The NCPA Conference On Rare Earths And National Security

by Gareth Hatch on November 5, 2011 · 9 comments

in Event Reviews, Gallium, Indium, Rare Earths

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On Wednesday of this week, the National Center for Policy Analysis (NCPA) hosted its Rare Earths, Critical Metals, Energy & National Security Conference, close to Capitol Hill in Washington, DC. Very much aimed at the DC crowd, the event was billed as an attempt to “raise awareness of how current public policies lead to dependence on China for the U.S. supply of rare earths, and thus undermine our national security.” The announcement from the NCPA on the event went on to say that “[a]s key policy makers, executive branch analysts and think tanks experts, conference participants will play a key role in shaping U.S. resource policies.

I was a participant in the first panel of the day titled “The Rare Earths: Supply, Shortfall, Strategy“, moderated by NCPA’s Sterling Burnett. Joining me on the panel were Jeff Green, President of J A Green & Company, a DC-based government relations firm, and Thomas Tanon of T2 & Associates, an energy and technology industry consulting services firm.  We each gave an overview of our perspectives on the rare earths, with my own presentation focused primarily on defining the rare earths, and reviewing the sources of current and potential future supply. There were some good questions from the audience.

The second panel, titled “Specialty Metals: Assessing Strategic Need” was moderated by Dan McGroarty, President of the American Resources Policy Network. Joining him were Kent Hughes Butts, Professor of Political Military Strategy at the US Army War College, Dan Cordier, the rare-earths specialist at the US Geological Survey (USGS), and Michael Steuer from the US Defense Logistics Agency. This panel covered the topics of stockpiling for national defense needs, and assessments of those needs by various government agencies.

There were some lively questions during this panel session. One note of interest that came out of it, was that the recently passed law that governs the National Defense Stockpile (which does not as yet include rare earths), requires that the President of the United States, and only the President, be authorized to release materials from the Stockpile. This effectively means that once materials go into the Stockpile, it is very difficult to get them out again. Doesn’t exactly seem like a practical approach to me…

I raised the point with this panel, of the relative ease of “solving” the so-called rare-earths problem, compared to other metals, by virtue of the fact that most of the potential new sources of supply of rare earths are primary sources – i.e. they will not necessarily rely on the economics of other metals in order to be produced. Even if they are contained in polymetallic deposits, generally (though not always), the economics of the rare earths will dominate. This is not the case with many of the other rare metals that are critical to hi-tech applications; most if not all of these are actually by-products of base-metals production, such as indium from tin and zinc production, gallium from aluminum production, and so on.

There is a danger that people (especially of the type with short attention spans, such as politicians in Washington, DC) will come to believe that solving the rare-earths supply problem is the same as solving the rare-metals supply problem, when this is clearly not the case. It will be much more difficult to resolve issues for the co-produced rare metals, given the dominance of base-metal economics in such cases. I don’t get the sense that this is really being addressed by the various agencies in Washington.

We then had a presentation from David Diamond, a policy analyst with the US Department of Energy (DOE), and a co-author of the Critical Materials Strategy Report that was published at the end of last year. Dr. Diamond presented a summary of the report’s findings, which we’ve discussed elsewhere on the TMR Web site before, and part of which was incorporated into the Critical Rare Earths Report that TMR published in the summer. He mentioned that the DOE was in the final stages of updating that report, and that the next version would be published in the near future. I look forward to seeing the results of that work.

The conference then adjourned for lunch, where we were later joined by three members of Congress (click on the photos above), who each spoke in turn on a variety of issues concerning rare earths. First up was Senator Lisa Murkowski (R-AK), who focused on the importance of mining to the US economy, and the problem of dependence on foreign sources of minerals. She also took the opportunity to criticize the Environmental Protection Agency (EPA) on a number of issues. Senator Murkowski discussed her Critical Minerals Policy Act, which she introduced earlier this year along 9 Democratic and 10 Republican co-sponsors. She said that

“The legislation requires that USGS generate a list of minerals critical to the U.S. economy, outlines a comprehensive set of policies that will bolster the production of those critical minerals, expands manufacturing, and promotes recycling and alternatives – all while maintaining strong environmental standards.”

Once she concluded her remarks, Senator Murkowski took quite a number of questions on the topics she had covered, before leaving.

Next up was Congressman Doug Lamborn (R-CO), who discussed the legislation that he introduced earlier this year, titled the National Strategic and Critical Minerals Policy Act of 2011, touting it as a “common-sense solution that will provide for our common defense”. Among other things, this bill would require that the Secretary of the Interior evaluate factors impacting domestic mineral development; it also directs the Department of the Interior to

“assemble a report within six months and require[s] them to include a specific inventory of the rare earth element potential on federal lands, and identify impediments or restrictions on the exploration or development of rare earth elements, and provide recommendations to lift the impediments or restrictions while maintaining environmental safeguards.”

