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* Molycorp buys Santoku America in $17.5 million deal
* Molycorp to start producing rare earth alloys, metals
TORONTO, April 18 (Reuters) - Molycorp MCP.N said on Monday that it had bought rare earth metal and alloy maker Santoku America Inc, as it looks to expand into the more valuable magnet market.
Rare earth miner Molycorp said it bought the Arizona-based division of Japan's Santoku Corporation in an all-cash deal for $17.5 million. The deal closed on Friday.
With the deal, Molycorp will immediately start producing the rare earth alloys needed to make rare earth magnets which are essential to a technology applications like hybrid cars, wind turbines and smartphones.
"We are very pleased with this acquisition," said Molycorp Chief Executive Mark Smith in a release. "It ... accelerates our plans to deploy a fully integrated 'mine-to-magnets' manufacturing supply chain in the U.S."
Molycorp owns the Mountain Pass mine in California, which produced around 40 percent of the world's rare earths in the early 1990s. The mine shut down in the late 1990s.
China produces around 95 percent of the world's rare earths. Recent embargoes have sent the prices for the individual oxides soaring, prompting a push for rare earth mines and processing facilities outside of China.
Molycorp produces about 3,000 tonnes of rare earths a year from stockpiled material. Mountain Pass is set to reopen this year and the company plans to produce 40,000 tonnes of rare earths annually by 2013.
Reporting by Julie Gordon, Editing by Janet Guttsman