Faced with higher Chinese export restrictions for critical rare earth elements, Pentagon officials are pinning their hopes on a California mine previously closed largely because of environmental concerns.

Indeed, the U.S. has no domestic supply nor a strategic reserve of rare earth elements that remain vital for a wide range of American defense systems, from Predator unmanned aerial vehicles to precision munitions to missile guidance systems.

However, that is set to change as early as the end of this year, when Molycorp Inc. reopens production of its Mountain Pass mine in southern California.

When the mine closed in 2002, that left China with a virtual monopoly on the 17 elements that comprise the rare earths. These elements also have significant civilian technology applications, such as in batteries for electric cars, wind turbines and smart phones.

Pentagon officials have said they see Molycorp as a potentially significant source of rare earths and intend to look to markets, rather than a strategic stockpile, as their source of rare earths. Molycorp officials have mentioned the Pentagon’s needs as a prime reason to reopen the mine.

The company would seem to have an excellent insight into the Pentagon’s materials acquisition. Charles R. Henry, a retired U.S. Army major general, serves on Molycorp’s board. From 1988 to 1992, he was the Pentagon’s top business general, overseeing billions of dollars of contract management.

In the meantime, however, China has worried global markets by decreasing its rare-earths export quota by around 70 percent in recent months. Those decisions have escalated the focus on Molycorp.

In turn, these developments help explain why the company’s stock has soared since the firm first issued shares to the public last July at around $14. Molycorp stock recently sold for around $47 a share, for an increase of 235 percent in less than a year.

Senior Molycorp officials have indicated the buying panic increasing share prices reflects a much larger concern about stable supplies for rare earths amid China’s tightening stranglehold. Accordingly, the company recently said it intends to double initial production to 40,000 tons by the end of 2013.

“The initial impression we’ve gotten from all our customers is that there absolutely is an overwhelming demand for these materials,” said Mark Smith, chief executive of the Denver-based firm.

Smith said he doesn’t expect much difficulty in raising the additional $250 million for the targeted higher production run. He also said Molycorp is currently talking with investment bankers regarding the possibility of issuing more stock or obtaining more debt. It also is negotiating with a wide range of potential joint venture partners, Smith said.

To obtain the $530 million the company needed for its original production goal of 20,000 annual tons, Smith said Molycorp raised about $380 million from the initial public offering. Last December, Sumitomo Corp. of Japan agreed to provide another $100 million in an equity investment and $30 million in low-interest debt, Smith said.

Industry analysts say raising the money may be easier than getting the rare earths out of the ground. Company officials acknowledge they face obstacles in hitting a high production rate.

“The bigger issue is really how to build a brand-new facility and go from zero production to 40,000 tons a year,” Smith recently told an interviewer for a Bloomberg financial television show. “That is not an easy thing.

“Rare earths processing is a very, very complicated process. It takes a lot of time to get the circuits into a steady state production. We have to do it very, very carefully. We have to do it very methodically and with very good chemical engineering principles.”

Meanwhile, a Canadian exploration company hopes to tap the rare-earth frenzy by opening a strip mine inside a national forest in Wyoming, a state known for its friendly attitude toward mining companies.

Don Ranta, chief executive of Rare Element Resources, says he is optimistic his Bear Lodge Mountain proposal will be approved.  Added Ranta, whose company is based in Vancouver, Canada, “everything we’ve seen so far looks very, very bullish for it to be a commercial project.”

John Kaiser, editor of the Kaiser Bottom Fish website that tracks global metals markets and mining companies, gives the proposed Bear Lodge Mountain project high marks. He says it ranks a close second to Molycorp’s Mountain Pass facility as North America’s best verified source of rare earth elements.