[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
 ENERGY AND MINERAL REQUIREMENTS FOR RENEWABLE AND ALTERNATIVE FUELS 
              USED FOR TRANSPORTATION AND OTHER PURPOSES 
=======================================================================


                           OVERSIGHT HEARING

                               before the

                       SUBCOMMITTEE ON ENERGY AND
                           MINERAL RESOURCES

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                         Thursday, May 18, 2006

                               __________

                           Serial No. 109-54

                               __________

           Printed for the use of the Committee on Resources



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                                   or
         Committee address: http://resourcescommittee.house.gov






                 U.S. GOVERNMENT PRINTING OFFICE

27-720 PDF              WASHINGTON : 2006
_________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government 
Printing  Office Internet: bookstore.gpo.gov  Phone: toll free 
(866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail:
Stop SSOP, Washington, DC 20402-0001




                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Eni F.H. Faleomavaega, American 
Elton Gallegly, California               Samoa
John J. Duncan, Jr., Tennessee       Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming               Donna M. Christensen, Virgin 
  Vice Chair                             Islands
George P. Radanovich, California     Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Grace F. Napolitano, California
    Carolina                         Tom Udall, New Mexico
Chris Cannon, Utah                   Raul M. Grijalva, Arizona
John E. Peterson, Pennsylvania       Madeleine Z. Bordallo, Guam
Jim Gibbons, Nevada                  Jim Costa, California
Greg Walden, Oregon                  Charlie Melancon, Louisiana
Thomas G. Tancredo, Colorado         Dan Boren, Oklahoma
J.D. Hayworth, Arizona               George Miller, California
Jeff Flake, Arizona                  Edward J. Markey, Massachusetts
Rick Renzi, Arizona                  Peter A. DeFazio, Oregon
Stevan Pearce, New Mexico            Jay Inslee, Washington
Henry Brown, Jr., South Carolina     Mark Udall, Colorado
Thelma Drake, Virginia               Dennis Cardoza, California
Luis G. Fortuno, Puerto Rico         Stephanie Herseth, South Dakota
Cathy McMorris, Washington
Bobby Jindal, Louisiana
Louie Gohmert, Texas
Marilyn N. Musgrave, Colorado
Vacancy

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel
                                 ------                                

              SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

                     JIM GIBBONS, Nevada, Chairman
           RAUL M. GRIJALVA, Arizona, Ranking Democrat Member

Don Young, Alaska                    Eni F.H. Faleomavaega, American 
Barbara Cubin, Wyoming                   Samoa
Chris Cannon, Utah                   Solomon P. Ortiz, Texas
John E. Peterson, Pennsylvania       Jim Costa, California
Stevan Pearce, New Mexico            Charlie Melancon, Louisiana
Thelma Drake, Virginia               Dan Boren, Oklahoma
  Vice Chair                         Edward J. Markey, Massachusetts
Bobby Jindal, Louisiana              Nick J. Rahall II, West Virginia, 
Louie Gohmert, Texas                     ex officio
Richard W. Pombo, California, ex 
    officio



                            C O N T E N T S

                                                                   Page

Hearing held on Thursday, May 18, 2006...........................     1

Statement of Members:
    Gibbons, Hon. Jim, a Representative in Congress from the 
      State of Nevada............................................     1
        Prepared statement of....................................     3
    Grijalva, Hon. Raul M., a Representative in Congress from the 
      State of Arizona, Prepared statement of....................     5

Statement of Witnesses:
    Carlson, Eric J., Principal, TIAX LLC........................    37
        Prepared statement of....................................    39
    Copulos, Milton R., President, National Defense Council 
      Foundation.................................................    45
        Prepared statement of....................................    46
    Frank, James D., Chairman, Marathon PGM Corporation..........    21
        Prepared statement of....................................    23
    Guzy, Chris, Chief Technology Officer, Ballard Power Systems.    29
        Prepared statement of....................................    31
    Menzie, W. David, Chief, Minerals Information Team, U.S. 
      Geological Survey..........................................    10
        Prepared statement of....................................    12
    Rose, Robert, Executive Director, U.S. Fuel Cell Council.....    33
        Prepared statement of....................................    35
    Stewart, Shelley, Jr., Senior Vice President, Operational 
      Excellence and Chief Procurement Officer, Tyco 
      International (US), Inc....................................     5
        Prepared statement of....................................     8
    Storer, Robyn M., Consultant Mining Analyst, Westhouse 
      Securities LLP.............................................    15
        Prepared statement of....................................    16


OVERSIGHT HEARING ON THE ENERGY AND MINERAL REQUIREMENTS FOR RENEWABLE 
   AND ALTERNATIVE FUELS USED FOR TRANSPORTATION AND OTHER PURPOSES 

                              ----------                              


                         Thursday, May 18, 2006

                     U.S. House of Representatives

              Subcommittee on Energy and Mineral Resources

                         Committee on Resources

                            Washington, D.C.

                              ----------                              

    The Subcommittee met, pursuant to call, at 11:00 a.m. in 
Room 1324, Longworth House Office Building, Hon. Jim Gibbons 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Gibbons and Drake.

STATEMENT OF THE HON. JIM GIBBONS, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF NEVADA

    Mr. Gibbons. Good morning, everyone. The oversight hearing 
by the Subcommittee on Energy and Mineral Resources will come 
to order.
    The Subcommittee is meeting today to hear testimony on the 
energy and mineral requirements for renewable and alternative 
fuels used for transportation and other purposes. Under 
Committee Rule 4(g), the Chairman and the Ranking Member can 
make opening statements. If any Members have other statements, 
they can be included in the hearing record under unanimous 
consent.
    Let me begin by adding my remarks this morning. We are 
looking at the status of two mineral commodities that are 
critical to our existing and future use of electricity--that 
being copper and platinum. We are looking at these two metals, 
and why are we talking about alternative fuels at the same 
time? Well, all of us have heard about how we must break our 
addiction to oil and move on to using alternative fuel vehicles 
and hybrid cars. We will look at how these commodities are used 
in electrical systems, gas-electric hybrid vehicles, and in 
fuel cells for hydrogen vehicles and stationary power 
generation.
    We will hear today about how deposits containing these 
metals are distributed both nationally and internationally. We 
will hear about the state of the domestic and international 
supply of these metals, and we will also hear about the 
existing demand and projected demand for these commodities in 
the world markets. We will ask if there will be enough supply 
coming out of the ground to meet the projected demand, and we 
will also examine our nation's mineral policies and ask, what 
can we do to enhance access to future supplies? Just what is 
the story of copper in our modern world? Is it the metal that 
has served us throughout the development of civilization? In 
fact, it is that metal.
    Early in our civilization, it served us in the crafting of 
weapons until it was replaced by iron. It has been used to make 
jewelry, bronze statues, bells, and brass buttons. It is used 
in the plumbing and wiring of our houses, offices, and 
factories and in our air conditioners, a critical use for 
anyone who has ever been in Washington, D.C., in August, may I 
say?
    Most of us folks would think of copper as an old economy 
metal, and they would be right, but it is also the premier, new 
economy metal. We use it to generate, distribute, and use 
electricity. It is at the heart of electronics and 
telecommunications, and it will play an increasing role in 
transportation uses. Hybrid vehicles--cars and buses--many of 
which are now running on Washington streets, combine 
combustion-based engines, electric motors, and batteries. 
Copper is in those electric motors and in the rest of the 
wiring. The difference is in the amount of copper. A hybrid car 
uses about twice the amount of copper used in a luxury car. The 
hybrid cars use about 100 pounds per car. Buses use even more.
    We are in a world in which citizens of India and China are 
seeking to have a lifestyle that approximates ours, and they 
compete with our own hybrid cars, air conditioners, computers, 
and televisions. The question to ask ourselves is this: Is 
there enough copper to meet everyone's needs? We will hear 
about the answer to that question from our first panel of 
experts. They represent the supply chain, from the end user to 
the producer.
    But first I want to talk about platinum. This is a mineral 
commodity that has a very interesting role in the new economy. 
For many years, it was a jeweler's and a chemist's metal. 
Platinum plus diamonds was the ultimate expression of devotion, 
and chemical reactions aided by platinum turned raw petroleum 
into refined products.
    In the 1970s, platinum was enlisted by Detroit to help 
clean up the air. Catalytic converters have helped us 
significantly reduce air pollution from the cars we drive. 
Overall, automobile emissions have been reduced by 31 percent, 
and per-vehicle carbon monoxide emissions are 85 percent lower.
    The use of platinum in the jewelry and transportation 
industry now accounts for about 80 percent of platinum usage, 
but it also gives us a significant success story: cleaner air 
and significant platinum recycling. Almost 12 percent of demand 
is met by recovering platinum from scrapped catalytic 
converters. This is a true resource conservation and recovery 
story.
    Now we are on the verge of seeing new uses for platinum in 
the transportation sector. It is used in fuel cells, which have 
the potential to make cars and buses even cleaner and to 
drastically reduce our dependence on foreign sources of 
petroleum. We will hear about platinum usage from a fuel cell 
manufacturer today. We will hear about the types of fuel cells 
and what generally goes into making them. We will hear about 
the potential for growth of fuel cell usage in the 
transportation industry, and, once again, we will be asking 
about the sources of supply and ask ourselves if there is 
enough to go around.
    Last, we will hear about the national security implications 
of having adequate supplies of mineral commodities and the 
clear need we all have for unbiased public sources of mineral 
commodity information. Speaking on this matter, I would like to 
commend the Interior Appropriations Committee for supporting 
the energy programs under the jurisdiction of the House 
Resources Committee authorized by the Energy Policy Act of 
2005.
    I am very pleased that the Appropriations Committee 
restored funding for the USGS Mineral Information Team and 
admonished the Administration to not continue to propose the 
elimination of the program in future budget requests. The 
Mineral Information Team provides invaluable information on the 
worldwide use, production, and demand for mineral commodities 
and keeps tabs on what the U.S. imports are and from where they 
are coming.
    Demand for mineral commodities has risen dramatically over 
the past few years, largely due to China and India's economic 
growth and industrialization. Their competition has driven up 
the prices of commodities to all Americans. It could threaten 
the vital national security interests of this nation by fully 
depriving us of foreign sources of supply.
    In some cases, the denial of access to mineral resources 
could result in a decision to commit U.S. forces to maintain 
that access. In this circumstance, knowledge is both power and 
security. I hope the Administration will finally take careful 
note of the views of the Congress in this matter.
    So now I want to thank the witnesses for joining us today. 
I look forward to your testimony. Under unanimous consent, I 
will ask that the written statement of the Ranking Member, Mr. 
Grijalva, be submitted for the record.
    [The prepared statement of Mr. Gibbons follows:]

           Statement of The Honorable Jim Gibbons, Chairman, 
              Subcommittee on Energy and Mineral Resources

    The Subcommittee meets today to review the status of two mineral 
commodities that are critical to our existing and future use of 
electricity--copper and platinum.
    Why are we looking at these two metals and why are we talking about 
alternative fuels at the same time?
    Well, all of us have heard about how we must break our addiction to 
oil and move on to using alternative fuel vehicles and hybrid cars.
    We'll look at how these commodities are used in electrical systems, 
gas-electric hybrid vehicles and in fuel cells for hydrogen vehicles 
and stationary power generation.
    We will hear how deposits containing these metals are distributed 
both nationally and internationally. We will hear about the state of 
the domestic and international supply of these metals. We will hear 
about the existing demand and projected demand for these commodities in 
the world markets.
    We will ask if there will be enough supply coming out of the ground 
to meet the projected demand.
    We will examine our nation's mineral policies and ask what we can 
do to enhance access to future supplies.
    Just what is the story of copper in our modern world? It is the 
metal that has served us throughout the development of civilization.
    Early in our civilization, it served us in the crafting of weapons, 
until it was replaced by iron. It has been used to make jewelry, bronze 
statues, bells and brass buttons. It is used in the plumbing and wiring 
of our houses, offices and factories--and in our air conditioners--a 
critical use for anyone who has ever been in Washington, DC in August.
    Most folks would think of copper as an old economy metal ``and they 
would be right. But it is also the premier new economy metal.
    We use it to generate, distribute and use electricity--it is at the 
heart of electronics and telecommunications and it will play an 
increasing role in transportation uses.
    Hybrid vehicles--cars and buses--many of which are now running on 
Washington's streets, combine combustion based engines, electric motors 
and batteries. Copper is in those electric motors and in the rest of 
the wiring.
    The difference is in the amount of copper--a hybrid car uses about 
twice the amount of copper used by a luxury car--the hybrids use about 
100 pounds per car ``buses even more.
    Now we are in a world in which the citizens of India and China are 
seeking to have a lifestyle that approximates our--complete with their 
own hybrid cars, air conditioners, computers, and televisions.
    The question to ask ourselves is this--- is there enough copper to 
meet every one's needs?
    We will hear about the answer to that question from our first panel 
of experts--they represent the supply chain from the end user to the 
producer. But first I want to talk about platinum.
    This is a mineral commodity that has a very interesting role in the 
new economy. For many years it was a jeweler's and a chemist's metal--
platinum plus diamonds was the ultimate expression of devotion--and 
chemical reactions aided by platinum turned raw petroleum into refined 
products.
    In the 1970's, platinum was enlisted by Detroit to help clean up 
the air--catalytic converters have helped us significantly reduce air 
pollution from the cars we drive.
    Overall automobile emissions have been reduced by 31 percent, and 
per vehicle carbon monoxide emissions are 85 percent lower.
    The use of platinum in the jewelry and transportation industries 
now accounts for about 80 percent of platinum usage.
    But it also gives us a significant success story--cleaner air and 
significant platinum recycling--almost 12 percent of demand is met by 
recovering platinum from scrapped catalytic converters--this is true 
resource conservation and recovery.
    Now we are on the verge of seeing new uses for platinum in the 
transportation sector.
    It's used in fuel cells, which have the potential to make cars and 
busses even cleaner and to drastically reduce our dependence on foreign 
sources of petroleum!
    We will hear about platinum usage from a fuel cell manufacturer. We 
will hear about the types of fuel cells and what generally goes into 
making them. We will hear about the potential for growth of fuel cell 
usage in the transportation industry.
    Once again we will be asking about the sources of supply and ask 
ourselves if there is enough to go around.
    Lastly, we will hear about the national security implication of 
having adequate supplies of mineral commodities.
    And the clear need we all have for unbiased public sources of 
mineral commodity information.
    Speaking to this matter, I would like to commend the Interior 
Appropriations Committee for supporting the energy programs under the 
jurisdiction of the House Resources Committee authorized by the Energy 
Policy Act of 2005.
    I am very pleased that the Appropriations Committee restored 
funding for the USGS Minerals Information Team and admonished the 
Administration to not continue to propose the elimination of the 
program in future Budget requests.
    The Minerals Information Team provides invaluable information on 
the world wide use, production and demand for mineral commodities and 
keeps tabs on what the U.S. imports and from where.
    Demand for mineral commodities has risen dramatically over the past 
few years largely due to China and India's economic growth and 
industrialization.
    Their competition has driven up the price of commodities to our 
citizens. It could threaten the vital national security interests of 
the nation by fully depriving us of foreign sources of supply.
    In some cases the denial of access to mineral resources could 
result in a decision to commit U.S. forces to maintain that access. In 
this circumstance, knowledge is both power and security. I hope the 
Administration will finally take careful note of the views of the 
Congress in this matter.
    So now, I want to thank the witnesses for joining us today and I 
look forward to your testimony.
                                 ______
                                 
    [The prepared statement of Mr. Grijalva follows:]

      Statement of The Honorable Raul Grijalva, Ranking Democrat, 
              Subcommittee on Energy and Mineral Resources

    Mr. Chairman, I join you in welcoming our panels of expert 
witnesses to today's hearing.
    As the title of today's hearing implies, our domestic copper and 
platinum resource bases can be used to produce alternative 
transportation vehicles, such as hybrid cars, and fuels for industrial, 
commercial and residential uses. Currently, according to several 
sources, including the Copper Development Association, the U.S. is 
completely self-sufficient in copper resources and production.
    My home state of Arizona, in fact, continues to produce about 60 
percent of the nation's copper and in 2004 brought in record revenues 
to the U.S. economy, as noted in a recent report published by the 
Arizona Mining Association.
    Yet, while copper production is good for the economy, I have 
concerns about the treatment of copper mining workers, especially with 
regard to the July 2005 labor union strikes against Asarco Mining 
Company in Phoenix, Arizona. Mining companies are flush with cash and 
yet are not giving the proper raises and benefits to their miners.
    Further, the Environmental Protection Agency (EPA) identifies sites 
containing copper as some of the most serious hazardous places in the 
nation. When the soils of farmland are polluted with copper, animals 
will absorb concentrations that are damaging to their health. Asarco 
continues to pollute the environment by operating its copper smeltering 
plant in Hayden, Arizona. Industrial exposure to copper fumes, dusts, 
or mists may result in metal fume fever in human beings.
    Today, with copper and platinum commodities at record high prices, 
and a world market that is unstable for the foreseeable future; we must 
take caution to produce and use such minerals in a manner that does not 
leave the American public vulnerable to increased health and safety 
issues and greater pollution in our environment.
    In conclusion, I hope that this Subcommittee will look beyond the 
surface of using these two very expensive commodities as part of our 
National energy strategy. I look forward to a spirited discussion with 
today's witnesses.


    Mr. Gibbons. I would like to introduce our first panel. Our 
first panel is Mr. Shelley Stewart, Tyco International; David 
Menzie, U.S. Geological Survey; Robyn Storer, Westhouse 
Securities, LLP; and James Frank, Marathon PGM Corporation.
    Ladies and gentlemen, we have a ritual here at the 
committee where we swear in all of our witnesses, so if you 
would each rise and raise your right hand.
    [Witnesses sworn.]
    Let the record reflect that each of our witnesses answered 
in the affirmative. I turn now to our very first panel member. 
Shelley, welcome. The floor is yours. We look forward to your 
testimony.

         STATEMENT OF SHELLEY STEWART, VICE PRESIDENT, 
           SUPPLY CHAIN, TYCO INTERNATIONAL (US) INC.

