The Pentagon’s mineral reckoning | Fast Forward episode 4 transcript  

Unfortunately, the markets have left us in a bit of a jam, and so we’ve decided to go ahead and take a different approach.

Andrea Hotter [AH]: Welcome back to Fast Forward by Fastmarkets. I’m Andrea Hotter and in today’s episode, we look at how critical minerals have moved from being a relatively technical supply chain issue to a central question of national security.

I’ve got a really interesting conversation coming up for you because I’m joined by not one, but two guests from the Pentagon in the United States. I spoke with Assistant Secretary, Michael Cadenazzi at the Department of War, as it is known, and Zach Boykin, the department’s technical director for strategic and critical minerals.

Assistant Secretary Cadenazzi leads efforts to strengthen the US defense industrial base, particularly when it comes to securing access to critical minerals. And Director Boykin is right at the center of how those strategies get translated into actual investment and execution. We covered a lot of ground, from supply chain vulnerabilities to how the department is thinking about resilience, capacity, and the role of markets.

And I have to say, it’s not every day you get to have a conversation like this with the Pentagon, so let’s hear it.

Gentlemen, welcome to Fast Forward.

Glad to be here, Andrea. Thank you.

AH: So this is a particularly timely conversation. There is a lot of discussion around national security and critical minerals, but fewer opportunities to hear directly from the Pentagon on how these materials translate into defense requirements.

So let’s jump right into it. It’s worth grounding this conversation a little bit in the current state of play. What used to sit in the background of defense procurement, materials, refining capacity, supply chain geography, is now increasingly central to how militaries plan for readiness and sustainment.

So my question to you is to start, do you think we’ve been fundamentally underestimating how materials-intensive modern warfare has actually become?

[]:Terrific question, Andrea, and thank you for the opportunity to talk to you about this. I think we recognize that we needed to change how we approach the industrial base and our access to the material capabilities we need to fight and win, but also the critical enablers that allow us to build and deliver those tools to the war fighter.

So I think we’re looking at structural changes in demand top-down. That is how we contract, how many units we buy, who we buy from. That’s a critical enabler for unlocking private capital, for getting companies to invest, for ensuring that people understand the demand signal over the long haul so they can appropriately position their own supply chains for the future.

We need to work across the middle of the supply chain, tackling the choke points and bottlenecks, the companies that are making the things we want, to make sure that those capabilities are no longer a roadblock for the end state items to be delivered on time. And then, as you’ve mentioned, we need to work bottom up from the materials and minerals level.

That is securing access to the critical capabilities and tools and the companies that have been long kind of neglected here in the US, I think, and in the West, where we’ve outsourced a lot of those capabilities to Asia, to select countries, and we’ve become dependent upon that.

And then the decision to build a more resilient industrial base and to increase capacity, we now need to reclaim some of that strategic and critical minerals and materials capability back and make sure that we’re investing it at a scale that really has not been on the agenda for the past couple of decades.

And so, you’re seeing a new sort of focus there that we’re excited to be a part of.  

AH: That’s a great framing for this conversation. And with all of that in mind, I’d like you to strip away the headlines and tell me where you think we actually are today on critical minerals. What are the constraints that we’re seeing?

Are there any that are genuinely coming to the forefront right now in terms of our defense readiness?

[]: So as you touched on a moment ago, I think most of the problems that we’re seeing in moving technology forward are really coming down to materials problems. So, it’s easy to make things go fast. It’s very hard to make them survivable.

It’s very easy to make circuits smaller, but it’s hard to get the materials that can meet those needs. And so those choke points are really in the exquisite materials that allow us to push the edge of science, and that can be the gamut of the things that we see in headlines.

You’ve mentioned tungsten, gallium, there’s all sorts of things that are at play here, but in general, it’s pushing the edge on what we can do, and then also making sure that we have the underlying requirements to meet the traditional system needs, anything from the large commodities like aluminium and steel.

AH: It’s interesting you say that because you did mention, Assistant Secretary, the structural shift that we’re seeing. It’s not a temporary spike.

To deal with that, historically, stockpiling has been the policy lever of choice. It used to be the answer, but it doesn’t seem to work anymore. So why is that?  

[]: I wouldn’t say it doesn’t work. I mean, stockpiles are one part of the equation going forward. They’re gonna continue to be a robust part of our ecosystem. Our office and industrial-based policy manages the governance of the National Defense Stockpile, which is operated by the Defense Logistics Agency here in the US and maintains a robust mix of materials that we can use for a variety of mechanisms, and it continues to be a significant part of our planning effort.

