Jim Kennedy’s $1 billion plan to break a Chinese monopoly

MEDIA

Four years ago, Jim Kennedy was clearing out the dusty administrative building at his Pea Ridge iron mine in Sullivan, Mo., when he happened upon seven bankers boxes left behind by previous owners. He almost threw them out, but the manila folders inside caught his eye.

Kennedy started reading. It was only then he discovered that the waste rock outside his door and the slate gray earth beneath his boots contained a more intriguing, and scarcer, resource —one he says has the potential to transform the region.

Piled up in Pea Ridge’s old tailings lake and buried underground are unusually high concentrations of so-called rare earth elements (REE). Geological studies indicate Kennedy’s property is home to some $3 billion worth of known “rare earths” reserves. What’s more, Pea Ridge is one of only two permitted REE mines in the country.

But he encountered one major hitch. There is virtually no place on Earth to refine these valuable metals outside of China.

Now Kennedy has the backing of U.S. Sen. Kit Bond and is working to strengthen support from U.S. Rep. Russ Carnahan and other lawmakers for federal legislation that would establish a public-private REE cooperative and appropriate much of the nearly $1 billion it would cost to build a state-of-the art refinery and reduction facility in Missouri. The refinery would create about 300 full-time jobs and attract about 6,000 more as a magnet for technology companies that depend on rare earths supplies, he estimates.

Sporting exotic names like dysprosium and ytterbium near the bottom of the periodic table, rare earths possess unique physical properties that make them essential to high-performance alloys used in all sorts of sophisticated products. Missile guidance systems, next-generation radar, lasers, hybrid car batteries, high-strength magnets used in wind turbines and a growing list of other specialized items rely on REE, as do many more common devices such as smart phones, computer hard drives and fiber optic cables.

“There aren’t too many places that have the amount of reserves that they have,” Cheryl Seeger, chief of the geologic investigations unit for the Missouri Department of Natural Resources’ Division of Geology and Land Surveying, said about Pea Ridge. “It is a tremendous resource and could be really important for Missouri.”

Kennedy, who operates St. Louis-based mining company Wings Enterprises Inc., is proposing a domestic REE refinery that would serve as a counterpoint to China’s monopoly, and he wants to build it in Missouri.

An advisory board consisting of representatives from the U.S. Geological Survey; the Defense Department; the Society for Mining, Metallurgy & Exploration trade organization; rare earths users and others would help identify potential REE reserves worth exploring and mining.

The refinery’s nine-figure price tag, combined with China’s ability to manipulate the REE market to neutralize competitors, presents significant risks to private investors.

That is why Kennedy, 47, insists government support is necessary to build a modern REE mining and refining industry in the United States. With so much at stake, he argues, this is an investment the country can’t afford not to make.

National security and economic concerns about REE supplies have been growing over the past decade. But the issue is now gaining attention in Washington. Hearings are being held, and a couple of rare earths-related bills have been introduced in Congress this year. One was scheduled to be considered by the House Committee on Science and Technology on Sept. 22.

A Carnahan spokeswoman said the congressman, who sits on that House committee, is “working with colleagues to explore the potential that these minerals could represent.”

Bond, one of Kennedy’s strongest supporters, took a firmer stance. “Just like we cannot afford to be dependent on foreign oil cartels for our nation’s energy, counting on any one foreign competitor to supply all of America’s rare earth needs, which are so crucial to not only today’s but also tomorrow’s technological innovations, is too risky a bet,” Bond said. “It is critical we have a domestic source of rare earth minerals, a necessary component for a number of technologies that Americans are increasingly dependent on.”

Missouri, Kennedy argues, is uniquely situated to support a central processing hub for rare earths mined here and throughout the Western Hemisphere. Rare earth deposits have been identified in California, Idaho, Montana, Colorado, Utah and Wyoming, as well as in Canada and Brazil. Mountain Pass in the Mojave Desert is the largest rare-earth mine outside of China. But few deposits, including Mountain Pass, hold large concentrations of heavy REEs, a group of elements in the rare earths family that are considered the most important and valuable.

Pea Ridge, by contrast, features a smaller overall deposit but offers higher concentrations of heavy REEs than perhaps anyplace else in the world, according to third-party surveys performed at the mine.

Missouri’s central location; access to cross-country river, railroad and highway transportation routes; and existing industrial Brownfield sites along the Mississippi River that could serve as the refinery’s home give the state a competitive edge. Pea Ridge also holds permits that other potential mines would probably need years to secure. A U.S. Government Accountability Office report in April found “once a company has secured the necessary capital to start a mine, government and industry officials said it can take from seven to 15 years to bring a property fully online, largely due to the time it takes to comply with multiple state and federal regulations.”

If he can see his vision through, Kennedy and his supporters suggest a REE refinery here would help attract a number of REE-dependent manufacturers and military contractors to the region.

“We could become a new Silicon Valley,” Kennedy said. “We would emphasize the green technology side, but the reality is there are also a lot of defense opportunities. This could present an incredible leverage position for Missouri. If we can get the right language in the legislation, this is ours to lose.”

From Investor to Prospector

Jim Kennedy had never even heard of rare earths a few years ago.
Since his discovery of the minerals at his Pea Ridge Mine, though, he’s immersed himself so deeply in the field that he’s invited to speak on the subject at industry conferences, and he does so with the command of a trained geologist.
One of eight kids, Kennedy said he barely made it out of Kirkwood High School as a D- student. He joined the Army and became a member of its Special Forces. That experience, he said, helped him straighten up. When he out got of the service, he enrolled at Meramec Community College and began working with his father, Jerry Kennedy, who had left an engineering career at Monsanto to start his own investment firm, Kennedy Capital.
Kennedy transferred to Washington University and earned a bachelor’s degree from the Olin School of Business in 1989 before earning a master’s in political economics at Wash. U. four years later.
He became a big producer at Kennedy Capital, bringing in about $300 million in new accounts, he said. But over the next 14 years he soured on the business, concluding, “I don’t like capital markets. I think they are destructive.”
In 1999, a year after his father died, Kennedy’s family sold the business to its employees. The bulk of the money went to his mother, and Kennedy walked away from his career in finance.
He and his wife, Nina Abboud, bought a farm, then an excavation company, which led to work with Pea Ridge’s previous owners as an environmental reclamator. When the iron mine wound down as prices fell, Kennedy and Abboud took a chance. They borrowed about $1 million and bought the scarred 2,240-acre property tucked among rolling wooded hills off state Route 185, a winding road paved with Pea Ridge rock.
They have since invested another $15 million in borrowings and operational cash flow into the mine, Kennedy said, and are working to secure financing to upgrade the facility and produce pig iron for steel mills.
While iron mining remains Kennedy’s key economic driver at Pea Ridge, rare earths have become his passion, taking him to Washington, D.C., and beyond to urge the development of a secure domestic supply.