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The TechSurge: Deep Tech VC Podcast explores the frontiers of emerging tech, geopolitics, and business, with conversations tailored for entrepreneurs, technologists, and investment professionals. Presented by Celesta Capital, and hosted by Founding Partners Nic Brathwaite, Michael Marks, and Sriram Viswanathan. Send feedback and show ideas to techsurge@celesta.vc.
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For heavy rare earths, China processes 99% of them. So when China turned off the taps, within six weeks, American industry was struggling. In 1990, we had $25,000,000,000 of material in our national defense stockpile. Last year, we had 900,000,000. The biggest misconception is a geopolitical problem.
Speaker 1:It is actually an economic problem. Making mining profitable is the biggest challenge that we have.
Speaker 2:Hi, everyone. This is the TechSurge Deep Tech Podcast presented by Celesta Capital. Each episode, we spotlight issues and voices at the intersection of emerging technologies, company building, and venture investment. In this episode, we will explore critical minerals with renowned expert, doctor Gracelyn Bhaskaran. I'm Sriram Biswanathan, founding managing partner at Celesta Capital.
Speaker 2:If you enjoy TechSurge, now is the perfect time to hit the follow and subscribe button. And while you're at it, leave us a review on your favorite podcast platform. If you're just discovering us, visit techsurgepodcast.com to sign up for our newsletter and check out the archive of some very interesting past episodes. For most of us, Critical Minerals are invisible. We think about the phone, the car, the data center, but not the raw materials underneath all of them.
Speaker 2:But those materials are now becoming one of the most important strategic bottlenecks in the global economy. For the past three decades, China has built the most dominant mineral supply chain in the world. Today, the US government's critical mineral list includes 60. These represent the raw inputs that make today's technology work: lithium for batteries, copper for power, rare earths for magnets, gallium and germanium for advanced electronics. Our guest today is Doctor.
Speaker 2:Gracelyn Bhaskaran, Director of Critical Minerals Security Program at the Center for Strategic and International Studies. She's a mining economist who has worked on these issues from South Africa's Platinum Belt to Washington policy circles, and she now helps governments and industry think through how to secure the minerals that power semiconductors, electric vehicles, artificial intelligence infrastructure, defense systems, and clean energy systems. In this conversation, Graceland helps us understand this story at the intersection of technology, manufacturing, and national security, and whether the mineral supply chain can keep up with the digital economy we are all trying to build. Gracelyn, it's a great pleasure to have you on this podcast.
Speaker 1:Thank you so much for having me. It's great to be here.
Speaker 2:Before we actually get started, we were just talking a little bit prior to the podcast about your background. I'm just fascinated. Just take a few minutes to tell us, you know, your background and that story is just amazing.
Speaker 1:You know, it's funny. They say the apple doesn't fall far from the tree and my dad is actually a geology professor. He immigrated from India with a PhD in physics. So I spent most of my formative years growing up at Michigan in, like, in an auto manufacturing town halfway between a Ford and a GM manufacturing plant. Fast forward to my career.
Speaker 1:After college, I got a Fulbright. I went to South Africa, and I sat in the platinum belt where about 70% of the world's platinum is. And the primary use for platinum is actually the catalytic converters in your car. And I went on, I did a PhD focused on the platinum group metals, platinum, palladium, which is really crucial for semiconductors. But what was really full circle for me was when I moved back to Washington after a decade abroad.
Speaker 1:And last year when China imposed rare earth export restrictions, it was Ford that stopped manufacturing owing to a supply chain disruption. And America really woke up to the fact last year that critical minerals are not just, you know, a set of niche commodities. They are actually the bedrock of economic security. And the decisions that we make about our minerals impact factory floors around this country and the welfare of hundreds of thousands of people employed in industries like autos. So it kind of was full circle growing up in a manufacturing town and then getting to come back and be like, you know, mining is actually the bedrock that nobody talks about that allows every part of our economy to function.
Speaker 1:And I've been very fortunate because minerals are located wherever they are. So I spent a lot of time Africa, Latin America, The Middle East, Asia, wherever mines are, to better understand how do we strengthen our supply chain security here in America.
Speaker 2:Before this podcast, you and I were talking about it, it's unbelievable that your family is from the same town that I'm from, and your father and I may have overlapped in that town. And importantly, I spent time in Detroit, Michigan in the auto industry, and now I'm focused on Deep Tech and semiconductors. So it feels like, you you and I have lots of stories that we can exchange. I want to just go back to the beginning. You know, critical minerals, what's the difference between critical minerals, strategic minerals, or rare earths?
Speaker 2:Just level set that for us.
Speaker 1:So critical minerals are here in The US, we have a couple of different lists. Department of Energy has a list. You have Department of Defense has a list, and Department of Interior has a list. And generally, we're looking for two things. Do we need a lot of them?
Speaker 1:And what is the economic impact if we have a disruption to that supply chain? In The US, our primary list is Department of Interior, and there are sixty minuteerals that are critical. And it's everything from your rare earths, which I'll come back to, which are actually a group of 17 minuteerals, to things like copper, which you need for every part of our economy from energy transmission to data centers and defense technology. It's uranium, which is the pillar of nuclear energy. It is lithium for batteries.
Speaker 1:And then it's some of your minor metals. Now rare earths in particular. So if you think about your 60 critical minerals up here, rare earths account for 17 of those. And rare earths are a bit of a misnomer because they're not rare at all. They're actually everywhere.
Speaker 1:Your backyard probably has them in California. The difficulties are often found in low density concentrations. But the reason rare earths became the sexiest topic on the streets last year is that when China imposed restrictions, we realized how dependent we are on them. So there are two types of rare earths. There's light rare earths and heavies.
