First Shots Fired In The War On Minerals - Wealth Week Episode 31
A new war has begun in which you won’t hear any gunfire and, so far at least, there won’t be any body bags, but the long term consequences pose an existential threat to the life most of us are currently leading.
We kid ourselves that in the 21st century we are so sophisticated. We’ve moved on from the industrial age to the information age to the digital world. AI and virtual reality can take us anywhere our imagination would like - if we believe the hype. But there’s an ugly, dirty truth underlying the wealthiest generation ever to walk the earth. Most of what we do and have still relies on digging stuff out of the ground. And, as we have formed ourselves into groupings based on political ideology or displays of military strength, we’ve been careless in securing the supplies of some of the rarest and most critical minerals of all.
As well as weaponizing the dollar and the Swift payment system, Joe Biden has escaped from the care facility long enough to restrict exports of the most powerful semiconductors needed to drive emerging AI applications. Unsurprisingly, China has responded in kind with export restrictions on two rare metals, gallium and germanium. Gallium is used for integrated circuits and optical devices like LEDs while germanium is used for fibre optics and night vision applications. How dependent is America on China for these two metals? Oh, just one hundred per cent. Totally, utterly dependent on the whims of Chairman Xi. What could possibly go wrong?
They are by no means unique. According to the U.S. Geological Survey’s 2023 Minerals Commodity Summaries report, the U.S. has now reached a record high for mineral imports and an all-time low for supply chain stability. According to the report, the United States is now more than 50 percent reliant on imports of 51 minerals, up from 47 the year prior. The U.S. is also 100 percent reliant on imports for 15 of those 51 minerals, 12 of which are deemed “critical”. Just two examples - scandium is used in used for alloys, ceramics, and fuel cells and 100% of it comes from the People’s Republic. Graphite, used for lubricants, batteries, and fuel cells, all comes to Uncle Sam from China.
This dependence is a challenge on at least two levels, maintaining America’s advanced military arsenal and mining enough of these resources to enable the energy transition in the overly ambitious timescales still being quoted by politicians. We’re all sick to death of hearing about the energy transition, but much less is being said about the impact on America’s huge military industrial complex. Supplies of some weapons are already at uncomfortably low levels due to the number that have been shipped to Ukraine.
Developing advanced weaponry will require new critical minerals and the supply chains that deliver them. Advanced semiconductors are crucial components of missile guidance systems, cyberwarfare, and artificial intelligence capabilities. These semiconductors require materials, including gallium, arsenic, and neon—much of which are located and produced in Russia, China, and Ukraine. As we’ve already mentioned, America imports all its gallium while Russia’s invasion of Ukraine has halved the world’s supply of semiconductor-grade neon.