[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
                    CHINA'S MONOPOLY ON RARE EARTHS: 
                   IMPLICATIONS FOR U.S. FOREIGN AND 
                            SECURITY POLICY 

=======================================================================


                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON ASIA AND THE PACIFIC

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 21, 2011

                               __________

                           Serial No. 112-63

                               __________

        Printed for the use of the Committee on Foreign Affairs


 Available via the World Wide Web: http://www.foreignaffairs.house.gov/

                                --------
                         U.S. GOVERNMENT PRINTING OFFICE 

68-444 PDF                       WASHINGTON : 2011 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
Washington, DC 20402-0001 




















                      COMMITTEE ON FOREIGN AFFAIRS

                 ILEANA ROS-LEHTINEN, Florida, Chairman
CHRISTOPHER H. SMITH, New Jersey     HOWARD L. BERMAN, California
DAN BURTON, Indiana                  GARY L. ACKERMAN, New York
ELTON GALLEGLY, California           ENI F.H. FALEOMAVAEGA, American 
DANA ROHRABACHER, California             Samoa
DONALD A. MANZULLO, Illinois         DONALD M. PAYNE, New Jersey
EDWARD R. ROYCE, California          BRAD SHERMAN, California
STEVE CHABOT, Ohio                   ELIOT L. ENGEL, New York
RON PAUL, Texas                      GREGORY W. MEEKS, New York
MIKE PENCE, Indiana                  RUSS CARNAHAN, Missouri
JOE WILSON, South Carolina           ALBIO SIRES, New Jersey
CONNIE MACK, Florida                 GERALD E. CONNOLLY, Virginia
JEFF FORTENBERRY, Nebraska           THEODORE E. DEUTCH, Florida
MICHAEL T. McCAUL, Texas             DENNIS CARDOZA, California
TED POE, Texas                       BEN CHANDLER, Kentucky
GUS M. BILIRAKIS, Florida            BRIAN HIGGINS, New York
JEAN SCHMIDT, Ohio                   ALLYSON SCHWARTZ, Pennsylvania
BILL JOHNSON, Ohio                   CHRISTOPHER S. MURPHY, Connecticut
DAVID RIVERA, Florida                FREDERICA WILSON, Florida
MIKE KELLY, Pennsylvania             KAREN BASS, California
TIM GRIFFIN, Arkansas                WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina
ANN MARIE BUERKLE, New York
RENEE ELLMERS, North Carolina
VACANT
                   Yleem D.S. Poblete, Staff Director
             Richard J. Kessler, Democratic Staff Director
                                 ------                                

                  Subcommittee on Asia and the Pacific

                 DONALD A. MANZULLO, Illinois, Chairman
RON PAUL, Texas                      ENI F.H. FALEOMAVAEGA, American 
BILL JOHNSON, Ohio                       Samoa
DAN BURTON, Indiana                  FREDERICA WILSON, Florida
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
STEVE CHABOT, Ohio                   BRAD SHERMAN, California
MIKE KELLY, Pennsylvania             GREGORY W. MEEKS, New York
JEFF DUNCAN, South Carolina          DENNIS CARDOZA, California



























                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Mr. Mark A. Smith, president and chief executive officer, 
  Molycorp, Inc..................................................    13
Mr. Robert Strahs, vice president and general manager, Arnold 
  Magnetic Technologies, North America...........................    25
Mr. John Galyen, president, Danfoss North America................    31
Ms. Christine Parthemore, fellow, Center for a New American 
  Security.......................................................    40

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Donald A. Manzullo, a Representative in Congress 
  from the State of Illinois, and chairman, Subcommittee on Asia 
  and the Pacific: Prepared statement............................     4
The Honorable Eni F.H. Faleomavaega, a Representative in Congress 
  from American Samoa: Prepared statement........................     8
Mr. Mark A. Smith: Prepared statement............................    16
Mr. Robert Strahs: Prepared statement............................    28
Mr. John Galyen: Prepared statement..............................    34
Ms. Christine Parthemore: Prepared statement.....................    42

                                APPENDIX

Hearing notice...................................................    66
Hearing minutes..................................................    67
The Honorable Donald A. Manzullo: Statement by Grundfos..........    68
The Honorable Eni F.H. Faleomavaega: Material submitted for the 
  record.........................................................    70


