By Ernest Scheyder
HOUSTON (Reuters) - The U.S. Department of Defense last month reversed its decision to fund two projects to process rare earth minerals for military weapons, one of which has controversial ties to China, according to a government document seen by Reuters and three sources familiar with the matter.
The Pentagon decision is a step backward for President Donald Trump's plan to redevelop the U.S. rare earths supply chain and reduce reliance on China, the world's largest producer of the strategic minerals used to build a range of weapons.
Australia's Lynas Corp (AX:LYC) and privately held U.S. firm MP Materials both said on April 22 they had been awarded funding by the Pentagon for rare earths separation facilities in Texas and California, respectively.
Reuters reported the same day that a Chinese company's minority stake in MP Materials, which owns the only U.S. rare earths mine, has prompted concerns from scientists at the U.S. Department of Energy.
Later that week, U.S. Senator Ted Cruz and five other senators sent a letter to the Pentagon pushing it to only fund U.S. rare earth projects.
On April 29, the Pentagon informed applicants that the decision had been "put on hold until further research can be conducted," according to a document seen by Reuters. Lynas confirmed the Pentagon's move in a statement on Friday.
MP Materials did not respond to requests for comment.
The document added that the Pentagon plans to move forward on the award once the additional research is complete. It was not clear what type of further research the military could conduct.
The U.S. military office overseeing the award said it is still under active solicitation and declined further comment. The Pentagon's headquarters did not respond to requests for comment.
The Pentagon award was designed to support processing of so-called heavy rare earths, a less-common type of the minerals used extensively in weapons.
The mines owned by Lynas in Australia and MP Materials in California have only minor concentrations of heavy rare earths, according to U.S. Geological Survey data, prompting some controversy when the two companies last month said they were chosen.
U.S. Senator Mike Enzi, a vocal supporter of a rare earths project in his home state of Wyoming being developed by Rare Element Resources Ltd (PK:REEMF) and who signed the senators' April letter, said he would prefer Pentagon funding go to U.S. mines that support a new U.S. rare earth supply chain.
Enzi had privately complained to the Pentagon last fall that it was difficult for companies to apply for the award and, once they did, that the application review process was not transparent, according to his spokeswoman. The Pentagon extended the deadline in an attempt to appease Enzi, though his home state's rare earth project was not chosen.
Lynas, the largest producer of rare earths outside China, aims to ship rare earths from its mine in Western Australia for final processing at the Texas facility.
Reuters has reported the Pentagon is also reviewing applications for other rare earth-related funding projects. Applicants have said they expect decisions in the coming months.
The amount awarded was not published by the U.S. government, though the funds were allocated for planning work for the construction of a facility to process the minerals.
Lynas, in a statement on Friday, said it would move forward on its project. It was not immediately clear if MP Materials plan to move forward on design work for its project.