▶ 0:16:21>> the committee meets today to discuss the state of our country's critical mineral supply chains. The work could be done to make it stronger and more resilient. America's resilience on chinese critical minerals represents one of our greatest strategic vulnerabilities. Twice last year chinese communist party leader threatened to cut off exports of chinese rare earths.
▶ 0:16:50This would have brought an american defense manufacturing to its knees and deeply damaged the U.S. economy. Our advanced weapons systems and key parts of our civilian economy rely on critical minerals. Materials that are largely imported from china. Specifically american imports 70% of our rare earths from china.
▶ 0:17:17These elements are the backbone of permanent magnets and perhaps the most important components for phones, cars, military systems. More than 60% of american antimony comes from china. The simple point is this, the scale of china's critical minerals is wholly unprecedented.
▶ 0:17:51Situation is untenable for america's national security and economic prosperity. The good news is the U.S. government is forming a plan which will simultaneously reestablish critical minerals as a global free market and significantly increase production of these key elements. This will take more than a decade, faced setbacks, cannot be achieved without leaning on our allies and partners and it will be expensive.
▶ 0:18:21It is a necessary risk. It has been and will be at the center of these efforts dealing with the critical minerals to our weapons manufacturing. That brings us to the committee's interest in this matter. Joining us today are two pentagon officials, michael cadenazzi and I hope I pronounced your name exactly correct.
▶ 0:18:52You did --
▶ 0:18:53Mr. Cadenazzi: You did. Chair wicker and then jeffrey frankston, the acting deputy assistant secretary of defense. They both have done important work. They performed a deep analysis of our military's requirements for critical minerals in the state of industrial production. From mining to refining across the globe.
▶ 0:19:23Mr. Cadenazzi: That approach is leading to new investments by the industrial base fund, the defense production act and the national defense stockpile. It is driving interagency investments from the development of finance, the department of others. It is imperative is our investment strategy remains closely tied to the areas of greatest military need.
▶ 0:19:52Mr. Cadenazzi: Rebuilding the supply chains will require additional investments. Last year's reconciliation bill included $5 billion for the industrial base fund. $2 billion for the national defense stockpile and a $100 billion loan for the office of strategic capital. Misappropriations have already paid dividends.
▶ 0:20:19Mr. Cadenazzi: Last year the pentagon signed deals with mp materials and a consortium of corning for magnet production. Another investment went to elements usa which will be making progress on obtaining gallium and scandium from a recycling process.
▶ 0:20:43Mr. Cadenazzi: We have brought australia, brazil, saudi arabia into deals where mining opportunities do not exist in the united states. The good news is we do not need to outspend communist china on this effort. We could leverage our private capital markets. One of our few remaining comparative advantages against beijing. Many of our partners have incredible mining and refining opportunities.
▶ 0:21:14Mr. Cadenazzi: Dozens of countries are poised to ditch the predatory debt trap beijing has forced upon them in this area. As to private capital markets, I appreciate the pentagon's use of innovative financial tunes to power these deals. Congress has spoken clearly on these tools. They created the loan program three years ago.
▶ 0:21:43Mr. Cadenazzi: Since then we have remained intimately involved in amending its legislation. In other cases little law currently exists. These make good strategic sense in many cases particularly where no free market exists and where we see an aggressive chinese economic warfare.
▶ 0:22:08Mr. Cadenazzi: Opinions range wildly within our two political parties. Ranking member reed and I had a long series of discussions about house counterparts last year about legislation regarding equity investments. I anticipate that conversation will continue this year.
▶ 0:22:33Mr. Cadenazzi: This legislation is both important and urgent because repairing america's critical mineral supply will take more than a decade. We must give them confidence america's approach will stand the test of time and succeed in on shackling the world from beijing's market domination. We need effective government tools built on a solid foundation of law and bipartisan support. This year the committee has much work to do in this endeavor.
▶ 0:23:02Mr. Cadenazzi: It will discuss equity as an investment, we will discuss the need for multibillion-dollar investments in this area. We will expect improvements in communication from pentagon leadership on our investment strategy. That cannot excuse a lack of communication and partnership.
▶ 0:23:34Mr. Cadenazzi: Communication and partnership. Between the congress and the administration. I hope today's hearing is the beginning of a historic year in which this community and the trump administration work together to build america's supply chains. Thank you to our witnesses. I turned to my friend and colleague ranking member reed.
▶ 0:24:00Sen. Reed: Thank you for appearing today on a matter that is of great importance to this country. Over the past several decades the united states has steadily lost its leadership in critical minerals. From world war ii through the 1980's we lead the way in critical mineral production and lithium-ion battery manufacturing.
▶ 0:24:25Sen. Reed: American industry shifted from that production overseas primarily to asia the consequence of those decisions are now very apparent. Today china dominates the process of finding materials that make our most advanced weapon systems function, missile guidance systems to the chemistry towering the next generation of drones.