Speaker 1:And for heavy rare earths, China processes 99% of them. So when China turned off the taps, within six weeks, American industry was struggling. So a lot of our efforts, when you think about critical minerals at large, have actually zoomed in on those rare earths. However, what you do see is that The US is making interventions across the board. I mean, now, tungsten prices are soaring owing to the conflict in Iran.
Speaker 1:And so we're seeing The US double down on tungsten, which isn't a rare earth, but it is a critical mineral.
Speaker 2:So was it always called critical minerals or was it more recently that we started calling these minerals critical because of the application and the need for those minerals to be in so many things that you and I use every day?
Speaker 1:Critical minerals is certainly a bit of a newer term. I mean, I was reading this book from the 1980s. It was reviewing President Jimmy Carter's policy. And back then, they called them strategic minerals. So the semantics have changed, and different countries call them different things.
Speaker 1:What's really interesting about Saudi Arabia, which is one of the boldest countries in terms of their mining ambitions and action, they actually have a strategic list and they have a critical list. So the strategic list has something like gold, right? Which isn't something that they worry about in a scarcity way, but is really important to their economy and they are a gold miner. And so every country has different lists. And what is critical to whom is a debate that countries regularly have?
Speaker 2:Well, it's also in places like Saudi Arabia or UAE where the strategic reserve is our significant asset, is the oil. And I can see how they would have looked at some other commodities as equally important for strategic reasons. Is that how you see it that countries look at critical minerals as a strategic reserve for their competitiveness and advantage relative to the others?
Speaker 1:You're exactly right. If you look back at what the Gulf countries have done is they realize that having their entire economy tied to oil, especially in the last year with barrel prices sometimes sitting at $60 diversifying their economies were actually fundamental to their long term economic health. So what a country like Saudi did is they created something called Vision 2030 under which they say, Okay, we want to diversify and become a leader in AI, EV manufacturing, defense technologies, etcetera. And then they thought about the mind to the manufactured good. If I want to be a data center powerhouse, then I need a lot of energy.
Speaker 1:If I need a lot of energy, I need a lot of minerals. So they constructed an industrial strategy driven by the motivation to diversify from oil, but comprehensive enough to think about it from the mind to the end good.
Speaker 2:Right. So that's a good place to sort of double click on this. So where do you see these minerals show up, especially in the modern technology evolution that we're seeing in semiconductors and renewables and AI data centers and defense and space systems? I mean, is there a hierarchy of need of critical minerals in these sectors?
Speaker 1:So there's two ways to look at hierarchy. One is the ones which are what are our national priorities? And national priorities are often gonna be defined by the ones where we are the most reliant on a country that we have an adversarial relationship with, right? So a mineral where we are 95% reliant on China is a bigger priority than a mineral where we are, say, 40% reliant on China or Russia. And that's really important because what we want to try to do is to prevent a position where we have to, we are held beholden to mineral supply chain restrictions, as was the case last year when our manufacturers couldn't access the material.
Speaker 1:The second way to look at it is through a demand perspective, right? I'm not, and I'll give you an example, I'm not very worried about copper being weaponized by China. But I am very worried about copper because when I look at how much copper I need to meet data center demand, energy transmission demand, it is significant, right? And we have no way to meet our future copper demand projections at this moment in time. So I worry more about that from the case of supply rather than supply chain concentration.
Speaker 2:You seem to be implying, and correct me if I'm wrong, there is a difference between geological availability and commercial viability because there's lots of processing that happens and all of that. Geographical availabilities, it seemed to be lots of countries have lots of these mineral minerals, but only very few, like as you said, with China. Where does this thing diverge in terms of how serious that we have to take countries like China in the context of commercial viability of some of these minerals that we need. Is that something that we are overly dependent, obviously, for some of these minerals in China? But paint that picture on how that looks across the board.
Speaker 1:So if you and I had this conversation two years ago, it'd be really different. I don't know how hawkish you are on the situation, but for a lot of people, I was trying to explain to them that supply chain concentration was a problem. Right? But now we know that. It's, you know, the evidence is there.
Speaker 1:It's well understood. It's now about making the economics of a supply chain work. And what I mean by that is if it is not economically viable to take out of the ground a Western company that has a fiduciary responsibility to their shareholders will not do it because they want to make money. And I'll give you an example. So in the last, between 2020 and 2026, Chinese companies in Indonesia have surged nickel production by over 400%.
Speaker 1:Demand has not gone up by 400%. So we are now at disequilibrium. And what has happened is nickel prices have fallen about 70 plus percent in the last three years. In turn, Australian company like BHP has closed its mine in Australia. Glencore, a Swiss company closed in New Caledonia, is the economics don't work.
Speaker 1:And so what we are fundamentally trying to do is think about how do we make economics work? And the economics of this is down to a couple of things. Number one, energy. Mining and processing are incredibly energy intensive. And this is why Canada, for example, is a decisively more competitive location because they have cheap hydroelectric power near Quebec, which is where a lot of your like aluminum refining is done.
Speaker 1:A second decisive factor is your infrastructure. Even though we are building a zinc mine in Arizona and a processing facility in Tennessee, with the state of rail infrastructure between these two states in The United States, it's far more expensive to get it to Tennessee than it is to send it to China or Korea for processing. So addressing that factor. The third thing is down to the economics of the mine itself. How deep is it?
Speaker 1:Where a deposit is closer to the surface, it's cheaper. If it's located with other minerals, it is more economically attractive. It kind of buffers against commodity price swings. So from the mine all the way through these various inputs, you do see that China has had a decisive advantage. And part of that is because the Chinese government has subsidized energy.