    Mr. Stewart. Thank you very much. Mr. Chairman and Members 
of the Subcommittee, my name is Shelley Stewart. I am the 
Senior Vice President of Operational Excellence and Chief 
Procurement Officer for Tyco International. I also serve on the 
Board of Directors of the ISM, Institute for Supply Chain 
Management, and I am the Chairman of the Howard University 
School of Business Supply Chain Management advisory program. I 
am responsible for $25 billion in global procurement spending. 
I lead the company's efforts to reduce cost and increase 
efficiency.
    Tyco International is a global, diversified company that 
provides vital products and services to customers in four 
business segments: electronics, fire and security, health care, 
and engineered products and services. With a 2005 revenue of 
$40 billion, Tyco employs 250,000 people worldwide. Tyco 
operates in 50 U.S. states and in more than 100 countries 
worldwide. In the U.S., we employ 85,000 individuals who share 
an extraordinary commitment to excellence and to the 
communities in which they live and work.
    From the operating room to the boardroom, Tyco offers the 
products and the services the modern world needs to grow. Tyco 
fills an incredibly wide range of many diverse needs of 
businesses and governments, education, medical institutions, 
and commercial industries ranging from food to automobiles. For 
example, the connectors in your cell phones and computers, the 
many security access control systems used throughout 
Washington, as I look around, in this room as well, and the 
sprinkler systems installed in the ceiling for fire suppression 
are likely Tyco products.
    On behalf of Tyco International, I would like to extend my 
appreciation for the opportunity to testify regarding global 
copper prices and their impact on end users like Tyco, who use 
this commodity to manufacture goods used by people across the 
world. We appreciate the committee opening a dialogue on this 
issue and hope to be a valued resource to you as we continue to 
examine this activity.
    From architecture to telecommunications, copper is in 
numerous products we rely on each day. Not surprisingly, copper 
is a vital component to many thousands of Tyco products, 
sometimes serving as the major cost driver of producing those 
products. Out of the $10 billion that Tyco spends annually on 
direct materials, that is, materials that go directly into the 
products we manufacture, copper now accounts for 7 percent, up 
from 4.5 percent just last year. Copper wire, cable, and tubing 
are used in many commercial and residential installations of 
ADT and Simplex/Grinnell access control, home security, fire 
suppression and detection devices. These devices are essential 
to keeping families and businesses safe and secure.
    Our engineered products division also uses copper to 
manufacture industrial, commercial, and residential 
applications, providing solutions from floor heating, snow 
melting and de-icing to temperature measurement, wiring, and 
leak-detection systems. The AFC cable business unit utilizes 
copper to manufacture electrical distribution products used in 
construction and modernization of commercial office buildings, 
institutional facilities, shopping centers, and multifamily 
dwellings.
    Most significantly, Tyco's electronics business uses copper 
in the millions of electrical connectors that we manufacture. 
In fact, Tyco's electronics division alone purchases nearly 50 
million pounds of copper each year. These connectors are found 
in many products, including automobiles, computers, 
televisions, mobile phones, and other consumer electronics.
    For our products that require copper, there is no 
alternative metal. Copper offers unique formability, 
conductivity, and stress relaxation not available in any other 
metals.
    There is an old adage that ``a penny saved is a penny 
earned,'' and in today's world of rising metal prices, pennies, 
or more accurately, copper, is becoming a precious commodity 
that has a tremendous impact on savings and earnings.
    Since 2003, the price of copper has risen more than 350 
percent. Prices have risen more than 62 percent since February 
of this year, and, in all likelihood, they have not peaked yet.
    Several factors have contributed to this steady rise in 
prices. Labor disputes in Chile and Mexico and political unrest 
in Indonesia that is threatening copper production has caused 
price increases. Heavy demand and consumption of copper in 
Europe and China has created shortages, thus driving up costs, 
and, interestingly, hedge fund investments in the metals 
markets, including copper, are extremely heavy due to the weak 
dollar, again driving up the price of these commodities.
    Soaring copper prices are also a reflection of a healthy 
and robust economy driven by increased manufacturing and 
construction, both domestically and abroad. Congress and the 
Administration should be applauded for enacting economic 
policies the fuel such growth, yet this growth, coupled with 
the other factors I have outlined, has stoked the demand for 
copper to a point where the increased cost is negatively 
affecting businesses and consumers.
    Drastic changes in the weighted average price of copper, as 
we have seen recently, disrupt business planning and revenue 
forecasts. These cost increases are often passed on to 
customers in the form of surcharges, indexed pricing, and 
direct-to-customer billing of subcontracted material, and 
whatever is not passed on to consumers ends up negatively 
impacting companies' bottom lines, adversely affecting 
investors, stockholders, and employees.
    Early this month, as Tyco reported quarterly profits, we 
adjusted our full-year earnings forecast. Soaring copper prices 
contributed greatly to this adjustment. In 2005, Tyco purchased 
more than $468 million worth of copper on the global market, 
equaling nearly 280 million pounds. This year, purchasing the 
same volume of copper at the current price will cost the 
company $681 million, for an estimated year-over-year increase 
of $213 million, or 46 percent. Put in perspective, Tyco's 
copper cost increases above the previous year's average, or as 
we call them, ``head winds,'' for 2005 was $73 million. In 
2006, we will nearly triple that, incurring cost increases 
amounting to $60 million per quarter. For example, in Tyco 
Electronics alone, we have nearly reached our $285 million 
budget for copper spending in the first five months of 2006.
    These significant investments in copper cannot be 
underestimated, and the staggering surge in copper prices 
impacts Tyco's competitiveness worldwide. Moreover, these high 
costs put pressure on our medium-to-small suppliers. Therefore, 
they are turning to Tyco for help by proposing price increases 
and shorter payment terms to get money in the near term to 
finance copper or to offset their higher finance costs.
    As the Chief Procurement Officer and head of Supply Chain 
for Tyco, it is my responsibility to manage the total cost of 
goods and services Tyco needs to manufacture its thousands of 
products, products that are vital to millions of people in the 
U.S. and around the world. Though the markets for commodities 
such as copper and other metals often fluctuate, percents of 
sustained and substantial increase make it difficult for my 
organization to manage costs. This impacts our ability to 
develop overall product and pricing strategy as well as our 
ability to accurately predict our financial results, which is a 
strong expectation from our shareholders.
    Skyrocketing metal costs also make it difficult to avoid 
increasing prices for our own products. Eventually, whether 
these products are for residential, commercial, or industrial 
uses, it is the consumer who will ultimately end up absorbing 
these increases.
    While there are several contributing factors to the high 
price of copper, the underlying market issue is more than 
likely supply and demand. Is there enough copper today to meet 
demand, and what does the future hold for copper producers and 
suppliers? Do we have enough copper? Are there enough suppliers 
to satisfy the potential demand?
    I will leave these questions to the experts, but I do know 
that, as a customer, I am highly dependent upon copper products 
in virtually every hour of my modern life, from the computer I 
used to prepare this statement to the car I drove to get here 
today.
    The world cannot afford for companies to be hamstrung with 
high copper prices, especially when companies like Tyco 
International are using copper to manufacture products, or 
components to products, that are so vital to everyone's lives.
    As this committee continues to examine the impact of copper 
prices on consumers and businesses, I hope that you will keep 
today's testimony in mind. On behalf of Tyco International, I 
ask that you consider the true impact of copper prices on our 
company and the thousands of products we make. Thank you for 
your time, and thank you for providing me with this 
opportunity.
    [The prepared statement of Mr. Stewart follows:]

 Statement of Shelley Stewart, Jr., Senior Vice President, Operational 
 Excellence & Chief Procurement Officer, Tyco International (US), Inc.

Introduction
    Mr. Chairman, Ranking Member Grijalva and members of the sub-
committee, my name is Shelley Stewart, Jr. I am Senior Vice President 
of Operational Excellence and Chief Procurement Officer for Tyco 
International, USA. I also serve on the Board of Directors for the 
Institute of Supply Chain Management and am Chairman of Howard 
University's School of Business Supply Chain Advisory Board. At Tyco, I 
am responsible for 25 billion dollars in global procurement spending 
and I lead the company's efforts to reduce cost and increase 
efficiency.
    Tyco International is a global, diversified company that provides 
vital products and services to customers in four business segments: 
Electronics, Fire & Security, Healthcare and Engineered Products & 
Services. With 2005 revenue of $40 billion, Tyco employs approximately 
250,000 people worldwide. Tyco operates in all 50 U.S. states and in 
more than 100 countries worldwide. In the U.S. we have 85,000 employees 
all of whom share an extraordinary commitment to excellence and to the 
communities in which they live and work.
    From the operating room to the boardroom, Tyco offers the products 
and services the modern world needs to grow. Tyco fills an incredibly 
wide range of the many diversified needs of businesses and governments, 
educational and medical institutions, and commercial industries ranging 
from food to automobiles. For example, the connectors in your cell 
phones and computers, the many security access control systems used 
throughout Washington, and the sprinklers installed in the ceiling for 
fire suppression are likely Tyco products.
    On behalf of Tyco International, I would like to extend my 
appreciation for the opportunity to testify regarding global copper 
prices and its impact on ``end users,'' like Tyco, who use this 
commodity to manufacture goods used by people across the world. We 
appreciate the committee opening a dialogue on this issue and hope to 
be a valued resource as you continue to examine it.
Tyco and Copper
    From architecture to telecommunications, copper is in numerous 
products we rely on each day. Not surprisingly, copper is a vital 
component to literally thousands of Tyco products, sometimes serving as 
a major cost driver of producing those products. Out of the $10 billion 
that Tyco spends annually on direct materials--materials that go 
directly into the products we manufacture--copper now accounts for 
nearly 7%, up from 4.5% just last year. Copper wire, cable and tubing 
are used in commercial and residential installations of ADT and 
Simplex/Grinnell access control, home security, fire suppression and 
detection devices. These devices are essential to keeping families and 
businesses safe and secure.
    Our Engineered Products division also uses copper to manufacture 
industrial, commercial and residential applications, providing 
solutions from floor heating, snow melting and de-icing to temperature 
measurement, wiring and leak detection systems. The AFC Cable business 
unit utilizes copper to manufacture electrical distribution products 
used in the construction and modernization of commercial office 
buildings, institutional facilities, shopping centers, and multifamily 
dwellings.
    Most significantly, Tyco's electronics business uses copper in the 
millions of electrical connectors we manufacture. In fact, Tyco's 
electronics division alone purchases nearly 50 million pounds of copper 
each quarter. These connectors are found in many products including 
automobiles, computers, televisions, mobile phones and other consumer 
electronics.
    For our products that require copper, there is no alternative 
metal. Copper offers unique formability, conductivity, and stress 
relaxation not available in other metals.
The Price Problem
    There is an old adage that a ``penny saved is a penny earned.'' And 
in today's world of rising metal prices, pennies, or more accurately, 
copper, is becoming a precious commodity that has a tremendous impact 
on savings and earnings.
    Since 2003 the price of copper has risen more than 350 percent. 
Prices have risen more than 62 percent since February of this year. 
And, in all likelihood they haven't peaked yet.
    Several factors have contributed to this steady rise in prices. 
Labor disruptions in Chile and Mexico and political unrest in Indonesia 
that is threatening copper production has caused price increases. Heavy 
demand and consumption of copper in Europe and China has created 
shortages, thus driving up costs. And, interestingly, Hedge Fund 
investments in the metals market, including copper, are extremely heavy 
due to the weak dollar, again driving up the price of these 
commodities.
    Soaring copper prices are also a reflection of a healthy and robust 
economy driven by increased manufacturing and construction both 
domestically and abroad. However, we believe other factors such as 
dwindling supplies and speculative buying from Hedge Funds have 
influenced the copper price. Congress and the Administration should be 
applauded for enacting economic policies that have fueled such growth.
    Yet, this growth coupled with the other factors I have outlined has 
stoked the demand for copper to a point where the increased cost is 
negatively affecting businesses and consumers. Drastic changes in the 
weighted average price of copper, as we have recently seen, disrupt 
business planning and revenue forecasts. Whenever possible, these cost 
increases are often passed on to our customers in the form of 
surcharges, indexed pricing and direct-to-customer billing of 
subcontracted material. And, whatever is not passed on to consumers 
ends up negatively impacting companies bottom lines--adversely 
affecting investors, stock holders and employees.
    Earlier this month, as Tyco reported quarterly profits, we adjusted 
our full-year earnings forecast. Soaring copper prices contributed 
greatly to this adjustment. In 2005, Tyco purchased more than $468 
million dollars worth of copper on the global market, equaling nearly 
280 million lbs. This year, purchasing the same volume of copper at the 
current price will cost the company $681 million, for an estimated 
year-over-year spend increase of $213 million, or 46 percent. Put into 
perspective, Tyco's copper cost increases above the previous year's 
average, or as we call them ``headwinds'', for 2005 was $73 million. In 
2006 we will nearly triple that, incurring cost increases amounting to 
almost $60 million per quarter. For example, in Tyco Electronics alone 
we have nearly reached our $285 million budget for copper spending in 
the first 5 months of 2006.
    These significant investments in copper cannot be underestimated 
and the staggering surge in copper prices impacts Tyco's 
competitiveness in the worldwide market.
    Moreover, these high costs also put pressure on our medium to small 
suppliers. Therefore, they are turning to Tyco for help by proposing 
price increases and shorter payment terms to get money in the near-term 
to finance copper or to offset their higher finance costs.
    As Tyco's Chief Procurement Officer and head of Supply Chain, it is 
my responsibility to manage the total cost of the goods and services 
Tyco needs to manufacture its thousands of products--products that are 
vital to millions of people in the U.S. and around the world. Though 
the markets for commodities such as copper and other metals often 
fluctuate, periods of sustained and substantial increase make it very 
difficult for my organization to manage costs. This impacts our ability 
to develop our overall product and pricing strategy, as well as our 
ability to accurately predict our financial results, which is a strong 
expectation from our shareholders. Sky rocketing raw material costs 
also make it difficult to avoid increasing prices for our own products. 
Eventually, whether these products are for residential, commercial, or 
industrial uses, it is the consumer that will ultimately end up 
absorbing the increase.
Conclusion
    While there are several contributing factors to the high price of 
copper, the underlying market issue is more than likely supply and 
demand. Is there enough copper today to meet demand and what does the 
future hold for copper producers and suppliers? Do we have enough 
copper? Are there enough suppliers to satisfy potential future demand? 
I will leave these questions to the experts. But I do know that as a 
consumer, I am highly dependent upon copper products in virtually every 
hour of my modern life, from the computer I used to prepare this 
statement to the car I drove to get here to be with you today.
    The world cannot afford for companies to be hamstrung with high 
copper prices. Especially, when companies like Tyco International are 
using copper to manufacture products, or components to products, that 
are so vital to our everyday lives.
    As this committee continues to examine the impact of copper prices 
on consumers and business I hope that you will keep today's testimony 
in mind. On behalf of Tyco International I ask that you consider the 
true impact of copper prices on our company and the thousands of 
products we make.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Stewart. Your 
testimony is stark and to the point and very informative for 
us, and I appreciate the fact that you have found the copper to 
write your statement and the car to get here this morning as 
well, so thank you very much.
    Mr. Stewart. Thank you very much.
    Mr. Gibbons. I turn now to Mr. David Menzie from the U.S. 
Geological Survey. Mr. Menzie, again, welcome back to the 
committee. We look forward to hearing from you.

STATEMENT OF W. DAVID MENZIE, CHIEF, MINERALS INFORMATION TEAM, 
                     U.S. GEOLOGICAL SURVEY

    Mr. Menzie. Thank you, Mr. Chairman. Mr. Chairman and 
Members of the Subcommittee, thank you for the opportunity to 
appear at this hearing. I am David Menzie, a geologist with the 
U.S. Geological Survey.
    Prices of metals are again rising, raising concerns about 
future metal supplies. The price of copper has increased from 
around 70 cents a pound in January of 2003 to $3.80 a pound 
yesterday. Recently, USGS scientists investigated future 
mineral scarcity, with an emphasis on copper, in a paper 
published by Resources for the Future. That study concluded 
that although global copper resources are abundant, rapid 
increases in copper consumption could lead to temporary 
shortages.
    A number of factors will affect future supplies of copper, 
including level of consumption, estimates of copper resources, 
investment in mineral exploration, the state of the minerals 
professions, scrutiny and restrictions on mineral extraction, 
and environmental residuals.
    Economic development and rising incomes in some Asian 
countries have led to rapid increases in mineral consumption. 
Some have suggested increased consumption of minerals by 
developing countries is not sustainable, either because 
resources will be insufficient to meet consumption or because 
of the environmental consequences of increased production. We 
estimated the consumption in the 20 most populous countries to 
2020. World copper consumption was estimated to increase from 
about 15 million tons in 2000 to 27 million tons in 2020. 
Developing countries accounted for most of the increase. 
Consumption in China was forecasted to increase from 2 million 
tons in 2000 to 5.6 million tons in 2020.
    Currently, 90 percent of copper that is consumed comes from 
mines and 10 percent from recycled material. Unless recycling 
can be dramatically increased, escalating demand for copper 
will have to either be met by increased mine production or 
substitution. However, development also increased demands for 
substitute commodities. Therefore, projected consumption is 
likely to come mainly from mine production.
    Reserves of the inventory of mines; as the inventory is 
reduced, the reserves must be replaced either from identified 
resources or from discovering new deposits. World copper 
reserves are currently about 470 million tons. Total 
[identified and undiscovered] world copper resources are not 
well known because an assessment of undiscovered world 
resources has not been made. Current estimates of world copper 
resources, about 1.6 billion tons, would likely be 
significantly increased by an assessment of global undiscovered 
copper resources.
    We estimate that about 1.1 billion tons of copper will be 
needed to meet consumption between 2000 and 2020 and to 
maintain a proportional reserve. This is more than three times 
the amount of copper in the five largest deposits currently 
known. Much of the material will come from undiscovered 
deposits. Because a very few large deposits typically contain 
the majority of copper resources, a small number of large, 
undiscovered deposits will be critical to supplying copper in 
the future.
    Analysis of mineral exploration budgets and changes in 
mining companies and universities are reasons to question 
whether sufficient reserves will be available. Exploration 
budgets increased through the early nineties, but they peaked 
in 1997 at $5.2 billion and then declined sharply to as low as 
$1.9 billion in 2002 before rebounding to just over $5 billion 
in 2005.
    During the 1990s, large companies eliminated grassroots 
exploration. Geologists in these companies either joined junior 
companies or left the industry. The restructuring has resulted 
in fewer exploration geologists funded by smaller exploration 
budgets.
    Future resources are likely to be in deposits concealed 
beneath covering rock or sediments. Such deposits will be more 
difficult to discover and more costly to mine. Reorganizations 
in universities have resulted in fewer and smaller academic 
departments to train the needed scientists and engineers to 
deal with this problem.
    A further cause for concern about society's ability to 
produce minerals that will be needed by the developing 
countries is increased scrutiny and restriction of mineral 
extraction. In the United States, and opened to mineral 
exploration has declined significantly, and population growth 
in the mountain west has led to increased scrutiny of mineral 
development. Scrutiny of projects outside the United States is 
also increasing.
    Increased residuals from mineral production and use will 
accompany increased consumption. About 350 tons of waste rock 
and 147 tons of tailings are generated for each ton of copper 
produced. Assuming that grades of ores do not change, mining 
and milling of copper will produce about 130 billion tons of 
waste rock and 56 billion tons of tailings between 2000 and 
2020.
    To summarize, Mr. Chairman, although the world has abundant 
resources of copper, rapid increases in copper consumption can 
lead to temporary shortages of copper. Reasons for these 
temporary shortages may include reduced investment in mineral 
exploration, a decline in the number of mineral professionals, 
increased restriction on mineral extraction, and increased 
environmental costs for mineral extraction and use, and 
increased costs of discovering new copper resources. Thank you, 
Mr. Chairman.
    [The prepared statement of Mr. Menzie follows:]

