OS ANGELES (Reuters) - The future of wind farms and hybrid cars may well hinge on what happens to a 55-acre (22.3-hectare) hole in the ground at the edge of California's high desert. The open-pit mine at Mountain Pass, California, holds the world's richest proven reserve of "rare earth" metals, a family of minerals vital to producing the powerful, lightweight magnets used in the engines of Toyota Motor Corp's Prius and other hybrid vehicles as well as generators in wind turbines. Seeking to replace China as the leading supplier of these scarce materials, Colorado-based Molycorp Minerals LLC plans to reopen its long-idled quarry to resume extracting and refining thousands of tons of rare earth ore in the next few years. Last month, Molycorp reached a joint venture deal with Arnold Magnetic Technologies Corp. of Rochester, New York, to make "permanent" magnets from rare metals at Mountain Pass. Backed by hundreds of millions of dollars from equity investors, including Goldman Sachs, Molycorp aims to avert a looming rare-earths supply crunch that threatens to muffle the green-technology boom. "The world has been looking for an alternative to these rare-earth permanent magnets for over 20 years, and one has not been found," Molycorp chief executive Mark Smith said. "What Molycorp is proposing as a business strategy is to fill that supply chain and go all the way from mining to magnets." Success hinges on Molycorp's ability to operate the mine and its processing facilities much more efficiently than in the past. At the peak of its operations two decades ago, the mine produced 20,000 tonnes of rare earth oxides a year, accounting for the entire U.S. supply and about a third of the world's total. Most of the rest came from China. CHINA FACTOR But as Chinese production and exports grew through the 1990s, rare earth prices worldwide plunged, undercutting business for Molycorp, then owned by oil company Unocal. Mountain Pass operations came under further pressure after a 1996 wastewater spill. Mining there ceased in 2002 when Molycorp's old permit expired. "Most companies that were in the business stopped producing because it wasn't profitable anymore," said James Hedrick, a rare earths specialist for the U.S. Geological Survey. Refinement of previously extracted ore at Mountain Pass resumed on a small scale in 2007, two years after Unocal was acquired by Chevron Corp. Last year, Molycorp was sold to a group of private investors. Chinese rare earth production, meanwhile, has swelled to about 97 percent of global supplies, or 139,000 tonnes of refined material in 2008, experts say. Output is expected to reach 160,000 tonnes a year by the middle of the next decade. But global demand is climbing faster, driven by the clamor for clean energy and clean cars, leading to projections of a 40,000-tonne annual shortfall by 2015.

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