Molycorp Inc. (NYSE: MCP) shares are surging 15.62 percent in mid-day trading after it signed an agreement with Hitachi Metls Ltd. of Japan that may lead to the production of rare earth magnets in the U.S. sometime next year.

Under terms of the pact, Molycorp and Hitachi will form a joint venture that will produce alloys and magnets made of neodymium-iron-boron (NdFeB).

Molyorp’s mine property in Mountain Pass, Cal, would provide the raw materials required for the magnets.
It is believed that China controls about 97 percent of the world’s supply of rare earths. In October, China hinted it might reduce exports as political tensions with Japan arose.

The parties are expected to sign definitive agreements for the alloy joint venture by early April 2011. Signing of definitive agreements, subject to a feasibility study and other conditions, for the joint venture to produce rare earth magnets would follow later in 2011.

“We are very pleased to have reached agreement in principle with Hitachi Metals, the world's leading manufacturer of rare earth magnets, to launch these joint ventures,” said Mark Smith, Molycorp’s chief executive officer. “These joint ventures are an integral part of Molycorp’s ‘mine-to-magnets’ business plan, and they move our Company and the United States one step closer to realizing the strategic goal of re-establishing a complete rare earth manufacturing supply chain in the U.S.”

Molycorp had its initial public offering in July in order to finance operations art Mountain ass. Shares have more than tripled ever since.