On a shuttle, I sat across from someone who was fighting corruption in Angola and elsewhere. Next to me was the photographer Platon (he goes by one name), who chased Edward Snowden for a year before photographing him hugging a flag for Wired. He now has a non-profit that plans to raise awareness about human rights issues through portraiture.

But Chris Lewicki has by far the most out there (literally) job of anyone I have ever met at the World Economic Forum. He is an asteroid miner, or at least he wants to be one. He is the president and chief engineer of Planetary Resources, a company that soon hopes to launch rockets into space that will hook up with asteroids and start digging. Trapped in the rocks of asteriods, Lewicki says, is water. His company plans to melt the rocks they get from the asteroids to draw the water. Some of the water could be converted into rocket fuel by splitting off the hydrogen. His goal is to create roaming gas stations in outer space. The gas stations will also sell asteroid water. (Full disclosure: I am simplifying here. I met Lewicki at a wine-filled Davos party.)

This, of course, might sound a little far-fetched. Lewicki says Planetary is still a few years away from launching its firm’s mining rocket into space. The company hopes to extract just a single vial of water in its first mission. But if it can be done at all, Lewicki would be the one who’d know. According to his bio on Planetary Resource’s website, he was the flight director for NASA’s Spirit and Opportunity rovers that landed on Mars. He also has an asteroid named in his honor.

What’s more, the company--which was co-founded by Peter Diamandis, a space entrepreneur who made Fortune’s list of the World’s Greatest Leaders last year--has attracted some influential and high-profile funders. It has received investments from both Larry Page and Eric Schmidt of Google GOOG . And other investors include Virgin Group’s Richard Branson, Ross Perot, Jr., and billionaire venture capitalist Ram Shriram. Lewicki says the company has also received some funds from traditional mining companies.

Lewicki didn’t say how much money his company has raised or what his company could be worth. (Or if he did, I don’t remember. We were at a wine bar.) He also didn’t say how much it would cost to mine water in space, but he did say it would be cheaper than shipping water or rocket fuel to outer space.

After I asked a few more questions about his company--like “is there really a lot of demand right now for gas stations and bottle water in outer space?”--Lewiski told me to stop being a critic. Every industry, he said, has to start somewhere. Yes. Dream big. This is Davos, after all.

In just over a decade, Amer has grown into one of the world's biggest copper players. In 2014 it ranked No. 295 on Fortune's Global 500 list, posting $38 billion in sales and $833 million in profit. Amer's rise is in no small part thanks to China's appetite for the industrial metal and Wang's adroit moves. The country drives 40% of global consumption, and Wang has jumped to stay ahead of demand. Amer's copper-wire rod production capacity is soon expected to quadruple. A new semiconductor center was formed with a local government--furthering China's goal of boosting its semiconductor industry in the next decade. Amer's five-year sales growth runs about 40%. "We've grown rapidly, and our home-market economy continues to grow," Wang tells Fortune during a meeting in his office, which is filled with the classical rosewood furniture he collects.

The company's offices in Shenzhen are also lined with hundreds of photos of Wang alongside foreign dignitaries like former U.K. Prime Minister Tony Blair and former U.S. Treasury Secretary Hank Paulson, as well as China's formerly richest man, Wanda CEO Wang Jianlin, who appears on 2014's Hurun China Rich List at No. 2, 12 spots before No. 14 Wang, who's worth an estimated $7.2 billion. In a nod to the importance of government connections in his line of work, a Chinese magazine said Wang can recite the names of all of China's provincial governors and provincial party secretaries.

After growing up in the poor Anhui province, Wang worked as a warehouse manager before starting his own power-cord business, which expanded into Amer. He wears an old gold Omega watch to remind him that time doesn't repeat, so he can't make mistakes.

The next step for Amer is becoming a true global player. Wang set up a trading group in Singapore last spring, taking advantage of Wall Street banks' retreat from commodities trading because of stricter risk rules. The Singapore vantage point will most likely expand Amer's trading prowess and the number of mining deals it does around the world.

