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The Number One Reason America Needs to Strengthen Its Domestic Rare Earth Mining Industry

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Bloomberg recently reported that "China has become the world's leading supplier of components crucial to U.S. defense systems, products once supplied by American companies such as Magnequench Inc. and Molycorp Inc."

Deng Xiaoping made Chinese rare earths extraction a priority, and the country now produces 97% of the world's supply.

Those components are rare earth minerals, specifically neodymium, which is used in the tiny magnets that direct smart bombs dropped by US military aircraft, silence helicopter rotor blades, and target guns in tanks.

So, it's not just an economic issue now. It's a national security issue.

In late September's diplomatic row with Japan, China slowed down exports of rare earths, which the Japanese use in high technology products. But, even before that, Bloomberg says, "China had put a new cap on the amount of rare earth exports shipped out each year. The quota for 2010 is expected to be met this month. The new limits on exports have sent countries scrambling to look for new sources of rare earth elements and minerals," as it is now taking 10 weeks--double the previous wait time--for delivery.

Then, this week, Chinese Prime Minister Wen Jiabao suddenly--magically--became an environmentalist.

“China is not using rare earth as a bargaining chip,” Mr. Wen said. “We aim for the world’s sustainable development. What we pursue is to satisfy not only domestic demand but also the global demand for rare earth. We should not only stand from the present, but should also look forward to the future.”

Is China this far ahead because its the only place where rare earths are found?

Nope. Rare earths are actually not "rare" as the name would have you believe. The problem is that there aren't many countries that have developed the technology to extract large amounts.

There are rare earths right here in the States. The US has the second-largest deposits in the world, after China. Australia also has large resources of rare earths.

“It’s amazing how this issue seems to have caught the country off guard,” US Representative Mike Coffman of Colorado, who was a U.S. Marine Corps infantry officer, told Bloomberg. He noted that China’s capabilities have expanded significantly since 2001, when the U.S. Army canceled plans to buy Chinese-made berets under pressure from Congress. “How ironic is that we were concerned about berets?”

Take a moment to watch the video below. While gold is grabbing the headlines, we might want to focus on mining an extremely important resource central to the safety of our country.

POSITION:  No positions in stocks mentioned.