[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
STRATEGIC AND CRITICAL
MINERALS POLICY:
DOMESTIC MINERALS SUPPLIES
AND DEMANDS IN A TIME OF
FOREIGN SUPPLY DISRUPTIONS
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
Tuesday, May 24, 2011
__________
Serial No. 112-33
__________
Printed for the use of the Committee on Natural Resources
Available via the World Wide Web: http://www.fdsys.gov
or
Committee address: http://naturalresources.house.gov
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COMMITTEE ON NATURAL RESOURCES
DOC HASTINGS, WA, Chairman
EDWARD J. MARKEY, MA, Ranking Democrat Member
Don Young, AK Dale E. Kildee, MI
John J. Duncan, Jr., TN Peter A. DeFazio, OR
Louie Gohmert, TX Eni F.H. Faleomavaega, AS
Rob Bishop, UT Frank Pallone, Jr., NJ
Doug Lamborn, CO Grace F. Napolitano, CA
Robert J. Wittman, VA Rush D. Holt, NJ
Paul C. Broun, GA Raul M. Grijalva, AZ
John Fleming, LA Madeleine Z. Bordallo, GU
Mike Coffman, CO Jim Costa, CA
Tom McClintock, CA Dan Boren, OK
Glenn Thompson, PA Gregorio Kilili Camacho Sablan,
Jeff Denham, CA CNMI
Dan Benishek, MI Martin Heinrich, NM
David Rivera, FL Ben Ray Lujan, NM
Jeff Duncan, SC John P. Sarbanes, MD
Scott R. Tipton, CO Betty Sutton, OH
Paul A. Gosar, AZ Niki Tsongas, MA
Raul R. Labrador, ID Pedro R. Pierluisi, PR
Kristi L. Noem, SD John Garamendi, CA
Steve Southerland II, FL Colleen W. Hanabusa, HI
Bill Flores, TX Vacancy
Andy Harris, MD
Jeffrey M. Landry, LA
Charles J. ``Chuck'' Fleischmann,
TN
Jon Runyan, NJ
Bill Johnson, OH
Todd Young, Chief of Staff
Lisa Pittman, Chief Counsel
Jeffrey Duncan, Democrat Staff Director
David Watkins, Democrat Chief Counsel
------
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
DOUG LAMBORN, CO, Chairman
RUSH D. HOLT, NJ, Ranking Democrat Member
Louie Gohmert, TX Peter A. DeFazio, OR
Paul C. Broun, GA Madeleine Z. Bordallo, GU
John Fleming, LA Jim Costa, CA
Mike Coffman, CO Dan Boren, OK
Glenn Thompson, PA Gregorio Kilili Camacho Sablan,
Dan Benishek, MI CNMI
David Rivera, FL Martin Heinrich, NM
Jeff Duncan, SC John P. Sarbanes, MD
Paul A. Gosar, AZ Betty Sutton, OH
Bill Flores, TX Niki Tsongas, MA
Jeffrey M. Landry, LA Vacancy
Charles J. ``Chuck'' Fleischmann, Edward J. Markey, MA, ex officio
TN
Bill Johnson, OH
Doc Hastings, WA, ex officio
------
CONTENTS
----------
Page
Hearing held on Tuesday, May 24, 2011............................ 1
Statement of Members:
Holt, Hon. Rush D., a Representative in Congress from the
State of New Jersey........................................ 4
Prepared statement of.................................... 5
Lamborn, Hon. Doug, a Representative in Congress from the
State of Colorado.......................................... 1
Prepared statement of.................................... 3
Markey, Hon. Edward J., a Representative in Congress from the
State of Massachusetts..................................... 6
Prepared statement of.................................... 7
Statement of Witnesses:
Eggert, Dr. Roderick G., Professor and Director, Division of
Economics and Business, Colorado School of Mines........... 13
Prepared statement of.................................... 15
Jaffe, Dr. Robert, Morningstar Professor of Science,
Massachusetts Institute of Technology...................... 21
Prepared statement of.................................... 22
Latiff, Robert H., President and Consultant, R. Latiff
Associates................................................. 24
Prepared statement of.................................... 26
McGroarty, Daniel, President, American Resources Policy
Network.................................................... 32
Prepared statement of.................................... 34
Quinn, Hal, President and CEO, National Mining Association... 8
Prepared statement of.................................... 11
Richardson, Ed, President, U.S. Magnetic Materials
Association, and Vice President of Thomas & Skinner........ 27
Prepared statement of.................................... 29
Additional materials supplied:
The New York Times article entitled ``Supplies Squeezed, Rare
Earth Prices Surge'' submitted for the record.............. 50
The Wall Street Journal article entitled ``China Tightens
Rare-Earth Rules'' submitted for the record................ 52
OVERSIGHT HEARING ON THE ``STRATEGIC AND CRITICAL MINERALS POLICY:
DOMESTIC MINERALS SUPPLIES AND DEMANDS IN A TIME OF FOREIGN SUPPLY
DISRUPTIONS.''
----------
Tuesday, May 24, 2011
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Natural Resources
Washington, D.C.
----------
The Subcommittee met, pursuant to call, at 9:07 a.m. in
Room 1324, Longworth House Office Building, Hon. Doug Lamborn,
[Chairman of the Subcommittee] presiding.
Present: Representatives Lamborn, Coffman, Benishek,
Rivera, Duncan of South Carolina, Gosar, Flores, Johnson, Holt,
and Markey [ex-officio].
Also Present: Representative Labrador.
Mr. Lamborn. The Chairman notes the presence of a quorum,
which under Rule 3[e] is two Members. The Subcommittee on
Energy and Mineral Resources is meeting today to hear testimony
on an oversight hearing on Strategic and Critical Minerals
Policy: Domestic Minerals Supplies and Demands in a Time of
Foreign Supply Disruptions.
So, please have a seat, and I will be introducing you all
shortly, and at the appropriate time explaining how the
testimony process works for those of you who may not have done
this before. But it will be a few minutes before we get there
and so I wanted to make sure that you are comfortable.
Under Rule 4[f], opening statements are limited to the
Chairman and Ranking Member of the Subcommittee. However, I ask
for unanimous consent to include any other Members opening
statements in the hearing record if submitted to the Clerk by
close of business today. Hearing no objection, so ordered.
Mr. Lamborn. I also ask for unanimous consent that the
Gentleman from Idaho, Mr. Raul Labrador, a Member of the Full
Natural Resources Committee, be allowed to join us on the dais,
and participate in the hearing when he arrives. Without
objection, so ordered. Now I will recognize myself for five
minutes, and then the Ranking Member.
STATEMENT OF HON. DOUG LAMBORN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF COLORADO
Mr. Lamborn. We are here today to discuss the Nation's
Strategic and Critical Minerals Policy and opportunities for
improvement so the United States can better meet domestic
needs, create jobs, and strengthen our economy and national
security by decreasing our foreign dependence on mineral
materials.
Today, we will gain valuable insight from the mining
industry, users of mineral commodities, an American Resources
advocate, and the Chairman of two National Research Council
Reports published in 2008, and a 2011 report, issued by the
American Physical Society and the Materials Research Society.
Rare-earth elements are important components for renewable
energy technologies, telecommunications, medical devices, and
maybe most importantly, military technology. They are used to
make very small and powerful magnets.
In fact, if you will allow me to demonstrate. I have two
such magnets in my hands here today, neodymium, and these are
very powerful and are difficult to pull apart, and you should
be careful when you do so because you can squeeze your finger
when they let loose.
So, this is an example of a very small, but powerful,
magnet that is not found in normal magnetic minerals that we
just use in everyday use. Magnets like these can be used in the
military drones that have played an important part in the war
on terrorism.
The industrialization of China and India is driving demand
for non-fuel mineral commodities, sparking a period of resource
nationalism.
Steps taken by China to restrict exports of mineral
commodities needed for the industrialization of their country
highlights the need for the United States to assess the state
of our Nation's mineral policies, and the opportunities to
produce these and other strategic and critical minerals
domestically.
According to the National Resource Council, one of the
primary advantages the United States possesses over our
strongest industrial competitors is our domestic resource base.
In other words, we have a lot of mineral resources that could
be developed.
The United States is among the world's largest producer of
many important metals and minerals, particularly copper, gold,
lead, molybdenum, silver, and zinc, and we still have
substantial domestic reserves for these metals and rare earth
elements.
Yet, domestic mineral exploration stagnated or declined
during most of the 1990s and 2000s, even though global mineral
exploration trends were strongly positive. In 1993, we
attracted 20 percent of the worldwide minerals exploration
budget. Today, we attract about 8 percent.
Without increased domestic exploration, significant
declines in United States mineral production are unavoidable as
present reserves are exhausted. We will continue to ship
American jobs overseas and forfeit our economic competitiveness
unless we take steps to develop our own mineral resources.
The lack of exploration expenditures and other factors have
led to an increased dependence on foreign imports. For example,
25 years ago, the United States was dependent on foreign
sources for 30 non-fuel mineral materials, 6 of which were
entirely imported to meet the Nation's requirements, and
another 16 of which were imported to meet more than 60 percent
of the Nation's needs.
By last year our import dependence for non-fuel minerals
more than doubled from 30 to 67 commodities. Eighteen of those
commodities were imported entirely to meet the Nation's
requirements, and another 25 of those were imported to the tune
of 50 percent or more.
You can see on the screen to your right and left a
breakdown of some of these key 67 commodities, and how much is
imported. While much of the focus has been on rare earth
elements because of China's restrictions on exports, they
currently produce about 96 percent of the world's rare earth
elements.
These metals are not the only ones that should be of
concern to us. For example, at a 2006 Subcommittee hearing on
the energy and mineral requirements for renewable and
alternative fuels used for transportation and other purposes,
Robyn Storer stated that by 2016 less than half of the world
demand for copper mine supply can be met from production from
existing mines, and that the world needs the equivalent of 30
new major mines by 2016 to meet the projected demand growth.
The worldwide economic downturn in 2008 and 2009, and the
slow recovery has stayed that dire projection, but has not
eliminated it. The United States has abundant copper resources,
and could benefit greatly from development of projects like
Resolution Copper in Arizona.
Developing our Nation's mineral resources is not only an
integral part of an all-of-the-above energy plan, but it will
create long-term family wage jobs, stimulate our economy, and
reduce our foreign dependence on mineral resources.
I look forward now to hearing from our witnesses. I will
explain the procedures shortly, but now I would like to
recognize the Ranking Member for five minutes for an opening
statement. Mr. Holt.
[The prepared statement of Chairman Lamborn follows:]
Statement of The Honorable Doug Lamborn, Chairman,
Subcommittee on Energy and Mineral Resources
We are here today to discuss the Nation's Strategic and Critical
Minerals Policy and opportunities for improvement so the United States
can better meet domestic needs, create jobs and strengthen our economic
and national security by decreasing our foreign dependence on mineral
materials.
Today we will gain valuable insight from the mining industry, users
of mineral commodities, an American Resources advocate and the Chairmen
of two National Research Counsel Reports published in 2008 and a 2011
report issued by the American Physical Society and the Materials
Research Society.
Rare-earth elements are important components for renewable energy
technologies, telecommunications, medical devices and maybe most
importantly military technology.
They are used to make very small and powerful magnets--if you allow
me to demonstrate with these two small magnets here--magnets that are
used in the military drones that have played an important role in the
war on terrorism.
The industrialization of China and India is driving demand for non-
fuel mineral commodities, sparking a period of resource nationalism.
Steps taken by China to restrict exports of mineral commodities
needed for the industrialization of their country highlights the need
for the Unites States to assess the state of our Nation's mineral
policies and the opportunities to produce these and other strategic and
critical minerals domestically.
According to the National Research Council, one of the primary
advantages the United States possesses over our strongest industrial
competitors is our domestic resource base--in other words we have a lot
of mineral resources that could be developed.
The United States is among the world's largest producer of many
important metals and minerals, particularly copper, gold, lead,
molybdenum, silver, and zinc; and we still have substantial domestic
reserves of these metals including rare earth elements.
Yet, domestic mineral exploration stagnated or declined during most
of the 1990's and 2000's even though global mineral exploration trends
were strongly positive. In 1993 we attracted twenty percent of the
world-wide minerals exploration budget, today we attract about eight
percent.
Without increased domestic exploration, significant declines in
U.S. mineral production are unavoidable as present reserves are
exhausted. We will continue to ship American jobs overseas and forfeit
our economic competitiveness unless we take steps to develop our own
mineral resources.
The lack of exploration expenditures and other factors has led to
an increased dependence on foreign imports. For example, 25 years ago
the United States was dependent on foreign sources for 30 non-fuel
mineral materials, 6 of which were entirely imported to meet the
Nation's requirements and another 16 of which were imported to meet
more than 60 percent of the Nation's needs.
By last year our import dependence for non-fuel mineral materials
more than doubled from 30 to 67commodities, 18 commodities were
imported entirely to meet the Nation's requirements, and another 25
commodities required imports of more than 50 percent (figure 1--on
screen).
While much of the focus has been on rare earth elements because of
China's restrictions on exports--they currently produce about ninety-
six percent of the world's rare earth elements. These metals are not
the only ones that should be of concern to us.
For example, at a 2006 subcommittee hearing on ``The Energy and
Mineral Requirements for Renewable and Alternative Fuels Used for
Transportation and Other Purposes'' Robyn Storer stated that ``by 2016
less than half of world demand for copper mine supply can be met from
production from existing mines''. . .and that. . .``the world needs the
equivalent of 30 new major mines by 2016 to meet the projected growth
in demand.''
The world-wide economic downturn in 2008 and 2009 and slow recovery
has stayed that dire projection but not eliminated it.
The United States has abundant copper resources and could benefit
greatly from development of projects like Resolution Copper in Arizona.
Developing our Nation's mineral resources is not only an integral part
of an all-of-the-above energy plan but it will create long-term family
wage jobs, stimulate our economy and reduce our foreign dependence on
mineral resources.
I look forward to hearing from our witnesses today.
______
STATEMENT OF HON. RUSH D. HOLT, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEW JERSEY
Mr. Holt. Thank you, Mr. Chairman. In recent years, the
issue of rare earth elements and critical minerals has come to
widespread attention, and we have witnessed, I think, a growing
realization that allowing our domestic rare earth supply chain
to disintegrate over the past couple of decades may be a threat
to both our national security and our economic competitiveness.
It was nearly 20 years ago that Chinese President Deng
Xiaoping famously noted that while the Middle East has its oil,
China has its rare earths. So, China's march to monopoly of 97
percent of the world's rare earth minerals, ores, and oxides
began.
At the same time, the United States has gone from the
world's leading producer to near total reliance on imports of
rare earths. This has serious repercussions for the military.
These minerals are essential for guidance systems, and lasers,
and satellite communication, and radar, and sonar, and all
sorts of other things.
And the Department of Defense is currently working on a
report on its plan to ensure near-term availability, and I am
not sure that anybody is really looking at long-term
availability. So, I look forward to that report from the DoD.
But it is more than a national security concern. There are
implications for the development of clean energy. Over the next
couple of decades, the global market for sustainable energy
products and equipment is going to be a multi-multi-trillion
dollar industry.
And if American companies and workers are to participate in
this rapidly growing sector for access to rare earths, and the
ability to domestically refine and process reliable supplies
will be critical.
A hybrid vehicle, for example, contains a couple of pounds
of neodymium in its motor, and nearly 25 pounds of lanthanum in
its battery. Those are just two of the 17 minerals categorized
as rare earths.
Several hundred pounds of these might be used for advanced
magnets for the large wind turbines, for example. So, China has
the ability to shut down the production of almost all of these
products if it wishes, and based on current Chinese exports
quotas and tariffs, as well as the unofficial earth embargo to
Japan last fall, relying completely on China for these critical
minerals is clearly not a sound approach for our country.
It is clear that China is acting as they see it
strategically to dominate the entire clean energy supply chain,
from mine to solar module, and it is vital to America's
economic competitiveness that we, too, develop a long-term
strategy for competing in this and other high tech sectors.
The strategy must include a plan for securing reliable
supplies of critical minerals. So, we need the United States
Geological Survey, and Geological Surveys from around the
world, too provide the best and most transparent data on
critical mineral resources in the ground.
We need the Department of Energy researching mineral and
material substitutes, developing reuse and recycling methods,
and improving technologies for critical mineral extraction and
refining.
We need the Department of Defense to develop a plan for
securing adequate supplies to meet national security
requirements now and into the future. So, let us be clear. An
over-simplified ``Mine, Baby, Mine'' mantra will not create a
domestic supply chain.
It will not develop substitute materials, and it will not
enhance in the long run our national security and economic
competitiveness. Moreover, since rare earths--maybe at some
point we should make it clear that rare earths aren't rare--
just difficult to acquire.
But since rare earth deposits are typically found
associated with radioactive elements, haphazard and imprudent
mining can leave us with contaminated water supplies, and
radioactive superfund sites around the country.
So, it is an important hearing, and I hope the first of
many on this subject. As the Chairman said, I think it is
possible to find some common ground, and this need not be a
partisan issue. I thank the witnesses for being here today, and
I look forward to your testimony.
[The prepared statement of Mr. Holt follows:]
Statement of The Honorable Rush D. Holt, Ranking Member,
Subcommittee on Energy and Mineral Resources
Over the past year, the issue of rare earth elements and other
critical minerals has jumped to the front burner. We have witnessed a
collective realization--rightly I believe--that allowing our domestic
rare earth supply chain to disintegrate over the past two decades may
be a threat to both our national security and economic competitiveness.
In 1992, the Chinese president Deng Xiaoping [shou-ping] famously
noted that ``the Middle East has its oil, but China has rare earth.''
So began China's march to monopoly producer of 97 percent of the
world's rare earth mineral ores and oxides. At the same time, the U.S.
has gone from the world's leading producer to near total reliance on
imported rare earths.
This has serious repercussions for our military. Rare earth
minerals are essential to our missile guidance systems, lasers for
enemy mine detection, satellite communications, and radar and sonar
systems. The Department of Defense is currently working on a report on
its plan to ensure near-term availability of rare earth minerals, and I
look forward to that report.
But this is more than a national security concern. It also has
significant implications for the development of clean energy. Over the
next two decades, the global market for sustainable energy products and
equipment is estimated to be worth more than $12 trillion. If American
companies and workers are to participate in this rapidly growing
sector, access to rare earths and the ability to domestically refine
and process reliable supplies of these minerals will be absolutely
critical.
Today, a hybrid vehicle contains 2 pounds of neodymium in its motor
and nearly 25 pounds of lanthanum in its battery. Those are just two of
the 17 minerals categorized as rare earths. Several hundred pounds of
these minerals may be used to make the advanced magnets needed in a
large wind turbine. Today, China has the ability to shut down
production of all of these products if it wishes. Based on current
Chinese export quotas and tariffs, as well as the unofficial rare earth
embargo to Japan last fall, relying completely on China for these
critical minerals is clearly not a sound approach.
It is clear that China is acting strategically to dominate the
entire clean energy supply chain, from mine to solar module. It is
vital to America's economic competitiveness that we too develop a long-
term strategy for competing in this and other high-tech sectors. This
strategy must include a plan for securing reliable supplies of critical
minerals.
