EDITOR: | May 10th, 2017 | 22 Comments

The REAL impact of the Metals Act on materials critical to national defense

| May 10, 2017 | 22 Comments
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Earlier this year Representative Duncan Hunter (CA) introduced the “Materials Essential To American Leadership and Security Act of 2017 (METALS Act)”.

The bill seeks to counter the precarious situation the United States finds itself in—completely reliant on foreign sources of strategic and critical materials, including rare earth elements. With the People’s Republic of China accounting for more than 90 percent of the world’s production of rare earth elements, and given the criticality of these materials in numerous defense weapons systems and applications essential for ensuring our national security, the METALS Act would provide a mechanism to re-establish a domestic industrial base for these materials and create access to safe and secure supply chains.

Over the past two decades we have witnessed China assert its dominance in the marketplace for strategic and critical materials, manipulating prices and driving foreign competition from the market. This manipulation had a devastating effect on U.S. companies, with all major domestic producers of rare earth elements ceasing operations by 2015. Destructive mining practices in China, often ignored or condoned by the government, have allowed the country to continue to consolidate the industry in China and maintain a monopoly on the market.

The METALS Act would create a Strategic Materials Investment Fund within the Department of Defense that would make funding available to domestic companies seeking to commercialize separation and processing technologies and provide an alternative to foreign sources or material. The Fund would provide 5-year, interest-free loans to those companies who succeed in developing new and innovative manufacturing techniques for strategic and critical materials. This fund would leverage just 1 percent of the overhead costs of the major defense weapons systems most reliant on strategic and critical materials. In the spirit of a revolving fund, any loan issued to a company would have to be paid back in full at the end of the loan period, and the funds would be reinvested to address additional strategic and critical materials challenges. In an effort to mitigate any increased costs faced by prime contractors for procuring domestically-produced strategic and critical materials, the fund sets aside a portion of its funding for reimbursement.

The Strategic Materials Investment Fund is designed to aid domestic companies in securing low-cost access to the funding needed to commercialize new technologies. The Fund is not meant to permanently subsidize an entire industry or bail out unprofitable firms. In fact, as written, the Fund would sunset at the end of the 2023 fiscal year with any remaining funds returned to the Treasury.

The objective of this bill is to support and strengthen our domestic industrial base by providing necessary capital to companies attempting to bridge the “Valley of Death” without reducing the quantities or capabilities of major defense acquisition programs. Funding for the Strategic Materials Investment Fund is specifically derived from the Department of Defense’s internal programmatic administration funds, not out of procurement quantities or research activities. This bill is a means to encourage American innovation and independence from non-allied foreign powers and provide a safe and secure supply chain for the Department of Defense.

The bill also includes provisions to restrict the government purchase of foreign rocket fuel and the foreign acquisition of domestic rare earth mines. Both of these provisions are necessary to ensure that American strategic and critical materials remain available for use by customers in the United States, especially in the military.

The METALS Act is an important and necessary step to ensuring that the United States maintains safe and secure supply chains for materials critical to national defense. It is a reasonable solution to an enduring problem and offers the temporary assistance necessary to re-establish the domestic strategic and critical materials industrial base.

Note from the Publisher: The above piece was co-written by Jeffery Green and Ryan Caldwell of J.A. Green & Co. Ryan will be a speaker at InvestorIntel’s 6th Annual Cleantech & Technology Metals Summit on May 15-16th in Toronto, Canada.


Editor:

Jeffery A. Green formed J.A. Green & Company to assist clients in meeting their government relations, business development and strategic planning goals.  With over 20 years ... <Read more about Jeffery Green>


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Comments

  • The REAL impact of the Metals Act on materials critical to national defense – jagreenandco.com

    […] The REAL impact of the Metals Act on materials critical to national defense […]

    May 10, 2017 - 12:13 PM

  • reejoey

    It is fine for the authors to write such a relevant and timely article on this most serious threat to America’s national security and literally every advanced defense system from the F-35 to cruise missiles. But it is just more of the same old, same old drone of “preaching to the choir”. Ditto for presenting anything such as this piece to the InvestorIntel’s 6th Annual Cleantech & Technology Metals Summit on May 15-16th in Toronto, Canada. Nothing will happen, no action will be taken and this legislation will just die on the vein just as have previous attempts to address the nation’s serious rare earth’s crisis unless Rep. Hunter and many other knowledgable people, such as these authors, also get the “word” out to the nation via the popular print and broadcast media. People need to know of this crisis and that the US has the resources necessary to rectify these serious threats in such high grade, critical rare earth deposits as Bear Lodge and Bokan and even in innovative and cleantech MRT refining of rare earths.