  CHINA'S MONOPOLY ON RARE EARTHS: IMPLICATIONS FOR U.S. FOREIGN AND 
                            SECURITY POLICY

                              ----------                              


                     WEDNESDAY, SEPTEMBER 21, 2011

                  House of Representatives,
              Subcommittee on Asia and the Pacific,
                              Committee on Foreign Affairs,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1 o'clock 
p.m., in room 2172 Rayburn House Office Building, Hon. Donald 
A. Manzullo (chairman of the subcommittee) presiding.
    Mr. Manzullo. The Subcommittee on Asia and the Pacific will 
now come to order. We are waiting for Congressman Faleomavaega, 
so I will start with my opening statement.
    In September 2010, the People's Republic of China shocked 
the world by halting critical rare earth mineral exports in 
retaliation to a territorial dispute with Japan in the East 
China Sea. The Chinese action sent a clear and unmistakable 
message to Japan and the rest of the world: China is willing to 
use economic tools to achieve diplomatic goals.
    Two months later, when the export ban was lifted, the price 
of cerium soared from approximately $5 per kilogram before the 
ban to $67 per kilogram after the ban. The price of neodymium 
went from $42 per kilogram in April 2010 to $142 per kilogram 3 
months after the ban. Then, the price of dysprosium nearly 
doubled from $250 per kilogram to $400 per kilogram in January 
2011.
    Today's hearing about rare earth minerals is both timely 
and important given the role that these elements play in 
America's manufacturing and defense industrial base. Rare 
earths are vital in a variety of manufactured goods, such as 
fluorescent lights, hybrid engines, wind turbines, cell phones, 
and neodymium iron boron permanent magnets used in defense 
systems.
    China's actions against Japan fundamentally transformed the 
rare earths market for the worse. As a result, manufacturers 
can no longer expect a steady supply of these elements, and the 
pricing uncertainty created by this action threatens tens of 
thousands of American jobs.
    For America's defense industry, a total reliance on China 
for rare earths represents a serious weakness for national 
security. China currently controls 97 percent of the world's 
rare earth production, including all stages of the supply chain 
for permanent magnets.
    China's ability to dictate market terms to the rest of the 
world is particularly worrisome given its unwillingness to 
follow established international trade rules. To make matters 
worse, China is determined to retain much of the rare earth 
minerals it produces to meet growing domestic demand.
    Thus, American manufacturers are locked into a no-win 
scenario where the world's sole supplier of rare earths is 
tightly controlling global supply. In fact, domestic Chinese 
demand is projected to consume nearly all the rare earth 
minerals that country produces, leaving nothing for export 
markets.
    From the 1960s to the 1980s, the U.S. was the global leader 
in production, research, development, and fabrication of rare 
earth elements and magnets. During this period, however, 
Chinese leaders strategically targeted the rare earth industry 
for export to China. They succeeded. By using a combination of 
low labor cost and non-existent environmental standards, China 
gradually transferred the entire American rare earth industry 
overseas.
    In 2002, the sole remaining American producer of neodymium 
iron boron magnets, Magnequench, located in Indiana, was sold 
to the Chinese with full approval from the Committee on Foreign 
Investment in the United States. That was the last act in the 
American tragedy.
    Subsequent to that, I authored a change in the bill that 
provides whenever a state or an enterprise buys an American 
company of significance, that it has to be elevated to the 
highest level of vociferous review, as opposed to being done at 
the lowest level.
    This is where we are today. This crucial American 
intellectual property was forever transferred to China. If it 
were not for entrepreneurs like Molycorp, we would never end 
our dependence on China for rare earths. That is why we are 
having this hearing today.
    After China's 2-month rare earth mineral export embargo 
concluded in November 2010, the market price of certain rare 
earths, particularly cerium, neodymium, and dysprosium, soared 
to new highs. Currently, the prices of these elements are at 
astronomical levels, in some cases 650 percent over pre-export 
ban prices.
    As a result of this unprecedented supply disruption, the 
Japanese manufacturing industry implemented efforts to 
stockpile rare earths and to begin development of alternative 
technologies.
    In the U.S., however, there has been barely any awareness 
of the seriousness of this crisis. But, to their credit, the 
Department of Energy, under the ARPA-E program, is conducting 
cutting-edge research into rare earth alternatives. 
Unfortunately, the scope of this crisis is enormous and only a 
concerted national effort will lead us out of this mess.
    The 16th District of Illinois, which I have the honor of 
representing, depends heavily on manufacturing for its 
livelihood. Manufacturing accounts for approximately 25 percent 
of the local economy or is double the national average. In 
fact, in just three counties comprising less than 300,000 
people, we have exports in excess of $3.2 billion a year.
    Manufacturers in Illinois and nationwide are extremely 
concerned about China's monopoly on rare earths, and we need to 
heed their urgent call to action. Thus, we call upon the 
administration to work with Congress to formulate a coherent, 
common sense approach to ending China's monopoly on rare 
earths.
    It is not a Republican or a Democratic issue. It is an 
American issue that requires bipartisan leadership. I have met 
at length with industry representatives and officials from the 
Departments of Energy and State to try to gain a better 
understanding of the magnitude of this crisis.
    I cosponsored legislation authored by Representative Mike 
Coffman of Colorado to streamline the process for domestic rare 
earth production, and I recently urged U.S. Trade 
Representative Ron Kirk to take action at the World Trade 
Organization against China's unfair export practices.
    Before I recognize my good friend the ranking member for 
his opening statement, I want to acknowledge the presence of 
Chairman Jerry Lewis, who is the Member of Congress that 
represents Molycorp's mine in California. Chairman Lewis is 
here to introduce Mr. Smith.
    I intend to recognize the ranking member for his opening 
statement, then allow Chairman Lewis to introduce Mr. Smith. I 
now recognize Ranking Member Eni Faleomavaega.
    [The prepared statement of Mr. Manzullo follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Faleomavaega. Mr. Chairman thank you for calling this 
hearing. Like you, I would like to personally welcome our 
colleague before our subcommittee, my good friend Chairman 
Jerry Lewis, for being with us this afternoon.
    As I say, Mr. Chairman, thank you for holding this hearing. 
Considering China has been operating in rare earths, it has 
implications not only for our security concerns but as well as 
our foreign policy issues.
    Why do rare earth's elements matter? They matter because 
these elements are used in military systems we count on to 
protect us like anti-missile defense and space-based satellite 
and communications systems. These are used to power clean 
energy. They are used in medical devices, jet fighter engines, 
the automotive industry, colored television, and flat panel 
displays like cell phones, portable DVDs, laptops, et cetera, 
et cetera.
    While the United States was once self-reliant and 
domestically producing REEs, over the past 15 years, we have 
become 100 percent reliant or dependent on imports, primarily 
from China, which currently controls 95 percent of the world's 
market of rare earth even though they only have 35 percent of 
the world's reserves.
    Like many of my colleagues, I believe our dependence on 
China for REEs poses a risk to our national security as well as 
our economic well-being. Data from the U.S. Geological Survey 
estimated that in 2010 the added value to Gross Domestic 
Product by major industries that consume processed non-fuel 
mineral materials, including rare earths, was approximately 
$2.1 trillion, or 14 percent, of the total U.S. Gross Domestic 
Product. That is $14.6 trillion GDP, a considerable portion of 
our nation's economy.
    Concerned by these developments and also many other 
potential for the U.S. and its territories, I introduced a 
bill, H.R. 2803, to recover non-fuel minerals from the shallow 
and deep oceans under the U.S. territorial jurisdiction 
throughout the Pacific. These deposits are known to include an 
abundant supply of rare earth minerals.
    My proposal would require the U.S. Department of Interior's 
Bureau of Ocean Energy Management, Regulation and Enforcement 
in consultation with other appropriate agencies to conduct an 
assessment of the sea bed area around the U.S. continental 
shelf, including areas that are contiguous to and within the 
200 miles EEZ of the United States and its possessions for non-
fuel minerals.
    Mr. Chairman, it is only a preliminary request, but the 
important step is that there should be a comprehensive effort 
to ensure that there is no risk to the supply of important 
minerals for domestic consumption.
    I want to thank my colleague Chairman Lamborn of the 
Resources Subcommittee on Energy and Mineral Resources for 
holding a hearing on the bill, especially considering the value 
of refined rare earths imported by the United States last year 
alone was $161 million and that the Chinese Government recently 
placed restrictions on its supply of rare earths as reported in 
the New York Times article dated 16 September entitled 
``Chinese Consolidated Group on Rare Earths,'' which I ask to 
be included and be made part of the record, Mr. Chairman.
    Mr. Manzullo. Without objection.
    Mr. Faleomavaega. And I do want to welcome our 
distinguished guests and experts on this very important issue. 
And I look forward to their testimony.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Faleomavaega follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Manzullo. Chairman Lewis, can you wait until Mr. 
Sherman gives his opening statement? Are you okay on time? 
Okay. Mr. Sherman?
    Mr. Sherman. The fact that China has been operating this 
area is not an act of God. God in his wisdom put two-thirds of 
the rare earth elements outside China.
    It is a result of Chinese unfair trade practices, not only 
the cheap labor and manages to the environmental standards that 
the chairman referred to but the fact that China subsidizes 
this industry under the table. And they could afford to do so 
because of their other unfair trade practices.
    The underlying problem is that the most powerful interests 
of the United States benefit massively from Chinese unfair 
practices. They may not benefit from Chinese unfair practices 
with regard to rare earth elements but the overall relationship 
with China means you make it for pennies, sell it for dollars 
in the United States, ship the jobs overseas, and report high 
earnings per share. And Chinese control over rare earth 
elements gives them one more argument as to why we should 
kowtow to China. After all, they have got all the rare earth 
elements.
    The solution is to end these practices by ending MFN for 
China 6 months after enactment, which is what a bill I have 
proposed would do, and force China to change all of its unfair 
policies under threat of a regime-challenging economic 
downturn.
    Now, the most powerful and rich in our society are not 
going to allow us to seriously consider that. And the think 
tanks they fund will discourage it. They won't allow any 
fundamental change in our relationship with China. And they 
will constantly tell us that earnings per share is the same 
thing as national economic health.
    In my district, there are four full-time cable television 
channels dedicated to the worship of Wall Street and earnings 
per share. There are only three channels dedicated to the 
worship of Jesus Christ.
    So we will have a hearing on this unfair trade practice. We 
could have 999 other hearings on other unfair trade practices. 
We will file something with the WTO. It will be meaningless. We 
may be able to deal with this one issue by subsidizing the 
industry if we have any money left over for that or perhaps 
restricting Chinese exports, rare earth elements, which strikes 
me as unlikely.
    It is time to tell China that MFN ends 6 months from today. 
Otherwise we are going to die from 1,000 unfair cuts. And we 
will have the opportunity to have 1,000 hearings on each one of 
them.
    I yield back.
    Mr. Manzullo. Thank you.
    Mr. Lewis, do you want to introduce your constituent?
    Mr. Lewis. Yes. Thank you very much, Mr. Chairman. I will 
be very brief. The members of the committee probably don't know 
this, but in my territory, San Bernadino County, there is 
enough desert space you can place easily four eastern states. 
And within that territory, there is many an opportunity as well 
as a resource. And it happens to be the location of America's 
very large deposits of rare earth elements.
    It is very important for us to expand upon your already 
very able articulation about the importance of rare earth 
minerals and what they mean to the United States. It is 
significant I think for you to know that I met Mark Smith only 
recently when I traveled out to Mountain Pass, which is really 
out in the boondocks in my district, about 40 miles, 50 miles 
away from Las Vegas.
    At that event, there were a couple of hundred employees of 
the United Steel Workers Union largely. And Mr. Smith, whom I 
will be introducing to you formally, had a presentation to 
make. And it was a very sizeable photograph of the president of 
the United Steel Workers along with Mr. Smith and one Harry 
Reid of beautiful downtown Nevada, all of whom have an interest 
in this subject area in no small part because most of those 
employees live across the line in Nevada, but also it is my 
understanding that many years ago, Harry Reid's father worked 
at this very location in Mountain Pass as one of the mining 
employees.
    This resource is critical to our future. And China is 
deadly serious about having as much control as they possibly 
can over this resource, wherever it might exist. They have made 
significant efforts to try to get control, get their nose into 
the control of this resource and other elements that relate to 
it in the United States.
    Australia has a very significant supply or location or rare 
earth minerals. China was going about attempting to capture 
influence and control of that resource. And the legislature in 
Australia stood in the way and prevented it, indicating at a 
very fundamental way the recognition of the importance of rare 
earth minerals in terms of future development that relate to 
horizon kinds of technologies, very important, as the chairman 
mentioned, the guidance systems for some of our missiles and 
used in elements that write very much to the effectiveness of 
some of our computer systems and the like, very, very critical.
    Mark Smith didn't start out to be a mining engineer. He got 
his engineering degree from Colorado State University, where he 
had hoped to specialize in the field of agriculture, maybe 
building tractors for you at home, Don Manzullo.
    But in the meantime, economies ebb and flow. And that took 
him directly to mining. And, with that, he has been associated 
with Unocal and Chevron for many, many years.
    At one time, he was the president of Chevron's Mining 
Corporation, a solely owned corporation of Chevron. With that, 
eventually those interests were sold in the marketplace. And 
Molycorp became the holding base for these rare earth elements 
located at Mountain Pass.
    Not so long ago, we recognized this growing need and the 
competition that exists in the marketplace. Molycorp went about 
to going public and, in no small part, going public in order to 
raise the capital necessary to expand the mining activities at 
Mountain Pass but also to be able to process those minerals in 
a fashion whereby they can be effectively and efficiently used 
in industry.
    The project involves almost $800 million of investment at 
Mountain Pass, very important to our constituency, a lot more 
important to the country.
    I have come today with absolutely no expertise in terms of 
the details of the way these minerals do apply themselves to 
our industry, but you and I share a great interest in the 
future of our security and the role that we play on behalf of 
freedom in the world.
    So to have the likes of Mark Smith and the balance of the 
balances that I will shortly leave to join you at the rostrum 
is not just a privilege. They have been of great service to our 
country. It is very important that your committee be focusing 
the way they are upon these elements to our future security.
    So thank you very much, Mr. Chairman. And let me introduce 
Mark Smith.
    Mr. Manzullo. Thank you. Mr. Chairman, would you like to 
have a seat up here? Without objection, we welcome you to our 
panel.
    Today's witnesses represent three key components of the 
rare earth supply chain from mining to fabrication to 
manufacturing. Molycorp is at the forefront of bringing rare 
earth production back to the United States. Mr. Smith is chief 
executive officer of Molycorp. It is a real pleasure to welcome 
you to our subcommittee.
    Arnold Magnetic Technologies is one of America's leading 
manufacturers of permanent magnets. Arnold is a key component 
of the rare earth supply chain. Magnets are indispensable in 
many of the products that we use today. I am delighted to 
represent one of Arnold's manufacturing facilities in Marengo, 
Illinois, which is part of the 16th Congressional District.
    Mr. Robert Strahs is vice president and general manager of 
Arnold Magnetic. He currently manages their three facilities in 
Rochester, New York; Marengo, Illinois; and Ogallala, Nebraska. 
Previous to this role, Rob was chief marketing officer in 
charge of Arnold's global sales and marketing efforts. He has 
been with Arnold almost 10 years.
    He received a master's of business administration from the 
Kellogg Graduate School of Management and a bachelor's of 
business administration from Iowa State University.
    Danfoss is a global manufacturer of energy-efficient pumps 
and valves that depend on the rare earth magnets produced by 
companies such as Arnold Magnetic. Danfoss is located in Loves 
Park, Illinois, also part of our congressional district.
    Mr. John Galyen is president of Danfoss North America, a 
$600 million subsidiary of Danfoss, and oversees the company's 
most important market. John has 30 years of industry 
experience. He is a graduate of Northwood University. He also 
completed a Strategic Leadership Program at the Ashridge 
Business School in Hertfordshire, England.
    Finally, Ms. Christine Parthemore is a fellow at the Center 
for a New American Security, where she directs the 
organization's Natural Security Program and natural security 
blog. She is an adjunct professor at Johns Hopkins University.
    Prior to joining the center, she worked with journalist Bob 
Woodward. She has contributed to the Washington Post, Roll 
Call, and Atlanta Journal Constitution. She is a graduate of 
the Ohio State University and has an M.A. from Georgetown 
University.
    One of the reasons we are calling this hearing is that I 
have heard from numerous manufacturers throughout the country 
desperately trying to buy these permanent magnets, especially 
the neodymium iron boron. They are down to two suppliers 
worldwide and having to pay 50 percent in advance, even before 
the order is processed.
    The people who are using these magnets including Regal 
Beloit, just over the line, which makes a high iron motor and 
is using the neodymium iron boron to speed up efficiency by 2 
to 3 percent, which is pretty high for a motor.
    All over the country, there is a huge shortage of these 
magnets. It impacts the manufacturing industry to the point 
where China is sucking American manufacturers into China based 
upon the fact that they have a monopoly on these rare earths. 
This hearing is absolutely critical to keeping thousands, if 
not tens of thousands, of jobs in this country.
    Mr. Smith, you are up. You have 5 minutes. When you have 
about 15 seconds remaining, I will lightly tap. If you go over 
that, the tapping becomes louder.
    Mr. Lewis. Mr. Chairman might have them hit the button so 
we can hear them.
    Mr. Manzullo. Okay.
    Mr. Lewis. You have to hit the button.
    Mr. Manzullo. Hit the button in front of you.
    Mr. Smith. Got it. I think I should be on now.
    Mr. Manzullo. I look forward to your testimony.
    Mr. Smith. Thank you, Mr. Chairman. Thank you, Congressman 
Lewis, for your kind introduction, and other members of the 
subcommittee.