Earlier, Wang traveled to Switzerland to meet with commodities giant Glencore Xstrata, which in 2013 had put up for sale a new Peruvian copper mine called Las Bambas, a massive series of pits expected to produce the equivalent of 13% of China's annual copper imports. Wang had lawyers and accountants scour the paperwork and even received approval from China's regulators to buy Las Bambas. The $6 billion price tag was a record for a private Chinese company and would signal Amer's ascension to the world stage.

In the end, Glencore's mine in Peru ended up going to a consortium of Amer's state-owned rivals over the summer. Just a few years ago that would have been the whole story. But the rise of Amer and other private players within China Inc. spells a new era in which smarter, nimbler Chinese companies are closer to going global.

This story is from the December 22, 2014 issue of Fortune.

DON'T BUY OIL REFINERS
After the price of oil plummeted 30% in recent months--as American shale fields continue to pump out huge quantities--prospects are shaky for energy companies. Refiners rise and fall on a different cycle from producers--refiners can benefit from cheap petroleum--but Federated Investors portfolio manager Lawrence -Auriana is avoiding them anyway, because of their unpredictability. "We shy away from refiners because it's a very volatile business," he says, "and it's not really a growth business at the present time."

DO BUY EXPLORATION AND PRODUCTION AND INTEGRATED OIL COMPANIES
Energy is now the cheapest sector in the S&P 500, and several pros are buying shares of oil producers that can smartly plumb their investments in U.S. shale. "People are still driving cars, still flying airplanes, and as the global economy comes back, you'll see a recovery in energy stocks," says Oppenheimer's chief market strategist John Stoltzfus, who is scooping up shares of integrated oil companies like ConocoPhillips COP and Chevron CVX . Auriana owns stock in Pioneer Natural Resources PXD , which has wells in the Permian Basin, "where the geology is so good that the company can generate substantial return on investment even with oil at $60 a barrel." And Intrepid Capital CEO Mark Travis gushes about Northern Oil & Gas NOG , a firm in North Dakota's Bakken Shale that has locked in $90-per-barrel oil prices--even as the market price is in the 70s--through mid-2016 and still trades at a forward P/E of just 11.2. "When the market throws the baby out with the bath water, they don't ask who's hedged," Travis says.

DON'T BUY METALS
With a bull market in equities heading toward its seventh year, gold is hovering below $1,200 an ounce--down from its 2011 peak of $1,900--and investors say it's still searching for a bottom. Declining demand in China has also lowered prices for industrial metals like silver and copper.

DO BUY OVERSOLD MINING STOCKS
The falling price of gold has tarnished mining stocks. But bottom-feeding value investors see glimmers amid the gloom. "We continue to like gold-mining stocks because of their extremely low expectations," says Wasif Latif, who helps oversee $66 billion as head of global multi-assets at USAA. His funds own shares of Goldcorp GG , Eldorado Gold EGO , and Silver Wheaton SLW . "The companies can derive a better return than the commodity itself over time." Michael -Cuggino, who oversees the $7 billion multi-asset Permanent Portfolio Fund, holds industrial metal miners and natural-resource companies such as BHP Billiton BHP and Rio Tinto RIO , which are trading at P/Es of 12.5 and 9.5, respectively. "They're the raw materials of economic production," he says. Cuggino thinks shares of mining company Freeport-McMoRan FCX will rise since it "can make free cash off of $3 copper and still pay a dividend." (The stock is yielding 4.3% and has a 13.9 P/E.) Intrepid's Travis sees value in Vancouver-based Pan American Silver PAAS , which has been losing money recently but maintains a 4.7% dividend yield. "You have to kind of make some -assumptions about gold and silver, but I think you're paid to wait," Travis says. Jay Bowen, whose firm Bowen Hanes & Co. manages $2.7 billion, has found a way to play the flip side of inexpensive commodities: Leggett & Platt LEG , a leading manufacturer of bedsprings and other furniture components, for whom scrap metal and petroleum are major input costs.

