Earlier this week the United Sates Government Accountability Office [the GAO] published a summary of its findings on “Rare Earth Materials in the Defense Supply Chain“. As you may recall, this was in response to the mandate given to the GAO late last year as part of the National Defense Authorization Act for FY2010. This legislation said that:
“not later than April 1, 2010, the Comptroller General shall submit to the Committees on Armed Services of the Senate and House of Representatives a report on rare earth materials in the supply chain of the Department of Defense”.
The report was to address, at a minimum, the following points:
1. An analysis of the current and projected domestic and worldwide availability of rare earths for use in defense systems, including an analysis of projected availability of these materials in the export market
2. An analysis of actions or events outside the control of the Government of the United States that could restrict the access of the Department of Defense to rare earth materials, such as past procurements and attempted procurements of rare earth mines and mineral rights.
3. A determination as to which defense systems are currently dependent on, or projected to become dependent on, rare earth materials, particularly neodymium iron boron magnets, whose supply could be restricted (A) by actions or events identified pursuant to paragraph (2); or (B) by other actions or events outside the control of the Government of the United States.
4. The risk to national security, if any, of the dependencies (current or projected) identified pursuant to paragraph (3).
5. Any steps that the Department of Defense has taken or is planning to take to address any such risk to national security.
6. Such recommendations for further action to address the matters covered by the report as the Comptroller General considers appropriate.
So, did the GAO accomplish its task?
The first thing that the GAO did in its summary report was to restate the objectives as a set of questions:
- What does existing information show about current sources and projected availability of rare earth materials?
- Which defense systems have been identified as dependent on rare earth materials?
- What national security risks has DOD identified due to rare earth material dependencies, and what actions has it taken?
The GAO apparently interviewed quite a number of individuals from various parts of the Department of Defense, industry and academia. They specifically mention having been in touch with the Rare Earth Industry and Technology Association, and selected rare earth suppliers from each stage of the supply chain. They also looked at two specific defense systems as examples of systems that contain or use rare earths.
The report does a pretty good job of summarizing the situation on current and projected availability. The line item in this section picked up by most of the media pieces on the report, is the estimate [which comes from within the industry itself, apparently] that rebuilding a US rare earth supply chain may take up to 15 years. As one reads deeper into the report, this figure is perhaps a tad misleading. It is based on the time that it has taken some industry players to obtain mining permits and to deal with certain regulations. Clearly there are differences in the level of “mining friendliness” in certain jurisdictions, particularly in North America. Quebec, for example, was just recently ranked once again as the most attractive jurisdiction in the world for mineral exploration and development by the Fraser Institute, out of 72 different jurisdictions. California was ranked 63rd. Without downplaying the major challenge that such permitting issues poses, the reality is that in the right jurisdiction, the rare earths supply chain could probably be back up and running within 3-6 years, if everything else fell into place on the technical and financial fronts, in a coordinated effort.
The report also does a good job in summarizing “defense system dependency”, noting that many components in defense systems that contain rare earths, are being sourced from China via sub-tier contractors. It also notes that the dominance of the rare earths market by China, may affect the availability of these materials in the US in future, with some individuals believing that China’s plans for greater vertical integration will increase market dominance.
Here’s the thing: as a number of colleagues of mine in our industry rightfully point out, the vast majority of demand for rare earths in China, is for use in the production of finished components and goods in China, using Chinese workers, for export out of China into Japan, Europe and North America. I do not share the view expressed by some, that there is a concerted effort by the Chinese to “squeeze” the West, through the restriction of rare earth raw material exports. Since finished goods are of more direct value and importance to the West than the raw materials themselves, squeezing the export of those items would surely be the “better” approach if that was the Chinese intent. That said, I certainly recognize the risks involved in being dependent on a single geographic area for the source of supply of anything, whether its rare earth-based components or anything else.
This goes double for components and end products that the Department of Defense needs for its supply chain. That’s why I am a little leery of the fact that despite having identified a number of vital rare earth components in the defense supply chain as coming from China, the GAO apparently decided to defer further investigation and recommendations in this area until the Department of Defense completes its own report on the subject, in September 2010. As I’ve written about elsewhere, in recent years, despite growing awareness of the dependency on China for rare earths and associated components, the Department of Defense has been reluctant to classify rare earths as being critical to national security, which would subsequently obligate the Department to take certain steps to safeguard supplies.
Things are perhaps changing in this regard though – the GAO report notes that a National Defense Stockpile configuration report in 2009 indicated that obtaining supplies of certain rare earths such as lanthanum, cerium, europium, and gadolinium had already caused delays in some weapon systems production, which led to recommendations for further study to determine the severity of the delays.
In conclusion, I would say that there was very little in the report that was not already “out there” in the public domain. However, having this information collated and presented by the GAO, to lawmakers, may lend the subject the heft and credibility required to see concrete steps taken to help get a North American rare earth supply chain up and running again, should those step require assistance from the legislative branch of government.
The next milestone then, will be the release of the DoD report on rare earths in September 2010. In the meantime,we’ll be sure to keep an eye out for any further developments along the way.
[First published at RareMetalBlog.]