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Who gets a stake in this strategic U.S. asset—the Russian billionaire, the Chinese company or both?

by Greg Klein | June 16, 2017

Efforts to reduce U.S. dependency on Chinese rare earths took an uncertain turn on June 15 as a group representing three American firms and a Chinese REE producer placed the winning bid for Mountain Pass. But the sale of bankrupt Molycorp Minerals’ former California mine, until its 2015 shutdown the only REE operation in the U.S., faces a number of challenges.

Who gets a stake in this strategic U.S. asset—the Russian billionaire, the Chinese company or both?

Mountain Pass: Could one rival bidder get the
mine while another holds the mineral rights?

The US$20.5-million top bid came from MP Mine Operations LLC, which “includes two noteholder groups from Molycorp’s original bankruptcy as well as Chinese investor Shenghe Resources Shareholding Co Ltd,” reported Law360.com. Shenghe Resources Holding is a Chinese company engaged in smelting, deep processing and sales of rare earths and other metals, according to Bloomberg, which notes Shenghe is a subsidiary of the China Geological Survey Institute of Multipurpose Utilization of Mineral Resources.

The bid surpassed a US$20-million stalking horse from ERP Strategic Minerals, part of the U.S.-based ERP Group of companies headed by Tom Clarke. The American billionaire credits his group with “a strong track record of restarting mines acquired out of U.S. bankruptcy and Canadian CCAA situations.” ERP planned to work with Pala Investments, headed by Russian-born billionaire Vladimir Iorich, and ASX-listed Peak Resources for financial, technical and operational support of the Mountain Pass mine and processing facility.

ERP had challenged the rival bid in court, saying the offer could be blocked by the U.S. Committee on Foreign Investment or other regulators, Law360.com stated. The journal quoted ERP arguing that, without a pre-bid review, “the stalking horse bidder will be prejudiced by having to compete against unfair, non-complying bids, and there is a real risk of a flawed auction and a failed sales process.”

Who gets a stake in this strategic U.S. asset—the Russian billionaire, the Chinese company or both?

Bankrupt Molycorp’s former assets include an REE processing facility.

A judge allowed the auction to proceed, “setting the stage for a sale hearing on June 23,” Law360.com added. The site previously reported that the hearing was scheduled to consider objections from three federal regulatory agencies that say the former operation’s permits can’t be transferred through the auction.

According to Peak Resources, ERP will file an objection to the auction by June 19 “and may consider other legal remedies” prior to the June 23 hearing.

But members of the winning group already hold the mineral rights, according to the Financial Times. Last month the paper stated the rights are held by MP Mine Operations members JHL Capital Group and QVT Financial, both Molycorp creditors, along with Oaktree Capital. The American firms planned to work with Shenghe, the Chinese REE processor.

Contemplating a successful ERP bid prior to the auction, “Mr. Clarke said his group could still use the mine site to process material from elsewhere if they did not get the mineral rights—but he hoped to negotiate for them if he wins,” the paper added.

Mountain Pass went on care and maintenance in 2015 after Molycorp piled up some US$1.7 billion in debt. That left Lynas Corp’s Mount Weld operation in Western Australia as the world’s only significant source of rare earths outside China, which produces and processes about 90% of global supply.

The U.S. Geological Survey considers rare earths critical to the country’s economy and defence. Under the proposed METALS Act, a bill before U.S. Congress, the federal government would support the development of domestic sources and supply chains for critical minerals including rare earths.

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