The U.S.-China trade wars took a turn last week into new and worrisome territory, as China unofficially floated the threat of cutting off rare earths exports to the U.S. The elements – unknown to most people but present in nearly every tech gadget we rely on, from smart phones to laptops as well as electric vehicle engines, wind turbines, LEDs and not incidentally all major modern weapons systems – are key to America’s advanced manufacturing sector. At present, the U.S. mines zero rare earths, while China dominates global production. The mere mention that China might use rare earths access as an economic weapon sent shivers through the financial markets.
Whether China does or doesn’t use this leverage, it’s a stark reminder of the dangerous dependency that results when a nation – the U.S., in this instance – is 100% import-dependent for a critical manufacturing material. And in fact, the danger is far worse, because when it comes to U.S. minerals dependency, it’s not just the rare earths.
Last year, the U.S. Government published a Critical Minerals List, with 35 minerals and metals considered critical to the “national economy and national security” (the rare earths collectively counted as two of the 35). For 14 of the 35, the U.S. is 100% import-dependent, and in 10 of those 14 cases, China is the U.S.’s largest supplier or the world’s largest producer. Most people won’t remember the names of these elements from Chemistry 101, but they’re the materials base of our modern economy, used in everything from semi-conductors and super-alloys, medical equipment, aerospace and defense, LED lighting and optics, to EV batteries and fuel cells, solar cells, wind turbines, high-temperature ceramics, and steel production. In short, these metals and minerals are the vitamins of our technology economy.
In each case, our failure to produce sufficient supply raises the risk of unexpected supply chain disruption – think acts of nature, or labor strikes, or coups and civil strife – or the deliberate use of withholding metals access, as an economic weapon or in time of conflict, as in the current case of the rare earths.
The U.S., Canada and our fellow industrial democracies have got to mine more of these materials, and also recycle and recover them from sources that up until now have been ending up in the scrap yards. Consider the lithium-ion batteries from the first-generation electric vehicles, being traded in at our used car lots. The cars may be junk, but the batteries in them are replete with manganese, cobalt, nickel and of course lithium. These metals were in ultra-pure form when they went into the new battery, and my company, American Manganese, has developed a patented process to extract these materials and restore them to that pristine purity for re-use in next-gen batteries, or other technology applications. The more we do that, the less likely it will be that another nation will hold the U.S. or Canada hostage to critical metals supply.
My company makes its way by pursuing innovation in the resource recycling space. What about incentivizing innovation in the capital markets we need to fund our innovators?
We have a tool in Canada that works quite well. It’s called flow-through financing, and the concept – unlike so much of modern tax codes – is simple: The dollar-value of an investment into a resource developing company can be deducted – by the investor — from capital gains. The receiving company surrenders its right to expense that dollar amount, which then “flows-through” to the investor. The company gets the capital, and the investor gets the tax benefit. And society gets the metals and minerals that are essential to the modern economy.
In Canada, flow-through shares are approved for the mining, oil and gas, renewable energy and energy conservation sectors. The U.S. could do the same for Critical Mineral projects, and jump-start a new era of domestic resource development.
The rare earth row is a wake-up call. Tech-centric economies like the United States, Canada and their industrial democratic allies are going to need a stable supply of tech metals and minerals that are essential to our innovation economies. It’s time we got equally innovative about how we encourage capital to supply these minerals to the manufacturers who depend on them.
Larry Reaugh is CEO of American Manganese, Inc. which has developed RecycLiCo, its patented EV battery recycling process.
FULL DISCLOSURE: American Manganese is a client of Stockhouse Publishing.