So we need the U.S. Geological Survey, and geological surveys from
around the world, providing the best and most transparent data on
critical mineral resources in the ground. We need the Department of
Energy researching material substitutes, developing reuse and recycling
methods, and improving technologies for critical mineral extraction and
refining. We need the Department of Defense to develop a plan for
securing adequate supplies to meet national security requirements in
the near-term. But let's be clear. An over-simplified ``Mine Baby
Mine'' mantra will not create a domestic supply chain, it will not
develop substitute materials, and it will not enhance our national
security or economic competitiveness. Moreover, since rare earth
deposits are typically found among radioactive uranium, thorium, and
radon, a haphazard ``Mine, Baby, Mine'' strategy could leave us with
contaminated water supplies and radioactive Superfund sites across the
country.
This is a very important hearing and, I hope, the first of more on
the subject.I thank the witnesses for being here today and look forward
to their testimony.
______
Mr. Lamborn. OK. Thank you, Representative Holt. At this
point, I would like to have a moment of silence. Our Chairman,
Doc Hastings, unfortunately lost his mother in the last day or
so. So, if we could have a moment of silence, it would be
appreciated.
[Pause.]
Mr. Lamborn. Thank you. So, the Chairman of the Full
Committee is not with us. We are graced with the presence of
our Ranking Member of the Full Committee. So, if you have an
opening statement, Mr. Markey, we would like to hear it.
STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MASSACHUSETTS
Mr. Markey. Thank you, Mr. Chairman, very much. And I also
appreciate your foresight in using the word strategic in the
title of today's hearing. It underscores the importance of
dealing with this resource challenge with a long-term national
purpose in mind.
We can mine every last rare earth molecule from the
National Mall to the California coast, but if we are shipping
all that ore back across the Pacific to be refined and
processed into valuable alloys in China, and assembled into
solar panels, i-Pods, and missile guidance systems in China,
then we have completely missed the opportunity.
Against all odds, American manufacturing is charging back,
anchored by a strong domestic auto industry that has reoriented
around technology and innovation. United States manufacturing
has now expanded for 21 consecutive months.
I know that all of us are happy to see this recovery
happening, but it is time to take stock of how we are going to
maintain this growth. Our workers are competitive globally, not
because they will work for the lowest wages, but because they
are the most productive because they innovate.
They find ways to work smarter instead of harder, and that
is why this hearing is so important. This is all about building
blocks of the high-tech economy. A Nation that wishes to
compete in high-tech, value-added manufacturing, in the 21st
Century must have a reliable source of critical minerals.
One agency which this Committee has jurisdiction over that
I believe must be more fully utilized to help solve the
critical minerals challenge is the United States Geological
Survey.
This is why I have introduced a bill, along with
Representative Hank Johnson, that directs the United States
Geological Survey to work with other Geological Surveys to
identify and quantify global rare earth deposits, improve our
understanding of the distribution and formation of these
deposits, analyze the state of the rare earth supply chain, and
recommend steps to ensure supply.
I believe that H.R. 1314, the Resource Assessment of Rare
Earths, or RARE Act, is an important first step that this
Committee could take to bring valuable government resources and
expertise to bear on this problem.
I hope to work with the Majority on this and other
legislation that address the critical mineral challenge. I
thank you, Mr. Chairman, for holding this hearing.
[The prepared statement of Mr. Markey follows:]
Statement of The Honorable Edward J. Markey, Ranking Member,
Committee on Natural Resources
I thank the Chairman.
And I also appreciate his foresight in using the word ``strategic''
in the title of today's hearing. It underscores the importance of
dealing with this resource challenge with a long-term national purpose
in mind.
``Drill, Baby, Drill'' or ``Mine, Baby, Mine'' doesn't really
capture the type of solutions we need in this area. We can mine every
last rare earth molecule from the National Mall to the California
coast. But if we're shipping all that ore back across the Pacific to be
refined and processed into valuable alloys in China and assembled into
solar panels, iPods, and missile guidance systems in China, then we
will have completely missed the opportunity.
Against all odds, American manufacturing is charging back. Anchored
by a strong domestic auto industry that has re-oriented around
technology and innovation, U.S. manufacturing has now expanded for 21
straight months.
I know all of us are happy to see this recovery happening. But it's
time to take stock of how we're going to maintain this growth. Our
workers are competitive globally not because they'll work for the
lowest wages, but because they are the most productive. They innovate.
They find ways to work smarter, instead of harder.
That's why this hearing is so important today. This is all about
the building blocks of the high-tech economy. A nation that wishes to
compete in high-tech, value-added manufacturing in the 21st Century
must have a reliable source of critical minerals.
One agency which this committee has jurisdiction over that I
believe must be more fully utilized to help solve the critical minerals
challenge is the U.S. Geological Survey. That is why I have introduced
a bill along with Representative Hank Johnson that directs the USGS to
work with other geological surveys to identify and quantify global rare
earth deposits, improve our understanding of the distribution and
formation of these deposits, analyze the state of the rare earth supply
chain, and recommend steps to ensure supply. I believe H.R. 1314--the
Resource Assessment of Rare Earths, or RARE Act--is an important first
step that this committee could take to bring valuable government
resources and expertise to bear on this problem.
I hope to work with the majority on this and other legislation that
address the critical mineral challenge.
______
Mr. Lamborn. OK. And thank you, Representative Markey. I
look forward now to hearing from our witnesses. Let me
introduce them. From our left to right, Hal Quinn, President
and CEO of the National Mining Association; Dr. Roderick
Eggert, Director and Professor of the Division of Economics and
Business at the Colorado School of Mines in our State, myself
and Representative Coffman here; Dr. Robert Jaffe, Morningstar
Professor of Science at the Massachusetts Institute of
Technology; Robert Latiff, President and Consultant, R. Latiff
Associates; Ed Richardson, President of the Magnetic Materials
Association, and Vice President of Thomas and Skinner; and
Daniel McGroarty, President of the American Resources Policy
Network.
Like all of our witnesses, your written testimony will
appear in full in the hearing record. So, I ask that you keep
your oral statements to five minutes as outlined in the
invitation letter that we sent you and under Committee Rule
4[a],
Our microphones are not automatic, and so you have to push
the button in front of you, and you will see a timer that
counts down from five minutes to zero, and that is when your
time has run out.
After four minutes a yellow light will come on for the last
minute. Then I would ask that you stop and we go on to the next
witness. Then we will alternate between the Majority and the
Minority to ask questions of any one of you for up to five
minutes per Representative, and if your schedule allows, it
would be nice to have a second round of questions.
In any case, we do have to be out of here sometime before
11 o'clock, because at that point, we need to be over at the
House, and I assume that all of us are interested, and need,
and want to be there for a Joint Session of Congress to hear
the Prime Minister of Israel address Congress. So, that will be
our deadline.
At this point, why don't we start with our first witness.
Mr. Quinn, you may begin.
STATEMENT OF HAL QUINN, PRESIDENT AND CEO,
NATIONAL MINING ASSOCIATION
Mr. Quinn. Good morning, Mr. Chairman, Ranking Member Holt,
and Ranking Member Markey, and Members of the Subcommittee. I
want to thank the Subcommittee for holding this hearing to
address a serious challenge to our economic and national
security; the availability of critical minerals that are the
building blocks of our society.
Now, the definition of critical minerals may vary depending
upon one's perspective, whether it is examining national
security implications, our capabilities for continued
innovation, and the development of new technologies.
But from a broader perspective, ensuring that our domestic
mining industry performs to its full potential is critical to
our economic success. The United States mining industry
produces $64 billion in raw materials, that is then consumed in
finished products that add $2.1 trillion, or 14 percent to our
GDP.
Now consider if we had produced to our resource potential
for just copper, rhenium, and iron ore, basic ingredients for
the core sectors of our economy, an additional $32 billion of
revenue would have been realized, and then converted into an
additional $1 trillion in economic output for finished
products.
Today, less than half the mineral needs of United States
manufacturing are met from domestically mined minerals. Our
import dependence for key minerals and commodities has doubled
over the past two decades. If you had done a time series on
that chart earlier, you would have seen it increasingly become
blue over the last 20 years.
The economic and geopolitical perils posed by our Nation's
oil import dependency is well understood. Less appreciated is
the peril posed by our growing dependence on foreign sources of
minerals.
Rare earth elements present a contemporary lesson. Twenty
years ago the United States was a major producer of rare
earths. Today, China supplies more than 95 percent of the world
demand.
With that control, China has changed its business model
from exporting rare minerals to exporting finished products
using rare earth elements, such as electric motors, computers,
batteries, and wind turbines.
In short, China has leverage in its commodity control so
that it can provide price and supply preference to domestic
consumers, including companies that move their manufacturing
and research facilities to China.
The value proposition is clear. Instead of selling for the
creation of hundreds of jobs derived from rare earths, or from
buying rare earths, why not employ millions throughout the
value added chain and seize the economic and technological
advantages that come with building out your manufacturing
capabilities.
There exists the real potential for a rare earths story to
become an all too common experience for other natural or rare
earths commodities. You are presently in the midst of an
unprecedented super cycle demand for minerals. The cycle is
fueled by a start transformation of nations from agrarian-based
societies to industrial and urban commercial centers.
Growing urbanization and industrialization in developing
the world means more demand for minerals to build the
infrastructure and supply the products for a population with
growing aspirations.
These trends have already translated to major shifts in
global sources of demand and supply for key commodities. We as
a Nation have become increasingly marginalized in the front end
of the mineral supply chain, and the consequences are severe
for our Nation's global competitiveness.
What the rare earths experience should teach us is that
when secure and reliable sources of minerals supply disappear
from our shores, so do the downstream industries, innovation,
and technology that require them.
The good news is that the United States has resources and
the know how to meet more of its domestic mineral needs. Our
mineral endowment is immense and inevitable. According to the
United States Geological Survey, when it comes to key minerals,
what is left to be discovered in the United States is almost as
much as what has been discovered.
Our resource potential in business advantages should
provide us a leg up globally, and yet by several measures we
are performing below our potential. I had previously mentioned
that our Nation's import dependency continues to increase.
So, finding new resources and delineating our economic
potential is critical to keep the commodity pipeline flowing.
However, the percentage of worldwide exploration spending
commanded by the United States has dropped from 20 percent in
1993 to a mere 8 percent today.
That is a leading indicator where future development
capital will be deployed. Until recently the United States was
a global leader in value added mining to the Nation's GDP. We
have now slipped to second, but more of concern is that the
ratio of our capital expenditures to the value added of mining
to the economy lags so substantially that it may jeopardize the
United States's current overall GDP rank.
So, while the United States has one of the greatest mineral
endowments, our ability to get these minerals into the supply
chain to help meet more of America's needs is compromised by
some policies that place high hurdles in our lane of the global
race to remain competitive.
Let me just quickly mention three; access to mineral lands.
The 12 Western States are the source of much of our Nation's
mineral endowment. Federal lands compromise almost 40 percent
of the land area in the United States.
Half of that is either off-limits or under restrictions for
mineral development. Unknown amounts of resources on adjacent
State and private lands are also sterilized because of those
restrictions.
The United States mining struggles under the highest
statutory taxation rate. Federal and State taxes combined
result in a 41 percent tax rate for United States metals
mining.
Many countries that we compete against for development
capital have already instituted their rate cuts, or targeted
reforms to attract investments in mining. The Federal
regulatory burden has recently been estimated to cost the
United States economy $1.75 trillion.
On average that amounts to $8 thousand per employee. But
while regulatory costs can solely drown out an enterprise, the
uncertainties and delays in obtaining permits to commence
operations can crush a mining enterprise before it even gets
into the dirt.
Permit delays pose the highest hurdle for domestic mining,
with necessary government authorizations now taking close to 10
years. If commodities super cycles are historically measured in
20 years in duration, the 10 years that it takes to obtain
permits leaves the United States mining still in the starting
blocks with the race halfway over.
America's drift away from the greater self-sufficiency and
the basic building blocks of our economy compromises our
economic and national security, and surrenders the country's
inherent advantage of rich reserves of metals and minerals.
This hearing is a good starting point for addressing head-
on the larger issue of how our country can produce more
minerals to meet a greater share of our domestic needs, and we
thank you for holding this hearing, Mr. Chairman.
[The prepared statement of Mr. Quinn follows:]
Statement of Hal Quinn, President and CEO, National Mining Association
Good morning. I am Hal Quinn, president and chief executive officer
of the National Mining Association (NMA). NMA is the national trade
association representing the producers of most of the nation's coal,
metals, industrial and agricultural minerals; manufacturers of mining
and mineral processing machinery, equipment and supplies: and
engineering and consulting firms, financial institutions and other
firms serving the mining industry.
I want to thank the Subcommittee for holding this hearing to
address a serious challenge to our economic and national security--the
availability of the critical minerals that are the building blocks of
our society. And these minerals are critical. Using one metric, the
value added from industries consuming the $64 billion in raw materials
from U.S. minerals mining translates into $2.1 trillion, or 14 percent,
of our GDP. Yet today, less than half of the mineral needs of U.S.
manufacturing are met from domestically mined resources. And when
secure and reliable mineral supply chains disappear from our shores so
do the downstream industries, related jobs, innovation and technology
that depend on them.
Overall, the United States' import dependence for key mineral
commodities has doubled in the span of two decades. This is not a
sustainable trend, particularly in a highly competitive world economy
in which the demand for minerals continues to grow. These dynamics has
led NMA to launch a new education and outreach effort, Minerals Make
Life, and we are ready to work with our elected leaders to ensure
public policies and procedures address the challenges before us.
The Backdrop
Fast growing economies led by China and India have created an
historic super cycle for commodities--one we have not seen on such a
scale since the American Industrial Revolution more than a century ago.
Metals are at the epicenter of this historic transformation of nations
from agrarian-based societies to industrial and urban commercial
centers. Consider the following megatrends:
For the first time in our history, more than half of
humanity lives in urban areas. It is forecast that more than 70
percent will be located in urban centers in the next 40 years.
In China, alone, we are witnessing the largest internal
migration in human history with perhaps 625 million Chinese
living in cities by 2015. By 2025, there will be at least 29
mega-cities globally with more than 10 million people. These
cities all require tremendous infrastructure to electrify,
connect and transport their citizenry.
At the same time, we are in the middle of an
unprecedented explosion in the world middle class, and the pace
will continue to pick up significantly. Some estimate that 25
percent of China's population qualifies as middle class--more
people than the entire U.S. population today. And, China's
middle class is expected to double in the next decade. Entre to
the middle class brings with it expectations for better medical
care, more goods and services, improved housing, safe drinking
water and other hallmarks of a better life. All depend on
minerals.
What we see in China is also underway in other
emerging countries such as India, Indonesia and Brazil. The
demographics all point to sustained momentum behind these
trends.
The Peril
It is important that we understand these critical trends because
they will shape our future, presenting opportunities and challenges for
both U.S. mining and the nation. These trends point to enormous growth
and job-creation opportunities if U.S. mining is allowed to perform to
its potential. If we do not, and become increasingly marginalized, the
consequences are severe for our nation's global competitiveness as we
become more reliant upon extended and unstable supply chains for what
we can produce here.
Recognizing that resource constraints can limit its growth, China,
for one, has developed a comprehensive and multi-faceted strategy for
assuring future supplies of minerals.
A powerful example of China's aggressive strategy to ensure access
to needed minerals involves rare earth elements (REE). REEs are valued
for their magnetic and optical properties and used in weapons systems,
computers and energy technologies. Twenty years ago, the United States
was the major producer of REEs. Today, China supplies more than 95
percent of world demand. China also recognizes the benefits of forward
integration to its economy and technological advancement. As a result,
it has changed its business model from exporting rare earth minerals to
exporting finished products using REEs such as electric motors,
computers, batteries and wind turbines. While the U.S. is reviving its
REE production capability, we have let the situation go on far too long
for these and other minerals commodities.
America's drift away from greater self-sufficiency for the basic
building blocks of our economy compromises our economic and national
security and ignores this country's rich reserves of metals and
minerals. It is time for policymakers to meet head-on the larger issue
of how our country can produce more domestic minerals to meet a greater
share of our needs.
The Potential
The United States has the resources and the know-how to meet more
of its domestic mineral needs. From a global perspective, the United
States enjoys inherent advantages. Our mineral endowment is immense and
enviable. Our bench is long and deep. According to the United States
Geological Survey, when it comes to copper, silver and zinc and other
key minerals ``what is left to be discovered in the U.S. is almost as
much as what has been discovered.''
Beyond our rich mineral endowment, we also enjoy several other
inherent advantages. We have a global-leading workforce in terms of
skill and productivity. We possess top quality rail and port
infrastructure for moving commodities to market. We enjoy an
electricity infrastructure that is top of class in terms of quality,
reliability and cost--thanks to abundant and low-cost coal. And the
depth of our capital markets allows access to the capital necessary to
find and develop new resources.
The Performance
Our resource potential and business advantages should provide us a
leg-up globally. And yet, by several measures we are performing below
our potential.
When viewed through the lens of resource potential,
we are punching below our global weight. If we had produced to
our resource potential for copper, molybdenum, and iron ore--
basic ingredients for key sectors of our economy--an additional
$32 billion of revenue would have been registered in 2008--and
multiply that by the value added to the GDP by major industries
that convert these materials into finished products, and U.S.
mining could have been the starting point for an additional $1
trillion in economic output.
Finding new resources and delineating their economic
potential is critical to keeping the commodity pipeline
flowing. Here again, we see a disturbing trend with the
percentage of worldwide exploration spending commanded by the
U.S. dropping from 20 percent in 1993 to only 8 percent today.
The percentage of global exploration spending is a leading
indicator of where future development capital will be deployed.
If you do not put the money in the ground, you cannot get the
minerals out.
Until recently, the U.S. was the global leader in
value added of mining to the nation's GDP. We have now slipped
to second, but more concerning is that when we look at the
ratio of our capital expenditures to the value add of mining to
the economy, we lag so substantially that absent significantly
higher investments, the U.S. is unlikely to maintain its
current overall GDP rank.
The Public Policy
So while the United States has one of the world's greatest mineral
repositories, our ability to get these minerals into the supply chain
to help meet more of America's needs is threatened. Numerous public
policies have placed high hurdles in our lane of the global race to
remain competitive.
Access
Twelve western states are the source of much of our nation's
mineral endowment. Federal lands comprise almost 40 percent of the land
area in those states. Half of that is either off-limits or under
restrictions for mineral development. Unknown amounts of resources on
adjacent state and private lands are also sterilized because of federal
land restrictions. Both the elected and unelected continue to propose
placing more of these lands off-limits.
Taxes
U.S. mining struggles under the world's highest statutory taxation
rate. And our payments to local, state and federal government in 2008,
the last year for which we have complete data, resulted in a 41 percent
effective tax rate for U.S. metals mining operations, according to an
analysis by PricewaterhouseCoopers. Many of the countries we compete
against for development capital have already instituted rate cuts or
targeted reforms to attract investments in mining. Here in the United
States, we more often see proposals that would add additional taxes or
fees on mining and eliminate the percentage depletion allowance that
allows us to secure the enormous financial commitments necessary for
capital intensive enterprises.
