Skip to Content

How 2 American Rare Earth Companies Are Looking Past the Trade War—to Prepare for the Tech War

Round Top picRound Top pic
The Round Top mine site in Texas. USA Rare Earth

Outside El Paso in the far reaches of western Texas, where the population density dips to the lowest in the state, undulating brown mountains rise out of the desert. One of them, Round Top Mountain, sits atop a treasure that belies its unassuming appearance: a rich collection of rare earth elements, including the largest deposit of heavy rare earths in the U.S.

Today, China controls around 85% of the global supply of the coveted "tech metals," which are indispensable to smartphones, missile systems, wind turbines, electrical vehicles, and oil drilling, among many other uses. A May 2018 U.S. government report noted that American dependency on foreign imports of critical minerals like rare earths "creates a strategic vulnerability for both its economy and military."

Two companies, Texas Mineral Resources Corporation and USA Rare Earth, are launching a joint venture to change that by extracting rare earths from Round Top, which has never been mined before. They aim to become the sole supplier of heavy rare earths for the U.S. Department of Defense and help move government and commercial markets in the U.S. away from their reliance on China, which currently supplies 80% of the rare earth materials imported to the U.S.

"Not only can Round Top potentially supply what U.S. defense requires, but also manufacturing, the electrical vehicle sector, clean energy, et cetera." says Pini Althaus, the CEO of USA Rare Earth.

Some rare earths are heavy and some are light, depending on their atomic number, and the two have different applications. Round Top's high level of heavy rare earths gives it a market advantage: China uses a lot of the heavies it produces in domestic manufacturing, while Lynas Corporation, the second-largest rare earths supplier in the world, and Mountainpass Mine, the only major American rare earths producer, mostly produce light rare earths.

The Round Top mine site has 15 of the 17 rare earth elements, including all five needed to make magnets as well as several minerals on the U.S. government's critical minerals list, published last year.

The U.S. government's interest in diversifying its rare earth supply is spurred by fears that China will restrict exports to the U.S. to retaliate against tariffs. Chinese companies have hinted at doing so—in August, China's rare earth industry association said it was willing to weaponize rare earths to place the burden of U.S. tariffs on American consumers.

While China can produce enough to satisfy its domestic requirements, the U.S. is "heavily reliant", in the government's own words, on foreign imports for defense and manufacturing, especially from China.

USA Rare Earth's Althaus says that while China domestically produces "an obscene amount" of rare earth materials for advanced manufacturing, "the U.S. has zero." He says he thinks American reliance on Chinese rare earths will continue to be an issue even if the trade war is resolved.

"The trade war will likely end at some point in time, and that's not going to change the fact that there's this policy around stockpiling critical minerals," Althaus says, adding that it is an "absolute necessity for the United States to be self-aligned" and develop domestic production of rare earths materials.

With Round Top's projected mine life of up to 100 years, says Dan McGroarty, head of government affairs for USA Rare Earth, "we're not looking at what's happening next week or tomorrow, we're looking at demand curves and material science advances that are really going to be going on for, you know, as far as the eye can see."

"The trade war spiked the recent interest [in rare earths] but the tech competition, or the tech war, is the one that's really kind of unfolding and will continue to unfold," McGroarty says.

In recent months, the Pentagon has provided funding to an American startup that recycles rare earth magnets for reuse, and in June sent out a request for information from U.S.-based miners of rare earths. USA Rare Earth submitted a report, and is waiting to hear back.

"Round Top has the potential to be a game-changer for the U.S.," Althaus says. He says the targeted start for full production at the mine is 30 months from now.

More must-read stories from Fortune:

—Deutsche Bank CEO on European Central Bank: “Negative rates ruin the financial system”
One of Asia’s richest men is buying a British pub business right before Brexit
—A U.K court may have made police use of facial recognition easier
Uniqlo’s billionaire founder wants a woman to succeed him
—Listen to our audio briefing, Fortune 500 Daily
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.