James Kennedy is the president of ThREE Consulting, a St. Louis-based firm that specializes in rare earth elements and critical minerals. In this episode, Kennedy explains how the U.S. ceded its rare earths industry to China, how China is using its dominance over technology metals “as geostrategic tools, or weapons,” high-strength magnet production, what China’s dominance means for the U.S. auto, solar, and wind sectors, and what the U.S. should be doing to increase its production of critical metals and minerals.
Robert Bryce 0:04
Hi, everyone, welcome to the power hungry Podcast. I'm Robert Bryce. On this podcast, we talk about energy, power, innovation and politics. And I'm pleased to welcome James Kennedy. He is the president of three consulting. He's based in St. Louis. Jim, welcome to the power hungry podcast.
James Kennedy 0:19
Hey, thanks for having me.
Robert Bryce 0:21
So we're going to talk about rare earth elements today and how they figure into the energy and power sectors. Jim, I want you, I guess, introduce themselves on this podcast. So if you don't mind, imagine you have about 60 seconds or so. And you you don't know anyone in the room, and they've asked you to introduce yourself. Please
James Kennedy 0:39
go. Sure. I've been working in this sector for the last 14 years. I am a mind consultant and expert consultant on rare earth resources. And I have provided, I've tried to provide guidance to the federal government over the last 10 or 12 years to get this problem fixed.
Robert Bryce 1:02
Gotcha. So I've written a little bit about this. And I wrote about it. In fact, in my book power hungry 12 years ago, and sometimes in my career, I find like that I am repeating myself that my career just goes in circles when I talk about the same things, land use conflicts and renewables, bird kills with wind turbines, rare earth elements, you know, these issues seem to be, you know, recurring, but it seems that the, it's clear to me and I had a piece in The Wall Street Journal in December writing about China's consolidation of its control over rare earth minerals, rare earth elements. But we've been talking on the phone and elsewhere recently about China's control, not just of the supply of the mining, the processing, but it's also about the magnet. So if you don't mind, give us a quick overview on where the US is relative to China or the rest of the world is relative to China, when it comes to neodymium, all the green LM so called green elements, the lanthanides, where where is the world today and with relation to China in terms of these, these critical elements in alternative energy technologies?
James Kennedy 2:08
So yeah, this is very interesting because the United States continues to operate under the false premise that rare earths are part of a commercial market, when in fact, they're geopolitically strategic materials that China manages, so that it can control where technologies are developed and who gets to develop them. So like your work on this area, which I've read, the past 12 years of policymaking has been focused on getting into the game and starting rare earth mines, when in fact, that's not the game at all. And, you know, policymakers like to pat themselves on the back. And so you read articles that say that, you know, the US and the West are having a tremendous success, because China's rare earth mining dropped from 97% to about 60%. And, you know, there's no end to the accolades for these folks. What they don't understand is that was planned by China. China's strategy included offshoring all of the mining, the filthy, dirty mining, and the next few steps in the value chain, so that the whole world could then supply China's metallic rare earth monopoly. So there's been no progress at all. In fact, all the US in the West have done is invested hundreds of millions of dollars in government money, and and a few billion dollars in private funding, to start up rare earth mines that ultimately directly or indirectly feed China's monopoly, which is on finished goods.
Robert Bryce 4:11
Well, let's talk about that. Because this is remarkable when you know, 10 years ago, 12 years ago, it was clear that China was control would control the supply of the of these elements and the lanthanides, neodymium praseodymium, terbium dysprosium, the ones that are the key issue key ingredients in permanent magnets in particular, I mean, this is really one of the may be the most critical application because the permanent magnets are in wind turbines and electric vehicles. And we can talk about poly silicon, but that's a slightly different discussion. But nevertheless, it's the key alternative technologies that are being promoted now and in particular by the Biden administration with electric vehicles that supply chain of the neodymium iron boron magnets. The DoD recently reported its 92% share of the global market that's not a monopoly. That's a well, it is a monopoly. I mean, 8%. And I mean, this is, so we'll, I'll ask the question this way. It looks to me like the US automakers are going all in on EVs. But they're by doing that they're just, they're hitching their entire wagon to really fix my metaphor. On China, is it? Am I missing something? No, you're
James Kennedy 5:21
exactly right. This is the irony of it all, US policymakers. So, so eager to virtue signal, their their, their desire to make the world a greener place. Use various levers on private industry and private industry takes up the signals and, and accumulates rewards for them. And then everybody starts talking about becoming part of this green revolution. And when you have when a publicly traded company makes an announcement that they're going to get rid of internal combustion engines by 2050. And they're going to be all green by then Well, guess what happens? Shareholders reward them. Shareholders reward them, stock prices go up internal bonuses, and warrants and options translate into millions or hundreds of millions of dollars for officers and directors. And so everybody, so the corporation is acting irrationally, because those resources won't be there when they need it. But they're only acting irrationally in the long term. In the short term, the economic rewards are instantaneous. The stock price goes up, it triggers, warrants and options.
Robert Bryce 6:48
And when we saw and we saw and we saw that with General Motors right after they announced this plan, that they're going to quit using internal equipment, they're gonna go all electric, and they were making these announcements. The part that was amazing to me, as they were recalling the Chevy Bolt, I mean, they, they recalled every one that they ever made. And I thought, well, wow, I mean, this is your this is your flagship product, and you can't even make one and yet, you're saying you're gonna make millions. But let's jump back to that, because we've also seen the other part of this, I want to, I want to focus very clearly on the supply chain. But let me read this, this one paragraph from the report that came out of the DoD in late February. It said, Well, mine production of rare earth elements has diversified since 2012, China still accounts for an estimated 89% of total rare earth separation capacity 90% of total metal refining capacity, and approximately 92% of global sintered, neodymium iron boron magnet manufacturing, us by comparison, I'm going to cut to the key part here is produces less than 1% of these neodymium iron boron magnets, although there plans to add domestic capacity in each of these areas. I mean, this sounds I've got to cut to the chase here, because it sounds hopeless that the US will ever win any kind of industrial policy be able to catch up with China? Have we just lost the game here?