But we complement that with, call it just-in-time inventory that we have on the shelf with our industrial partners, where we basically pay for them to have things in working capital that we can pull from quickly if we need it, and then we also wanna have adequate manufacturing capacity that we could leverage in the event of an emergency, whether that’s domestic or with our allies and partners.

But we wanna be able to rely upon that in the event of a crisis. So I think it’s an all-of-the-above approach now as opposed to depending upon the stockpile to be the end-all, be-all for access. We do wanna take a more balanced look for this over time.

What we’ve done in partnership with the administration is establish Project Vault, which takes essentially $12 billion of capital and sets up a fund so that companies can rely on it commercially in order to fund some of these minerals transactions that are very difficult to do in a commercial way.

AH: I was in DC recently and listening to a lot of people talk about that at the SAFE Summit. It is a new way of looking at holding inventory, isn’t it? And involving the entire supply chain, which I thought was absolutely fascinating.

[]: So if that gets off the ground, which it seems to be, that will be a big new step forward, I would imagine, in terms of creating that resilience you’re looking for.

And Andrea, I think the critical point, this is a whole-of-government effort from the White House on down, that the entire interagency’s involved in dealing with the minerals issues.

We have a very significant role to play within the Department of War, but our partners in commerce and energy, in the Treasury, from the NSC, the National Security Council, we are all collaborating weekly, sometimes day-to-day, on the transactions, the relative priority of those transactions, the kind of problems we’re trying to unlock.

And we’re also actively engaged with our private sector partners for funding and for their own ability to do things. And that also involves talking to our allies and partners overseas, involving their own MODs, their own government entities that are involved in these initiatives.

So, it truly is a quantum shift from the past, where we’ve sort of assumed access to minerals in a just-in-time way would be perfectly assured through the markets. Unfortunately, the markets have left us in a bit of a jam, and so we’ve decided to go ahead and take a different approach.

AH: Yeah. I would like to move into the supply side of the equation and maybe start with that concentration issue that we’ve talked about. It’s a well-known fact that China controls around 75% of production and more than 90% of processing and refining in some and many mineral supply chains.

Why do you think this happened? I mean, was this primarily driven by cost economics? Was it a deliberate strategy? And what did the US and its allies get so badly wrong?

[]: I do think it’s a great question. I think at the heart of where we are today is that in the ’90s, coming out of the Cold War, we made a lot of very rosy assumptions about the way the world would unfold.

America was a hyperpower. It was a market-based economy. Nothing could change. We could go ahead and shift our economy from dirty industrials into cleaner, higher margin services, and in the process outsource a huge amount of our industrial capacity to include a lot of this minerals capability. In the case of rare earths, it’s a dirty process. It results in a lot of nasty stuff, but it needs to be done, and we decided that we would go ahead and pay the Chinese to go ahead and take this from us.

We would give them the capital, give them the technology, teach them how to do it, and then we would shut our own industry down over time while making us increasingly rely upon a country that is our number one strategic competitor.

And so those decisions were made across myriad markets for a whole host of reasons, and I think environmental concerns and cost are right at the top of the heap.

As a result, over time, we’ve shifted our position from being a world leader in many of these industries to being completely dependent, and so I think the recognition of the administration, the leadership, and industry that we need to pivot back reflects the scale of the effort we’re applying to the problem at the moment, and our hope is that we can not only, address the resilient needs of the moment, but we’ll position the country for a future in which we no longer make those sorts of decisions, that we understand and put resilience and resilience of supply chains, the need for national security resilience at a robust industrial base that has this capacity from friendly countries and from domestic sources at the heart of our economic agenda for the future.

AH: It’s interesting as well, you talked about the choke points being really throughout that entire supply chain. If you had unconstrained access to the critical minerals you would like, how much additional capacity do you think you could realistically unlock? And are we talking months? Are we talking years?

Are we talking decades? How long is it gonna take us to catch up in the best case scenario?

[]: So really centralized processing, the midstream, as you mentioned, is a key node. Where the minerals are in the world, we’re constrained by. Rare earths, they have a very large mine at Bayan Obo in China, and that is really driven by the iron production there.

There’s gonna be economies of scale that they can drive out of that mine that we can’t do elsewhere. So it’s all about turning the supply chain to benefit the people who can process the midstream aspects of minerals, and this is not a short problem to solve. These are massive industrial projects.

There’s mine lives to consider. There’s permitting challenges, which we have done some things to shorten up. But in general, these are generational problems, and my hope is that my kids can work at some of these projects that we’re trying to build today.

But really getting that middle stream process done and coupling it with upstream and making sure that there is some sort of demand signal downstream to take what we process here and with our allies into the final end-use products.

