Limiting Adversarial Capital in Critical Minerals Supply Chains

Abstract

The West cannot finance a critical minerals supply chain it cannot price, and it cannot price one until it can separate two kinds of supply: material controlled by adversarial capital, versus everything else. That separation is the precondition for a separate reference price, the subject of the next paper, and for the ~$19 billion in U.S. federal commitments (including the National Defense Stockpile, the Industrial Base Fund, the Office of Strategic Capital, and Project Vault) as well as allied funding (including the EU’s Critical Raw Materials Act facilities and the ~€64 billion in projects the G7 welcomed at Évian).

A true separation cannot be made until allies can agree on what adversarial control means; this paper argues that control measures should not rely on a static ownership percentage in a vacuum, but should weigh the full range of control surfaces defined in Exhibit 2, and should be kept current as structures evolve.

Importantly, a definition Washington writes by itself is one allies will not adopt. The point of an allied definition is to build a separate market that uses non-China reference prices to make allied capacity bankable, which works only if allied buyers, lenders, and customs authorities recognize the same qualified producers and adopt the same standards.

This paper also proposes starting with a minimum viable product in a single market, tantalum, which already uses audit and traceability standards, establish an early win to prove effectiveness, then roll out to a total of 20 critical minerals on a set timeline.

What To Do

1. Launch a minimum viable product. Build and test the machinery on tantalum first, for an early win, rather than launching on all 60 critical minerals or the hardest one first. This enables time for allies to buy in, capital providers to understand bankability of the future timeline, and operators to test the system prior to full roll out.

2. Define control, not ownership. Establish an allied functional test for adversarial control, stand up a single ally-recognized qualified-producer list (adapting tantalum’s existing conformant-smelter audit and traceability standards), make beneficial-ownership disclosure the price of admission, and enforce with mass-balance accounting and customs so material cannot be re-badged. Leverage existing technology and traceability systems to keep costs manageable.

3. Roll out on a schedule. Extend to the other in-scope materials (20 of the currently defined 60 USGS critical minerals, not all) on a published, time-gated sequence so capital can plan and underwrite new capacity in advance of the bifurcation timeline (Exhibit 4).

4. Lodge it at the allied level. House the system in a joint body so it survives any one government’s four-year cycle.

No single current test can, on its own, carry the bifurcated pricing system I recommend in the following paper. This is the third paper in the Critical Minerals Capital Series.

View the full paper (PDF).

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