DO BUY ENERGY MASTER LIMITED PARTNERSHIPS
Master limited partnerships have seen their values sink along with the price of oil, but the MLPs that consist of pipeline operators and service operations tend to stay busy no matter the price of West Texas crude--as long as people continue to use it. The profits of those MLPs are tied to demand, says Phil Blancato, president of Ladenburg Thalmann Asset Management, which manages $2 billion, and he expects U.S. demand to rise. "Cities are bigger," he says. "We need more energy." Blancato predicts a 30% to 40% increase in the need for oil and gas over the next 10 to 15 years, which means burgeoning profits at a moment when MLP valuations have dropped nearly 20% over a period of months. "That energy has to move through a pipe. I want to capitalize," he says. Blancato recommends the Eagle MLP Strategy Fund, which has relatively high fees but has outperformed the Alerian MLP index since its inception in October 2012.

DO BUY RUSSIAN ENERGY COMPANIES
Ben Inker, co-head of asset allocation at GMO, which manages $120 billion, disagrees with the consensus view. He sees money to be made in Russian energy stocks, whose valuations have withered in the political frost caused by the conflict over Ukraine. "In our view pricing is everything," he says. "There aren't bad assets. There are bad prices of those assets." Inker wouldn't offer specific recommendations. But if you have a tolerance for risk, consider putting a few pennies in Gazprom OGZPY , the world's largest extractor of natural gas. It's shivering at a ludicrously shrunken multiple of 3. Even a slight political thaw could send the stock upward.

Read more from the Fortune 2015 Investor's Guide "Don't Buy This, Buy That" series:

Consumer Stocks
Stocks, Bonds and Funds
Real Estate and Industrial Stocks
Foreign Markets
Technology and Biotech Stocks

This story is from the December 22, 2014 issue of Fortune.

A deal between the two would be the biggest ever in the mining industry, and would crown Glencore’s rise from a humble commodities trader to one of the world’s biggest companies with an industrial empire worth some $160 billion.

But for the moment at least, it isn’t happening. In a statement to the Sydney and London stock exchanges, Rio said that it had been contacted by Glencore at the end of July about a merger, but its board rejected the offer in early August

“The Rio Tinto board, after consultation with its financial and legal advisers, concluded unanimously that a combination was not in the best interests of Rio Tinto’s shareholders,” Rio Tinto said. “There has been no further contact between the companies on this matter.”

Later Tuesday, Glencore issued a statement of its own confirming its approach, but saying that it is “no longer actively considering any possible merger transaction with, or offer for the shares of, Rio Tinto.”

Under U.K. takeover rules, it can’t make another approach for another six months, barring a major change in circumstances. The Wall Street Journal reported a person familiar with the situation as saying Tuesday that Glencore didn’t rule out another approach.

Rio’s shares had surged over 5.2% in early trade in London Tuesday, on the notion that the world’s biggest producer of iron ore is now a target for a company with a track record of pulling off spectacular deals, notably its $46 billion acquisition of Xstrata last year. But they gave up most of their gains after the Glencore statement and were up only 2.2% by late afternoon in London.

A move for Rio has only become possible due to a dramatic slump in prices for iron ore, the basic component of steel. That’s due mainly to the fact that Rio and its biggest rival BHP Billiton have flooded the market with new supply, even as demand from China–which accounts for just under half of global steel output–has cooled.

Rio gets nearly all of its profits from iron ore, prices for which have fallen nearly 40% this year year, to their lowest since the Great Recession, while Glencore is a more diversified company with strengths in products such as coal, copper and nickel. As a result, Glencore’s share price had risen 8.1% so far this year, while Rio’s had fallen 6.7% until news of the approach broke. Such developments make it easier for Glencore to consider an all-share bid–although its market capitalization, at $72 billion, is still some way below Rio’s at $89 billion.