AH: So imagine you’ve got a blank check and you can fix one bottleneck in the next five years, say. Which bottleneck would you check and why? Why that over everything else?

[]: I don’t think there’s a single thing that I could go ahead and point to. We deal with a whole ecosystem. If you think about the diversity of capabilities that a military brings to bear from space to undersea, from things at scale traveling, you know, Mach 15 to just bullets and beans and Band-Aids, the scale of demand is vast.

We need capabilities in all those areas, and part of the assured capability of the United States military is that we go to war with all those capabilities at scale, and so we need everything at scale. And so it’s not about making binary choices or putting things out. It’s about balancing all of the available capital the American people and the Congress give us to do this, and making sure more than anything else that we’re leveraging private sector capital wherever we can as an amplifying effect.

And so for us, that’s a huge portion of what we’re trying to do is be a catalyst for markets to have them understand that we’re serious about these shifts. You’re gonna see significant buying behavior changes from the department, and you’re gonna see buying behavior changes from industry. We’re already seeing that in companies committing to shifting production out of previous countries to the States or to other Asian countries, or our European partners.

We’re seeing changes in commitments from industrial firms to buy from new sources as a part of, uh, assuring supply and balancing access. We’re seeing it in the CHIPS Act, which is the commitment to balancing some of the chip production here to the States away from our current providers in some cases.

So it’s again, an all of the above approach that doesn’t have a single answer or choke point because I could close one choke point today and I’d have 52 others that I’d be worried about tomorrow. And so we really are looking strategically across the ecosystem to make sure we’re giving everything the war fighter needs to fight and win.

AH: Yeah. It’s very interesting that you talked about buying there. Something I wanted to ask you about, that question of dependency. One of the defining features of the system is exposure to entities the department classifies as high risk or adversarial. So how should we think about dependency on foreign entities of concern, and not just China, but Russia, particularly for nickel, aluminium, platinum group metals, also Iran and North Korea.

In terms of the day-to-day procurement, does it actually change anything about how and where you are going to be sourcing critical raw materials?

[]:  Sure. So, our office runs the 1260H program, which is the list of Chinese military-affiliated companies. So we determine those from the interagency, and then we also have a program that we’re implementing now called the Section 805 program, which is aligned to preventing the government not only from doing business with the 1260H companies, which is pretty clear, but is doing business with companies that are doing business with companies that are doing business with the 1260H companies.

So it’s that network effect of removing adversarial companies from the supply chain at scale. And so collectively think, number one, there’s some great tools in there that allow us to take action in that regard, which is terrific, and we’ve needed that for a while, and we’re thankful for the Congress to provide us those capabilities.

But we’re also excited about, again, the network effect of going into supply chains, talking to companies and saying, “Hey, you need to find an alternative to this vendor that’s providing you this content from a strategic competitor. Let us help you find it.” And again, our, our goal in this isn’t to go ahead and punish companies or Western industry or domestic industry.

It’s to really do the hard work of actually unlocking capacity through new providers that don’t represent an adversarial or malicious capital position. And so we’re really thrilled to be a part of that. It’s a huge opportunity for us and one we’re excited to be pushing forward on every day.

AH: And that assumes a level of traceability, doesn’t it, that may or may not exist at the moment.

I’m curious as to how much visibility you really have into supply chains. Can you trace materials right back to their origin, or are there still big blind spots that exist?

[]: I think the first step for any commodity that we try to do is look at all the nodes in the value chain, from getting it out of the ground through its end use, and then ultimately to recycling.

And with some commodities, cobalt’s a great example, where it’s very difficult to parse out the origin at the local level, to how it gets into our supply chains. And we’re taking steps to do that, but part of what we can do is work with our allies and partners and domestic mines and other processors so that we already know the provenance of a mineral.

But when we work with partners elsewhere in the world and locally, we’re trying to implement technologies. There are some cases where we can do things like blockchain to try and tag a shipment, but of course, there’s always ways to fabricate that. So we’re aware of those issues and are trying our best to understand them.

AH: It’s a big challenge, and I think that’s probably the next phase of development for the sector. I’m also curious as to whether you think that we can actually achieve this decoupling that we’re trying to achieve. Where is it gonna be realistic? Where is it not? In other words, if we were sitting here in a decade or two, where have we achieved supply chain resilience, and where are we still dependent and it’s effectively unavoidable?

[]: So I think this is a great question and challenge for us, which is, again, something like rare earths; they’re not rare. Their problem is the processing is dirty and difficult, so we have to go ahead and embrace the dirty, difficult challenge of actually making it economical here. And I’ll point to that as an example of where the decision was made to outsource this in the ’90s.