Speaker 1:They've provided near free capital. They're willing to absorb losses in a way that we have not been historically prepared, where we are starting to step into as a country for the first So time in
Speaker 2:this is interesting because basically what you're doing is you're identifying the various choke points and constraints that exist in the supply chain for these critical minerals for commercial viability, right? I mean, any one of those points that you mentioned, energy, logistics, transportation, return on equity or return on invested capital, all of those things matter. And we'll get into the details of this a little bit more when we talk about artificial intelligence. But if you look at the current conundrum most hyperscalers have, the likes of Amazon or Google or Microsoft, they are on a treadmill in building or deploying capital and not having enough time to depreciate the deployed capital in a period before which the next generation technology seems to come in. So there's this asymmetry between how long capital depreciation schemes work in these large infrastructure projects, and the technology is coming at a much faster pace.
Speaker 2:Is there any correlation between that and how long it takes for critical minerals to really get to a point where semiconductors or as an ingredient technology into systems, they will add another layer of asymmetry. Wouldn't that be true?
Speaker 1:Absolutely. Technology can be a positive externality. It can allow us to do things more efficiently, but it certainly creates a negative externality when it comes to mining investments. And I'll give you an example. You know, five, six years ago, everybody, when you talk to executives and I said, What are the commodities that keep you up at night, right, the most?
Speaker 1:Where would you invest? Graphite often came up. But now with the amount of technological advancement, I can replace a lot of my natural graphite with synthetic graphite that I make So, in a you had put the billions of dollars into a graphite mine or started that investment, you would be rethinking it. Another easy example is battery composition. There's not a lot of companies that wanna sink a new cobalt mine because battery compositions, some of the newer ones, don't require cobalt and nearly certainly not in the same quantities.
Speaker 1:So that exact, as technology change, given on average in The United States, it is twenty nine years from the time I identify a deposit to the time I'm taking it out. You can have a lot of change in twenty nine years technologically.
Speaker 2:More importantly, I think twenty nine years, you know, the capital flows and the return on that invested capital is gonna have a completely different set of parameters to deal with relative to how those technologies evolve in
Speaker 1:the Secretary Doug Burgum, he came and did a fireside with us recently and he called it a very unprofitable hedge fund. Right? And the fact that it's so long, he said, could graduate college and start permitting a mine and retire with an almost permitted mine. Right? It's a completely ridiculous value.
Speaker 1:I mean, I wouldn't put my money into that when I could go put it into, I don't know, a tech ETF, etcetera. So that is the principal challenge that we have is that innovation actually can add a risk, right? That next gen technology comes out, it may not need that exact mining investment that we put billions of dollars into. And that opens up a challenge of how do we stockpile something for years? Do we end up with a stranded asset because technology moved on without it?
Speaker 2:Okay. So we're going peel the onion on that, but let's just talk about this global clearly, you seem to imply that we have a huge risk with the processing of critical minerals that seems to be concentrated in one country that is a strategic threat for The US, namely China. What are some of the other risks from a global dependence that we have on certain critical minerals in certain geographies? What are some of the other risks that we are taking that's would bubble up to the same level?
Speaker 1:Wow. There are so many challenges. Commodities are like just it's a it's a perfect storm.
Speaker 2:Right?
Speaker 1:So for example, last year in February, the Democratic Republic Of Congo, which produces about 75% of the world's cobalt, decided that prices weren't good enough, and they imposed a ban on all cobalt leaving the country. Right? So for most of last year, there was no cobalt export. But because the cobalt and the copper are mined together, they had to stop slow down their mining at some point. So the copper also stopped coming out of the ground.
Speaker 1:So that's one. You have the regular trade, kind of trade war that we're sitting in with tariffs. Right now, The United States has a mountain of copper that it cannot export for copper smelting elsewhere, which you have to smelt to be able to do something with it, owing to tariffs, right? The Section two thirty two tariffs make it uneconomic to send that to, say, Japan to smelt and then turn into something. And you don't make money until you sell it.
Speaker 1:So you have tariff risks. You have logistical risks. Think about the Strait Of Hormuz. Things aren't moving. That is hugely consequential for supply chains.
Speaker 1:One of the things caught up in the current conflict in Iran is sulfuric acid, which is what I need to process my minerals. And that's not moving, meaning that there's eventually going to be an inability to process certain minerals in certain places. You have price risk. For as long as time has been, minerals have a boom and bust price cycle. Right?
Speaker 1:And so that can force certain projects to close. Yeah. In 2023, we opened and closed the only cobalt mine in America because production was about 20 a pound, prices were about $12 a pound. Right? So you have that layer of risk.
Speaker 1:So when you add all of that on top of the supply chain concentration, it's not a surprise why miners have often struggled.
Speaker 2:China seems to have a comprehensive strategy, just in critical minerals and how they actually create these processing plants and really aggregate so much of the capacity for the rest of the world. They also have BRI, the Belt Road Initiative, which seems to have an ulterior, if not so hidden agenda, which is to ensure that China gets strategic advantage, especially in the context of critical minerals. Talk about that.
Speaker 1:So China's dominance in minerals actually is two things. And one of them is exactly what you said. They use foreign policy very strategically. I would argue their motives aren't that well hidden. Somehow their energy and infrastructure investments are very close to mind more often than they're not.
Speaker 1:So what they did is they used strategic foreign policy to secure minerals from Latin America, Africa, Asia. I mean, last February, the rare earths we mined in California went to China for processing, right? But they paired that with an aggressive domestic industrial strategy, which means they built all of the processing so that no matter where the minerals came from, they had to go back to to China. But more than that, they also manufactured everything. I remember growing up, right, every time you opened a box, it said made in China.
Speaker 1:What they managed to do is not only create the supply for minerals but also the demand for minerals. They made the cars. They made the TVs. They made all of the things that were mineral intensive so that the minerals they mined and processed had somewhere to go to at the end.