                 Statement of W. David Menzie, Chief, 
           Minerals Information Team, U.S. Geological Survey

    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to appear at this hearing on energy and mineral 
requirements for development of renewable and alternative fuels used 
for transportation and other purposes. My name is David Menzie. I am a 
geologist with the U.S. Geological Survey (USGS) and serve as Chief of 
the Mineral Information Team's International Minerals Section, a 
component of the USGS Mineral Resources Program. The USGS is the 
primary Federal provider of scientific and economic information for 
objective resource assessments and unbiased research results on 
national and international mineral potential, production, trade, 
consumption, and environmental effects. The USGS provides information 
to help inform land use and resource planning decisions on specific 
management units and for national and international economic, foreign 
policy, and national security decisions.
    Rising costs of metals are again heightening concerns about future 
supplies of these important commodities. Copper is among the metals 
that have experienced a dramatic increase in price. In January 2003, 
the price of copper was around $0.70 per pound and it was readily 
available as copper stocks exceeded 1.2 million metric tons (Mt). At 
the end of March 2006, copper prices reached $2.46 per pound and stocks 
were just over 150,000 metric tons (t). Stocks fell to below 50,000 t 
in July 2004 and some smelters had difficulty in obtaining sources of 
copper. The recent rise in copper prices is the result of increased 
copper consumption by developing countries. Some authors suggest that 
increased consumption of minerals by developing countries is not 
sustainable either because copper resources are insufficient to meet 
growing consumption or because the environmental consequences of 
increased resource production will be too costly.
    USGS scientists have addressed the question of future mineral 
scarcity, with emphasis on copper, in a paper titled ``Mineral 
Resources and Development in the Twenty-first Century'' that was 
published by Resources for the Future in their 2005 book, Scarcity and 
Growth Revisited. This study concluded that although the world has 
abundant resources of copper, rapid increases in copper consumption may 
lead to temporary shortages. The USGS considered a number of factors 
that will affect future supplies of copper, including: (1) rising 
consumption related to economic growth in developing countries; (2) 
estimates of copper availability; (3) investment in mineral 
exploration; (4) the state of the minerals professions; (5) increased 
scrutiny of and restrictions on mineral extraction; and, (6) increased 
environmental residuals (pollutants resulting from mineral production 
and use). I will discuss each of these factors in turn.
1. Economic Growth and Mineral Consumption
    Rapid economic development and rising income levels in a number of 
countries, especially in Asia, have led to a rapid increase in 
consumption of mineral commodities following a consistent pattern of 
increasing per capita consumption with increasing income (per capita 
GDP). Levels of mineral consumption are low in lesser-developed 
countries with low income levels; however, mineral consumption 
increases very rapidly as countries begin to industrialize and incomes 
pass a threshold level. Per capita mineral consumption then stabilizes 
at higher levels when countries begin to develop the service and 
information sectors of their economies. The current rapid increase in 
mineral consumption is the result of a number of large countries 
approaching or having reached threshold income levels for consumption.
    The USGS used the relation between per capita income and per capita 
copper consumption to estimate copper consumption in the 20 most 
populous countries in 2020. The results suggest that world copper 
consumption will increase an estimated 3.1 percent per year from 14.9 
Mt in 2000 (our base year) to 27 Mt in 2020. Most of the increased 
consumption will take place in developing countries. For example, 
copper consumption in the United States and Japan will increase from 3 
Mt and 1.3 Mt in 2000 to 3.5 Mt and 1.4 Mt respectively in 2020, while 
copper consumption in China and India will increase from 2 Mt and 
400,000 t in 2000 to 5.6 Mt and 1.6 Mt respectively in 2020.
2. Estimates of Copper Availability
    Currently, about 90% of all copper consumed comes from mining and 
processing new ores. About 10% of copper is from recycled sources. 
Recent studies reported in the Wall Street Journal, the Washington 
Post, and trade publications question whether recycling rates can be 
significantly increased. Unless recycling can be dramatically 
increased, the escalating demand for copper will either have to be met 
through increased mine production or through substitution of other 
commodities that exhibit the same properties and can serve the same 
functions as copper. Economic development increases the demand for a 
full suite of industrially useful mineral commodities--not just copper. 
Therefore, limits may exist to the availability of substitute 
commodities. Thus, much of projected copper consumption is likely to be 
mine production of copper from reserves.
    Copper reserves represent the working inventory of mines; as that 
inventory is reduced, the reserves will need to be replenished from 
other (non-reserve) identified resources and by discovering new 
deposits of copper. There are about 45 Mt of copper reserves in the 
United States. Identified copper resources in the United States are 
estimated to be about 260 Mt. About 290 Mt of copper are estimated to 
exist in undiscovered deposits in the United States based upon a 
detailed probabilistic assessment of undiscovered mineral resources. 
World copper reserves are currently about 470 Mt. Total (identified and 
undiscovered) world copper resources are less well known. An assessment 
of undiscovered world resources comparable to that for the United 
States does not exist. Completion of the probabilistic assessment of 
undiscovered resources for the United States increased previous 
estimates of United States' total copper resources significantly. Based 
upon these results, it is expected that the current estimates of total 
world copper resources (1.6 billion tons) would be significantly 
increased by a modern global mineral assessment including an estimate 
of the amount of copper in undiscovered deposits worldwide.
    Our study estimated that approximately 1.1 billion tons of copper 
will need to be added to reserves if the world is to meet projected 
copper consumption at present recycling rates and to maintain reserves 
at the same level relative to copper production. The study concluded 
that to meet anticipated copper consumption between 2000 and 2020 and 
to maintain a proportional amount of reserves will require more than 
three times the amount of copper as is contained in the 5 largest 
deposits currently known (Chuquicamata, El Teniente, Escondida, and Las 
Bronces in Chile and Morenci in Arizona). Although some of this 
material exists in discovered deposits, much of the material will need 
to come from undiscovered deposits. Because a small number of very 
large deposits typically contain the majority of copper resources, a 
small number of large undiscovered deposits will be critical to 
supplying copper in the future.
    Based on available information, it appears that sufficient supplies 
of copper exist to meet the needs of developing countries; however, the 
production of these resources will depend upon a number of factors 
including adequate levels of mineral exploration, the development of 
new technologies for mineral discovery and production, and social and 
legal environments that allow for mineral exploration and production.
3. Investment in Mineral Exploration
    An analysis of mineral exploration budgets, together with 
organizational changes within corporations engaged in mineral 
exploration, and within universities that teach economic geology, 
mineral economics, and mining engineering illustrates reasons for 
concern. Although significant resources exist, a ready inventory of 
copper may not be available to meet the increased demand imposed by 
developing economies. A strong focus on exploration for gold and 
diamonds, coupled with declining levels of exploration spending, likely 
contributed to the temporary shortages of copper last year. Mineral 
exploration budgets increased throughout the early 1990s, reaching a 
peak of $5.2 billion in 1997 and then declining sharply after 1997. 
Exploration budgets reached a low of $1.9 billion in 2002 before 
rebounding to $5.1 billion in 2005. Prices of most mineral commodities 
rose sharply in 2004.
4. State of the Minerals Professions
    During the late 1990s, many large companies restructured to 
eliminate grass-roots exploration (exploration in untested areas where 
mineral deposits are not known to exist). In some cases, economic 
geologists who had been in these companies formed or joined junior 
companies; in other cases, they left the industry. The restructuring of 
mineral exploration has most likely resulted in fewer exploration 
geologists funded by smaller exploration budgets.
    Over the next 20 years, an increasing proportion of resources that 
remain to be discovered are likely to be in concealed deposits that lie 
beneath significant quantities of covering rock or sediments. Such 
deposits will be more difficult to discover and will likely be more 
costly to produce. Reorganization in universities that teach economic 
geology, mineral economics, and mining engineering has resulted in 
smaller academic departments to teach scientists and engineers needed 
to meet the technical challenges that will be presented by future 
mineral exploration and development.
5. Increased Scrutiny of and Restrictions on Mineral Extraction
    Our study concluded that a further cause for concern about 
society's ability to produce the amount of minerals that will be needed 
by developing countries is the increasing social scrutiny of and 
restrictions on mineral resource extraction. In the United States, the 
amount of land open to mineral exploration has declined significantly 
since the passage of the original Wilderness Act in 1964. In addition, 
population growth in urban areas of the mountain west (Arizona, 
Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming) has 
led to increased scrutiny of domestic mineral development projects. 
Scrutiny of mineral projects outside of the United States is also 
increasing as mineral-producing countries are demanding greater control 
over their natural resources.
6. Increased Environmental Residuals from Mineral Production and Use
    Increased mineral consumption, increased residuals from mineral 
production and use, and disposal of mineral products that are implicit 
in the growth of developing economies will require the implementation 
of new strategies to reduce residuals from resource production and to 
increase recycling. On average, about 350 t of waste rock and 147 t of 
tailings are generated for each ton of copper produced. Assuming that 
grades of ore produced do not change, the model implies that mining and 
milling of copper ores will produce about 130 billion tons of waste 
rock and 56 billion tons of tailings between 2000 and 2020. Copper 
smelting can release both sulfur dioxide and arsenic to the atmosphere 
and hydrosphere. Amounts of these materials that might be released 
depend on the proportions of copper and arsenic that are processed by 
pyrometallurgical methods (using high temperatures to transform metals 
and their ores) and the technology employed in the smelter. The amount 
of waste rock and tailings are unlikely to be reduced unless copper 
ores are leached in place. The amounts of arsenic and sulfur dioxide 
released into the environment are more likely to be reduced by adoption 
of new technologies.
    In addition to the residuals that are the direct result of 
producing commodities, there are residuals that enter the environment 
from use and final disposal of goods manufactured from the commodity. 
An increase in recycling could reduce the magnitude of these residuals.
    To summarize, Mr. Chairman, our study concluded that although the 
world has abundant resources of copper, rapid increases in copper 
consumption can lead to temporary shortages of copper. Reasons for 
these temporary shortages may include: reduced investment in mineral 
exploration; a decline in the number of exploration geologists, mining 
engineers, and mineral economists; increased restriction on mineral 
extraction; increased environmental costs from mineral extraction and 
use; and increased costs of discovering new copper resources.
    Thank you for the opportunity to discuss the growing demand for 
global mineral resources, such as copper. I am pleased to respond to 
any questions that you and Members of the Subcommittee may have.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Menzie. We appreciate 
your testimony and your presence here as well. Very helpful 
information for our committee.
    I turn now to Ms. Robyn Storer from Westhouse Securities. 
We welcome you to the committee. The floor is yours. We look 
forward to your testimony.

   STATEMENT OF ROBYN M. STORER, CONSULTING MINING ANALYST, 
                   WESTHOUSE SECURITIES, LLP

    Ms. Storer. Thank you. Mr. Chairman and Members of the 
committee, I am Robyn Storer, Consultant Mining Analyst for 
Westhouse Securities in London. I am pleased to have the 
opportunity to speak to you today regarding the challenges that 
the copper mining industry faces to meet the growth in world 
demand.
    Demand for copper is growing worldwide as the emerging 
economies of China, India, Russia, Brazil, and elsewhere work 
toward bringing a North American standard of living to their 
families. To realize the dream of urbanization, 
industrialization, and consumerism, these economies will need 
to consume mountains, or, in the mining context, large pits of 
metals.
    However, the growth for demand in copper is not restricted 
to these fast-growing, emerging economies. The electrical 
characteristics of copper make it an essential component of our 
modern world.
    For example, the modern family car today contains 50 pounds 
of copper and over a mile of copper wiring. However, this is 
not solely the result of the introduction of power windows, GPS 
systems, and the like. A significant proportion of the increase 
in copper in vehicles has been in under-the-hood applications, 
where electrical motors have replaced moving mechanical parts, 
boosting efficiency and lowering fuel consumption. In this 
respect, the move to hybrid cars, vehicles containing some 100 
pounds of copper, is just an extension of this trend.
    Thus, projected growth in demand for copper mine production 
of some 3.7 percent per annum over the next decade translates 
into a growth of some 7 million tons per year. Allowing for the 
inevitable mine closures, this means that within a decade less 
than half of world demand for copper mine supply can be met 
from existing mines. The balance will largely need to come from 
new mine developments.
    On current projections, there will not be sufficient new 
mines in production by the middle of the next decade to meet 
this projected demand. The world needs the equivalent of 30 new 
major mines to meet the projected growth in demand. However, 
new greenfields mining projects are few, following a period of 
prolonged underinvestment in base metal exploration which has 
restricted the number of new discoveries to below what is 
needed to even replace mine production.
    The shortage of new projects in the pipeline is a major 
issue for the industry. The rule-of-thumb is that it takes 
eight years from discovery to mine development. However, lead 
times can be significantly longer than this, aggravated by the 
increased level of regulation and longer permitting times. In 
addition, the concentration in the mining industry means that 
major mine development decisions are now in the hands of 
companies who, by their very nature, tend to be more 
conservative decision takers. Only nine companies now produce 
half of the world's copper mine production.
    Concentration is not all bad. Given that major mine 
development costs are in the order of one to $2 billion, only 
large companies can finance such projects. However, the 
concentration in the industry is certainly a contributing 
factor to Chinese concern over future supply and the Chinese 
moves to acquire international mining companies and invest in 
new project development in exchange for off-take rights.
    Another challenge facing the industry is that it will need 
to develop mines in new regions of the world. The occurrence of 
copper deposits is controlled by geology, with large deposits 
predominantly confined to modern or ancient continental 
margins.
    The USA has a number of known but yet undeveloped major 
copper deposits, the two largest being Resolution in Arizona 
and the Pebble copper-gold deposit in Alaska. However, the 
Safford mine development, still awaiting final permitting, will 
be the first new, major copper mine in the USA in over 30 
years. This lack of new mine development in the U.S. means that 
today the U.S. produces only half of the copper it consumes.
    However, with the difficulties of permitting and the ``not 
in my back yard'' approach to new mine development in North 
America, then the back yards from which future copper mine 
supply will come increasingly are from Chile, which already 
produces half of the world's mined copper; Peru; Kazakhstan; 
China, Tibet, and Mongolia; the Philippines, Pakistan, and the 
Congo. Exploration will then need to search wider in the lies 
of the Far East of Russia, Angola, Iran, and Turkey.
    In conclusion, there is no easy answer to where the next 
and subsequent generations of copper mine supply will come from 
to supply an increasingly copper hungry world. Thank you.
    [The prepared statement of Ms. Storer follows:]

         Statement of Robyn Storer, Consultant Mining Analyst, 
                          Westhouse Securities

    Mr. Chairman, members of the Committee, I am Robyn Storer, 
Consultant Mining Analyst for Westhouse Securities in London.
    I am pleased to have the opportunity to speak with you today 
regarding the Daunting Challenge the Copper Mining Industry Faces to 
Meet the Growth in World Demand.
DEMAND DRIVERS
    Demand for copper, and metals in general, is growing worldwide.
    GDP and investment are rising in the emerging economies of China, 
India, Russia Brazil and elsewhere, and will continue to rise, as 
people in these countries work towards bringing a North American 
standard of living to their families. There are over 2.3 billion 
Chinese and Indians today, nearly 40% of the world's population; by 
2050 this figure is forecast to rise to 3.2 billion. (Fig. 1)
    This demand for housing, automobiles, telephones, white goods and 
electronics--and in turn for the commodities that are the building 
blocks of these products means that these economies will need to 
consume mountains or, in the mining context, great pits of metals, to 
realize the dream of urbanization, industrialization and consumerism. 
(Fig. 2)
    However, the growth in demand for copper is not restricted to these 
fast growing emerging economies.
    Copper is what I like to term a ``modern metal'', a metal with a 
long past, but a bright future.
    The electrical characteristics of copper make it an essential 
component of modern electronics. Whilst it seems obvious that copper 
helps runs our televisions and computers, less obvious are some other 
electrical applications. A modern family car today contains some 50lbs 
of copper and over a mile of copper wiring. However, it would be a 
mistake to assume that this is solely the result of the introduction of 
power windows, GPS systems and video monitors to entertain the 
children.
    A significant proportion of the increase in copper in vehicles has 
been under the hood applications, where electrical motors have replaced 
moving mechanical parts, boosting fuel efficiency and lowering fuel 
consumption. In this respect, the move to hybrid cars, vehicles 
containing on average 100 lbs of copper, is just an extension of this 
trend.
MAJOR NEW MINE DEVELOPMENTS NEEDED
    Thus projected growth in demand for copper mine production of some 
3.7% per annum (Fig. 3) over the next decade, translates into a growth 
from the current, just under 13 million tonnes per year of mined copper 
production to a number close to 20 million tonnes per year.
    Allowing for the inevitable closure of some mines through reserve 
depletion, this means that by 2016 less than half of world demand for 
copper mine supply can be met from production from existing mines. 
(Fig. 4).
    Brownfields expansions at existing operations can meet only a small 
part of the projected increase in demand.
    The balance will need to come from new mine developments.
WILL THERE BE SUFFICIENT NEW MINE DEVELOPMENT TO MEET DEMAND?
    Will there be sufficient new mines in production by the middle of 
the next decade to meet demand?
    On current projections, the answer to this is question, is NO.
    The world needs the equivalent of 30 new major mines by 2016 to 
meet the projected growth in demand.
    However, new green fields mining projects few.
    The reasons for this are: firstly, a period of prolonged 
underinvestment in exploration which has restricted the number of 
discoveries. Secondly, the poor allocation of those exploration dollars 
which, for example, saw almost two thirds of the world's mineral 
exploration budget in 2004 spent on the search for gold and diamonds.
    Not only has the mining industry not kept pace with the growth in 
demand, it is struggling to hold its ground. Worldwide, significant 
copper discoveries between 1998 and 2004 fell well short of what was 
needed to replace mine production. The growth in demand has meant that 
whilst 10 years ago the Industry needed to find 2.4 Mt of mineable 
copper to replace daily production; by 2005 this figure had risen to 4 
Mt per day. This means that rate of discoveries to replenish daily 
production needed to increase by about 66%, in reality; it rose by only 
25%.
SHORTAGE OF NEW PROJECTS IN THE PIPELINE
    This shortage on new projects in the pipeline is a major issue for 
the Industry.
    The rule of thumb is that it takes eight years from discovery to 
mine development. However, lead times can be significantly longer than 
this.
    Aggravating the speed of new mine development is the increasing 
concentration in the mining industry, with fewer and larger companies.
    This means major mine development decisions are now, by and large, 
in the hands companies who, by their very nature, tend to be more 
conservative decision takers. In the case of copper, only nine 
companies now produce half of the world's copper mine production.
    Concentration is not all bad; given that major mine development 
costs usually run in the order of 1.5 to 2 billion dollars, only large 
companies can finance such projects.
    However, the concentration in the industry is certainly a 
contributing factor to Chinese concern over future supply, and the 
consequent Chinese push to acquire companies, for example, MinMetals 
unsuccessful bid for Noranda last year, and to the growing investments 
by Chinese companies in new project development, in exchange for off-
take rights.
    Lead times for mine developments have also increased with the 
increased level of regulation and time taken over permitting.
INCREASINGLY COPPER MINE PRODUCTION WILL COME FROM NEW MINING AREAS
    Another challenge facing the Industry is that it will need to 
develop mines in new regions of the world.
    The occurrence of copper deposits is controlled by geology--with 
large deposits predominantly confined to modern or ancient continental 
margins (Fig. 5).
    1.  The USA has a number of known but a yet undeveloped major 
copper deposits: the two largest by far being: Resolution in Arizona 
(which is planned to replace copper mined from Bingham Canyon when that 
mines begins to runs out of ore resources in 2017) and the large Pebble 
copper-gold deposit in Alaska.
    However, Phelps Dodge's Safford mine development, still contingent 
on certain permit approvals, will be the first new major copper mine to 
be opened in the USA in over 30 years.
    This lack of new mine development in the USA means that today the 
USA produces only half of the copper it consumes, a shortfall of 1 
million tonnes per year.
    2.  B.C. in Canada has a number of large, but low grade copper 
deposits which can be brought on stream
    However, with the difficulties and delays of permitting and the 
worrying trend to a 'not in my backyard' approach to new mine 
development in North America, then the backyards in which the major 
copper mine supply growth of the future will increasingly come from 
are:
    1. Expansions of existing operations and some new mine developments 
in Chile--but to some extent this is only compensate for mine closures 
and the drop in ore grades;
    2. The development of known deposits and yet to be discovered 
copper deposits in Peru. However, worrying is the recent political 
rhetoric of nationalization in Peru, coming hard on the heals of the 
nationalization policies emerging in Venezuela and Bolivia;
    3. China, Tibet and Mongolia--the large, slowly developing Oyu 
Tolgoi copper deposit in Mongolia and the development if a number of 
mid-sized to large copper deposits in Tibet; will go to help feed the 
hungry Chinese copper market;
    4. The Philippines, although the political situation in the 
Philippines has been a major source of development delays;
    5. Pakistan, with the major Reko Diq copper deposit recently 
purchased by a consortium of Antofagasta and Barrick; but questions 
exist about security and stability in this region;
    6. And of course the DRC, the Congo where a number of major and 
junior companies are looking to develop mining operations. However, 
political considerations, the long, 1500 km transportation distances to 
the coast and lack of infrastructure such as power generation--will not 
see the Congo reach anything like its mineral production potential in 
under several decades, at least.
    After these areas, my pick of exploration areas for the next major 
discoveries are: the Far East of Russia--in similar geological terrain 
to Nth America, Angola, part of the central African copper belt and 
across the border from Pakistan, in Iran and along the same belt into 
Turkey.
CONCLUSION
    So, in conclusion, there is no easy answer to where the next and 
subsequent generations of copper mine supply will come from, to supply 
an increasingly copper hungry world.
    Thank you.
    [GRAPHIC] [TIFF OMITTED] 27720.001
    