We’ve essentially skipped what is one of America’s key enablers, which is to invest in the technology to make it more productive, to make it cleaner, to make it better for the future. And so we essentially punted on that for two generations, so we’ve missed two generations of scientists, post-docs, and investment to actually invest in these capabilities and do it in a fundamentally better way or to find alternatives.

We just said it was easier to buy it from overseas. And so now with the challenge before us, we have the opportunity to go ahead and invest in our own domestic capabilities, which we are and will continue to do, but we’re also gonna unlock new scientific investment and avenues that are likely to provide better enhancements to how we do it, hopefully cleaner, hopefully cheaper relatively soon, but also real alternatives, right?

We’re also gonna do things like recycling. Other countries have invested substantially into recycling for minerals. We’ve just sort of punted and thrown a lot of stuff into landfills. We have a relatively small e-waste recycling rate, so there’s a massive amount of e-waste that we could collect and bring to new recycling capabilities, and our office is at the forefront of investing in those recycling capabilities as well, which we think are critically important for the future, too.

So all those collectively represent fundamental unlocks for how we can position the country for the future, and we’ll hopefully be pursuing those initiatives with our allies and partners at scale.

AH: There’s a lot that seems to be going into the toolkit at the moment. I’m wondering how you’re prioritizing between that domestic production source, the sourcing from allies, the strategic stockpiles, the recycling, all of the other pieces.

I’m assuming there are some trade-offs with this. So how are you prioritizing?

[]: I like to frame it as an all of the above approach, which is that we have a series of options. The team, we wish we could easily and methodically work left to right on a value chain chart to sort of say, “I buy a mine, I then go ahead and work on processing, I do refining, I focus on recycling.”

That’s not the reality of the world as we know it, so we have to be opportunistic, and we have to be scanning and looking for opportunities to go out and place bets where we can at places that represent the most economic value and the right kind of unlocks for the country. So currently, there’s places where we’re in partnership or talking to companies around their local investments, and they’re ready to move, and so we’ll go ahead and accelerate that forward.

Other places where we have an interest, we can’t find the right partner, we can’t find the right unlock, and we’re willing to take more risk there over time, and then maybe we have to go ahead and purchase that in the open market or work with our partners for that.

So we think we’re trying to go ahead and compliment the approach with rigor and with flexibility, but we also have enough capital to do a lot of things in a lot of different places, and I think that’s part of the approach that the current administration takes is in the past, we’ve often in this office invested in small amounts of money.

You know, single-digit millions of dollars we’ll go ahead and spend on something, and then we’ll sort of declare victory and move on to the next mineral. At this time, you’re seeing the scale of the investments we’re doing. We’re talking in the hundreds of millions into the billions of dollars, which is the scale of investment required to really move the needle in these markets.

And so that’s another thing that we’re able to do is with the amount of capital that we have, with the flexibility, and critically, the support from the leadership, from the President on down, to actually put that money to use in the market and really start to go ahead and make a difference. And I think that’s a critical difference in the past is where we’re investing, we’re investing at scale and to solve problems.

We’re not just sticking a Band-Aid on something and accepting it’s going to exist forever.

AH: I’m glad you brought up money ’cause there’s literally billions going into this initiative. Where does private industry have to step in? Because they are playing a role which is also important, too.

[]: One of the efforts with resourcing this program, Mr. Cadenazzi, as you mentioned, we’ve been making incremental changes over the years, right? Making small adjustments to approach some sort of resilience levels. But the answer now is really, how do we fix a whole supply chain? And the department is not a big buyer for most of these minerals. We can’t come in and say, “Make a large enough purchase to make magnets sustainable for the domestic market.”

So we need to partner with private equity firms and also with the Office of Strategic Capital to do our own debt financing to really build in the amount of money that we need to solve these problems. And along with that, we also need to make sure that we’re resourcing the entire supply chain. So, as he mentioned, we have the ability to consume these materials locally or export them or whatever we need to do to make these markets resilient and change our buying tactics so that we keep these markets afloat.

AH: And is there anything that you think is missing from that policy toolkit at the moment that would unlock materially more private capital that would help?

[]: The levers that we have within the department, which is the Office of Strategic Capital, as I mentioned, we also have the Defense Production Act Title III, the Industrial Base Fund, and the Economic Defense Unit, which are all working in concert to deliver the national security needs that we see in these value chains, but also working in partnership with the Department of Energy’s Loan Program Office and other tools, Department of Commerce.

And there’s also the policy piece, which we haven’t really touched on, but the fact that we can change how we do business fundamentally across the nation with our allies through things like Project Vault or the Forge Initiative really allow us to pull more levers to solve these problems without just relying on money.