Regulatory Burden
The federal regulatory burden has recently been estimated to cost
the U.S. economy $1.75 trillion annually. On average that amounts to
about $8,000 per employee. The intensity is higher for an industry such
as mining that must make regulatory filings and obtain government
approvals for even the slightest changes in operating plans.
Regulatory costs can slowly drown an enterprise. But the
uncertainties and delays in obtaining permits to commence operations
can crush the mining enterprise before it even gets in the dirt. Permit
delays pose the highest hurdle for domestic mining with necessary
government authorizations now taking close to 10 years to secure. If
commodity cycles are historically 20 years in duration, the 10-years it
takes to obtain permits leaves U.S. mining still in the starting blocks
with the race half way over.
Crafting Solutions
As Congress investigates long-term solutions and strategies to
address our nation's mineral needs, it must also consider that many of
today's emerging technologies rely on combinations of a variety of
different minerals--not just single commodities. As new applications
are found, markets for mineral commodities will expand considerably
along with demand. For example, as cell phone technology has advanced,
so too have the number of minerals needed to send an e-mail, take a
photo or capture video. Today, cell phones are made from as many as 42
different minerals, televisions can be composed of 35 different
minerals and computers are built from 66 different minerals.
Conclusion
An overreliance on imported minerals coupled with flat production
at home, places the United States at greater risk of supply disruptions
in an increasingly minerals-competitive world. Minerals are the
building blocks of our future. Achieving sustainable economic growth
will require a steady supply of minerals that will enable American
corporations--large and small--to develop and make the technologies
that will propel our economy, enable our country to compete globally,
and improve the quality of our lives. The technologies that define
innovation today all depend on minerals--lifesaving medical devices,
smart phones and advanced energy technologies alike require minerals to
function. The United States' ability to continue to innovate will
depend on how we meet tomorrow's needs.
______
Mr. Lamborn. OK. Thank you for your comments. Now, Dr.
Roderick Eggert from the Colorado School of Mines.
STATEMENT OF DR. RODERICK EGGERT, DIRECTOR AND PROFESSOR,
DIVISION OF ECONOMICS AND BUSINESS, COLORADO SCHOOL OF MINES
Dr. Eggert. Thank you very much. Good morning, Mr.
Chairman, and Members of the Committee. My name is Rod Eggert.
I am a Professor at the Colorado School of Mines. I chaired the
National Research Council Committee that prepared the 2008
report, Minerals, Critical Minerals, and the United States
Economy.
This report described the broad context for current
concerns about strategic and critical minerals. In particular,
let me highlight three aspects of the report. First,
definitions. The report defined a critical mineral, or a
critical element, as one that is both essential in use, or
difficult to substitute away from, and also subject to supply
risk.
And which specific minerals or elements is strategic
depends on and varies from industry to industry, from country
to country, and over time.
Second, a conceptual framework. The report articulated a
conceptual framework for assessing the degree of criticality of
specific elements or minerals, and at the time identified
indium, magnesium, niobium, platinum group elements, and rare
earth elements, as critical.
Third, policy relevant recommendations. The report did not
make specific policy recommendations, but it did express and
affirm an important Federal rule in collecting, and
disseminating, and analyzing information about critical mineral
markets and the science behind them. and also a critical
Federal role in research, especially pre-competitive research.
Let me use the rest of the time to articulate for personal
propositions. First, the issues are broader than rare earths,
despite the prominence of rare earths over the last year or so
in the news.
There are perhaps 15 or 20 elements that arguably are
critical or strategic. Point number two. Each element has its
own story, although import dependence can be a source of risk,
by itself import dependence need not be risky if foreign
sources are varied and otherwise secure.
Different elements have different constraints on
availability, and are different supply risks, and in some cases
are import dependence related to geopolitical risks. In other
cases, basic geologic scarcity may be a source of a constraint;
technical limitations on the ability to process; extract and
process an element may be a constraint.
Reliance on byproduct production, or environmental, or
social concerns, all can be sources of unavailability if you
will.
Point number three. Markets are responding to concerns
about availability and security of supply, and timelines can be
significant. Markets provide powerful incentives for affected
parties to respond.
On the supply side, there has been a minor mania of
exploration for rare earths. There has been a significant
increase in interest in recycling research over the last
several years, but the timelines are significant; 5 to 15 years
or so to take a mineral exploration project from its initial
stages to actually operating a mine.
On the demand side, markets encourage users of mineral-
based elements to obtain "insurance" against mineral supply
risks. In the short- to medium-term users can, for example,
maintain stockpiles, diversify sources of supply, develop
joint-sharing arrangements with other users, or develop tighter
relations with producers. Over the longer term, users might
invest in new mines in exchange for secure supplies or,
undertake research and development to substitute away from
those elements subject to supply risks.
Point number four. But there are important roles for the
Federal Government today in encouraging undistorted
international trade where trade restrictions are the problem,
and in improving the regulatory approval processes for domestic
resource development when there are opportunities to create
value through domestic mineral production and downstream
processing activities.
And, finally, there is an important Federal role in
facilitating the provision of information and analysis in
education, and in pre-competitive research activities. Thank
you very much for the opportunity to testify. I look forward to
responding to your questions.
[The prepared statement of Dr. Eggert follows:]
Statement of Roderick G. Eggert, Professor and Division Director,
Division of Economics and Business, Colorado School of Mines, Golden,
Colorado
Good morning, Mr. Chairman, members of the Committee, ladies and
gentlemen. My name is Rod Eggert. I am Professor of Economics and
Business at Colorado School of Mines. My area of expertise is the
economics of mineral resources. I participated in two activities
relevant for today's hearing. I chaired the committee of the U.S.
National Research Council (NRC) that prepared the 2008 report Minerals,
Critical Minerals, and the U.S. Economy. I served as a member of the
committee of the American Physical Society and the Materials Research
Society (APS/MRS) that prepared the 2011 report Energy Critical
Elements: Securing Materials for Emerging Technologies.
I organize my remarks into three sections. First, I describe the
context for current concerns about strategic and critical minerals.
Second, I summarize the 2008 NRC report on critical minerals identified
above. Third, I present my personal views on strategic and critical
minerals, which are significantly shaped by the NRC and APS/MRS
studies.
Context
Mineral-based materials are becoming increasingly complex. In its
computer chips, Intel used 11 mineral-derived elements in the 1980s and
15 elements in the 1990s; it may use up to 60 elements in the future.
General Electric uses some 70 of the first 83 elements of the periodic
table in its products. In contrast, as recently as two or three decades
ago, a typical household owned products containing perhaps 20 elements.
Moreover, new technologies and engineered materials create the
potential for rapid increases in demand for some elements used
previously and even now in relatively small quantities. The most
prominent--although by no means only--examples are gallium, indium and
tellurium in photovoltaic solar cells; lithium in automotive batteries;
and rare earth elements in wind turbines, hybrid vehicles, compact-
fluorescent light bulbs, and a number of defense and military
applications.
These technological developments raise two concerns. First, there
are fears that supply will not keep up with the explosion of demand due
to the time lags involved in bringing new production capacity online or
more fundamentally the basic geologic scarcity of certain elements.
Second, and more-directly relevant to today's hearing, there are fears
that supplies of some elements are insecure due to, for example, import
dependence, export restrictions on primary raw materials by some
nations, industry concentration, or the reliance on byproduct
production that characterizes the supply of some strategic and critical
minerals. In both cases, mineral availability--or more precisely,
unavailability--has emerged as a potential constraint on the
development and deployment of emerging and important technologies,
especially in the clean-energy and defense sectors.
Minerals, Critical Minerals, and the U.S. Economy
It was in this light that the standing Committee on Earth Resources
of the National Research Council initiated a study and established an
ad hoc committee, which I chaired, to examine the evolving role of
nonfuel minerals in the U.S. economy and the potential impediments to
the supplies of these minerals to domestic users. The U.S. Geological
Survey (USGS) and the National Mining Association sponsored the study,
the findings of which appear in the volume Minerals, Critical Minerals,
and the U.S. Economy (NRC 2008).
The report provides a broad context for current discussions and
concerns. It defines a `critical' mineral as one that is both essential
in use (difficult to substitute away from) and subject to some degree
of supply risk. Under this definition, `strategic' minerals are the
subset of critical minerals essential in military applications.
The degree to which a specific mineral is critical or strategic can
be illustrated with the help of a figure (Figure 1). The vertical axis
represents the impact of a supply restriction should it occur, which
increases from bottom to top. The impact of a restriction relates
directly to the ease or difficulty of substituting away from the
mineral in question. The more difficult substitution is, the greater
the impact of a restriction (and vice versa). The impact of a supply
restriction can take two possible forms: higher costs for users (and
potentially lower profitability), or physical unavailability (and a
``no-build'' situation for users).\1\
---------------------------------------------------------------------------
\1\ When considering security of petroleum supplies, rather than
minerals, the primary concern is costs and resulting impacts on the
macroeconomy (the level of economic output). The mineral and mineral-
using sectors, in contrast, are much smaller, and thus we are not
concerned about macroeconomic effects of restricted mineral supplies.
Rather the concern is both about higher input costs for mineral users
and, in some cases, physical unavailability of an important input.
---------------------------------------------------------------------------
The horizontal axis represents supply risk, which increases from
left to right. Supply risk reflects a variety of factors including:
concentration of production in a small number of mines, companies, or
nations; market size (the smaller the existing market, the more
vulnerable a market is to being overwhelmed by a rapid increase in
demand); and reliance on byproduct production of a mineral (the supply
of a byproduct is determined largely by the economic attractiveness of
the associated main product). Import dependence, by itself, is a poor
indicator of supply risk; rather it is import dependence combined with
concentrated production that leads to supply risk. In Figure 1, the
hypothetical Mineral A is more critical than Mineral B.
Taking the perspective of the U.S. economy overall in the short to
medium term (up to about a decade), the committee evaluated eleven
minerals or mineral families. It did not assess the criticality of all
important nonfuel minerals due to limits on time and resources. Figure
2 summarizes the committee's evaluations. Those minerals deemed most
critical at the time of the study--that is, they plotted in the upper-
right portion of the diagram--were indium, manganese, niobium,
platinum-group metals, and rare earth elements.
Any list of critical minerals reflects conditions at a specific
point in time. Criticality is dynamic. A critical mineral today may
become less critical either because substitutes or new sources of
supply are developed. Conversely, a less-critical mineral today may
become more critical in the future because of a new use or a change in
supply risk.
Although the study did not make explicit policy recommendations, it
made three policy-relevant recommendations, which I quote below:
1. The federal government should enhance the types of data and
information it collects, disseminates, and analyzes on minerals
and mineral products, especially as these data and information
relate to minerals and mineral products that are or may become
critical.
2. The federal government should continue to carry out the
necessary function of collecting, disseminating, and analyzing
mineral data and information. The USGS Minerals Information
Team, or whatever federal unit might later be assigned these
responsibilities, should have greater authority and autonomy
than at present. It also should have sufficient resources to
carry out its mandate, which would be broader than the Minerals
Information Team's current mandate if the committee's
recommendations are adopted. It should establish formal
mechanisms for communicating with users, government and
nongovernmental organizations or institutes, and the private
sector on the types and quality of data and information it
collects, disseminates, and analyzes. It should be organized to
have the flexibility to collect, disseminate, and analyze
additional, nonbasic data and information, in consultation with
users, as specific minerals and mineral products become
relatively more critical over time (and vice versa).
3. Federal agencies, including the National Science
Foundation, Department of the Interior (including the USGS),
Department of Defense, Department of Energy, and Department of
Commerce, should develop and fund activities, including basic
science and policy research, to encourage U.S. innovation in
the area of critical minerals and materials and to enhance
understanding of global mineral availability and use.
Four Propositions
I organize my personal views around four propositions. First, the
issues are broader than rare earths, despite the prominence of rare
earths in the news over the last year. Exactly which minerals are
`critical' (essential in use, subject to supply risk) varies from
industry to industry, nation to nation, and over time. A number of
recent studies suggest possible critical elements. Each list reflects a
specific context.
In the field of energy, the U.S. Department of Energy (2010)
identifies five rare earths (dysprosium, europium, terbium, neodymium,
and yttrium) and indium as especially critical to wind turbines,
fluorescent lighting, electric vehicles, and photovoltaic thin films. A
study by the American Physical Society and Materials Research Society
(APS/MRS, 2011) focusing on energy technologies identifies the same six
elements as possibly critical, plus several other rare earths, the
platinum-group elements, and several elements important for
photovoltaics (gallium, germanium, selenium, tellurium), as well as
cobalt, helium, lithium, rhenium, and silver.
For military hardware and defense systems, Parthemore (2011)
identifies the following elements as critical: gallium, lithium,
niobium, the rare-earth elements, rhenium, and tantalum.
For European industry, the European Commission (2010) identifies
fourteen elements or families of elements as critical: antimony,
beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium,
magnesium, niobium, the platinum-group elements, rare earths, tantalum,
and tungsten.
The Japan Oil, Gas and Metals National Corporation (JOGMEC)
maintains joint government-industry stockpiles for seven elements
(chromium, cobalt, manganese, molybdenum, nickel, tungsten, and
vanadium) deemed especially important for Japanese industry and for
which there are significant supply risks. JOGMEC is closely monitoring
several others (gallium, indium, niobium, platinum, rare earths,
strontium, and tantalum).
Over time, which materials are critical changes--with advances in
materials science and engineering that reduce reliance on specific
elements, and with advances on the supply side that relax supply
constraints.
Second, each element has its own story, and import dependence by
itself need not be risky. From all the attention rare earths have
received, one might think that geopolitical risks and import dependence
are the only cause for concern about availability and supply risk.
Geopolitical risks and import dependence certainly are important for
those elements with geographically concentrated production, where one
or a small number of companies or governments might act
opportunistically or unpredictably to the disadvantage of users. But
import dependence by itself need not be risky if foreign sources are
numerous and diversified, and if the associated foreign governments
believe in undistorted international trade.
Different elements have different constraints on availability, as
APS/MRS (2011) illustrates. Although essentially no element is in
danger of being used up (or depleted) in a geologic sense, some
elements are not significantly concentrated by geologic process above
their average crustal abundance. Germanium--used in fiber optics,
infrared optics, and photovoltaic cells--is an example. Germanium is
not especially rare on average in the earth's crust but rarely is
present as the main component in minerals.
In other cases, technical limitations constrain the availability of
an element. Rare-earth elements actually are not very rare
geologically. They exist in a number of minerals, such as eudialyte,
that at present are not a source of supply because existing methods of
mineral processing and extractive metallurgy are inadequate (both
technically and commercially) to remove the rare earths from other
elements and, in turn, separate the specific rare-earth elements from
one another.
Byproduct supply is another source of supply risk. Indium, for
example, is produced as a byproduct of zinc production. Tellurium is a
byproduct of copper refining. The key insight here is that the
availability of indium, tellurium, and other byproducts is strongly
influenced by the commercial attractiveness of the byproduct's
associated main product (zinc in the case of indium, copper for
tellurium). A significant increase in the price of a byproduct may not
result in a significant increase in the production of the byproduct,
once the available byproduct is recovered from a main-product ore.
Environmental and social concerns are factors influencing the
availability of an element. The point is not to dispute that mineral
production can have negative consequences for the natural environment
or local communities; it can and does in some circumstances. Rather the
point is: processes to ensure that mineral production occurs in ways
that are consistent with standards for environmental protection and
respect for society can (a) increase the time lag between an unexpected
increase in demand and new production capacity to meet this demand and
(b) redirect the location of production away from nations with stricter
(or less-predictable) environmental and social rules to nations with
less-strict (or more-predictable) rules.
Third, markets are responding, but time lags can be significant.
Markets provide powerful incentives for investments that re-invigorate
supply and reduce supply risk. There are minor manias now in
exploration for mineral deposits containing rare-earth elements and,
separately, lithium. Over the next five to ten years, a number of non-
Chinese rare-earth mines are likely to begin production. However, given
the long lead times between initial exploration and mining (which can
range anywhere from five to fifteen years or more), only those rare-
earth projects in advanced exploration or development prior to the
rare-earths crisis of the last year will be producing rare earths in
the next few years.
Increased recycling also can be an important response to
constraints on supply. Recycling comes in two forms. The most obvious
comes from recycling of products at the ends of their lives--for
example, recovering ferrous and nonferrous metals from junked
automobiles. Less obvious but very important is the recycling of
manufacturing scrap or waste.
On the demand side, markets encourage users of mineral-based
elements to obtain ``insurance'' against mineral supply risks. In the
short- to medium-term users can, for example, maintain stockpiles,
diversify sources of supply, develop joint-sharing arrangements with
other users, or develop tighter relations with producers. Over the
longer term, users might invest in new mines in exchange for secure
supplies or, undertake research and development to substitute away from
those elements subject to supply risks.
Fourth, there are essential roles for government. To ensure mineral
availability over the longer term and reliability of supplies over the
short to medium term, I recommend that government activities focus on:
Encouraging undistorted international trade. The
governments of raw-material-importing nations should fight
policies of exporting nations that restrict raw-material
exports to the detriment of users of these materials.
Improving regulatory approval for domestic resource
development. Foreign sources of supply are not necessarily more
risky than domestic sources. But when foreign sources are
risky, domestic production can help offset the risks associated
with unreliable foreign sources. Developing a new mine in the
United States appropriately requires a pre-production approval
process that allows for public participation and consideration
of the potential environmental and social effects of the
proposed mine. This process is costly and time consuming--
arguably excessively so, not just for mines but for
developments in all sectors of the economy. I am not suggesting
that mines be given preferential treatment, rather that
attention be focused on developing better ways to assess and
make decisions about the various commercial, environmental, and
social considerations of project development.
Facilitating the provision of information and
analysis. I support enhancing the types of data and information
the federal government collects, disseminates and analyzes.
Sound decision making requires good information, and government
plays an important role in ensuring that sufficient information
exists. In particular, I recommend (a) enhanced focus on those
parts of the mineral life cycle that are under-represented at
present including: reserves and subeconomic resources,
byproduct and coproduct primary production, stocks and flows of
materials available for recycling, in-use stocks, material
flows, and materials embodied in internationally traded goods
and (b) periodic analysis of mineral criticality over a range
of minerals. At present, the markets for most strategic and
critical minerals are less than completely transparent, in
large part because the markets are small and often involve a
relatively small number of producers and users, many of which
find it to their competitive advantage to keep many forms of
information confidential.
Facilitating education and research. I recommend that
the federal government develop and fund pre-commercial
activities that are likely to be underfunded by the private
sector acting alone because their benefits are diffuse,
difficult to capture, risky and far in the future. Over the
longer term, science and technology are key to responding to
concerns about the adequacy and reliability of mineral
resources--innovation that both enhances our understanding of
mineral resources and mineral-based materials and improves our
ability to recycle essential, scarce elements and substitute
away from these elements.