James Kennedy 8:07
Okay, so that that is the best report the DOD has ever written. And I've read all of them. But let me tell you how far off the market is, when they say that China's now only producing 89% of separated materials. What they're not telling you, is that the only two significant producers of rare earths outside of China. That would be Linus and MP materials. When you measure what's going on, that number 89% is non reflective. So for example, np materials can't separate anything. It just ships at the China and it goes into the value chain.
Robert Bryce 8:51
So let me interrupt so MP materials is the old Molycorp. Right? This is the same rare earth element mine in California in the in the eastern eastern California desert, almost to the Nevada border. But it's the only place only mine in the US where we're producing any significant quantities of lanthanides. Am I right?
James Kennedy 9:09
This is the big theater and you're going to watch the movie Titanic over and over and you're going to wonder how it ends every time. So
Robert Bryce 9:18
this company just for background Molycorp they bought the asset from Chevron, if memory serves, they went public, then they went bankrupt. And now in P materials. Are they public again?
James Kennedy 9:28
Public again, they've got some crazy $7 billion market cap. I don't pay much attention. But yeah, it's crazy. And all they're doing is digging up dirt, concentrating the rare earth proportions and then shipping it to China and China does all the work. So going back to this 89% Linus is a pretty good sized producer of rare earths, but almost 80% of what they produce is cerium and lanthanum and cerium and lanthanum are some of the only things they can separate. So when you actually X out cerium and lanthanum, and all the other low value rare earths, the separation number is much, much higher, the separation number is significantly higher. And then when you look at magnets, I think they said 92% of the magnets come from China. But this is a fact I've talked to all of the non Chinese magnet producers, all of them still remain 100% dependent on China, for separated terbium, separated dysprosium and seperated prazer Dyneema are neodymium for final chemistry. So at the end of the day, there, it's actually a 100% dependence on China. At the end of the day, all the blending and final chemistry for any magnet produced outside of China comes from China. And so this is the best report yet. And the DOE still hasn't gotten that, you know, firm handle on what's going on?
Robert Bryce 11:06
Well, and I don't hear this. And I wrote about this in my piece in the journal in December, that the White House had this big rollout and you had a vice president Kamala Harris doing, you know, putting the charge cord into the Eevee and it was all very self congratulatory, and you know, press release from the White House did not mention rare earth elements one time. I mean, not once they talked about battery manufacturing, but nothing about rare earths. But let me ask the question here because you're different you making a fine point here about the amount of the MP materials and I just looked it up their their market cap is now $9.4 billion down to two and a half percent today and today's April 6. But the you're saying that what they're producing they're lanthanum and cerium are not the really the critical elements in the in the in the lanthanide line on the periodic table. What I what I've heard from Jack liftin and others is that it's the heavy rare earths. Those are the ones that dysprosium which is needed for these magnets to operate in high temperature, right dysprosium terbium are added to the mix to make them work better under high temperature, but it's it Trium terbium Holmium, dysprosium, erbium, it terbium atrium and Lutetium. Is that right? Am I pronouncing the last one, right? So this this, this theater, you're calling it theater that, oh, we're increasing the amount of rare earth production, but it's the wrong it's the wrong elements of
James Kennedy 12:27
its junk. So So for Molycorp 83% of what they mined is cerium and Lanthanum. And cerium and lanthanum have a negative economic value, if costly, but
Robert Bryce 12:40
isn't lanthanum used in the refining process? Isn't that it doesn't is there is some market for that, right? There's a lanthanum is used as a as a catalyst in refining, if I read from her calling correctly.
James Kennedy 12:51
Yes, so So think about this. This is the comedy of the Molycorp MP mountain path. Deposit. The Comedy of it all is 40 years ago, their their entire business was selling lanthanum to WR Grace, who would use it as a catalyst for petroleum. And premature Molycorp had no meaningful business and technology metals. In fact, the rare earth magnet hadn't even been invented yet. So their entire business was Lanthanum. There were very few rare earth mines in the world. Because before 1980, most of the high value rare earths were a no cost byproduct of something else like monocyte and mineral sands, and we'll talk about that later. So the thing is, Mali Corp, MP keeps getting money from, from people in the government and investors because they tell the story about the past. And they say, Hey, back in 1980, we were the biggest rare earth mine in the world. Well, that's true for two or three reasons. One reason is that most of large, large portion of rare earths were a no cost byproduct from some other commodity. So you know, it, you they weren't rare earth mines. They were titanium mines. They were iron ore mines, they were phosphate mines. And they were providing 40% of all rare earths, but 100% of all the heavy rare earths. So Mali Corp can say, hey, we're the biggest. But when you look at that graphic, something around 50% of the rare earth distribution was Lanthanum. And then another huge proportion was cerium, lanthanum and cerium make up 83% of the total. And back then when there were very few rare earth mines, there was a market for lanthanum and cerium. And you could sell them profitably. Today There's, you know, dozens and dozens of rare earth mines in China. And there's other small rare earth mines all over the world. And they're all producing cerium and lanthanum at the same disproportion to market demand.
Robert Bryce 15:16
So they're producing more, they're producing more of elements that we don't need that you now need that are not that aren't the critical that aren't the critical application technologies that we're talking about for high strength permanent magnets. And that is the that's the key. Am I right?
James Kennedy 15:31
You are exactly right. So right now, if you go out and check the price of cerium, and lanthanum, you can buy those for like $1.25 per kilogram, separated cerium and lanthanum, a buck 25 A kilogram, the cost to separate them in the US or in Malaysia is about $10. So you're losing money for every single bit of cerium and lanthanum, you drag out of the ground, because it has a negative economic value. And the Department of Energy and the Pentagon report these resources as if they were equally important as neodymium, dysprosium, terbium, and, you know, so all the all the critical ones. So this is the problem, the Pentagon, the administration Congress. They just don't understand that the entire rare earth value chain comes down to essentially four elements. neodymium, prazer, Genium, terbium, and dysprosium represent 90% of all economic value from rare earths globally.
