Here’s a Way Out of Our Rare-Earths Mess

By James Kennedy

May 12, 2016

The Pentagon recently received what amounts to a grade of F on its efforts to ensure that its suppliers can continue to obtain the rare-earth metals that make possible many of today’s advanced weapons and other technologies. After nearly two decades of Defense Department fecklessness, it’s up to lawmakers to act.

In stark terms, a Government Accountability Office report described how defense officials have failed to meet, and even to identify, their legal and national security obligations with regard to this “bedrock” national-security concern. Instead, defense officials have repeatedly given the all-clear signal to Congress and two administrations.

Depending on when you want to start the clock, this “bedrock” problem is now a teenager or old enough to vote. The last U.S. rare-earth mine ceased mining operations in 1998, the same year that the premiere U.S. rare-earth metallurgist company, Indianapolis-based Magnequench, was essentially sold to members of Deng Xiaoping’s family. Magnequench’s facility was shut down, moved and reopened in China in 2003.  

Since then, U.S. defense contractors have become completely reliant on Chinese sources for rare-earth metals, alloys, and magnets—directly or indirectly. The short list of reliable non-Chinese metallurgy companies get all of their rare earth oxides from China and their production is fully committed to Japan and other industrial users. Outside this small circle, there is an even shorter list of financially troubled metallurgical companies that have ongoing quality control issues, limited capabilities, and uncertain economic futures. None of these currently supply U.S. defense contractors. The reality is that all rare earth metallurgy used in U.S. defense systems originates in or must pass through China.

This means that Boeing, Raytheon, General Atomics, Lockheed Martin, Northrop Grumman, General Dynamics, and all of the other primary defense contractors are beholden to China for these critical materials. The contractors themselves have remained quiet on this issue, though they have privately expressed their fear of supply disruption and loss of Chinese contracts if they get on Beijing’s bad side. Control over the supply of critical materials and enormous contracts thereby gives China tangible control over the financial fortunes of the defense industry. Perhaps this also helps explain the Pentagon’s unwillingness to force a solution.

Continued inaction will only expand China’s influence and control over U.S. defense contractors and technology companies.

Absent strong U.S. action, there’s little reason to believe other producers will emerge. China has demonstrated its ability to bankrupt any new producer. China has also shown its willingness to use rare earths as a geopolitical weapon, as it did to Japan in 2010

The lesson is clear: ensuring supply security for U.S. technology companies and defense contractors will require placating Chinese masters. If rare earths are a bedrock issue, then the Pentagon has built its entire advanced weapons on Chinese quicksand.

Continued inaction is not an option and is technically a violation of federal law. Solutions begin with recognizing the origins of the problem. China’s road to monopoly began in 1980, when new U.S. and international regulations on thorium, a material used in fission, placed onerous burdens on the use of byproducts that historically supplied the rare earth industry. Over the next two decades, the U.S. rare-earths industry collapsed. Today, although American mining companies still extract enough rare-earth ore to meet 85 percent of global demand, they discard it because the regulations make it economically infeasible to bring to market.

Earlier this year, the House and Senate Armed Services Committees were briefed on this issue by advocacy groups ThREE Consulting (the author’s organization), Thorium Energy Alliance, and retired brigadier general John Adams. They proposed legislation for inclusion in the 2017 defense authorization act that would create two private entities: one to accept and upgrade the rare earth ore into metals, alloys & magnets, etc,, and another to accept and store the thorium. The budget-neutral solution was designed to assure an uninterruptible supply of rare earth concentrates, oxides, metals, alloys and magnets for defense contractors and technology companies outside of China.

If Congress is serious about fixing this bedrock issue, the Senate Armed Services Committee will need to step up.

Like Sematech Corporation, created by the 1987 defense authorization act to assure a domestic supply of semiconductors, the rare-earth entity would be backed by a consortium of American and international tech companies, while the thorium bank would be underwritten by energy companies and other interested firms. This cooperative structure would have allowed rare-earth products to once again be made in the USA without opening a new mine, lowering environmental standards, or running afoul of regulations overseen by the Nuclear Regulatory Commission and the International Atomic Energy Agency.  

The proposed legislation did not make it into the HASC markup of the defense authorization act. It is unclear why. What is clear is that putting off a solution will only make things worse. Continued inaction will only expand China’s influence and control over U.S. defense contractors and technology companies, making this much more than just a logistical supply chain issue.

If Congress is serious about fixing this bedrock issue, the Senate Armed Services Committee will need to step up.


By James Kennedy // James Kennedy is president of ThREE Consulting, Thorium & Rare Earth Elements, Mining Minerals and Metals (ThREEM3). He is also a consultant to the U.S. government, financial, mining and energy industry on strategic issues related to rare earths and thorium within the U.S. regulatory environment.

May 12, 2016

http://www.defenseone.com/ideas/2016/05/heres-way-out-our-rare-earths-mess/128250/