▶ 0:24:53Sen. Reed: The department of defense accounts for less than 1% of total critical mineral demand by an enormous range of critical military platforms that depend on it. Congress has work to address this issue. We had increased resources to the stockpile. We qualified domestic vendors, we restricted procurement from unreliable foreign entities. Those efforts matter.
▶ 0:25:24Sen. Reed: What has been missing is a coherent overarching management strategy in defense, commerce, energy, interior as well as our allies around common framework. Without that, we risk patching holes rather than building something durable. I wonder how our witnesses regard such a strategy and what is commonly underway.
▶ 0:25:59Sen. Reed: July of last year they announced the acquiring of 15% equity state a rare earth mining company in california. Making the U.S. military one of the company's largest shareholders. Since then the department has made equity investments in a number of critical mineral companies.
▶ 0:26:24Sen. Reed: I have questions about the legal basis, financial terms, strategic transactions. The legal base appears questionable. They argue the defense production act provides the authorities while the defense production authorize the purchase of industrial resources , it does not mention equity addressed in federal.
▶ 0:26:51Sen. Reed: The fact of the trump administration's office of budget has subsequently requested a legislative proposal to explicitly authorize equity investment suggests the administration itself recognizes a current authority. Further, the department prepared to purchase magnets at $110 per kilogram for 10 years beginning in 2028.
▶ 0:27:21Sen. Reed: The committee has not received an explanation how that price was determined or why that duration was appropriate. We have heard from other domestic producers that this arrangement affects their ability to compete which raises questions about market affects and unintended consequences of government intervention. Finally understand a small team was dispatched for the mp material transaction including outside consultants.
▶ 0:27:50Sen. Reed: This community has had very limited visibility into that review. I have concern about potential conflict of interest given the interest that certain stakeholders appear to have. The committee's interest is straightforward. We want to understand whether this transaction and the equity investment model and the floors more broadly represents the most effective and legally sound way to build the critical minerals capacity.
▶ 0:28:20Sen. Reed: I look forward to a discussion with our witness today. Thank you very much.
▶ 0:28:24Chair Wicker: Thank you very much. Now, Mr. cadenazzi, we will begin with you.
▶ 0:28:40Mr. Cadenazzi: Thank you for the opportunity to appear before you today to discuss the department actions to secure resilience and supply chain for critical minerals. This is fundamental to our national security. I am joined here today by Mr. jeff frankston. The career member of the senior executive service. He is my supply chain resilience, defense production act base fund.
▶ 0:29:12Mr. Cadenazzi: We are thankful for the talents and patriotic service of jeff and our entire workforce. As the assistant secretary for war, I am responsible for guiding department efforts to cultivate and sustain industries that meet america's needs and the growing demand for U.S. capabilities from our allies and partners around the world. The strength of the united states armed forces built upon the foundation of advanced technology.
▶ 0:29:39Mr. Cadenazzi: Our fifth generation aircraft satellite constellations, and next generation naval vessels all depend on a reliable supply of rare earth elements and minerals including gallium, and timonium, germanium, dozens of others. We have outsourced mining and processing creating vulnerability of the highest order. Our primary strategic competitor , china, controls the global supply chain for numerous particle minerals.
▶ 0:30:11Mr. Cadenazzi: China controls 95% of global output with the united states importing almost 100% of what we use, 90% of that coming from china. This control provides beijing with the ability to weaponize the supply chains, threatening to disrupt our industrial base and compromise military readiness in a crisis. This is not a theoretical risk.
▶ 0:30:35Mr. Cadenazzi: It is clear and present danger the department of war considers a reclamation of our critical mineral dependence and calls it out as such in the acquisition transformation strategy published this past november. Congress also clearly recognizes the need as the 2026 national defense authorization act as strategic assets vital for national defense and economic security.
▶ 0:31:03Mr. Cadenazzi: The beginning of the administration the policy has been at the center of these initiatives. The team is working night and day to rebuild american critical supply chains. We have invested 970 $5 million in minerals through title iii of the industrial base fund, the department of war has developed a multi-your strategy to address this vulnerability head-on.
▶ 0:31:31Mr. Cadenazzi: Our approach is found four key pillars to secure, resilient and supply chain systems. Pillar number one is our commitment to onshore the production of critical minerals. We continue to map the defense industry with defense -- dependence on china and we are focused on removing those dependencies. Congress providing $5 billion specifically for critical minerals is a significant investment in one we very much appreciate.
▶ 0:32:01Mr. Cadenazzi: We are leveraging authorities granted by congress. They would catalyze investment in domestic exploration, mining, processing. We partner with our colleagues to offer loans, loan guarantees, and debt financing options. It is with the international partners on bringing supply chains to the shores.
▶ 0:32:29Mr. Cadenazzi: Through these tools we are sending a clear and sustained demand signal to the industrial base. We are working across the entire value chain to build our resilience. For example the materials help secure domestic source of rare earth elements in the department continues to take action with interagency partners to decisively secure the U.S. rare earth supply chain.