 STATEMENT OF MR. MARK A. SMITH, PRESIDENT AND CHIEF EXECUTIVE 
                    OFFICER, MOLYCORP, INC.

    Mr. Smith. You have my more detailed written testimony. So 
I will try to err on the side of efficiency and try to be as 
brief as I can today.
    This hearing is very timely, Mr. Chairman. I spent last 
week in China. Indeed, the first part of the week, I had the 
privilege of touring the iron ore mine in inner Mongolia, where 
63 percent of the rare earths are produced for the world as a 
byproduct from that mine. According to the Chinese officials 
that toured me, I was the first foreigner ever allowed into 
that mine.
    I spent the latter half of the week at a rare earth 
conference in Beijing speaking with top government officials 
and private sector leaders from around the world concerning 
rare earth industry issues.
    Last week, Chinese officials communicated to me and to the 
world, through this rare earth conference in Beijing and in 
subsequent public statements, several clear and unambiguous 
messages about their rare earth policies.
    First, while Molycorp currently supplies almost 5 percent, 
China supplies over 95 percent of the global rare earth demand. 
And they do not intend to remain the primary supplier to the 
rest of the world. Instead, they will continue to consume more 
of their own rare earths and export less.
    Second, they see tight global supplies and high prices of 
rare earths as an ``irreversible'' trend.
    And, third, they believe that the rest of the world needs 
to start meeting more of their own rare earth demand with their 
own rare earth supply.
    Molycorp has been predicting that China could potentially 
move from being the world's predominant supplier to a net 
importer of rare earths by 2014 or '15. If this happens, it 
will have major implications for our defense as well as other 
manufacturing sectors in the United States and other allied 
nations.
    Mr. Chairman, if I were to deliver one message to you 
today, it is this. The time has come to roll up our sleeves and 
get to work rebuilding our own domestic rare earth 
manufacturing supply chain. And I can assure you that the men 
and women of Molycorp have had their sleeves rolled up for 
several years now and are committed to this effort.
    We must continue to move as rapidly as possible to a 
position where our economy and our national security interests 
are no longer tied to these declining Chinese rare earth 
exports.
    Moreover, I think it is time we took a page from China's 
own rare earth playbook. China is--and I might add, very 
successfully--using its rare earth supplies to leverage growth 
in its manufacturing base as a means to create hundreds of 
thousands of jobs for its massive population. Simply put, I 
strongly believe we can and should do the same.
    Consider these facts. We have the geologic good fortune of 
having one of the richest and largest rare earth mineral 
deposits in the world at Mountain Pass, California. We have 
some of the best and most experienced rare earth scientists, 
chemists, engineers, and workers in the world. And Molycorp has 
pioneered technological breakthroughs in rare earth processing 
that will not only make us environmentally superior but will 
allow us to produce rare earths at the lowest cost in the 
world, indeed about half that of what the Chinese costs are.
    All of this highlights our ability to unleash a job-
creating engine here in the United States fueled by our own 
domestic rare earths, just as the Chinese have done and 
continue to do in their country today.
    As you can see from the photos being shown here, we are 
making rapid progress to dramatically increase our rare earth 
production from our current 5,000 tons per year to a level that 
will be almost 20,000 tons per year at our flagship facility in 
Mountain Pass.
    Over the past year, we went to the capital markets 
successfully and raised money that we needed for both phases 1 
and 2 of Project Phoenix and were successful in raising the 
money needed for that $781 million capital project.
    We remain on time and on budget in constructing what will 
be the most technologically advanced, energy-efficient, and 
environmentally superior rare earth manufacturing facility in 
the world.
    Mr. Chairman, I provide in my testimony specific numbers on 
what we expect to produce and when. Let me just say that, as a 
result of Molycorp's efforts, the United States is on track to 
achieve a high degree of independence in overall rare earth 
production before the end of 2012.
    Let me also take a moment to publicly acknowledge the 
hundreds of men and women who are working virtually around the 
clock to restore America's rare earth production capacity at 
Mountain Pass. They are the reason that America is rapidly and 
confidently moving toward greater independence concerning these 
strategic materials. And they are doing it safely, I might add, 
having gone well over 6 years without a lost time accident at 
Mountain Pass.
    In addition to increasing their production of separated 
rare earth elements, we are working hard to have more 
integration and do a ``mine-to-magnets'' strategic business 
plan. When completed, this will increase the diversity of 
global supply for a variety of other rare earth-based 
materials, which are needed for additional job-creating 
manufacturing sectors.
    What can the U.S. Government do to encourage greater 
independence of rare earth production and more diversity in 
global supply? I think there are three things in particular. 
One, we can promote more private sector investment in 
technology innovation. Today, technology is the ultimate 
differentiator between Molycorp and the Chinese rare earth 
industry. It is what is enabling the United States to 
confidently move to a position of greater independence in rare 
earths.
    Number two, we need to strengthen the fundamental research 
and development of rare earth materials and our graduate and 
postgraduate instruction in the basic and applied sciences 
relative to rare earths.
    And, number three, we need to support government and 
private sector efforts to recycle rare earths.
    Mr. Chairman, I would be happy to discuss these 
recommendations and other issues in more detail. Thank you for 
the opportunity to testify here today, and I look forward to 
your questions.
    [The prepared statement of Mr. Smith follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Manzullo. Thank you.
    Mr. Strahs?

  STATEMENT OF MR. ROBERT STRAHS, VICE PRESIDENT AND GENERAL 
      MANAGER, ARNOLD MAGNETIC TECHNOLOGIES, NORTH AMERICA

    Mr. Strahs. Thank you, Chairman Manzullo and members of the 
subcommittee.
    Arnold Magnetic Technologies employs 775 people globally, 
337 of these in the States of Illinois, Nebraska, New York, and 
Ohio. The work of about 250 of our employees is directly 
related to the production of rare earth magnets or precision 
components containing them. These include engineers, 
machinists, accountants, material scientists, and general 
laborers.
    We are a tier 1 or 2 supplier and produce rare earth 
magnets and assemblies sold to approximately 200 customers, 
many of which of them produce either final products or 
components. We estimate that our downstream customers employ 
over 25,000 people directly involved in the fabrication 
products, including rare earth magnets.
    These critical components can be found in all commercial 
planes, including the 737 and the new 787. They are found in 
the oil and gas, chemical, and mining industries.
    Rare earth magnets are essential to green technologies, 
including hybrid systems important in reducing our dependence 
on foreign oil. Perhaps most importantly are the rare earth 
magnets and assemblies that are found in military weapons 
systems, such as the F-35, the F-18, Javelin Missile, Precision 
Guidance Munitions, and military counter measures. They are 
also being used to develop hybrid and electric power systems 
for our ships and ground vehicles and many other defense uses.
    Today China is the only supplier of rare earths needed to 
produce the rare earth magnets: Neodymium iron boron, or neo, 
and samarium cobalt boron magnets. We need to maintain good 
relations with China as they have established themselves in 
rare earth supply and for the time being have reserves of 
heavier earths, such as dysprosium, that are needed to create 
high-performance magnets.
    The Chinese estimate that their known reserves of heavy 
rare earths may last only 15 to 25 years at the projected 
demand. So it is vital that alternate supply chains be created.
    Due to the export controls put in place in China, prices 
for products, including rare earths, have dramatically 
increased. Neo and samarium cobalt magnet costs have increased 
between 300 and 500 percent in the last 9 months.
    These price increases came about not only because of export 
controls imposed at 2008 levels, when demand was unusually low 
due to the recession, but other factors contributed as well. 
These include speculators bidding up the prices of rare earths 
and China's enforcement of environmental laws, which has 
stopped illegal mining operations. Increased demand for rare 
earth magnets for green energy applications in hybrid vehicles 
and wind turbines has also created price increases.
    Industrial users had hoped that prices and supply would 
quickly return to historical levels, but that is not going to 
happen in my opinion. Neodymium iron boron is a relatively new 
magnetic material. And many uses are just coming into the 
marketplace that rely on this material to make their products 
more energy-efficient and lighter and smaller than past 
magnetic materials allowed. So at a time when demand is 
growing, the reduced supply from China could be crippling to 
the next generation of energy-efficient appliances, hybrid 
cars, and wind turbines, not to mention defense systems.
    We now have customers considering whether they should move 
their production to China. Arnold Magnetic Technologies has 
Chinese facilities, in addition to our facilities in the U.S. 
and Europe, to maintain a close relationship and source of 
supply. But this should be an opportunity for the U.S. to step 
up and reestablish an industry that was started here in the 
late 1950s but was substantially closed by 2002.
    We are here to state the importance of the need to bring 
back the rare earth industry to the U.S. to protect and grow 
jobs as well as to control our own sources of rare earths that 
are so important to green technologies, aerospace, and defense, 
and energy-efficient motors and generators.
    Magnets are ubiquitous, but because they are largely unseen 
inside the products we use, the public has not realized their 
significance in our daily lives.
    We cannot trade our dependence on foreign oil for 
dependence on foreign rare earths. The U.S. Government has had 
a preoccupation with funding battery and solar technologies, 
but the power that is produced or stored by these technologies 
will often be generated or consumed by motors and generators 
that are most efficiently produced with neo magnets. Current 
and next generation military products from the Joint Strike 
Fighter to precision-guided munitions to hybrid systems all 
require rare earth magnets to operate most efficiently.
    Tens of thousands of jobs could be created by 
reestablishing a rare earth industry here in the U.S.
    In support of this goal, Arnold Magnetic Technologies has 
the knowledge base and people in place to produce neo magnets 
here in the U.S. in addition to the samarium cobalt magnets 
that we produce, but there are critical issues that only the 
U.S. Government can address to restart rare earth production in 
the U.S.
    One, intellectual property. Currently Hitachi holds the 
patents for the production of net magnets and has refused to 
license any U.S. companies. We would like the support of our 
Government to work with Hitachi to have licenses granted to 
allow production of these magnets in the U.S.
    Two, stop the illegal importation of unlicensed neo magnets 
that enters the U.S. either within products or as magnets. This 
erodes the ability of our company and customers to fairly 
compete.
    Three, inclusion of rare earth magnets into Buy American 
legislation to allow U.S.-based companies to compete with 
subsidized Chinese producers of magnets and assemblies.
    And, finally, grants or loan guarantees to accelerate the 
construction of the rare earth industry and magnet production 
facilities here in the U.S. and add high tech jobs, such as was 
successfully used to bring back the production of beryllium.
    Without these steps being taken, we foresee more jobs going 
to China, and we see the potential for rare earths mined here 
in the U.S. to be exported to China to support their 
production, their green initiatives, and their job growth, 
further strengthening their global manufacturing dominance.
    Thank you.
    [The prepared statement of Mr. Strahs follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Manzullo. Thank you.
    Mr. Galyen?

