Interview with Jim Kennedy | Rock Logic

Happy to be here.

Sure. About 20 years ago, I bought a bankrupt iron ore mine. And as we all did, you know? So about five years into owning it, prices started moving, so we started looking at the economics of the project. And I found about six or seven bankers' boxes in a janitor's closet. I pulled them out, lifted the lid off, and I looked at the little tab on the manila envelope and it said 'rare earths.' I thought, wow, that's probably valuable. That sounds good. Put the lid back on, put it back on the shelf, lock the door. We hire a bunch of engineering guys from all over the world—Brazil, Australia, Canada, some American folks—and we're working up the economics on reopening this iron ore mine. We're doing all this work with all these engineering companies, and I'm basically out on site with these guys for a couple of months. They're all working on their thing, and I get out these banker boxes and start looking at them. They're like, 'That's little stuff, don't even worry about that. That's nothing. I don't even know what that is.' It took me about three months to figure out that these materials, which happen to be co-located with the iron ore deposit and dispersed all over the place, are strategic critical materials for our economy and our defense system. And at the time, the United States didn't have a single component of the value chain. We weren't mining them, we weren't refining them, we weren't separating them, we weren't making them into metals, and we were literally 90% dependent on China. So I thought, well, this is kind of scary. So I sent off a letter to my congressman and my senator. My senator, actually both of them, Senator Bond and Congressman Carnahan, wrote letters and got me in front of the Department of Defense. This was kind of exciting. I'm like, 'Hey, I found something. This is cool. I'm sure they know about it, right? I mean, national security.' So I get this meeting at the Pentagon. I go in and I meet their number one expert on this topic. I spent a lot of time thinking about this problem and the geopolitics of it and why it existed—that it was a manufactured problem, not by chance. It was very geopolitically strategic for China, and we were at risk. So I met with the Pentagon guy and I laid out this plan. I said, 'Here's what they're doing and here's how we can counter it. And if we counter it like this, they won't be able to offset our actions, and we'll be successful at reestablishing a value chain.' And the guy says to me, 'Wow, this is really interesting. You put a lot of thought into this. This is really good.' And I said, 'Yeah, thanks. I appreciate it. I'm sure you've got other things, right?' He looks at me like, 'What do you mean?' I said, 'Well, I just kind of threw this together. I'm just a private sector guy, and this is the Pentagon. I'm sure you guys have been looking at this and you have like a real plan, right?' He goes, 'I don't understand what you're talking about.' I said, 'This is a national security issue. So I am under the assumption that the Pentagon is on top of this and there's lots of other good plans, and I'm not the only private sector guy with the solution.' He just looks at me like, 'Well, no, that's it.' And I said, 'What do you mean? This is national security. You guys should be developing a plan. It's not my responsibility.' I said, 'What if I didn't show up?' And I swear to God, this is what he says: 'Well, you're here, aren't you?' I'm sorry, I was not prepared for that. Okay, that—I mean, I'm shocked. But this went from being, 'Hey, it's kind of cool, I'm writing a letter to the Pentagon,' to 'Holy crap, we got a serious problem.' So it became a personal responsibility. I started getting involved in writing and studying the situation more and more. Within three or four years, I was considered a world expert on this, and I'm still pretty much the only person that looks at this situation from a geopolitical standpoint. Everybody else in this space who contributes are all free market folks, saying, 'We're MP Materials, the government gives us a bunch of money, we can fix this problem, be America's hero.' But if you understand what the problem is, you know that will never happen—it can't work that way. So for about 12, 13, 14 years, I've worked with some people like John Kutch at the Thorium Energy Alliance. But there's a very small band of folks who have put in a tremendous amount of energy to alert our Congress, the last three administrations, and quite frankly, the Pentagon's hopeless. The Pentagon is literally hopeless. But we tried to make them understand this is a geopolitical strategy, and rare earths is just one tiny piece.

The Pentagon is populated with people who would like to work in the private sector, and people from the private sector. Promotions and careers are mostly based on propping up defense companies in various congressional districts and selling weapons to unstable regimes, knowing that will generate the sale of more weapons to different unstable regimes. So it's basically a giant weapons bazaar run by a bunch of cronies looking for rewards in the private sector. Now, don't get me wrong, there are some wonderful uniformed people in the Pentagon, but they're not running the place. It's political folks and ambitious folks running the Pentagon, and not one of them is capable of thinking in the calculus of Cold War politics and great game strategy thinking modes that shape the real world. They're just short-term opportunists hitching a ride. So there's nobody developing real plans at the Pentagon based on real contingencies. The Pentagon is a platform that the neocons use to set various parts of the world on fire so we can intervene. Congress and the administration blindly have faith that they're the guys with the plan, but there is no plan—not that kind of plan.

