The Pentagon's Metals Gap
It's the last thing any Washington watcher would expect in the run-up to Sequestergeddon: a government agency proposing a new spending program. Yet that's precisely what the Pentagon did last week, with the quiet release of its National Defense Stockpile Report to the Congress.
Even experts in the industry are hard-pressed to recall when the U.S. Government last added to its metals and minerals inventory -- and for good reason. Since the implosion of the Soviet Union in December 1991, the U.S. defense stockpile has been treated as a kind of raw materials garage-sale, with nearly all metals marked for a phased sell-off -- calibrated so as not to unduly undercut current metal prices. Stockpile silver went to the U.S. Mint for the striking of silver dollars, an almost literal swords-into-plowshares swap. Other metals were sold to pay for the cost of erecting the World War II Memorial without having to appropriate federal funds. Still more metals were sold with the proceeds flowing back to the U.S. Treasury, where they were spent on whatever it is the federal government funds to the tune of $10 billion a day.
And why not, given the demise of the Soviet threat and the emergence of a global market not seen outside an economic textbook. Surely the U.S. could source metals and minerals from providers anywhere on the planet, for the right price. But after two decades of this post-Cold War experience, a new realization is dawning: Shifts in global metal production have produced a situation in which the U.S. is extraordinarily dependent on foreign-sourced metals and minerals. For the Pentagon, increasingly dependent on the metal-intensive weapons systems of a modern military, this foreign dependence is a dangerous exposure -- a weakness that can be exploited in time of conflict.
Not quite a year ago, the Pentagon issued a long-awaited report on its rare earths dependency -- the metals used not only in smart phones but smart bombs and a score of major weapons platforms. That study, delivered 18 months late, came in at a scant seven pages, the gist of which was to downplay any dependency whatsoever.
What a difference a year makes. The new DoD report, weighing in at 189 pages including 15 non-classified appendices, studied 72 metals and minerals (including 16 of the rare earths). Its finding: "DoD finds shortfalls -- insufficient supply to meet demand -- for approximately a third (23) of these materials."
DoD proceeds to recommend nine metals for near-term stockpiling, four of them rare earth elements. But the list of at-risk metals ranges freely across the Periodic Table of Elements: Gallium (used in computer chips for radar and electronic warfare systems), Tantalum (used in capacitors in anti-tank systems), Antimony (used to strengthen ultra-light weight plastics), Silicon Carbide (used in so-called loitering weapons, like drones) and Bismuth (used in ammunition).
Where is the U.S. currently importing the metals and minerals the DoD studied? Of the 72 metals surveyed, one country -- China -- currently produces 64. That's 89 percent; but when you examine the Pentagon's unclassified list of 19 identified metals and minerals designated as being in shortfall, China presently mines all 19.
That's a problem, when one of the scenarios posited in the report involves a one-year metals embargo instituted by China.
DoD's total projected cost to remedy the shortfall -- metals purchases just above $1.2 billion -- is a rounding-error in the world of federal spending, equal to about three hours of what the U.S. Government spends every day, 365 days a year. But that amount masks the true economic cost of a U.S. mining industry capable of responding to the Pentagon's purchase offer. With a typical mine requiring as much as $1 billion in construction costs before the first kilogram of material is pulled from the ground, the assumption that the U.S. would be home to operating mines for each of the 23 metals and minerals deemed to be at-risk is a collective assumption that the private sector is ready to wager $20-plus billion to extract the metals the Pentagon may seek to stockpile.
Right now, with the U.S. rated worst-in-the-world in the time it takes to bring a mine into production -- seven to ten years, on average -- and with U.S.-based metals exploration spending slumping from 20 percent of the global total 20 years ago to about 8 percent today, odds are the metals the Pentagon needs most won't be mined in America. That is, unless the DoD becomes an advocate of mining reform, in addition to being a willing buyer of critical metals.
Regardless of the most meticulous planning, war is always a "come as you are" exercise; the same is true for the materials that form the input end of the defense industrial base. And in that regard, the United States is in some peril. The DoD scenario postulates a one-year conflict commencing in 2015, followed by a 3-year recovery and regeneration phase ending in 2018. In Australia, a mine being explored today would likely be producing metals in 2015; in Canada, it might take until 2017 to complete the permitting process. But in the United States, a deposit of any of the 23 key resources on the Pentagon's list discovered today won't run the permitting gauntlet until 2020 to 2023.
Little wonder a 2008 defense study found that shortfalls in 22 metals had "... already caused some kind of significant weapon system production delay for DoD."
This "single-point of failure" in Pentagon parlance is beyond the purview of the newly-released report, but it is no less a clear and present danger.
The question now, in a Washington where the government is funded from month-to-month, and strategic thinkers are savants who see an hour into the next news cycle, is whether the U.S. Government can muster a sustained policy to reverse our metals dependency -- before the shortfalls posited in the Pentagon's hypothetical scenarios become all too real.