Speaker 2:When China imposed rare earth export controls in April 2025, it did not create a narrow US problem. It created a global one. The controls targeted seven heavy rare earths and related magnets, materials used in electric motors, autos, defense systems, robotics, and industrial equipment. Export of these radars and magnets fell sharply afterwards and some automakers in US, Europe, and beyond had to cut production or even temporarily shut down. The International Energy Agency estimated $6,500,000,000,000 in annual downstream economic impact outside of China could be at risk.
Speaker 2:That is why this issue moved so quickly from policy papers into the boardrooms. But that story, as great as it has been for China for so long, is coming undone, I would assume that you would agree, which is concepts like reshoring or French shoring. Everybody's seen this movie and they don't like the ending where everything gets made in China. Do you see China's dominance in this area as a sustained dominance for the future or for some whatever length of time? What is your take?
Speaker 1:You know, ten years ago, a lot of us thought China's economy was too big to fail. They were coming back in on decades of double digit growth rates. And what we have seen now is that their economy is not too big to fail. They have a structurally weak economy, high levels of deflation, high levels of youth unemployment, a weak property sector. But more important than that, China's dominance really was challenged last year in a way that I don't think can be undone.
Speaker 1:And what I mean by that is when China imposed those rare earth export restrictions last year in April, they didn't just hit The US, they hit the entire world. So, Suzuki had to stop manufacturing in Japan. European Vehicle Manufacturers Association raised the alarm in Europe. So, country realized that a sustained reliance on China was a structural weakness of their national economic and energy security. So, we all mobilized.
Speaker 1:We started working together at a time when foreign policy was complicated here in The US and people weren't really sure how to engage. Minerals became the rallying cry. In February, we hosted the largest ministerial in forty years of State Department history, entirely focused on minerals, bringing 55 countries here, right? That is a sign that every country, all of these countries, 56 in total, knew that a sustained reliance on China was going to be a problem for them. So, one can easily make the case that since then, the amount of capacity the world has financed in Australia, Saudi Arabia, Japan, The US, Brazil, so on and so forth, means that we are moving from an era of unipolar control over the mining sector and the mineral supply chain to a far more multipolar approach.
Speaker 1:And it's good for industry.
Speaker 2:There's this great book by Peter Zahan. I don't if you've read it. It's The Accidental Superpower. It really talks about The US and why The US has had this just incredible advantage of being a superpower, largely not just driven by the people and the entrepreneurial nature of how people are in this country, but geographical advantages, abundant natural resources. Oil in The US was dependent on oil elsewhere.
Speaker 2:Lo and behold, shale happens. And so there's a decoupling of dependence from other countries, especially The Middle East to The US. In a way I see what you're saying, which is to respond to Chinese dominance in this area, a multipolar sort of relationship and coalition is almost the only strategy that you can have, especially when you're coming in with 1.5 or 2% processing capability in The US versus 95% in China. But this book, I'm not suggesting that he's right, this book makes the argument that US interest, especially in the context of energy independence, with the advent of shale, has really driven US more inward. So do you see a cognitive dissonance between some aspects of oil dependence and the moves that The US is making relative to critical minerals?
Speaker 2:And do you see a problem with that?
Speaker 1:I see there's one really big difference, which is oil is a single commodity, right? And minerals are 60 commodities. And when you look at the scale of financial capital required, I mean, mines are billions. A copper smelter could be $12,000,000,000 right? When you look at the amount of capital, the amount of resources, and importantly, the amount of technical know how, We have a workforce shortage in The U.
Speaker 1:S. That is crippling. By 2029, 50, five-zero percent of our workforce is going to retire in mining. That's 221,000 people. Mining is not an industry that we have prioritized in so long that it's not going to be easy to go from, you know, being import reliant on over half of our commodities to becoming the superpower that does all 60 of them with excellent.
Speaker 2:But isn't that an area where advanced, you know, robotics and other things could really sort of compensate for that workforce and labor, you know, coming off the line?
Speaker 1:Maybe. But you're balancing two things, right? Number one, you do need more mine engineers. Mining is no longer the industry where I need to have someone go drop a blast and run away fast enough while the rock blows up, right? Those are all engineers now.
Speaker 1:But you have to remember, like we're also beholden to the fact that The United States has less than 1% of the world's cobalt, nickel, graphite. We have very little heavy rare earths, right? So we're building processing capabilities, but we're not going to do it with our own raw material, is we are also constrained by the distribution of geological resources for some of these, whereas we have very deep copper reserves, for example, right? And the bigger challenge is now building a smelter. So, the reality I think is it's more complicated than oil.
Speaker 1:But I will say the one area that I think I probably would agree with the author, which is that America is outstanding at innovation. And so, our ability to out innovate, right? We developed a COVID vaccine in less than a year for a pandemic that we didn't even know existed. Is when you look at how we're doing innovations in recycling, innovations in getting material back out of wastewater, waste materials, those types of things. How do we create motors that don't need rare earths?
Speaker 1:Those types of innovations, I think America will be the leader.
Speaker 2:That's an interesting point, right? So new technologies like remote sensing or AI driven discovery or geophysics or perhaps even extraction approaches, right? Bio leaching or low impact process, any of these things, that's not a proprietary We don't have the right to be the leader in any one of those things any more or any less than China has. So why would that be an advantage? Because you see what's happening in AI.
Speaker 2:DeepSeek happens a fraction of the cost of what Anthropic or OpenAI could be. So China has an equal right and possibly, you know, has shown can innovate or sometimes even out innovate The U. So why do you think innovation in these technologies will give us an advantage?
Speaker 1:Innovation is going to give us an advantage because it's often a cost competitive faster solution. So I'll give you an example. I told you it takes twenty nine years to open a mine. If I can go recover rare earths out of my gold tailings or my uranium tailings, I can do that in a year or two, right? So it's more about less about a great power competition when it comes to innovation and more about a supply chain security angle, right?