Education and research go hand in hand. Educational
programs, especially those at the graduate level, educate and
train the next generation of scientists and engineers. On the
supply side, education and research in the geosciences, mining,
mineral processing and extractive metallurgy, environmental
science and engineering, manufacturing, and recycling can help
mitigate supply risks and increase mineral availability. On the
demand side, improvements in materials design--fostered by
education and research in materials science and engineering--
can ease the pressures imposed by those elements or minerals
subject to supply risks or limited availability. Government, in
addition to simply funding education and research, can play an
important role in facilitating collaborations among
universities, government research laboratories, and industry.
A common conclusion of almost all recent studies on strategic and
critical minerals is to urge governments to improve and expand
activities related to information and analysis, education, and research
(for example, APS/MRS 2011, European Commission 2010, NRC 2008).
A number of other government interventions in markets have been
proposed, such as military or economic stockpiles of rare earths and
other critical elements; loan guarantees for investments in mines and
processing facilities; and special, fast-track environmental permitting
for mines that would produce rare earths or other critical minerals.
These more-direct market interventions, although perhaps advisable in
specific circumstances, are more controversial and less compelling in
general as responses to the challenges of critical minerals.
To sum up my personal views, the current situation with strategic
and critical minerals requires attention but not panic. By undertaking
sensible actions today, there is no reason for crises to develop. But I
also am aware that without a sense of panic, we may not undertake these
actions.
Thank you for the opportunity to testify today. I would be happy to
address any questions you have.
Notes
This testimony draws on the documents cited in the reference list,
especially APS/MRS (2011), Eggert (2010), and NRC (2008). The testimony
is a revised and modified version of related testimony I presented
before (a) the Subcommittee on Energy, Committee on Energy and Natural
Resources, U.S. Senate, September 30, 2010, on the role of strategic
minerals in clean-energy technologies and other applications and (b)
the Committee on Industry, Research, and Energy of the European
Parliament, Brussels, January 26, 2011.
References
American Physical Society and Materials Research Society (APS/MRS).
Energy Critical Elements: Securing Materials for Emerging
Technologies (Washington, D.C., American Physical Society,
2011). Available online at: www.aps.org.
Eggert, Roderick G. ``Critical Minerals and Emerging Technologies,''
Issues in Science and Technology, volume XXVI, number 4, 2010,
pp. 49-58. Available online at: www.issues.org.
European Commission. Critical raw materials for the EU, report of the
Ad-hoc Working Group on defining critical raw materials
(Brussels, European Commission, June 2010). Available online
at: http://ec.europa.eu.
Japan Oil, Gas and Metals National Corporation website,
www.jogmec.go.jp, accessed May 13, 2011.
Parthemore, Christine. Elements of Security: Mitigating Risks of U.S.
Dependence on Critical Minerals (Washington, D.C., Center for a
New American Security, 2011). Available at: www.cnas.org.
U.S. Department of Energy, Critical Materials Strategy (Washington,
D.C., Department of Energy, December 2010). Available online
at: www.energy.gov.
U.S. National Research Council (NRC). Minerals, Critical Minerals, and
the U.S. Economy (Washington, D.C., National Academies Press,
2008). Available online at www.national-academies.org.
Mr. Lamborn. All right. Thank you for your testimony. Next
is Dr. Robert Jaffe of the Massachusetts Institute of
Technology.
STATEMENT OF DR. ROBERT JAFFE, MORNINGSTAR PROFESSOR OF
SCIENCE, MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Dr. Jaffe. Mr. Chairman, Mr. Holt, Mr. Markey, and Members
of the Committee, thank you for the opportunity to testify. I
am a Professor of Theoretical Physics at the Massachusetts
Institute of Technology, and I am here to discuss the study on
Energy Critical Elements that I chaired on behalf of the
American Physical Society and the Materials Research Society.
Our study focused on chemical elements critical to new
technologies that have the capacity to transform the way that
we harvest, transport, store, and use energy. First, let me
assure you the sky is not falling. The world is not going to
run out of any of these elements anytime soon.
However, the problem of critical elements is serious and
very real. While rare earths are perhaps the flavor of the
month, a host of other elements are posed to present problems
in the near future.
If appropriate steps are not taken, we face possible
disruptive short-term constraints on the supply of some
elements not presently mined, or refined, or traded in large
quantities, that are critical to the deployment of potentially
game-changing element technologies.
In our report, we refer to these as energy critical
elements or ECEs. Constraints on the availability of these
elements would limit the competitiveness of both United States
industries and scientific enterprises.
It is our view that with careful stewardship by the
government, coupled with the imagination of fundamental
research, and the initiative of the United States industry, the
problem of ECE availability can be managed for the foreseeable
future.
To accomplish this, we recommend a three-component
approach, including information gathering, research, and
recycling. But first let me say a few words about what we do
not recommend.
First, the United States cannot mine its way to ECE
independence. Yes, we should certainly pursue domestic mining
where economically appropriate, but not with the expectation
that mining alone will solve the problem.
Many ECEs are simply not found here in economically viable
deposits, and others are produced much more efficiently for a
variety of reasons in other countries. Free international trade
with a diverse set of suppliers works to everyone's advantage.
Second, we can't rely on stockpiling either. We found
stockpiling anchors us to the status quo, and discourages
innovation. Stockpiles have proved a poor way to moderate price
fluctuations and stabilize markets, often with unintended
negative consequences.
Note, however, that we did not consider defense stockpiles
which may be motivated by other considerations. In developing
our recommendations, we took a lesson from industry.
In 2006, General Electric projected the demand for rhenium
an important ingredient in high performance turbines would out-
pace world supply in a few years. Instead of stockpiling,
General Electric reduced its immediate need for new rhenium
with extensive recycling, technologically sophisticated.
And then began an intensive multi-year research program to
develop an alternative alloy. By 2010, they had succeeded.
General Electric succeeded, but many smaller United States
companies, and university and national labs, who don't have the
information gathering network, needed to recognize an impending
supply disruption, and can't afford to carry out substitutional
research, and can't engage in extended recycling.
Consequently, in general, we recommend the following. One,
the government should closely monitor worldwide resources and
make that information broadly available. Accurate information
about availability will allow us to see beyond the price spikes
and plan for the future.
Among other things the Federal information gathering
entities should be designated a principle statistical agency,
similar to the Bureau of Labor Statistics.
Two, the government should promote fundamental research
aimed at the twin goals of increasing supplies and decreasing
dependencies on ECEs. It is especially important to support
fundamental research on earth abundance substances.
The goal should be to enable United States manufacturers or
lab researchers to smoothly shift to a substitute in advance of
supply disruptions.
Third, cell phones and i-Pods end up discarded at the back
of sock stores. Discarded electronics contain ECEs in
concentrations that exceed some of the richest ores. Those
dispersed products should be gathered into a resource so that
ECEs can be extracted for reuse.
Both industry and government need to explore means to
stimulate recycling. To summarize, information gathering,
research, and recycling.
Over the past two months, I have worked with a research
fellow at the Heritage Foundation, and a resident scholar at
the American Enterprise Institute, to draw attention to our
panel's recommendations.
Although this might not be the typical collaboration for an
MIT professor, it indicates that our recommendations identify
an appropriate role for government and are physically
responsible.
Several House bills have been introduced to address the
materials availability issue. In particular, the recently
introduced Hultgren bill has provisions on the full triad of
recommendations that our committee supported, and is closely
aligned with the point of view that I have described here.
Together, these bills present the full range of options
from which an effective policy regarding critical elements can
be crafted. Thank you for the opportunity to testify.
[The prepared statement of Dr. Jaffe follows:]
Statement of Dr. Robert Jaffe, Professor of Theoretical Physics,
Massachusetts Institute of Technology
Mr. Chairman and members of the committee, thank you for the
opportunity to testify today.
I am a Professor of Theoretical Physics at MIT but I'm not here to
deliver a lecture on quarks. I'm here to discuss a study on Energy
Critical Elements that I chaired on behalf of two leading scientific
organizations: the American Physical Society and the Materials Research
Society.
Our study focused intensely on elements critical to new
technologies that have the capacity to transform the way we transport,
store, or use energy. Please note that we did not consider defense-
related issues. I enclosed a full copy of the report for the record,
but this morning I'll simply highlight a few key recommendations.
First, let me first reassure you--the sky is not falling. The world
is not going to run out of any of these elements anytime soon. However:
the problem of critical elements is serious and very real. While rare
earths are the ``flavor of the month'', a host of other elements are
poised to present problems in the future.
If appropriate steps are not taken, we face possible disruptive
short-term constraints on supply of some elements that are not
presently mined, refined, or traded in large quantities, but are
critical to the deployment of potentially game-changing energy
technologies. Casualties might include things ranging from important
petroleum refinery catalysts to state-of-the-art wind turbines or
market competitive solar panels. In our report we refer to these
elements as ECEs: Energy-Critical Elements.
Constraints on availability of these elements would limit the
competitiveness of both U.S. industries and the domestic scientific
enterprise.
It is our view that with careful stewardship by the government,
coupled with the imagination of fundamental research and the initiative
of U.S. industry, the problem of ECE availability can be managed for
the foreseeable future.
To accomplish that, we recommend a three component approach:
information, research, and recycling.
But first, let me say a few words about what we don't recommend.
The U.S. can't mine its way to ECE independence. Yes, we should
certainly pursue domestic mining when economically appropriate--but not
with the expectation that mining alone will solve the problem. Many
ECEs are simply not found here in economically viable deposits, and
others are produced more efficiently--for a variety of reasons--by
other countries. Free international trade with a diverse set of
suppliers works to everyone's advantage.
We can't rely on stockpiling either. We found that stockpiling is a
disincentive to innovation because it anchors us to the status quo.
Stockpiles have proved a poor way for governments to try to moderate
price fluctuations and stabilize markets, often with unintended
negative consequences. Note, however, that we did not consider defense
stockpiles, which may be motivated by other considerations.
In developing our recommendations for the most effective way to
address this issue, we took a lesson from industry.
Case Study: General Electric has for many years tracked the
market for an exceptionally rare metal, rhenium, which is
critical to its advanced turbines used both in jet engines and
modern natural-gas fired power plants. In 2006, General
Electric projected that demand for rhenium would outpace
worldwide supply within a few years. Instead of stockpiling, GE
reduced its immediate need for new rhenium by a wide-ranging
recycling program, and began an intensive, multiyear research
program to develop an alternative alloy. By 2010 they had
found, tested, and certified several new alloys that use less
rhenium. Meanwhile the price of rhenium had risen 20-fold to
over $10,000/kg.
Lesson: GE succeeded, but many smaller U.S. companies and
university & national labs: 1) do not have the information
gathering network needed to recognize an impending supply
disruption; 2) can't afford to carry out substitutional
research; and, 3) can't engage in extensive recycling.
Consequently, in general, we recommend the following:
1) The government should closely monitor worldwide resources
and make that information accessible to U.S. industries and
labs. Accurate information about availability will allow the
scientific enterprise to see beyond the price spikes and plan
for the future. This can be achieved by, among other things,
elevating the federal information gathering entity to a
``Principal Statistical Agency'' similar to the Bureau of Labor
Statistics and the Energy Information Administration.
2) The government should also promote fundamental research
aimed at the twin goals of increasing supplies and decreasing
our dependence on ECEs. It is especially important to support
fundamental research on earth-abundant substitutes for ECEs.
The goal should be a broad understanding of the advantages and
disadvantage of technologies based on alternative materials, in
order to enable U.S. manufacturers or lab researchers to more
smoothly shift to a substitute in advance of supply
disruptions.
3) Cell phones and iPods end up discarded in the back of sock
drawers, yet they all contain ECEs in concentrations that
exceed the richest ores. Those dispersed products could be
gathered into a resource--an urban mine--so the ECEs can be
extracted for reuse. There are various paths to achieve this:
government could help increase recycling by enabling greater
consumer awareness and industry could stimulate it by providing
consumer incentives.
We believe that this triad of information gathering, research, and
recycling will provide the U.S. with the best safeguard against
disruptions.
I believe that these steps can be implemented with a budget-neutral
approach that respects the distinction between activities that belong
in the private sector and those that fall to government. As a result,
I've been able to team with a Research Fellow at the Heritage
Foundation and a Resident Scholar at the American Enterprise Institute
to draw attention to this approach. Although this might not be the
typical collaboration for an MIT professor, it indicates that our
recommendations identify an appropriate role for government and are
fiscally responsible.
Several House bills have been introduced to address the minerals
availability issue. The Johnson-Markey bill rightly emphasizes the
importance of information gathering. The Coffman bill addresses rare
earth elements and primarily addresses near-term issues. The Miller
bill emphasizes some of the research and information gathering efforts
recommended in the APS/MRS report. The recently introduced Hultgren
bill has provisions on our full triad: information, research, and
recycling, and is closely aligned with the point of view I have
described here. Together these bills present the full range of options
from which an effective policy regarding critical elements can be
crafted.
Thank you for the opportunity to testify.
______
Mr. Lamborn. OK. Thank you for your testimony. Mr. Latiff.
STATEMENT OF ROBERT LATIFF, PRESIDENT AND CONSULTANT, R. LATIFF
ASSOCIATES
Mr. Latiff. Thank you Mr. Chairman, and thank you,
Committee, for this opportunity to testify on this very timely
and important topic. The subject of critical and strategic
materials is one in which I have had a strong interest, both as
a materials scientist and in my long military career in the
acquisition of military weapons systems and technology.
I might note here that I am also a research professor at
George Mason University. Having retired from the Air Force, I
was fortunate in 2007 to have been asked to chair the National
Academy's Committee on Assessing the Need for a National
Defense Stockpile.
I have since remained active in urging the government and
the industry to be more proactive on the issues of mineral and
materials availability and related topics. I have spoken
frequently to representatives and groups in the Department of
Defense, the aerospace industry, and in the intelligence
community, and at major materials and manufacturing
conferences.
I am also now honored to act as the Chairman of the
National Materials and Manufacturing Board of the National
Academies, and as such, remain actively engaged in reviewing
research on these topics.
I must emphasize, however, here that my testimony, unless
specifically related to Academy studies, reflects my opinion
and not those of the Academies. By way of summary, the
Committee on Assessing the Need for a National Defense
Stockpile was formed in response to a request from DoD, having
been mandated by the House Armed Services Committee.
The Academies published the Stockpile Committee results in
a report entitled, Managing Materials for A Twenty-First
Century Military. The major conclusions of the Committee were
that the National Defense Stockpile was ineffective, and that
the model used to calculate materials needed was outdated and
needed to be replaced, that legislation and regulations were in
need of review, that previous studies and recommendations had
been ignored, and that the DoD did not adequately understand
its own materials needs, and had no system in place to
determine them.
The report concluded that the DoD had not made critical and
strategic materials a priority. Additionally, the Committee
emphasized the criticality of the United States Geological
Survey in maintaining accurate mineral availability
information.
Interesting, the report highlighted the growing concern at
that time and the need for DoD to pay attention to rare earth
materials. The DoD, in its April 2009 report to Congress on
this topic, addressed many of the issues raised by the Academy
report.
To its credit the DoD suspended sales of many of the
materials in the stockpile pending a thorough analysis of
future need. It has taken action to revise its modeling system,
and has created or is in the process of creating a strategic
materials management program.
What is unclear at this point is any progress by DoD
officials on a systematic approach to determining their overall
need for specific materials. This has become especially urgent
recently in the clamor for rare earths, but is equally
important for all materials needed in United States weapons
systems.
To the last point, I have written and spoken frequently on
the need to maintain perspective in our critical minerals
planning, and add that it is not only the rare earth materials
about which we should be concerned, but also a broader range of
important critical materials.
It is not only materials availability to which we should
pay attention and work to mitigate disruption. We must also pay
more attention to the importance of material recycling, and at
least not dismiss out-of-hand a consideration of stockpiling,
where appropriate.
While clearly we must have access to the materials, we also
need to have facilities and an ability to process those
materials once we have them, and be able to manufacture a
product with the resulting materials. Assuring an ability to
mitigate supply disruptions seems to be a necessary, but
obviously insufficient, activity if we are then forced to
depend on foreign sources of materials processing and
manufacturing.
I should note here that other countries are in fact taking
or considering comprehensive measures to strength their
materials and manufacturing positions. I am more familiar and
impressed by the work of the European Commission, even to the
extent of supporting their national materials policy.
At home, recent Congressional and Executive Branch interest
in these activities are extremely welcome. Finally, numerous
sources of data indicate a growing concern about the relative
production of scientists, engineers, and technicians, in the
United States, as compared to the emerging economies of China,
India, et cetera.
Naturally, I have a particular concern about the materials
sciences and related fields, and manufacturing and its related
fields. In both, the United States has given up much of its
historical lead.
The National Academies have highlighted this issue as well,
in a 2005 report, entitled, The Globalization of Materials
Research and Development, and of course, in the widely read and
often quoted Rising Above the Gathering Storm.
It is of interest that here is a growing recognition by
many that processing and manufacturing capabilities diminish,
so, too, do fertile grounds for innovation and creativity.
I am honored by this invitation to testify before the
Committee and applaud its interest in taking action on this
important issue.
[The prepared statement of Mr. Latiff follows:]
Statement of Robert H. Latiff, President and Consultant, R. Latiff
Associates
I would like to thank the Committee for the opportunity to testify
on this very timely and very important topic. The subject of critical
and strategic materials is one in which I have had a strong interest,
both as a materials scientist and in my long career in acquisition of
major military weapons systems and technology. Having retired from the
US Air Force, I was fortunate, in 2007, to have been asked to chair the
National Academies' Committee on Assessing the Need for a National
Defense Stockpile. I have since remained active in urging the
government and industry to be more proactive on the issues of mineral
and materials availability and related topics. I have spoken frequently
to representatives and groups in the Department of Defense, the
aerospace industry, and the intelligence community, and at major
materials and manufacturing conferences. I am also now honored to act
as the current Chairman of the National Materials and Manufacturing
Board of the National Academies and, as such, remain actively engaged
in reviewing research on these topics. I must emphasize, however, that
my testimony here today, unless specifically related to published
Academy studies, reflect my opinions alone, and not the position of the
National Academies.
By way of summary, the Committee on Assessing the Need for a
National Defense Stockpile was formed in response to a request from
DOD, having been mandated by the House Armed Services Committee. The
Academies published the Stockpile Committee results in a report
entitled Managing Materials for a Twenty First Century Military. The
major conclusions of the Committee were that the National Defense
Stockpile was ineffective, that the model used to calculate materials
needs was outdated and needed to be replaced, that legislation and
regulations were in need of review, that previous studies and
recommendations had been ignored, and that the DOD did not adequately
understand its own materials needs and had no system in place to
determine them. The report concluded that the DOD had not made critical
and strategic materials a priority. Additionally, the Committee
emphasized the criticality of the US Geological Survey in maintaining
accurate mineral availability information. Interestingly, the report
highlighted the growing concern and need for DOD to pay attention to
the rare earth materials. The DOD, in its April 2009 Report to Congress
on this topic, addressed many of the issues raised by the Academy
report. To its credit, the DOD suspended sales of many materials
pending a thorough analysis of future need, it has taken action to
revise its modeling system, and has created a strategic materials
management program. What is unclear at this point is any progress by
DOD officials on a systematic approach to determining their overall
needs for specific materials. This has become especially urgent
recently in the clamor for rare earths, but is equally important for
all materials needed in US weapons systems.