    May 10, 2017 - 2:15 PM

  • Jack Lifton

    The METALS “bill” has not been enacted, and I suspect it will die in committee. It is just a Band-Aid on the bleeding wound of America’s vanished self-sufficiency in critical materials. So long as we have a Congress run by geriatric oligarchs and self aggrandizement junkies we will hear much more about transgender “issues” than about national security. The United States needs an industrial policy; a rebuilding of our natural resource supply to address the maintenance of our security and industrial bases. Until then the Congress will continue to depend on the “market” and Wall Street will continue to focus on immediate gratification of greed. I am amazed at how rapidly the millennials have sequestered America’s wealth for trinkets and trophys and thus have begun our decline. “Hookers and Blow” it is, all across the board. The “me” generation will get what it deserves.

    May 11, 2017 - 9:13 AM

    • Jeff Green

      Jack, Things are changing rapidly in Washington, DC when it comes to strategic materials. Three clear actions have already been taken to address industrial base issues, which is not an endorsement or condemnation of the new Administration, simply a statement of fact. First, a Buy American/Hire American order was issued to ensure laws on the books are followed, not avoided. This has a direct impact on strategic materials like titanium, specialty steels and SmCo magnets. Second and third, the Department of Commerce was instructed to initiate a rarely used Sec. 232 case to address both steel and aluminum trade issues and the impact on national security – https://www.commerce.gov/news/fact-sheets/2017/04/fact-sheet-section-232-investigations-effect-imports-national-security These are small first steps representing a major shift in an approach to industrial policy and many more are in the works.

      Industry has a role too, they must step forward with new technology to leapfrog foreign dominance in markets like rare earths. I believe you would concede that we cannot beat nations in manufacturing competitiveness without superior technology and innovation; we simply cannot compete with foreign labor standards, safety rules, environmental regulations, or lack thereof, and other market manipulating tools. Those companies with real technology and a business plan designed to achieve positive cash flow should step forward to support the Metals Act’s objective, which is access to capital, during a time when that is extraordinarily difficult. Those that call the bill a subsidy miss the point, it’s about the assumption of risk in getting advanced manufacturing off the ground, if the capital markets won’t do it, then the government must if we are to achieve global competitiveness. The status quo is a path to failure and Rep. Hunter is taking a small step in leading the call for change in Congress.

      You are correct that the bill, as a whole, will not be enacted. It crosses many jurisdictional lines that make working it through numerous committees in Congress untenable. That said, the individual sections can be extracted and attached to various pieces of legislation that will become law. Keep a close eye out for that, as elements of this bill are, in my opinion, likely to move this year.

      May 11, 2017 - 10:03 AM

  • Robert Richardson

    As usual, nobody in the US is interested in the fact that their only ally who has fought beside them in every conflict for the past century, is currently reliably exporting rare earths from the largest and most modern rare earth processing plant in the world, from the world’s richest rare earth mine which just happens to be safely located in Australia!
    It’s called Lynas Corporation.
    So what’s the problem?

    May 11, 2017 - 10:07 AM

    • Jeff Green

      Robert, that’s simply not true. The U.S. Government is keenly aware of Lynas and views them as a viable source of supply, though many would prefer to see a U.S. source online too. What is concerning is the lack of a complete supply-chain. Who in the United States can take that Lynas oxide and convert to metal? Who will turn the metal into alloy? While we have two sources of SmCo, who will make NdFeB magnets in the U.S.?

      May 11, 2017 - 10:11 AM

      • JJBeswick

        So Jeff you appear to be agreeing with Robert on RE oxide production but fretting that Lynas can’t turn those into metals? Japan can, and they can turn the metals into magnets too. It’s a big world Jeff, and there’s a complete supply chain for magnets that relies on neither China nor the US. Be thankful that both links are close friends of the US. Of course in the Ce La supply chain (especially cracking and catalytic conversion) the US is preeminent.

