What Does It Take to Break China’s Rare Earths Dominance?

By Simone Gao

Narration: Beijing tried to weaponize its dominance in the rare earth elements production in the US-China trade war.

Simone Gao: So the question is, if China cuts its rare earth elements supply to the US today, what will happen?

David Wilcox: We aren’t able to actually bring manufacturing back to the US. We don’t have the key ingredient or one of the key ingredients to make that product.

Simone Gao: As far as I know, rare earth elements are scattered around the globe, but reports say 70, 80, even 90% of the production is dominated by China. How did that happen?

David Wilcox: One person subsidizes it on the other side, but you’re not being subsidized here, all of a sudden you end up with something that no one is funding anymore. That business goes into bankruptcy.

Simone Gao: So what caused your company to go back to the rare earth elements business?

David Wilcox: It was really the Trump administration.

Narration: The trump administration pledged to ensure a reliable supply of critical minerals. What’s the prospect and the challenges in this process? My interview with David Wilcox, who sits on the advisory board of Central America Nickel whose innovative extracting technique might help break China’s dominance in the rare earth elements production.

Host: I’m Simone Gao and you are watching Zooming in.

What Does It Take to Break China’s Dominance in the Rare Earth Elements Production?

Simone Gao: Thank you, David, very much for being with us today.

David Wilcox: Nice to see you, Simone.

Simone Gao: Okay. So why don’t you tell us a little bit about, for the audience members who are not familiar with rare earth elements, what are rare earth elements and (what is) the mining and extracting process of it?

David Wilcox: Yeah. So you’d have to get your periodic table back out back to school. But you’ve got a number of rare earth (elements) so most people sum them up in about 17. But then there’s also critical minerals, which the United States has identified. So I’ll give you a couple of examples. So erbium, right? Erbium E R B I U M. This is key to the development of fiber optic cables which is key to developing 5G networks. So if we start right there in the beginning, Huawei might’ve lost the battle, but China’s winning the war because China has 100% control around the erbium market. Okay. And so when you’re asking what are rare earths, these rare earths are in everything that we use today. So without tantalum, you can’t make a cellphone. Okay so start there, Okay? Scandium, it makes aluminum alloys lighter or stronger depending on how you make the blend. These things are so critical to our day to day lives and (are critical to) how we can advance our technologies (and this is not known to) the average person and they just go unnoticed (but the rare earth elements are) what we’ve been using and how we’re using those things today.

Simone Gao: As far as I know, rare earth elements are scattered around the globe, but reports say 70, 80, even 90% of the production is dominated by China. How did that happen?

David Wilcox: So China’s had a very specific strategy over the past few decades. If we look back at our history book the US was the lead supplier, the lead manufacturer, the lead refiner of rare earth minerals for a very long time. And I believe China saw the importance of where these were going and during our times in the United States where we had the California Mountain Pass mine which has a number of rare earths in it, these areas, (the mines) were shunned or it was said, “This is very bad, it uses a lot of acids…” Where China took that production from us. And anytime there is a rare earth production facility around the globe, China seems to have owned the market.

Simone Gao: Why did that happen? When did they take over California?

David Wilcox: Sort of the late nineties, early two thousands, but you know, more recently we see them everywhere. So every time we turn around, from it being, you know, the California Mountain Pass Mine or MoliCorp…(when they) went bankrupt, you know, they lowered the prices of these minerals to the point that you would go to the best, cheapest, most economical possible supply.

Simone Gao: China lowered the prices.

David Wilcox: So all of a sudden, you know, you wake up one day and China has, some estimate, 90% some estimate 95% of the total supply of rare earths. And within the critical mineral lists from the United States strategy that they’ve developed, 14 out of 35 of these minerals are a hundred percent controlled or market dominated by China. It’s a very scary number.

Simone Gao: If China cuts its rare earth elements supply to the U S today, what will happen?

David Wilcox: Well I’d go back to the story around erbium or the story around tantalum. Okay? So if we were cut off from a supply where they control a hundred percent of those two markets, right? Those two minerals, their strategic minerals those rare earths. We aren’t able to actually bring manufacturing back to the US. We don’t have the key ingredient or one of the key ingredients to make that product. So if China does this to us, you can understand in today’s world that we live in, you can’t operate a business. You can’t operate your life without a cell phone. So take a step back and think, China has us by almost a noose…they’ve weaponized rare earths. And it’s a really scary thing to think about.

Simone Gao: In 2010, there was an episode. There was a territory dispute between China and Japan, and China was threatening to cut off rare earths supply to Japan. And I think from that time,starting from that time, there have been talks about alternatives to rare earth elements. And so the world won’t solely depend on China’s supply. What’s your opinion?