AH: I’m glad you mentioned the allies and the policy part. Let’s talk about this international coordination aspect. We’re seeing some joint projects, some shared processing, some co-investment with the allies. Where are we genuinely aligned on execution in terms of the allied countries, and where are national interests still getting in the way, do you think?

[]: So I think that’s a fair point. We’re working very closely with our allies and partners every single day on these initiatives. You’re seeing, again, to your point, investments that we’re making with our partners both domestically and overseas. That’s gonna continue at scale.

There’s gonna be an element of competition in all these where countries are trying to secure mineral access and materials access for their own markets and their own companies, and that’s perfectly fair.

We’re gonna compete at scale wherever we can and leverage our advantages. We think domestically, we have access to a lot of materials between here. We also have tools like the Defense Production Act, which essentially treat Canada, the United Kingdom, and Australia as if they’re domestic investments. That gives us an advantage for how we can invest out of funds.

Some of our other funds are gonna be allowed to invest anywhere, so you’re gonna see additional investment overseas, just as those countries will be investing here in the States, given our relatively aggressive permitting structure relative to at least our European partners. And the general enthusiasm for reindustrialization here, I think is gonna go ahead and be a catalyst for additional investment, too.

So, we’re excited to be partnering. It’s a global competition for many of these resources, so we’re expecting that there’ll be places that we win and we go ahead and secure access in one location, and somebody else secures access in another. But as long as we’re relentlessly committed to it and focused, net net over time we’ll continue to close the gaps on the challenges we have in this space.

AH: Yeah. We recently just saw the EU and the US announce a critical minerals plan, and I’m curious about the emergence of these mineral alliances. They seem to function the same way as defense alliances, almost. Is that the case, or are these still very much an ad hoc kind of development?

[]: So with the emergence of these critical minerals issues coming kind of to the forefront, right?

When I got over here, it was a very small budget, and now it’s ballooned because we’ve seen how critical it is to our markets, to the global market, and to these relationships that you mentioned. So, they’re still developing in how we work together with our partners and allies. And as you mentioned, it is a competition for resources.

But ultimately, we really rely on the processing capabilities and the production capabilities of a lot of these countries, especially in the EU and elsewhere, so that as we give and take some of these minerals resources and some of these policies, we’re ultimately making an overall stronger industrial base for us and our allies.

AH: And how do you choose your partners? What separates the deals that are going to actually deliver, supply and achieve the goals from the ones that won’t? Things that might sound good on paper, they just don’t move the needle. How do you pick partners?

[]: I think it’s pretty clear that it’s about the business case, right? In most cases, we’re gonna do things that actually pass the sniff test in terms of clear investment, a functioning partner that’s an operating entity that we trust, that has a track record of delivery, something that’s a tested site or location that’s had a feasibility test or is currently producing.

And then some understanding of the economic output on the other side that is gonna go ahead and meet either DOW’s requirements or broadly fits into our vision of a macroeconomic, you know, US demand.

There’ll be occasional places where we invest in a non-economic way because we feel we have to, to have a capacity or a capability, whether that’s to feed the stockpile or to meet a particular domestic need.

But in general, we’re gonna be driven by market forces just as everybody else does. What we wanna do is make sure that at the heart of those market forces and those decisions in that business case is that there’s a clear eye towards what the Department of War needs and investments that allow us to make sure that there’s enough resilient capacity domestically so that in the event of a crisis and lack of access to things or markets overseas, we can meet our essential requirements here at home.

AH: It’s interesting, the broader markets that you’re talking about. There is obviously competition within markets for materials, and by this, I mean from the traditional uses. So, is the defense demand side starting to crowd out or perhaps even reprice the supply demands of civilian markets in a more measurable way?

Are you seeing yourself going up in competition against those more traditional users?

[]: In the case of neodymium, for example, when the price was, we believe, artificially low for quite some time, which was preventing Western markets from coming online with rare earth projects, the department was able to step in and through the arrangement with MP Materials.

With that one deal, we’ve seen the neodymium price globally rise up to what we feel are more commercial levels, which is gonna enhance the competition of these Western projects coming online and increase their ability to get private capital and other sorts of traditional funding without DOW intervention.

AH: You’ve mentioned rare earths a lot. That seems to be an area of focus for the administration. Are there any other areas you think might become important in the coming months?

[]: I don’t think it’s any secret that modern electronics and modern weapon systems dependent upon a lot of different minerals.

You’ve got your germanium, your galliums, you need yttrium for engines. So, there’s no shortage. I’ve got tantalum issues, and I could run down the list. In fact, I told the team I have a periodic table of the elements stapled to the wall next to my desk, so I could go ahead and refer to it constantly as these guys keep tossing me new actinide and lanthanide elements that I’ve never heard of before.

