As Chinese cutbacks in rare earths exports has focused renewed attention on Molycorp Minerals’ rare earths operations outside of Las Vegas, Molycorp has taken the unusual step of seeking federal funding for development of proprietary processes at its Mountain Pass Mine.

This has raised the ire of government watchdog groups who objected to allocating more federal funds to a private mining company with Goldman Sachs as one of its  private owners. Goldman received $10 billion in taxpayer bail-out money a year ago, which has since been repaid.

Mineweb is among the news organizations which has called attention to Molycorp, the only U.S. operation which has mined rare earth elements in the recent past, and could ramp up quickly should Chinese exports be drastically cut. 

Molycorp Minerals claims the Mountain Pass Mine “contains the most abundant rare earth deposit on the planet, outside of China.” Five years ago, the U.S. Geological Survey estimated that the mine contained 20 million tonnes grading at 9.4% of rare earth oxides.

In an interview with Mineweb Tuesday, Molycorp CEO Mark Smith said a 43-101 compliant pre-feasibility study to be completed on November 1st could demonstrate 100 years of rare earths mineral supply at Mountain Pass.

The cost to bring the mine on line by 2012 is currently estimated by Molycorp Minerals to be $450 million. Smith said Molycorp is examining a number of avenues to obtain lower cost capital, including $3 million in funding under the U.S. Department of Defense Industrial Base Manufacturing Program. He noted that the Brush Wellman beryllium facility in Utah has previously qualified for federal funding under a Department of Defense (DOD) program.

In 2005, Brush Wellman received a $9 million federal contract for the engineering and design of a new facility for the production of primary beryllium under the Department of Defense’s Defense Production Act.  The act is the primary legislation for ensuring domestic availability of industrial resources and critical technology items for national defense. At the time the United States had been without a sustainable fully integrated domestic beryllium supply since 2000. Beryllium has no viable substitute in a number of DOD and Department of Energy applications ranging from weapons systems and missile defense to surveillance satellites and jet fight optical targeting devices.

Nevertheless, despite similar national security concerns of the lack of a domestic supply of rare earth metals, some folks in Washington D.C. aren’t too keen on the idea of throwing another $3 million in taxpayer dollars to help a Goldman Sachs venture.

Rep. Jerry Lewis, R-California–whose congressional district includes Mountain Pass Mine in the southeastern California portion of the Mojave Desert about an hour’s drive from Las Vegas–inserted a $3 million earmark for the mine into the House Defense Appropriations Bill. That’s the same amount of money that Molycorp has been trying to get from the U.S. Department of Defense Industrial Base Manufacturing Program for some time.

The company is also stressing the need for the Department of Energy’s Loan and Loan Guarantee programs to help fund projects that promote magnet production (a prerequisite for many clean energy technologies). Rare earths are critical to such clean energy technologies as hybrid cars, wind power turbines, fluorescent lightning and more.

Mineweb did not get a response from Lewis’s spokesman Jim Specht before our deadline early Wednesday. However, he told the political news website Politico, “The United States has some of the most extensive deposits of these minerals in the world, but the cost of production has made it difficult to attract private investment. The $3 million from the Department of Defense will jump start this investment, as well as provide a clear signal that domestic production of rare earth metals is a national security priority.”

In his presentations, Molycorp’s Smith advocates that the U.S. should strive to re-emerge as the leader in rare earth technologies R&D, and ensure an adequate domestic supply of rare earths for clean energy technology, advanced water filtration systems, and national defense capabilities.

Rare earths are critical to a wide variety of critical defense technologies, such as electric power generation platforms, and water filtration for military, homeland security, and domestic applications. They are also critical to a number of manufacturing and consumer applications including as catalysts, in electronics, in ceramics and glass, as metal allows, and as magnets used in a number of engines.

Mountain Pass began mining operations in the 1940s, when the rare earths were first used in military applications.  For years, the Mountain Pass Mine produced about one-third of the world’s supply, with the majority of the other two-thirds coming from China.

When Chinese rare earths production swelled to about 97% of global supplies, it forced then-owner Chevron to mothball Mountain Pass in 1981. Chevron finally sold the 2,222-acre property and its facilities to a group of private investors last year. Davis said Molycorp has received all critical permits, including renewal of its 30-year mining and reclamation plan. The mine is on private property.

A number of Chevron’s Molycorp personnel, including Davis, chose to remain with the mine, preserving decades of experience in the technical development and successful commercialization of rare earth-related technologies. The primary owners are now Goldman Sachs and private equity groups Pegasus Partners and Resource Capital Funds.

The mining operation is capable of producing high quality rare earth oxides, including cerium, lanthanum, neodymium, praseodymium and europium.

To resume operations, however, Molycorp has to incorporate new technologies and efficiencies. As Smith explained, “We are now on the cusp of finalizing some major process technology improvements which collectively allow us to produce the same amount of rare earth products using less than half the ore we previously used, using less than 5% of the freshwater we used to use and using less than 70% of the reagents we used to use.”

The earmark being sought by Molycorp is aimed at putting the last touches of this process technology together. For instance, the company has been perfecting its cracking refining process to increase metals recovery to what Davis said is a 90% recovery rate. This proprietary technology will also help significantly reduce costs, including chemical recycling and on-site power generation.

Improving the cracking and solvent extraction process has cost the private company $30 million so far. 

Smith also told Mineweb that the company is aiming to reduce its freshwater consumption from 850 gallons per minutes to 30 gpm through recycling and treatment, an important consideration for a mining operation in the Mojave Desert. The primary remaining environmental issue is disposal of wastewater, which can include evaporation, recycling and treatment in California, which has some of the toughest environmental regulations in the nation.

In response, Molycorp has developed “non-traditional high volume, high value, patent-protected uses for new, cerium enriched, earth based products, primarily for water and process waste treatment.” Molycorp will construct metal production and magnet powder facilities during its second phase of construction, and build a magnet production facility in its third phase. With the addition and metals and magnet manufacturing, Molycorp hopes to create 900 direct jobs with most of its workforce coming from Southern Nevada.

Nevertheless, as the Politico article Tuesday pointed out, “some government watchdogs question whether taxpayers should be asked to prop up a project that is already funded by wealth investors who expect to make a profit.

Ryan Alexander, president of Taxpayers for Common Sense, said, “If this is critical to national security, and the private equity firms that own Molycorp can’t find another $3 million to meet the needs of the Mountain Pass mine, there still is no excuse for this being an earmark. DOD can request programmatic funding so those funds are weighed against other security priorities rather than being singled out by one member of the House Appropriations Committee.”

However, Molycorp advocates respond the federal funding will help accelerate the process of getting the Mountain Pass Mine back on line in 2012.

A senior fellow at the Sunlight Foundation suggested to Politico that the government and taxpayers should get a share of the mining operation if it’s going to back a Goldman Sachs venture. Smith told Mineweb he is open to finding “the lowest cost capital” for the mine whether through an IPO, private capital or other options.

The fate of the $3 million earmark for Molycorp Minerals now rests with the congressmen and senators who will combine the House and Senate DOD appropriations bills into a final version later this year.