 STATEMENT OF MR. JOHN GALYEN, PRESIDENT, DANFOSS NORTH AMERICA

    Mr. Galyen. Good morning. Thank you, Mr. Chairman and 
members of the subcommittee.
    I appreciate the opportunity to testify on this critical 
issue surrounding rare earth elements and how it is undermining 
American competitiveness, in our business area anyway.
    Again, my name is John Galyen. I am the president of 
Danfoss in North America. Danfoss is a leading global 
manufacturer of compressors, controls, and variable frequency 
drives, primarily for high-efficiency air conditioning, 
refrigeration, heating, and motion systems. We have 12 
factories in the United States, one of you mentioned, employing 
somewhere around 3,000 or more employees, not including our 
large network of U.S. suppliers of parts and services.
    Our overall focus is climate and energy. We design, develop 
and manufacture products to enhance the performance of our 
customers' products. Innovation and energy efficiency are 
really critical for us and our competitiveness in the 
marketplace.
    Our Danfoss Turbocor facility in Tallahassee, Florida 
produces what we call advanced centrifugal compressors. They 
are used in chiller systems manufactured here in North America 
and also around the globe. Essentially, we use the magnets to 
suspend the centrifugal shaft in a magnetic field, generating 
high efficiencies but also eliminating oil that is problematic 
in these systems.
    It has been a fantastic business for us. We have been 
growing at an annual rate of 20 percent from 2007 to 2010, 
despite an economic slowdown. And we are creating jobs, good 
jobs, in R&D and manufacturing, including in 2011 we have 
increased employment by 21 percent.
    I talk about these are high-paying jobs. The average 
compensation, if you look at total wage and benefits, is 
$72,000 per year, well above the average in the Tallahassee 
area. These sophisticated magnetic bearings really eliminate a 
lot of the reliability problems that you see in systems, again 
without using oil. And they operate at very high speeds, but it 
comes with rare earth elements, disposing them in neodymium. 
And they are vital for their unique combined capabilities.
    The root of the issue is our suppliers tell us that in the 
early '90s, the Chinese suppliers began to really price out of 
the market the domestic competition here and around the world. 
We have seen almost a tenfold increase in our cost of the rare 
earth elements and let alone in this year alone, we have seen 
an 800 percent increase.
    On top of that, we have got reduced supplies. And, as you 
mentioned earlier, Mr. Chairman, we are having to pay in 
advance, as much as 6 months in advance.
    Our business in Tallahassee is not the only one affected by 
this crisis. We are currently developing a new line of 
variable-speed compressors with very high efficiency for 
residential air conditioning and light commercial systems that 
will be used around the world, but the target market for us is 
the U.S. This technology will result in very large energy 
savings, as it is already being deployed in many countries, 
including China and Japan. But the U.S. is behind.
    We have started this transformation, but it is in the 
beginning stages of applying this type of technology, which 
makes the viability of this technology especially vulnerable 
now.
    The severe cost increases that we have seen this year make 
the high-efficiency technologies uneconomical. I mean, it is 
challenging our existing business plans and is jeopardizing 
some of the energy savings opportunities for our customers and 
our nation.
    My over-arching point is this. China's rare earth elements' 
strategy is an issue affecting the U.S. and friendly country 
industries broadly. It is threatening our leadership in such 
innovative technologies and our ability for our country to meet 
energy-saving goals. And it appears that their strategy will 
also attract high technology manufacturing, investment, and 
jobs to China while offering local supply and price advantage.
    Unless the U.S. is willing to pay a steep price in lost 
opportunities to innovate in energy, defense, and other 
important areas, the U.S. Government must develop an effective 
means of countering China's emerging approach to rare earth 
elements.
    I would add that we do not see such a recommendation as 
anti-China. In a global economy, lost opportunities for 
progress and innovation affect all economies.
    What are we doing about it as an industry? We are reacting 
to try to migrate to other alternatives, but it takes time. It 
takes research and effort. So there are no readily available 
alternatives today.
    Our procurement managers are seeking other sources of 
supply, including new mines, new fabricators, and new 
processes. But that is not so easily done nor timely. Our 
research and development teams are evaluating alternative 
technologies. But finding, testing, and qualifying new 
alternatives will require years, not months. And we need action 
now.
    In the near term, we need to ensure that there is access to 
Chinese sources at reasonable prices while U.S. manufacturers, 
as we have already heard, develop alternative solutions.
    I would like to conclude my testimony today by outlining 
the short and long-term actions that we hope you will consider 
to minimize the destructive impact on the cost and availability 
of these elements because these elements are critical to the 
U.S. manufacturing and trade.
    In the short term, we would ask that you reduce the import 
duties on magnets from 2.1 percent to 0 percent. While we know 
this is a small step, it sends a signal of actions to alleviate 
additional price burdens for manufacturers.
    We would ask also that you consider temporary subsidies for 
new mining or processes to bring them online within the next 18 
to 36 months. We would also ask that you establish a 
collaborative approach to encourage China to increase export/
production quotas until other sources can be brought online.
    Longer term, I think it was brought up by Mr. Sherman that 
the U.S. should file a claim with the World Trade Organization 
to pressure China to honor their commitment to the World Trade 
Organization, not to restrict exports of materials, including 
the ones we're speaking of today.
    And then, additionally, consider Federally funding research 
of alternative materials, through the National High Magnetic 
Field Laboratories based in Tallahassee, Florida or Los Alamos, 
New Mexico.
    We ask Congress and the administration to act on this 
decisively to protect American industry, our economic and 
technological future, and jobs in the U.S.
    Thank you for the opportunity to testify on this important 
issue.
    [The prepared statement of Mr. Galyen follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
                              ----------                              

    Mr. Manzullo. Thank you.
    Ms. Parthemore?

