By Peg Brickley 

A bankruptcy trustee has scraped up the money to keep the sole U.S. source of rare earths safely in mothballs as its former owner, Molycorp Inc., exits chapter 11.

Molycorp failed to sell the Mountain Pass mine in San Bernardino County, Calif., as part of its bankruptcy case. Molycorp is morphing into Neo Performance Materials Wednesday, exiting bankruptcy and leaving Mountain Pass behind.

A facility capable of producing rare earths -- elements essential to electronics including cellphones and defense systems -- Mountain Pass is parked in its own chapter 11 bankruptcy, with a future that, until Tuesday, appeared uncertain. Paul Harner, the chapter 11 trustee in charge of the mine, warned recently there was no point in continuing the Mountain Pass bankruptcy as there was no money to do anything with the property.

He asked a judge to shut down the bankruptcy owing to lack of funding.

On Tuesday, Mr. Harner revealed that Lexon Insurance Co. has offered to lend the estate $4.2 million to maintain the mine and continue the search for a buyer. Long idle, Mountain Pass still costs money to keep in a safe condition and California environmental authorities are watching.

"At the minimum, we want to make sure they keep the lights on, the gates locked and the pump running," said Patty Kouyoumdjian, executive officer at the Lahontan Regional Water Quality Control Board, part of California's network of water safety overseers.

Pumps at Mountain Pass confine groundwater contaminated with barium, nitrate, radium and uranium, Ms. Kouyoumdjian said. While Mountain Pass is in a remote area, drought-stricken California is protective of all its water, she said.

The open-pit mine is the sole U.S. source of rare earths. When rare earths prices were high, Molycorp plowed $1.5 billion into the Mountain Pass facility.

When prices fell, the mine was mothballed and Molycorp filed for chapter 11 protection. It is reorganizing around its rare earths processing business, Neo, which didn't suffer as badly from the plunging prices.

Oaktree Capital Management, which will control the new business, had argued against tossing Mountain Pass out of bankruptcy to fend for itself without the protective legal shield.

An Oaktree representative couldn't immediately be reached to comment Wednesday. However, in a recent court filing, Oaktree urged Mr. Harner to seek financing from insurers that are already bound to shield Mountain Pass against environmental damage claims.

Oaktree and Molycorp's former bondholders own the mineral rights to the mine, but shook off the land, facility and environmental issues.

In separate court action, Oaktree and the bondholders have been fighting over control of the entity that owns the mineral rights, Secured Natural Resources LLC.

Affiliates of bondholders JHL Capital Group Holdings and Quintessence Fund LP have been dueling with 35% stakeholder Oaktree over plans to raise capital. Oaktree has said "in essence that it is disinclined to invest in a company controlled by others," U.S. District Judge Sue Robinson wrote in an Aug. 23 ruling.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

August 31, 2016 19:42 ET (23:42 GMT)