Speaker 1:It's often cheaper. You actually clean up the land when you go back and go to tailings and get these materials back out. So there's a lot of environmental upside to it as well. I think about innovation as a faster way for us to get materials rather than, we need to beat China on this. It's more about us than them.
Speaker 2:Sure. Let me draw your attention to, you know, what happened in the contract manufacturing space. And I think I've you know that my partner, Michael Marks, is a guru on supply chain and contract manufacturing. And he built Flextronics to be one of the first and largest contract manufacturing company along with Nick Brathwaite, the CTO and my other partner. You know, it took Foxconn a number of years to quadruple, if not, you know, 10x, the capacity and scale of what Flextronics was able to do.
Speaker 2:So there is some value to being first to innovate, but there is a completely different story on your ability to scale any innovation. As you rightly point out, China's strategic advantage seems like it really stems from the processing capability that they've invested in ahead of everybody else. So how easy is it to actually create a processing advantage in The US for critical minerals sourced from any number of places, which is really what China has done in addition to the critical minerals that they have themselves. They've been able to source it from different places, which is the BRI initiative and all that. Is that something The U.
Speaker 2:S. Could actually excel in, in addition to the innovation pipeline?
Speaker 1:Absolutely. The US currently, we have a number of labs working on how to process rare earths in a way and using new technologies, right? Rare earths processing is incredibly complicated. So, are labs doing work. I mean, we forget that our labs have historically been our advantage.
Speaker 1:Until the 1990s, The United States was the biggest rare earth producer in the world. And we did that through Ames Laboratory, right? Ames Laboratory pioneered a lot of the R and D on how to separate those materials and become that dominant force. And fortunately, in the 1990s, we let go of a lot of those efforts. Copper, same thing.
Speaker 1:There are new processing technologies that we're deploying in The United States that allows us to go to lower grade deposits and still be able to process that material in a way that's now economically viable, whereas fifteen years ago, you wouldn't have touched the low grade deposit because there was no money to be made on it. So, we're seeing that what we can do is we can also scrape out older deposits and process that material. So I think that we are already showing copper rare earths, a few other, that there's a lot of promise, but we have to continue investing into R and D.
Speaker 2:That's a great point. And I think doesn't US have also key initiatives for the whole recycling aspect of things, right? And there are companies like Redwood Materials, one of the early guys from Tesla has launched, which is really do recycling of batteries because you don't really need to create mines with tens, hundreds of millions of iPhones and other devices. There's a real opportunity to actually tap into those devices for recycling. Where do you see that contributing to extending an advantage, if you will, relative to China and others?
Speaker 1:Recycling is going be crucial. So the IEA a few years ago estimated that we would meet 10% to 20% of our future demand from recycling. But if that number holds, then we're doing it all wrong. Right? Twenty years ago, I couldn't get 98% of lithium out of a lithium ion battery.
Speaker 1:Today, I can. And that's fundamentally reduced our vulnerability for lithium now that I can throw every battery back into recycling to get that material back out. Right? Platinum is highly recyclable. So, the reality, I think, is, you know, those estimates are 10 to 20%.
Speaker 1:We're still going to need more primary material. We're not going to get out of this supply chain vulnerability through secondary material alone. But we want to continue building those recycling. Early on in Trump's second term, the administration was looking at something we call a black mass export ban. So, essentially, we wouldn't send our permanent magnets, our MRI machines to China for them to recycle and get those rare earths back out.
Speaker 1:The problem with that is we didn't actually know how to do it. So we'd essentially be putting them all in a landfill and like just waiting until we develop the technology to do that. Once we do have that technology and it's scalable, we then don't have to export nearly as much material. Government and industry has a role to play here. Government has done things through their Section two thirty two tariffs to force companies to keep a certain amount of copper scrap and recycle it here in The United States by 2027.
Speaker 1:And you're starting to see copper recycling facilities come up as a way to respond to that kind of stick in the sticks and carrots approach. But industry also has a large role to play because that is where a lot of the innovation still sits.
Speaker 2:Which is I want to connect the dots on what you said about innovation and the commitment that the industry has to show, really to provide meaningful levers to develop national or geopolitical advantage for The US. In that context, what roles do you think incumbents play, like the major chemical processors mines and others, versus innovative startups? I mean, what's the balance? I mean, you need both, which is the obvious answer, but how would you think of the two contributing most to closing the supply chain gap?
Speaker 1:They both have different roles to play. Legacy firms to me have the benefit of a long standing institutional memory, a lot of the technical expertise, and the capital to deploy into these areas. Right? They have know how that startups will never have. However, startups are also really, really crucial in that they're developing the new technologies oftentimes, right?
Speaker 1:We're seeing certain Silicon Valley backed firms leading the way on innovation across the supply chain, right? Whether it's AI based mineral exploration, whether it's innovative forms of processing, whether it's traceability systems for our materials. So, they both have a role to play, but public capital also has a role to play. One of the reasons so much R and D has come out of China is because the state is willing to finance this. Right?
Speaker 1:And I remember towards the end of the Biden administration, I was sitting up in New York with some folks from Wall Street. And they said the government has to be willing to bear more risk. Right? And what we see with the Department of Energy in particular is that they are financing a lot of these startup efforts in innovative areas, and you have to be willing to fail fail because not everything will work.
Speaker 2:So we talked about BRI. Do you see if there's an opportunity for other sovereigns to collaborate sort of in support of what you said, which is that this is going to need a multipolar collaboration potentially and make significant investments. Do you see an opportunity for that in response to what China has done in BRI? And by the way, it might be helpful for you to sort of say a few words about BRI itself.