David Wilcox: Simone, I think you’re completely correct. It had been talked about by professors and industry experts for a very long time before that, but once that dispute was ongoing with Japan, (rare earths were) weaponized and all of a sudden you’re sitting back and going, “Oh my God, something that is not worth something much on paper, in terms of its value, because China has driven down the value of…the price point of the asset so low, it doesn’t look like an expensive piece to your product, but without it you can’t actually have a product”.

Simone Gao: Right.David Wilcox: And that’s a very scary thing to think about. China identified

this many, many years ago, decades ago, and they said, we know that we can be a key player in this market and so we’re going to take market share, subsidize this business, and all of a sudden you see around the world Niobec Inc going out of business, Molicorp going out of business.

David Wilcox: I mean, the list is too long to go on. And this is because anytime someone got close (to competing) they would drop the price of the asset, usually buy the company itself and ship the equipment back to China. And over a period of time, Simone, you lose expertise. And something that we have in Quebec because of some of our mines there, we have a lot of expertise in this mining business. But our business had never really focused on rare earths. And that’s because of the value to it, right? You go in mine a bunch of rare earths, you get them ready to sell. So you’ve refined them and spent all of your CapEx there and then China lowers the price. Well no one buys from you because your product’s too expensive.

Simone Gao: It sounds like this is not a profitable business.=

David Wilcox: It would depend on how you define profitable, right? So if you subsidize a product and then you’re paying someone to actually do something, where do you define profitability? In a competitive landscape and free markets, capital markets, absolutely not (profitable). And that is why, if you drop one thing and you subsidize it… One person subsidizes it on the other side, but you’re not being subsidized here, all of a sudden you end up with something that no one is funding anymore. That business goes into bankruptcy. Which leads me into what the White House has done through their executive orders is they said, “We’ve got to get a hold of this problem.”

Simone Gao: Right.

David Wilcox: And when the administration, the Trump administration issued their executive order, I believe it’s 13817 which is a strategy for critical minerals, in December, 2017,

Simone Gao: Federal Strategy to Ensure…

David Wilcox: Reliability and Sustainability of this business…I think your question was, “can the government force change?”

Simone Gao: Before I go there, I was wondering if there is a replacement for rare earth elements. Can we not depend on China’s supply? Is there an alternative to the rare earth elements?

David Wilcox: Absolutely. So that’s what we’ve been doing at Central American Nickel. We have deposit sites in about seven countries around the globe. Central America Nickel being the name, (we are) mainly in Central America, but we’ve got them in the Congo, the Dominican Republic, Brazil, Guatemala, let’s just talk about Guatemala. Cuba. Guatemala is a very friendly country to the United States. They’re doing a number of things for us from a refugee status point. Why don’t we turn around to their nickel deposits? Buy Nickel or rare earths from them and reward them for helping us out so much as a nation. Why are we buying them from China, even if there’s a bit of a subsidy to actually get the cost basis of the business (down to) where someone actually wants to do the business to make sense from a CapEx perspective.

Simone Gao: So what caused your company to go back to the rare earth elements business?

David Wilcox: It was really the Trump administration because they identified, through executive orders, and then the response, which was championed by the Department of Commerce, which is a federal strategy and response, which was by a number of different agencies and government institutions, the Department of Commerce, the Department of Defense, the Department of Interior…and it outlines a strategy. But as we were just mentioning, how can the government implement that strategy and force buyers to not buy from China? So if this is not recognized, at a leadership level and across all the different industries that we have, I believe that the…and you would have to talk to government officials in the United States to get the exact answer, but in a republic, I don’t believe that they could force, an Airbus or Boeing or a Tesla, where they can buy their product from.

Simone Gao: So with the current political environment, are you getting a lot of support from the government?

David Wilcox: We have been. I think that Washington DC is a very complicated structure to operate in. We’re doing our best to speak to anyone that we can, to be completely frank. But we’ve gotten some really good feedback…not just feedback, we’ve gotten more action within the private sector. So the development of these products that maybe the government might be buying. And so I’ll go back to the defense sector. We’ve gotten some really good response there because as I alluded to and pointed out, if you’re doing what the government wants you to do, have the diversified, robust and resilient supply chain and actually have access to things that maybe you didn’t have access to before. And I go back to our scandium instance, you know, you can develop a better product and you can be a market leader versus our competitors and our foreign actors in China and Russia, et cetera.

Simone Gao: I think in the 1990s the US was dominating the rare earths elements industry. And since that time, things have changed a lot and now I think a number of U S companies are moving back to that area and numbers are picking up. But to me it’s not fast enough. I think in the last 10 years, eight or nine years, the number has grown, the percentage has gone up like 10% or something. Maybe I’m wrong.