Copper in Construction
  An average family home contains more than 90 kg of copper
        88 lbs of electrical wire
        66 lbs of plumbing
        33 lbs of builders hardware
        20 lbs inside electrical appliances-11 lbs of brass goods
      An example of Longevity in Construction Uses
        The Statue of Liberty contains more than 37,000 tonnes 
(81.5 million lbs) of copper
                                 ______
                                 
Copper in Transportation
  Vehicles, the Average family sedan contains:
        on average 50 lbs of Copper
        over 1 mile of copper wiring:
              50% electrical distribution systems and wiring 
            harnesses,
              20% generators, starter motors and other 
            electromechanical components
  Hybrid Cars contain 100 lbs of copper
  A Boeing 747-200 jet plane contains:
        approximately 1.8 tonnes of copper
                                 ______
                                 
Copper -- Environmentally Friendly
  Copper is environmentally friendly and recyclable
        over 80 % of copper ever mined is still in use
        alloyed with tin = bronze
        alloyed with zinc = brass
  Copper is essential to the metabolism of all living things
  Copper is vital to humans
        Adults need 2-3 mg in their diet daily
                                 ______
                                 

                                 [GRAPHIC] [TIFF OMITTED] 27720.002
                                 

Impact of Industry Consolidation
  Fewer players
        Nine companies now control over half the world's copper 
production
        Increasing number of possible developments now held in 
fewer hands
  Larger companies tend to be:
        Better capitalized
        More cautious investors
        More focused on projects with a material impact on the 
overall company
        Sequential Developers--Not Simultaneous
    [GRAPHIC] [TIFF OMITTED] 27720.003
    
    [GRAPHIC] [TIFF OMITTED] 27720.004
    
                                 ______
                                 
    Mr. Gibbons. Well, as they always say, on every committee, 
there is a woman who always sets the pace. You have done a 
remarkable job in giving your five-minute speech within the 
five-minute timeframe, and I think the other guys ought to 
learn from your experience as well. Thank you very much. The 
committee truly appreciates the fact that you have flown from 
England all the way here to meet with this committee, and thank 
you for the trouble and effort that you went to get here. We 
are very pleased.
    Before I turn to Mr. Frank, let me explain that the ugly 
buzzers that you heard in the middle of your testimony is an 
indication that we have a series of votes on the Floor of the 
House. The first vote is 15 minutes, and that was about three 
and a half minutes ago, so I believe I can get the testimony of 
Mr. Frank in before I have to leave to go vote. We will take a 
brief recess at that point in time, come back, and we will 
continue. I do apologize for this interruption, but it is 
something that I have no control over, and I certainly hope you 
will understand and forgive us for the fact that we do have 
other things going on, including votes on the Floor.
    Mr. Frank, welcome, Marathon PGM Corporation. We look 
forward to your testimony. The floor is yours.

            STATEMENT OF JAMES D. FRANK, CHAIRMAN, 
                    MARATHON PGM CORPORATION

    Mr. Frank. Mr. Chairman, Members of the Subcommittee, thank 
you for the opportunity to appear before you today to discuss 
the status of future mine development in the U.S.
    My name is James D. Frank, and I am the Chairman of 
Marathon PGM Corporation, a Canadian company. I was born and 
raised in Kellogg, Idaho, in the Silver Valley mining district. 
I worked my way through college by working at the Bunker Hill 
lead smelter. After graduating from the University of Idaho, I 
went to work in the mining industry in Idaho. In 1996, I went 
to work for Summo Minerals Corporation in Denver, Colorado. In 
2001, I was laid off from Summo and started to work on my own. 
In September of 2003, I founded Marathon, a small, exploration/
development company in Canada, although I still live and work 
in Centennial, Colorado.
    Marathon has a mining property in northern Ontario with a 
resource containing 1.5 million ounces of palladium, 400,000 
ounces of platinum, and 348 million pounds of copper. In the 
last three years, I also helped form a copper company with 
properties in the Philippines, which now also has two 
additional properties in Africa.
    I have been involved in mining in the United States all of 
my life until 2003. Actually, my father started mining in Idaho 
in 1932, and I started to work at the Bunker Hill smelter in 
1966.
    Why am I now running a Canadian company with a Canadian 
mining property? The answer is risk. This is a picture that I 
keep in my office. This was the 19th century ``mine finder.'' 
He was an opportunist. He had to assess his risks, not unlike 
today. He had to get his first ``grub stake.'' In other words, 
he had to convince other people he could find a mine so he 
could get enough supplies to search for the mine. His odds of 
success were something on the order of 10,000 to one, not 
unlike today.
    If he was lucky enough to find mineralization, he or 
someone else came back for a second grub stake, more financing 
to develop the property further. Now his odds were maybe 1,000 
to one, not unlike today.
    Then he or someone else would come back and get a third 
grub stake to develop the mine. He also had to hope that the 
price of the commodity did not drop, or everything he was 
working for was for naught. His odds now were probably 
something on the order of 10 to one, not unlike today.
    An added risk we have today is permitting. With all of the 
risks, this risk has made it almost impossible to find 
financing for early stage projects in the United States.
    The last risk of permitting is not ``can you get a mine 
permitted with good environmental standards,'' but ``can you 
get it permitted at all?''
    No one wants to go back to what we had before 1972. I 
remember growing up in Kellogg, where the air was filled with 
smelter smoke so thick you could cut it with a knife, and the 
South Fork of the Coeur d'Alene River was gray from mine 
tailings being dumped directly into the mine. These are 
unacceptable practices today, but the current permitting 
process is also unacceptable.
    To illustrate this additional risk, I would like to explain 
my experience at Summo. Schedule A here shows the line of 
permitting events for Summo's Lisbon Valley Copper Project in 
Moab, Utah. Summo's permitting started in January 1991. By 
February of 1996, when I joined Summo, they had already filed 
their preliminary draft EIS. One year later, in 1997, Summo had 
a record of decision from the BLM approving the construction of 
the project.
    By March of 1997, Greg Hahn, the President of Summo, and I 
had put together $62 million in financing to construct the 
project. This financing consisted of bank loans, supplier 
loans, and common stock sales. Summo started construction in 
April 1997. In May 1997, an environmental group organized by 
the National Wildlife Federation and the Mineral Policy Center 
filed an appeal and petition for stay. In June 1997, the 
Interior Board of Land Appeals granted a stay. Summo was told 
it could build the mine, but it could not mine it until the 
stay was removed.
    Under the stay, of course, Summo could not complete the 
bank loan and, therefore, could not build the facility. 
Finally, in March 1999, the IBLA ruled entirely in Summo's 
favor, the stay was removed, and Summo could proceed. However, 
the price of copper had dropped from $1.20 to less than 60 
cents. Summo stock had dropped from over $1.50 to only a few 
pennies.
    Greg Hahn was forced in 2001 to lay off most of this 
employees, including me, and hold on as best he could. Finally, 
in 2003, as metals prices started to recover, Greg was able to 
finally build Lisbon Valley is now operating. But the capital 
cost to build the project had increased by more than 50 
percent. Lisbon Valley Project is today a success story, with 
over 130 people employed and producing at a rate of 60 million 
pounds a year. However, the original investors lost most of 
their investment because it took almost 10 years from the 
record of decision to a producing mine. There were no good 
arguments against building the mine in 1997.
    The two environmental groups routinely challenge every 
significant new mining project in the U.S. They have very 
competent lawyers, and their strategy is simply to delay each 
project as long as they can and hope that the investors will 
throw in the towel.
    This is a personal story, but it has been repeated hundreds 
of times over the last 15 years. It is now very difficult, if 
not impossible, to raise money for exploration/development 
projects in the U.S. Canada has a very strong, environmental 
permitting process, but the problem in the U.S. is that anyone 
can slow or stop the process for the price of a stamp, even if 
they have no valid concerns.
    This is why I can get a grub stake for projects in the 
Philippines and Canada but not in most places in the U.S. 
Nevada is one of the exceptions to this rule. We hope to be 
able to start construction on Marathon's PGM project in the 
next few years, a timeframe that is very difficult to match in 
the U.S.
    As others today have explained, we need minerals--copper, 
PGMs--in order to produce fuel cells and smog-free cars. We 
have to be able to mine these minerals--platinum, palladium, 
and copper--in the U.S. as well as other places. Thank you, Mr. 
Chairman.
    [The prepared statement of Mr. Frank follows:]

    Statement of James D. Frank, Chairman, Marathon PGM Corporation

    Mr. Chairman, Members of the Subcommittee, thank you for the 
opportunity to appear before you today to discuss the status of future 
mine development in the US.
    My name is James D. Frank and I am the Chairman of Marathon PGM 
Corporation (Marathon), a Canadian company. I was born and raised in 
Kellogg Idaho in the Silver Valley mining district. I worked my way 
though college by working at the Bunker Hill Lead Smelter. After 
graduating from the University of Idaho, I went to work in mining 
industry in Idaho. In 1996, I went to work for Summo Minerals Corp (now 
Constellation Copper Corp.) in Denver, Colorado. In 2001, I was laid 
off from Summo and started to work on my own. In September of 2003 I 
founded Marathon, a small exploration/development company in Canada, 
although I still live and work in Centennial, Colorado.
    Marathon has a mining project in northern Ontario with a resource 
containing 1.5 million ounces of palladium, 400,000 ounces of platinum 
and 348 million pounds of copper. In the last three years I also helped 
form a copper company with a property in the Philippines, which now 
also has two additional projects in Africa.
    I have been involved in mining in the United States all of my life, 
until 2003. Actually, my father started mining in Idaho in 1932, and I 
started work at the Bunker Hill Smelter in 1966.
    Why am I now running a Canadian company with a Canadian mining 
property? The answer is RISK.
    This is a picture that I keep in office. This was the 19th century 
``mine finder'', he was an opportunist. He had to assess his many 
``RISKS'', not unlike today:
    1.  He had to get his 1st ``grub stake''. In other words, he had to 
convince others that he could find a mine so that he could get enough 
supplies to search for a mine. His odds of success were something in 
the order of 10,000 to 1, not unlike today.
    2.  If he was lucky enough to find mineralization, he, or someone 
else, would come back to get a 2nd ``grub stake'', more financing to 
develop the property. Now his odds were reduced to maybe 1 in 1,000, 
not unlike today.
    3.  Then he (or someone else) would get a 3rd ``grub stake'' to 
develop the mine. He also had to hope the price of his commodity did 
not drop, or everything he had worked for was for ``not''. His odds 
were now in the order of 10 to 1, not unlike today.
    4.  The added ``RISK'' we have today, is permitting. With all of 
the other ``RISKS'', this risk has made it almost impossible to find 
financing for early stage projects in the US.
    This last ``RISK'' of permitting is not ``can you get a mine 
permitted with good environmental standards'' but ``can you get it 
permitted at ALL''.
    No one wants to go back to what it was before 1972. I remember 
growing up in Kellogg where the air was filled with smelter smoke so 
thick at times ``you could cut it with a knife'' and the South Fork of 
the Coeur d'Alene River was gray from mine tailings being dumped 
directly into it. These are unacceptable practices today, but the 
current permitting process is also unacceptable.
    To illustrate this additional risk, I would like to explain my 
experience at Summo. Schedule A shows a time line of permitting events 
for Summo's Lisbon Valley Copper Project out of Moab, Utah. Summo's 
permitting started in January 1991. By February 1996, when I joint 
Summo, they had already filed their Preliminary Draft EIS. One year 
later in March 1997, Summo had a Record of Decision from the BLM 
approving the construction of the project.
    By March of 1997, Greg Hahn, the President of Summo, and I had put 
together a $62 million financing (``3rd Grub Stake'') to construct the 
project. This financing consisted of; bank loans, supplier loans and 
common stock sales. Summo started construction of the mine in April 
1997. In May 1997 an environmental group organized by the National 
Wildlife Federation and the Mineral Policy Center filed an Appeal and 
Petition for Stay. In June 1997 the Interior Board of Land Appeals 
(IBLA) granted a stay on ``mining''. Summo was told it could ``build 
the mine'' but it could ``not mine it'' until the stay was removed.
[GRAPHIC] [TIFF OMITTED] 27720.005