Speaker 1:So, Belt and Road Initiative is the flagship Chinese program that really built its foreign policy around the world, right, from Peru and Brazil to The DRC and Tanzania to Saudi Arabia, right? By building these infrastructure investments, they built a lot of soft power. They built a lot of credibility. And often Belt and Road Initiative money went places where other sovereigns and private capital providers didn't want to go. And so therefore, they had first movers advantage.
Speaker 1:And I'm going to give you an example of a place where China did very well. In the early two thousand after the civil war in the Democratic Republic Of Congo, China made $3,000,000,000 of infrastructure investments. In exchange, they got exclusive access to $93,000,000,000 of mineral resources. And today, of the 19 major copper and cobalt mines in the DRC, the Chinese have stakes in 15 of them. Oh.
Speaker 1:Right?
Speaker 2:Are we doing that? No. And and why not?
Speaker 1:So I'm gonna give you a little quick history lesson here. In 1910, The United States opened a Bureau of Mines, and it became our agency that like coordinated all of our mining activities: R and D, supply, geological data, vertical integration, mine, refining, etcetera. In 1996, we closed that. And at the same time, we did between 1990 and 1996 or 1990 and the next twenty five years was we also sold off the majority of our defense stockpile. In inflation adjusted terms in 1990, we had $25,000,000,000 of materials in our national defense stockpile.
Speaker 1:Last year, we had 900,000,000. Right? A lot of that happened
Speaker 2:And that does not even include the uranium side of things.
Speaker 1:No. Yeah. And a lot of that was because in the nineteen nineties after the Cold War, we assumed wars would be quick, easy, and less materials intensive. So we closed our institution. We sold off our stockpile.
Speaker 1:We deprioritized mining. And that's really where China took off. First time in the modern time since then that we looked at mining was in 2017. President Trump's first executive order, you know, kind of concluded that we were highly dependent on foreign adversaries. But the difficulty with America until probably last year was we didn't put our money where our mouth was.
Speaker 1:There was an incongruence between what we saw as our actual priorities and where we invested. And we expected the private sector to go in and correct that. Unfortunately, owing to the many, many risks the private sector faces, they weren't willing to do that. Right? Look, also, let's be totally candid.
Speaker 1:One of the things China benefits from in Saudi Arabia to some level is not having a democracy. Mining in America has fallen victim to political football. The Democrats rolled out a twenty year ban on hard rock mining, right, because it's bad for the environment. You've seen a lot of rhetoric about the environmental implications. They've taken what we call NIMBYism, not in my backyard.
Speaker 1:And then the Republicans have generally advocated for more pro extractive policies. And so it's not uncommon to have a policy roll it back, have a policy roll it back. China doesn't have that problem.
Speaker 2:Yeah, sure. Yeah. But, you know, and again, you know, you and I have been to Beijing and you've seen the cost of, you know, that policy framework resulting in just unhealthy air and all that, and they've cleaned it up now. It's different. But I want to take you to a different thread.
Speaker 2:Tech companies from startups to EV manufacturers to battery recycling companies and others, how should they think about reducing the supply chain dependence and risks associated, you know, in the businesses they're in, thinking about dual sourcing or offtake agreements or strategic partnerships, you know, just to hedge the risk. I mean, what advice would you give them?
Speaker 1:So a couple of years ago, there was this idea of the green premium, which said I was gonna pay more because something was green. And, you know, a of people were disgruntled that there was no green premium. How do we reward miners who are mining with a better set of standards? So I went to the London Metals Exchange one day with a notebook to go find out why. And I remember someone at LME said to me, it's because there's not enough of a market to warrant a higher premium.
Speaker 2:For green.
Speaker 1:For green, right? And what is green? The only thing that we can calculate is the carbon emissions coming out of a mine. But there's no other quantifiable metrics for what better environmental, social, and governance means that warrants a dual bifurcated pricing structure. So I thought, okay, that actually makes sense, right?
Speaker 1:How do I price better human rights? How do I price good labor Or
Speaker 2:just supply chain resilience. I mean, if you're dependent on a single source point of failure, there has to be a cost to that, right?
Speaker 1:But fast forward two years, we're not talking about a green premium. We're talking about a security premium now, right? And what we saw last year when China rolled out those rare earth export restrictions, The United States became the biggest government, became the biggest shareholder of a rare earth company, right, MP Materials. But importantly, Apple then made an announcement that that is where they were getting their material from. And General Motors announced where they were getting their material from.
Speaker 1:And what it became clear is that while traditional capitalism says that I buy from the cheapest producer, which is China, more companies were willing to pay a premium to source it from a reliable provider that wouldn't turn off the taps and wouldn't lead to a supply chain disruption. So to your original question, I think the answer that companies have to be thinking about is while the cheapest provider might be a Chinese source, I need to think about my supply chain from a resiliency perspective and factor in the security premium I'm willing to pay, which is often a higher cost source.
Speaker 2:Yeah. I mean, this leads to an interesting debate around semiconductor or the chip sack, for instance, where the government, the current administration, or the prior administration really, pushed for domestic manufacturing and supporting, you know, the leading edge fabs to be here, including the likes of TSMC and others. But the point that I think you were illustrating earlier was that there's no real provision within the CHIPS Act to really procure or support availability and supply chain resilience as it relates to critical minerals. So can you talk about that?
Speaker 1:The CHIPS Act was a great piece of legislation, and we do need to get our semiconductor manufacturing in more reliable hands. However, one of the biggest vulnerabilities that remains despite the CHIPS Act and the $280,000,000,000 the CHIPS Act set aside for it is that not a single dollar was allocated to sourcing the minerals that you need to make those semiconductors.
Speaker 2:But we can also make the argument that bulk of the CHIPSAC funding has not really made it to the end use yet. I mean, most of it is still unallocated, is it not?