STATEMENT OF MS. CHRISTINE PARTHEMORE, FELLOW, CENTER FOR A NEW 
                       AMERICAN SECURITY

    Ms. Parthemore. Thank you. Mr. Chairman, Ranking Member 
Faleomavaega, and other members of the subcommittee, thank you 
for the honor of appearing here to testify.
    While I concur with the remarks of my fellow witnesses 
today, as a fellow at a nonpartisan and nonprofit think tank 
here in Washington, my perspective is a little bit different on 
the rare earths challenge.
    My comments to the committee are based on years spent 
conducting academic research on the long history of the United 
States Government trying to minimize the foreign policy and 
national security risks surrounding its natural resource 
demands.
    One thing that is clear from this history is that Congress 
has consistently been the leading edge of identifying U.S. 
security and foreign policy vulnerabilities related to minerals 
and other natural resources. It is clear by this hearing today 
that Congress is once again on this leading edge in terms of 
understanding the challenge, the current challenge, brought to 
us by rare earth elements.
    The risks to U.S. foreign policy and national security 
surrounding China's near total monopoly on rare earths are 
clear. It allows mineral suppliers easy leverage over the 
United States, creates roadblocks for achieving other U.S. 
foreign policy goals around the world, especially in Asia and 
the Pacific region, and can ignite trade disputes that entangle 
other U.S. security interests, create supply disruptions that 
can drive price spikes and lags in delivery, including for 
defense equipment. And, most important, the United States may 
also lose ground strategically if it continues to lag in 
managing mineral issues as countries that consider assured 
access to minerals as far more politically important are 
increasingly setting the rules for trade in this area.
    In terms of helping to prevent supply disruptions that 
affect U.S. businesses and America's allies, based on my 
research, government officials can watch for a series of 
warning signs that minerals are likely to become strategically 
problematic or challenging to U.S. interests; for example, 
political instability in supplying countries, lack of 
stockpiles by our Government, by our allies, and by domestic 
businesses, or just generally increasing demand and new 
competitors capturing large market shares.
    The historical concentration of world supplies in the hands 
of just a few actors is the single most glaring warning sign 
that minerals will trigger problems for the United States. This 
is certainly the case with rare earth supplies from China 
today. And, put simply, as long as we face the situation of 
near-complete control over rare earth supplies by China or any 
single country, I do not expect the risks I mentioned to 
decline.
    Moving forward, it is important to note that these 
challenges are ultimately manageable and future foreign policy 
challenges related to rare earths and other minerals are 
preventable. The trends leading to China's dominance in the 
supply of rare earths have been clear for years. And its 
behavior with respect to its rare earth industry should have 
been pretty predictable given its past behavior and the 
historical patterns that other supplier countries have 
exhibited.
    So, first and foremost, I recommend that the United States 
Government can act to improve its ability to foresee foreign 
policy and security challenges regarding minerals. For example, 
the Departments of Defense, State, and Energy can integrate 
conflicts over minerals and raw materials into relevant war 
games and scenario exercises, which they conduct on a regular 
basis as a way of thinking freshly through these challenges.
    The Defense Science Board could conduct a new assessment on 
the changing nature of its different supply chains, including 
more extensive consideration of minerals and raw materials, 
than has been the case in its last two reports focused on 
supply chains.
    Greater information sharing among U.S. Government agencies 
and with the private sector and internationally would be 
helpful. Some of my fellow witnesses are engaging in that, 
clearly, as well as the chairman of this committee mentioned 
his own information exchanges.
    Congress can also play a critical role in preserving the 
ability to collect and analyze data that the government has 
expanded for the past 2 years through its programs in the 
Department of Energy and USGS.
    Additionally, the U.S. Government has several concrete 
options for mitigating challenges, like what we are 
experiencing now with rare earths. It could leverage its 
relationships with defense contractors so that the government 
can better prevent supply chain vulnerabilities. They can 
provide other countries with leverage over the United States 
that potentially cause major disruptions.
    Congress and the executive branch should continue updating 
stockpiling policies with the Department of Defense. The U.S. 
Government can create incentives to reduce consumption and 
promote recycling and develop substitutes. Research and 
development funding and loan guarantees can be useful 
mechanisms for doing this.
    And while domestic production is not a panacea for every 
mineral and for all foreign policy challenges related to 
minerals and raw materials, in the current challenge 
surrounding rare earths, domestic production would clearly help 
mitigate the geopolitical tensions and security risks that we 
have at hand.
    In closing, because disputes related to natural resources 
tend to be preceded by clear warning signs, complacency is 
probably the single biggest challenge for the U.S. Government. 
This committee must, therefore, be commended for calling a 
hearing today on U.S. challenges with rare earth minerals.
    And I hope that research we have conducted at the Center 
for New American Security can help with the current challenge 
and assist in preventing this history from repeating itself 
again in the future.
    Thank you. And I look forward to your questions.
    [The prepared statement of Ms. Parthemore follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Manzullo. Thank you.
    Eni, I want to thank you for bringing up the issue of the 
ionic clays, the rare earths that are found at the bottom of 
the seabed. You have lots of water around your district, don't 
you?
    Mr. Faleomavaega. Mr. Chairman, I wanted just to share with 
you a bit of information because it does include the issue of 
rare earths in the Pacific. We call it seabed minerals: 
Manganese nodules that contain cobalt, manganese, copper, so 
many other different rare elements, quite extensive throughout 
the Pacific region.
    And what I have come to realize is that we have not done a 
very good job in putting our focus on this issue, just as has 
been the testimony of our friends here before the panel. But I 
will
    Mr. Manzullo. Thank you.
    Yes. I have a very basic question to educate us. Would you 
give examples of where rare earths are used by themselves and 
then where rare earths are used in the magnetic form? There are 
two different applications here. Anybody?
    Mr. Smith. Mr. Chairman, I would be happy to answer that 
question. Elements like cerium are used primarily to polish 
glass or they are used in the catalytic converters in our 
automobiles so that we meet the emissions standards set by the 
U.S. Government.
    Lanthanum is primarily used in two applications. One would 
be FCC catalysts, which is a unit at a refinery that takes 
crude oil, breaks the hydrocarbon chains and turns it into 
gasoline for our vehicles. The other primary use is lanthanum 
metal, which goes into nickel metal hydride batteries, which 
runs all of the hybrid vehicles today. Those would be your two 
primary nonmagnetic rare earth elements.
    Mr. Manzullo. Then would you give an example of the 
application of the magnetic rare earths?
    Mr. Smith. Yes, sir. The application of magnetic rare 
earths, which would be primarily neodymium, praseodymium, and 
dysprosium--sometimes terbium can be used as well--those would 
be used in things like hybrid vehicles, electric vehicles, 
permanent magnet generators in wind turbines, and many of the 
products that my esteemed colleagues here on the panel make as 
well.
    Mr. Manzullo. Why are they called permanent magnets?
    Mr. Smith. I would be happy to answer that question, but 
Mr. Strahs as the magnet manufacturer might want to answer 
that.
    Mr. Manzullo. This is a very basic question.
    Mr. Strahs. Thank you, Mark.
    A permanent magnet is a material that once it is 
magnetized, it will stay magnetized essentially forever.
    Mr. Manzullo. The witnesses today have set forth to me the 
full range of the issue with the rare earths. I would like to 
address my question to--is it Mr. Galyen?
    Mr. Galyen. Galyen is the proper pronunciation.
    Mr. Manzullo. Galyen?
    Mr. Galyen. Yes.
    Mr. Manzullo. There seems to be a lot of conflict in the 
country today, not a lot of conflict, maybe some 
misunderstanding as to whether or not there is really a 
shortage of rare earth elements. When your representative 
stopped by my office and told us about the centrifugal chiller 
that is made in Florida, he said that it is becoming more and 
more difficult to get those permanent magnets. Could you 
elaborate upon that?
    Mr. Galyen. Yes. Probably you got more direct from the 
source today, from the CEO, I would assume, Ricardo Schneider. 
But I think our biggest concern, really, is not so much the 
availability. It is concern over availability, but it is more 
so the long lead time; in other words, going out to 6 months in 
lead time and also having the price again increase tenfold, 
including 800 percent this year.
    So I think as China looks to set up export restrictions, 
the amount, then our availability, especially as the demand for 
the material goes up, causes us great concern for price but 
also for availability.
    Mr. Manzullo. When you have a long lead time like that, 
what does that indicate to you?
    Mr. Galyen. Shortage.
    Mr. Manzullo. Ms. Parthemore, could you comment on that? 
You bring a unique perspective to this.
    Ms. Parthemore. Comment on which, the shortages?
    Mr. Manzullo. The shortages, if you feel comfortable to do 
that.
    Ms. Parthemore. Again, so a lot of my research on this has 
looked at historical trends and past disruptions. And there is 
nothing about the current situation with rare earths that is 
atypical from the history of past experiences, particularly 
with minerals that are important for defense manufacturing 
equipment.
    Whenever you see all of the signs that we have seen in the 
past 3 or 4 years with China and its exports of rare earths, 
all of those warning signs were there that we were going to 
start seeing shortages and that China, whatever the exporting 
country is--in this case, it is China--was going to use those 
shortages and their control over the entire export sector for 
political leverage and tie it in with other strategic and 
security and foreign policy challenges that we have with them.
    So, again, I am not happy to hear that American businesses 
are experiencing these kinds of shortages. Again, from looking 
at the history of this for the country, it is not surprising at 
all.
    Mr. Manzullo. In speaking to manufacturers today, my 
understanding is that as technology evolves, to make, for 
example, electric motors more efficient, there is more demand 
for the neodymium iron boron not only in components that exist 
today but in components for new products that are coming out. 
Do you want to take a stab at that, anybody? Mr. Galyen?
    Mr. Galyen. Yes. Sure. I will. In fact, I mentioned it 
briefly. You know, we make the very large compressors down in 
Tallahassee. So we are ranging from 600- to 200-ton. And you 
have a market globally in the, let's say, tens or the hundreds 
of thousands.
    We are developing today compressors for the residential air 
conditioning market in the U.S. That is a market that, even 
depressed with the construction industry, is 5 million units a 
year. And we plan on using permanent magnet motors to get the 
maximum efficiency for variable speed of those compressors.
    And that business plan is being now put at risk. And we 
have been investing there significantly for years.
    Mr. Manzullo. The reason for using the permanent magnets in 
the motors is to increase the efficiency of the air 
conditioners and, therefore, to save energy. Is that correct?
    Mr. Galyen. Absolutely. You are generally looking at 30 
percent or so improvement in system performance.
    That is not just pure motor efficiency. But when you 
incorporate variable speed, you are actually able to--rather 
than turning it on and off, you are able to follow the demand 
load, control the temperature, humidity, comfort, all of those 
kinds of things, very accurately.
    Mr. Manzullo. So, cutting-edge technology in air 
conditioning really depends upon the availability of these 
permanent magnets. Is that correct?
    Mr. Galyen. Correct. And most of the research and 
development has been around these rare earth elements. There 
may be others, but it is going to take us some time to try to 
figure that out.
    Mr. Manzullo. Mr. Faleomavaega?
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    I fear that I don't want to take Mr. Smith's statement out 
of context, but I do want to quote this from you, Mr. Smith. 
And, again, I think it does add some substance to our hearing 
this afternoon.
    You said that it is not very productive to spend time 
blaming China or to seek legal threats or sanctions or whatever 
against China. It seems to me that at this stage when China now 
controls 95 percent of the world's market on rare earths it is 
because they have been working on it for years.
    My question is, what have we been doing for all of those 
years? Why are we in the situation that we are in now where we 
have to import from China? Are we blaming China for its 
success, the fact that we have to provide 1.3 billion people 
with their needs and jobs and all of this?
    I just want to catch that note from Mr. Smith's statement. 
Can you elaborate on that, Mr. Smith?