        May 11, 2017 - 10:46 AM

        • Jeff Green

          I agree that Lynas is a start, but don’t believe that’s sufficient to meet our national security needs in the United States. Without a legally enforceable mechanism to demand U.S. needs are met in a time of crisis, it’s great to have allies, but not the same as independence. (i.e. the Defense Priorities and Allocation System). The Japanese were pinched by the Chinese in 2010, the French disagreed with our foreign policy over Iraq, and the Swiss refused to supply critical missile technology in the early 2000s, so global trade is terrific in the commercial market, but not a sufficient national security strategy. Regarding that “complete supply chain” for magnets, I challenge you to show a path (to borrow a tired phrase) from “mine to magnets” that does not currently rely, at least in part, on China. Who is the metal maker in Japan and are they exclusively sourcing Lynas? I think not. There are technologies here in the United States that can contribute today, what’s encouraging is the Congress and new Administration are taking small steps to unleash them.

          May 11, 2017 - 10:59 AM

  • Chris

    Jeff, I would have thought the safest strategy for US was to do a little forward planning. China seems to plan 10 years in advance, so why would the US not take a similar approach to critical materials requirements for Defense and Allocation systems? Lynas is now the largest ROW marketer of NdPr outside of China. What is wrong with US doing a Lynas/Japanese/European deal to provide a stockpile of future requirements, thereby de risking the supply chain. At least this would allow time for the Washington intellectuals to develop a long term solution that may well be a mix of Lynas and at some point Nth American supply. The timelines to develop a reliable raw material processing supply line are significant. A reliable supply line is already available. Just requires a little lateral thinking and planning. I am sure the critical materials problem issue could be overcome relatively quickly with a telephone call to Lynas HQ in Perth.
    https://www.lynascorp.com/Pages/Contact-us.aspx

    May 11, 2017 - 4:43 PM

    • Jeff Green

      Chris, one of the challenges in Washington, DC is the reality of political thinking that is year to year or election to election, as well as a corporate mentality that thinks quarter to quarter. “I have no rare earth problem today, so there is no rare earth problem” or so the flawed logic goes.

      The problem with the NdPr solution from our friends at Lyans, is the U.S. then possesses a stockpile of oxide with little to no domestic ability to take that to a finished magnet for a national security application. While the technical capability might be found, the ability to do it in a timely and cost effective manner doesn’t exist in a commercial setting. It can take time and much expense to qualify materials like NdFeB magnets for use in weapon systems, both luxuries that the U.S. wouldn’t have a time of crisis.

      May 11, 2017 - 9:17 PM

  • Robert Richardson

    And Jeff, further to the comments above (not all from Australia by the way!) in an increasingly inter-dependent world Japan is a most important US ally too!
    And as well as having the world’s best technology to further process Lynas’s rare earths to the magnets and all other required products, Japan has always been the major financial backer of Lynas.

    May 11, 2017 - 7:37 PM

    • Jeff Green

      Robert, you’ve touched on the essence of the debate. Is it a sufficient national security strategy to rely on allies to make critical defense components that may be needed in a crisis? In the case of NdFeB, you’ll find a significant quantity in expendable munitions. Should the U.S. rely totally on any foreign nation for the ability to produce any key component? I’ve touched on this topic here – http://www.defensenews.com/articles/buy-american-helps-secure-the-us-supply-chain-commentary Apologies for the cross post.

      May 11, 2017 - 9:20 PM

  • Steve Mackowski

    I am a little concerned that the fund is restricted to new technologies. Surely tried and true should be given every opportunity.

    May 11, 2017 - 8:54 PM

    • Jeff Green

      Steve, I think the decision to restrict to new technologies was very intentional. The bill has been described as a “Valley of Death” financing mechanism, meaning a vehicle to get promising technologies from pilot scale to commercialization. Access to capital has been an extreme challenge for some, so this bill would have the government assume some of that risk for the most promising business cases with the greatest chance of commercial success. No one wants to see a subsidy become permanent, as it defeats the purpose of investment. As far as “tried and true,” I think that’s a case where the free market has already shown that China has won with those. For example, no solvent extraction process in the Western world could challenge the production costs of China, so why throw money at a losing proposition. Instead, the investment should be in promising new technologies with the potential to truly become a low cost producer and creating a viable path to long-term global competitiveness.