▶ 0:32:56Mr. Cadenazzi: It will reduce 13 different metals including germanium, gallium, antimony. Additionally, 184 million prior investments will provide higher performance magnets, germanium crystal, and other capabilities. Next, while we prioritize domestic production we recognize no single nation could achieve complete self-sufficiency.
▶ 0:33:25Mr. Cadenazzi: Our second filler focuses on robust supply chains with our closest allies and partners. This approach diversifies while sourcing away from high-risk geopolitical areas and complements our efforts to build new sources of supply, foster reliable transport and logistics networks and transport the global market into one that is secure, and resilient.
▶ 0:33:53Mr. Cadenazzi: We are working with partners to invest in the secure supply from our operations across the globe. The department's event -- aggressively investing in research development to mitigate demand. Our scientists are pioneering the development of next-generation materials and novel manufacturing techniques that could reduce or eliminate the need for certain rare earths.
▶ 0:34:26Mr. Cadenazzi: We are funding the development of advanced technologies. We invested 29.9 million it recovered gallium and scandium from race residue left over from aluminum. By creating a robust circular economy we could reclaim valuable materials from our streams from spent batteries to decommission electronics, turtle liability into a secure asset.
▶ 0:34:51Mr. Cadenazzi: As our final pillar we are modernizing the national defense stockpile to ensure it serves as an effective buffer against near-term supply chain shocks. We are conducting a rigorous data-driven analysis of our strategic requirements for 21st century environments and are taking actions to require materials that face the most acute supply chain risks. Congress stepped up to help us with the severed providing $2 billion in the one big beautiful bill act.
▶ 0:35:22Mr. Cadenazzi: This modernized stockpile will help us execute the long-term strategy of rebuilding the domestic industrial base. The committee asked for an update and I am pleased to report significant progress. I will highlight two recent examples. We have finalized the landmark agreement with a canadian partner to secure a long-term supply of gallium. Reducing reliance on chinese sources.
▶ 0:35:52Mr. Cadenazzi: The department recently entered into an agreement with australia to go fund the development of substitute with high performance magnets. In closing, I want to emphasize that establishing secure critical mineral supply chains is a generational challenge but it is a challenge we must and will meet. The department of war, allies and partners with the vital support of this committee is committed to executing a strategy with urgency and resolve.
▶ 0:36:24Mr. Cadenazzi: Securing a supply change is not an economic issue, it is a foundational element of our national defense. Thank you for your time and I look forward to your questions.
▶ 0:36:39Mr. Frankston: Thank you. In addition to everything Mr. cadenazzi just mentioned, I want to emphasize the full and unified interagency cooperation.
▶ 0:36:55Mr. Frankston: This is a subject area that is not new but has been turbocharged in the collaboration as we work together across each of the interagency partners to identify the gaps, to have common targets, common understanding of both domestic challenges and in particular from our perspective the department of war needs.
▶ 0:37:18Mr. Frankston: We worked together on a daily, hourly basis across the interagency with our international partners, with industry to help them identify gaps and challenges here. Our office oversees the national defense stockpile. This is a key aspect that is a direct opportunity for our country to build a resilience capability.
▶ 0:37:44Mr. Frankston: The stockpile is one of the major statutory pieces that we have taken the funding to implement a direct challenge on how we will address critical minerals. I look forward to answering the rest of the committee's sub questions.
▶ 0:38:07Chair Wicker: Thank you very much. Secretary cadenazzi you say the era of complacency is over. Mr. frankston, you say that this issue is not new. I have been on this committee since 2008. Maybe I should be ashamed of myself.
▶ 0:38:37Chair Wicker: How is it that china to bring us to our needs, how do we get to this point Mr. secretary?
▶ 0:38:56Sec. Cadenazzi: We are engaged in malign adversarial efforts to manipulate markets to secure control, change supply, and undermine our own efforts. That has been coupled with economic incentives to outsource to the lowest supplier which china often is as a result of their lack of compliance with environmental and standard work laws we would have in the west.
▶ 0:39:26Sec. Cadenazzi: They have demonstrated a willingness to go ahead and create these capabilities undercutting our ability. It has been inadequate to the scale and the threat posed by china and therefor the issue on the opportunity we have is a demonstrated committed effort, well resourced and aligned across both parties to go ahead and fundamentally reshape those markets.
▶ 0:39:54Sec. Cadenazzi: We believe our investments will help.
▶ 0:39:58Chair Wicker: We have no question and choice but to follow it as quickly as we can. I am not pointing the finger at anybody in particular. I think I acknowledged that I am a bit about this. We have been hearing for several administrations that china is our pacing threat.
▶ 0:40:30Chair Wicker: It just seems to me that collectively we should have been tackling this a long time ago.
▶ 0:40:41Sec. Cadenazzi: It is clear the position we are in right now is inadequate to the needs of the nation with our economic performance and national security.
▶ 0:40:53Chair Wicker: You are going to be asked about this approach. We deal with industry, a lot. The idea of equity is something that there are going to be questions about on both sides. Why is it the way to go in your judgment on this issue of critical minerals?