Robert Bryce 16:52
Just those nine, those four 90% of the economic value 90%. And let me let me interrupt for just one second, Jim, because I'm looking at trading economics as we're talking here, and trading economics.com A few people are listening don't don't aren't familiar, a great website for all pricing on all kinds of commodities. So the five year price of neodymium now is what 3x What it was just in the beginning of 2020. And then it's one of the few places where I see any visibility for for neodymium prices. But clearly if if China controls the whole market, they can decide what that price is whenever they want, right? They want that whatever the market will bear is what they're going to charge, right because they control not just the mining and the processing, but also the finished product and magnets, right? So this is all all the all the pricing powers with China and not with VW or GM, or any of these other companies that are Tesla that are making all these EVs, right?
James Kennedy 17:47
Yes, sir. Getting your the punchline of this joke, right. So the punchline of this joke is the government still thinks this is a mining issue. So they keep trying to prop up mines. And no matter how much neodymium or appraisal Genium, or terbium, or dysprosium, you mine, at the end of the day, it has to pass through China to be separated. And it has to pass through China to become metallic. And until it's metallic, it really has no significant application. Right? Nobody uses these oxides. They need it as a metal, an alloy, or a magnet. And China controls all of that, because China has internal tax subsidies. And they're the only source in the world for the separated materials. So at the end of the day, you're right, they dictate price, they dictate everything, you can produce it if they don't buy it, you don't have a market.
Robert Bryce 18:45
Well, so tell me about the manufacturing, because the word here in this in this in this doe report is one that wasn't familiar to me. But it's centered magnets si en te R ed. So these magnets, I'm assuming each manufacturer is going to have a different motor or different, you know, different design for their generator for the different wind turbines. So these have to they're specifying a form factor of this long and this wide and this deep for the magnet that they need to fit in their whatever their application is, right. So but that's another part of the manufacturing of the value chain here that is very specific. It was gonna be hard to copy. Am I reading this right?
James Kennedy 19:23
This is so incredible. There's over 1000 companies in the Chinese rare earth value chain, and there's 1000s of products. So I'm not going to get the number exact, but there's probably 12 or 13 Different neodymium iron boron magnet chemistries, right, so there's the low end one, which is just praise Oh tinea Myojin em Fe iron and B boron and it comes out as certain ratio, then there'll be another one that's a little better that has a different ratio, and it's a little stronger. And then you keep going down up the value until you get to ones that have dysprosium and then terbium, and as you add those, the price of that the magnet goes up three acts, and it's 12 or 13 different products. So now that's 12 or 13 Different sintered products, which is essentially, you know, magnetic material, and that magnetic material would then get shipped to an OEM fabricator, and that OEM fabricator would take that material and then make a magnet specific for a galaxy iPhone, you know, a Galaxy smartphone, and iPhone. You know, whoever else they'd make
Robert Bryce 20:55
a wind, wind, wind turbine or window window, or windows are the windows in our cars depend on the same
James Kennedy 21:04
1000s of SKU numbers. So so the window magnets in the magnets for your seat and the magnets for the motor that moves your mirror, those are low end, low margin products, anything near the motor, anything that where there's friction, anything where there's heat, you need to buy these much more expensive magnets that have terbium and Dysprosium. And then there's some really exotic stuff that uses other heavy rare earths. So it's an endless series of, you know, different SKU numbers for different applications. And so in the United States, the DOE, the administration and Congress think that they're just going to put up a factory that says Bob's rare earth magnets, and Bob's just gonna pull a lever and Bob's
Robert Bryce 21:56
Bob's rare. You're cracking next to Bob's meadow and bait shop right?
James Kennedy 22:04
There. It's like it's simplistic and childish. What What you need is a full vertically integrated system. Where you have this is the most important word and I've This is, apparently this is now a word that's circulating wildly in the Department of Energy. The single most important word in a rare earth value chain is on interoperability, right? an uninterrupted ability means so what if you start a magnet factory in China manipulates prices, and it can't get supplies, and therefore it can't deliver magnets? Well, if that's if there's any risk of interoperability any risk, third Ford Motor Company is not going to buy from you. They're not going to switch from reliable low cost China to Bob's interruptible magnet supply company. Right? No way. So the only way to do this is, is create a value chain that starts at the resource and literally goes out the other end of the gate is a fabricated magnet for an iPhone or a brake caliper or a wind turbine. That's the only way to do it. But this
Robert Bryce 23:16
is the possibility here. I mean, Jim, I'm just casting this forward and thinking about the idea of, and we've talked about this before that that that what China has done, and I think you are looking for your exact quote, but that this has been a multi-decadal industrial, military governmental policy to dominate this sector of the economy. And I think it was, it was in 1992, Deng Xiaoping said, the Middle East has oil. China has rare earths, we must take full advantage of this resource. And that's what they're doing. But let me let me jump back to how the US got itself out of the game. Because we talked about this as well before that, through some through an industrial policy or an environmental policy, the US effectively shut off its rare earth element capabilities. Tell us tell us about that history.
James Kennedy 24:07
Now. There's a couple pieces to this.
Robert Bryce 24:10
If I could just don't interrupt again, I'm sorry, the station break. I'm talking to Jim Kennedy, James Kennedy. He's the president of three consulting.com Tremendous website with a numerous articles that he's written recently and ones that I've been boning up on, that he wrote last year talking about China's dominance, a four part series that's very eye opening, it would be the right word, but tell me about the I interrupted the history of the US was essentially taking itself out of the game.