To the last point, I have written, and spoken frequently, of the
need to maintain perspective in our critical minerals planning and add
that it is not only the rare earth materials about which we should be
concerned, but also a broader range of important critical materials. It
is not only materials availability to which we should pay attention and
work to mitigate disruption. We must also pay more attention to the
importance of critical material recycling and at least not dismiss, out
of hand, a consideration of stockpiling, when appropriate. While
clearly we must have access to the materials, we also need to have
facilities and an ability to process those raw materials once we have
them and be able to manufacture a product with the resulting processed
materials. Assuring an ability to mitigate supply disruptions seems to
be a necessary but obviously insufficient activity if we are then
forced to depend on foreign sources of materials processing and
manufacturing which could just as easily be disrupted. I should note
here that other countries are in fact taking or considering
comprehensive measures to strengthen their materials and manufacturing
positions. I am most familiar and am impressed by the scope of the work
of the European Commission, even to the extent of supporting the
formulation of a National Minerals Policy. At home, recent
Congressional and Executive Branch interest in and activities in this
area are extremely welcome.
Finally, numerous sources of data indicate a growing concern about
the relative production of scientists, engineers, and technicians in
the US as compared to the emerging economies of China, India, etc.
Naturally, I have a particular concern about the materials sciences and
related fields and manufacturing engineering and its related fields. In
both, the US has given up much of its historical lead. The National
Academies have highlighted this issue as well, in a 2005 report
entitled The Globalization of Materials Research and Development and,
of course, in the widely read and often quoted Rising Above the
Gathering Storm. It is of interest that here is a growing recognition
by many experts that as processing and manufacturing capabilities
diminish, so too do fertile grounds for innovation and creativity.
I am honored by the invitation to testify before the Committee and
applaud its interest in taking action on this important issue.
______
Mr. Lamborn. Thank you for your words, and now Mr.
Richardson of the Magnetic Materials Association.
STATEMENT OF ED RICHARDSON, PRESIDENT OF THE MAGNETIC MATERIALS
ASSOCIATION, VICE PRESIDENT OF THOMAS AND SKINNER
Mr. Richardson. Chairman Lamborn, Ranking Member Holt,
Distinguish Members of the Subcommittee, thank you for the
opportunity to testify today. I represent the Untied States
Magnetic Materials Association, a trade association dedicated
to the reestablishment of the entire supply chain of materials
used in magnet systems.
These systems play a vital role in the health of the United
States defense industrial base and renewable energy. Our
association represents all segments of the United States
magnetic industry and rare earth supply chain, including
miners, processors, metal and alloy producers, and finished
magnet manufacturers.
My comments today will relate to strategic-level rare earth
issues and the challenges we face in accessing reliable
supplies of the critical materials. It is common knowledge that
rare earth materials play a critical role in the basic
functionality of key green technologies, such as hybrid cars
and wind turbines.
They are essential to electronic consumer goods, such as
flat screen televisions and disk drives. Rare earth products
are necessary in vital military technology, such as munitions,
missiles, radar surveillance, and avionics.
Often overlooked is the global market for rare earth
materials and the value chain itself. Today's domestic rare
earth supply chain consists of one company capable of mining
and separating rare earth elements into oxides; no active rare
metal makers; two companies that can make limited quantities of
rare alloy, and one rare earth permanent magnet maker.
The United States is largely dependent on foreign sources
for these critical materials. China firmly controls 97 percent
of the world's rare earth oxide supply, nearly 100 percent of
commercial sales of rare earth metal, and over 75 percent of
neo magnet production.
This dominance allows China to wield considerable
influence. For instance, merely a rumor of an expert ban on
rare earths to Japan sent a chill through the industry last
summer.
China has linked access to its markets and resources with
moving operations to China, and providing them with key
technologies. The members of the USMMA could feasibly provide a
secure, non-Chinese source of the supply to the United States
in as little as 12 months, but policy and funding decisions
will need to be made to do so.
With little guaranteed domestic demand for many rare earth
metals and alloys, and the lack of a single licensed producer
of neo magnets, the future of the domestic rare earth industry
remains uncertain.
To mitigate the impact of foreign supply disruptions, the
USMMA is a strong proponent of a manufacturing first strategy.
By establishing the ability to manufacture rare earth end
products, the manufacturing first strategy creates downstream
demand for rare earth elements.
This provides incentives for commercial interests to fill
in the domestic value chain, while leveraging raw material from
ally nations and domestic producers. By supporting the
manufacturing first strategy, the United States government
could signal to industry that it will not stand by as China
attempts to dominate the global rare earth magnet industry.
Through our advocacy efforts, the USMMA has identified
numerous misperceptions in the media, academia, and sometimes
on Capitol Hill. To counter these misperceptions, the USMMA
released a myth-fact paper earlier this month. I would like to
share with you a few of the points.
First, it has been said rare earths are not rare. This is
not totally accurate. While rare earths are abundant in the
earth's crust, the ability to locate concentrations that are
economically viable for extraction and processing is rare.
Second, some believe United States capabilities can come
online rapidly to fill the supply gap. However, mining and
extraction is only a small part of the rare earth value chain.
Aside from the 10 year average permitting time for a rare earth
mine, concentration and separation facilities are extremely
complex and can cost upwards of $500 million per location.
Third, recent reports from market analysts and previous
statements from the Department of Defense suggest that supply
will soon equal or exceed demand for rare earths. While demand
will be met for some of the more prevalent elements, shortages
for materials like the heavy rare earth dysprosium will
continue.
Fourth, some suggest that substituting, recycling, or
reusing rare earths is a viable alternative. While the USMMA
supports efforts in all these areas, they are not a panacea.
Currently, no viable alternatives are available for many
materials. R&D, though promising, faces a development cycle of
up to a decade for commercialization.
Finally, some suggest that stockpiling will further
restrict an already tight supply. The bipartisan RESTART Act,
H.R. 1388, and the Rare Earth Inventory Plan included in the
Fiscal Year 2012 National Defense Authorization Act, would
require planning for a limited vendor-managed inventory of rare
earth materials to support our national security.
This inventory would likely constitute a tiny fraction of
global demand, but provide an insurance policy for the United
States. Rare earths are an example of the broader strategic and
critical materials issues that our Nation faces. Solutions are
possible.
The USMMA has suggested a six-point plan to close those
gaps, which can be applied to other strategic and critical
materials. It includes: (1) establish a baseline through a
government supply and demand analysis; (2) team with allied
nations to provide critical raw materials to supplement
existing domestic mining and separation capability; (3) ensure
fair trade practices; (4) invest in domestic manufacturing
capability through programs such as the Defense Production Act;
(5) establish an inventory of rare earth material using the
Defense National Stockpile; and (6) invest in research,
development, and education.
Because this is a Natural Resources Committee, we would add
a seventh item. Establish an interagency task force to address
the often bureaucratic lengthy permitting process. We do not
support circumventing appropriate rules and regulations, but we
do encourage focusing resources and finding efficiencies to
support the process.
In closing, China will continue to leverage its global
dominance in the strategic and critical material supply chain
until the United States and its allies can commit to action
that will counter-balance this influence.
The United States needs to begin to take the steps
immediately to eliminate this current and growing threat to our
economic and national security.
[The prepared statement of Mr. Richardson follows:]
Statement of Ed Richardson, President,
U.S. Magnetic Materials Association
Chairman Lamborn, Ranking Member Holt, distinguished Members of the
Subcommittee,
Thank you for the opportunity to testify today. I represent the
United States Magnetic Materials Association, a trade association
dedicated to the reestablishment of the entire supply-chain of
materials used in magnet systems. These systems play a vital role in
the health of the U.S. defense industrial base and in the future
potential of renewable energy in our nation. Our Association represents
all segments of the U.S. magnet industry and rare earth supply-chain,
including miners, processers, metal and alloy producers and finished
magnet manufacturers. My comments today will relate to strategic-level
rare earth issues and the challenges we face in accessing reliable
supplies of the critical materials needed to support our industry.
When you hear about the crumbling infrastructure in the United
States, it's not just roads, bridges, and sewer pipes. It's advanced
industrial technologies, as well as the supply chain of critical
materials to support those technologies. Frankly, we've lost many of
the key capabilities to produce these technologies domestically--losing
our nation's technological edge in the global marketplace. This
situation absolutely holds true when it comes to advanced
applications--both energy and defense--that use rare earth oxides,
alloys, metals, or magnets
The Rare Earth Value Chain
It is common knowledge that rare earth materials play a critical
role in the basic functionality of key green technologies such as
hybrid cars, wind turbines, and compact fluorescent lights. They are
essential to digitized and miniaturized electronic consumer goods such
as flat screen televisions, mobile phones, and disc drives. Rare earth
products are necessary in vital military technologies such as
munitions, missiles, radar surveillance, and avionics. Discussion
forums at think tanks, in academia, and in the media often raise these
issues.
Less frequently discussed is the global market for rare earth
materials and the value chain itself. This value chain consists of
three distinct elements:
The miners of rare earth oxides, such as Molycorp in
California and Lynas in Australia, both of whom are in the
process of starting new operations;
The processors that turn the oxides into usable
alloys, such as Great Western Technologies and Santoku America;
and
The magnet manufacturers such as Electron Energy
Corporation that take those metals and alloys and produce
finished products.
It is important to note that most assets that make up the rare
earth value chain do not exist here in the United States. In fact,
today's U.S. rare earth supply-chain consists of one company capable of
mining and separating rare earth elements into oxides, no active rare
earth metal makers, two companies that can make limited quantities of
rare earth alloy, and one rare earth permanent magnet maker.
Thomas & Skinner, for instance, had made sintered neodymium iron
boron permanent magnets--used in several missile systems--but like
other producers, got out of this business years ago and do not have a
plant to make these magnets today. Companies such as Thomas & Skinner
and Arnold Magnetic Technologies have publically stated their desire to
reenter this market if and when market conditions support it.
Foreign Sources
The United States is largely dependent on foreign sources for these
critical materials. China firmly controls 97 percent of the world's
rare earth oxide supply, nearly 100 percent of commercial sales of rare
earth metal, and over 75 percent of neodymium iron boron magnet
production.
This monopolistic power enables them to wield considerable
influence. For instance, merely a rumor of an export ban on rare earths
to Japan sent a chill through the industry last summer. China has
linked access to its markets and resources with moving operations to
China and providing them with key technologies. On May 19, the Wall
Street Journal reported that China is once again expanding its export-
quota systems and imposing higher taxes on rare earth materials. This
further constricts an already tight supply. Moreover, this announcement
contains a worrisome new requirement that export limits, which once
only applied to concentrates and then expanded to oxides and metals,
will now include ferroalloys. This demonstrates yet another move down
the supply-chain from natural resources to value-added processes.
As they continue to reduce export quotas and expand the materials
covered, manufacturers must make the hard choice of either relocating
to China to access raw materials or risk severe uncertainty regarding
long-term availability of supply.
Thankfully, there are companies in ally countries that can assist
in this dilemma. For instance, Less Common Metals currently has a metal
processing and alloying operation in the UK. Through its members, the
USMMA has joined together existing global assets to provide non-Chinese
rare earth elements, metals, alloy and magnets. The members of the
USMMA could feasibly provide a secure, non-Chinese source of the supply
to the United States in as little as 12 months, but policy and funding
decisions will need to be made to do so. With little guaranteed
domestic demand for many rare earth metals and alloys, and a lack of a
single licensed producer of neodymium iron boron magnets, the future of
the domestic rare earth industry remains uncertain.
Manufacturing First Approach
To mitigate the impact of foreign supply disruptions, the USMMA is
a strong proponent of a ``Manufacturing First'' strategy. By
establishing the ability to manufacture rare earth end products, the
``Manufacturing First'' strategy creates downstream demand for rare
earth elements. This provides incentives for commercial interests to
fill in the domestic value chain for rare earth elements while
leveraging oxides available from ally nations and domestic producers
coming online. By supporting the ``Manufacturing First'' strategy, the
U.S. government could signal to industry that it will not stand by as
China attempts to dominate the global rare earth magnet industry. In
addition, this approach provides U.S. manufacturers an alternative to
Chinese suppliers. This would be the first critical step in decreasing
U.S. industry's dependence on foreign suppliers.
Perhaps of greatest concern is the total lack of any current
capability to make sintered neodymium iron boron magnets. As I noted,
there are currently no U.S. producers of these magnets; this is due to
the inability to obtain the necessary license from the current patent
holder. This imperils U.S. national security in particular because this
patent holder, as a matter of policy, will not produce defense-specific
magnets. This leaves our defense supply-chain largely dependent on
China for access to these key materials.
Moving Forward Through Increased Understanding
In sum, much of our most critical and strategic technologies are
dependent on foreign suppliers to make them work. And this is a
situation that should make anyone--whether in the U.S. government,
military, industry, or general public--very uncomfortable.
Through our advocacy efforts, the USMMA has identified numerous
misperceptions in the media, academia and sometimes on Capitol Hill. To
counter these misperceptions, the USMMA released a Myth-Fact paper
earlier this month. I'd like to share with you a few:
First, it has been said ``rare earths aren't rare.''
This is not totally accurate. While rare earths are abundant in
the earth's crust, the ability to locate concentrations that
are economically viable for extraction and processing is rare.
Second, some believe U.S. capabilities can come
online rapidly to fill the supply-gap. However, mining and
extraction is only a small part of the rare earth value-chain.
Aside from the 10-year average permitting time for a rare earth
mine, concentration and separation facilities are extremely
complex and can cost upwards of $500 million per location.
Third, recent reports from Goldman Sachs and previous
statements from the Department of Defense suggest that supply
will soon equal or exceed demand for rare earths. While this is
true for some of the more prevalent elements, a long-term
global shortage for materials like the heavy rare earth
dysprosium will not be mitigated in the foreseeable future.
Fourth, some suggest that substituting, recycling or
reusing rare earths is a viable alternative. While the USMMA
supports efforts in all these areas, they are not a panacea.
Currently, no viable alternatives are available for many
materials and R&D, though promising, faces a development cycle
of up to a decade for commercialization. Furthermore, many
systems using rare earths, such as weapons, are legacy systems
that will be in inventory for decades. This also applies to
commercial technologies and refining capabilities that will
both require increasing quantities of rare earths.
Finally, some suggest that stockpiling, as proposed
in H.R. 1388, the Coffman RESTART bill, will further restrict
an already tight supply. This is a misinterpretation of what
Mr. Coffman is proposing. The RESTART Act and the Rare Earth
Inventory Plan included in the FY12 National Defense
Authorization bill would require planning for a very limited
vendor-managed inventory of rare earth materials such as alloy
and magnets that would be available to support our national
security in the event of a crisis. This inventory would likely
constitute a tiny fraction of global demand and be
inconsequential in the market, but provide an ``insurance
policy'' for the United States.
Rare earths are an example of the broader strategic and critical
materials issues our nation faces. Solutions are possible. We hope this
committee will address these challenges and help close the gap on other
critical materials. The USMMA has suggested a six-point plan to close
those gaps, which can be applied to other strategic and critical
materials. It includes:
1. Establish a baseline by thorough supply-demand analysis
conducted by the U.S. Government
2. Team with ally nations to provide critical raw materials to
ensure a reliable source of supply supplements existing and
future domestic mining and separation capabilities
3. Ensure fair trade practices are enforced by the United
States Trade Representative
4. Invest in domestic capability through programs such as the
Defense Production Act to close critical supply-chain gaps
5. Establish domestic manufacturing capability through tools
such as the Defense National Stockpile that both incentivize
industry investment and address national security concerns; and
6. Invest in future innovation through research, development
and education
Because this is the Natural Resources Committee, we would add a
seventh item to that list: establish an interagency Task Force to
address the often bureaucratic and unnecessarily lengthy permitting
process. We do not support shortcuts that circumvent appropriate rules
and regulations, but we do encourage expediting applications by
focusing resources and finding efficiencies to support the process.
In closing, China will continue to leverage its global dominance in
the strategic and critical material supply chain until the United
States and its allies commit to action that will counterbalance this
influence. The US needs to begin to take steps immediately to eliminate
this current and growing threat to our economic and national security.
______
Mr. Lamborn. OK. Thank you.
Mr. Holt. Mr. Chairman, at this point, I would like to
raise a parliamentary inquiry.
Mr. Lamborn. Can I say one thing first?
Mr. Holt. Yes.
Mr. Lamborn. Our last speaker will be Daniel McGroarty of
the American Resources Policy Network. And I have been told by
staff that he was invited at the last minute, and so we
appreciate your ability to be here given the lateness of the
request. And now, Mr. Ranking Member, did you have a comment?
Mr. Holt. Yes. Mr. Chairman, is it not true that Committee
Rule 4[a] applies, which requires that each witness to appear
must submit to the Committee at least two working days before
the appearance written testimony, and failure to do so could
result in barring the testimony? I believe that applies.
Mr. Lamborn. I do.
Mr. Holt. I am not trying to make trouble here, and will
agree to the witness continuing. I just want to make the point
that having the testimony in advance is really important for
the Committee and the Committee staff to be able to prepare for
the hearing.
And I don't know whether this was because the witness was
invited too late, or the witness was slow in providing the
testimony, I don't know. All I know is that without the
prepared testimony that it makes it more difficult for us.
Mr. Lamborn. Well, Mr. Holt, that is a point well taken,
and we certainly don't want to blame the witness, because he
was invited late. So, we will blame it on the Committee, the
staff, myself, for not having been far enough in advance on
that.
Mr. Holt. Thank you, Mr. Chairman.
Mr. Lamborn. But that is a point well taken.
Mr. Holt. I withdraw my parliamentary objection and
inquiry.
Mr. Lamborn. OK. Thank you. Now to you, Mr. McGroarty.
STATEMENT OF DANIEL McGROARTY, PRESIDENT,
AMERICAN RESOURCES POLICY NETWORK
Mr. McGroarty. My thanks to the Members of the Subcommittee
for the opportunity to testify today. My organization, the
American Resources Policy Network, is a newly launched experts
forum dedicated to informing public opinion and public policy
on the importance of developing United States mineral
resources.
I am also a member of the Board of Directors of Colorado
Rare Earths, a publicly held development company. The subject
before this Subcommittee, the concept of critical minerals, and
the potential for supply disruption, has become front page
news, particularly after the de facto embargo imposed by China
against Japan last fall, in the wake of a dispute over claims
involving mineral rights beneath the East China Sea.
Some consider this a case of China test firing a resource
weapon. Others point to China's rapid growth as the reason that
it is cutting back exports and using more rare earths at home.
In the end, whether China withholds its rare earths or
consumes them, the result is the same--a shortage of metals
critical to our technological and economic development, as well
as our national security.
In April, I took part in a Rare Earths Markets conference
in Sanya, China. My informal conversations with Chinese
attendees followed a well-worn track. They hear that the United
States is studying the rare earths, issuing reports, and
writing bills.
They hear that American companies are taking steps to
develop rare earths mines. Their immediate question is do you
have your permits? How many tons will the mines produce? How
soon? The message is, unmistakably, if there is a resource
race, China is in full sprint. They see us standing at the
starting line.