    Under the ``stay'', Summo could not complete the bank loan and 
Summo eventually lost the bank loan facility. Finally in March 1999, 
the IBLA ruled entirely in Summo's favor, the stay was removed, and 
Summo could proceed. However, the price of copper had dropped from over 
$1.20/ lb to less than $0.60, and Summo stock had dropped from over 
Cd$1.50/share to only a few pennies (see price chart).
    Greg Hahn was forced in 2001 lay off most of his remaining 
employees, including me, and hold on as best he could. Finally in 2003, 
metal prices started to recover and Greg has been able to finally build 
Lisbon Valley and is now operating. But, the capital cost to build the 
project had increased by more than 50%. Lisbon Valley Project is a 
success story today with over 130 people employed and producing copper 
at a rate of 60 million pounds a year However, the original investors 
lost most of their investment because it took almost ten years from the 
Record of Decision to a producing mine. There were no good arguments 
against building the mine in 1997. The two environmental organizations 
routinely challenge nearly every significant new mining project that is 
proposed in the US. They use very competent lawyers, and their strategy 
is simply to delay each project for as long as they can in hope that 
the investors will give up and ``throw in the towel''.
    This is a personal story but it has been repeated 100's of times 
over the last 15 years. It is now very difficult, if not impossible, to 
raise money for exploration/development projects in the US. Canada has 
a very strong environmental permitting process. The problem in the U.S. 
is that anyone can slow or stop the process for the price of a stamp, 
even if they have no valid concern.
    This is why I can get ``grub staked'' for projects in the 
Philippines and in Canada but not in most places in the US. Nevada is 
one exception to this rule. We hope to be able to start construction on 
the Marathon PGM project in the next few years, a time frame that would 
be very difficult to match in most of the US.
    As others have explain today, if we want fuel cell cars and smog 
free cars, we have to be able to mine the platinum, palladium and even 
copper to make them.
    Thank you
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Frank. Again, I 
apologize for the delay here that is going to take place. We 
have a series of three votes. There are about five minutes 
remaining on the first one, so I have about enough time to run 
over there and make that vote. There will be a second series, 
two five-minute votes, so give me about 20 minutes to complete 
this process, and then we will come back. So as that goes, this 
committee is now in recess.
    [Recess.]
    Mrs. Drake [presiding]. Thank you for your patience with us 
while we are voting. Chairman Gibbons sends his apologies, that 
he has another conflict.
    I am Thelma Drake from Virginia, and I welcome you here. 
Sorry that I was unable to hear your testimony, but I know we 
are going to move into questions now for you. The first 
question that Chairman Gibbons and I both have for any of you 
who would like to answer it is, always in the past, there seems 
to have been discussion about the technology, the need for the 
resource versus the environment, and with the changes in 
technology today, do you see a way where those two things could 
be brought together and that we can stop having the debate that 
pits one side against the other and develop a way that 
technology could accomplish the protection of the environment, 
like we all want, along with being able to use the resource? I 
would like to ask all of you that question, if you would like 
to weigh in on it.
    Mr. Frank. Well, I will start a little bit. One thing we 
need to do is maybe have some realism. Mining, the nature of 
the business is to dig into the dirt, take out rocks, crush 
them up, and stack them. So we are always going to have some 
scarring on the earth. It is not unlike what we do when we 
build a housing development. We tear up the trees, put in roads 
and put in houses. Those houses may only last 40 years or 60 
years, and then they become an eyesore.
    In mining, we do somewhat the same. We dig it up, we 
process the ore. So what we can do, and have done, for someone 
that has been in the mining business all of my life and have 
seen the really bad and where we have come to, it is remarkably 
different now where we do use technology and do not put mine 
tailings directly into the rivers, which we used to do. By the 
way, automobile industry and furniture manufacturers did the 
same thing, but we have not stopped those industries as we have 
in mining. We, for some reason, have really focused on mining. 
Even though they have stopped doing these things, we will go 
back because the old mine tailings are on the hillside or 
something.
    So we have made big strides. We take the tailings ponds 
that are left and cover them with soil and plant trees on them. 
Now, does it look just like the mountains? No, it is different, 
but that is where we are. The same thing in a housing 
development: When a housing development stops being useful, you 
can tear it down, but it will never go back to the same state 
it was in.
    Mrs. Drake. But, still, it can be very nice in the end. I 
have seen it in Pennsylvania where they have reclaimed mine 
land, and a phenomenal difference over the pictures of what had 
been there before.
    Mr. Frank. Absolutely. One problem we have is that there 
are mines that that did not happen to, and so they are still 
there as an eyesore, and people look at those that may have 
been shut down for 40 years, and they are still there. They are 
still an eyesore.
    Mrs. Drake. Thank you.
    Ms. Storer. Speaking as a geologist, and often talking with 
other geologists, we are the people at the forefront. We are 
out in the environment. We are out in these remote places. We 
consider ourselves to be environmentalists. We appreciate the 
remote areas we are working in, but, again, conceding the need 
for mine development, I think technology today does provide the 
ability to protect the environment, to return the water 
quality, to not pollute the local environment. But, as pointed 
out, if you dig something out, you are going to make a mark on 
the landscape, but I think we all in the industry are conscious 
that we want to minimize that impact, both for our own benefit 
as environmentalists and for the future generations.
    Mrs. Drake. Thank you.
    Mr. Menzie. I think, a lot of times when we talk about the 
environmental problems, we focus on the production end of the 
cycle, and I think we also have to be mindful of the use of the 
manufactured products and the environmental problems that those 
cause when they reach end of use cycle and have to go into 
landfills.
    One of the ways that we could limit that part of the 
environmental impact of minerals use is through increased 
recycling. The biggest problem with recycling is the cost of 
collection. It is possible that information technology in the 
form of things like radio chips, which could be applied to 
parts of manufactured goods, could reduce the cost of recycling 
by allowing automated separation of parts. So I think there are 
things that could be done that would address that part of the 
materials cycle as well.
    Mr. Stewart. I think I am the only nongeologist sitting at 
this table. I would just tell you, from the supply side end, 
that, you know, the environment is very important to us, and we 
have taken to making sure that everything we do in our plants 
and our factories are in favor of the environment, recycling as 
much as we can, particularly copper. We try to make sure we use 
it as efficiently as possible because the supply piece of it is 
not very good for us. So from that standpoint, on the other 
side, we are trying to do our best around managing it from an 
environmental standpoint.
    Mrs. Drake. Well, thank you for that. I do agree with you. 
I think that even though we see the need to take the resources 
from the ground that we would all consider ourselves 
conservationists and that we want it done in the best manner 
possible. I appreciate your answers.
    I have read all of your testimony, just before we go to 
questions, and I truly had not thought about the tremendous 
pressure that is going to be put on platinum and copper now as 
we move into these new alternative methods of transportation, 
so it was an eye opener for me.
    Mr. Stewart, do you think that the activities of hedge 
funds should be subject to increased levels of regulation by 
the Federal government or, as the Chairman of the Federal 
Reserve has suggested, by the banks?
    Mr. Stewart. I can tell you, and I commented on it in my 
statement, that we believe that hedge funds are impacting the 
price of copper. So if that is the case, and they need to have 
some oversight, I think the answer is yes. I am not educated 
enough on the subject to really articulate whether they are 
going to continue to drive the cost up, but right now someone 
needs to pay attention to them because they are impacting our 
prices significantly, which, by the way, end up in the cost to 
the consumer.
    Mrs. Drake. Thank you. That was an interesting sideline on 
that, that we may need to look at that as well as the 
environmental issues.
    Dr. Menzie, your title says you are the Chief of 
International Minerals Section of the Minerals Information 
Team. What role do you and the employees in your section play 
within the minerals information team?
    Mr. Menzie. Madam Chairman, our group of about 16 employees 
collects information on production and use of minerals 
worldwide, so in about 180 countries for about 90 mineral 
commodities, we collect the information, publish it, analyze 
it, and report on it for both the public and for private 
interests.
    We also act as specialists on different issues to other 
parts of the government. For example, we provide expertise to 
the State Department with regard to production and trade in 
diamonds in support of the Kimberly process.
    Mrs. Drake. And, Dr. Menzie, this may be a little bit of an 
uncomfortable question for you, but I think it is very 
important that we get the answer, and that is, would you and 
your section be able to continue to perform your current duties 
and functions if the President's Fiscal Year 2007 budget were 
to be enacted by the Congress? What would the minerals team be 
able to tell us about foreign mineral markets, consumption, 
production, and all of that?
    Mr. Menzie. My understanding of the 2007 budget is that it 
would eliminate minerals reporting by the section, so that 
function would not be available in the future.
    Mrs. Drake. And you would not be able to do your job 
properly.
    Mr. Menzie. I would not be able to do it at all.
    Mrs. Drake. Right. Thank you very, very much. Thank you for 
an honest answer.
    Ms. Storer, are the recent copper prices above $3 per pound 
copper justified, in your view, and where do you see the long-
term prices of copper going?
    Ms. Storer. I think we in the industry see above $3 copper 
prices as a bit of a speculative bubble. However, the copper 
prices needed to maintain all existing mines in production 
today are something on the order of $1.50 a pound of copper. 
This increase has come as wages have risen and, in particular, 
the price of energy has risen. Energy is used both to mine the 
rock, to crush it, to grind it, to process it, and then to 
transport it to the markets.
    In addition, the long-term price is going to have to stay 
at a reasonable level to provide a return to investors if we 
are going to see new investment in new mine production. As I 
have pointed out, the new mines are likely to come from areas 
that carry political risk. It is all about risk and reward. If 
we are going to make an investment, we are going to have to see 
a reasonable return on our investment, and that means long-term 
higher copper prices than we have seen historically.
    Mrs. Drake. Thank you. I also wanted to ask you, because 
you have pointed out the need to ramp up the levels of 
exploration, but one thing we always talk about here in 
Congress is our workforce, and I wondered if the companies have 
access to a sufficient number of trained geologists to succeed 
in a ramp up. Where are we as far as workforce goes?
    Ms. Storer. I think there is a critical shortage of trained 
and skilled geoscientists worldwide. We have lost a lot of 
mining schools. In the years when metal prices were low, 
companies cut their exploration budgets, people left the 
industry, and we just have not seen the younger generation 
coming through to replace those geoscientists.
    Mrs. Drake. When they left, we lost them. We lost the 
workforce.
    Ms. Storer. When they left, we lost them, and they are 
certainly not coming back.
    Mrs. Drake. Thank you. Do you think that state-owned 
companies have a material or financial advantage over privately 
held companies, and do you see any evidence that state-owned 
companies are increasing their participation in exploration? 
Have you thought about that?
    Ms. Storer. Well, historically, state-owned companies have 
not been successful. Where we have seen the success in a lot of 
countries around the world is in the privatization, which has 
revitalized their mineral sectors. So, no, I do not think 
state-run companies are the way to run exploration in the 
future. No, I do not see them going in to exploration, nor do I 
see the major private companies ramping up to the extent that I 
think that we need to see to make the discoveries needed to 
find mines for the future.
    Mrs. Drake. Thank you.
    And, Mr. Frank, in your testimony, you present a rather 
stark tale of a junior company being severely damaged by an 
attack by national-level interest groups, leading to the near 
bankruptcy of your employer. During the permitting process, 
what was the attitude of the local population about the 
development of the mine, and were they supportive of the 
development?
    Mr. Frank. Yes. The local communities typically, and this 
is very typical, welcome this type of activity because the 
wages tend to be four to six times higher than the average wage 
in the community, so they were quite supportive. We did have 
several town hall meetings in different cities, so I think we 
had a total--it is back 10 years, so it has been a while, but 
in the order of 12 different local meetings, very supportive. 
But we did receive letters from places like Florida--these are 
meetings in Utah--and New York, et cetera, complaining about 
the activities that we were going to have in the district, but 
the local people were very supportive and still are. There are 
150 jobs there now that are very highly paid, and the mining 
company becomes a very active part of the communities.
    Mrs. Drake. Thank you. I would like to thank the witnesses 
for your valuable testimony and also for the extra time you had 
to take for us and for the questions that you have answered. 
Members may have additional questions for the witnesses, and we 
will ask you to respond to these in writing if some of our 
colleagues who could not be here today may have questions that 
they would like to present to you based on the testimony.
    The hearing record will be held open for 10 days for these 
responses, and I would like to thank you very much and 
recognize the second panel. So thank you.
    [Pause.]
    Mrs. Drake. If I could ask the panel to please stand and 
raise your right hand and then respond after I read the oath.
    [Witnesses sworn.]
    Mrs. Drake. Thank you very much. I would like to recognize 
our second panel: Chris Guzy with Ballard Power Systems, Robert 
Rose with U.S. Fuel Cell Council, Eric Carlson, TIAX; and Milt 
Copulos, National Defense Council Foundation.
    The Chairman now recognizes Chris Guzy to testify for five 
minutes. You probably saw that the timing lights on the table 
will indicate when your time has concluded. All witness 
statements will be submitted in the hearing record. Mr. Guzy, 
welcome. Thank you.

  STATEMENT OF CHRIS GUZY, CHIEF TECHNOLOGY OFFICER, BALLARD 
                         POWER SYSTEMS

    Mr. Guzy. Madam Chairman, Members of the Subcommittee, my 
name is Chris Guzy, and I am the Chief Technology Officer of 
Ballard Power Systems. Thank you for the opportunity to speak 
to you today on the subjects of platinum and fuel cell 
commercialization.
    The purpose of my testimony is to provide the Subcommittee 
with an understanding of the use of platinum in fuel cells, 
outline Ballard's Technology Road Map for achieving key 
technical targets that underpin the commercialization of 
automotive fuel cells, and to review the important role that 
platinum plays within that framework. I will also offer a set 
of steps the government can take to support fuel cell 
commercialization in the context of the technology's platinum 
use.
    Ballard is recognized as a world leader in developing and 
manufacturing proton exchange membrane, or PEM, fuel cells. We 
have been developing PEM fuel cells since 1983 and hold nearly 
1,000 patents, issued and pending, on some of the most 
fundamental fuel cell intellectual property.
    We are the exclusive supplier to Ford and DaimlerChrysler 
and have supplied fuel cells to many of the world's other major 
automotive manufacturers. Today, Ballard powers more customer 
demonstration vehicles than all other fuel cell developers 
combined.
    In addition to automotive applications, Ballard is actively 
working with partners and lead customers to develop fuel cell-
powered products for residential cogeneration, forklifts, and 
backup power. Each of the applications presents less 
challenging cost requirements than automotive and are on a 
nearer term path to commercialization. These early markets will 
help facilitate the transition to fuel cell vehicles by, among 
other contributions, growing the PEM supply base and 
establishing early hydrogen infrastructure.
    It is interesting to note that the relative contribution of 
platinum to cost in these applications is less significant than 
in automotive, a function of the fact that lower production 
volumes generate higher costs in other areas, such as stack 
assembly. However, given that the largest potential fuel cell 
application is the automotive market and that the relative 
contribution of platinum to cost is higher in automotive fuel 
cell applications, that is where I will focus my remarks today.
    In 2004, we began publishing a Technology Road Map, a 
public commitment to demonstrate commercially viable automotive 
fuel cell technology by 2010. This Technology Road Map is 
aligned with the DOE's commercial targets for automotive fuel 
cells and addresses the key factors of durability, freeze-
start, and power density.
    My comments here center on the interplay of platinum with 
cost and durability. However, for the record, our submitted 
testimony discusses progress toward each of the four goals.
    Meeting the DOE's 2010 high-volume stack cost target of $30 
per kilowatt is required for fuel cells to compete with today's 
internal combustion engines. Over the past four years, we have 
consistently achieved significant cost-reduction targets and 
are confident we will meet this important goal. Between 2002 
and 2005, the projected high-volume cost of Ballard's 
automotive stack technology has been reduced from $125 per 
kilowatt down to $73 per kilowatt. In 2006, our target is to 
reduce the cost to less than $65 per kilowatt.
    The impact of platinum catalyst on overall fuel cell stack 
cost is significant. A fuel cell consists of bipolar plates 
that carry the reactant gases, an electrolyte membrane, and two 
catalyst-coated electrodes. Platinum is required on both 
electrodes and is core to achieving the required levels of fuel 
cell performance.
    A major thrust of our cost-reduction strategy has been to 
lower the platinum loading. Between 1994 and 1999, Ballard 
achieved a tenfold reduction by switching from non-supported 
pure platinum catalysts to carbon-supported catalysts with 
increased platinum surface area to provide more accessible 
sites for the fuel cell electrochemical reactions. We improved 
fuel cell performance over this same period, despite the lower 
amounts of platinum, through improved catalyst utilization, 
optimized cell design, and implementation of better materials.
    Since 1999, we have achieved a further 40 percent reduction 
in catalyst loading while continuing to improve fuel cell 
performance. The path to meeting 2010 cost targets requires an 
additional 50 percent reduction in catalyst loading from where 
we are today. Early laboratory demonstrations give us 
confidence that we will achieve this goal.
    To get a sense of the relative contribution of platinum to 
the overall cost of the fuel cell, we should note that even 
with low catalyst loadings targeted for 2010, a fuel cell 
capable of delivering the required power will contain on the 
order of $1,000 of platinum at today's prices, or about 30 
percent of the total stack high-volume cost. This is five to 
ten times higher than the amount of catalyst found in 
conventional gasoline or diesel catalytic converters today.
    Last year, while aggressively pursuing lower platinum 
loadings, we were able to achieve automotive fuel cell stack 
lifetimes of 2,000 hours and are confident that by 2010 we will 
deliver to the DOE target. To put this in perspective, our 
cogeneration system for residential use in Japan operates under 
less rigorous duty cycles and achieved more than 10,000 hours 
of operation.
    To summarize, we know what the technical challenges are, we 
are pursuing multiple paths to resolution, and we are confident 
we will demonstrate commercially viable technology by 2010. 
Platinum will continue to play a pivotal role in the 
commercialization of fuel cell technology. That said, we agree 
with our colleagues at TIAX that the availability of platinum 
at a stable price should not be a barrier to fuel cell vehicle 
commercialization.
    In closing, I would like to recommend three important steps 
Congress can take to support fuel cell commercialization as it 
relates to platinum.
    First, Congress should provide fuel cell R&D funding at 
levels authorized in the Energy Policy Act of 2005 to increase 
public and private research efforts to reduce platinum loadings 
and investigate nonprecious metal catalysts that may someday 
replace platinum.
    Second, Congress should investigate whether and what 
government actions may be necessary to ensure a proper platinum 
recycling framework is in place.
    Third, Congress should legislate a meaningful set of tax 
credits for fuel cell vehicles for a 10-year period beginning 
early in the next decade. These tax credits, which should be 
phased, will help mitigate the short-term increase in platinum 
prices that can be expected to occur as supply adjusts to the 
new demand.
    Thank you for the opportunity to appear before you today. I 
look forward to any questions you may have.
    [The prepared statement of Mr. Guzy follows:]

        Statement of Dr. Chris Guzy, Chief Technology Officer, 
                         Ballard Power Systems