Speaker 1:A lot of it is unallocated and a lot of it is because of politics. Let's be very clear. This administration has had its criticisms about the CHIPS Act. But before I could even build my industrial capabilities to manufacture, if you think about four of the materials that you need for semiconductors, gallium, germanium, polysilicon, we're still completely reliant on China, And then your palladium were reliant on Russia. And within a year of the CHIPS Act getting passed, China then cuts off germanium and gallium to The United States.
Speaker 1:And it doesn't matter how many factories I build if I don't have the materials. So while the CHIPS Act funded the factory, it forgot about the feedstock. So it really shows us why we have to think from mine to manufactured good in any sort of intervention that we make.
Speaker 2:Yeah. But, know, as a tech company where mantra is, you know, move fast and break things, there seems to be this giant collision between how startups and innovative technology companies operate. Even the AI infrastructure companies that are pouring billions and billions of dollars in the ground, and what the reality that they have to deal with. So if you are a CTO or a Chief Operating Officer or a CEO of a hardware company, what's that supply chain assumption that you might be making that would be dangerously wrong for you and for your business and possibly for national security?
Speaker 1:Assuming that your supply of inputs will continue to come.
Speaker 2:Assuming that. Yeah. Yeah. You mean because of geopolitical
Speaker 1:changes? Until three and a half years ago, like there was no disruption to your mineral input. Sure, there may be your usual commodity prices. You may pay five, six, 7% more at certain points, but they will turn off the taps. So, if you don't go down all the way down to the input level to ensure that you are sourcing from a reliable operator and a reliable country, then your entire supply chain is now at risk.
Speaker 2:And there's no time for you to find an alternate source in things like, you know, cobalt and, you know, gallium and titanium and other things.
Speaker 1:Because you're now restricted by the fact that there are very limited suppliers outside of China. One thing I find really interesting is the trend that when a mine announces they will enter production, they often all of their supply is already signed off in long term offtake. There is a race to source and get those offtake agreements signed now from a reliable source in an ally country.
Speaker 2:Mineral security is not a supply problem. It is a demand problem. The US by itself is not a large enough buyer of many of these minerals to rebuild entire supply chains around American demand alone. Graceland notes that The US uses only a small share of the world's rare earths, gallium, cobalt, nickel, partly because so much downstream manufacturing happens somewhere else. That is why the emerging strategy is to aggregate demand across allies, The US, Japan, South Korea, Australia, India, Canada, and the European Union.
Speaker 2:Doing so moves from a market of three fifty million people to one of 2,700,000,000 people. That changes the math for minors, for investors, and for long term viability of a supply chain that does not run through Beijing. That is also the logic behind newer ideas like Project Vault, a proposed $12,000,000,000 critical minerals stockpile designed to give manufacturers a buffer when supply chains break, backed by the White House and the US Export Import Bank. That's a good segue to kind of talk about policy momentum, you know, in this current administration, really on the backs of what started out in the CHIPS Act. And for some of us that are, you know, that have seen this thing happen even way back in the defense and space industry development, the federal government played a very significant role.
Speaker 2:But I think you're making a point that it may not be sufficient for any one sovereign to do it, especially in the context of the distributed nature of the availability of critical minerals and what processing is needed. So in this context, I to talk about the shift over the past year toward a more coordinated critical minerals policy, not just The US, but also with the allies. So talk about that. What are the various initiatives in that area? And I know that there's this Critical Minerals Ministerial.
Speaker 2:There's the Project Vault that you alluded to in terms of the reserves. There's Project Forge for joint investments. So talk about those three things.
Speaker 1:So I told you earlier, like autarky doesn't work for minerals. We can't go at it alone. We don't have the minerals, we don't have the money, and we don't have the technical know how. So, cooperation has to be part of the way forward. Now, but I want to split this out by looking at both supply side policy and demand side policy because America is going about it differently.
Speaker 1:Supply side policy was last year. More minerals, more places, right? You saw that when we announced our government to government cooperation in Australia, we also announced that we were co funding a gallium refinery in Australia with the Australians and the Japanese. A lot of that is because gallium is a byproduct of refining bauxite, and Australia has some of the best bauxite reserves in the world, right? You saw that in Saudi Arabia, the U.
Speaker 1:S. Government and the Saudi Arabian sovereign wealth fund are co financing a heavy or rare earth refinery. That's because they actually have the fourth most valuable deposit of rare earths there. So you've seen already, and even in the global south in a place like the Democratic Republic Of Congo, you have seen that after The U. S.
Speaker 1:And DRC signed a bilateral agreement, we're now working to support a transaction of a mine down there to an American company. So, we have leveraged our strategic financing with our government cooperation to get more minerals from more places. But where you see not bilateral but plurilateralism, right? Meaning I need as many countries as possible on board is demand. The problem with our economics right now is when you only think about supply and you don't think about demand, you create a further disequilibrium in prices, right?
Speaker 1:I've got to increase demand for these minerals. If you think about three fifty million people, our demand is not very big. We only use 1.6% of the world's rare earths, and a lot of that is because we don't manufacture permanent magnets at scale. We use between 15% of the world's gallium, cobalt, nickel, rare earths, because we don't manufacture a lot. So if I want to increase demand, I can't work with The United States in and of ourselves.
Speaker 1:I've got to aggregate the demand of India, South Korea, Japan, Australia, the European Union, Canada, The U. S. And when I add up that market, I go from three fifty million people to 2,600,000,000 people, right? And the aggregate demand for those minerals goes up significantly, which means the prices come up. And I don't need this infant industry protection I'm doing while I nurture what is an early stage industry.
Speaker 1:So what you've seen from the Critical Minerals Ministerial is Vice President J. D. Vance talked about creating a preferential trading zone, right, to keep minerals within these countries. We've talked the day before when we had Secretary Burghum, he talked about a club of nations, right? A buyer's club for these minerals so that all of the mineral supply is staying within this block and not going to China.