This issue goes well beyond the rare earths, and take what
I call the single scariest page. We have already seen it in any
government document: page 6 of the United States Geological
Survey's annual report, 18 metals, a hundred percent dependent,
and 13 more, 80 to 99 percent dependent.
Compare that with foreign oil, where the United States
imports only 57 percent. In fact, if oil were on the United
States Geological Survey's list, it would appear in forty-
second place.
Look further down that list and you will see mainstay
metals like copper, in increasing demand, and at increasing
risk. In addition to its commercial uses, copper is critical
for defense applications. DoD reports show that copper ranks
second behind aluminum in annual consumption for defense
industrial applications.
Compared to near 100 percent dependency for rare earths,
the fact that the United States today imports 30 percent of the
copper that we consume may seem manageable, even acceptable,
but to put that number in perspective, look back to 1993--the
year the last metric ton of copper was sold out of the National
Defense Stockpile.
In 1993, United States mines produced 1.8 million metric
tons of copper, roughly 60 percent more than 2010. Our net
import dependency was 7 percent, not 30 percent, as it is
today.
As for disruption, the key concern of this Subcommittee, an
OSD study lists copper as a metal that has--and I quote--
already caused some kind of significant weapon system
production delay for DoD.
If the United States were to simply stop mining copper
today, there are known copper prospects in a number of
countries--Chile, Peru, the Philippines--that might step up
supply, or demand might be met through mines in Russia, Angola,
Afghanistan, Democratic Republic of the Congo, or China,
including decisions taken in Beijing to exploit copper reserves
in the Tibet Autonomous Region. There is also copper in
Pakistan and Iran.
With the exception of Pakistan, rated partly free, all of
the latter group are rated not free in the current Freedom
House index. So, while the world copper market does offer
choices, we might find those choices unpalatable from a policy
perspective.
In the end, base metals and technology metals are not so
easy to separate. Take rhenium, as you have already heard.
Rhenium isn't mined, but rather recovered during the processing
of copper and molybdenum, captured in the flue-dust thrown off
by the roasters. Otherwise, rhenium goes up in smoke.
Rhenium is used today in jet engines, like those in the
Boeing 777, and in the national security sphere, you will find
rhenium in rocket thrusters that reposition satellites, high
performance test engines that power the F-15, F-16, F-18, and
the new F-35 Joint Strike Fighter, as well as in stealth
aircraft.
Global rhenium production is minuscule; 52 tons worldwide.
That is roughly the weight of about two dozen SUVs, but the
need is critical. The United States imports 86 percent of its
rhenium, much of it in recent years from Chile and Kazakhstan.
Once again, we face critical questions about a critical
material. Will the market supply sufficient rhenium for our
commercial and national security needs? Are we comfortable with
the geopolitical risk implicit in 86 percent foreign
dependency?
Should we add rhenium to the National Defense Stockpile, or
instead advise American copper and moly producers to invest in
technologies necessary to capture rhenium now lost in the
roasting process?
Similar questions can be asked about several dozen
minerals, and it is my hope through this Subcommittee that they
will be. We cannot maintain our modern economy without a steady
supply of metals and minerals.
Those that we do not possess here at home, we must source
from other countries, but those that we possess, but choose not
to produce, perpetuate needless foreign dependence, leverage
that other nations may use to America's disadvantage. We must
recognize resource security as a national strategic imperative.
Thank you.
[The prepared statement of Mr. McGroarty follows:]
Statement of Daniel McGroarty, President,
American Resources Policy Network
My thanks to the members of the House Sub-Committee on Energy and
Mineral Resources for the opportunity to testify today. I am Daniel
McGroarty, President of the American Resources Policy Network
(www.AmericanResources.org), a newly-launched experts organization
dedicated to informing the public--and ongoing policy debates--on the
importance of developing U.S. mineral and metals resources and reducing
American dependency on foreign sources of supply. I am also a member of
the Board of Directors of Colorado Rare Earths, a public-held company
currently developing Rare Earths properties, with the aim of adding to
the domestically produced supply of metals critical to our green-tech
economy and our cutting-edge defense systems. The subject before this
sub-committee--the concept of critical metals and minerals, and the
potential for supply disruption--is an issue of enduring interest to
me.
The Rare Earths
In recent months, the Rare Earths have put this issue on the front
page--particularly since last fall, with the apparent embargo imposed
by China against Japan, in the wake of a dispute over claims involving
mineral rights beneath the East China Sea.
With China providing 97% of the world's Rare Earths supply, that
episode underlined for the U.S. the dangers of resource dependency, and
sparked an acceleration of interest in the U.S. policymakers.
Whether this episode constituted a test-firing of China's
``resource weapon,'' or whether the shut-off was due to more benign
factors continues to be debated. Even if there were no geo-strategic
motive behind China's supply interruption, there is the fact that
Chinese demand for Rare Earths--and dozens of other metals and
minerals--is surging, with only a minor pause due to the global
economic downturn. With 1.3 billion people and an 8 to 9 percent annual
economic growth rate, Chinese mining officials have begun to float the
possibility that China may be a net importer of Rare Earths as early as
2015.
So, whether China withholds its Rare Earths supply for geo-
strategic purposes, or consumes an ever-increasing amount of the metals
it used to export to the so-called ``Rest of the World,'' the result
will be the same: A shortage of a group of metals critical to our
technological and economic development, as well as our national
security.
In April, I presented as a panelist--the only American presenter--
at the 2011 Rare Earths Markets Seminar, in Sanya, China. I'd like to
share with the sub-committee a recurring theme in my informal
conversations with the Chinese attendees. Ideology aside, for a Chinese
technocrat, pragmatism rules the day. They hear that the U.S. is
studying the Rare Earths situation, issuing reports, preparing bills
and even considering participating in a possible WTO action. They also
hear that American companies--Molycorp being the most prominent, but
others including Colorado Rare Earths--are pressing forward to develop
rare earths mines. But their immediate question is: When will mining
begin? Do you have your permits? How much will the mine produce? They
simply do not take the U.S. seriously on this issue--not compared to
Australian companies or Canadian companies--and that's an ominous sign.
The message was unmistakable: If there's a resource race, China is in
full sprint, and they see us standing at the starting line.
Profile of Dependency
And the Rare Earths are simply the most prominent group of metals
where the U.S. has a significant dependency. Consider what I call the
single scariest page in any document to come off the presses of the
U.S. Government Printing Office: Page 6 of the U.S. Geological Survey's
(USGS) Mineral Commodity Summaries, 2011. There you'll find a chart
titled: ``2010 U.S. Net Import Reliance for Selected Nonfuel Mineral
Materials.''
The Rare Earths, taken as a group, are just 1 of 18 metals and
minerals for which the U.S. is 100% dependent on foreign sources of
supply. Add another 13 metals and minerals for which our dependency is
80 to 99 percent.
Compare that with foreign oil, where the U.S. imports ``only'' 57%.
In fact, if oil were on the USGS list, it would appear in 42nd
place--with 41 metals and minerals above it.
The names may be exotic--indium, thorium, vanadium, tantalum,
germanium--but the industrial sectors affected constitute a cross-
section of the U.S. economy, from aircraft engines, auto batteries,
compact fluorescent bulbs and flat-screen displays to the wind turbines
we hope will power clean energy and weapons systems we count on to
protect us.
Copper: A Mainstay Metal
So-called technology metals may grab the spotlight, but mainstay
metals like copper are also seeing rising demand. This may run counter
to our own personal perceptions--as we think of PVC replacing copper
pipe in household plumbing, or fiber optics displacing copper wire in
telecomm--but that's misleading. Copper continues to be a critical
material in electronics, building construction, durable goods and
automobiles. In the last category, for instance, hybrid vehicles
require double the amount of copper as gas-fueled automobiles.
Copper is critical for defense applications as well.
Department of Defense reports show that, by volume, copper ranks
second--behind aluminum--in annual consumption for defense industrial
applications.
But what about the general level of U.S. dependency for foreign-
sourced copper?
Compared to near 100 percent dependency for Rare Earths, the fact
that the U.S. today imports 30 percent of the copper we use from
foreign sources may seem manageable, even acceptable. But to put that
number in some historical perspective, I ask the sub-committee to look
back to 1993--the year the last metric ton of copper was sold out of
the National Defense Stockpile.
In 1993, U.S. Mines produced 1.8 million metric tons of copper--
roughly 60% more than in 2010. Our net import dependency was 7%--not
30% as it is today. Half of what we did import came from Canada. Today
60% of our copper imports come from Chile, Peru and Mexico.
While total reserves are not a perfect proxy for exploration
efforts, nonetheless--since 1993, world copper reserves have more than
doubled. Over that same period, U.S. copper reserves have declined--
from 15% of the world total, to just over 5%.
I do not present these statistics as an argument for a return to
the stockpile concept as it existed at the close of the Cold War. My
purpose is to suggest that the realities that prevailed less than 20
years ago--when we effectively stopped thinking about the strategic
aspects of mineral and metals supply--no longer pertain.
As for disruption--the key concern of this sub-committee--OSD
Defense Planning Scenarios show that copper is among the metals
vulnerable to PSD--Peacetime Supply Disruption. Another OSD study lists
copper as a metal that has--and I quote--``already caused some kind of
significant weapon system production delay for DoD.'' According to
MIT's Dr. Elisa Alonso--one of American Resources Policy Network's
experts--``. . .the risk of copper disruption is significantly greater
than for other major metals (e.g., iron and aluminum) and is at or near
to a historical high.''
Now, to be sure, we live in a globalized economy, and indeed--if
the U.S. were to simply stop mining copper today--there are known
copper prospects in a number of countries. We might turn to Chile, Peru
and the Philippines for increased copper supply. Then again, world
demand might be met via development of known copper reserves in Russia,
Angola, Afghanistan, DRC Congo, or China--including decisions taken in
Beijing to exploit copper reserves in the Tibet Autonomous Region. And
there is copper in Pakistan and Iran. With the exception of Pakistan--
rated ``Partly Free''--all of the latter group are rated ``Not Free''
in the current Freedom House index. So while the world copper market
does offer choices, we may well find many of those choices unpalatable
from a policy perspective.
Rhenium: Where Base and Technology Metals Meet
In the end, the so-called base metals and technology metals are not
so easy to separate. Take my third example this morning: Rhenium, a
relatively obscure element, Atomic Number 75 on the Periodic Table.
In the commercial economy, rhenium is used to process lead-free
gasoline, in gas-to-liquid power plants and in jet engines like those
found on the Boeing 777. In the national security sphere, rhenium is
used in the small rocket thrusters that reposition satellites in geo-
sync orbit, as a super-alloy in the high-performance jet engines that
power the F-15, F-16, f-18 and the new F-35 Joint Strike Fighter--as
well as in stealth aircraft. Rhenium is prized for its ability to
retain its strength, shape and conductive properties at extremely high
temperatures.
While global copper production is 16,000,000 metric tons and global
rare earths production is more than 100,000 metric tons--rhenium
production is 52 tons, worldwide. That's roughly the weight of a dozen
SUVs.
The catch is that rhenium isn't mined; rather, it is recovered--
extracted as a by-product during the processing of copper and
molybdenum, by special scrubbers that capture rhenium particles in the
flue-dust thrown off by the roasters.
Right now, the U.S. imports 86 percent of its annual rhenium
requirement, much of it in recent yearsfrom Chile and Kazakhstan. More
could be done to capture rhenium from domestic copper and moly mining,
which otherwise literally goes ``up in smoke.''
Once again, the U.S. has critical questions to ask about a critical
material. Will the market supply sufficient rhenium for our commercial
and national security needs? Are we comfortable with the geo-political
risk implicit in an 86% dependency on foreign supply? Should we add
rhenium to the National Defense Stockpile--or otherwise incentivize
American copper and moly producers to invest in the technologies
necessary to capture rhenium now lost in the roasting process?
These same sorts of questions can be asked about several dozen
metals and minerals, and it is my hope they will be.
Encouraging Domestic Supply
Whether we are talking about copper, rare earths, rhenium or others
among the dozens of metals and minerals where the U.S. presently relies
on significant levels of foreign supply, it is time to consider whether
U.S. policy is impairing our ability to develop domestic supply--and
how we can remove obstacles that will allow the U.S. to achieve a
greater degree of resource independence.
Clearly, the U.S. Congress is turning its attention to critical
metals. Remedies under discussion range from reviving the National
Defense Stockpile to utilizing loan guarantees, and re-examining a
mining permitting process that routinely runs 7 or 8 to 10 years to
bring a new American mine into production. In the House, several bills
on Rare Earths have been introduced, including Congressman Mike
Coffman's RESTART Act, which, among its provisions, directs that
federal agencies expedite the permitting process for Rare Earths
``without waiving environmental laws.'' A comprehensive review of U.S.
permitting processes is also central in the draft bill being circulated
by Senator Lisa Murkowski. The argument for such a review is evident in
independent reports like the Behre Dolbear Group's ``2011 Ranking of
Countries for Mining Investment'' survey--known in mining circles as
the ``Where Not to Invest'' Report--where the U.S. once again ranks
worst--dead last--among 25 mining nations in the length of its
permitting process.
Critics of U.S. mining will assert that any re-assessment of our
permitting practices will involve weakening or watering down our
requirements--the assumption being that a process that lasts a decade
or more is the price we pay for safe and environmentally sound mining
projects. The choice will be cast as trading developed nation standards
for a 3rd World ``anything goes'' approach. From a public policy
perspective, that's not at all the case. Australia, for instance--one
of the world's most prosperous nations, and no one's candidate for a
country that is an environmental scofflaw--manages to permit new mining
projects in one to two years.
Reviewing our own permitting process with an eye towards
rationalizing that process is not at all a matter of cutting corners--
quite the contrary: Mining projects developed here in the U.S. are, on
balance, likely to be conducted with higher standards of safety,
against stronger environmental strictures, with better benefits to the
surrounding communities than projects in many parts of the world. And
projects developed here will lessen if not eliminate the ``surety of
supply'' issue and fear of materials disruption that concerns this sub-
committee.
We cannot maintain our modern economy without a steady supply of
metals and minerals. Those we do not possess here at home, we must
source from other countries. But those we possess but choose not to
produce perpetuate a needless foreign dependence--leverage that other
nations may well use to America's disadvantage.
I commend the Congressmen and -Women who called today's hearing, a
step that suggests critical metals and their continued supply are
beginning to receive the attention they deserve--given their importance
to our economy, our technological progress and our national security.
Thank you.
______
Mr. Coffman [presiding]. Thank you, Mr. McGroarty, for your
testimony, and I thank everyone for their statements. We will
now begin questioning. Members are limited to five minutes for
their questions, but we may have additional rounds. I now
recognize myself for five minutes.
I have been actively involved in legislation regarding
today's hearing topic over the last few years. Just last month,
I reintroduced the RESTART Act, the Rare Earths Supply Chain
Technology and Resources Transformation Act, to avert a United
States rare earths supply chain crisis, by restoring our
Nation's production of rare earth metals.
In essence, the legislation would focus on the United
States supply chain--as we in our country often rely on
unreliable foreign suppliers. During the House Armed Services
Committee markup of the Defense Authorization Act earlier this
month, I offered an amendment that requires the Defense
Department within what we use to call the Defense National
Stockpile, to develop a plan to establish an inventory of rare
earth oxides, metals, alloys, and magnets, for defense
purposes.
These rare earths are absolutely critical to the
functionality of numerous weapons systems. An inventory would
help assure defense manufacturers that they will have access to
a reliable domestic supply to meet national security
requirements.
I ask the witnesses to consider the advantages and
challenges of creating such an inventory. My legislation also
focuses on expediting the permit process here in the United
States.
I know that some of you have discussed this in your
testimony, but could you elaborate on this problem? Go ahead
and proceed. Why don't we start with Professor Eggert.
Dr. Eggert. Thank you very much. With regard to stockpiles,
in general, it is important I think to distinguish between
economic stockpiles and defense stockpiles. As I understand it,
your legislation focuses on defense stockpiles.
My personal view is that I would look toward the analysts
at the Defense Department and those who have studied this
specific issue, and if they believe that stockpiling is an
important part of a series of activities to secure supplies,
then I would support that.
Mr. Coffman. Good. Anyone else? Yes.
Mr. Latiff. Yes, sir. The question of the stockpiling is an
excellent one. I have not read the legislation, but I would
actually support that. Having managed major weapons systems for
many years, I can tell you, and as you probably already know,
that any disruption in the supply of material for the
manufacture of a weapons system can only lead to increased
costs and an increased schedule.
So, having a stockpile of these most critical ones is
probably a very good idea. Number two, the type of stockpile is
really at question, and whether or not it is a stockpile of
materials, or perhaps a rolling inventory, might be a pertinent
question to ask as well.
Mr. Richardson. Mr. Coffman, I would just add that from our
perspective the USMMA thinks a stockpile is a very important
part of the solution. We think that there are ways to stockpile
metals that can quickly then be used in the case of a defensive
need.
It is not necessarily advantageous to stockpile neodymium
oxides, for instance. A better way might be to stockpile a
generic neodymium boron alloy, and stockpiling alloys would
give us capabilities beyond what we have today.
Mr. Coffman. My time is limited. Mr. McGroarty, could you--
I have been concerned that China is not a reliable trading
partner, and I wondered if you could--well, the fact that they
have a near monopoly status on these rare earth metals puts us,
the United States, in a vulnerable position. Could you comment
on that?
Mr. McGroarty. Thank you, Mr. Coffman. I can draw attention
to the speculation about what China particularly did last fall
when there was some controversy, but clearly in retrospect, and
fairly quickly in retrospect, it seems like imports to Japan
were cut off.
This had to do with a controversy in the East China Sea,
which interestingly involves mineral rights, at least in part,
underneath the sea. Their intentions, I think, in China, and
perhaps not a single line that the Chinese government follows
on these issues, many people--and I was inclined in this
direction, and thought that this could have been kind of a test
fire of a resource weapon, and China cracked the whip if you
will when they had this dispute with Japan, I wonder in
retrospect if that was wise, because it seemed to raise concern
and interest in the United States and other countries about the
surety of supply, and may have sparked, and did spark, an
accelerated interest in coming up with the remedy that did not
involve dependence on the Chinese.
That said, the Chinese are growing at 8 to 9 percent. These
are technology metals, particularly in the rares. The Chinese,
we know, want to build their own green manufacturing base.
They are looking to not just mine metals and export them,
but to bring manufacturing to where the metals, particularly in
the north of China, that is economic, and that is not national
security. They are growing at this rapid rate, and they are
using more and more of these metals.
My sense in some of the interaction at the conference when
I was in China last month, there is actually a strong
contingent in China that is actually encouraging non-Chinese
development, because they may want to be a buyer of rare
earths.
They may want to see a non-Chinese supply that they can buy
into, and certain Chinese companies have been State-supported
companies and interested into buying into non-Chinese sources
of rares. It is a whole different issue.
So, it has got a national security edge, and it has got an
economic edge, and either one argues for more pressure in terms
of our access to supply.
