UPDATE 2-Rare earth producer Molycorp wins OK for mine

* Final permits secured; mining to start next year

* CEO says talking to new investors

* Shares rise 9.6 pct (Changes dateline; adds CEO comments, details)

MOUNTAIN PASS, Calif. Dec. 13 (Reuters) - Rare earth metals producer Molycorp Inc MCP.N has secured final permits to start building a mining and manufacturing center in California, enabling the company to begin mining ore next year.

The Greenwood, Colorado-based company, which is the only rare earth oxide producer in the Western Hemisphere, will break ground on the $531 million facility in Mountain Pass, California, on Jan. 2, aiming to reach full capacity by the end of 2012.

The new source of rare earth minerals -- used in a range of products from car engines, lasers and fluorescent lightbulbs to computer hard drives and wind turbines -- may loosen the grip of leading producer China on the market.

Molycorp shares closed up 9.6 percent at $34.28 on the New York Stock Exchange. The shares have more than doubled from their $14 initial public offering price in July.

The company has become a darling of Wall Street since China cut its export quotas on rare earth elements by more than half, sending prices of the minerals soaring, particularly hurting Japanese manufacturers.

Last week, Japanese trading house Sumitomo Corp 8053.T agreed to invest $130 million in Molycorp in exchange for a guaranteed seven-year supply of the minerals, which are key to many industries. [ID:nN10286929]

In the wake of that deal, Molycorp is now talking to other potential investors, Chief Executive Mark Smith told Reuters in an interview at the site of the new mining center. He said the investors were from several different countries, including Japan, but declined to give further details.


The Mountain Pass mine, the company’s only mining facility, was closed in the 1990s due to cut-price rare earths coming from China. At that time, the leading use for rare earths was in catalytic converters. Now, businesses using rare earths for magnets make up two-thirds of sales by dollar value.

The area Smith believes will be the biggest growth driver for is the wind-turbine business.

“We think the growth rate for our magnets is going to be 10 to 15 percent higher than what experts are forecasting,” Smith told Reuters.

The company hopes to build its own rare-earth magnets from its supplies by 2012 at a yet-to-be determined facility in the United States, working with an existing magnet maker, he added.

The company expects to produce about 3,000 tons of rare earths this year from a stockpile it has left over from earlier operations, but is starting construction on upgrades that would allow Molycorp to ramp up production from the 55-acre pit mine off Interstate 15 near the California-Nevada border.

Workers will start drilling for fresh ore next year and an upgraded processing facility will come online in 2012. When construction is complete late that year, the company’s production will be about 20,000 tons a year.

Molycorp executives will decide early next year whether to double capacity to 40,000 tons annually, which would cost $100 million to $200 million and would take about a year to 18 months.

Prices for rare earths will hold steady in the short term and increase in the long term, said Smith: “Every supply and demand fundamental I look at says this is sustainable.” (Reporting by Sarah McBride and Nick Zieminski; editing by John Wallace and Andre Grenon)