▶ 0:41:18Sec. Cadenazzi: The opportunity it provides us is a catalyst for private investment and a more aggressive way of reconciling what has been a failed marketplace approach. We have invested small amounts of money and provided grants trying to incentivize through tax incentives and things like that.
▶ 0:41:39Chair Wicker: How far back -- you said we tried other approaches.
▶ 0:41:45Sec. Cadenazzi: We have been trying consistently the last 10-15 years. I'm sure there are more significant investments that I am not aware of. Things that have been done have not resulted in the outcomes that we wanted. The measure is on an outcome basis as of last year and currently our dependence on china for rare earth is significantly high. The actions of the past have not met our needs.
▶ 0:42:13Chair Wicker: If conflict had broken up in the last couple of years, the last year between united states and china, I hope we could avoid. It would've brought us to our knees.
▶ 0:42:38Sec. Cadenazzi: The willingness of china to turn off the spigot, it represents a significant threat to national security. Debilitating level domestic industry. I think many systems that are dependent on rare hurts and elements which would have struggled to get access of those. They should have a significant amount put away.
▶ 0:43:09Sec. Cadenazzi: Presumably we would have been engaged in aggressive action to unlock mining domestically and with partners to mitigate those gaps. In a way that prevented that for the long haul. There definitely would have been a crunch to affect our ability.
▶ 0:43:27Chair Wicker: Thank.
▶ 0:43:30Sen. Reed: I commend you for holding this hearing. We have not paid the kind of attention. The equity stake in the 10 year price law for mp minerals where puts other companies at a
▶ 0:44:00Sen. Reed: Disadvantage. How could they remain competitive when dod invest so heavily in one company and provides that company a competitive advantage.
▶ 0:44:17Sec. Cadenazzi: At the time we felt it was necessary to immediately stimulate rare earths demand. The past 15 years we have at various times had to move the needle on domestic rare-earth production. They move forward with a more aggressive model.
▶ 0:44:44Sec. Cadenazzi: The price floors are determined by a set of open market analysis reflecting what and open? It would look like. As we have seen since that time prices domestically have actually increased to the price where they have increased and around 110 per kilogram. We have created the mechanism to create a more transparent and market rate mechanisms.
▶ 0:45:13Sec. Cadenazzi: We have cut an additional investments. Scene companies spending in this space. It is all for us to create more liquid and robust domestic market for rare earth.
▶ 0:45:31Sen. Reed: Why it in the production process on the heavy rare earth from an unknown third party source, could you tell us who that third party is and where that country is located?
▶ 0:45:47Sec. Cadenazzi: We are -- there is an optimal mix of light and heavy rare earths on this. We are working to go ahead and start supply with. We struck additional deals with a brazilian company and we are in discussions with a saudi arabia company to provide access to additional materials.
▶ 0:46:09Sen. Reed: Who is providing materials now? What country?
▶ 0:46:20Sec. Cadenazzi: --
▶ 0:46:27Sen. Reed: As I requested yesterday on a phone call with the chairman, could you provide us the term sheet to the deal? We would like to look at the detail. It is working its way up through the process.
▶ 0:46:44Sec. Cadenazzi: We submitted our request for it to be approved and it is in review now.
▶ 0:46:53Sen. Reed: China will try to triangulate, circulate, get around this. With the price level, could they simply reduce their prices and cause dod to could knit -- commit significant dollars to materials or in general, how will they frustrate you?
▶ 0:47:15Sec. Cadenazzi: I think part of our approach is to create a more solid western demand. That is where something like the preferential trade zone with the voluntary commitment by our partners to operate in a way where we agree on that are set in a collaborative manner by countries that are worried about chinese maligned manipulation of markets and that we could collectively agree on the price floor that will not allow them to manipulate.
▶ 0:47:45Sec. Cadenazzi: We will agree to pay initially a higher price. As demand increases on hours they should level to what we hope is a more transparent and reasonable global market pricing that will work to our benefits in the long haul.
▶ 0:48:00Sen. Reed: The mp materials deal relies on future appropriations which calls into the question, does it comply with the antideficiency act? Have you analyze that and determined it won't?
▶ 0:48:14Sec. Cadenazzi: I'm not personally conducted analysis. You would have to rely on the office of general counsel to help us moving forward from an industrial base policy standpoint, we have submitted a request for funds to pay the quarterly payments that we expect are necessary. Going forward we plan that and we expect it will continue to, barring any changes in policy.
▶ 0:48:42Sen. Reed: Thank you very much.
▶ 0:48:44Sen. Sullivan: I appreciate you calling for this hearing. Gentlemen, thank you for your testimony. This issue is infuriating for me. So much of the challenges we face as a country are self-inflicted. I work in a bipartisan way on this committee a lot.
▶ 0:49:09Sen. Sullivan: I will tell you part of the answer is how do we become so reliant on china and other adversaries? One reason is that there is a huge difference in this town between republicans and democrats and who wants to develop our minds and processing. That is a fact.