James Kennedy 24:37
Right. So the first big tragedy was in 1980, the US nuclear regulatory commission and the IAEA, which is the International Nuclear Regulatory committee, we're both working on making the world a safer place so that we're very concerned about it. nuclear proliferation. This was you know, the 80s and Reagan and Gorbachev. So what they did was they changed the definition of nuclear source material. And they modified language that defined at exactly what point something became classified as nuclear source material. And they were lazy. So what they did was they basically just used the same laws around uranium mining and applied it to all mining. So what happens was companies that used to mine mineral sands, and they would get titanium and desert con and all of these other heavy minerals. Historically, they used to also have a heavy mineral, and they're called monocyte. Now monocyte tends to have excellent heavy rare earth characteristics. monocyte typically runs between 45 and 55%. rare earths, and the monocyte is very heavy, it's got a very, very narrow range on its specific gravity. So it was very easy to essentially shake it out to get super high purity monocyte for nothing was free, you weren't even mining it, you were mining something else and you would got it for free. Well, the problem was monocyte tends to have high levels of thorium, you know, between let's say two and a half and as high as 13%. In thorium is classified as a nuclear fuel. So what happens is the way they because they used a uranium mining and processing law, as soon as you mind your titanium and pulled your titanium out, and maybe pulled your zircon out, by legal definition, the remaining monocyte was concentrated. And once you've concentrated the natural material, it automatically was classified as nuclear source material. The second you pulled anything away from it, it was concentrated. And by legal definition, now its source material. So that's the same as if you had plutonium, right? That's the same as if you had spent nuclear fuel. You've got a huge liability on your hands. So most people quit mining it. And more importantly, the people that would refine and separate it would no longer accept monocyte.
Robert Bryce 27:40
Because they just didn't just to stop you because of this kind of regulatory. I don't even know what the right word is. It's not a glitch. But an a regulatory edict that was far was far reaching without any understanding of what the knock on effects were going to be. And so if I'm if I'm reading you, right, what you're saying is that the US just took itself out of the game on accident, and it could get back in, and it could get back into the game if we sober up and understand what's in monocyte and why we need it. But this is the lies at the heart of the idea won't we're not going to mind anything here. We're going to offshore everything. And now we're 40 years later, we're I mean, from everything you're we're just screwed on this, because we're not going to be able to create industrial policy that's going to be able to counter China in anything like the near term Am I Am I was spot
James Kennedy 28:30
on. I spent 12 years literally banging on the wall. And just saying, Look, here are resources that the United States mines every day, they're loaded with rare earths. And if you could fix this regulatory snafu, those materials could pass into the value chain. And because anything nuclear is nuclear, it's too dangerous for anybody to mess with. We couldn't get policymakers to sign off on it. They literally, we got sponsors. I mean, we we introduced a bill in 2014 and 2016. In 2019. The bill would have solved this problem. But the bill could not get broad support because companies like Mali Corp, or MP materials or Linus very aggressively lobbied against the bill, because our bill would have allowed all of these waste resources to go into the rare earths value chain. And that would make anybody directly mining rare earths superb, superfluous, right? There's no reason to do it. How much rare earth has been thrown away every year in the United States. There's enough rare earths that you could economically recover in the us, if you solve the thorium problem, to meet 85% of global demand 85%,
Robert Bryce 30:08
just from the US, just from the US, that's, that's effectively just being wasted.
James Kennedy 30:13
You could sell this, you can use it here, sell it to Europe, sell it to Korea, sell it to Japan, and still have a tremendous amount leftover to sell to China. That's how much so we I wasted, you know, 12 years, 10 years of my life trying to get that to work. We had some really brave members of Congress who issued who put it out as a bill, but because of the lobbying power of people representing the interest of Mali Corp, or Linus, or some, you know, third tier magnet manufacturer in the US that's buying Chinese metals alowing and them in the US, and then calling it a US made rare earth magnet. They were very aggressive. They very aggressively denounced our proposal. So, you know,
Robert Bryce 31:11
and they got and they were fueled in part if I can interrupt here again, but it's just that this this, the root of this, as I'm paraphrasing, what you've said, Is this overarching irrational fear of radiation, and that there's something Oh, in this story of oh, well, it's radioactive materials, fissile, you know, whatever. But it's, it goes back to this same issue of as low as reasonably achievable, the zero, what is the zero exposure threshold, all of this stuff that is now hampering the growth of nuclear energy, also has roots in the now us ceding our energy supply chain or our alternative energy supply chain? I won't say full, but that seating that entire supply chain to the Chinese I mean, it's like, there's no, there's no rationality around any of this. And yet, we're, we're marching off the cliff here. I don't know, what saves us from going over the brink here. And and which which automakers? Should we be shorting here? I guess it's the other. The other question,
James Kennedy 32:11
this is this goes back to the original Molycorp. You know, I basically put together models that showed Mali corporate go bankrupt, no matter what it was impossible for them to succeed. And, you know, some very large finance guys will put their own models together and confirm it, then they would go out and short Mali Corp, while Mali Corp went from 14 to 70. To zero, but on its trip from 14 to 70, you'd certainly don't want to be short that right now. A huge number of investors that were making money on it knew it was a fraud. But why not make money on the fraud? I mean, it spends the same, right? And, but and money generated during a bubble, a heightened bubble, it's always better and faster, right. And just think of the bragging rights you get. So everyone was perfectly happy to ride that bubble, and then dump everything on to retail investors. And this is happening once again, you know, so now you have MP MPs telling stories that, you know, just are not realistic. And a lot of people know, they're not realistic, but they will ride this. People know that Ford Motor Company, our General Motors cannot go away from internal combustion engines, the materials necessary to roll out a fleet, you know, a fleet of EVs that represent 50% of all EVs sold, is technically I would say, even if you had a an Apollo program, and that kind of spending, I still don't think you would make it. I don't think it's possible
Robert Bryce 34:02
to to meet the demand for just the commodities themselves.