    Mr. Smith. Yes. I would be happy to address that, sir. And 
it is a very good question. And thank you for asking for 
clarity.
    Molycorp's position on that is that the United States 
should take whatever measures it needs to. And certainly 
actions by the WTO or anything else, those are legal channels 
that are available.
    Our concern about taking those measures is that the ability 
to make something happen under those measures takes a lot of 
time. And the problem that we have now is immediate. And we 
need to act. We need to not depend on those legal actions to 
get where we need to go today. We really need to roll up our 
sleeves, get to work and solve the problem, which we can do 
domestically.
    Mr. Faleomavaega. How much does China spend in developing 
this industry or has it spent for all these years in developing 
rare earths?
    Mr. Smith. I don't have a precise figure on that, but I do 
know that they have over 6,000 scientists dedicated to nothing 
more than the research and development of rare earth processing 
and uses of rare earth minerals.
    Mr. Faleomavaega. And how many scientists do we have, in 
contrast?
    Mr. Smith. Molycorp has about 25 research scientists.
    Mr. Faleomavaega. 25 to 6,000 scientists. That is a real 
good combination.
    Mr. Smith. However, I would add, sir, that I would take my 
25 against their 6,000 any day. [Laughter.]
    Mr. Faleomavaega. All right. I understand China graduates 
about 100,000 engineers a year. How many engineers do we 
graduate a year?
    Mr. Smith. I don't have a clue on that.
    Mr. Faleomavaega. Yes. Well, I appreciate your response to 
this because you had mentioned also that you were visited--was 
it in Mongolia that you visited?
    Mr. Smith. Yes. Mine in inner Mongolia.
    Mr. Faleomavaega. Did you visit Mongolia proper?
    Mr. Smith. I did not get that far, no.
    Mr. Faleomavaega. You should because there is tremendous 
wealth of minerals and potential resources available in 
Mongolia, not necessarily in--well, inner Mongolia is part of 
China.
    I like the challenge you offered. Do we have the resources? 
Do we have the technology or the markets? Where do we go from 
here?
    Mr. Smith. We keep doing what we are doing, sir.
    Mr. Faleomavaega. Should the Congress be involved in 
offering subsidies or some way of start-up capital to assist 
our companies or to help you in this industry to develop this 
industry?
    Mr. Smith. I will let Congress make that decision on other 
members of the industry, but we have all the capital we need. 
And we are fully funded for our project.
    Mr. Faleomavaega. I see. How much capital are you utilizing 
right now in developing the industry, about?
    Mr. Smith. It will take us $781 million to put our new 
Mountain Pass Project Phoenix into operation.
    Mr. Faleomavaega. Is that in contrast to the green energy 
program that we are trying to develop? Are rare earths part of 
the green energy dynamics in terms of the industry that it 
develops?
    Mr. Smith. They absolutely are.
    Mr. Faleomavaega. Okay.
    Mr. Smith. And it is our humble opinion that without them, 
the green energy technologies that all of us want and desire 
today will not be possible.
    Mr. Faleomavaega. And I didn't mean to just ask Mr. Smith. 
Please, I would welcome the members of the panel to join. We 
are looking at potentially at how many jobs. If we get this 
industry done right within our own domestic consumptions and 
needs and the means for our military for private sector 
consumer needs, what are we looking at?
    Mr. Smith. for Molycorp's mine to magnets business 
strategy, we are looking at a total of over 1,000 direct jobs 
just in Molycorp alone. And then, of course, there will be the 
multiplier effect because of all of these direct jobs that are 
created.
    Mr. Faleomavaega. Approximately how many Chinese workers 
have developed out of this industry since the Chinese have been 
doing this for years? Approximately how many people are 
employed in China for this besides the 6,000 scientists?
    Mr. Smith. I don't have a clear number on that. My estimate 
is that it is well into the tens of thousands of people.
    Mr. Faleomavaega. Please, gentlemen, you are welcome to 
join in the dialogue. I know one specializes in air 
conditioning, the other one on magnetics. And I totally envy 
you. I have to plead my ignorance about the industry.
    The fact is how many Americans know anything about the 
industry? I would say less than \1/10\ of 1 percent know 
anything other than the fact you turn the air conditioner, you 
do all of this. But beyond that, are we looking at a possible 
multibillion-dollar industry if we work this thing right?
    Mr. Strahs. I think from our standpoint, absolutely. 
Neodymium magnets are critical to green technologies, the 
hybrid cars. We need to bring hybrid car manufacturing to the 
United States. They need the neodymium for that.
    Mr. Faleomavaega. And we have the substance in our own 
country.
    Mr. Strahs. Right.
    Mr. Faleomavaega. We don't need to import it from China. Am 
I correct?
    Mr. Strahs. That is correct.
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    Mr. Manzullo. Mr. Johnson?
    Mr. Johnson. Thank you, Mr. Chairman, for holding such an 
important hearing today on the importance of rare earth 
procurement to the U.S. economy and China's troubling monopoly 
of these elements.
    The extremely wide range of applications for rare earth 
minerals from cars to medical devices to military jets speaks 
to the significance of these elements. Many of these consumer 
and defense products contribute to vital industries that have 
kept our economy strong and our nation at the forefront of 
technological innovation. And, yet, the U.S. is almost 
completely dependent on China for all aspects of the rare earth 
supply chain.
    China's monopolistic control over the mining processing and 
exporting of rare earth elements has drastically driven up 
costs for U.S. manufacturing companies, particularly after 
China cut export quotas by 40 percent last year.
    And the availability of rare earth elements has 
increasingly diminished as China diverts these resources to 
internal domestic production. However, the real problem here 
isn't so much about China's actions but more about our own 
inaction.
    According to your testimony, Mr. Galyen, China is currently 
the source of 97 percent of the world's supply of rare earth 
elements but holds only 35 percent of the world's known 
reserves.
    As portions of China's reserves run out and it continues to 
restrict its own production quotas, resolving rare earth trade 
practices with China will no longer be the answer.
    I believe we must look to our own rare earth elements 
strategy or the lack thereof. This is not only an opportunity 
for American mining and processing but also for American 
manufacturing.
    According to the U.S. Geological Survey, 13 million metric 
tons of rare earth elements exist within known deposits in 14 
states.
    Last week President Obama unveiled his newest plan for 
jobs. To me, our rare earth potential as an obvious solution is 
staring us in the face. This could be a far-reaching investment 
in our nation's economic future, not just something to give us 
a near-term economic jump start over the next few months, but 
also in creating long-term jobs here at home. Such an 
investment also has serious national security implications. As 
China attempts to build up its military, another source for 
rare earths used by the U.S. defense industry will become 
pivotal.
    I do have a few questions. Mr. Smith, in your testimony, 
you outlined the steps that Molycorp has taken in anticipation 
of China's rare earth supply limitations.
    You also point out that we do have the ability to leverage 
the power of our own very large and very rich rare earth 
resources to catalyze manufacturing and job growth. With so 
many U.S. stakeholders in the development of a new supply 
chain, how have mining, manufacturing, and other industries 
readied themselves to meet this demand in a potential U.S. 
market?
    Mr. Smith. Sir, we have been working for over 8\1/2\ years 
to make sure that we develop new technologies so that we are 
not subject to the cost limitations that we were subject to 
prior to this time.
    The price that China could produce their materials was much 
lower than ours, not something we were proud of. But we have 
worked on that issue feverishly for 8\1/2\ years. And we have 
developed our own innovative technologies right here in America 
that will allow us to produce at half the cost of what China 
does today.
    Mr. Johnson. Okay. Mr. Strahs, based on known deposits of 
rare earth minerals in the United States, how much of a role do 
you believe the U.S. could play in meeting this future demand 
once Chinese reserves are depleted?
    Mr. Strahs. I think certainly the United States and 
production here could fulfill all of our needs. That would be 
easy to do. The first step, though, even once the materials are 
available, is the patent issues that need to be dealt with. So 
currently there are patents held by Hitachi.
    So, for instance, in Arnold today, we could be producing 
neodymium iron boron magnets within 12 to 18 months. However, 
we can't do that because there are patents in place that don't 
allow us to. So we need to address the licensing issue.
    Mr. Johnson. In terms of going after our own rare earth 
resources here in America, have any of you experienced 
regulatory issues or barriers to being able to go after those 
elements?
    Mr. Smith. We have not experienced any, sir. And we have 
been working very hard on that. We have all of our permits in 
place, which are good for the next 30 years.
    Mr. Johnson. Okay. Well, as a member of the Natural 
Resources Committee, I have had the chance to explore some of 
these issues from another viewpoint in other hearings back in 
June. Businesses nationwide have highlighted the importance of 
permitting reform in the U.S. as a crucial step needed to be 
able to develop a comprehensive rare earth policy.
    And I would commend to the committee to look at the 
National Strategic and Critical Minerals Policy Act. This bill 
would coordinate a government-wide survey of our national 
mineral policy, suppliers' demands and other critical factors 
impacting mineral development to eliminate our dependence on 
foreign sources for rare earth elements.
    And, with that, I yield back, Mr. Chairman.
    Mr. Manzullo. Mr. Duncan?
    Mr. Duncan. Thank you, Mr. Chairman.
    I just want to piggyback on some things Mr. Johnson talked 
about because I, too, serve on the Natural Resources Committee 
here in Congress. And we have had at least one, if not more 
than one, committee hearing about rare earth minerals, about 
mining practices in this country.
    We had a hearing today on ANWR. And the theme is very 
prevalent when we talk about rare earth minerals. And that is 
jobs. These are American jobs that could be created, 
maintained, and expanded through lessening of regulations and 
opening up Federal land for production of these rare earth 
minerals.
    I visited a company in my district that takes rare earth 
minerals and develops the catalyst for catalytic converters but 
also the catalyst for a lot of chemical processes using gold, 
platinum, palladium, and some other minerals that they use 
there, long-term good-paying jobs. That company has been there 
for decades providing good-paying jobs in South Carolina. So it 
is not just mining of these rare earth minerals. It is also the 
use of those minerals as well.
    And I firmly believe that we have got to change the 
policies in this country to open up the Federal land and 
lessening the regulations and revamp the regs and laws that are 
keeping us from harvesting those resources and utilizing those 
and being so reliant on foreign sources of those resources. It 
is not just China, but it is very, very similar to oil and 
natural gas, where we are reliant on other countries to provide 
the needs here in this country.
    So, Ms. Parthemore, I want to ask you. We heard from Mr. 
Johnson 13 million tons of rare earth minerals exist according 
to the Geological Survey. I believe it could be far more with 
that with new mining techniques.
    What specific laws and Federal regulations does U.S. 
Congress and this administration need to repeal in your opinion 
or to allow businesses to access these natural resources and 
prevent the U.S. from being so dependent on China and other 
countries?
    Ms. Parthemore. Sir, I don't know of any specific laws or 
regulations that need to be repealed to open it up. Again, it 
varies greatly mineral by mineral of those that I have studied, 
our current history and our current predicament. There are none 
for which regulatory or legal issues are standing in the way.
    One of the main things that we need to do in this country 
is be vigilant and watch for those. Keeping domestic jobs here 
and allowing these industries to bloom over time and changing 
laws and regulations if it is necessary to do that requires 
identifying the next rare earths and this type of issue in 
advance, years in advance, and making sure that those 
industries are created and maintained, get the research and 
development support from the government, potentially loan 
guarantees, things like that, well in advance of it hitting a 
crisis level, like we have with rare earths right now.
    Mr. Duncan. Thank you very much.
    When I was in business for myself, I realized real quickly 
that you could never hire somebody or pay someone to do 
something as cheaply as you could do it yourself. And I believe 
that buying rare earth minerals from other countries that are 
producing them, I believe we can do that cheaper here in 
America.
    We can increase the tax base of working Americans' revenues 
to the country by putting more Americans to work in this and 
many, many other industries. And so I think this is a very 
timely issue.
    I think Americans have common sense. And they understand 
that we have got the resources here, whether it is rare earth 
minerals or natural resources for energy production. And they 
scratch their head wondering why government policies continue 
to thwart efforts to be self-reliant in this country.