Any deal would need the approval of Chinese aluminum giant Chinalco ACH , which is Rio’s biggest shareholder with a stake of 9.8%. Bloomberg reported Monday that Glencore had approached Chinalco and other big Rio shareholders independently, suggesting that it might consider taking its bid hostile.

NOTE: This article has been updated to incorporate Glencore’s statement and the reaction by Rio’s share price.

The announcement in another example of the efforts of Big Mining to bite the bullet and slim down, getting rid of assets accumulated in the pre-crisis boom years, when forecasts of limitless demand growth from China and other emerging markets drove companies to buy up every natural resource asset in sight.

It follows the decision of another landmark retreat from boom-time strategies last month, when U.K.-based Rio Tinto PLC wrote off completely a $3 billion investment in a coal project in Mozambique.

BHP Billiton, whose biggest operations are in South Africa, said it will in future concentrate on iron ore, coal, copper and petroleum, raising the prospect of a spin-off of its extensive assets in aluminum, nickel, silver and uranium.

It left a question mark over the future of its potash business. Potash, a vital ingredient for many fertilizers, has been wildly successful over the last decade, but has been thrown into disarray by the collapse of a pricing cartel operated by Russian and Belarusian companies.

“By increasing our focus on these four pillars, with potash as a potential fifth, we will be able to more quickly improve the productivity and performance of our largest businesses,” the company said in a statement to the Australian Stock Exchange.

It said its board will meet again next week to discuss the strategy and make any announcements immediately. The company’s shares ended up 2.3% in Sydney and were up 2.4% in London.

Earnings for the second quarter were up 8% annually to $1.57 a share, excluding one-time items, the company announced Thursday. The results surpassed the average analyst profit expectation of $1.52 a share, according the estimates compiled by Bloomberg.

Caterpillar also upped its annual earnings outlook to $6.20 a share from its previous estimate of $6.10.

"While we'd certainly like to see improvement in economies around the world, and more specifically, the mining industry, the stability that we've seen this year has helped,” Doug Oberhelman, Caterpillar’s CEO, said in a statement. ” Even though sales and revenues are relatively flat compared to last year, we've improved the bottom line with better execution and continued focus on costs.”

The improving margins are a credit to lower manufacturing costs and decreased research and development expenses, which were down nearly $500 million, said Oberhelman. Sales, meanwhile, have struggled, dropping 3% year-over-year to $14.2 billion and falling short of analysts’ expectations of $14.5 billion.

The lower expenses helped offset a weak quarter for Caterpillar’s resource industries, which include its struggling mining business. Revenue from its resource industry segment fell 29% compared to the year earlier quarter. Global mining operations have cut back on capital spending as coal and metal stockpiles remain high and prices low.

Caterpillar’s construction sales, which helped dampen the blow from a dragging mining industry, were up 11% with an 83% improvement in operating profit. The gains were boosted by overall improvement in U.S. construction spending, which was at a five month high in May, according to data from the Census Bureau.

The company said Wednesday that dealer sales of its machinery declined at a slower pace in June than in the three months through May. Sales declined 10% compared to a 12% drop in the prior three months.

Under a three-year deal that effectively yields to union demands, basic wages for the lowest-paid workers will rise by nearly 45% over the next three years, the producers said in statements to their stock exchanges. That will still leave basic pay for entry-level workers at barely $800 a month in 2017, however–and salaries in the mining industry are, even before the pay rise, around 20% higher than industries such as construction or freight. The producers will also pay smaller raises for better-paid staff and increase accommodation allowances paid to workers.

The strike has cost the mining companies billions of dollars in lost revenue and caused massive hardship among workers, adding to popular resentment about the perceived refusal of mining companies to share more of the mineral wealth they produce with their workforces.