Rep. Lamborn was then followed by Congressman Mike Coffman (R-CO), who is well-known for having introduced the Rare Earths Supply-Chain Technology and Resources Transformation Act of 2011 earlier this year – also known as the RESTART Act. Rep. Coffman discussed his perspective that China’s stated industrial policy was mercantilist in nature, with the goal of expanding China’s industrial base at the expense of other countries, including the USA. Rep. Coffman said that he saw rare earths as being a part of the overall issue, and that his main concern was that China was an unreliable trading partner, which was prepared to leverage rare earths for political goals.

I asked Rep. Coffman if he would agree with me that a root cause of our current dependence on China was a major disconnect in the supply chain between end-user companies who pursued a “lowest cost at any cost” profit motive, at the expense of the upstream part of the supply chain and all the while ignoring any potential national security concerns. Rep. Coffman did not acknowledge this point; instead he chose to blame the situation solely on China’s non-free market policies. I suppose in retrospective, that it was perhaps a little much to expect a Republican Congressman to criticize the virtues of American capitalism, at an event hosted by a conservative think tank…

Rep. Coffman was asked if non-US companies could fill the gap in the supply chain. He responded by saying that his key issue was the reliability of trading partners; if companies in friendly countries brought rare-earth production online, this, he said, would “lower the temperature on the issue in Congress” and would “lessen the need for invasive policies from Congress”. This shouldn’t be surprising; even the specialty-metals clauses of the defense-procurement regulations, have exemptions from some strict sourcing requirements, for companies based in a number of countries friendly to the USA.

Both Congressmen commented further on the issues of permitting in the USA, and how overly restrictive permitting practices, and environmental regulations, were reducing the ability of the country to get projects up and running.

The final session of the day was another panel chaired by Dr. Burnett, this time titled “The Value Chain: Industry’s View on Critical Metals Supply“. On the panel were Peter Dent, with Electron Energy Corporation, a US rare-earth magnet manufacturer, Michael Berry of Discovery Investments and publisher of Morning Notes, and Anthony Young, an analyst at Dahlman Rose. Mr. Dent and Dr. Berry gave presentations on their respective viewpoints on this issue at hand. Mr. Dent noted that companies are beginning to switch production to China in order to access materials. Mr. Berry made the interesting comment that the USA should not be relying on Canada to get them through the current issues; China was more than a little interested in investing in Canadian companies, and so the US should be prepared to put its own infrastructure in place. He said that China’s policies on rare earths were just the tip of the iceberg of a much larger strategy.

Mr. Young made a comment on the volatility of share prices, and how news such as the announcement that the DOE would not be giving Molycorp a loan guarantee, caused prices to swing dramatically. I put it to the panel, and Mr. Young in particular, that the bigger issue for this market was the sometimes outlandish valuations made by analysts of the stocks in this sector, with those valuations seeming to have little connection with reality. Mr. Young responded by saying that this was a relatively new sector, with it being difficult to predict production costs and potential product prices, and that his own valuations reflected this. He commented that he had valued Molycorp, for example, at something like $70 / share, before revising it down to $40 / share. Note that this is in contrast to the actual valuation that Dahlman Rose set in May 2011, of $125 / share for Molycorp. Needless to say, I was not exactly convinced by the response. If analysts have such unreliable data, as Mr. Young suggested, then perhaps they shouldn’t be publishing valuations at all…

The panel session closed, and the meeting was brought to a conclusion by NCPA’s Richard Walker. Overall, it was useful to meet new Washington, DC types, and to re-connect with other contacts in the strategic-materials sector and US government at the event.

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1 Max12345 November 5, 2011 at 1:30 AM

I think I understand the various aspects and sides of the debate and discussions that are described above. But what should be the desirable outcome or conclusion, and the revised or new policies that then would help to achieve it? Is the objective to guarantee a secure supply for the U.S.? Or a secure and reliable supply for the whole world? Or is it better incentives for explorers, developers and producers? For end users? For everyone? Or is to develop an overall better and more responsive market for rare earths? Though different stakeholders naturally come at this question from different perspectives and interests, it’s not clear (at least not to me) if there is an ideal outcome which would (or could) be supported by optimal policies. Thanks for any clarifications.

2 MaxkilMachina November 5, 2011 at 1:38 AM

Thaks Gareth on this report. Did you get some impression on whether any of the submitted bills regarding rare-earth have a chance of passing?