      Best wishes for a great event in Toronto.

      May 11, 2017 - 9:26 PM

  • Jack Lifton

    Jeff, I think you are underestimating Lynas. They may have competitive costs or even lower costs than China for NdPr and FCC materials. Also the US owned and operated companies, Eutectix and Infinium have both produced NdFeB alloy. Eutectix has sold some alloy production commercially in the USA. The problem, of course, in the USA is that we have no mine and no commercial separation plant. This means that the tail is wagging the dog; who is going to spend 250-500 million dollars on a mine and separation plant to feed a tiny metal/alloy making and dormant magnet making business in the USA. You say no subsidies, so what is the solution?? To revive the domestic US rare earth magnet industry will take the implementation of a national industrial policy to make the USA self sufficient in technology metals. Until then we just need to learn to read instructions on how to build and maintain a great nation in the Mandarin language.
    Jack
    Jack

    May 11, 2017 - 11:19 PM

    • Jeff Green

      Jack, I think we’re talking past each other as to a solution. I’ve never advocated hundreds of millions for a large scale separation plant, in fact, I think just the opposite is the solution. To me, the first step is development of a next generation processing technology that can be somewhat feedstock agnostic, perhaps even using tailings, to provide the market with high purity, cost competitive oxide. From there, if that separation technology makes opening a domestic mine with the right mix of high value REE, that’s a great result. Moving downstream, I similarly believe the U.S. needs the demonstration of commercially viable metal and alloy makers to use that commercially viable domestic oxide. Finally, we need some means to address the NdFeB patent issues that continue to put a stranglehold on domestic production, be that a license or other mechanism. What’s not working is the status quo. On subsidies, I believe the Metals Act provides a short-term funding mechanism to bear some of the risk until the capital markets improvement to the point of reinvesting in REE in a meaningful way. What it shouldn’t become is a sustainment mechanism for a business model and technology combination that can’t stand on its own in the commercial market. As for Lynas, I have the greatest respect for their capabilities and continue to wish them well and thank them for their willingness to collaborate with the U.S. and DOD.

      May 12, 2017 - 2:57 PM

  • Christopher Ecclestone

    I think one should look at Beryllium for a prime example that the Pentagon does have its eye on the ball and would be doing more, given its druthers, if it wasn’t for penny-pinchers in Congress and the Just-in-Time crowd that still dominate US industry.

    It would be fun to ask a member of a Senate committee if he knew how many kilos of Samarium he could buy for the same price as the overpriced toilet seat of urban myth (hint $640 divided by X).

    May 12, 2017 - 2:51 PM

    • Jeff Green

      Chris, there’s a key policy difference between Be and REE according to the DOD. The Pentagon supported and funded the Be facility (to the tune of over $70M) because demand for beryllium in the defense sector exceeded commercial demand, thereby creating a responsibility on the military to support the long-term availability of the material. With REE, you see DOD argue the opposite viewpoint, namely a belief that because DOD is a relatively small consumer of REE, they have no responsibility or interest in developing a secure, domestic source of supply. I believe they would argue that with limited resources and nearly unlimited problems, they need to make tough choices and fixing the REE market falls below their funding line. What I think is up for debate is whether or not that policy is sound, if they have an accurate understanding of their supply-chain dependence and risk, what outside and market forces are driving them to that conclusion, and if anything can be done to change their viewpoint?

      I will submit your Sm question for the record with a relevant Senator at the next hearing on this topic.

      Best wishes for the Toronto event.

      May 12, 2017 - 3:04 PM

  • Jack Lifton

    Jeff, The technology for rare earth separation that you wish would exist does in fact exist
    Jack

    May 13, 2017 - 10:57 AM

    • Tim Ainsworth

      Jack, what per kg cost would this technology deliver on say 5/6ktpa NdPr from ore in situ to finished oxide?

      May 13, 2017 - 12:02 PM

    • Jose Goncalves

      Is that not Ucore/IBC’s MRT?

      May 17, 2017 - 6:13 PM

  • Alex

    As for producing NdPr in USA there is Molycorp , it is easy to restart it.
    To create stripcasting alloy Works and magnets not need to much money but need regular demand, The Chinese have 70% TAX for export magnets from China.

    May 19, 2017 - 11:05 PM

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