Its toll on the economy in general has been severe. Gross domestic product shrunk by 0.3% in the first quarter of the year due to a 25% drop in mining output–the worst number since the 2009 recession that followed the financial crisis. The strike had also been a cardinal factor in Standard & Poor’s decision to downgrade the country’s sovereign rating to BBB-, only one notch above junk status, earlier in June.

The mining companies were quick to warn that the workers’ victory would come at a cost. Lonmin PLC, one of seven miners affected by the dispute, warned: “restructuring of our business has become inevitable to ensure sustainability…Restructuring and productivity improvements are essential to curb these cost inflation pressures.”

Anglo-American PLC AAL , another of the affected companies, said that total labor costs at the mines in question would rise by an average 8.4% a year as a result of the deal.

Platinum prices have been in the doldrums since the financial crisis. Unlike other precious metals such as gold, the price for platinum is driven more by industrial demand, principally from the auto industry, which uses it to make catalytic converters. While gold has risen 150% in the last five years as investors fretted about the effects of loose monetary policy by the Federal Reserve and other central banks, platinum has risen only 50%.

The producers had stockpiled the metal ahead of the strike, meaning that they could continue to supply customers without any interruptions, but prices have edged up in recent weeks and are 10% above where they were when the strike started.

Big data is coming to bulldozers.

Like much of the Fortune 500, construction and mining equipment maker Caterpillar CAT is digging into the trend of collecting, storing, and dissecting huge volumes of digital information, also known as big data. For the Peoria-based company, that means outfitting its machinery with sensors, radios, GPS receivers, and software, and developing a global technology platform that lets equipment owners, dealers, and, crucially, Cat itself peer at all the information emanating from those trucks, backhoes, and other gear. The upshot: A rugged work environment such as a construction site could be as high-tech as a corporate office.

Heavy-equipment makers have been tricking out their gear with high-tech tools for years. A Cat excavator might have digital systems to aid and monitor grade control, payload, and machine health. GPS and laser technology allow a driver to program his machine to dig dirt at precise depths and slopes. “We have a lot of software engineers that are new in the last 20 years to our business,” Caterpillar CEO Douglas Oberhelman said at a 2012 Fortune tech conference. “It’s a tremendous opportunity to really use technology in something you can see move, and either push dirt or pull a freight train or sexy stuff like that.”

MORE: Fortune 500 ‘lifers’

What’s new, says John Carpenter, construction technology and solutions manager for Caterpillar’s construction industries unit, is a companywide push to have its equipment — and, increasingly, non-Cat machinery — connect to an intelligent network that can monitor the gear and provide useful reports on equipment repairs, operator usage patterns, and the like. A dealer could use the information to keep an eye out for upcoming repairs and stock inventories accordingly. And site managers could monitor a fleet to determine if, say, operators are needlessly idling equipment.

For Caterpillar, connected machinery is a new selling opportunity. In addition to preloading equipment with its technology, it also offers kits that enable older gear (or rivals’ machines) to connect to the Cat network. Then there’s recurring revenue from ongoing data-access and software subscriptions. “It’s a huge opportunity to upsell,” Carpenter says.

And of course, Caterpillar can sort through this collected body of knowledge for clues to help the company build better products, predict customer needs, and more — the very promise of big data. “It’s the holy grail,” says Mike Rosenbaum, an executive vice president at Salesforce.com, which is powering part of Caterpillar’s network. But for a company that knows a thing or two about excavation, data mining shouldn’t be much of a stretch.

This story is from the October 28, 2013 issue of Fortune.

Tungsten, one of the hardest metals in the world and used for everything from drill bits to light bulbs to touch screens, is suddenly hot. Much of the increased demand is coming from China, which just happens to hold the world's biggest reserves. The country is hoarding mineral resources by reducing exports, according to mining strategist Christopher Ecclestone of Hallgarten & Company, as it produces more of its own precision tools using the metal. "China wants to keep more of the good stuff for itself," he says.

