more about confidence right now," said Smith, noting that the company wants to aggressively get ahead of the situation before it becomes a problem.

Restoring confidence is key because if companies began an exodus to China, that would mean lost customers.

That could cripple Molycorp's growth prospects before it even began producing from its state-of-the-art facility.

"We take considerations of moving very seriously," Smith said.

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