▶ 0:49:28Sen. Sullivan: My colleagues need to look at this issue straight in the eye because so many of them are afraid of the far left environmental groups they prioritize shutting down mining and not developing critical minerals in america especially in my state. Let me provide a few examples. My state is estimated to have 56 out of the 60 critical minerals our country needs. Let me repeat that.
▶ 0:49:58Sen. Sullivan: In alaska the U.S. geological survey has said 56 out of the 60 critical minerals that we need to compete for our industrial base, especially in the military reside in my state. A core element of the far left is to shut down alaska.
▶ 0:50:23Sen. Sullivan: This is the joe biden, 70 executive orders when he guide to power the -- he issued 70 executive orders. 10 of them were out of his inauguration day. This was a plan, 70. Many of which dealt with shutting down critical minerals. Crazy. On this committee my colleagues probably remember the ambler mining district, the road.
▶ 0:50:55Sen. Sullivan: One of the biggest critical mineral deposits in america. We debated it on this committee. I give my colleagues credit. We won that amendment which allowed access to the ambler mining district which joe biden shut down. I think the vote was 21-6. Great victory. What happened?
▶ 0:51:21Sen. Sullivan: Chuck schumer made it a priority, so did hakeem jeffries to strip that provision in the committee. This is not rocket science. The far left on the other side of the aisle has kept my state from producing what the country needs. It is not rocket science. It still happens right now. I appreciate the focus of this committee.
▶ 0:51:53Sen. Sullivan: This frustrates me. It is not just killing thousands of jobs in alaska, which nobody seems to care about. It is empowering our adversaries. I appreciate the trump administration's focus. The president again reversing biden. Issuing an order on the ambler mining district. We will start working on that. Let me ask you you two gentlemen.
▶ 0:52:23Sen. Sullivan: Major permitting reform to make it more efficient, timely, certain to develop minds, isn't that also important? Another issue my colleagues blocked for decades. I worked on that for more than 10 years, is that important? How important would be to get major permitting done?
▶ 0:52:48Sec. Cadenazzi: Absolutely. They have been a major point of contention for mining development. We have looked at opportunities to develop. Resources on the industrial base which offer some alternatives for how we could implement environmental constraints with defense production act does provide some remediation efforts. We be keen to work with the congress where appropriate.
▶ 0:53:24Sen. Sullivan: This matters for energy, it matters to everybody. It is bipartisan so far. I will submit some questions for the record on the investments the department of war has made. Let me ask you one quick question.
▶ 0:53:46Sen. Sullivan: That is a very important issue for my constituents in terms of flexibility, war fighting, keeping vip that the pentagon gets to keep when they do those programs. Limiting opportunities would be a gift to the big crimes. Can you give me an update on how that is going? I appreciate the meeting but that is an important one for me.
▶ 0:54:14Sec. Cadenazzi: They continue to be a major priority for the office of small business programs. They focus on issues such as fraud within the program. Bringing new entrants into the space particularly through the programs in the future.
▶ 0:54:31Sen. Sullivan: Will you agree a lot of them bring a focus on lethality, flexibility and make the pentagon more lethal?
▶ 0:54:39Sec. Cadenazzi: Agreed, absolutely.
▶ 0:54:43Chair Wicker: We probably need to put copies of those two posters in the record at this point.
▶ 0:54:58Sen. Sullivan: Gladly.
▶ 0:55:00Sen. Shaheen: I don't object to putting those in the record but I do object to your attack on democrats as being the reason that critical minerals.
▶ 0:55:19Sen. Sullivan: I said one of the reasons.
▶ 0:55:20Chair Wicker: Senator shaheen is recognized. We will take a second round.
▶ 0:55:27Sen. Shaheen: The better way to address this issue would be to work together and to not name call and educate people on why this is so critical as you have been trying to do. I will not be supportive of critical minerals you think because I have a d after my name. Gentlemen, thank you both for joining us.
▶ 0:55:56Sen. Shaheen: I want to go back to the equity investment question that senator reed and senator wicker both raised. It is not clear to me what the criteria is that you are looking at making equity investments. Could you outline what that is and explain whether you are focusing more on extraction, processing, in terms of those investments?
▶ 0:56:21Sec. Cadenazzi: There is no criteria in such that we are looking for equity investments. The way I would look at it and described it is improved investment, performance, production within the mining space particularly. We are talking to places that would make them more successful over the long haul.
▶ 0:56:52Sen. Shaheen: I'm not being clear I don't think. What determines whether you think a particular company is a good choice for that investment and how do you determine that criteria and how do you decide whether you have been successful or not?
▶ 0:57:06Sec. Cadenazzi: Thank you for clarifying. We conduct a robust process. We have an internal effort through our global investment in economic security team. We couple that with external market analysis to understand the production rates of those whatever it may be. Especially with their place in the market. We add additional experts within the teams.
▶ 0:57:36Sec. Cadenazzi: We determine whether or not we think this mine could meet the target. Generally it is an increase from a one number to another.
▶ 0:57:46Sen. Sheehy: Did you have something else?