With the Chinese tightening their grip and a general uptick in demand, prices have soared to about $20 a pound, double from a few years ago. That has the relatively small number of tungsten miners, such as Malaga and Woulfe Mining, ramping up activity. Malaga is currently sending one container, which is about 28,000 pounds, of tungsten per week from its Pasto Bueno mine in Peru, according to CEO Pierre Monet. To meet the pressure for more material, he says the mine would have to up its production to five containers per day.

Other mining companies such as Woulfe are capitalizing upon mines that shut down in past years when prices were a lot lower. In 2009, Woulfe acquired a one-time leading tungsten producer, South Korea’s Sangdong mine, years after it had closed in 1992. Now the company is in a race to bring Sangdong back online while prices stay high. Woulfe hopes to have the mine in production by the first quarter of next year, says CEO Brian Wesson. But the company, like the rest of its sector, has been in a fight to get the capital it needs to fund the project.

Though tungsten use is spread across a wide range of industries, the quantities involved are still relatively small. There's been little historical interest in the U.S., and few mining analysts cover the material. (Malaga and Woulfe are both based in Canada.) According to Ecclestone at Hallgarten, the long lag time with mines from investment to production has kept investment interest in them relatively muted and their valuations low.

But that could change if executives are right in predicting that tungsten prices stay at high levels for the long haul. The U.S. is paying more attention to strategic metals and recently sued the Chinese government for its export restrictions of “rare earth” minerals, And now Warren Buffett is getting in on the act.

IMC Group, a subsidiary of Buffett’s Berkshire Hathaway brk.a that holds a diverse portfolio of metalworking companies, recently invested $70 million in Woulfe's South Korean tungsten operations. Half that money goes to the mine itself, with the rest helping to finance a nearby plant for processing the raw material, Woulfe CEO Wesson says. The processed tungsten will then be used by units within IMC.

Mining for a partner

The historical model has been for a mining company to have one project in a given rare metal, with diversification coming from other mines of different minerals. Woulfe, for example, also owns a gold mine, the Maguk project, in South Korea. But Ecclestone says he would not be surprised to see consolidation among tungsten producers. "There are 15 players in the space each with one project, and there should be seven with two projects each." Malaga CEO Monet also notes that there is a limited pool of experienced mining experts capable of starting a new mine from scratch.

Any merger and acquisition activity, however, returns to the question of capital, and the industry can only hope that Berkshire Hathaway proves ahead of the curve in opening up funding. The success of the venture, however, will ultimately depend on the price of tungsten in the months after Sangdong goes operational. Ecclestone says his analysis shows little reason to believe prices will "go bad" anytime soon. But China poses potential headaches for Woulfe and IMC if it tries to manipulate the price.

"As a competitor to China, you're in the cage with the 800-pound gorilla," Ecclestone warns. But it's a cage match that Berkshire Hathaway has bet it can win. Tungsten futures, anyone?

A shorter version of this story appeared in the April 9, 2012 issue of Fortune.

Few weekenders making the four-hour run from L.A. to Vegas notice the big mill works overlooking Interstate 15 at Mountain Pass Summit in California, near the Nevada line. Even fewer realize that the pale-pink buildings, gone patchy with age, are the focus of an extraordinary business drama that involves national security, China's monopolizing the strategic market in rare-earth metals, and one company's attempt to restore American preeminence in a crucial mining sector it once dominated.