Mr. Coffman. Thank you for your testimony. The Chair now
recognizes the Ranking Member for five minutes.
Mr. Holt. I thank the Chair. I would like to pursue the
broad questions of research and education here. It seems to me
that it is not just supply, but it has to do with identifying
deposits, concentrating, and refining, as much as anything.
And, Professor Eggert, I would like to begin with you. What
conceivable advances are there in--and let us talk about rare
earths, or you can choose some other minerals if you want, in
identifying deposits that haven't been identified?
I mean, is there a lot of work yet to be done in
understanding where these things are, and then in
concentrating, refining, and developing other sources outside
of these recalcitrant countries?
Is there research to be done that we have a reasonable
expectation of being productive?
Dr. Eggert. If we look at rare earths in particular, my
view is that we should, in balancing research on the demand
side, and substitutional research, yes.
Mr. Holt. Well, I wanted to get to that in a moment.
Dr. Eggert. Well, versus the supply side, and that there is
relatively more opportunity on the supply side than the demand
side in the following sense. Rare earths are a relatively young
resource in terms of our devoting any attention to discovering
minable deposits.
There are probably two deposits, the Mountain Pass deposit
in California, and the Baiyun Obo Mine in China that probably
account for 40 to 50 percent of all the rare earths ever mined
in the world, and so we have not spent a lot of time looking
for them.
Mr. Holt. Right, and if I am not mistaken, they may be 40
or 50 percent of the rare earths that are acquired and mined,
but a rather small fraction of the rare earths that might or
are expected to be out there?
Dr. Eggert. That is right. There is significant room for
progress in the geologic science aspect of this issue. Also,
arguably the greatest supply constraint of rare earths relates
to mineral processing and extraction of metallurgy, and the
separating of the rare earths from one another. They like to be
together. We don't do a good job at present of separating them.
Mr. Holt. Well, again, that is what I was getting at. So,
there is research work to be done. Who does that, and what is
the role of the United States Geological Survey, for example,
in supporting such research?
How much is the private sector doing now, and who supports
the doctoral students, or the research students that you might
have at the Colorado School, for example?
Dr. Eggert. At present, there is very little, if any,
Federal support for graduate education in economic geology,
mineral processing, and extractive metallurgy. There is some
support from industry, and clearly industry is doing work,
research, related to geology and extractive metallurgy.
But it is in the realm of recompetitive research activities
that I think we are missing out on the opportunity for.
Mr. Holt. And what about the United States Geological
Survey?
Dr. Eggert. The United States Geological Survey is
undertaking research related to geologic aspects of rare
earths. It probably could be enhanced, and I would certainly
support that.
Mr. Holt. OK. Dr. Jaffe, for end-use research, what is the
role of the Department of Energy? What is the Office of Science
and Technology Policy doing to promote or categorize, or direct
the end-use research? Do you have any thoughts on that?
Dr. Jaffe. Well, historically, the Office of Science and
the Department of Energy has supported energy and the basic
energy sciences relating to materials and materials
fabrication, and determining the properties of materials that
would make them useful as possible substitutes for rare
materials.
This has not to my knowledge been reconstituted in the
recent past in order to provide more emphasis on these emerging
shortfalls. Typically, the characterization of materials is
done in a university and national lab environment, and a
relatively half-hazard way, focused on individual end-users,
and not on analyzing a wide spectrum of materials looking for
earth abundant substitutes. That kind of research would be
needed.
Mr. Holt. Thank you, Dr. Jaffe. And let me just say to the
Chair that I hope that we can have continuing hearings
involving representatives of our trade negotiators, and the
State Department, as well as the Department of Energy, and the
Department of Defense, and even agencies that are outside of
our jurisdictions, so that we can have a good understanding of
really what the problem is, and how we can address the problem
on the supply side and the demand side. Thank you.
Mr. Coffman. Thank you, Mr. Holt. Mr. Thompson for five
minutes.
Mr. Thompson. Thank you, Mr. Chairman. Thank you,
gentlemen, for your testimony. Dr. Eggert, you state in your
written testimony that these rare earth materials are
specifically needed for some energy technology, such as solar
cells, wind turbines, hybrid vehicles, CFLs with the light
bulbs.
Are there other--what is the impact on other manufacturing
or potential manufacturing within the United States for the
application of technologies utilizing the rare earth or the
other minerals that were in question today?
Dr. Eggert. The main concern is what I would call the
specter of unavailability, and the idea that an essential
element that is needed usually in only small quantities creates
a no build situation for a manufacturer.
In most cases the issue is not so much one of high prices
resulting from shortages, but rather the essentialness of the
element for a specific application, and the knock on effects in
terms of production, profitability, and so on.
Mr. Thompson. Very good. When you look at the application,
and I know that we are looking at our dependence, foreign
dependence on these, but I have to believe that maybe even some
industries that we have lost, maybe if we had a ready supply of
this the application of this new technology and these minerals,
with the proper supply, we could repatriate some industries
back to the country.
It has been made clear by several panelists that none of
these materials are anywhere near being depleted, but I agree
that it is important that we do what we can to recycle these
materials.
Dr. Jaffe, you suggested consumer incentives to help
recycle materials and devices such as cell phones and i-Pods.
Do you have any specific ideas?
Dr. Jaffe. Well, there are a variety of ideas that are
being tried out in the European Union, including rental rather
than purchase of materials. So, your cell phone comes to you
from a company, and then when you are finished with it, they
take it back.
Another example that is being done here in the United
States for the Solar Corporation, which is one of the leading
manufacturers of thin film photovoltaics, which use both exotic
and toxic compounds.
They use tellurium, which is very rare, and cadmium, which
is toxic, and they create a bond when they sell the solar
panels, the bond assuring repatriation, or repossession of
those solar panels when their lifetime is finished, so that
they can not only control the toxic cadmium, but also reuse the
very valuable tellurium.
This is in a very early stage, and our report urged that
the Committee on Critical Minerals of the National Science and
Technology Committee within OSTP carry out a study of these
different alternatives so that one could shape a more effective
policy.
Mr. Thompson. Professor Eggert, you suggested in your
testimony that we should encourage undistorted international
trade of these raw materials. Do you believe that such a policy
could have a negative effect on our own domestic supplies?
Dr. Jaffe. I am not an economist, I have to say, but my
impression is that international trade without artificial
constraints works to the advantage of all the members. We would
be just as happy to sell our supplies of molybdenum, where we
are a major player, as we should be, to buy supplies of
chromium or cobalt, where we have very little.
Mr. Thompson. Professor, can I have your thoughts?
Dr. Eggert. Well, I, like most people in the academic, or
in the economics community, support undistorted international
trade. We should buy raw materials from the cheapest source.
Having said that, when there are supply risks, our end game
with regard to rare earths should be a more diversified global
set of suppliers, and not simply undistorted international
trade that leads us prone to supply risks.
Mr. Thompson. Thank you. A final question for Mr. Latiff.
You mentioned that it is unclear at this point that any
progress is being made by the Department of Defense officials
on a systematic approach to determining their overall needs for
specific materials.
Do you believe that any other specific departments or
agencies should also be determining their future needs for
these materials?
Mr. Latiff. Yes, sir, I do. Clearly, the Department of
Energy, and my focus primarily with the work that I have done
has been on the Department of Defense, and the criticality of
the defense systems, as I said, number one, their availability,
and number two, their costs. But, yes, sir, I do.
Mr. Thompson. OK. Thank you, Mr. Chairman.
Mr. Coffman. Mr. Duncan of South Carolina for five minutes.
Mr. Duncan. Thank you, Mr. Chairman. Virtually every time
that I walk into this Committee room, it seems as though the
Administration is tampering with three sources that belong to
the American people.
Our Nation's natural resources don't belong to the
President or his cabinet. It is time that they are returned to
where they belong, and that is to this Nation and our citizens.
And over the past month, we have celebrated huge victories
in this Committee dealing with energy, and putting the Gulf of
Mexico back to work, but in doing some research and listening
to some of the testimony, I understand that 22 percent of the
rare earth minerals are used in the refining of hydrocarbons.
So, unfortunately, it is clear to see that if we do not
halt the rapid overreach of government agencies, we will not
ever have the opportunity to use domestically produced oil here
in the United States because we won't be able to refine it due
to the rare earth minerals that are used in that process, and
not being able to tap those American resources either.
So, we will continue to lose this valuable market to other
countries as we see the increase of stringent regulations. Many
rare earth minerals that can be found in our Western States can
be used in the refining of oil.
And it could be counterproductive to produce and explore
for oil here in this country, but have it shipped to another
country to be refined, where they do have access to these rare
earth minerals.
I appreciate you gentlemen testifying today on this. So,
what is next? Well, we have a mine here and not there
philosophy, like we have a drill there and not there philosophy
with this Administration--and where the President will applaud
Brazil for their mining efforts. It is just amazing.
So, not being from a Western State, and not fully
understanding the impact of owning huge swaths of land out
there that could be utilized for mining efforts for rare earth
minerals, the question I have for you is what can we do to open
up more Federal lands?
What sort of barriers do we need to overcome that stand in
the way of the industry's ability to access these lands for
exploration and development? So, I lay that out there for any
of you gentlemen. Maybe the Mining Association would be better,
but what can we do to increase access to those Federal lands?
Mr. Quinn. Thank you, Mr. Duncan. I think the first thing
we need to do, before we start headlong putting more lands off-
limits, is to take a look at those lands that people want to
put off-limits. We need to get a serious evaluation of their
resource potential, what is there, and then delineate its
potential.
And then make some real decisions, real judgments, on
whether we are going to put those lands off-limits to resource
development. It is also the same question with perhaps lands
that have been placed under certain restrictions, and not
totally off-limits, but with certain restrictions.
They should be re-examined in terms of what their resource
potential is, and decide whether the restrictions that have
been placed on them years ago still should apply based on our
current needs for resources.
So, those are two things with respect to access. I have
also talked about permitting and regulatory burdens, and that
is something that the government should bring a real sense of
urgency to.
And as I said, if it is taking us 10 years to get a mine
fully authorized, we are still in the starting blocks halfway
through the race. If I have a large billion dollar proposition
to build a mine, which is what it would really take to scale,
and in today's climate for many commodities, if I can get those
authorizations in other countries like Chile and so forth in 18
months to 24 months, it is rather clear where I am going to put
my capital, because I will get a return eight years sooner than
I will here in this country.
Mr. Duncan. Mr. Chairman, in the essence of time, I will
yield my time back so that the Western States can maybe ask
questions. Thank you.
Mr. Lamborn [presiding]. Well, we appreciate those
questions and so thank you very much. Next we have on the list
Mr. Flores of Texas.
Mr. Flores. Thank you, Mr. Chairman. I have to agree with
Mr. Duncan's comments to start with. It seems like it is deja
vu all over again. We hear continuing testimony from witnesses
in industry and in business, and consumers, about the things
that we do as a country that reflect a lack of foresight when
it comes to taxation, regulation, restriction to our access to
public lands.
They continue to damage our economy, and damage our way of
living, and to bankrupt the future of our kids and grandkids,
and I am quite frankly fatigued from hearing us continuing to
go that wrong direction. Mr. McGroarty, did I pronounce that
correctly?
Mr. McGroarty. Yes.
Mr. Flores. Your comments were particularly poignant, I
thought, when you talked about what you heard in China, and I
want you to repeat what you heard, that they understand that we
talk a lot, but what was their question again, where were the
permits? Can you repeat that?
Mr. McGroarty. Mr. Flores, you are absolutely right, and it
is done in a very courteous way, and with a lot of respect, but
there is a certain impatience there when you are having the
conversations.
Idealogy aside, a Chinese diplomat is an extraordinary
pragmatic individual at this point, in the year 2011. We would
have a discussion, and I was one of less than a handful, that--
--
Mr. Flores. Keep it short.
Mr. McGroarty. There were nine Chinese presenters, and they
would immediately cut in and say how many million tons, how
soon, where are your permits. They were telling us basically
that we are doing this, and you are talking about it.
Mr. Flores. OK. That reminds me of that commercial that
some of us have seen on t.v., where you have the Chinese
laughing about how we drove our country toward bankruptcy, and
they owned us because of the fact that they financed us.
Mr. Quinn, in your testimony, you talked about the fact
that it takes 10 years to get a permit domestically, vis-a-vis
18 months to 2 years in some other countries, such as
Australia.
Can you tell me, and just give us, that if you were to
write legislation today and wave the regulatory wand, or the
legislative wand, what are the four or five things that you
would do that would fix that permitting process overnight?
Mr. Quinn. Well, the first thing is to eliminate some
duplication that we have. We have Federal to Federal
duplication, in terms of looking at the same environmental
issues and similar issues.
We have State and Federal duplication with State agencies,
delegated authority to implement certain Federal laws with the
Federal Government, and that overseeing them is actually quite
a bit of what they are doing, and second-guessing it.
So, I would take a look at minimizing duplication. I would
look at putting some accountability into the process, where
timelines or deadlines are set, and also in terms of evaluating
an agency's performance based on accountability.
Agencies are not, to my knowledge, rated on their ability
or their effectiveness in issuing authorizations.
Mr. Flores. And I assume that what we are doing wrong that
Australia is doing correctly--I mean, is the Australia model
the correct analog for us to follow?
Mr. McGroarty. Well, I think perhaps in some cases. I think
that one of the things that strikes me is that people believe
that when our companies are doing business overseas that
somehow we are performing at a lower level, in terms of
environmental stewardship, which is not the case.
Our companies export their environmental values and
stewardship to the countries that are hosting them. So, it is
not a matter that the regulations are less stringent or
anything like that, but they are more efficient, and they have
a certain sense of urgency about the importance of putting
projects and employing people, and I think that is a big
difference there.
Mr. Quinn. It sounds like they recognize not only the
urgency, but the critical economic impact of a particular
industry on their own economy, and I would sure applaud our
regulatory bodies feeling the way in this country, both at the
State and Federal level.
Dr. Eggert, and this is a little bit of an off-the-wall
question, and we have only got a few seconds left, but when you
look at our investment, and our educational infrastructure when
it comes to rare earth metals.
And I may be going out of your area of expertise, but how
do you feel about our investment in higher education in terms
of mining processing, recycling, disposal of these rare earth
metals? Are we just not there, or do we need to invest in
higher rates?
Dr. Eggert. I feel strongly that we need to reinvigorate
and invest in these areas. We have lost as a Nation most of our
institutional capacity to educate geologists, mining engineers,
mineral processors, extractive metallurgists, and so on.
Mr. Quinn. Thank you very much, and I yield back eight
seconds.
Mr. Lamborn. Every eight seconds counts. Next, Dr.
Benishek, from Michigan.
Mr. Benishek. Thank you, Mr. Chairman, for calling this
hearing. As a physician, I know firsthand how rare earth
minerals are critical to the development of life saving
technologies, and I am concerned about our country's ability to
mine these minerals.
In addition, Michigan's First District is the home of many
minerals. We have iron mining and the potential for copper
mining, and nickel, gold. There is a lot of mining potential in
my mineral-rich district.
And my question is actually for Mr. Quinn. A topic often in
Congress is that United States industries, including the mining
industry, are faced with some of the world's highest taxation
rates makes it extremely difficult to compete with foreign
countries on a global scale.
How does the United States tax burden compare with other
major mineral producing countries?
Mr. Quinn. Thank you, doctor. It is actually the highest
effective rate, around 41 percent when you combine Federal and
State taxes, in terms of the metals industry. Other countries
that were close to that level have already taken measures to
reduce their rates, and also make other adjustments in their
tax system to attract new capital for mining.
Mr. Benishek. What would be the first step that you would
do if you were in my place to get an increase in production
here in this country?
Mr. Quinn. Well, I think the highest hurdle that we have
currently is delays in permitting, and people like to say that
if you have plenty of time, then you can mine here in the
United States.
Unfortunately, we don't have that time, and if it takes you
10 years or more to actually get your capital on the ground,
and then to get a return on it, then that capital is going to
go somewhere else.
So, permitting would probably be the number one, and number
two, I would look at the tax burdens, and regulatory burdens,
on the industry. I am not saying that we would be supporting
reductions in the existing regulatory framework, but I think in
terms of going forward, there should be some clear assessment
of cost benefit, in terms of new regulations, new standards.
I mean, let's be frank. In China, they are worried about
where they are going to put their billion people in the cities,
and here in the United States, we are still trying to track
down the latest part per billion on some substance, and there
is a stark difference how they approach their particular
economic needs. I think that there is a balance here that we
can find that is better.
Mr. Benishek. Well, I agree with you. We need to have the
potential for jobs here in this country, and I want a clean
environment as well, but there is certainly a balance that
doesn't exclude mining from our industrial base.
I look forward to working on this Committee to help
streamline these rules. Maybe we can get something going here
this year. Thank you very much, sir, for your testimony, and I
yield back the remainder of my time.
Mr. Lamborn. Thank you, and next we have Representative
Gosar from Arizona.
Dr. Gosar. Thank you. Mr. McGroarty, in your testimony--and
we are going to switch up a little bit here--you state that
United States mines produced 1.8 metric tons of copper in '93,
roughly 60 percent more than they produced last year.
In the same time period, you stated that world copper
reserves have more than doubled, but the United States reserves
have declined from 15 percent to 5 percent. What accounts for
the drastic decrease over less than 20 years?
Has the United States simply tapped a larger proportion of
its ore deposits than the rest of the world, or are we just
failing to get these projects off the ground?
Mr. McGroarty. Congressman Gosar, that is a very good
question. The answer has to do with exploration budgets, and
how much time on tasks, and how many dollars does the United
States mining industry put into exploring and expanding United
States copper reserves.
There is a general decrease, and most of the exploration
money is going into gold and silver, or gold and diamonds
rather, and less so into copper. There is an issue about
exhausting the current resource and not replacing it.
You had testimony several years ago about the fact that we
would need many--upwards of a dozen--new mines brought on to
replace mines that are basically reaching end of life of mine.
I think it ties back to some of the points that Mr. Quinn
has made. If the permitting process in the United States is
extraordinarily long, capital requires very, very high, and
companies just looked elsewhere in the world to develop the
resource.
Dr. Gosar. Well, I am glad that you brought that up, and I
asked because I recently introduced Legislation H.R. 1904, a
bill that would open up the third largest undeveloped copper
resource in the world.
How critical to our national security is it to ensure
deposits like the one located in Central Arizona can be opened
up for production? And considering the prevalence of copper in
alternative technologies, like hybrid cars, solar panels, wind
turbines, isn't the meteoritic rise on our dependence for
foreign minerals such as copper over the past 20 years an
alarming national security risk?
If we are truly trying to reduce our dependence on foreign
fuels isn't it critical that we use domestic resources to
construct alternative energy infrastructure?
Mr. McGroarty. I would agree. The signals are there. I
mentioned the OSD study that indicates without any specificity
that there has already been some sort of program disruption,
and copper is one of the metals that was mentioned in that
category.
That is not a new study. It was from several years ago. So,
the signal is being sent, and your indication about the
increasing utility copper is true as well. Cooper has been used
in automobiles for a long, long time, but the hybrids use
something like twice the amount of copper.
So, cars that we want to encourage people to drive are
going to create a larger requirement rather than a smaller
requirement.