    Mr. Chairman, Members of the Committee, my name is Chris Guzy and I 
am the Chief Technology Officer of Ballard Power Systems. Thank you for 
the opportunity to speak to you today on the subjects of platinum and 
fuel cell commercialization.
    The purpose of my testimony is to provide the Committee with an 
understanding of the use of platinum in fuel cells; outline Ballard's 
Technology Road Map for achieving key technical targets that underpin 
the commercialization of automotive fuel cell technology; and review 
the important role that platinum plays within this framework. I will 
also offer a set of steps the government can take to support fuel cell 
commercialization in the context of the technology's platinum use.
    Ballard is recognized as a world leader in developing and 
manufacturing proton exchange membrane or PEM fuel cells. We've been 
developing PEM fuel cells since 1983 and hold nearly 1,000 patents, 
issued and pending, on some of the most fundamental fuel cell 
intellectual property.
    We are the exclusive supplier to Ford and DaimlerChrysler and have 
supplied fuel cells to many of the world's other major automotive 
manufacturers. Today, Ballard fuel cells power more customer 
demonstration vehicles than all other fuel cell developers combined. As 
well, our state of the art manufacturing facility provides volume 
production capability that is unmatched in the industry.
    It is from this leading position that we join with many others in 
the firm belief that hydrogen fuel cells will be the powertrain of the 
21st Century. Fuel cells have the power to transform our world because 
they offer a comprehensive solution to some of the most pressing 
problems of our time: energy security, global climate change, urban air 
quality, and long-term energy supply.
    In addition to automotive applications, Ballard is actively working 
with partners and lead customers to develop fuel cell powered products 
for residential cogeneration, forklifts, and back-up power. Each of the 
applications present less challenging cost requirements than automotive 
and are on a nearer term path to commercialization. These early markets 
will help facilitate the transition to fuel cell vehicles by, among 
other contributions, growing the PEM supply base and establishing early 
hydrogen infrastructure. It is interesting to note that the relative 
contribution of platinum to cost in these applications is less 
significant than in automotive--a function of the fact that lower 
production volumes generate higher costs in other areas, such as stack 
assembly. However, given that the largest potential fuel cell 
application is the automotive market, and that the relative 
contribution of platinum to cost is higher in automotive fuel cell 
applications, that is where I will focus my remarks today.
    To help guide and communicate our progress toward the demonstration 
of commercially viable automotive fuel cell technology by 2010, two 
years ago Ballard began publishing a Technology Road Map. This 
Technology Road Map is fully aligned with the Department of Energy's 
(DOE) published commercial targets for automotive fuel cells and 
focuses on the key factors of cost, durability, freeze-start, and power 
density.
    Let me first address cost. Meeting the DOE's 2010 high volume\1\ 
stack cost target of $30 per kW is required for fuel cells to compete 
with today's internal combustion engines. Over the past 4 years, we've 
consistently achieved significant cost-reduction targets and are 
confident we will meet this important goal. Between 2002 and 2005, the 
projected high volume cost of Ballard's automotive stack technology has 
been reduced from $125/kW down to $73/kW. In 2006, our target is to 
reduce the cost to <$65/kW.
---------------------------------------------------------------------------
    \1\ Defined as 500,000 units.
---------------------------------------------------------------------------
    The impact of the platinum catalyst on overall fuel cell stack cost 
is significant. A fuel cell consists of bipolar plates to carry the 
reactant gases, an electrolyte membrane, and two catalyst-coated 
electrodes. Platinum is required on both electrodes, and is core to 
achieving the required levels of fuel cell performance.
    Accordingly, a major thrust of our cost reduction strategy has been 
to lower the platinum loading in our fuel cells. Between 1994 and 1999, 
Ballard achieved a tenfold reduction in platinum loading. We did so by 
switching from non-supported pure platinum catalysts to carbon-
supported catalysts with increased platinum surface area to provide 
more accessible active sites for the fuel cell electrochemical 
reaction. We improved fuel cell performance over this same period, 
despite the lower amounts of platinum, through improved catalyst 
utilization, optimized cell design, and implementation of better 
materials.
    Since 1999, we've achieved a further 40% reduction in catalyst 
loading while continuing to improve fuel cell performance. The path to 
meeting the 2010 cost target requires an additional 50% reduction in 
catalyst loading from where we are today. Early laboratory 
demonstrations give us confidence that we will achieve this goal.
    To get a sense of the relative contribution of platinum to the 
overall cost of the fuel cell, one should note that even with the low 
catalyst loadings targeted for 2010--about 30 grams--a fuel cell 
capable of delivering 100 kW gross power (or roughly 130 horsepower) 
will still contain up to $1,000 of platinum at today's prices, 
representing approximately 30% of the total stack high volume cost. 
This is 5-10 times higher than the amount of catalyst that is found in 
a conventional autocatalyst today.
    As we work to lower platinum catalyst loadings, we must be careful 
to balance this objective against durability requirements, another key 
commercialization parameter. Last year, while aggressively pursuing 
lower platinum loadings, we were still able to achieve an automotive 
fuel cell stack lifetime of 2,100 hours and are confident that by 2010 
we will deliver on the DOE target of 5,000 hours--which is equivalent 
to the lifetime of today's internal combustion engine. To put this goal 
in perspective, our cogeneration system for residential use in Japan--
while operating under less rigorous duty cycles than the automotive 
application--has achieved more than 10,000 hours of lifetime.
    In addition to our progress toward cost and durability objectives, 
we are improving the ability of our fuel cells to start in freezing 
temperatures and are on track to exceed the DOE target for 2010. The 
electrochemical reaction within a fuel cell produces water and heat. 
Managing that water in sub-zero temperatures is essential to a 
successful start-up. Last year, we demonstrated technology that was 
able to start at -25+ Celsius, reaching 50% of the rated power within 
90 seconds, which represented a much faster time than our 2005 goal of 
150 seconds. Our goal for 2010--which is more stringent than the DOE 
target--is to demonstrate start-up from -30+ Celsius, reaching 50% of 
the rated power in 30 seconds.
    Lastly, power density is an important criterion to ensure that fuel 
cells can be packaged within the limited vehicle space available. Last 
year, we demonstrated fuel cell technology at 1470 watts net per litre. 
The DOE's 2010 commercial target is 2000 watts net per litre. As with 
freeze-start capability, Ballard has set a more stringent target based 
on our customers' requirements of 2500 watts net per litre and we're 
confident we can achieve this target through improved stack 
polarization performance and advanced cell designs.
    To summarize: we know what the technical challenges are, we have 
multiple technology paths that we are pursuing, and we are confident 
that we will demonstrate commercially-viable automotive fuel cell 
technology by 2010. As discussed, platinum will continue to play a 
pivotal role in the commercialization of automotive fuel cell 
technology. That said, we are in agreement with the conclusion that our 
colleagues at TIAX have reached in their DOE-commissioned analysis 
``Platinum Availability and Economics for August 4, 2006 PEMFC 
Commercialization''--the availability of platinum at a stable price 
should not be a barrier to fuel cell vehicle commercialization.
    In closing, I'd like to recommend three important steps Congress 
can take to support fuel cell commercialization as it relates to 
platinum.
    First, Congress should provide fuel cell R&D funding at levels 
authorized in the Energy Policy Act of 2005 to: (a) increase public-
private research efforts to reduce platinum loadings while 
simultaneously improving fuel cell performance; and (b) increase 
public-private research efforts aimed at the development of non-
precious metal catalysts to replace platinum. With respect to the 
latter, many of the alternative catalysts being investigated today are 
cobalt based, which offer a lower cost catalyst, but to date require a 
tradeoff of reduced performance and durability. Accordingly, we believe 
that while the substitution strategy is a good approach for the long-
term, we do not see non-precious metal catalysts offering a viable 
alternative at the point when fuel cells begin the transition to 
market.
    Second, Congress should investigate whether and what government 
actions may be necessary to ensure a proper platinum recycling 
framework is in place to support fuel cell vehicle commercialization.
    Third, Congress should legislate a meaningful set of tax credits 
for fuel cell vehicles for a 10-year period beginning early in the next 
decade. These tax credits--which should be phased (decreasing in value 
over time--will help to mitigate the short-term increase in platinum 
prices that can be expected to occur as supply adjusts to new demand.
    Thank you for the opportunity to appear before you today. I look 
forward to any questions you may have.
                                 ______
                                 
    Mrs. Drake. Thank you, Mr. Guzy. Next is Mr. Rose.

         STATEMENT OF ROBERT ROSE, EXECUTIVE DIRECTOR, 
                     U.S. FUEL CELL COUNCIL

    Mr. Rose. Thank you, Madam Chairman. My name is Bob Rose. I 
am the founding Executive Director of the U.S. Fuel Cell 
Council, the 120-member trade association of the fuel cell 
industry. Today's comments are my own, although I think they 
are fully consistent with the USFCC's policies, and, indeed, I 
hope they are.
    Fuel cells generate electricity electrochemistry without 
combustion. They typically harness the attraction that hydrogen 
or a hydrogen-rich fuel has for oxygen. In effect, they 
redirect a stream of electrons during the course of a chemical 
reaction, thus producing a current that can be put to work. 
This process is inherently clean and inherently efficient, so 
fuel cells have inherent advantages over conventional systems.
    Fuel cells are a family of technologies, and in the context 
of this hearing, it is important to recognize that different 
technologies use different materials. Generally speaking, the 
lower-temperature fuel cells use platinum group metals; fuel 
cells that operate at higher temperatures tend to use other 
materials.
    Fuel cells are being developed for virtually every power 
need, from consumer electronics and defense to power generation 
systems, industrial equipment, off-road vehicles, cars, trucks, 
buses, and so on.
    They do require high-tech materials, fuel cells do, and 
some materials are common to virtually all fuel cells, but 
there are significant differences. Chart 1 lists the key fuel 
cell materials other than platinum group metals, which are 
being addressed separately at the hearing. Some of the fuel 
cells use platinum group metals, some use base metal catalysts, 
and others rely primarily on heat. Materials on this list often 
are used in combination. Thus, molten carbonate fuel cells use 
lithiated aluminum oxide, and certain other solid oxide fuel 
cells use yttria stabilized Zirconia, but given my technical 
depth, I just say ``ceramics and rare earths.''
    The fuel cell industry does face substantial materials 
challenges, but these relate to characteristics like expansion 
and contraction, heat resistance, purity, their suitability for 
mass manufacture, the close tolerances to which they must be 
manufactured, their resistance to contamination, and so on. The 
industry is working hard on these issues, and an incredible 
variety of materials are under active review, ranging from 
metals to microbes.
    Any concern over supply in fuel cells generally has focused 
on the platinum group metals, and I think the PGM concern 
personally has been answered, but we will wait until the next 
witness as well.
    The U.S. does rely on imports at present for several 
materials on the list, but I think there are several reasons to 
be optimistic that materials demand will not be a barrier to 
commercialization.
    Firstly, we do not need the supply all at once. We will 
need significant material infrastructure eventually, but the 
market ought to have time to adjust, assuming that resource 
markets are functioning normally.
    Second, materials costs are such an important part of the 
system cost, as Mr. Guzy mentioned, that there is going to be 
relentless pressure to use as little as possible of these 
materials.
    Third, fuel cells are highly recyclable.
    Fourthly, fuel cell developers and researchers are 
evaluating new materials, driven largely by cost reduction, 
although also by performance. The list today may not be the 
list we will see in 20 or 30 years.
    Use of more benign fuels may also provide some relief on 
the materials front. Research to date has already allowed a 
substantial reduction in the anticipated volume cost of fuel 
cells, and that translates into smaller, lighter, better 
systems, and that also means more efficient use of component 
materials.
    I would like to echo Mr. Guzy's recommendations on behalf 
of the Fuel Cell Council. Congress took a significant step to 
assist our industry in the Energy Policy Act of 2005. Fully 
funding it would bring more resources to bear on the search for 
materials.
    Second, Congress approved an installation tax credit for 
fuel cells, but it is scheduled to expire at the end of next 
year. We support the pending legislation to extend the credit 
for an additional eight years.
    Third, I think this Subcommittee may wish to examine 
materials recycling a little more closely, with emphasis on 
platinum group metals certainly in the short term, to identify 
areas where Federal intervention might be helpful or 
appropriate. An estimated 2,000 tons of platinum group metals 
are on the road worldwide on vehicles. That is more than 50 
million ounces, according to International Platinum 
Association. Governments in Asia and Europe have implemented 
various recycling requirements and incentives that may be worth 
examining here in the United States.
    The U.S. Fuel Cell Council has established a sustainability 
working group and is examining recycling issues on its own.
    I would be happy to answer questions at the appropriate 
time, and I thank you for the opportunity to testify.
    [The prepared statement of Mr. Rose follows:]

             Statement of Robert Rose, Executive Director, 
                         U.S. Fuel Cell Council

    My name is Robert Rose. I am founding Executive Director of the 
U.S. Fuel Cell Council, the 120-member trade association of the fuel 
cell industry. I began my work in fuel cells in 1991, and in 1993 
established the nonprofit Fuel Cells 2000 education program at the 
Breakthrough Technologies Institute. The U.S. Fuel Cell Council 
followed in 1998. Thank you for this opportunity to participate in the 
discussion of materials and fuel cells.
    I must say at the outset that I am presenting my personal views 
today, although I am confident that nothing in my remarks runs counter 
to the Council's stated positions.
    Fuel cells generate electricity electrochemically, without 
combustion. Fuel cells have inherent advantages over conventional 
energy production systems, including greater efficiency, lower 
environmental impact, and enhanced design flexibility. The only 
byproducts of using a fuel cell fueled by hydrogen generally are water 
and heat; both can serve useful purposes in particular fuel cell 
applications.
    Fuel cells are being developed for virtually every power need, 
including remote sensors; consumer electronics; defense applications; 
emergency and backup power systems; heat and electricity for homes, 
businesses and factories; industrial equipment; locomotives and other 
off-road vehicles; trucks, buses and the family car.
    The primary public excitement--and the largest potential market--
lies in fuel cell passenger vehicles. Fuel cells offer the greatest 
potential to reduce and ultimately eliminate our reliance upon foreign 
oil, enhance our national security, and reduce the environmental impact 
of fossil fuel combustion. Fuel cells are fuel flexible. They use 
conventional fuels efficiently, and can bring solar, wind power and 
other forms of renewable energy to the transportation sector.
    Fuel cell vehicles can even serve as electricity generators. It is 
literally possible for a fuel cell car parked in the driveway to 
generate enough power for the home, and to supply a significant amount 
of additional energy to the grid.
    Charts 1 and 2 list fuel cell types and explain their operation.
    The subcommittee is evaluating whether an adequate supply of raw 
materials will be available to produce fuel cells and hydrogen in a 
cost-effective manner. To answer that question we must look inside the 
box.
    While some materials are common to virtually all fuel cells, there 
are significant differences. Some fuel cells, for example, use platinum 
group metals (PGM) to stimulate the electrochemical activity. Others 
use base metal catalysts. Still others rely primarily on heat. Other 
speakers will address the PGM. Chart 3 lists the key fuel cell 
materials other than platinum group metals. These materials often are 
used in combination. Thus molten carbonate fuel cells use lithiated 
aluminum oxide. Some solid oxide cells contain Yttria stabilized 
Zirconia; given my technical depth I just say, ``ceramics and rare 
earths.''
    The fuel cell industry faces substantial materials challenges. But 
these challenges relate to characteristics such as expansion and 
contraction, heat resistance, their purity, their suitability for mass 
manufacture, the close tolerances to which they must be manufactured, 
their resistance to contamination and so on. The industry is working 
hard on these issues, and a wide variety of materials are under active 
review, ranging from metals to microbes.
    All these issues occupy the attention of the fuel cell industry; to 
date, any concern over supply of the materials has focused on the 
Platinum Group Metals, even though the U.S. relies on imports at 
present for most or all the supply of several materials on the list. 
There are a number of reasons for this confidence, I believe.
    1.  We will need a significant materials infrastructure eventually, 
but not right away and not all at once. Suppliers ought to have time to 
adjust to demand, assuming the resource markets are functioning 
normally. In the case of some materials there are plentiful supplies 
already.
    2.  Anticipated worldwide economic expansion will require 
additional materials of all kinds, and there is nothing exceptional 
about fuel cell materials that suggests they should be treated as a 
special case. The auto industry, for example, anticipates that the 
total number of vehicles on the road worldwide may reach 3.5 billion 
units by 2050--compared to fewer than a billion today. That suggests 
expanding demand for everything.
    3.  Fuel cells are highly recyclable. Whether motivated by 
economics or sustainability principles, recycling will play an 
increasing role in the economy in general. Here, there may be a role 
for government in helping stimulate recycling; governments in Japan and 
Europe have implemented various recycling requirements and incentives. 
The U.S. Fuel Cell Council has established a Sustainability Working 
Group, and recycling issues are high on its agenda. On the PGM front, 
the U.S. Geological Survey estimates that 70 tons of PGM is recycled 
annually in the US, primarily from auto catalysts.
    4.  Fuel cell developers and researchers all over the world are 
evaluating new materials, and searching for ways to use critical 
materials more efficiently; they are driven by cost reduction. Thus, 
the list we put together today may not be--indeed, likely will not be--
the critical list in 20 or 30 years. It also means that today's 
catalyst formulations will certainly be replaced by supported catalysts 
and catalyst alloys that work better, and cheaper.
    5.  Research achievements to date have already allowed a 
substantial reduction in anticipated volume cost for fuel cells. And 
that translates into smaller, lighter, better systems and more 
efficient use of component materials.
    The fuel cell industry is investing heavily in this research 
because, while fuel cells are meeting customer needs in some niche 
markets today, full commercialization depends on cost reduction. And 
thus, harvesting the benefits that fuel cells can bring to our energy 
and environmental priorities also depends on it.
    Congress has already taken significant steps to assure a strong 
public-private partnership toward this end. The Energy Policy Act of 
2005 commits us to a 15 year development effort that covers not only 
research, but also demonstration, technology validation, federal 
purchases and market entry support. Building on this beginning, I would 
suggest the following.
    1.  The Administration's budget request for 2007 does not fully 
reflect the Congressional will as expressed by the authorizations in 
EPACT. Fully funding EPACT, including the fuel cell purchase programs, 
will be a significant boost for the industry, although I should 
emphasize that even at these levels the industry's own investment is 
far larger than the federal share, as it should be.
    2.  Congress approved an installation tax credit for fuel cells, 
but with a two-year time line. We support legislation proposed in both 
House and Senate to extend the credit for an additional eight years.
    3.  This Subcommittee may also wish to examine the issues related 
to materials recycling, with particular emphasis on platinum group 
metals, to identify any areas where federal intervention might improve 
the process or stimulate additional recycling activity. An estimated 
2000 tons are ``on the road'' worldwide, according to the International 
Platinum Association.
    I want to thank the Subcommittee, and you, Mr. Chairman, for this 
opportunity to testify. I would be happy to answer any questions, to 
the best of my ability.
[GRAPHIC] [TIFF OMITTED] 27720.006

                                 ______
                                 
    Mrs. Drake. Thank you, Mr. Rose. Mr. Carlson?

       STATEMENT OF ERIC J. CARLSON, PRINCIPAL, TIAX, LLC

    Mr. Carlson. Thank you, Madam Chairman, Members of the 
Subcommittee, and guests. I want to thank you for the 
opportunity to appear here today to discuss with you the study 
that TIAX conducted for the Department of Energy in 2003, and 
the purpose was to understand the potential impact of fuel cell 
vehicle commercialization on the availability and price of 
platinum.
    TIAX LLC is a technology development company founded in 
2002 by Dr. Kenan Sahin when it acquired the R&D laboratories 
of the former Arthur D. Little Company, which was founded in 
1886. TIAX is located in Cambridge, Mass., has a broad range of 
technology expertise and experience in various end-use markets, 
particularly those associated with energy and power, including 
portable, stationary, and transportation markets.
    The use of fuel cells in transportation could play a 
critical role in developing a hydrogen economy, which could, in 
turn, lead to a greatly reduced reliance on foreign oil. 
Platinum is an essential element in fuel cell performance as it 
catalyzes the electrode reactions and consequently determines 
the power density and efficiency of the fuel cell. It is also 
the largest cost component of the fuel cell system, accounting 
for approximately 50 percent of the fuel cell system. We have 
estimated this at a high-volume cost projected out in the 
future. For this reason, the DOE has invested significantly in 
R&D to reduce platinum loadings, increase activity of platinum 
catalysts, and develop platinum-free catalysts in the long 
term. The DOE commissioned our investigation as part of this 
effort.
    We agree that the committee's question concerning platinum 
availability is a timely one, given the recent highs in 
platinum price, China's commodity needs, higher platinum 
requirements in fuel cell vehicles than today's cars, and the 
critical role that platinum plays in PEM fuel cell technology. 
Even though this study was conducted in 2003, we believe that 
the findings are still very relevant to the committee's 
inquiry.
    Before discussing the project findings, I would like to 
summarize the scope of the assessment. The timeframe of the 
projection which we made in the study went from 2005 to 2050, a 
long time for a projection. Platinum markets considered 
included jewelry, transportation, industrial, and stationary 
fuel cells. Vehicle projections were done for five regions, 
including North America, Western Europe, Japan, India, and 
China, and the price behavior of platinum, we looked back 
retrospectively to 1880. Market penetration scenarios for fuel 
cell vehicles by 2050, we considered 50 percent and 80 percent 
market penetration.
    In developing our findings, we could not account for the 
impact of political instability in major platinum-producing 
countries, control of platinum production by a limited number 
of companies in the major producing countries, future growth or 
decline in the world economy, or significant increases in 
platinum demand from new applications other than fuel cells.
    Because of the complexity of this topic, our primary 
objectives were to develop insights into key factors and 
interactions that would influence platinum price and 
availability, identify what factors might limit adoption of 
fuel cell powertrains for transportation.
    The study focused on answering whether the successful 
introduction of fuel cells in transportation could be 
threatened by platinum price increases and limitations in 
platinum supply in the long term. Specifically, can long-term 
primary platinum resources accommodate the new demand from fuel 
cell markets, including transportation, stationary, and 
portable? How will supply operations [mining and refining] 
respond to increases in market demand, and what role will 
recycling play in the supply chain as fuel cell markets 
develop? Will the relationship between supply, demand, and 
price of platinum change as fuel cell markets develop?
    Key findings of the study were fundamental availability of 
platinum resources, in of itself, should not be a barrier to 
mass commercialization of fuel cell vehicles. However, 
efficient recycling of platinum from fuel cell stacks will be 
necessary to minimize the demands on primary platinum 
production.
    The platinum industry indicated that it could ramp up 
production rates to approximately 14 megagrams per year. This 
would allow market penetrations of 50 percent but not the 80 
percent scenario. Consequently, the ability to ramp up 
production capacity could limit fuel cell commercialization, 
depending on the rate of fuel cell vehicle adoption. For 
comparison, during the introduction of catalytic converters, 
production capacity increased at a rate of three and a half 
megagrams per year, or about one-third the rate of fuel cell 
vehicle adoption.
    Analysis of historical price data showed a constant mean 
real price of $550 per troy ounce in 2003 dollars. Since 1880, 
the price of platinum has shown periods of volatility, but it 
has always returned to a long-term mean, indicating a 
stationary price. Interviews with the platinum industry 
confirmed this observation of a stationary, real platinum price 
driven by the desire of the industry to keep end users from 
substituting other metals for platinum.
    Mass commercialization of fuel cell vehicles could 
dramatically change the balance of platinum markets from 
today's roughly 40/40/20 split between transportation, jewelry, 
and industrial applications to a market dominated by 
transportation.
    Those are the key findings, and I would like to thank Madam 
Chairman for the opportunity to discuss this important subject. 
This concludes my testimony, and I would be happy to answer any 
questions. Thank you.
    [The prepared statement of Mr. Carlson follows:]