David Wilcox: You don’t know how fast China could pull the lever and say we’re going to cut off the supply of erbium to you. We don’t know. The way that the trade war has gone so far, it’s been very aggressive towards each other. Right? How can we operate with more speed? Well, you can’t get around the existing processes that China uses for refining. A lot of this stuff is really nasty. It’s acids, it leaks into river beds. It’s really bad for the environment. So we have the EPA here in the US for a reason. What we’ve discovered, and our partners, is that by using a combination of ultrasound and a few different acids, which we have patented, we can extract things in 30 minutes to an hour, which was taking 24 hours to a week to get out.

David Wilcox: So every minute that you’re spending in this type of business and refining is CapEx, I go back to that. So it’s costly. And also if you’re taking a huge mass, and you’re pouring acid all over, it’s leaking, we can do that in contained facilities, right? So we’re not harming the environment, right? It’s still never going to be perfect. And we have to learn to continue to make things more and more green and more friendly to the environment but we’ve got to wake up and say, “We’ve gotta have this stuff” I am not going to say that if China, on the other side, which they are, is destroying their end of the planet, which we all know…It doesn’t mean that we should do that to ours, but we’ve got to get a grip on this market.

David Wilcox: And so we’ve found that our technology is resilient. We found that we can scale it. And now we’re just looking for demand. Like I said, if tomorrow in the trade war, the administration says, “well, we’re going to give them three or four pieces of business, which are neodymium magnets, niobium…”, st name a couple off, and they say we’re getting all that supply there. Okay, well what if we were in that business and we just spent $500 million building out plants to supply that to the United States? And all that supply was now given back to China. Or what if China drops the price? And no one now buys from us? Right? So when you start to think about it in that way, you do have to pay for insurance. You do have to, at some point get a grip on reality (and realize that) everything costs money in life. But where the subsidies are coming from and how they’re working. If we want to fight China in that battle, we’re going to need help from the government to subsidize it, so we can have a fair market price.

Simone Gao: So government plays a critical role in this battle. Do you think that without the support of the U S government, you wouldn’t be able to do it?

David Wilcox: I don’t know if it would even be feasible to make the change. Let’s just pretend you’re two different cell phone companies and you’re trying to build two different equivalent Android types of phones and one of your costs is associated as 500% higher, but you have the exact same product. At the end of the day, you’re going to buy the least expensive product, the Amazon (for example). And so we have to realize that if we continue to funnel all of our capital, all of our business to China, China will begin to own us. I think that process has already started and this administration has said, we’ve got to get ahold of this. We’ve got to turn it around, we’ve got to tackle it head on, which is what they’ve been doing. So there’s assistance, but also a directive from the government.

Simone Gao: What’s your cost compared to the Chinese products?

David Wilcox: Because we have this refining technology that’s revolutionary to say the least, if you look at just CapEx expenditure, if we’re in one hour instead of 24, that’s one 24th of the cost. Now, that’s not exactly how it works, but,the deposits of these minerals…It’s really the refining cost. And then it’s the refining capability. We believe we can be extremely fair in the current market prices, but if the prices were continued to be dropped because we now enter the market as what happened with Molicorp out in California at the mine, that’s reopening again, right? That’s having to ship all of their sludge, all of their rare earths to be refined in China. If they dropped their prices and we spend all of the money, right? We’re out of business. We’ve repeated the same mistakes that we have repeated in the past.

Simone Gao: Are you saying naturally you would have a competitive advantage over China because you have better technology and that will allow you to lower your price. Unless China does something dramatic like subsidiaries.

David Wilcox: China’s definitely subsidizing it already because it’s not an all encompassing, profitable business for them to be in. It’s other areas that they’re making profitable or strategic for their government. But will we be at an advantage or a disadvantage? It’s such a complex argument when you think about it on the scale of…We’re better than them from the existing refining that goes on in the world because by the way, we’re not harming the planet as much. Okay? It is revolutionary compared to what they’re doing. So would we like them to steal our technology? No, but I would say to my friends that are environmentally friendly individuals, if they steal it, right, it’s probably a good thing because they’re going to be using less acids, leaking into the environment and destroying the continent over there.

Simone Gao: But that’s your competitive advantage, right?

David Wilcox: That’s one of them. And as I said, again, if everyone has the same technology and you’re on the same playing field, then you look at subsidies. So right now we have an edge there and our capability of refining if we scaled up to mass production…But if you continue to buy from all one supplier, you’re in the same monopoly that you were in before. So it goes back to what this administration has been so focused on delivering, (which is) the message to the American people and American industries and really the Western world…which is: you’ve got to diversify your supply chain. You’ve got to be in some way, shape or form autonomous. If we can mine and find some of these minerals and rare earth elements here in the United States, which is good and super helpful.