And so, my associate’s degree in chemistry is well underway here, and I’m really excited to be part of this. And I think we recognize, again, to the point, this is an all of the above problem and an all of the above solution. That is, we have to tackle multiple gaps for multiple industries concurrently and do it in a way that’s marching the ball further down the field with every individual investment.

And so, the team is really excited. We’re deeply engaged in all these areas. I’m honored to be running a team that’s got experts like Zach, PhDs, scientists, engineers, analysts, military officers that are focused on providing the insight and the guidance and actually driving the investment portfolio forward in a thoughtful way and making sure that we’re at the leading edge of this effort across the interagency.

AH: So with all of that said, is there anywhere, is there any material or any area where you would say, “You know what? We are going to have to accept dependency as a strategic trade-off because we are never going to be fully independent”? Is there an area where you would be okay with that?

[]: I don’t think the issue’s fully independent, or I don’t think that’s our goal.

What we want is to make sure that we have a resilient domestic industrial base that meets the needs of the country and meets the needs of the Department of War in extremis, and that we can go ahead and have a robust economic relationships with our trusted allies and partners, and that we’re all collectively benefiting from the transparent pricing that Zach mentioned, trade rules, responsibility to each other and to our shared economic and political success and domestic success in our economies.

So it’s not around us, excluding everyone or saying it, it’s America only or America alone. That’s not the framing. The framing is recognizing that we have tremendous opportunities to secure minerals and material resources from our partners. We have tremendous opportunities to sell our material and mineral resources to our partners, and that collectively we can go ahead and create a more robust ecosystem, which will remove the worst threats of malignant capital and adversarial capital from our markets, and we think that’s better net-net for everybody within the Western ecosystem.

AH: I was gonna ask you to tell me what good outcomes would actually look like. It sounds like that was the idea of success five to 10 years out, what it would look like, what would be different. Maybe I’ll ask you, Zach, the same question, if you can give me an example of what you think success looks like in five or 10 years.

[]: As I mentioned earlier, these are enduring projects, and success to me is that these ecosystems that we’ve built around these supply chains have the ability to be self-sustaining. They can meet the department’s needs, and they can meet the commercial needs of the industry as well as the communities that they’re in, right?

We’re creating hundreds of jobs with some of these projects, whether they’re local, you know, domestic in the United States or elsewhere, that they’re able to sustain and compete in the market and that we’re not solving these problems again in 20 or 30 years.

AH: Yeah. And is there anything you think we should be watching for to know whether the current strategies we’ve been discussing are actually working?

What are the key indicators? Is there anything in particular that we can say, “Oh, yes, okay, this is heading in the right direction”?

[]: Absolutely. I think the amount of imports from strategic competitors, I think we wanna see that go down fundamentally as we unlock additional capacity. We have our own measures of effectiveness internal to the department relative to our industry needs.

And so, as our industry partners face challenges, working in regular communication with them, and I think that’s their own comfort levels going ahead and their shared access will be important. I also think the workforce is incredibly important for this. We have tremendous workforce challenges in the country in the industrial base.

We run 41 programs out of the Industrial Base Policy office to go out and train skilled labor, machinists, welders, electricians all across the country from Hawaii to Virginia and from the Gulf Coast up to Michigan. So we’re really excited about that, and we’ve added in sort of a focus on the mineral side of the house as well.

We wanna make sure that we’re generating that next generation of mining engineers and the workforce that’s gonna allow us to unlock capability in the mineral space in a much more fundamental way. And then also upstream the amount of CapEx going into, you know, processing, refining, those sort of things.

Those are great measures for us to make sure that we’re making the case to industry and to private capital that these changes are real and they should get on board to help us position the country for a better future.

AH: Great place to stop, I think. Assistant Secretary and Director, thank you so much for joining us today.

You’ve both given a really valuable perspective. I think the open question is whether capacity can be built at the scale and speed that the current security environment demands, but it sounds like we’re increasingly on the right path.

[]: Yes, ma’am, we are. Excited to be here.

AH: Well, I really enjoyed that discussion, and to dig into what they said, I’m joined by my friend, colleague, and critical minerals expert, William Adams. Will, how are you doing?

WA: Yeah, I’m good, thanks, Andrea, and yourself? Not too bad.

AH: Can’t believe it’s already the end of May. The year is really flying. It’s crazy.

WA: Yeah. It’s frightening, isn’t it?

AH: Yeah. It is. It really is. And on those timelines, I think that’s a really good way to start this conversation because that timeframe that they’re talking about there, it was really interesting to me.