3 Richard J. Lee November 5, 2011 at 6:25 AM

Thanks Gareth for the report. I was a stranger to REE a few months back and now I should be the analyst in the RE sector for Wall Street, just kidding.
Mr. Young is right that it is not easy to make a good evaluation on Molycorp but it is hard to swallow for the investors with his revision down to US$40 from US$125 his firm predicted just six month ago.

Both Mr. Dent and Mr. Berry are right with their comments. In relation to the comments from Rep Coffman, I can see Vietnam among a few others as an attractive location for companies setting up shops to supply REE.

My only plea to them is making sensitive decision about the location of their shop and not being so ignorant like SDK Japan.

Their plant is right in the middle of the Red River Rice Basin and their waste will cause damage to millions of people in the Northern part of Vietnam in the near future.

4 fran November 5, 2011 at 9:44 AM

how many and personal/company names please of the “hard core REE using industries” in attendance. these are rarely heard from, extoling their need and financial/future growth limitations caused by REE limitations. if the sbject were lack/cost of steel or oil, we’d hear multiple industry cries and allegations on at least three CSPAN channels via six congressional hearings. REEs don’t yet get congressional focus given steroid use in baseball. one could question th issue’s legitimacy.

to quote the fast foods commercial– WHERE’S THE BEEF?

5 Gareth Hatch November 5, 2011 at 8:43 PM

@Max12345: I presume the objective is to secure the interests of the USA, first and foremost, by helping to cut through some of the red tape that presently exists when it comes to doing exploration and development in the USA.

@MaxkilMachina: given the particularly bi-partisan sponsorship of Senator Murkowski’s bill, I’d say that it might have a shot; not sure about the others.

@Richard J. Lee: I agree that facilities should not pollute the wider ecosystems in which they are located.

@fran: good to hear from you :-) Attendees did not have name badges so it’s hard to tell who was who. Other than Mr. Dent from Electron Energy Corporation (the magnet company) who was on a panel, I can’t say that I recognized any other end-user types in the audience, though that’s not to say that there weren’t any (I did meet a chap from a large aerospace company the night before, but I’m not sure if he was in the audience the next day or not).

6 Alexis November 7, 2011 at 2:41 AM

I do wish this conference had allowed for a global perspective, because like it or not the US needs to coordinate with other countries: they can’t hope for Molycorp, Ucore, RER, etc. to supply them (even if congress can help cut through the red tape). With over 200 projects currently underway, this is clearly a global issue and the US can’t close itself from multinational cooperation- especially with the Chinese trying to unify the domestic market under CREA. Our latest RE monthly report actually dealt with this issue of unification/cooperation quite nicely

7 Milan Arvensis November 7, 2011 at 3:50 AM

Dear Gareth Hatch,
have a look on paper: FINANCIAL TIME; November 4, 2011; article from Barrett-Whittaker: Rare earth miners in US would benefit from proposed stockpile.
Quoted from article. “The creation of a US rare earth strategic reserve is more likely to get the go-ahead after China’s largest exporter halted production, two congressional sources told dealReporter”.
from article it is “…wake up call…”!!!
Yours Sincerely,

8 Gareth Hatch November 7, 2011 at 6:05 PM

@Alexis: we did get the concession from Rep. Coffman that “they” are open to working with other countries, if they are “reliable trading partners”. I know what you mean though – there is a “let’s do this on our own” mentality that doesn’t quite jive here.

@Milan Arvensis: I have to disagree that the US is any closer to a rare-earths stockpile as a result of activities in China or elsewhere. Unless specific legislation passes, that mandates the creation of such a stockpile, I don’t see the Defense Logistics Agency adding rare earths to the list.

9 kettl Alfred November 12, 2011 at 5:27 AM

Gareth: thank you for the eyeopening report. Yes, I think many of the so called “HRE analysts-Investors” havent got it yet that there is a huge difference between valuable HREE and LREE,M(edium)REE. Besides, also the difference between just miners and real HRE oxide (99,99% purity) producers. I did reade somewhere, that REE’s are just rocks, unless the producers do have the technology to prosses those. However, having the theoretical knowledge, doesnt implicate that they will be able to produce 99,99% purity on the short run. Now, I am coming to my question: Stans Energy “V.REE”: I seldom hear analysts talking about this company seriously. They announced recently to be one of the first Heavy Rare Earth OXIDE producers worldwide, outside of China and they will start producing on a small scale (600 t/y) in 2012 and 2500 a year later.
What do you think about this company. It seems they are a quite serious company and not pretending to do something they cant deliver?
Thanks in advance and apologize for my english, as I am not a native english speaker.

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