Rare earth materials are constituted by 16 chemical elements that have commercial, industrial, chemical, electronic, and magnetic applications. They're the magic dust of everything that matters. Electric vehicles, solar, your iPhone, satellite communication—anything that costs a lot of money and does a really good job all needs some of this magic dust. They have crazy names like lutetium, dysprosium, gadolinium. They sit at the bottom of the periodic table, and for most of human history they were just curiosities with no significant applications until about 1982, when someone at General Motors and at Sumitomo—technically Hitachi owns it—both simultaneously invented the rare earth magnet. The rare earth magnet basically changed the entire world. 90% of all value for every rare earth used in every device on this planet comes from rare earth magnets; the rest doesn't even add up to 10%. So they're everywhere, in every cool thing you use. But the U.S., Japan, and France were world leaders in rare earths. In 1980, when the West and the Soviet Union were trying to manage proliferation issues, in a spirit of cooperation that we need to get back to, the trickle-down of regulatory measures eventually intersected with mining. They took the very specific mining laws written for mining uranium and said, 'Well, they're good for uranium, let's apply these laws to everything that's mined.' Without thinking beyond, to make the world a safer place, they effectively classified 100% of the world's entire supply of heavy rare earths and about 35 to 40% of the world's overall supply of rare earths as nuclear source material. That happened because most of the rare earths, and all of the heavy rare earths, were a byproduct of some other commodity. If you were mining mineral sands, iron ore, or phosphates, you would have these high-value heavy rare earths, but they always had a little companion element: thorium. The way the law was written, the second you pulled out what you wanted, by definition the monazite residual was source material. So nobody wanted to mine it, and certainly nobody wanted to buy it. Who wants to buy monazite that's legally classified as source material? Remove your rare earths and you end up with a pile of thorium, and the thorium is illegally treated the same as if you had plutonium. How fun is that? That's a great way to go bankrupt. So that terminated all of that mining. And who did that work out well for? China. Surprise, surprise. Go look at a graph and you'll see exactly the point where China jumps into this game—that's in 1980. They started out doing the dirty work of digging, then learned how to do oxides, separation, metals, and magnets. And no matter what anybody tells you, they learned all of that with the direct help of U.S., Japanese, and French corporations. Sure, they stole a little bit, but 99% was turned over to the Chinese because these guys wanted to offload the environmental liabilities. So they're offloading environmental liabilities and getting lower costs. China gets so good at this that while the world's asleep, while Wall Street's counting its money, China takes over the entire space. I believe it was 1985 when China announced to a sleeping audience that it had established the world's largest rare earth research institute on planet Earth. With a complete yawn, no one commented, no one cared. You could find this as a footnote in the Ames Journal of Rare Earths, but nowhere else. It wasn't news to anybody. A decade or two passes, and now the Chinese have the equivalent of five national laboratories that do nothing but rare earths. They have two cities that the government refers to as rare earth cities, with a combined population of about 20 million human beings. That means you have a vertically integrated value chain city, and pretty much everybody living there directly or indirectly supports that. In the United States, if you rounded up every academic, every MP Materials person, and every guy like me and put us all in the same room, you'd get maybe 2,000 people. In China, they have at least 200,000 PhD scientists working on this. They have two cities with 20 million people working on this, and dozens of industrial and commercial trade group associations. They've gone from being the dirty mining country to being the controller of the technology, the owner of the end of the value chain. Now they're essentially subbing out all the dirty work of mining to other countries. They use their One Belt One Road policy to get other countries to commit to supplying them the raw resource, and they do all the value-adding inside China. This is typical of how stupid American policy is. You'll have people associated with the Pentagon or writing in trade journals who talk about America's progress in this space and say, 'Wow, we're doing great. Just a few years ago China controlled 97% of the world's rare earth mining, and now it's down to 60%. We're winning.' And I'm like, no, that's the definition of you're a loser. One of the countries they conned into mining this stuff and supplying their high-value value chain is the United States. The Pentagon and Wall Street funded a company in the United States that digs up our resources and sends them to China. That's the definition of a loser. That's how you exploit third-world countries. We're on the list now. Nobody understands that this is a grand geopolitical strategy, and rare earths are just one of many critical materials that China has invested two decades of commitment to gain control over.

The original cooperative strategy, which was offered up as a bill in the House and Senate twice, and as an amendment to the NDAA three times, could never get any support because companies like Molycorp, MP Materials, Lynas, and a couple dozen junior wannabe rare earth mining companies hated it and strongly opposed it. It came back around in 2018, and the reason they opposed it was that we would have corrected the nuclear source material issue. Every mining company that was currently throwing away super high-value rare earths could have sold them into this cooperative, where the rare earths could be processed and the thorium could be safely stored for future use. They opposed it because the amount of rare earths currently recoverable in the United States from existing mining waste streams equals 85% of global demand.

Exactly. What happens is mining companies' waste becomes cleaner, and the rare earth problem ends forever. All of these mining companies considered these waste streams to be liabilities. Some of them told members of Congress they would pay us to take it. So you're talking about a low- to no-cost rare earth resource supply. If our mining cost for good material is zero and China's is one, ours is cheaper. That's a good place to start. And if you have super high-quality heavy rare earths, you can build a fully integrated value chain. The way we protected the value chain was by establishing a cooperative so that the end users already owned the finished product. They put up the capital and got their percentage of magnets or whatever they wanted. They were already committed to pay for these materials at their actual cost, so why would they go to China and buy them? It would have terminated China's monopoly forever. But because members of Congress are influenced by what we refer to as campaign donations and other governments would refer to as bribes, the idea was scuttled. Marco Rubio was a great champion for this; he was the last person to sponsor it as a bill in the Senate. In the end, they said, 'Jim, John, we can't get anybody to support it because there's too much constituent interest vested in the current system.' The current system is shortage of supply and high prices—that's everybody else's business model. Our business model was, let's just turn trash into cash.