James Kennedy 34:06
Right. Well, go ahead. They were domestic, right. Right now we're on track to move towards that target, with China controlling everything, right? We're mining rare earths for China. They're converting them to metals and magnets, and then they're selling them back to us. They're deciding who gets them and who doesn't. And that will be the case from now some 2030. And now to 2050. Because the way China can manage as its monopoly is it focuses all of its subsidies, specifically on the on the separation of rare earths, and much more specifically, on the conversion of pure oxides to metallics, right. And the subsidies there are so significant, that no company outside of China has ever been economically competitive. They can't be. It's not
Robert Bryce 35:05
possible. Because these because these are the Chinese state champions. These are
James Kennedy 35:10
these Chinese state champions, and they get in, they get significant internal tax credits. For for not exporting pure oxides for exporting metallic materials for exporting finished magnets. That's where the money is the rewards, the internal tax rewards inside China are for holding back these any resources used to make the finished product. And when the so when that finished, when those resources go out the door Praiser Genium, neodymium terbium dysprosium, their price substantially over what it cost if they just do the work inside China. Right. So it's just not possible. We did reports for the Pentagon, we had we had corporations making magnets outside of China provide testimony to the Pentagon, that it's not possible that mathematically it's not possible. So right now we're working with some members of Congress and a bunch of industry groups like, you know, the Evie automaker grew a certain a motor company in the United States, other people in various parts of the OEM end user, side of industry, these are all the people who want magnets, these are all the people who put magnets in their products. And we're trying to push a piece of legislation that will create tax tax incentives for the production of finished magnets in the
Robert Bryce 36:48
US. And do you have a bill? Do you have a sponsor,
James Kennedy 36:51
we're working on a sponsor. We're trying to get our coalition together. And we're just finishing that up. And we're looking for a sponsor who's on the Tax Committee, because this is a tax bill, there's no point and creating a Texan Senate Bill outside of that committee, because that's you're just in the wrong jurisdiction. Right. But we are looking for a champion there. We can provide that person, that committee, those committee members, all the information, they need to understand that this is not a mining issue. It's not even a refining issue. At the end of the day, China provides very healthy tax subsidies for the production and control over finished downstream value added materials. And that it's mathematically impossible to replicate those prices outside of China. And without tax subsidies, and the bill is very important. And and we certainly have support from OEM end users for it. We're just trying to lock in, you know, maybe one or more automakers, because without a sufficiently impressive voice, nobody on the tax committee wants to hear you.
Robert Bryce 38:12
Right. This is the end users. So the end users understand this. I mean, they understand the game, but they don't want to talk about it, because it's a vulnerability. I mean, because, again, the Biden administration, I don't hear them talking about rare earths, you know, I see a lot of stuff about batteries, and, and there was another $3 billion. I think it's subsidies the DoD just handed out to battery makers. But we, we haven't talked about cobalt, I want to come back to cobalt, but yeah, and poly silicon. But let me ask the question about you said this mathematically impossible. I've done some work based on estimates that Richard Harrington has done. He came he was on the podcast a few months ago. He's based at the Natural History Museum in London. He did some calculations on neodymium, cobalt, copper, etc, what would be needed to electrify the British fleet? By my calculations, we would need four times global all global production of neodymium in the United States to electrify half of the US auto fleet by 2050. It's something on the Is that does that sound
James Kennedy 39:14
that's that's easily within the realm of real numbers. And nobody knows what they are at the end of the day, but but it's it's multiples. And so this is where China
Robert Bryce 39:24
multiples of all global output, not just you would need it was I figured two times global copper production, all global copper production to I mean, we're just talking massive amounts of metals and minerals and we haven't talked about spherical graphite yet either, which is another discussion. So this is torqued up here.
James Kennedy 39:47
The punchline of the jokes or the punch line of the joke is this administration and lots of European governments are setting these lofty targets but someone's somewhere is not feeding them. realistic information because to ramp up and increase rare earth mining in the United States by multiples, requires opening new mines, requires permitting new mines requires financing new mines. And the average time it takes to open a mine in the United States is about 10 years, it can be hundreds of millions of dollars in engineering to prove the project works. And at the end of the day you're now at 2030. Okay, so let's just say it's 2020 easy math 10 years from now you're 2030 or 2032. So if if, if this administration in Europe meets their goals, who supplied the material for the first 50% of the fleet? Not us, right? China, right. So here you are on the acceptance curve of a new product like this. And this is where the margins are fat and juicy. And then you go to 2050, where maybe we're starting to get in the game. Now what happens? Right now you're getting to a mature product. Now anybody entering the game is at a severe disadvantage, and margins are falling. So this, if you think about it, the punch line of the joke is, all of these, all of these very aggressive agendas, only play to China's strength, because what's China's strength? If they wanted to open 10 new mines tomorrow morning, they could open 10 new mines tomorrow morning, right? We can't
Robert Bryce 41:44
because of the command and the command and control economy gives them this advantage, whereas we have to litigate everything and that this it were the ability to even you know, well, yeah, mines, you name it. Transmission Lines, pipelines, you know, building infrastructure, or industrial capacity of nearly any kind is a fraud endeavor.
James Kennedy 42:05
Exactly. So let's, let's coin this new term command and control capitalism. That's what it is. And that's what they've got, and we don't. So So all of these lofty goals, really only play to China's advantage. And of course, in the short term, companies like NP materials will play on nationalistic ambitions, and investor greed. And they'll have their greedy handout for every bit of money, they can scrape towards themselves. But at the end of the day, they're still never going to be a player. Because without this tax credit bill, they can't make a magnet competitive with China. They'll go from making money, selling China low value, rare earth concentrates, to losing money making magnets. Well, that's a crazy business. Right? So why would you do it? Right? You're not going to do it.
Robert Bryce 43:08
So well, then tell me the way forward here, Jim, because I mean, this is very sobering. I mean, very sobering. And it is the issue has not I mean, there's been a number of articles written about just the supply chain on the elements. But really, it's about the magnets. I mean, this is the this is the issue. It's, yeah, even if they sold us the elements, somebody has to convert them into magnets. And that means industrial policy, that means investment. That means as some kind of return on capital, and in a time when the Chinese can say, well, just kings x, we're we're will cut the price to undercut any competitor that would come into the market, right? Because they've done that as well on as far as I can tell on this this in this market before?