▶ 0:57:48Sec. Cadenazzi: We make a reasonable business case analysis that determines what the direct investment and/or debt may be to meet those requirements for the country.
▶ 0:58:01Sen. Shaheen: Could you answer the extraction versus processing question?
▶ 0:58:03Sec. Cadenazzi: Our goal is to do this before every one of the critical minerals we identified. We are creating the value chain that is from mining to production to refining to recycling. They are in each of those places whether the do w, partner agencies, private capital to make sure we are investing appropriately across each of those elements.
▶ 0:58:32Sen. Shaheen: My understanding is the biggest issue here is not china's control of the actual critical minerals themselves, it is the processing they do that nobody else is doing. How it focusing on the processing in ways that allow us to build that supply that we are going to need.
▶ 0:58:57Mr. Frankston: For each critical mineral we look at, we build the supply chain map across the board from the raw material to the finished project, we look at each stage with a domestic focus and then building that into the broader domestic requirement piece. Where is china or other competitors have control over their critical mineral. It is a different story for each one.
▶ 0:59:27Mr. Frankston: Each what we target is how do we make this investment along the supply chain so we are not making isolated investments in one stage of the process and then the feeding and receiving mode so that we build the integrated domestic joint partner capability.
▶ 0:59:47Sen. Shaheen: Are we investing in any processing capability?
▶ 0:59:52Sec. Cadenazzi: The goal is to work across the supply value chain. That would require us having input and then going further into the supply chain.
▶ 1:00:05Sen. Shaheen: Could you tell us when companies are doing that processing and the difference between what they are doing and what china is doing? My understand is one of the challenges is china is able to do the work without any requirements that affect their workforce.
▶ 1:00:23Sec. Cadenazzi: Yesterday we provided your office is a copy of an antimony value chain that breaks that down and is the example of the type of analysis we are doing in the details of production rates. We'd be happy to provide additional insight and we will provide specific comments on the companies that we are looking to invest in.
▶ 1:00:49Sen. Kaine: I wish senator sullivan was still here, just one comment about his concluding remarks. The democrats have been walking permitting reforms for decades. They have been working hand-in-hand with republicans on permitting form issues.
▶ 1:01:11Sen. Kaine: My understanding is democrats on the relevant committees, those issues were closing and there was a real possibility of finding a path forward that was bipartisan. President trump decision to wage war especially a concerted effort to wage war against offshore wind projects which had been repeatedly in the court's. That has not stopped the president from attacking offshore wind causing the reform efforts to grind to a halt.
▶ 1:01:41Sen. Kaine: It seems to me in this area of minerals, self sufficiency of the above it should be all of the below -- above and just not all of the below. My state has been affected dramatically by president's actions. We want reformed so we don't want permitting reform that takes clean american domestic energy off the table.
▶ 1:02:09Sen. Kaine: Thank you so much for being here today. I was in australia last week for a visit and I appreciate some of the testimony earlier. Australia produces about half of the world's lithium but historically has relied on china for refining. What steps is the dod taking to ensure australia scales fast enough to reduce reliance on chinese processing?
▶ 1:02:43Sen. Kaine: This builds on the meeting the president and the prime minister had in october where they had the bilateral partnership escalating critical mineral production and refining.
▶ 1:02:54Sec. Cadenazzi: We are excited to be partnered with our australian colleagues. Lithium is not something that we are terribly focused on. It is not on our critical list. There is too many problems. That is something we have adequate supply from our partners and allies. At the moment it does not require as much focus on it.
▶ 1:03:25Sec. Cadenazzi: We prioritize other minerals.
▶ 1:03:29Sen. Kaine: I appreciate the comment you made about lithium. It is not just where the critical minerals and how could we extract them and get them to market. China has locked up a lot of the world's refining capacity. In developing the strategy we could rely on with the supply chain. What is the dod doing to focus on the component of those minerals you are concerned with.
▶ 1:03:57Sec. Cadenazzi: Absolutely. It is a major priority for us. We are investing adequately to include mining production, recycling, the refining.
▶ 1:04:19Sec. Cadenazzi: >> australia is a fantastic partner around what their country is blessed with and what is in the ground from a processing standpoint. They build a domestic capability through defense production act. We are working on a number of different runs on australia as a trilateral investment.
▶ 1:04:51Sec. Cadenazzi: We have other open opportunities just two weeks ago we held a defense industrial base consortium call for submissions of papers and proposals from industry across the world including australia and it is at all stages of production. We welcome any participation, any cooperation that directly aligns with the president's agreement signed with australia.
▶ 1:05:16Sen. Kaine: One last question back to lithium, the dod announced vendors and computed in phase one of the drone dominance program. Lithium-ion batteries are a critical enabling technology for drones. China does control much of the upstream supply chain. One of the requirements for the drone dominance to source battery or other materials from the U.S. or other allied suppliers?
▶ 1:05:44Sec. Cadenazzi: The batteries issue is a critical one not just for drones but for the entire supply chain for the department of war. Minerals that go into those batteries are available we think it lithium more or less. There are alternative chemistries for batteries. We have a large team that works on batteries issues.