           Statement of Eric J. Carlson, Principal, TIAX LLC

    Mr. Chairman, Members of the Subcommittee, and guests, thank you 
for the opportunity to appear here today to discuss with you the study 
that TIAX conducted for the DOE in 2003 to understand the potential 
impact of fuel cell vehicle commercialization on the availability and 
price of platinum.
    TIAX LLC is a technology development company founded in 2002 by Dr. 
Kenan Sahin, when it acquired the R&D laboratories of the former Arthur 
D. Little, Inc., which was founded in 1886. TIAX, located in Cambridge, 
MA, has a broad range of technology expertise and experience in various 
end-use markets, particularly those associated with energy and power 
(portable, stationary, and transportation).
    The use of fuel cells in transportation could play a critical role 
in developing a hydrogen economy, which could in turn lead to a greatly 
reduced reliance on foreign oil. Platinum is an essential element in 
fuel cell performance as it catalyzes the electrode reactions and 
consequently determines the power density and efficiency of the fuel 
cell. It is also the largest cost component of the fuel cell system, 
accounting for approximately 50% to the projected high volume 
manufacturing cost for systems with today's performance. For this 
reason, the DOE has invested significantly in R&D to reduce platinum 
loadings, increase activity of platinum catalysts, and develop 
platinum-free catalysts in the long term. The DOE commissioned our 
investigation as part of this effort.
    We agree that the Committee's question concerning platinum 
availability is a timely one given the recent highs in platinum price, 
China's commodity needs, higher platinum requirements in fuel cell 
vehicles than today's cars, and the critical role that platinum plays 
in PEM fuel cell technology. Even though this study was conducted in 
2003, we believe the findings are still very relevant to the 
committee's enquiry.
Scope of Platinum Project
    Before beginning the discussion of the project findings, I'd like 
to summarize the scope of the assessment:
      Timeframe of the projection--2005 to 2050
      Platinum markets--jewelry, transportation, industrial, 
and stationary fuel cells
      Vehicle projections for five regions--North America, 
Western Europe, Japan, India, and China
      Price behavior of platinum--1880 to 2002
      Market penetration scenarios of fuel cell vehicles by 
2050--50% and 80%
    In developing our findings, we could not account for the impact of:
      Political instability in major platinum producing 
countries
      Control of platinum production by a limited number of 
companies in the major producing countries
      Future growth/decline in the world economy
      Significant increases in platinum demand from new 
applications other than fuel cells
    Because of the complexity of this topic, our primary objectives 
were to:
      Develop insights into key factors and interactions that 
would influence platinum price and availability
      Identify what factors might limit adoption of fuel cell 
powertrains for transportation.
    The study focused on answering whether the successful introduction 
of fuel cells in transportation could be threatened by platinum price 
increases and limitations in platinum supply in the long term. 
Specifically:
      Can long-term, primary platinum resources accommodate the 
new demand from fuel cell markets (transportation, stationary, and 
portable)?
      How will supply operations (mining and refining) respond 
to increases in market demand?
      What role will recycling play in the supply chain as fuel 
cell markets develop?
      Will the relationship between supply, demand, and price 
of platinum change as fuel cell markets develop?
Key Findings
      Fundamental availability of platinum resources in of 
itself should not be a barrier to mass commercialization of fuel cell 
vehicles. However, efficient recycling of platinum from the fuel cell 
stacks will be necessary to minimize the demands on primary platinum 
production.
      The platinum industry indicated that it could ramp up 
production rates to approximately 14 Mg/year. This would allow a market 
penetration scenario of 50% (11 Mg/year) but not the 80% scenario. 
Consequently, the ability to ramp up production capacity could limit 
fuel cell commercialization depending on the rate of fuel cell vehicle 
adoption. For comparison, during the introduction of catalytic 
converters, production capacity increased at a rate of 3.5 Mg/year.
      Analysis of historical price data showed a constant mean 
real price of $550/tr.oz. in 2003 dollars. Since 1880, the price of 
platinum has shown periods of volatility, but it has always returned to 
its long-term mean, indicating a stationary price. Interviews with the 
platinum industry confirmed this observation of a stationary real 
platinum price driven by the desire of the industry to keep end-users 
from substituting other metals for platinum.
      Mass commercialization of fuel cell vehicles would 
dramatically change the balance of platinum markets from today's rough 
40/40/20 split between transportation, jewelry, and industrial 
applications to a market dominated by transportation (e.g., 75-90%).
Basis for the Study
Platinum Supply and Markets
    As part of the study we delved into the background of platinum and 
PGM materials. Aside from their unique chemical properties, platinum 
group metals (PGMs) have their own geology, supply, and markets. Due to 
the unique geology of the Bushveld Complex, South Africa dominates the 
supply and projected resource of platinum, accounting for roughly 70-
80% of both. Russia is the next major supplier of platinum, with about 
10-20%. The rest of the world, including the U.S. accounts for the 
balance, about 10%. The geographic concentration of supply and 
resources naturally raises concerns.
    In 2003, markets were largely driven by the demand for 
autocatalysts and jewelry (40% each). Industrial (glass, chemical, 
petroleum) and electrical applications consumed the remaining 20%. 
However, since the study was conducted, several factors have led to 
steadily increasing demand from the transportation sector: increasingly 
stringent auto emissions regulations on both gasoline and diesel 
vehicles, the unique ability of PGMs to catalyze auto exhaust clean-up, 
and rising auto markets in China.
Project Methodology
    In addition to the technology capabilities within TIAX (e.g., fuel 
cells, catalysis, and automotive powertrains) we retained two 
university professors to assist with economic modeling (Professor 
Walter Thurman, Department of Agriculture and Resource Economics, North 
Carolina University) and PGM mineralogy (Professor Grant Cawthorn, 
Platinum Industry's Professor of Igneous Petrology, University of the 
Witwatersrand, South Africa). During the project, we obtained inputs 
and feedback from the car companies and the platinum industry.
    To develop projections of platinum demand arising from fuel cell 
vehicle introduction, we had to:
      Estimate how much platinum would be required per vehicle 
and created a timeline for the technology evolution (amount of platinum 
per kilowatt of stack power)
      Estimate vehicle sales in the considered regions
      Define scenarios for fuel cell vehicle market 
introduction and penetration with assumptions for vehicle life and 
platinum recovery rates
      Assess the sufficiency of platinum resources. The primary 
platinum production over the period of the projection was integrated 
and compared with available resource projections
    For the purposes of this study we assumed a 75 kW fuel cell power 
plant hybridized with batteries would be representative of a mid-size 
vehicle. Starting in 2005, we assumed that platinum requirements would 
decrease from 60 grams per vehicle to15 grams per vehicle in 2025 and 
then remain constant until 2050.
    We based our vehicle projections on estimates of population growth 
and vehicles per capita in the five regions. In the mature automotive 
markets in the United States, Western Europe, and Japan, we assumed 
high per capita vehicle populations (i.e., 0.7 to 0.84) in 2050. For 
China and India, with values on the order of 0.01 vehicles per capita 
today, we considered future scenarios ranging from 0.1 to as high as 
0.25 vehicles per capita. With these assumptions, the world vehicle 
fleet was projected to approximately double by 2050 driven by markets 
in the U.S., India, and China. In 2050, our assumptions led to annual 
vehicle sales of 72 million for the five regions. For comparison, in 
2000, 41 million vehicles were sold worldwide with the five regions 
representing 75% of this value.
    The next step in projecting platinum demand was the definition of 
fuel cell vehicle market penetration scenarios. Two scenarios were 
defined with market penetrations of 50% and 80% by 2050. For the 50% 
scenario, the production of vehicles for the selected regions was 
projected to be 72 million in 2050. In the Developed Countries, fuel 
cell production volumes were projected to be 20 million per year in 
2050 for this scenario with annual increases of 1 million vehicles per 
year during the ramp up to 50% market penetration.
    Based on the 50% scenario, we then integrated the cumulative 
primary platinum production over the time of the projection for all 
applications. The cumulative primary production (20,000 Mg) was less 
than the platinum resource base of 76,000 Mg projected by experts in 
the field.
    Our conclusion that prices will return to historic mean prices 
depends on demand staying in balance with supply. Recycling will be 
critical to limiting the increases in primary platinum production.
    Thank you, Mr. Chairman, for the opportunity to discuss this 
important subject. This concludes my testimony. I would be happy to 
answer any questions you may have.
[GRAPHIC] [TIFF OMITTED] 27720.007

[GRAPHIC] [TIFF OMITTED] 27720.008

[GRAPHIC] [TIFF OMITTED] 27720.009

                                 ______
                                 
    Mrs. Drake. Thank you, Mr. Carlson. And, Mr. Copulos, you 
made an impression on me a few weeks ago when you made your 
comment about we face economic collapse or a resource war. So 
welcome back.

          STATEMENT OF MILTON R. COPULOS, PRESIDENT, 
              NATIONAL DEFENSE COUNCIL FOUNDATION

    Mr. Copulos. Thank you, Madam Chairman, and like Yogi 
Berra, it is sort of deja vu all over again. Two weeks ago, as 
you noted, when I was here we said that we face this potential 
for a Hobson's choice between economic collapse and a global 
resource war, and it is just as true about minerals as it is 
about energy, the major difference being, I think, that you go 
up to a gasoline pump periodically and fill your tank, so you 
are aware of what has been happening with energy prices, but 
people do not do the same with copper or platinum or any of the 
other host of minerals that we rely on. Yet if you take a look 
at what the numbers show, the increase, in some cases, has been 
even higher.
    We are looking at a platinum price, I was just informed 
this morning, of $3.80 a pound. That is over a fivefold 
increase since 2001. We are looking at platinum running about 
1315. We are looking at the price per ton of nickel increasing 
almost three times the last four years. All of these things are 
having an impact on us and on our economy and bode ill for the 
future.
    But what makes this even more of a sort of deja vu 
experience for me was that in the late 1980s I had the great 
privilege of serving in the Reagan White House, at their 
request, to author the first, and what, unfortunately, was the 
last, National Critical Materials Report, and in that report, 
our Chairman, in introducing it, Don Hodel, who was interior 
Secretary at the time and also served as chairman of the 
council, said something that I think is quite important for us 
to bear in mind. He said, Perhaps one way to visualize the U.S. 
economy is it is a pyramid in which service and commercial 
sectors are at the apex, the high tech sector is the next layer 
down, and those sectors are followed by light industrial and 
heavy industrial sectors, and I will submit, at the very bottom 
of the period, its foundation, if you will, are energy and 
minerals extraction and processing industries and agriculture.
    He continued to say, Our economic strength is vital to our 
ability to defend ourselves against foreign attack upon the 
United States and its allies. Our capability to defend this 
nation is weakened if there is peril to the foundation of the 
economic pyramid, which is integral to our national strength. 
In other words, if our energy and minerals production is 
jeopardized, or if our supplies are short, our nation's 
security is threatened, and I think no truer words could be 
spoken.
    You know, we have talked a lot over at the Department of 
Defense about the new battlefield, the electronic battlefield. 
Excuse me. One of the signs of old age is the barber spends 
more time trimming the hair on your ears and on the top of your 
head. The other is you need two pairs of glasses.
    At any rate, as we take a look at the electronic 
battlefield of the future where there all of these different 
things, in the end they get down, in a large degree, to 
communications, and for communications we need things like 
copper, we need platinum, we need rare earth, things that are 
in short supply and, in some cases, that we do not produce 
here.
    One of the things that strikes me: We are concerned about 
importing 65.3 percent of our oil supplies, and yet there are 
33 minerals, important minerals, which we are more dependent 
upon for imports than oil. We import more than 65 percent of 
them, and they do include things like platinum and chromium and 
cobalt and things that are absolutely essential defense 
commodities. Indeed, there are 16 minerals we have to support 
100 percent of. We are completely dependent on imports, and 
what is worse, in some of the cases, one reason we are as 
dependent as we are is that we are unable to access supplies 
that are right here in our own borders that we could be using.
    One other point that I do want to make as well is the 
importance of information. It was mentioned earlier, and I will 
tell you that in the experience of doing the National Critical 
Materials Report and in doing some classified work in the area 
of minerals at the behest of the Director of Central 
Intelligence, one of the things that I found absolutely 
essential was the ability to obtain information from people at 
the then-Bureau of Mines, Minerals Management Service. It was 
absolutely essential to have that, and one of the other things 
I witnessed was how easily conclusions get skewed by internal 
agendas, misconceptions, or people that refuse to face the 
facts.
    So I would say that in addition to focusing on the very, 
very great importance of utilizing our domestic minerals, 
recycling, and so on, we also need to focus very, very much on 
the importance of having good information because without good 
information, you cannot make good decisions, and, quite 
frankly, this is an area so vital to our national security, we 
cannot afford to make bad decisions.
    [The prepared statement of Mr. Copulos follows:]

              Statement of Milton R. Copulos, President, 
                  National Defense Council Foundation

    Good Morning
    My name is Milton R. Copulos and I am President of the National 
Defense Council Foundation.
    Two weeks ago I appeared before this Subcommittee to address the 
grave danger oil imports pose to our economy and our nation's security. 
This issue has been a dominant topic in the news over the past two 
years, gaining renewed attention with each increase in the pump price 
of gasoline. Yet, I am here to say today, that we face an even greater 
danger from our dependence on imported nonfuel minerals.
    Consider this, if you will.
    We are deeply concerned about the fact that we currently depend on 
foreign sources of supply for 65.3% of our crude oil and refined 
petroleum product supplies. Yet, we rely on an even greater proportion 
of imports for 33 different minerals and 100% dependent on foreign 
supplies for 16 mineral commodities. Included among those we upon which 
we are entirely import-dependent are such critical commodities as 
columbium which is essential to the manufacture of jet engines and 
rocket subassemblies; manganese, which is essential to iron and steel 
production; yttrium, which is essential to the manufacture of microwave 
communications equipment, rubidium which is essential to the 
manufacture of vacuum tubes and photocells, and vanadium which is 
essential to the manufacture of superconductors.
    We also rely on imports for 91% of our platinum and tantalum, 78% 
of our palladium and 70% of our tungsten.
    The vulnerability this dependence creates cannot be overstated, 
and, like the vulnerability that has accompanied our dependence on 
imported oil, it is a problem that has persisted over time.
    Indeed, the problem first came prominently to my attention nearly 
two decades ago when I had the great privilege of serving in the Reagan 
White House as a consultant to the National Critical Materials Council. 
I had been brought in to author the nation's first, and unfortunately 
last, National Critical Materials Report. That report included a quote 
from congressional testimony presented on March 31, 1987, by the 
Council's Chairman, Interior Secretary Donald P. Hodel in which he 
stated:
        ``Perhaps one way to visualize the U.S. economy is as a pyramid 
        in which the service and commercial sectors are at the apex, 
        the `high-tech' sector is the next layer down, and those 
        sectors are followed by the light industrial and heavy 
        industrial sectors. And, I will submit, at the very bottom of 
        the pyramid--its foundation if you will--are our energy and 
        minerals extraction and processing industries and 
        agriculture.''
    What Secretary Hodel said nineteen years ago is just as valid 
today. Our energy and minerals extraction and processing industries 
are, indeed, an essential element of the foundation upon which all 
other economic activity rests. If these sectors are in any way 
threatened, then our entire economic well being is threatened as well.
    Secretary Hodel made another point in his statement that also has 
relevance to our present condition. He said:
        ``...our economic strength is vital to our ability to defend 
        ourselves against foreign attack upon the United States and its 
        allies. Our capability to defend this Nation is weakened if 
        there is peril to the foundation of the economic pyramid, which 
        is integral to our national strength.''
    Despite the fundamental truth of the warning contained in Secretary 
Hodel's statement, it has been ignored over the ensuing years. Indeed, 
over the past fifty-odd years, we have witnessed a dramatic reversal of 
the our nation's long-standing tradition of encouraging development of 
domestic energy and minerals resources, to the point that such 
development has become close to impossible in many cases. In so doing 
we ignored the lessons of recent history. But perhaps this was 
inevitable.
    In a letter President Dwight D. Eisenhower sent to Senator Clifford 
P. Case in 1963, three years after leaving office the former Supreme 
Allied Commander described the difficulties mineral shortages posed in 
World War II, and how the lessons of those shortages remained unlearned 
in the period that immediately followed:
    ``You will recall that when we became involved in World War II our 
lack of an adequate stockpile of strategic and critical materials 
gravely impeded our military operations. We were therefore forced into 
costly and disruptive expansion programs. The Nation was compelled to 
divert, at the most critical time, scarce equipment and machinery and 
manpower to obtain such necessary materials. However, the need for such 
a program was recognized and theoretical objective established on a 
predicted 5-year war.''
        ``But even after this experience we had not fully learned our 
        lesson. After World War II stockpiling was confined too much to 
        mere talk, it neglected implementation. After we became 
        involved in Korea, we went through experiences almost identical 
        with those of World War II--only then did realistic stockpiling 
        begin.''
    What makes today's import dependence an even more serious threat 
than it was in the last century is the dramatic change that has taken 
place on the world economic stage. The exploding economies of China, 
India and parts of Eastern Europe have created unprecedented 
competition for scarce mineral supplies. As a consequence, although 
largely unnoticed by the public, these prices for these commodities 
have experienced price increases similar to those that have shaken the 
world oil market.
    For example, in 2001, a pound of copper sold for $0.76 cents. Today 
it costs $3.19. In that year a pound of aluminum sold for $0.68. Today 
it costs $1.31. In 2001 an ounce of platinum cost $533, today it costs 
$1,315. Since 2001, Nickel has gone from $5,945 per ton, to $17,921--an 
increase that matches that of crude oil.
    But it is not just the increase in price that is a concern--there 
is also grave cause for concern over availability. This concern is even 
greater in relation to certain strategic and critical materials. This 
month, it was reported that shortages of U.S. stocks of specialty 
metals was jeopardizing our ability to keep helicopters flying in Iraq. 
The shortages included such things as titanium and specialty steel used 
in the aircraft's bearings.
    But the concern over mineral shortages should not be limited to 
exotic or specialty materials. One of the most important defense 
commodities is copper. In fact, during World War II, copper shortages 
led to the minting of zinc-coated steel pennies so that the copper 
otherwise used for coinage could be diverted to war production. Today, 
copper is even more important to defense production than it was in the 
1940s.
    For example, in addition to its use as a jacket for small arms 
ammunition and as a component of the brass used for cartridge and 
artillery casings, copper also is used for the core of shaped anti-
armor charges. Moreover, with the advent of the electronic battlefield, 
the need for copper wire for a whole range of electronic equipment has 
grown exponentially.
    What is perhaps most disturbing about our growing mineral 
dependence is that, like our dependence on imported oil, it is largely 
unnecessary. In all too many instances, our dependence is at least in 
part, the consequence of restrictions on access to federal lands where 
domestic sources of the minerals so important to our economy and 
national security can be found.
    Platinum, cobalt and chromium provide useful examples.
    We currently import 91% of our platinum requirements, with the 
balance primarily obtained through recycling. We import 69% of our 
chromium requirements, with the balance obtained through recycling. 
Yet, the Absaroka-Beartooth Wilderness in Montana contains reserves of 
both chromium and platinum-palladium ores. As a consequence we cannot 
access these critical resources. In the case of cobalt, we rely on 
imports for 78% of our needs with the balance coming from so-called 
secondary production such as recycling scrap and some releases from 
strategic stockpiles. As with chromium and the platinum group metals, 
we have domestic deposits near the Blackbird mine in Idaho, but they 
extend into the River of No Return Wilderness, and therefore cannot be 
accessed.
    In other words, as in the case of domestic energy production, we 
suffer more from a lack of will than of resources.
    This is not to say, however, that we can be self-sufficient in 
terms of mineral resources. There are some minerals that do not 
naturally occur within our borders and others that are not available in 
quantities sufficient to meet domestic needs. This is why it is 
necessary to maintain strategic stockpiles. Here again, however, we are 
falling short of the mark. Unfortunately, our strategic stockpiles have 
too often been viewed as sources of quick cash for federal coffers. As 
a consequence, there is continual pressure to sell them off, or to fail 
to maintain them at adequate levels. Failing to maintain adequate 
strategic stockpiles, however, may seem to offer some short term 
economic gains, but in the long run will only lead to enormous economic 
penalties.
    In the process of writing the National Strategic Minerals Report, 
as well as designing the Advanced Materials Program Plan for the 
National Critical Materials Council, we examined the costs of not 
stockpiling essential minerals and materials. We determined that it 
cost eight times as much to obtain them after the fact than it did to 
stockpile them in advance. In short, failure to make adequate 
preparations was a classic case of being penny wise and pound foolish.
    Moreover, our mineral dependence also threatens efforts to become 
energy independent.
    Take the hybrid electric vehicle as an example.
    A conventional automobile contains around 50 pounds of copper. A 
Toyota Prius contains 100 pounds, and larger hybrids can contain 150 or 
even 200 pounds. If we are to expand the fleet of these fuel-efficient 
automobiles and trucks, we are going to need a lot more copper.
    What about fuel cells?
    At present fuel cells require platinum group metal catalysts--about 
3 and a half ounces for each unit. If we are to greatly expand the use 
of fuel cells, we are going to need a lot of these minerals. But we 
will not be the only nation seeking them. China has indicated it plans 
to add 120 million new vehicles to its fleet, all of which will use 
western-style pollution control technology--that is catalytic 
converters.
    Biofuels and Ethanol are also mineral dependent.
    The fueling system modifications needed to make vehicles capable of 
using high concentrations of ethanol such as E-85 require brass and 
chrome fittings due to the corrosive nature of the fuel. Moreover, if 
we are to significantly expand our production of alternative fuels, we 
will need conventional minerals and materials such as steel, concrete 
and aluminum to build their manufacturing facilities.
    Given our perilous dependence on nonfuel minerals, the logical 
question is what must we do? Where is our greatest deficiency?
    The answer is simple: our greatest deficiency is leadership. It is 
time for someone to sound an urgent alarm about our mineral dependency 
and the threat it poses to our nation. I believe that this committee 
can provide that leadership.
    The members of this committee have been at the forefront of 
attempts to expand access to our domestic mineral resources and to 
bring some sanity to the regulation that has so hindered the ability of 
mineral producers to operate within our borders. It is more urgent than 
ever for that message to be communicated to the public and to your 
colleagues in the halls of Congress.
    Two weeks ago I told this committee that our nation faces a 
Hobson's choice between economic collapse and global resource war if 
nothing is done about our dependence on foreign oil supplies. The same 
statement could as easily be made about our dependence on imported 
supplies of minerals. The same nations that are competing with us for 
energy are competing for minerals as well, and the consequences of that 
competition are just as potentially explosive.
    Therefore, I urge the committee to voice its concern in the 
strongest possible way, and to make every effort to educate their 
colleagues about the dangers inherent in our current dependence.
                                 ______
                                 