    It is what made America great, was harvesting our natural 
resources and utilizes those in American companies and putting 
Americans to work. So I think it is an important issue, Mr. 
Chairman, and thank you for holding this hearing. I yield back.
    Mr. Manzullo. Without objection, we welcome Mr. Rohrabacher 
to the subcommittee. Mr. Rohrabacher, you are recognized for 5 
minutes.
    Mr. Rohrabacher. Thank you very much, Mr. Chairman.
    I am very interested in this, perhaps for survival 
purposes. If our country is to survive, we have got to be able 
to have those building blocks to modern society that will 
permit our people to have a decent standard of living.
    I noticed when I was younger that the price of gasoline 
stayed about the same for a long period of time. I remember 
when I was a kid in the '50s, it was like 50 cents, actually 25 
cents, a gallon. By the time I got into college, it was still 
right around 50 cents, 25-50 cents, a gallon. But the minute 
that the United States became a net importer of gasoline, 
rather than exporter of oil, the price of oil jumped 
drastically and had a major impact on the standard of living of 
the American people.
    But what is worse, Mr. Chairman, an increase in the price 
of oil, that only the United States stood between this higher 
price and the lower price which was there for almost a decade, 
or that the people in the Third World's standard of living 
dramatically went down. I mean, to have the wealth sucked out 
of their country by a natural resource of oil that America now 
needs to import, rather than export, well, I am afraid the same 
can be true of just the very issue that we are looking at today 
with rare earth minerals, and I think China sees the type of 
leverage that it can have to squeeze wealth out of the rest of 
the world.
    Those producers of oil back in the '60s saw that they could 
squeeze wealth out of the world by manipulating oil prices, so 
it behooves us as Americans and to the benefit of the rest of 
the world to see that this does not happen, that this control 
of rare earth minerals does not take place.
    I would like to ask the panelists, do we know of instances 
similar to when China tried to pressure Japan in a policy 
dispute by using the cutoff of rare earth minerals, where China 
is trying to corral the control of these rare earth minerals in 
other parts of the world? Do you have any stories of that at 
all?
    Mr. Smith. I certainly don't have any stories about 
dictators, but there are certainly documented cases where 
different Chinese mining companies have tried to acquire the 
Molycorp assets here in the United States as well as the Lynas 
assets in Western Australia, which are the two largest and 
richest ore bodies in the world.
    All of those attempts have failed, which is the good news, 
but they are strategic in their thinking, and they are very 
disciplined.
    Mr. Rohrabacher. I am sure in the Third World they would 
just be paying off the local government officials. Thank God 
that they have been unsuccessful.
    Mr. Chairman, we might look into, for example, legislation 
that might restrict the sale of this type of mineral wealth to 
corporations that were associated with, for example, 
dictatorships, China being the world's foremost human rights 
abuser and dictatorship.
    I would think that would be very much against our national 
interest to permit companies that are really fronts for the 
People's Liberation Army from coming in and purchasing those 
mineral rights here in the United States.
    So let me just add one note. I have also noticed in my 
career the demonization of people who are utilizing minerals in 
the United States for the betterment of our people, whether it 
is mining or whether it is the oil industry.
    People who were utilizing these gifts, that we have from 
God, in order to put into our marketplace, which helped 
ordinary people's lives, had been demonized to the point that 
there are all sorts of political impediments to their ability 
to get that job done. I hope this panel today and your 
leadership will provide us a method of getting away from that 
demonization of people who are trying to do an efficient job of 
providing us with these resources.
    Thank you very much, Mr. Chairman.
    Mr. Manzullo. Thank you.
    In 2007, when Congress passed the Foreign Investment and 
National Security Act, I added an amendment stipulating that 
whenever the Committee on Foreign Investment in the U.S. is 
examining a potential sale and the buyer is a state-owned 
enterprise, it will be reviewed at the highest level so that 
something like this would not happen again.
    Mr. Rohrabacher. Thank you for your leadership, Mr. 
Chairman.
    Mr. Manzullo. I appreciate that.
    I have a couple of questions. Mr. Faleomavaega brought up 
the issue of jobs, but it is not just the jobs that are 
associated with the mining and the manufacturing and the steps 
in between. Tell us about companies that have gone to China to 
set up operations because that is where the rare earths are and 
what China does to woo those American companies to leave here.
    Mr. Galyen. I will take a stab at it, Mr. Chairman. For us, 
we haven't seen it directly. We have operations and production 
in China, but our intent, as I commented earlier--we produce in 
Florida. And we produce the residential compressors I was 
talking about in Arkansas. And we manufacture power electronics 
in Rockford.
    I think the risk becomes stronger if the supply of this 
needed material, as we have talked, is only available in China. 
Then my options are going to be such that if I want to play in 
the market, then I must go to China and be in China to get 
those materials. And that is where I think you could actually 
see a movement of jobs and production and investment to China.
    Mr. Manzullo. Do you know of any anecdotal stories of where 
this actually happened or is that just a sore that is hanging 
out there that you can see dangling?
    Mr. Galyen. I asked some questions of my colleagues. And I 
said, ``I don't have any evidence of it actually moving,'' but 
we do track the prices in China and out of China. And there is 
a gap today. There is also very clearly the statements that 
they are going to establish quotas and given a priority to 
their domestic supply.
    Mr. Manzullo. Yes.
    Mr. Galyen. So in both of those cases, I think they are 
sending us the signal that they would like to have the jobs, 
they would like to have the technology, and they would like to 
have the investment in China.
    Mr. Manzullo. They are setting the stage.
    Mr. Galyen. And, to be honest, Mr. Duncan's comments, I 
think did they see the opportunity? Yes. I think they have seen 
the opportunity and for a long time.
    Mr. Manzullo. I would like to shift just a little bit. We 
are talking about additional mining and processing to come up 
with these permanent magnets. Mr. Smith, talk to us about the 
terbium that is found in fluorescent lights and what your 
company has done to recycle those and the possible uses of 
terbium.
    Mr. Smith. We are looking at the recycling of the rare 
earth elements from the compact fluorescent light bulbs. Those 
light bulbs have been on the market for about 10 years now. So 
the useful life is starting to come to an end. And there is a 
real need to recycle these materials.
    There are only about 200 tons of terbium that are required 
worldwide every year. So a very simple process of recycling the 
terbium from those compact fluorescent light bulbs year after 
year now can actually do a major piece of good to the supply 
situation in terms of making sure terbium is available.
    The other advantage that terbium offers, particularly in 
the magnetic market, is that terbium will also increase the 
temperature capacity of the neodymium iron boron magnets, which 
only need about one-third to one-half of that amount of 
material versus dysprosium.
    So there are a lot of win-win situations here by taking 
advantage of what we think are existing resources of materials 
by just simply recycling these items.
    Mr. Manzullo. We discussed in our office this morning about 
contacting GSA on using the fluorescents that are in public 
buildings.
    There is technology that is available to do this. There is 
a French company that does this that is looking to set up 
operations in this country. There is obviously room for more 
than one company----
    Mr. Smith. Right.
    Mr. Manzullo [continuing]. Based upon the amount of 
fluorescents.
    If GSA decided to start a program to take fluorescent bulbs 
and put them into a facility to recycle, what impact would that 
have?
    Mr. Smith. We do not have exact numbers on that, Mr. 
Chairman, but I will speculate that it will have a major impact 
on our ability to supply the terbium market across the board 
and probably provide additional uses for terbium that we don't 
have today because there isn't enough supply.
    Mr. Manzullo. It is not just recapturing terbium. It is 
recapturing----
    Mr. Smith. Europium and yttrium as well.
    Mr. Manzullo. And then those can be recycled again for 
lighting?
    Mr. Smith. Absolutely.
    Mr. Manzullo. Is that correct?
    Mr. Smith. That is correct.
    Mr. Manzullo. Mr. Faleomavaega, did you have any other 
questions you want to ask?
    Mr. Faleomavaega. If I could? Thank you, Mr. Chairman.
    For our second round, I wanted to ask Ms. Parthemore. I 
sense that you have an extensive understanding about 
implications of foreign policy and our national security 
interests concerning this issue.
    What is your estimate of the dollar value that we place on 
rare earths as far as our military industry complex is 
concerned? I mean, with a $760 billion budget that we have in 
our defense, how much of that goes into rare earths in terms of 
building our aircraft, our electronic system, and all of that? 
Do you have any estimates on that?
    Ms. Parthemore. No, sir. And the challenge is that no one 
knows. The Department of Defense's biggest problem by my 
estimate is that it does not fully understand, despite years 
and instruction by Congress, to really study its supply chains 
and quantify how, when, where, and in what quantities it relies 
on different valuable earths. I don't think the Department is 
anywhere near having a good estimate of----
    Mr. Faleomavaega. Let me say this for the record. Are you 
saying that we do not know in the Defense Department how much 
we are spending for these rare earth materials that we need for 
our aircraft, missile defense system, and all of this?
    Ms. Parthemore. It is my estimate that that is the case, 
correct. Again, so there are contractors. There are private 
companies that supply the Department of Defense that may have a 
good estimate of what they need for their own supplies and 
assets that they are providing to DoD.
    But they don't always share that information with the 
Department of Defense, even upon request. I have seen more 
willingness over the past year or 2 than previously to share 
that information with DoD given the current crisis and concerns 
over shortages.
    But no, I don't think that there is a single good overall 
estimate. If there is, that is wonderful. But I don't know of 
it.
    Mr. Manzullo. With China now controlling 95 to 97 percent 
of the rare earths, as we have discussed this afternoon, what 
are the implications in terms of our national security?
    What level of risk are we putting on our national security 
because of the fact that China controls 95 percent? What is the 
reaction time? Do we need, do we really critically need, these 
elements as part of our national defense? I mean, not just 
building tanks and bullets and airplanes, but where does it 
really come in when it is really critical?
    I don't know if I am asking the right question here.
    Ms. Parthemore. No. It is a good question.
    My biggest concern is political leverage. So for China, in 
addition to other exporting countries that know that they have 
control over a market that is strategically important to other 
countries, they will use that for political leverage.
    It has happened before the case of--in cases with uranium 
and other mineral supplies historically from countries like 
Kazakhstan, Chile, other places. And, again, I think that it 
was predictable that China once it gained control over this 
system was going to use that for political leverage in examples 
like with the trawler captain issue with Japan last year, some 
of its other geopolitical challenges and tensions and fights 
with other countries. It is going to add this into the mix as 
one more thing in which it has control over this situation and 
can exert that leverage into negotiations.
    Mr. Faleomavaega. What is your estimate in terms of how 
many years would it take us to catch up with China concerning 
this industry? Mr. Smith, Mr. Strahs, we have what it takes, 
but I am just curious. How long will it take us to catch up 
with China in that regard?
    Ms. Parthemore. Sir, I am hoping not long given that 
Mountain Pass was a productive mine before. And, from what I 
have learned from industry counterparts, that goes a long way 
toward speeding up the process of getting production up and 
running domestically. So that is a good thing.
    Part of it, though, anything that we can do to reduce that 
control over the market, even if we are not displacing 75 
percent or 50 percent of Chinese production and supplies to the 
market of rare earths, anything to do to just change that 
percentage in the favor of them not having almost full control 
is going to start to diminish the political leverage that they 
see in this situation.
    So anything we can do in this country will help, but it is 
sort of the more, the better, the faster, the better off we are 
going to be.
    Mr. Faleomavaega. Is uranium considered a rare element?
    Mr. Smith. No, sir. No, it is not.
    Mr. Faleomavaega. But we need it for nuclear----
    Mr. Smith. Correct.
    Mr. Faleomavaega [continuing]. Nuclear bomb development or 
nuclear reactors that Japan has decided not to get into. The 
reason why I raised the issue is the fact that Australia I 
think has about 25 percent of the market in uranium. And 
Kazakhstan also has about another 25 percent control of the 
market.