James Kennedy 43:51
Well, that's exactly it. As we've discussed before. China looks at rare earths, cobalt, nickel, graphite, silicon, they look at all of these things as geopolitically strategic tools or weapons. Right, the United States economy and the United States dollar in the United States dominance today is built on something called energy hegemony. Right? You know about this, some of your listeners well, but the truth is, the United States standard of living is largely related to our, our multi decades long program of energy hegemony, right? We control shipping lanes, we guarantee delivery, we turn on and off producers through regional wars to manipulate price and supply and and that's been our game. Well, China's really a lot smarter than us. They say, Okay, so the United States has energy hegemony. But what is it energy used for and with? Well, the energy just goes into technologies. What if we get hegemony over the technologies themselves? So China's building a new form of hegemony, and the hegemony is technology, materials hegemony, and they get to dictate who has access to these materials, when where these technologies get built. This is the next step in the game of global hegemony in the United States can't figure it out. We just can't see that those people over there could be so smart is to outmaneuver us. I mean, it's really quite frankly, about I'll be careful what I say. But to believe that an ethnicity can't be as smart as you and can't out outmaneuver you, is called hubris, right? Yeah. And we have a really bad case of it here. and policy makers can't make intelligent decisions. Because they're they are incapable of recognizing the, the depth of the Chinese strategy, and the Chinese strategy is to strangle the entire world, and to aggregate all of the technologies of the world to itself, through the control of technology materials, and they don't waste their time in mining them. They only they only put their energies into controlling them at the point of application. And this is the
Robert Bryce 46:46
pinnacle of at the peak of the of the value chain, where they actually go into the thing, the the actual finished good. And that's the part where I look at, you know, I live in Austin, and I've flown in and out of Austin's airport many times, and many times I fly in or I even drive by it, the new Tesla giga factory that's here in Austin, right. And they just recently announced, oh, we're not gonna build the cybertruck anymore, which was supposedly what the factory was about. Yeah, it's a massive building. I mean, just a huge, huge building. And they're putting it up in, you know, super fast time and whatever. But as I look at it, and I drive by it, I think, well, that one thing right there that building that entire enterprise is all a long term bet on the value of the price of a very few commodities that Tesla doesn't control. Now, am I miss apprehending this?
James Kennedy 47:34
So no, you're exactly right. I was just on a phone call, you know, and relayed this. And we were talking with some people in Washington DC about exactly this. And they said to us, why do you want a production tax credit? They're so hard to get nobody likes to write production tax credit, why don't you just do an investment tax credit? And I said to them, because if you do an investment tax credit, you'll end up with a giant, empty building. Because any public corporation will make the announcement and build the building, and roll out all the PR and enjoy all the stock price benefits and cash in on the warrants and options. Knowing that there's a very high probability that building may never actually do anything. They don't care. It's spontaneous gratification. I said, if you want us magnets made in the US, you literally have to provide the tax credit on a per kilogram basis. If you're not willing to do that be prepared for empty buildings be prepared for another Solyndra.
Robert Bryce 48:51
Well, so let's talk about that. Because I think that's an interesting point that it's that production tax credit would be a word on awarded on a on a mass basis. You You have to show me you weigh the magnets, and she'll show me what you're doing here because we're talking about two and a half to five kilograms of rare earth elements and every inch for neodymium iron boron magnets. And every Evie we're talking about for offshore wind turbines, two or three tonnes of rare earth elements. I mean, this is a massive quantity of material and kilograms. Yeah, that we're talking about. But, but handicap it, let me let me step back if I could, Jim. And just, you know, let's zoom out. Okay. So the Australians are talking about mining more, you you've made it clear that a lot of investors and a lot of people in you know important people in automotive sector and elsewhere are recognizing this problem. If the US can't get its poop together here who's going to who who is going to come out and rival China in this regard? Is it possible that it's Japan or another, another big industrial company or country or is there any other player in the international market that is really addressing this in the way that you very clearly laid out?
James Kennedy 50:00
So, this is so crazy. The Japanese government has a formal strategic critical materials relationship with the United States. And in 2018, the Japanese government formally announced to our government that they would no longer produce any new, rare earth magnet materials, in fact, no more metals. And the reason for it was, quote, China's sets price. China was the only significant producer of Magna magnets, and metals outside of China at that time, and they shut down for good. They do produce magnetic materials and magnets from scrap and from recycling blah, blah, blah, but you're not building tomorrow on yesterday's trash, that's just silly. Nobody else can do it. There's, there's only three rare earth metallic magnet, rare earth metallic magnet making companies that aren't physically in China. Well, that are physically in China or owned or controlled by China, only three, right? And all three of them have the exact same problem. By the time they acquire all of the inputs, including some from China, their finished magnet is going to cost approximately 20% More than a Chinese magnet. So who's your customer? Well, you can get people in the defense industry to buy from you and you can get some virtue signaling company to buy from you. But you're not going to be selling magnets for every starter motor in every Ford car. And you're certainly not going to be a supplier to somebody making iPhones or you know, whatever. Because if you switch away from China as your primary or exclusive supplier of magnets, there will be retribution. We have cases of Chinese retribution for even making statements about China's monopoly. There is Chinese law that has actually been written on how to sanction US companies and cut off their supply to rare earths. China is got a very good and well earned reputation for retribution if you if you try to develop alternate supply. So what's the point of building any magnet facility outside of China and less that magnet facility one can operate at volume, right? And to be uninterruptible? Right three, be equal on price. And so right now, the legislation we're trying to find a sponsor for is the best solution we can do.
Robert Bryce 53:23
But it's on tape, but it's gonna take years or even decades. And an n n n a n a re understanding or readjustment or just a sobering a sober look at the issue of mining monocyte and refining monocyte here
James Kennedy 53:40
in the US. Absolutely. That needs to be done. Because as I've heard you
Robert Bryce 53:45
say it we need a fully and we needed a fully integrated supply chain. We have to we have to go from mine mouth to finish magnets to the manufacturer. Otherwise, there's no hope.