    Mrs. Drake. Thank you very much. That is very important: We 
cannot afford to make bad decisions. Thank you for being here 
with your testimony and your information.
    Mr. Guzy, I am going to start with you. When do you see 
fuel cell vehicles being commercially available, and when do 
you expect them to represent a sizable percentage of the 
market?
    Mr. Guzy. Most OEMs have announced first commercial launch 
for fuel cell vehicles in the 2014-to-2016 timeframe, and in 
that timeframe there would be tens of thousands of vehicles 
available. Many of them are planning more than one 
demonstration fleet generation of products between now and 
then.
    In terms of significant amounts of vehicles, in 2014 to 
2015, we expect at Ballard about 50,000 vehicles to be deployed 
worldwide. We agree with TIAX's conclusion that in the 2050 
timeframe, somewhere between 50 to 80 percent of vehicles 
worldwide will be fuel cell powered.
    Mrs. Drake. Now, this next question, all of you may want to 
weigh in, but I will start with Mr. Guzy. I did hear we do need 
to fully fund and extend tax credits. What do you think would 
be the most effective measures that government could do today 
to support fuel cell commercialization?
    Mr. Guzy. In addition to the tax credits, they recognize 
that full funding on the R&D side, in particular, is important. 
Also, it would be useful in the industry if government became a 
purchaser of fuel cell products. The procurement side of things 
could help drive early volume and early adoption.
    Mrs. Drake. Very good. Thank you. Did anyone else want to 
comment on that question? Mr. Rose?
    Mr. Rose. I would agree with that. The Energy Policy Act 
recognized that commercializing this technology is a process. 
It is a process that really has already begun because there are 
some fuel cell units in customer hands today in specialty 
applications in areas where the current cost of the fuel cell 
is not a barrier to the market. This industry needs to find 
ways to reduce its costs. Volume is certainly one piece of it, 
and a design based on the experience of initial customers is 
another.
    So not just the research, which is extremely important, but 
also that early market experience is extremely important.
    The Defense Department loves fuel cells, loves the 
potential of fuel cells, because they have the potential to 
save soldiers' lives. They operate very quietly and with a low 
heat signature typically. That is another area where I think 
there is an opportunity to get units, providing customer needs 
and building those volumes that we need.
    Mrs. Drake. Mr. Carlson?
    Mr. Carlson. As a technology development company, one thing 
we would say is that in terms of encouraging young people to 
enter into these fields and provide that knowledge base and 
that experience base to develop the technologies would be 
important going forward also.
    Mrs. Drake. Thank you. Mr. Copulos, did you want to weigh 
in? OK.
    Mr. Rose, obviously, recycling facilities will need to be 
developed to foster reuse of fuel cell materials. Do you think 
that our Federal recycling policies need to be reviewed? Is 
there work we need to do on that and make them more recycling 
friendly?
    Mr. Rose. Recognizing that this is not my field, I 
certainly would not object to that, and it may well provide 
some useful information and experience. I think if you look 
around the world, Europe and Japan have, in particular, taken 
pretty aggressive steps to, in some cases, require the 
recycling of major consumer goods. Now, in this country, we do 
not tend to do that, but I think perhaps we can learn something 
from the experience of those countries in how the industry 
responded to those mandates and perhaps in some way, either by 
stimulating interest or developing voluntary programs perhaps 
short of regulation, we might be able to do some things in the 
short term.
    There is a worldwide interest that is both economic and 
also, I think, a sense around the world that sustainable 
systems are what we are going to need in the long term. So I 
think there is some work that could be done there, and there 
are people and experiences that we can learn from.
    Mrs. Drake. Thank you, and I would also like to ask you, 
and the rest of the panel may also want to jump in on this one, 
and that is, if the fuel cells are commercialized, what changes 
in the infrastructure of transportation systems will be 
required? In particular, how do you get it? What happens to 
your corner gas station?
    Mr. Rose. I am going to resist a flippant answer.
    Mrs. Drake. You can do flippant. It is OK.
    Mr. Rose. We would like to have these problems. That would 
mean that there were sufficient products on the street and 
sufficient demand so that we would need to concern ourselves 
with a substantial uptick in infrastructure investment.
    I would like to make a couple of observations, if I could, 
on this issue. As is the case with the materials that go into 
the fuel cell, the supporting infrastructure is going to be 
necessary, but it is not going to be needed all at once. The 
figure of perhaps 50 percent penetration in 2050 implies a 
great deal of vehicles, but it also is a 45-year ramp-up 
period. So we are going to have some time, and my view is that 
the fuels industry and perhaps some competitors, when they see 
an opportunity to make money supplying fuel and the supporting 
infrastructure for fuel cells, they will come in, and they will 
do that. That is the way our system works. There is no reason, 
neither technical nor practical, why one could not convert gas 
stations into fuel stations. Several oil industry members of 
the Fuel Cell Council who are actually pursuing this 
marketplace are hoping that the marketplace will develop, 
keeping an eye on it, if you will.
    Finally, you know, the gasoline infrastructure is not free. 
It has been estimated that meeting a new gasoline demand 
worldwide is going to cost something like three trillion 
dollars over the next couple of decades, and, to some extent, 
it is just an allocation of resources, that some of that, in my 
view, ought to be going to fuel cell fuels, hydrogen-rich 
fuels. You may have to pay a little bit of a premium in the 
short term. The concern for kind of the need for an 
instantaneous national infrastructure, I think, may be a little 
bit overblown.
    Mrs. Drake. Did anyone else want to weigh in?
    Mr. Copulos. I think one of the other things we have to 
bear in mind is when we talk about a fuel cell infrastructure, 
we are really talking about a fueling infrastructure, and it 
begins with determining what is your source material. What is a 
fuel cell going to use as a power source? Is there going to be 
an onboard converter to turn something into hydrogen? Are you 
going to be using methanol pumped in that then gets turned into 
it? Are you going to use natural gas that you convert at the 
gas station?
    There is a whole host of questions, but just to give some 
perspective, we have something on the order of 1.5 to 1.6 
trillion dollars already invested in the existing 
infrastructure, and, over time, if we do make this transition 
to fuel cells, that is the kind of money we are looking at 
spending. And, again, it kind of gets back to information. We 
need to know as soon as is practical, and I do not think that 
will be within the next decade, frankly, what our source of 
fuel for the fuel cells is going to be. Are we going to be 
mining coal, digging natural gas? What are we going to do, and 
then how are we going to convert it? Until you have those 
questions, you cannot really get started on the infrastructure, 
and that could prove to be a bottleneck.
    Mrs. Drake. Mr. Rose?
    Mr. Rose. May I respond briefly to that?
    Mrs. Drake. Absolutely.
    Mr. Rose. Thanks. In the short term, there is not an 
absolute consensus, but there is a virtual consensus that 
gaseous hydrogen will be the choice of fuel for fuel cell 
vehicles. The derivation of the hydrogen will depend on local 
resources, kind of like we generate electricity today from a 
variety of fuels, depending on what is available locally.
    The third is that it will take us a while to get to kind of 
a tipping point where we choose to utilize large-scale systems 
to supply the hydrogen. In the short term, there are a number 
of options, utilizing everything from electrolysis of water to 
the use of natural gas that is already at perhaps a third of 
the gas stations in the United States and so on.
    So, again, I think these are important questions, and it is 
good to be visiting them, but I do not think they will be show 
stoppers, and I do not think that the oil or auto industry sees 
them as show stoppers either, not anymore.
    Mrs. Drake. Thank you. Mr. Carlson, would you comment on 
the degree of success that the industry has had in recycling 
platinum for the automotive catalytic converters?
    Mr. Carlson. As part of the study, we did talk to the 
platinum industry, and we also talked to the car companies, and 
they did not provide exact numbers, but in talking to the car 
companies, our sense was that recycling on catalytic converters 
is greater than 90 percent, maybe even higher, and that is 
driven by the fact that platinum group metals are a valuable 
material, and so a value chain, collection chain, has been set 
up because of that value, and it has been established.
    Earlier, you asked a question about whether there might be 
regulations that encourage recycling, and I think that would be 
very important because when you look at a fuel cell vehicle, 
not only will there be the platinum metal, but you will have 
batteries, and you will have the electric motors, and there 
will be a lot of other metals that would be very valuable in 
terms of being recovered.
    Mrs. Drake. Thank you. Mr. Copulos, are you familiar with 
the Land Warrior system and the Future Force Warrior system 
currently being developed by the Defense Department, and would 
you comment on the metal and materials that are going to be 
needed to achieve success in these systems, which, of course, 
will keep our 65,000 infantrymen safer on the battlefield? Are 
you familiar with that?
    Mr. Copulos. Yes, ma'am. It is the result of a progression 
that has taken us from the Vietnam War to today. In World War 
II, the only protection you had was a steel helmet, which was 
sort of questionable. By Vietnam, you had flak vests, which 
most of us would discard sooner or later because they were hot 
and uncomfortable, as well as the old steel pot. But now we 
have flak vests and body armor and so on.
    During that period, we have also seen an evolution in 
communications. Where we had the old PRC-25 radios in the 
field, which worked most of the time if we were lucky, and that 
was the extent of our communications really other than the 
occasional flare, now you have a much more sophisticated, what 
they call the ``electronic battlefield,'' which will become 
even more so with the introduction of the Stryker Brigade 
combat teams, which is the model of the future.
    I think one other point that is important to understand is 
that with the modern armed forces, yes, we have 65,000 
infantrymen, and ultimately it is the man with the rifle who 
holds the territory. The ultimate goal of everything else is to 
get the infantryman there. But with the changing nature of the 
battlefield, everybody, at one point or another, is going to 
want to essentially function as an infantryman because you do 
not have defined lines.
    So just as used to happen in special operations, where we 
would see a piece of equipment adopted or introduced, 
eventually it expanded out to where everybody had it. MREs are 
an example of that. You are going to see that happen with these 
new innovations for the Land Warrior system, which basically is 
built around a couple of things. It is built around 
communications. It is built around interoperability. Whereas we 
had one radio for a squad if we were lucky, now everybody has 
their own radio that ultimately links into the Stryker combat 
vehicle and will not only provide you with communications, but 
then you have night vision systems. You have all of these very 
sophisticated electronic elements. You also have the X-8 
personal weapon, a new weapon which has a higher rate of fire 
and is much more accurate with its sites.
    But in the end, what do you need to make all of these 
things? Well, one of the things you are going to need is a 
whole lot of copper because guess what, they have wires. That 
is not the only military application of copper. Ammunition is 
copper jacketed, and the cases are brass. The antitank weapons 
we use that are shape charged, the armor-piercing shells, have 
a copper core because what basically happens is the explosive 
heats the copper up, super heats it really, so you get a jet of 
hot copper that burns through the armor. You are going to have 
copper and brass in all of the components of almost everything 
you are using in the Land Warrior system, and you are going to 
need platinum as a catalyst.
    They are looking at fuel cells in military vehicles not 
just to power the vehicle, but one of the other things they are 
looking to use the fuel cell for is to power a lot of the 
electronic equipment within the vehicle when it is at rest so 
you do not have to run the engine. Well, that means you are 
going to use platinum for that. You need yttrium. You need a 
whole bunch of rare earths in order to make the night vision 
goggles, to make the electronic sights and components.
    So the bottom line to it is we are going to have a huge 
requirement for minerals, many sophisticated minerals, 
especially platinum group metals, copper, and rare earths.
    Mrs. Drake. Thank you for that because we certainly want to 
make sure they are as safe as possible and that we move into 
the use of these fuel cells rather than all of these batteries, 
and you have covered that.
    But, Mr. Copulos, also, and this may be an uncomfortable 
question, or you may not mind because you have been very 
straightforward about the risk to our nation, but do you 
believe that the proposed Department of the Interior budget for 
2007, which cuts the mineral commodity information that we just 
talked about, virtually eliminates the collection of 
international mineral commodity information, is a wise public 
policy that enhances the nation's security?
    Mr. Copulos. Well, Congresswoman, you will excuse me if I 
am extremely blunt----
    Mrs. Drake. Be blunt.
    Mr. Copulos.--but the third idiot from the left could have 
figured out that we need these people, so apparently the policy 
was put together by the fourth. It is obscenely stupid, and I 
can tell you from personal experience, as I noted earlier, I 
authored the White House Critical Materials Report in 1988. At 
the time, I was doing classified work at the direct request of 
the Director of Central Intelligence in these areas, and I 
learned two things, one of which was the most reliable source 
of information on mineral commodities there was in Washington, 
D.C., were these people working at then the Bureau of Mines. 
Now they are over at the U.S. Geological Survey. They were 
absolutely world-class experts who knew their stuff and could 
be relied on to give you the accurate information you needed to 
make very important decisions.
    The other thing that I discovered was that every time we 
tried to use them, individual political agendas, pet projects, 
and just plain misconceptions entered into the process and 
tried to influence their conclusions. Now, these people 
withstood it pretty vigorously. In fact, Secretary Hodel had me 
go around to each of the commodity specialists, explain what 
was going on, and elicit answers, to the point where I was 
visiting one of them who I had not seen before who said, ``Are 
you the shrink the Secretary is sending around?'' They thought 
that things had gotten so bad that they required a counselor to 
go out and talk to the people about why they were not being 
believed.
    We cannot afford to have that kind of stuff go on. We need 
independent sources of information. One of the things that 
happened as a result of my work being second guessed in one of 
the classified reports is that we missed by two years a warning 
that the Soviet Union was going to collapse, which would have 
been quite evident had those conclusions been acted on and not 
been dismissed because of someone else's biases and prejudices.
    I would hate to see us make similar, very important 
strategic mistakes or have bad decisions made because we did 
not have information on an area that is as important as energy 
and, quite frankly, needs this even more because it does not 
get the attention that energy gets.
    Mrs. Drake. Thank you. I would like to thank all of our 
witnesses for their valuable testimony, and as I said before, 
we may have additional questions from other Subcommittee 
members that we would ask you to respond to in writing. Our 
hearing record will be held open for 10 days for these 
responses, and if there is no further business before the 
Subcommittee, the Chairman, again, thanks the members and the 
witnesses, and the Subcommittee stands adjourned.
    [Whereupon, at 1:15 p.m., the Subcommittee was adjourned.]

                                 