Speaker 1:So, we're trying to aggregate demand. And demand is not only a product of working with these countries. Right? It's also about thinking more industry agnostic. I love the inflation reduction act in the terms that like it generated meaningful demand.
Speaker 1:The average electric vehicle uses two ten kilograms of critical minerals. Your gasoline powered internal combustion, 32 kilograms. It's a six fold increase. So when I'm thinking about the billions of dollars for a mining investment, I need that big demand signal of the EV. But what I also need is I need the demand not just for clean energy.
Speaker 1:I need semiconductor, defense, data centers.
Speaker 2:Space.
Speaker 1:You industry agnostic. If it's made in America or it's made in an allied country, it should be eligible for the same incentives. Right? It shouldn't be about picking the car over the chip. And so what we need to do when we think about demand is go industry agnostic, group of countries, right?
Speaker 1:And then we create that economies of scale that China has benefited from.
Speaker 2:This sounds, in the current times, it almost sounds utopian where there is a clear trend towards sort of retracing from globalization. At least, you know, most countries want to do the best thing for themselves in this current, dynamic. So how realistic is it to create these cooperative pathways, as it were, where different countries can cooperate aggregate demand for the purposes of making the industry move forward at the risk of compromising their own national priorities and national securities? Mean, is that a realistic expectation?
Speaker 1:That's a great question. And I again, I'm gonna split you out into two. So we're gonna talk about Project Vault quickly. Right? So Project Vault is an economic security stockpile.
Speaker 1:We've been stockpiling for defense since 1939. President Roosevelt, when he signed the stockpiling act, wrote a letter to Congress and he said, I am deeply concerned that we could be going into conflict and we do not have the materials that we need, which sounds oddly deja vu to me today. You know? But we've never had a stockpile for our civilian technologies. Now Project Vault can source minerals from anywhere in the world, including China.
Speaker 1:However, the minerals are required to be held here in The United States.
Speaker 2:It's kind of like the strategic oil reserve that The US has today.
Speaker 1:That's exactly what it basically functions as.
Speaker 2:But the issue though is that the strategic oil reserve barely covers our oil needs for a month. But what you're talking about is this could be far reaching in terms of the need to provide a certain degree of independence and resilience, is it not?
Speaker 1:Absolutely. And it's demand driven. So OEMs and the buyers of these minerals put in an order, right? So it's not the US government saying, Okay, we're going to hold on to 60 of everything, right? Because the end user puts in the order, they might say, Hey, I actually want twelve months of yttrium.
Speaker 1:I'm really worried about my yttrium. But I only need like thirty days of lithium because I can get lithium from more places. So it has that level of agility that maybe the SPR doesn't have, right, because it's demand driven and user oriented. But I'll tell you this, the fact that the minerals have to be held in The United States tells you that we are interested in ourselves first, right? I don't want them held in another country because if I have a crisis, I need to make sure that we get them.
Speaker 1:But the development of long term supply chains, it's much easier to work with a group of countries, right, and to have long term off take agreements. So, that's more viable for cooperation over a year like, I need my emergency stockpile, which in that case, we'll always think about ourselves first.
Speaker 2:Well, Graceland, this is great. So I'm gonna you know, I I can, you know, go down in this topic, you know, for a long time because you seem to be like a wealth of information on this topic. So, thank you so much. But I have some rapid fire questions for you. Ready.
Speaker 2:Okay. Very maybe we'll make it very quick. So biggest misconception about critical minerals and the supply chains?
Speaker 1:The biggest misconception is that it is a it is a geopolitical problem. It is actually an economic problem. Making mining profitable is the biggest challenge that we have.
Speaker 2:Got it. Most underrated mineral or material that deserves more attention?
Speaker 1:Platinum group metals.
Speaker 2:And they are used in?
Speaker 1:Platinum is used in your cars. Palladium is used in your semiconductors, rhodium, and defense technologies. They come together.
Speaker 2:One policy change you would implement in a jiffy to strengthen US mineral security?
Speaker 1:The inflation reduction act for all end uses, defense, semiconductors, cars, computers. If it's made in America, it gets the same benefits.
Speaker 2:Tech or innovation trend in minerals that excites you most?
Speaker 1:AI based exploration. If you don't explore, you don't find it. If you don't find it, you're never gonna produce it. So we need to make exploration cheaper and faster. That's what AI does.
Speaker 2:Any technology you think we're overhyping and the prior answer cannot be included in the answer.
Speaker 1:Oh, I think we get over attached to batteries as a whole. Batteries are really important, but minerals go far beyond Got
Speaker 2:it. Well, Gracelyn, thank you so much for joining today. This has been just a remarkable conversation with you, and I truly applaud all the work that you're doing at CSIS. And I look forward to more key initiatives and policy frameworks coming out of your work.
Speaker 1:Thanks so much for having me. This has been so fun.
Speaker 2:Thanks, Krystling. Critical minerals are not a niche issue. They are the physical substrate of almost every vital technology we use today. When people think about semiconductors or advanced technology, they seem to anchor it often on two things. One, semiconductor manufacturing being concentrated in Taiwan through TSMC.
Speaker 2:And secondly, all the equipment that controls the creation of semiconductor manufacturing capability that routes through ASML in The Netherlands. But then there is the third leg of this tool, which is highly concentrated in terms of global risk, access to and the ability to process critical minerals. While we think about de risking ourselves from semiconductor manufacturing and the advanced equipment for the same, we must think about critical minerals as important to the same degree, if not more so, if we want to achieve long term supply chain resilience. Thank you for tuning in to the TechSurge Podcast from Celeste Capital. If you enjoyed this episode, feel free to share it, subscribe, or leave us a review on your favorite podcast platform.
Speaker 2:We'll be back every two weeks with with more insights and discussions of all things Deep Tech. Bye for now.