James Kennedy 53:56
Otherwise, all we're doing is strengthening China's monopoly. You're absolutely right. So if the legislation we're working on gets passed, there are companies with proven commercial scale capabilities that could could become part of fully integrated joint ventures, they could build out us magnet manufacturing capacity in the US very quickly. The issue is the adult issue is if you want them to do that, and you want them to do that on scale, they have to know with absolute certainty, that one, the supply is uninterruptible and two at the end of the day, the price is competitive, right three that those those two things combined, they can go secure long term off takers, right? Nobody's gonna build this thing. Nobody wants an empty Solyndra building. Nobody wants a giant building that was supposed to make batteries, right?
Robert Bryce 55:04
So it's this thing to sue. It's a sustained industrial policy which the US has not had. And that is going to require a bipartisan agreement or a bipartisan understanding of the the, the criticality of the challenge. If I'm if I'm putting it in the right terms that you're gonna have to have long term buy in with a very long term horizon, to say, this is critical for national security, because I just want you to read what you've written about this, as well as that this isn't just about, you know, stupid offshore wind turbines, and they are stupid all of them and, and onshore wind turbines and electric vehicles. This is about national defense and magnets that go in some of our highest tech, highest tech defense systems, right, our fighter jets, missiles. Other things. This isn't just about alternative energy technologies. It's it goes to the heart of the military, the military's needs as well am I or am I miss apprehending?
James Kennedy 55:59
You're absolutely right. But let's go back just a little bit further. Sure. Let's think about it. From giant China's perspective. If China continues to control all of these key critical materials we've been talking about at the point of application, then any company who's building a new technology has a new IP, and needs these materials at a commercial scale. For them to get those materials, they have to structure an agreement with China, that guarantees them uninterruptible supply. And you know what that is? Move your factory to China. And once they move their factory to China, China can reverse engineer the entire thing. So what happens is, this is really a long term game about acquiring IP. This is how you sweep the whole world's IP in
Robert Bryce 56:55
IP, intellectual intellectual property, intellectual property,
James Kennedy 56:58
we have national labs and corporations spending hundreds of millions of dollars, millions of dollars on IP for intellectual property, patent patentable concepts for new products and new applications and new material science. But when you go to build them at a commercial scale, you have to have a guarantee supply. And to get a guarantee from China. The guarantee only comes with you relocating that technology, or at least the initial components of that technology inside China. And the second you do that, you've just surrendered everything you surrender, this is a game for them to acquire the entire world's IP. This is this is, as I said before, they're using strategic and critical materials is a new hegemonic tool. And this hegemonic tool, is one step past energy. It's at the point where what do you use energy for transportation, communication, convert conversion of materials from one thing to another, this all happens at the material science level. And if you want to participate in that China is holding all the cards. And if China holds the cards, China gets to write the future. Right? We all become, you know, Third World Resource suppliers to China's new great, you know, nation. I mean, if you I'm sure you've looked at China's mid 2025 project, right, making China 2025. I haven't what does that say? Do a show on it? It's incredible. So China says all of these leading technologies and all of these industries, all across every, every part of the economy by 2025, China is going to lead in them. This is it. This is a very ostentatious claim, right. But go look, they're on track. They're on track to lead in every one of them.
Robert Bryce 59:06
And it's the 2025 plan. Is that what it's called? I think it's called
James Kennedy 59:11
made made in China 2025. And it's for aerospace, it's for transportation. It's for agriculture. It's for hydrocarbons, it's for energy. And they're using this platform of critical materials, and good old fashioned, green and short sightedness of of global corporations, to AG to acquire all the West technology. And to get all these systems built there. Were a government sponsored corporation can essentially copy the Western technology, right? I mean, it's, it's brilliant. Here's here's one
Robert Bryce 59:52
of mine. It's and it's it's the it's the end result of 30 years of of focused action. I mean, you know, dunk shop Think 30 years ago 1992 saying, we have rare, rare earth elements, we're going to exploit it and well 40 years if you count the US even taking itself out of the game, but let me let me interrupt here again, Jim, because I want to just talk just briefly about poly silicon. And there, the US State Department recently sanctioned, imposed trade import prohibitions against poly silicon sourced in shinjang because of the use of Uighur slave labor in Xinjiang. But Jin Jiang is only 40% of poly silicon globally, your your numbers suggest that they're the poly silicon used in solar panels? Is it 90% of that comes from China now?
James Kennedy 1:00:38
Yeah, yep. Yeah, for certain applications. Yes. Not for all but essentially an entire segment of solar. They control around 90%. You know, in, for example, spherical graphite used in every battery for an electric vehicle, they control 100%. It The list goes on and on. And they just keep capturing the market segments of today and tomorrow that are going to matter, they move themselves to the very end of that downstream value chain, so that they get all the benefits. And it's a very successful strategy. In the United States, our strategy, we don't have a strategy. I mean, there isn't a strategy. The strategy is, the market always wins free markets are a miracle of the West. And we'll have blind faith in them. You know, while Rome burns, you know, it's just, they, people can't accept the fact that China has essentially put a new economic paradigm in motion. And that if you're not going to play at their level, you're going to leave the field, I would say it's something like letting men get on the women's swim team.
Robert Bryce 1:01:53
Which, which hasn't, you have
James Kennedy 1:01:56
three men competing in the women's swim team, then they're going to get first, second and third, right? And you won't even know about a woman competing until you give a fourth or a fifth place. So this is what's going on, they've just changed the game. The game has changed. They're playing for, you know, they're playing for everything. And it's geopolitical. It's strategic. And it's all encompassing. You know, they don't want more. This is the thing people don't understand. Like any billionaire you'll ever meet, he doesn't want more. He wants all of it. They all want all of it. Right? It'll never stop. It's, it's a disease. China's diseases? Well, I kind of get it for China. But you know, it's a pathology, money's a pathology. For China, you need to think about deep, deep history. Sure, they want it all, but they kind of have a reason. So every Chinese person and certainly everyone in the Communist Party, remember the Opium Wars is
Robert Bryce 1:03:00
yesterday, right? That this is the humiliation of China that now is going to be the it's payback time. And this is an this is how it's going to manifest itself.