Those sprawling buildings are owned by a Denver mining company called Molycorp MCP , which is now spending nearly $1 billion to restart rare-earth-mineral production at Mountain Pass Summit and in the process revive a moribund U.S. industry. It won't be easy. A decade ago the U.S. was the world's biggest supplier of lanthanides, scandium, and other rare earths, and the Mountain Pass mine was the world's largest producer of the minerals. Rare-earth elements enable the creation of super-magnets, which operate at high temperatures and are also used for a range of high-tech applications, from missile-guidance systems to compact fluorescent light bulbs to wind power turbines to motors in electric vehicles. Ironically, rare-earth minerals aren't really rare; they get their name because they are spread widely throughout the earth's crust in small concentrations that in most cases can't be mined economically. In all, there are 17 rare-earth elements, which are typically found in varying proportions in the same ore deposits. China, with the world's largest supply, has been ramping up production over the past two decades, leading to steep price drops that eventually forced the Mountain Pass mine to shut down operations in 2002. China now controls 97% of the market.

Over the last year, however, the Chinese government, which views rare earths as a key element in its move from a low-cost producer of cheap manufactured goods to a high-tech powerhouse, has drastically reduced its export quotas, particularly for the heavy rare earths, like terbium and dysprosium. That sent prices through the roof last summer: At one point the price of dysprosium, used in the manufacture of advanced lasers, more than doubled in a week, and overall rare-earth prices shot up 1,500% from 2009 to 2010, to an all-time high.

Wanting to capitalize on the rare-earth shortage, Molycorp, backed by $1 billion in private equity from Resource Capital Funds in Denver, began selling rare earths at its California mine in October and soon after announced third-quarter net income of $43.7 million, vs. a loss of $10.1 million a year earlier.

Running such an operation is not cheap, so CEO Mark Smith, a mining veteran who has spent nearly a quarter-century working on Mountain Pass, took the Denver-based company public last year, raising $379 million. When Molycorp stock reached its peak of $77 a share in early May, it was the most successful IPO of 2010 as measured by share-price increase since going public.

Since then the stock, which has a $3 billion market cap, has suffered a cave-in, dropping some 56%. Why? The rare-earth "crisis" has generated an old-fashioned gold rush, as miners in ore-rich countries like Australia, Kazakhstan, Mongolia, and even Afghanistan announced plans to bring new supplies to market. Influential minerals forecaster Dudley Kingsnorth of Industrial Minerals of Australia, reduced his prediction for 2015 demand by nearly 13%. Stock-trading blogs now talk of a "rare earths bubble." Manufacturers in Japan and elsewhere, hesitant to trust their future raw materials supply to China, have embarked on an aggressive R&D search for rare-earth substitutes. That search could pay off in a few years.

With all the bad news piling up, Molycorp, a once highly touted company, now looks increasingly like a billion-dollar roll of the dice.

A customer for every bucketful

Standing on the edge of the open pit into which his company is pouring all that cash, Smith appears unfazed by recent developments. Yes, more suppliers are coming online, but he argues, "Look, we just do not see any way that the market for rare earths is going to reach equilibrium between now and 2015."

Ruggedly built, with steel-gray hair that matches the frames of his fashionably narrow eyeglasses, Smith looks as if he could be an NFL head coach. He was, in fact, a promising defensive back, planning on playing for the Colorado School of Mines until a knee injury ended his football career. He wound up graduating from Colorado State and getting his law degree from Western State University in California, and has worked as an attorney for the mining industry ever since.

Five hundred feet below him, ground water at the bottom of the mine shines a vivid green. Along the terraced sides, rare-earth deposits appear in gray bands amid the reddish brown of the rock. A pair of uranium prospectors found the Mountain Pass lode in 1948 and formed the Molybdenum Corp. of America. The rare-earth elements had little value until the advent of color TV in the late 1950s, when they became prized as phosphors to brighten the screens. By the early 1980s U.S. production had reached almost 40,000 metric tons a year, but already Chinese mines — mostly in the country's far west, in Inner Mongolia — were catching up. "The Middle East has oil," Chinese leader Deng Xiao Peng reportedly remarked in 1987. "China has rare earth."