Dr. Gosar. I think you are right. I think the average
turbine uses over four tons of copper just in matrices of
alternative energy if I am not mistaken. So, thank you. You
know, permitting in my district, is a concern, because I have
the actual numbers.
I mean, when we start looking at this, the average number
for a NEPA to be processed in my District One in Arizona is 5.9
years and growing, and it seems that we have increased numbers
of lawsuits that have been curtailed.
I would like to start with you first and ask you how has
the lawsuits using the Equal Access to Justice funding affected
your ability to actually mine, and have access to these ores?
Mr. McGroarty. My understanding of the permitting process
is limited to my involvement with the Rare Earths Company in
Colorado, and so I yield to others on the panel, who maybe have
a better idea. But generally speaking time is money.
Dr. Gosar. Mr. Quinn, can you answer that question for me,
please?
Mr. Quinn. In terms of how it has impacted, what I can say
is this. You basically have a law there that pays people, and
has the taxpayer reimburse people to stop the projects. I don't
have any metrics on how much money has been spent in that
regard.
As you are inferring, Congressman, that ample opportunity
for opponents to mining projects to slice and dice them through
the litigation process.
Dr. Gosar. Isn't it true that it is basically an ecological
terrorism type aspect when we know that one envelope with one
postage stamp on the last day of a recourse could be starting
the whole process all over again?
Mr. Quinn. Well, I could certainly say this. That a low
level investment can stop a huge investment. A postage stamp
and a signature on a protest can stop a billion dollar project.
Dr. Gosar. Thank you. I have more questions, but I will
take them on the next round.
Mr. Lamborn. OK. Thank you. Next we have Representative
Johnson from Ohio.
Mr. Johnson. Well, thank you, Mr. Chairman, for holding
this important hearing on how critical and strategic minerals
are so essential to our economy, and I thank the panel for
joining us today.
Those minerals are essential not only to our economy and
our livelihood, but to national security as we have heard.
These rare earth minerals are important components to a large
amount of consumer products, and more importantly, to national
defense.
That is why I think that it is so important that we remove
any barriers to mining these important minerals, and I have a
few questions. The United States of America is home to some of
the world's greatest mineral deposits.
Yet, as you, Mr. Quinn, and the mining industry, are all
too aware, accessing these minerals is no easy feat. What can
we look to do to ensure that we have the ability to
domestically mine these critical minerals? What are our
barriers, and how do you think we can break them down?
Mr. Quinn. Well, as I mentioned before, there are a number
of programs and laws that actually entice placing more of these
areas off-limits, or either totally off-limits, or to severe
restrictions.
I think we can reexamine how those laws are applied going
forward. We have a better understanding before those decisions
are made about what the resource potential of those lands are,
and those that are already off-limits, maybe those from time to
time merit some reconsideration based on what the growing needs
are of this country and changing values.
And also we have the same issue in terms of some of the
private lands. There are laws out there that authorize parties
to try to petition to have private lands put off-limits to
future development.
Mr. Johnson. OK. Thank you. As you mentioned in your
testimony also, Mr. Quinn, less than half of the mineral needs
of the United States manufacturing are met from domestically
mined resources.
Obviously, when we are unable to provide the components
necessary for a healthy and viable manufacturing industry, our
ability to be a leader in manufacturing, and manufacturing
innovation, is at risk.
What do you suggest we do to ensure that the United States
remains not only a key producer of critical minerals, but also
remain at the forefront of innovation and new technology in the
manufacturing arena?
Mr. Quinn. Well, I think there are a number of public
policy hurdles in our way in terms of having or maintaining a
healthy and a viable minerals industry here, and as you are
inferring, Mr. Johnson, that if we cut off the front end of the
supply chain, the minerals part, over time the rest of that
value added chain will go off-shore as well.
We just heard from various Members today about the rare
earths story. I think that is instructive about what happens
when the beginning of the supply chain gets cut off, and the
innovation and the technology goes and follows suit on that,
and downstream also goes offshore to where it can source
reliably.
And as Dr. Eggert has said, sometimes prices are an issue,
but actually it is having a dependable supply, because if you
are going to set up a manufacturing system, you don't want to
have that up and down based on a commodity risk, in terms of
supply.
Mr. Johnson. OK. The answers to your questions kind of
highlight for me what we have heard not only in this hearing,
but in other hearings as well. Our regulatory process, and the
lack of aggressive movement forward with the robust permitting
process, is really hampering our ability across the board.
Not only in this arena, but in others. It is almost as if
those regulatory agencies have become the Department of No, you
can't. I would like to see, and I urge that not only the
Administration, but the Congress, force these regulatory
agencies that if you are going to deny a permit for health or
safety reasons, that is OK.
But don't just say no. If you say no, you have to come to
the table with ideas on how to move that process forward, and
how to solve the problem, and not simply to be an impediment.
Do you think that would help?
Mr. Quinn. Absolutely, Mr. Johnson. Sometimes they just say
no without the adequate reasons, and even worse, sometimes they
say nothing for years, and they keep sending you back for more
information, and you keep asking did I bring the right rock
back, and they keep saying we will tell you when we see it.
And you presided as I recall over several hearings several
weeks ago where that is exactly the issue, and where we have
people worn out, and an industry worn out, where at the end of
the day, we have more permits actually withdrawn than actually
issued.
Mr. Johnson. I thank you for that, and Mr. Chairman, I
yield back.
Mr. Lamborn. Thank you. And I will ask my questions now,
except that I want to instead defer or yield three minutes to
the gentleman from Arizona.
Dr. Gosar. Mr. Eggert, you know, my colleague, Mr. Holt,
talked about recycling these metals and rare earths. I am a big
recycler, but there is no way that we can keep up with demand
by recycling.
We ought to be looking at both sides of this story. One is
to recycle, but two is to explore, and use environmental
stewardship in mining. What is alarming to me is what seems to
be going on--and I am concerned about it--is that foreign
governments are cornering the market and artificially inflating
the market.
A good example would be what we are undergoing now with
OPEC, and then China with the rare earths. In regards to these
special elements that we are involved with, I have a company
that has revolutionized the electric motor, and they are very
dependent upon these magnets.
How do you foresee or how do you see our current
environmental standards and this moving bar helping extort the
American taxpayer and the American consumer in regards to
production of these revolutionary type of discoveries?
Dr. Eggert. Could you repeat the last portion of the
question? I didn't hear the key part of the question.
Dr. Gosar. How is the American consumer and the industry
being extorted by artificially raising prices by foreign
markets?
Dr. Eggert. Well, when one or a small number of powerful
producers can act opportunistically to raise prices, or to
restrict availability, either you pay the higher price, and it
increases your costs, and reduces your profitability, or in the
case of physical unavailability, one faces the choice of not
building, or in cases where there is an effort to redirect
investment of manufacturing facilities to other locations,
manufacturing can be redirected and relocated.
Dr. Gosar. Mr. McGroarty, can you address that a little bit
for me, please?
Mr. McGroarty. Congressman, you raise an interesting
question. My thought goes to how one would cost out lost
innovation as well. Unavailability of resources, the general
sense that one would not be pursuing and exploring new
applications, because you don't feel that you can outsource the
components, the precursor metals. It has to have some sort of
drag effect. I don't know how one would measure it. I am not an
economist.
Dr. Gosar. But you could really agree with me that the
American taxpayers are going to be one fronting this, because
it is artificially inflated?
Mr. McGroarty. Yes, I think so. You have phrased it in
terms of the consumers, and I am thinking also what would the
consumer not have five years from now, and how would they even
know that they don't have it.
Dr. Gosar. So, it is our own Federal Government that is
standing in the way of that marketplace?
Mr. McGroarty. I think the Federal Government can make
changes and talk about permitting.
Dr. Gosar. Thank you.
Mr. Lamborn. All right. That concludes the question portion
of this hearing. We are going to wrap up now. I would like to
submit for the record two articles from the New York Times
regarding the issue of Chinese mineral embargoes. Without
objection.
Mr. Lamborn. And I want to thank the witnesses for being
here today and taking up their valuable time to come and help
us understand this important issue. While today's hearing was
focused on what we know from the National Research Council
Reports and our expert witnesses, there is still much we don't
know.
We don't know what areas are open for mineral development
or minerals requirements for domestic manufacturing
infrastructure and national defense. We don't know fully the
status of the workforce with mining and materials expertise, or
a decent assessment of permitting timelines for projects on
Federal lands, with its associated litigation and hurdles to
domestic development, but we need these answers.
Later this week, I will be introducing legislation to
direct the Department of the Interior to prepare a series of
reports to get the answers that we need to address the
challenges laid out in this hearing today.
The goal of this legislation is to increase both our
understanding of our national mineral needs and the barriers to
meeting our needs with domestic production. Our national
mineral policy is failing our Nation.
It is failing to keep us supplied with the resources that
we need to defend our Nation, build our infrastructure, create
jobs, secure our manufacturing base, and keep our economy
healthy.
Today is the beginning of an effort to right the course and
to restore America's leadership in minerals and materials
technology. Members of the Committee may have additional
questions for each of you witnesses for the record, and I would
ask that you would respond to these in writing.
And if there are no further questions, without objection,
we stand adjourned.
[Whereupon, at 10:48 a.m., the Subcommittee was adjourned.]
[Additional material submitted for the record follows:]
[The New York Times article entitled ``Supplies Squeezed,
Rare Earth Prices Surge'' submitted for the record follows:]
Supplies Squeezed, Rare Earth Prices Surge
By KEITH BRADSHER
Published: May 2, 2011
HONG KONG--Rare earth prices are reaching rarefied heights.
Malaysia has delayed granting an operating permit for the refinery
in Kuantan as it reviews disposal plans for radioactive waste.
World prices have doubled in the last four months for rare earths--
metallic elements needed for many of the most sophisticated civilian
and military technologies, whether smartphones or smart bombs.
And this year's increases come atop price gains of as much as
fourfold during 2010.
The reason is basic economics: demand continues to outstrip efforts
to expand supplies and break China's chokehold on the market.
Neodymium, a rare earth necessary for a range of products including
headphones and hybrid electric cars, now fetches more than $283 a
kilogram ($129 a pound) on the spot market. A year ago it sold for
about $42 a kilogram ($19 a pound).
Samarium, crucial to the manufacture of missiles, has climbed to
more than $146 a kilogram, up from $18.50 a year earlier.
While the price inflation is a concern to manufacturers, consumers
in many cases will barely notice the soaring cost of rare earths. Even
though the materials are crucial to the performance of everyday
equipment like automotive catalytic converters and laptop computer
display screens, rare earths typically are used only in trace
quantities.
One exception is the Toyota Prius hybrid car, whose manufacture
uses a kilogram of neodymium.
Toyota has been raising prices for the Prius, but has cited demand
for the car and economic conditions. While acknowledging that rising
prices for raw materials in general have affected the company's overall
financial results, Toyota has declined to provide a breakdown of the
role of rare earths. (Production problems stemming from the Japanese
earthquake and tsunami have also crimped supplies of Prius cars, which
are made only in Japan.)
The high prices for rare earths reflect turmoil in the global
industry that mines and refines them. China, which controls more than
95 percent of the market, has further restricted exports so as to
conserve supplies for its own high-tech and green energy industries.
That is despite the World Trade Organization's ban on most export
restrictions.
Meanwhile, an ambitious effort to open the world's largest rare
earth refinery in Malaysia, which had seemed certain to begin operating
by this autumn, is tied up over regulatory reviews of the disposal
plans for thousands of tons of low-level radioactive waste the plant
would produce annually. Public opposition to the refinery is evident in
the weekly protest demonstrations now being held.
At the same time, Japanese companies are finding it harder than
originally hoped to recycle rare earths from electronics and to begin
rare earth mining and refining in Vietnam.
Although rare earths are crucial to the supply chains of some of
the world's biggest manufacturers, the industry that mines and refines
them has long been characterized by small, entrepreneurial companies.
Lately, though, soaring prices have contributed to industry
consolidation.
Last month, for example, Solvay, a big Belgian chemical-industrial
corporation announced that it would pay $4.8 billion to acquire Rhodia
of France, a technological leader in making complex chemicals based on
rare earths.
That same day, April 4, Molycorp, the only American company
currently producing rare earths, said it had paid $89 million for a
more than 90 percent stake in Silmet of Estonia, a much smaller company
that is Rhodia's only European rival in rare earth processing.
In Malaysia, where the giant rare earth refinery is under
construction near the eastern port of Kuantan, regulators are delaying
approval for an operating permit amid public concern about naturally
occurring low-level radioactive contamination of the rare earth ore,
which will be mined in Australia.
Raja Dato Abdul Aziz bin Raja Adnan, the director general of the
Malaysian Atomic Energy Licensing Board, said the board had asked the
Lynas Corporation of Australia, which is building the refinery, to
provide additional documentation before accepting its application for
an initial operating permit. It will take up to six months to review
the application, Raja Adnan said, and Lynas will not be allowed to
bring any raw material to the plant until a permit is issued.
But Nicholas Curtis, Lynas's executive chairman, said that he
believed the company could obtain the necessary approvals before
September and that his company was sticking to its plan to begin
feeding Australian ore into the Malaysian refinery's kilns by the end
of that month.
The Malaysian government also announced last week that it would
appoint a panel of international experts to review the safety of
Lynas's plans. The company said it welcomed the move.
But Fuziah Salleh, an opposition legislator who represents downtown
Kuantan and has been leading weekly protests, is mistrustful.
``The people's concerns are that the independent panel will be
formed by the government to prove that they are right,'' she wrote in
an e-mail message.
Toyota Tsusho, a materials purchasing unit of the Toyota Group, has
separately encountered complex local regulations as it seeks to open
rare earth mining and processing operations in Vietnam. The project was
announced last October during a Chinese embargo on rare earth shipments
to Japan. Takeshi Mutsuura, a spokesman, said that Toyota Tsusho now
hoped to reach a contract in Vietnam this summer and start production
in early 2013.
As recently as last autumn, there were also ambitious hopes in
Japan to recycle rare earths from electronics waste. Dowa Holdings
tried then to come up with ways to separate rare earths at a recycling
factory in northwest Japan but found the task significantly more
difficult than recycling other, more widely available precious metals.
The recycling factory is now recovering 19 other metals instead,
including cobalt and lithium.
All of this has left the world even more dependent on China. The
Chinese government last autumn showed a willingness to use that near
monopoly as a trade weapon, halting shipments to Japan from late
September to mid-November, during a territorial dispute over islands in
the East China Sea.
Although Beijing has officially denied that it imposed a Japanese
embargo last fall, China's own trade data released since then show that
its shipments to Japan suddenly fell to zero in October for rare earth
metals, and to nearly zero for rare earth oxides--which are more
processed chemical compounds. At the beginning of this year China
reduced its rare earth export quotas to all countries, while raising
export taxes on some rare earths to 25 percent, from 15 percent
previously.
Since April 1, China has also raised taxes on rare earth mining
companies to the equivalent of $8 for each kilogram of refined product;
rare earths were previously taxed like many other nonferrous minerals
in China, at less than 50 cents a kilogram.
One of the biggest questions hanging over the rare earths industry
is whether the United States, the European Union and Japan will file a
World Trade Organization case against China, challenging its export
quotas and duties. James Bacchus, a former chairman of the W.T.O.
appeals tribunal in Geneva, said that Chinese trade data shows a
virtually complete halt in shipments to Japan last autumn could be
cited to buttress any W.T.O. filing by rare earth-importing countries.
China denies violating the W.T.O. ban on export restrictions,
saying that it qualified for an exception to the ban for environmental
protection and conservation of natural resources. But China has done
little to restrict its own industries' consumption of rare earths,
usually a prerequisite for invoking an environmental defense.
A version of this article appeared in print on May 3, 2011, on page
B1 of the New York edition with the headline: Supplies Squeezed, Rare
Earths Surge.
______
[The Wall Street Journal article entitled ``China Tightens
Rare-Earth Rules'' submitted for the record follows:]
China Tightens Rare-Earth Rules
THE WALL STREET JOURNAL, ASIA BUSINESS
MAY 19, 2011, 8:21 P.M. ET
BEIJING China moved to tighten its control over rare-earth metals
Thursday by expanding its export-quota system and imposing higher taxes
on the minerals, which are used in such high-tech applications as
laser-guided weapons and hybrid-car batteries.
It also said it will get tough with companies that resell export
quotas and won't approve any new projects or the expansion of existing
ones in rare-earth separation over the next five years.
The measures were announced separately by the State Council, or
cabinet, and the Commerce Ministry in an apparently coordinated
offensive in a sector that has become highly politicized.
China, which supplies around 95% of the world's rare-earth metals,
has been tightening its control over the sector by raising the
threshold for entry, imposing stricter environmental standards and
slashing export quotas. First-half 2011 quotas total 14,508 metric
tons, down about 35% from the same period last year, according to the
Ministry of Commerce.
These measures have boosted rare-earth prices and made export
quotas much more valuable.
Opinion
Rare-Earths Showdown Looms
In the latest move, Beijing said it is raising the tax on light
rare-earth ores to 60 yuan ($9.22) per ton, from a range of 40 fen to
30 yuan per ton, as of April 1, while lifting the tax on heavy ores to
30 yuan per ton, also from a range of 40 fen to 30 yuan per ton.
``[China will] greatly increase rare earth taxes and refine its
pricing mechanism to reduce the excessive profits in the rare earth
mining industry,'' the State Council said.
China will also raise the threshold for companies applying for
export quotas, though it didn't say whether this will reduce the number
of qualified exporters. China granted quotas to 22 Chinese companies
and 10 foreign companies this year.
The Commerce Ministry said it will start imposing export quotas on
ferroalloys containing more than 10% rare-earth minerals by weight,
effective Friday.
This year, China began imposing 25% tariffs on exports of alloys
with more than 10% rare earth content.
Prior to the latest announcements, China had issued export quotas
for rare-earth primary products, including minerals and oxides, but its
quotas didn't include alloys.
Rare earth alloys include rare-earth ferrosilicon?with 17%-37%
rare-earth content?which is used as an additive in steel and iron
smelting, and magnesium rare earth, which contains 2%-10% of rare-earth
elements yttrium and gadolinium and is used in the aviation, automotive
and defense sectors.
Rare earths, comprising 17 elements, are usually categorized into
two kinds?heavy rare earth, also called ion-absorbed rare earth, which
is abundant in southern China, and light rare earth, which is found in
northern China.
Heavy rare earths are more valuable, giving exporters an incentive
to ship overseas for higher returns.
The State Council said it ``clearly forbids'' the resale of quotas
and has promised to improve the system of allocating quotas. People
familiar with the situation have said previously that some companies
with export quotas make big profits by re-selling export quotas.
Beijing also pledged to combat illegal rare-earth mining and mining
above quota levels, as well as improve the export-monitoring system to
stamp out smuggling.
China is also building strategic stockpiles of rare-earth metals,
an effort that could give Beijing increased power in influencing global
prices and supplies.
The State Council said it will halt approvals of rare-earth
separation projects in the next five years and ``resolutely ban''
capacity expansions at existing plants.
--Yajun Zhang