James Kennedy 1:03:09
If you can't understand that and accept that as a serious motivator, and you'll never understand China. You think about this, the country of England, United Kingdom was the world's biggest drug dealer. at gunpoint, hundreds of millions of Chinese people perished. They lost generations to opium, and the humiliation lives with these people like it was yesterday. So not only do they want to win, but they want to win. And they want to set the balance, right? So it's very deep. And the United States is just not prepared to think at that level.
Robert Bryce 1:03:57
There was an interesting piece, I think, was in the Journal of the Wall Street Journal today, or I think it was maybe yesterday about the US Navy and the shrinking US Navy. And at the same time, the Chinese navy is growing dramatically, which is a different have had, oh, Gregg Easterbrook was on the podcast talking about this in his great new his very good new book, The Blue age. But it just a couple of last things. Jim, we've been talking for now an hour and I don't want to keep you but you know, that can't help but mention that the Biden administration recently canceled two federal leases for the for the twin metals mine in Minnesota, which is going to coat produce copper, nickel and other metals is just part of the pathology that we've been telling you about this, this inability to think long term and strategically when it comes to to getting metals out of the ground.
James Kennedy 1:04:41
Sure, sure. But it's yeah, that's all true, but there's actually another level to it, which is even more repugnant. So who, who is out there protesting against this mine? The virtue signalers who already own their Tesla, right? You about how grotesque that is. Yeah. Right? Because think about that they they're winning in the virtue signaling realm. And now they use their energy to prevent somebody like you from moving to their level. This is, it's a sickness, all of it is a sickness.
Robert Bryce 1:05:21
Well, let me ask you then then I'm gonna wind up here. So I asked you before I know we were, what you're reading. And I was if I recall, you've all Hariri you're reading that's one of the books that you had on your bookshelf or your your top of your reading your nightstand? Oh, yeah,
James Kennedy 1:05:35
I loved it. I was one of my favorite books. And then, of course, I saw him hanging out with what's his name from the World Economic Forum, last Schwab. And I'm like, Ah, for God's sake. So, yeah, it's interesting, I sent you a little video clip on that. But we are, we're moving into a realm where there are people who imagine a future where humans are a little bit less than human. And these are the same people that obsess over virtue signaling, and being part of the right hive, you know, not even tribes anymore. People think like hives at this point, you know what I'm talking about? It's, it's very scary, but fantastic book. But I'm a little bit concerned that he may be fraternizing with the World Economic Forum, guys. And Klaus Schwab, who is looking for an enlightened day when choices aren't what they used to be.
Robert Bryce 1:06:40
Let me ask you this, because you I mean, this has been sobering. And, you know, we've chatted a couple times now over the last few weeks, and I'm reading your articles. It's it's a sobering kind of look at the world and where we are in terms of industrial policy, military, you know, automotive, transportation, mobility. What makes you Are you optimistic? Why I asked the question, what gives you hope, and what makes you optimistic. And one of those guys, Simon Irish said, he used to work on Wall Street. He's on Wall Street, we have, there are two kinds of hope, Bob Hope and no hope. Well, so. Are you hopeful for the future? You'd be you've been pretty pessimistic thus far.
James Kennedy 1:07:19
Well, let's put it this way. I have two wonderful daughters. So maybe I'm just desperate. This thing has to get fixed. Right? My very closest colleague has no kids. And he's as equally invested as, as I am. So having children isn't the only thing. But there is something that drives me to push solutions on our government. If we can just crack the door open, or is my partner on all these efforts, John, coach with the thorium Energy Alliance, as he always used to say, it's like a giant boulder on a hill. And you just have to remove a little pebble that's preventing it from rolling downhill. But removing that Pebble is really difficult and a little bit dangerous. But we're doing the work. It's just, you know, how do you convince a policymaker to, to do something like we're asking with the tax credit, when another corporation that is funded by the Chinese government and is feeding the Chinese government's monopolies? I shouldn't say Chinese government is feed is funded by a Chinese Corporation, and is feeding their monopoly who will openly lobby against you, right? These are the problems, right? So so in our free society, it's a little too free. And no one differentiates between the voice, an American, an American worker, or American factory owner, and an American factory owner whose only customer now is China. And that's where all their profits come from. So nobody really differentiates. So if your livelihood is dependent on China's long term, geopolitical strategies, you have the same access. In fact, I can guarantee you you have better access to the same policymakers than I do. And they don't differentiate. They really just pretend as if everybody's voice is equal, but if somebody attaches a check to it and the campaign donation, his voice is more equal, right, right. These are the problems we're doing our best to fix them. If anybody wanted to support the work I'm doing I work very closely with the thorium Energy Alliance and any support you'd be of their supports this work too. But it's a challenge and and I'm Irish, so I'm too stupid to give up. There's no fight we will fight Show me the Jolly Green Giant, I'll take them on tomorrow. I just there's not a fight I don't like, but maybe that's part of it. But then we really do our best. We really appreciate you giving a voice to these issues. They're very important. And I can tell from what I've read in our conversations, that your motivations are very much like mine. There was a wonderful country called America. It had unbelievable promise. And I I'd like to go back and visit that country. I'd like to make that country whole again. Very important.
Robert Bryce 1:10:35
Well, we'll stop on that note. My guest has been James Kennedy. He's the president at three consulting.com you can find him on that on on the web on the internet on the Google three spelled out consulting.com. Jim, thanks a million for being on the power hungry podcast. We'll do this again in a few months with some updates and you know, keep me posted on the on the the progress on this legislation because we need to do something with us has been outmaneuvered here. And we're going to need more robust government policy in a lot of realms, I think now in the wake of the wake of Russia's invasion of Ukraine and other issues, but, but we'll leave it there. So thank you so much. Thanks again. Thanks to all of you in podcast land for tuning in. Wasting another hour as Click and Clack the tappet brothers used to say wasting another reason really valuable hour of your time on the power hungry podcast. Leave us a good review on wherever platform that you're listening. You can also find us on YouTube, of course, and until then tune into the next episode of the power hungry podcast. Thanks. Thank you