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  • Do they have any other business partnerships, other than the Rare Earth Refinery?

  • For an issue that was the storyline for the second season of "House of Cards," one of

  • the most popular shows among Hill staffers.

  • The refinery can't proceed while we're in a trade war.

  • We want you to kill it for good, and we want you to kill it today.

  • You'd think this would be something that we'd be more aware of.

  • The biggest uses of rare earths are for the electronics and auto industries.

  • We want our companies building those products right here in America. But to do that, American

  • manufacturers need to have access to rare earth materials, which China supplies.

  • In your phone, rare earth elements. Whole world runs on this.

  • Neodymium and Samarium help the Abrams tank navigate. They make up night-vision goggles

  • and radar systems. One US government report found element shortages have already delayed

  • some weapons production.

  • Really, guys? You're going to build an entire military based on a mineral element that's

  • wholly controlled by China? I need a drink.

  • Lost in cable news reports and popular entertainment is the most important fact of the ongoing

  • rare earth crisis. The United States was once a world leader in harnessing rare earth technologies.

  • This leadership was not beaten by Chinese rare earth subsidies, nor lax environmental

  • regulations in China.

  • How did China come to not just surpass the United States, but to dominate rare earths

  • so completely? This was a question addressed in a 2014 briefing to congressional staffers.

  • The full briefing was 80 minutes long. This 20-minute summary contains all the highlights.

  • If House of Cards moved this fast, it would have wrapped in a single season.

  • There are no issues here, then.

  • We're prepared to offer the 40-year lease on the Mei Mei Rare Earth Elements Refinery.

  • For appearances.

  • Yes, appearances.

  • Your iPhone that you have in your pocket right now

  • has nine different rare earths in it. Toyota Prius, magnets and the batteries and

  • all the material additives, the lighting, the communication systems, the defense systems

  • and so forth, all of that uses rare earths.

  • As you might imagine, the world demand for rare earths is just only growing. Even though

  • the United States has a considerable supply of rare earths, we are largely dependent on

  • China for these critical metals. The United States holds about 13 percent of the world's

  • rare earths reserves.

  • China, on the other hand, holds about 50 percent of the world's reserves, and China actually

  • accounts for about 95 percent of all rare earths production. About 91 percent of American

  • imports actually come from China.

  • The rest of the rare earths are still coming out of China, but they come to us through

  • France. They come to us through Japan. In the end, it's all coming out of China.

  • Now, at NCPA, we agree with free trade among nations, and so we really have no problem

  • with depending on foreign nations for different goods and services. But in this instance,

  • there is a problem, because China threatens to use their dominance over rare earths as

  • a weapon in trade disputes. They've actually demonstrated this in a dispute that they had

  • several years ago with Japan. Imagine if that were to happen here in the United States.

  • China very soon will use 100 percent of the rare earths they produce. They will legitimately

  • be able to say, "We can't afford to export rare earths anymore. We use them all ourselves."

  • They'd be absolutely right.

  • China's becoming more and more an internal consumer. If the 130,000 tons that are produced

  • a year, 100 million of those tons go back into China, they never get into the market.

  • At some point, China is going to keep all of their rare earths, and it's going to be

  • acceptable that they're going to do this. They'll be using all of it. When is that?

  • 2018.

  • 2018?

  • Yeah.

  • Why is Apple building the phones in China? Because they can procure the rare earths.

  • China has really, in a very clever way, inherited all the manufacturing.

  • One thing our congress is really good at is defending IP, right? You guys are proactive

  • there. You're going to find out that all of those rules and all those laws that we've

  • created, and all the mechanisms for enforcing it, are only going to play into China's hand.

  • China's used this monopoly to strip the world of their IP.

  • They don't design anything in China. They make companies come to China via rare earth

  • minerals and other industries, then they say, "If you're going to come here and you're going

  • to be part of our market, you must turn over your IP." When China signs a 10-year deal,

  • after that 10 years, they boot that company out and it goes to a Chinese company.

  • The CRS, the GAO and the Pentagon keep putting out reports going, "Oh, we're doing great.

  • We're making progress." They reference two mining companies that are mining rare earths.

  • They're taking the really good stuff that matters and they're shipping all that powder

  • to China, and China turns it into the magic. Now, do they own the company in China that

  • does that? Yes, so they tell everybody, "Hey, we're doing everything." But that's not really

  • going to work on that F-35.

  • We've had to get exemptions, a number of exemptions, so that we can import the rare earth materials

  • to configure this airplane. That's very unusual to get these exemptions, and we've got a lot

  • of them.

  • Our defense industry is 100 percent reliant on China. If they control the metal, the alloys,

  • the magnets and the [inaudible 05:15] garnets and components that go onto our military systems,

  • they in fact control procurement.

  • Today, we are announcing an indictment against five officers of the Chinese People's Liberation

  • Army for serious cyber-security breaches against six American victim companies.

  • When pieces of our equipment are manufactured in China, they have access to those specs.

  • If we spend a trillion dollars on the F-35, China spends a million dollars in China to

  • look at the blueprints. They caught up to us really quick.

