Offshore Rare Earths: Fuggedaboutit

Todd Shriber
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With all the controversy surrounding offshore oil drilling, especially after the Gulf of Mexico oil drill last year, one might think navigating the high seas in search of highly sought after commodities is an endeavor best left to the world's oil giants. It probably is, but that did not stop a team of Japanese scientists from cheering the discovery of bountiful rare earths supplies in the Pacific Ocean right after the Fourth of July.

Like it or not, most of us are consumers or rare earths via our smartphones, laptops and an array of other high-tech gadgets where the 17 elements that actually are not all that rare find homes. And most readers of OilSlick probably know that China controls 95%-97%, depending on the estimate, of the global rare earths export market, a scenario that has led to surging prices because China has been steadily paring its rare earths export quotas.

The prospect of finding an alternative supply of rare earths had the Japanese scientists giddy and that is understandable as Japan accounts for a third of global rare earths demand and the country is not exactly best friends with China. To be sure, the find in the Pacific is nothing short of massive, containing 80 billion to 100 billion tons of rare earths.

Here is the rub. Actually, there are a couple of rubs and the parallels to the oil industry are strikingly similar. First, the deposits were found at depths of 11,500 to 20,000 feet. To use oil industry vernacular, that is a job that will require more than a jack-up rig. Those are ultra deep-water depths we are talking about. Even the low end of that range is still a lot deeper than even the deepest oil wells have been drilled to.

Next, as is usually the case with oil business, cost is a consideration. By some estimates it could take $1 billion to $2 billion just to start harvesting rare earths from deep in the Pacific. That is not much money to the Exxon Mobils (XOM) and Chevrons (CVX) of the world, but Molycorp (MCP), the largest U.S.-based rare earths miner, has a market value of just $4.4 billion, making even a $1 billion investment burdensome.

In other words, this treasure trove of rare earths in the Pacific is likely to remain in its current home, much like some oil reserves in the U.S. that have yet to be tapped for various reasons. And there are more similarities between rare earths and the oil business. Developed nations like the U.S. and Japan crave these resources, but find less-than-hospitable sellers. For oil, it is unfriendly nations in Africa and the Middle East. For rare earths, it is China.

As is the case with oil, the problem could be solved because Australia and the U.S., among others, have bountiful rare earths supplies, but have not mined for them in years due to environmental restrictions. Sound familiar? It should. Same old tired song, just a different natural resource and that is just sad.

Todd Shriber