    What is our percentage control of uranium? Does anybody 
know? Maybe I am asking the wrong question here.
    Mr. Smith. I don't know. I am in the rare earths business.
    Mr. Faleomavaega. All right. Let's stay with the rare 
earths.
    Mr. Smith. Okay.
    Mr. Faleomavaega. As, Mr. Smith, I think, you have alluded 
earlier that you are not having any problem with the 
regulations. So with these Federal agency bureaucracies that 
pound on you saying that you have got to fulfill your permits, 
it has been no problem?
    Mr. Smith. Well, I wouldn't ever say that it is not a 
problem or that it doesn't take a long time to get them, but we 
have all of our permits in place and some good advance timing 
and some collaborative efforts have made a difference.
    Mr. Faleomavaega. EPA is not giving you a hard time on 
this?
    Mr. Smith. No, sir.
    Mr. Faleomavaega. Oh, that is interesting.
    Thank you, Mr. Chairman. I thank the panel for their 
testimony, appreciate your coming.
    Mr. Smith. Thank you.
    Mr. Manzullo. Mr. Johnson?
    Mr. Johnson. Thank you, Mr. Chairman.
    Mr. Smith, one of the recommendations you offer is to 
support private sector efforts to recycle rare earths. How 
effective would such a process be?
    Mr. Smith. Right now under a voluntary program, it is not 
very effective. The numbers that we are hearing are that we 
have less than 5 percent of the used compact fluorescent light 
bulbs being recycled today, which means that 95 percent of them 
are being thrown away into landfills, which is also not a good 
practice.
    So it is our opinion that we can have a major impact on 
certain heavy rare earth elements, such as yttrium, europium, 
and terbium if we get the idea of recycling across to the 
American public in a much bigger way than what it is today.
    Mr. Johnson. Is it generally more cost-effective to recycle 
rare earth elements than to mine new ones?
    Mr. Smith. Historically the answer has been a very simple 
absolutely not, but with prices for these rare earth elements 
where they are today, recycling has become a very, very 
important consideration by almost everybody that uses these 
minerals.
    Mr. Johnson. Ms. Parthemore, in September of last year, 
China placed an embargo on rare earth exports to Japan after a 
diplomatic dispute. How likely is it in your opinion that China 
would use a similar foreign policy strategy with the U.S.?
    Ms. Parthemore. For the United States, it depends on the 
circumstances. In general, speaking in regards to China and, 
again, any exporting country that has full control over a 
market like this will use it again and again for political 
advantage when they see that the circumstances are there, I 
think 100 percent. They absolutely would, as we would as well. 
I think it is just the logical thing to do when you have 
possessed this type of economic control that allows you 
political and strategic leverage.
    Mr. Johnson. Besides Japan, has China used its rare earth 
monopoly as leverage with other nations to date or threatened 
to do so, as far as you know, other than Japan?
    Ms. Parthemore. Sir, not that I know of. From a trans-
perspective as well, it is--I think there are partial truths in 
all of those, but it is also trying to address its own 
environmental concerns and the potential for its environmental 
practices, which have been unregulated within China, to drive 
social instability, which is an extraordinarily major concern 
for the Chinese Government.
    So, again, I think they have a lot of domestic issues that 
are attaching to this. It is not just how they are using these 
within the foreign policy arena. It all connects together, 
though.
    Mr. Johnson. Probably an easily answered question here, but 
in your opinion, would a disruption in the supply chain of rare 
earths have a serious negative implication, hinder, or harm our 
national defense and foreign policy objectives?
    Ms. Parthemore. Yes, sir, I do.
    Mr. Johnson. Okay. Mr. Chairman, I think that is all the 
questions I have. Thank you very much.
    Mr. Manzullo. Mr. Duncan?
    Mr. Duncan. Thank you, Mr. Chairman. Thank the panelists 
for sitting through another round of questioning. And I want to 
thank Mr. Smith.
    I was talking about jobs earlier. I had not read your 
testimony. And being tied up when you gave it, I didn't realize 
a lot of the points I was making you had made as well. It is 
all about jobs. And I appreciate your perspective on this.
    In your testimony, you talk about China's former premier, 
Deng Xiaoping, who famously commented in 1992, ``Middle East 
has oil. China has rare earths,'' that China recognized this 
key advantage 20 years ago and, ever since, has focused 
intently on rare earths production as a job creation engine. 
Hello? Jobs for America.
    But you mentioned another critical trend that we are 
witnessing as China's efforts to exercise much tighter control 
over its internal production and that it has settled in the 
pace of the internal consumption of these rare earth minerals 
and rapidly resulting in rapid constriction of its exports. 
What are they using? If they are using more and more of the 
rare earths internally, what are they using those rare earth 
minerals for?
    Mr. Smith. There are two different areas that we look at in 
terms of what they are using these minerals for. One is they 
are making more and more end-use products: The MRI machines, 
the motors, the cars, the wind turbines. They are actually 
making those products and exporting them to the rest of the 
world.
    The other item, though, is that they are trying to increase 
their standard of living. And their 1.3 billion citizens would 
also like to have computers and cell phones and iPads and 
iPhones. So we are seeing a real doubling-up, so to speak, of 
China's demand because they are trying to produce more end-use 
products for the rest of the world as well as these end-use 
products for their own citizens.
    Mr. Duncan. So if the U.S. were able to mine its own rare 
earths and create products here that were in demand in China, 
there would be an export possibility of U.S.-made goods to 
China using U.S. rare earths?
    Mr. Smith. We don't see any reason why that can't be done 
with good technology.
    Mr. Duncan. Okay. Well, thank you.
    A lot of other questions, Mr. Chairman, were asked by Mr. 
Faleomavaega. So I will yield back the balance of my time. 
Thank you.
    Mr. Manzullo. I have a couple more questions. In what you 
are doing, Mr. Smith, the mining, extraction, alloying, 
oxidizing, and then going into making the metal itself, you 
are, what, four-fifths of the way through? Is that correct?
    Mr. Smith. Yes. We look at the supply chain from mine to 
magnets and suggest that there are five steps in that process.
    Mr. Manzullo. Did I leave out a step?
    Mr. Smith. Well, the fifth step is the actual production of 
magnets.
    Mr. Manzullo. You mean the actual magnets?
    Mr. Smith. Yes. We certainly have the first four. And we 
have all of those capabilities in Molycorp today.
    Mr. Manzullo. So, then, your business plan is to 
manufacture the neodymium?
    Mr. Smith. The neodymium, the neodymium metal, the 
neodymium iron boron alloy. And ultimately we plan to be in a 
joint venture magnet production effort as well.
    Mr. Manzullo. Mr. Strahs, you are presently manufacturing 
the samarium cobalt and also lower-end ferrite magnets. Is that 
correct?
    Mr. Strahs. Yes, we do.
    Mr. Manzullo. Your business plan, for lack of a better 
word, is to manufacture the neodymium. Is that correct?
    Mr. Strahs. We would like to be able to manufacture, yes, 
neodymium iron boron magnets.
    Mr. Manzullo. Mr. Galyen says the more manufacturers of 
this the better because there are a lot of uses for it out 
there.
    I noticed you had mentioned this, Mr. Smith, that the 
Chinese are developing more and more uses for the permanent 
magnets in the development of more and more consumer products.
    Mr. Smith. Correct.
    Mr. Manzullo. And that is where the jobs are.
    Mr. Smith. That is correct.
    Mr. Manzullo. Go ahead.
    Mr. Smith. From what we have seen, the further you get into 
the supply chain, the higher level of employment.
    Mr. Manzullo. Do you believe that if these and the 
permanent magnets are more available in the United States they 
could help keep jobs here or actually create jobs in areas to 
manufacture new products that have to use these elements?
    Mr. Smith. There is no question in my mind. The answer is 
yes, it will.
    Mr. Manzullo. Okay. Well, we are supposed to have votes at 
2:45. Let me introduce to you Ken Reiman. Ken is on loan to us 
from the State Department. He is a fellow. We have been blessed 
to have him. He is working full-time on this rare earth issue.
    What we have been doing for about the past 4 or 5 months is 
meeting with every conceivable player that we know is involved 
in rare earths, including people in the government. We have met 
with people from State. We will be meeting with people from 
DoD. We have obviously met with people from the Department of 
Energy.
    We have been trying to piece together this whole picture as 
to exactly what it means for the United States not to be able 
to manufacture these high-end magnets.
    It is amazing to me. I know DoD is looking at it, but, for 
goodness gracious sake, the guidance system of missiles depends 
upon us importing these neodymium iron boron magnets from 
China.
    I would think that they are probably used in the drones. 
Would that be correct?
    Mr. Smith. That would be correct.
    Mr. Manzullo. So we are making more uses of these permanent 
magnets in our own defense systems. I just don't see DoD really 
stepping up.
    The last question is, should rare earths be classified 
here, as it is abroad in Europe and Japan, as a strategic 
resource? The Japanese refer to rare earths as ``the seeds of 
high technology.'' Should we be stockpiling rare earths, as our 
partners around the world are doing, in preparation for future 
disruptions, especially in the area of military defense? 
Anybody?
    Ms. Parthemore. Yes, sir. I definitely think so. The 
National Academies put out a report a few years ago 
recommending hundreds of pages of material on just how to 
update the stockpiling policy.
    So DoD going further and just implementing these ideas that 
have been floating around for years I think would benefit our 
understanding of our defense supply chains and make sure that 
rare earths and any other minerals that can be classified as 
being this important and potentially leading to crises such as 
this, we can be vigilant and watch for it and prevent it from 
happening again.
    Mr. Manzullo. You testified earlier that you don't believe 
that the Department of Defense is quite on top of this. I am 
not trying to be critical of anybody here because we are trying 
to piece together all the resources and go forward.
    Is that the statement you made earlier? I don't want to 
mischaracterize your statement.
    Ms. Parthemore. No. It is correct. It is less the fault of 
anyone in DoD necessarily but just the fact that defense assets 
are now relying on global supply chains more than they ever 
were before. And defense assets are becoming more dual use in 
terms of civilian and military technologies.
    So telecommunications equipment, for example, obviously has 
a lot of civilian use as well as military components to what it 
is doing. So the supply chains for all of these are not just a 
distinct defense supply chain, as it once was.
    It is privatized. It is globalized. And a lot of these 
things, such as using iPods for translations devices abroad, 
things like that, mean that the supply chains are significantly 
more complex than they used to be. It is just going to take a 
lot of effort to fully understand how one mineral ties into----
    Mr. Manzullo. It doesn't take much examination of the 
supply chain for neodymium iron boron to realize it is all 
coming from China. I would have thought somewhere along the 
line that somebody at the Pentagon would have said, ``There is 
a problem, Houston.''
    Ms. Parthemore. Yes. I think that there is one manufacturer 
in Pennsylvania of those magnets I believe is the case. One may 
not be enough, especially if anything were to happen to that 
one. But it is definitely problematic.
    Mr. Manzullo. Even in the neodymium? I would think that any 
of those----
    Mr. Strahs. No, there are no producers of neodymium iron 
boron magnets today in the U.S. There are two producers of 
samarium cobalt magnets----
    Mr. Manzullo. Right.
    Mr. Strahs [continuing]. Ourselves and the company in----
    Mr. Manzullo. But nobody is producing neodymium here?
    Mr. Strahs. Correct.
    Mr. Manzullo. Well, I want to thank you all for coming. It 
has been a very interesting panel. We are still looking for 
more information. The reason I introduced Ken is that he is 
going to continue to work on this until we sharpen our focus 
even more and make some priorities. We are very much 
interested. One initiative we think we can help implement right 
away is the recycling of rare earths.
    It is a win-win for everybody. I don't see who would be 
opposed to it. So, we are going to contact GSA and even perhaps 
House Administration here in the House of Representatives to 
see if we can get involved in helping to recapture the rare 
earths from the tombs.
    Thank you for coming. This subcommittee is adjourned.
    [Whereupon, at 2:41 p.m., the subcommittee was adjourned.]
                                     

                                     













                            A P P E N D I X

                              ----------                              


              Material Submitted for the Hearing Record

               [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Material submitted for the record by the Honorable Donald A. Manzullo, 
a Representative in Congress from the State of Illinois, and chairman, 
                  Subcommittee on Asia and the Pacific

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

      Material submitted for the record by the Honorable Eni F.H. 
     Faleomavaega, a Representative in Congress from American Samoa

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 