It stayed with me how consistently they frame this as a time problem because demand is moving quickly, but the supply response, the mines, the processing, even the workforce, is inherently slow, and it definitely feels like a structural tension rather than something policy alone can fully resolve I wondered your view.

You know, they describe many of these challenges as generational. How do you square that with the much shorter timelines associated with defense readiness, for example?

WA: Yeah. As they said, since the sort of 1990s, they’ve sort of let go of the ball, and it’s fallen in China’s. And it’s not just the actual capacity to build it, it’s also the knowhow and everything else that goes in with the whole of this critical mineral processing and mining and everything else.

I think time is a big issue, and it’s one of those things, because it’s going to take a long time, the quicker you start, the quicker you’re gonna get your own security of supply. But it will take a long time, but you gotta start somewhere. And I think at least with the US approach, they are doing it very comprehensively in that they’ve got the budget, as they said, they’ve got the budget to move the needle, and I think that’s key, and I think that’s something which maybe Europe is suffering from.

It doesn’t have that budget to do that. But also, they’re looking to do it to be backed by government, to be financed by government, but also in partnership with the private sector, and also looking to get allies involved. So, it is a mammoth task, and it’s going to take a long time, but they do seem to have sort of pulled everything together, and they’re taking on that challenge full-heartedly now, I think.

AH: It almost sounds like there are two parallel tracks from what you’re describing, and managing that kind of near-term exposure, but building a system that really only pays off over a much longer horizon. I wondered whether in a disruption scenario, the new capacity that’s needed comes online quickly enough to be relevant, or do you think this is more about building out that resilience over the longer term?

WA: Well, I think both. It’s gonna take a long time to build it up, but I think there’s also, as you mentioned earlier, there is this urgency. A lot of governments around the world are now spending an awful lot more money on defense, and they’re doing that because the threats are present. So, we’ve known, and we’ve seen, and we’ve witnessed, that China can build capacity very quickly, whereas the West takes a much longer time.

It’s humanly possible to do it quicker if you’ve got the right sort of mindset. So maybe with all this sort of investment and everything else, we’ll s- also see a different mindset coming in to some of the Western approaches, and things will speed up. And we’ve already heard about pushing forward with planning and permitting and things like that.

All these sorts of things also probably need to be addressed so that things can be done quicker.

AH: Yeah. They were also pretty candid about how we got here. You mentioned China at the beginning, you know, the outsourcing, the environmental trade-offs, the strategic miscalculation basically. I wondered, even with this significant investment and all of this determination, all of the dots joining up along the line, how feasible it is to narrow that gap over time, or is this just something that we can never really catch up with?

WA: Yeah, I suppose China will also be pushing forward and advancing, but I certainly think we can build our own industry. I think the way you’re talking about catching up probably is more on a sort of an economic sense. So I don’t think the West will be able to build up and provide these materials as cheaply as the Chinese could because they do have a massive head start on that.

But I think security of supply will just come with a cost, and we’ll be able to make these materials, but they will cost more than had we just been able to buy them from China. But again, for the security angle of it, maybe that’s a price the West is prepared to pay. So I think, yes, I think we will catch up in that we’ll be able to manufacture these things.

It’s just going to be not at the same cost.

AH: Yeah, I think you’re right. We do have to catch up. Really smart point about that, what resilience actually costs in terms of markets, right? We are looking at structurally higher prices across these markets and across these materials, from what it sounds like.

And I thought it was really, really interesting, the comment that they made about how they’re actively trying to shape markets, whether that’s through pricing signals or demand commitments, because that neodymium example is a really good illustration of that. They effectively influence global pricing by stepping in at MP Materials.

They mentioned that very specifically. I wondered how scalable that was across other materials, and whether you think that we might start to see more of that.

WA: Yeah. So, by putting in floor prices, you are encouraging and incentivizing companies to actually invest in the production. And I think it’s exactly what the Chinese did decades ago.

So when they started to make batteries, or to encourage us to do electrification of EVs, they were saying, “Look, we will buy the EVs. The government fleet of vehicles will be electric.” So they’re almost providing that, “You build it, we will buy it,” and giving them that sort of security. And I think that’s, again, the sort of thing which is needed across the government and private sector.

You do need either those floor prices or you do need those guarantees that there will be a market to de-risk it all. Having to learn, get the know-how, to build the projects, to build all the engineering, they’re massive projects, so I think you do need these things to be de-risked as much as possible, and that’s where a government really does help in the whole of the matter.

And if you’ve got a government which is fully backed into this and fully signed up for it, then I think that does de-risk it, and that will help build up these supply chains. But it’s gonna take time, and I suppose the danger is what’s gonna happen in the meantime. But maybe that’s where the stockpiling, maybe that’s where the Project Vault and things like that come in, that they will secure supply in the short term while the infrastructure is built.