After the Chinese flooded the market with cheap rare-earth minerals, forcing Molycorp to close its mine, Chevron CVX acquired the property in its takeover of Unocal in 2005. Three years later Resource Capital Funds, led by Ross Bhappu, the former head of business development at mining giant Newmont NEM , bought the mine, invested $1 billion, and hired Smith to lead the re-formed Molycorp. Their foresight was admirable: By 2009 plenty of people who months earlier wouldn't have known a lanthanide from a Land Rover were sounding alarms about the rare-earth shortage as the Chinese tightened exports. In July the World Trade Organization ruled that China's export quotas violated international trade law. But the Chinese government, saying that it's cleaning up dirty mines and eliminating black-market ones, has publicly said it will continue to tighten exports.

China will export around 24,000 metric tons this year, down from 38,000 a year ago, Smith explains. The rest of the world needs about 57,000 metric tons. Working from stockpiled ore alone, Molycorp will produce 5,500 to 6,600 tons this year. That leaves a gap of around 27,000 tons, a hole big enough, Smith believes, to keep prices inflated for the next several years.

Smith's confidence in part is that of a seller with a guaranteed customer base. "Every bucketful we pull out already has a customer," he says. What's more, if China follows through on its declared intentions, it will soon devote all of its rare-earth production to the domestic market, which accounts for close to 60% of world demand. That leaves a still-healthy $500 million market to be satisfied in the rest of the world.

In August, Molycorp opened an office in Tokyo, where most of its biggest customers have their headquarters. And the company has moved quickly to shore up what many industry observers say is its biggest weakness: While most of the ore at the Mountain Pass mine is rich in lighter rare earths, the real worldwide shortage (along with the highest prices) is in the heavies: terbium, dysprosium, europium, and a few others. In September — not long after a J.P. Morgan analyst downgraded Molycorp shares — the company said it had found a new deposit a few miles from Mountain Pass, on federal land where Molycorp owns mining permits, that is rich in the heavy rare earths.

Smith also says he is banking on new, environmentally sound mining technology that promises to lower prices. When Molycorp is finished replacing its milling and refining facilities at Mountain Pass, it claims it will not only be the cleanest producer of rare earths in the world (the original mine was dogged by environmental violations stemming mostly from its wastewater, which was radioactive because of small amounts of thorium and uranium found in the ore), but also the world's lowest-cost producer. Since adding environmental safeguards usually adds to the cost of any extraction process, that would be a remarkable feat.

John Burba, Molycorp's chief technologist, explains it this way: Rather than using expensive, trucked-in chemicals to separate the rare earths from the ore, the company will use recycled saltwater, a byproduct of mining. And instead of buying expensive electricity off the grid, Molycorp is going to produce its own energy: Vanderweil Engineers is building on the mining site a 49-megawatt power plant, fired with cheap natural gas from a nearby pipeline. The old Molycorp used to dump its tailings in a slurry behind a dam. Now it will use a high-pressure system to squeeze out most of the water, leaving behind a "paste" that will be reburied in what's essentially a 90-acre landfill just west of the pit mine. All told, the company claims it will produce rare earths for $1.25 a pound. China's cost is $2.53 a pound, while some experts believe that production from Australian mines, owned by Molycorp rival Lynas, will cost a whopping $4.59. "We've been through the situation before where we weren't the low-cost producer in the world," says Smith, referring to the 1990s, when Mountain Pass was undercut by Chinese rivals. "We didn't like it."

Meanwhile, Congress has taken up the issue of China's rare-earth monopoly. No fewer than nine bills that would support the resurgence of the U.S. rare-earth industry are pending or awaiting introduction. Counting on the currently gridlocked Congress to take action — even on an issue of national economic competitiveness — is like believing you can beat the house at a Vegas casino. So there sits Molycorp, pushing ahead, placing that billion-dollar bet on its own.

–Richard Martin is the editorial director for Pike Research. His book on thorium power will be published by Macmillan Science in April 2012.

This article is from the December 12, 2011 issue of Fortune.