▶ 1:06:12Sec. Cadenazzi: We convened a whole of government effort to look at batteries opportunities and the threat from china's control of markets on batteries. We are working with our colleagues to identify alternative sources and teams driving drone adoption with a late mix of controls on access to battery and raw materials and technologies going forward.
▶ 1:06:38Sen. Kelly: Thank you. Mr. cadenazzi, did I get that right?
▶ 1:06:45Sec. Cadenazzi: Yes.
▶ 1:06:50Sen. Kelly: Thank you both for being here. I want to ask you how supply semi conductors to the defense industrial blaze. Semi conductors go in a lot of stuff. Used by our military, technology advances rapidly. The processing power doubles every 18 months. Procurement programs do not operate at that kind of speed.
▶ 1:07:15Sen. Kelly: The end result of some of our most advanced weapons systems relying on ships that are old, sometimes outdated, sometimes decades behind the state-of-the-art technology. Historically dod has relied on a small number of trusted foundries which not only serve they serve government customers.
▶ 1:07:41Sen. Kelly: Would you agree this has not succeeded in protecting dod's access to the best chips in the world for its most important programs?
▶ 1:07:51Sec. Cadenazzi: We have perennially under invested to migrate our systems to the most current state-of-the-art chips. We have a legacy infrastructure that produces a large number of chips that meet needs based on older technology.
▶ 1:08:12Sen. Kelly: Sounds like an area we could put some focus on to fix. We have worked on some -- this committee for years to solve this issue by placing production lines that meet the dod security requirements so dod could get those chips without compromising any security on these programs. There is a couple of them. One is the secure enclave. The other is the commons. These programs have been stood up and they are fully funded.
▶ 1:08:44Sen. Kelly: They are getting ready to produce chips. There is just one problem. Major programs are still choosing to have the old, outdated boundaries produce the chips, not the new ones. Would you both agree there are meaningful strategic advantages to sourcing leading edge chips for our major programs?
▶ 1:09:06Sec. Cadenazzi: I concur and the need for us to continuously improve the security of our chip infrastructure and the tools on the secure enclave provide new alternatives.
▶ 1:09:23Sen. Kelly: Why haven't we use those alternatives?
▶ 1:09:25Sec. Cadenazzi: Price considerations and energy considerations to do chips and new security models. Inherently it is a cost issue that they have been incentivize. We need to incentivize them to piven and invest in the infrastructure changes necessary to take full advantage.
▶ 1:09:46Sen. Kelly: Could you give a full example of how much more does a chip coming out of the secure enclave cost or a weapon system percentagewise?
▶ 1:09:59Sec. Cadenazzi: I'm not sure I could comment. The certification cost of these new systems, you often have to requalify systems. It becomes a cost driver for engineering, there's a whole bunch of ancillary pieces. The bill gets pretty large. To go ahead and make these changes unfortunately.
▶ 1:10:27So Vote Kelly -- Sen. Kelly: How about a systems?
▶ 1:10:32Sec. Cadenazzi: They are incentivize for ease of access and approval to leverage infrastructure that is already improved. To go ahead and went -- launch a new weapons platform is often cost prohibitive and not incentivized by the program.
▶ 1:10:54Sen. Kelly: We funded the secure enclave, are they not approved?
▶ 1:10:59Sec. Cadenazzi: I believe they are and we are in the process of migrating over the next five years or so. I believe there will be a bit of a tail and a wag and a bit of a bill with how we would make that migration work.
▶ 1:11:18Sen. Kelly: What we do to make that migration more quickly.
▶ 1:11:21Sec. Cadenazzi: Changes in policy that would help us drive those changes in the understanding costs associated with that to make it work.
▶ 1:11:30Sen. Kelly: Thank you. I yield back my six seconds.
▶ 1:11:36Chair Wicker: Quite generous of you.
▶ 1:11:40Sen. Hirono: Before I begin my questions I would like to note that we all acknowledge both the democrats and the republicans acknowledge the importance of critical minerals and the overreliance on china. There are concerns with binding these resources.
▶ 1:12:02Sen. Hirono: I want to put on the record my opposition to this regime's attempt to reverse a 20 year ban on mining near minnesota's boundary waters. Access to critical minerals supplies domestically are important, we cannot just toss out the kinds of environmental concerns that has to do with contamination of local links.
▶ 1:12:33Sen. Hirono: Environmental requirements are important. We want to mine critical minerals. The 400 million in equity that we have in materials, we made a note that you said equity ownership to address failed marketplace efforts.
▶ 1:12:56Sen. Hirono: I don't know what that means with marketplace efforts to justify equity scared -- shares with a number of private entities. It is more than likely for us to determine whether that is an accurate depiction.
▶ 1:13:20Sen. Hirono: It is very unusual for the government to acquire equity shares and other issues relating to the competition or lack thereof. I just want to raise my concerns. He gives the authority for the U.S. to achieve equity shares. There is a question that in that authority is deemed nonexistent, I don't know what that does to the equity shares.
