When the federal government announced last week an Australia-based company had won a multimillion defense contract, the news echoed in a small farming town 40 miles west of San Antonio.

The Department of Defense awarded Lynas Rare Earths, the largest such mining and processing company outside of China, a technology investment agreement worth $30 million to establish U.S-based processing capabilities for light rare-earth elements.

The facility will be located in the city of Hondo, the seat of Medina County with about 9,000 residents, where a familiar welcome sign has long greeted drivers with a warning: “This is God’s country. Don’t drive through it like hell.”

The Feb. 1 announcement of the contract took local officials by surprise and sparked concerns from residents about the facility’s potential to cause air pollution and water contamination, despite the possible creation of 100 new jobs.

Rare-earth elements are what make your iPhone vibrate when it rings and enable hard drives to be smaller and more efficient. But there are many uses for the group of 15 minerals used in military equipment and consumer electronics.

China produces about 97 percent of the world’s rare-earth elements. The DOD contract is the result of a 2017 executive order signed by then-President Donald Trump to ensure secure and reliable supplies of rare-earth elements. 

Lynas is partnering with San Antonio-based Blue Line Corp. to develop rare-earth separation capacity in the U.S. An independent rare-earths processor, Blue Line acquired the large industrial site in Hondo for a separation plant in 2010. 

A cluster of Blue Line-owned warehouses at 1305 Carter St. is situated near a regional airport and Southwest Gulf Railroad’s 9-mile Medina Line, completed in 2019 for the initial purpose of transporting limestone from a nearby Vulcan Materials Company quarry to Union Pacific Railroad routes.

A message sent to Blue Line President and CEO Jon Blumenthal was forwarded to a Lynas spokeswoman for response. 

“We believe Texas and Hondo are excellent locations for a Rare Earths processing facility and will both serve our U.S. customers and support the U.S. government’s moves to strengthen its industrial base and make supply chains more resilient,” she said. 

Pending final agreements, Lynas also plans to establish a heavy rare-earths separation facility adjacent to the light rare-earths facility in Hondo, the spokeswoman said. 

The Hondo facility will complement Lynas’ existing Australian and Malaysian operations, and when complete, Lynas will be capable of producing 25% of the world’s supply of rare-earth element oxides, according to the Pentagon. 

Lynas officials are entering a planning phase for the project and will consult with the City of Hondo to determine if the selected site is appropriate for its needs, said the spokeswoman. The DOD agreement funds the project with $30 million and calls for Lynas to contribute another $30 million.

Details surrounding transport of materials in and out of the plant have not been determined, she said, and Lynas is conducting an economic impact assessment to determine how many jobs are being created through the facility.

Hondo Mayor James Danner told the San Antonio Report that city officials were surprised by the announcement “even though we have been in negotiations with … Blue Line for several years.” Medina County Judge Chris Schuchart did not return a call seeking comment.

After Hondo’s economic development council announced the contract in a Facebook post, county residents expressed concerns over pollution arising from the plant.

A 2012 study of rare-earth element production by the Environmental Protection Agency stated that mining and processing activities “have the potential” to create a number of environmental risks to human health and the environment.

Lynas places a premium on adopting international best practices to ensure that we are safe, said the Lynas spokeswoman, adding that the company has an “excellent track record” complying with local laws and regulations. In an FAQ document Lynas created for the Hondo project, the company states the material at the proposed plant will not be radioactive.

“First of all, we’re trying to calm our citizens down,” Danner said. “What’s not known is this project has been discussed by the city and by Blue Line first and then Lynas for several years.”

He said conversations with Blue Line began 10 years ago when the company first partnered with another rare-earth materials business that eventually went bankrupt.

“So [Blue Line] has been stalled out for a good period of time,” Danner said. “But several years ago the Lynas thing came into effect … [and] what I’ve tried to tell the citizens is there is absolutely nothing that has been confirmed at all [between Lynas and Blue Line] in partnering up and trying to bring the facility to Hondo.”

Hondo officials met with both companies again on Monday, he said, and the city council met in executive session to discuss the project, which could bring 100 jobs to the region.

But the project would also increase discharge into the city’s wastewater system, according to a report by the Hondo Anvil Herald, requiring an upgrade to the wastewater plant that could cost up to $14 million.

The council will also address residents’ concerns about pollution, Danner said, with a thorough analysis by city engineers. “We will not allow anything to come into our system that’s not safe,” he said.

The council also discussed the project’s water needs, he said, as all new developers are required by law to supply their own water.

“We have adequate water to take care of growth for a period of time, but we’re not going to use that reserve capacity to aid one company to come to town,” Danner said. “We have other folks wanting to come to Hondo that would create that kind of jobs without those types of requirements.”

Indeed, developer interest in Hondo keeps growing. “We have a lot of land, we have rail to it, and airport capacity,” Danner said. “So it is kind of a sleeping giant out here for industrial growth.”

Shari Biediger has been covering business and development for the San Antonio Report since 2017. A graduate of St. Mary’s University, she has worked in the corporate and nonprofit worlds in San Antonio...