Rep. Jerry Lewis (R-Calif.) inserted the earmark for the mine into the House Defense appropriations bill. | John Shinkle/POLITICO Critics blast $3M mining handout

A mining company owned by Goldman Sachs and two private equity funds is in line to get a $3 million earmark for work at a rare earth elements mine in Mountain Pass, Calif. — raising questions as to why Congress would take on some of the risk for a bailed-out investment giant that’s already making a profit.

Molycorp Minerals’s open-pit mine is one of the world’s richest sources of elements that are used in the production of powerful magnets for precision-guided missiles and smart bombs, handheld communication devices, wind turbines and hybrid cars.

Rep. Jerry Lewis (R-Calif.) inserted the earmark for the mine into the House Defense appropriations bill, and backers say it’s a legitimate national security concern. The military needs rare earth elements, and China — which is rich in them — has threatened to cut off exports.


But some government watchdogs question whether taxpayers should be asked to prop up a project that is already funded by wealthy investors who expect to make a profit.

“It’s probably good business, and we probably don’t need to subsidize it,” said Ryan Alexander, president of the nonpartisan Taxpayers for Common Sense.

Moreover, Alexander said, if getting the elements from the mine is really a national security issue, then the funding request would have come through the Department of Defense — and not through a lawmaker’s earmark.

“If this is critical to national security, and the private equity firms that own Molycorp can’t find another $3 million to meet the needs of the Mountain Pass mine, there still is no excuse for this being an earmark,” Alexander said. “DOD can request programmatic funding so those funds are weighed against other security priorities rather than being singled out by one member of the House Appropriations Committee.”

Lewis, the top Republican appropriator in the House, insists that both the project and the government backing are necessary.

“The United States has some of the most extensive deposits of these minerals in the world, but the cost of production has made it difficult to attract private investment,” said Lewis’s spokesman, Jim Specht. “The $3 million from the Department of Defense will jump-start this investment, as well as provide a clear signal that domestic production of rare earth metals is a national security priority.”

The primary owners of Colorado-based Molycorp are Goldman Sachs and the private equity firms Pegasus Partners and Resource Capital Funds. Goldman received $10 billion in bailout funds last October and has since paid the money back.

But now Molycorp plans to combine $3 million in federal money with $20 million in private investment to build a “mine to magnets” operation that would handle all of the processes from extraction to manufacturing.

Why all the sudden interest in rare earth elements from lawmakers and heavy financial hitters?

China is the dominant producer of rare earth metals, and its threat to stop exports touched off a scramble to find new sources — or, in this case, an old source that could be refurbished and expanded to ensure the United States isn’t dependent on a rival for vital technologies.

A Molycorp presentation for members of Congress contends that the U.S. must close a “capability gap” from mining to magnet production to avoid being dependent on China. It lays out a timeline between now and 2015 for getting facilities online that would produce metal and magnet powder, culminating in the construction of a magnet production operation.

Andy Davis, who lobbies for Molycorp out of McBee Strategic, said the government’s help will shorten the timeline for expanding the company’s operations.

“What this funding does is help to accelerate this process,” Davis said.

He also said the company is “taking enormous steps” to ensure environmental safety at a mine that spilled hundreds of thousands of gallons of contaminated water in 1996.

Ultimately, the earmark’s fate rests in the hands of the Defense appropriators who will meld the House and Senate versions of the bill into a final product later this year.

Defense authorizers in both chambers have approved Defense Science Board studies that would report on supplies of rare earth elements and their relationship to national security.

But Bill Allison, senior fellow at the Sunlight Foundation, says the government should get a share of the action if it’s going to back a Goldman Sachs venture.

“It would be nice to see taxpayers getting something out of it other than a bill,” he said.

A spokesman for Goldman Sachs declined to comment.