  • The state-of-the-art defense technology is dependent upon someone we're competing with.

  • We can live without the cell phones, as inconvenient as that would be, but you can't live without

  • that. How did we get here?

  • The US used to lead the world. We owned all the IP, all the technologies, extraction processes,

  • all the metallurgy. The Chinese government was coveting this company called Magnequench,

  • what had the best IP portfolio for rare earths in the world. Deng Xiaoping's direct family

  • members on the down-low said to GM, "You want to build an auto manufacturing facility in

  • China? Give us Magnequench."

  • A government-sponsored process to capture all of the technology. If we aren't willing

  • to fight to get it back, we're left as an extractive economy with basically commodity

  • sales, which, I'll tell you, is a pretty skinny business.

  • You take your ore and you crush that and you dissolve it, and then you use a very, very

  • complicated process. It's probably even more complicated than enriching uranium. That's

  • how hard this is. That's how you get those little powders. But those little powders are

  • pretty useless.

  • You give that powder to Martin Marietta or to Boeing, it's not like they can throw it

  • on an airplane. They can't do anything with it. They take $4 billion in pixie dust, and

  • they turn it into $7 trillion in high-value, high-growth, high-margin value-added goods.

  • That's 10 percent of the economy.

  • Even if US Rare Earths jumps into business tomorrow and starts producing rare earths,

  • all they're going to end up with is those powders. What are they going to do with them?

  • Their only customer is China.

  • GAO did a report a little while ago that says rebuilding a domestic rare earths supply chain

  • would take up to 15 years if we really wanted to ramp up.

  • A company comes along and tells you, "We're going to be a rare earth mine and we're going

  • to build our own value chain." It can't be done by an individual company. There's no

  • way you can take on a country who has got more human beings dedicated to the production

  • and value-adding of rare earths than we had in the Manhattan Project during World War

  • II. They literally have two cities that they call "Rare Earths Cities."

  • People involved in this, we love the free market. We think that is the best way to go.

  • But the first thing you have to recognize is that you are not dealing in a free market

  • when you're dealing with China. Realize that the companies that do do rare earths can take

  • losses all day long, as long as they're supporting a $7 trillion manufacturing base to the government.

  • The United States needs to respond. We need to respond to some things. We can't just be

  • totally passive and say, "Free markets will fix this one." The free markets aren't in

  • the room.

  • You need multiple players to have a free market and we must, in the Western world, step up

  • and participate in this.

  • You're pulling out rare earths and your deposit has, let's say, 8 percent rare earths. It

  • may have 14 percent thorium. Thorium was classified as a nuclear fuel in the early part of the

  • atomic age, as if it would be uranium, plutonium.

  • The liabilities associated with being the proud owner of source material, it is so horrific

  • that no public company I'm aware of will ever take on that risk.

  • In the '80s, the IAEA lowered the threshold for the definition of source material. All

  • of these domestic producers of rare earths who are producing these wonderful rare earths

  • that we had the full spectrum, all the heavy stuff, their customers no longer wanted to

  • accept the material.

  • Because when the customer would take the material and extract out the rare earths they wanted,

  • they had a little pile of thorium, and they didn't want to own that little pile of thorium

  • because nobody knew what to do with it. It's not the kind of stuff you throw out the back

  • door, because people that did that back in the '20s [laughs] are still paying for it.

  • Thorium is a very mild alpha emitter, very easily handled, not dangerous whatsoever and

  • not water soluble, can't get into the ground water.

  • This source material rule crushed the domestic supply of rare earths.

  • Thorium is just always with that material.

  • The value chain guys that used to take the powders and make the metals and the alloys

  • and the magnets, they slowly faded away, went bankrupt or relocated to China.

  • Mining companies today literally try to find deposits that don't have thorium. The problem

  • is, when you don't have thorium, you don't have those heavies. The result of that is

  • they end up with an abundance of material that typically sells at or below cost, causing

  • losses.

  • They have a tendency of putting more lipstick on a pig. We need to thoroughly understand

  • the consumer side -- grades, percentages of concentrations.

  • This is the only US mining company mining rare earths today, and anybody else going

  • into the business trying to avoid the thorium liability is going to end up with the same

  • general deposit. What's the problem with this picture? 83 percent of your product you're

  • selling at a loss.

  • Here's the stuff that matters for the United States. The problem is, they ship all of that

  • stuff to China to be processed into metals, magnets and alloys. What happens to all that

  • material that used to go into the value chain? Today, it's thrown away. They bury it. Companies

  • will really bury it to avoid the liability. How much? Plenty. We've got to deal with the

  • thorium problem.

  • But what if, instead of treating thorium as a waste, what if we treated it as a potential

  • energy resource?

  • There's no such thing as highly-enriched thorium. When you get thorium out of the mining and

  • refining process, it's ready to use as is.

  • How do you not take a perfectly good fuel source and put it back into the ground? If

  • we've gotten the thorium out of the ground and it's in a good form for a fuel source,

  • why not make it a material that we can use?