AH: There was a lot of information coming out of the SAFE Summit last month in DC about Project Vault, which was incredibly interesting, and I got to have a conversation with some of the people who understand the project really well, and it’s definitely a really great ecosystem. It does provide a market for materials.

It does provide producers with security knowing that their product’s gonna be purchased. It almost turns the government into a market maker rather than a, a policy provider. So it’s a really interesting development. I think that’s definitely part of all of this. The cooperation versus competition element with the allies, I thought that was interesting too.

You know, they emphasize that there is strong coordination with friendly nations, but also acknowledge there are elements of competition. I mean, how do you see that balance evolving? I think that’s really interesting to see where alignment might be strongest and where we might see tension and friction points emerge.

WA: Yeah, that’s gonna be a hard one, isn’t it? But I think outside of that, by joining forces with allies, by collectively putting a much bigger pool of brains together and experience and knowhow, it’s going to, uh, just help get to the state where there is more resilience and there is more independence. But yeah, and I think internal competition between that is just gonna be one of those factors, but it’s worth pulling together.

It’s worth partnering with allies so at least you can push forward as fast as possible. But yeah, there will be areas where there will be friction, I imagine. We’re also seeing with the current situation about NATO and some of the strains of NATO, you know, maybe the more reliant allies are on each other for various aspects of this will actually pull the allies together more and make a stronger body.

AH: Yeah. One can only hope. I thought another theme that came through strongly is that public funding alone isn’t enough, that it really depends on bringing private capital into the system. Do you think that private capital’s aligned with the timelines and the risk profile of these projects?

Because you and I know these can take absolutely forever, and also then institutional investors, they obviously tend to want their money out, but they don’t treat critical minerals as a mainstream allocation. So what are we missing that’s gonna unlock that capital at scale, do you think?

WA: I think if you look at the AI investment, which has gone crazy in recent years, the defense industry has also, you know, seen some massive increases in some of the shares of the companies involved. But again, if you’ve got a huge sort of government budget going to be spent on defense, and if you’ve got government money as either seed money or the government in there to say, “We will be a buyer of last resort,” it does de-risk it all.

I mean, if you look at something like the copper industry, one of the problems with what we face in copper is that there hasn’t been the investment in the mining sector, hasn’t been enough. And part of that is ’cause it does take 15 to 20 years to build a new sort of greenfield mine. There’s huge risks, and those risks are only getting bigger with things like climate change.

Will there be water shortages? The environmental legislation and the politics, will the governments be stable in the countries? Will the royalties change? So, there’s so many risks that could make it difficult for investors to stick the 20 years or whatever. So I think the more there is investment and government in there to de-risk it will really help.

Yeah, so I think you will get more private equity in there because they see it as one healthy demand for it, and also government support.

AH: Yeah, I kept trying to tease out which markets might be most of interest, but obviously, I think I would’ve been prizing state secrets out of the Pentagon, so I didn’t get as much information, but they did mention rare earth a number of times, which I thought was interesting.

What do you think about that in terms of the ask that is now on the Pentagon in terms of supply chains?

WA: I think, one, they’re not going to highlight where their shortages are, I suppose, and where they’re most critical. But I think with the sort of modern technology that’s needed, so many different critical minerals are needed in tiny amounts, but across a whole lot of different applications.

Honestly think they need all of it, and therefore they can’t just invest in one or two. They need them all. It is a Herculean task which lies ahead of them to build up their sort of expertise and their production capacity and capability across all these critical minerals.

And if you see the different countries have different critical mineral lists and things, by and large, they all have the same items in them. They’ve relied on China for so long, and now that has changed, and it comes with the sort of de-globalization we’re moving into and the sort of new world order that’s starting up that you can’t rely on those supply chains so much now. There’s more at risk.

AH: Well, Will, I think that we’ve run out of time, and I think that’s a great place to bring the episode to a close.

My thanks to Assistant Secretary Cadenazzi and Director Boykin for taking the time to speak with me, and to my colleague William Adams for his great insights as usual. Thank you, Will.

WA: Thank you. No, it’s really interesting topics and very important ones, especially in the sort of time we’re in at the moment.

AH: Yes. And to the audience, thank you for listening. If you enjoyed the episode, a rating or review goes a really long way in helping others find us. And if not, we still appreciate you being here. We’ll be back soon with more, so make sure you’re subscribed.

Until then, this has been Fast Forward.

Fast Forward is produced by Delaby Productions for Fastmarkets.

Your host was Andrea Hotter with William Adams, featuring Michael Cadenazzi and Zach Boykin