David Wilcox: But the end of the day we need rare earths to be like an oil market. Right? There’s so many different countries that produce oil. And you look at what just happened recently with the attacks on, the Saudi Aramco facilities. Oil prices did not spike like they did in the Gulf war, or previous instances because there’s so much oil out there,that you have different supply sources that can pick up the slack.

Simone Gao: Does China have mining facilities in other countries?

David Wilcox: China is, we see them buying up supply all over the globe. So something becomes available in Canada, they buy the company, they buy the minerals, they buy…they’re everywhere, because they have a strategy which is they want to control that market. So I think there’s a lot of numbers out there and different people have different calculations, but in the rare earths space, China controls some say around 90% and some say around 95%. But that’s inclusive of the refining because a lot of this stuff, if you’re mining it, you have to ship it to China to go get it refined. So they then still control that market.

Simone Gao: So they basically buy all the supplies from other places and then ship it back to China and refine it.

David Wilcox: Yes. A lot of the time they do. So lets go back to the reopening of the California Mountain Pass Mine where Molicorp, which was a publicly traded company, went under. So it’s a big rare earth site in the United States in California. For now they’re going to have to mine the rare earth, put it on ships and send it to China to refine. How is that fixing our dependency on China for rare earths? It’s not.

Simone Gao: Are they gonna keep doing that?

David Wilcox: No. So they have a strategy of opening refining plants, et cetera. But you know, you have to get the permits, and the Trump administration has been issuing permits to make things happen. But you still have…if you don’t have the right technology…the technology is just as important as the deposit sites themselves. And so that’s what we’re focused on.

Simone Gao: So what’s the scale of this rare earths production in the US right now?

David Wilcox: I couldn’t tell you the exact numbers, but very small.

Simone Gao: You are a Canadian company, right?

David Wilcox: Yes.

Simone Gao: Are you the biggest one in Canada?

David Wilcox: So we are probably, by deposits, I would say we’re probably up there. From our technology though, we’re market leading, so we operate right now in a lab, right? So we have some really great guys but we have n’t, we haven’t taken the next step. So we’re in the process of doing that. What we don’t want to do and we’re very hesitant to say is: we’re going to spend all of the money and then China lowers the price and so the strategy changes in the US. So what we’re doing right now is we’re speaking with major defense contractors.

Simone Gao: In the US?

David Wilcox: In the US. We’re actually speaking to some…Canada and other areas, Mexico and Western Europe. Everyone knows what China has been doing. But what we’re saying is, “We have your solution. We can be one part of that solution.” There can be many Central American Nickels right? But we’ve mapped…if you have a problem in the Congo, you can go back to the Dominican Republic. If you have a problem in Guatemala…so you can interchange the facilities to make everyone cooperate together from an economical standpoint, from a capital markets, from a free market perspective. And my view on what the administration is doing right now is, they’re building out the idea that they will protect that free market.

David Wilcox: And that is very important to our next step as a company. And the next step in taking the lead with China on…if they want to drop the prices to zero or pay you to use their rare earths, we’ve got to realize what they’re doing. If we don’t produce anywhere they can, as you said a moment ago, change all of a sudden like they did with Japan, dangle and pull rare earths from you and you have a huge problem.

Simone Gao: So how confident are you that the US government will have your backs?

David Wilcox: Wow, that’s a difficult question. We’re taking it step by step. Because my view, and everyone has a different view, is that we need more support from the community, of the different industries, so from Car manufacturers to electronic manufacturers…

David Wilcox: And to answer your question, how comfortable or confident are we that the U S government has our backs? We have no idea we’re a Canadian company, we’re trying to help solve this major problem. And we’re proposing solutions to the government and to various industries, really with a focus on defense. Because we believe that the United States government has a vested interest in protecting their defense industry. So, you know, whoever it is from Sirkorsky or Lockheed Martin or Grumman or whoever it is, (it can be said) Hey, you can’t have a dependency on this, so go fix it. We’ll still buy from you or we’ll pay a little bit more, whatever it is, you guys can work together. We’re not privy to those conversations, but logically we think that that’s how it’s going.

Simone Gao: Have you talked to the top leadership in the defense department?

David Wilcox: We have. I’m not going to go into specific names. I don’t think that would be appropriate. But it’s been very well received so far and really a lot of people get this issue. And we don’t know how many others are out there providing solutions, but we’re, we’re certainly providing solutions. It’s not just talk, it’s action. We’ve got it. Right? And now you guys need to decide what’s next up that you want to take.

David Wilcox: Thank you Simone.

Simone Gao: Thank you so much.