▶ 1:13:51Sen. Hirono: Does that mean that deal has to be unwound? The supreme court's decision on the unconstitutionality of the tariffs and the billions of dollars. There will be arguments about returning all of that. Let me turn to something I think is very positive. On this issue of critical minerals, it has to do with recycling. Recycling critical minerals from end-of-life equipment.
▶ 1:14:22Sen. Hirono: I like to see that in your testimony you referred to recycling as one of the ways we will address our needs for critical minerals. What progress are you making in this area of recycling and are you preparing any demonstration projects to scale these recycling technologies up?
▶ 1:14:57Sen. Hirono: >> a great example of our exciting capabilities through the defense logistics agency, their germanium recycling program. They have taken night vision optics that had been decommissioned after use and able to harvest back the materials to have a ready supply of material for the war fighter as a reserve.
▶ 1:15:19Sen. Hirono: I'm sorry. I'm running out of time. I want to make sure you are hopefully very committed to shoring up the recycling aspects of critical minerals and you are spending the kind of money we need in r&d for this purpose. Are you committed to recycling?
▶ 1:15:42Sen. Hirono: Do you have -- I have a question whether you have demonstration projects that show us your progress in this area.
▶ 1:15:51Mr. Frankston: We are committed. We recognize it's a critical supply for the long haul and there are multiple demonstration projects in the r&d portfolio. We will come back to you on the report over those projects are.
▶ 1:16:07Sen. Hirono: Are you making it clear to the private sector they can participate in the developing the recycling of critical minerals from spent materials so they can put their energies and brain power to enabling us to recycle?
▶ 1:16:25Sec. Cadenazzi: Absolutely, senator. We hope we can bring the best capabilities back for us to leverage in these decisions.
▶ 1:16:34Sen. Hirono: Can ask a short question about a provision we put in last year's ndaa? Section 1412 of the fiscal year 2026 ndaa requires the defense logistics agency to report on best practices, to expand the strategic material recovery and use program by march 1, 2026. That is right around the corner. Is that report on schedule?
▶ 1:17:04Sec. Cadenazzi: The defense logistics agency is a separate agency with an acquisition sustainment. I will bring that request to the undersecretary and we will find out.
▶ 1:17:16Sen. Hirono: This is an issue. Recycling is a very important part of the testimony you gave and yet you are not the one able to tell us whether the report will be on time or not. I appreciate you conveying it to the appropriate entity at dod.
▶ 1:17:37Chair Wicker: Thank you for agreeing to do that. Senator banks.
▶ 1:17:41Sen. Banks: Mr. cadenazzi, can you speak to the importance of the department of war's equity investments and how they played a role in supporting the department's critical minimal supply chain security? What is uniquely helpful about equity stakes? Relative to other kinds of support we would use?
▶ 1:18:07Sec. Cadenazzi: We believe given the frailty of the minerals markets that equities is a component to drive alignment of the companies, make a clear commitment we are interested and committed to not just the market but the company in question, hence the rigorous diligence we conduct on the company and its performance.
▶ 1:18:27Sec. Cadenazzi: We can crowd in private capital to expand operations and leverage less taxpayer money to achieve our ends and signal a real change in how we plan to operate the demand signal for that particular component or mineral going forward. It has been vital and successful thus far. It forges a partnership with the company in question and allows us to plan for the long haul. The goal is not equity outcomes for our away for economic or financial returns. Those would return to the taxpayer.
▶ 1:18:57Sec. Cadenazzi: Our goal is to improve mineral production and the availability of those minerals to the department of work more broadly to the nation.
▶ 1:19:02Sen. Banks: As the department used equity investment tools before?
▶ 1:19:09Sec. Cadenazzi: Prior to the current administration? I leave during the 2008 financial crisis.
▶ 1:19:16Sen. Banks: There is a president? -- precedent?
▶ 1:19:21Sec. Cadenazzi: It has happened in the past. We believe were opportunities exist for the government to supplement our spending with external capital that is a powerful tool for us to incentivize the investment for our partners and accelerate the pace at which we are able to generate new production capacity.
▶ 1:19:45Sec. Cadenazzi: We anticipate using this as an alternative to other financing mechanisms where we have tended to offer grants to companies to facilitate facilitatize and offer an incentive for us to take an equity stake going forward.
▶ 1:19:59Sen. Banks: Are there additional authorities you need as we head into ndaa season that might help you provide equity investments in other sectors?
▶ 1:20:13Sec. Cadenazzi: There was a robust discussion with regards to equity language in the 2026 appropriations bill that did not reach fulfillment. We will continue those discussions to make sure we are in alignment on the appropriate use and controls on the application of equity.
▶ 1:20:32Sen. Banks: Can you walk us through consequences for the department when the chinese first expanded their rare earth export controls last october? With did that do to us?
▶ 1:20:40Sec. Cadenazzi: It was a crisis. Hi came in after that. Having discussed with the team the commitment to national security and the minerals front has been vigorous. I did not discuss minerals with the committee when I was confirmed last fall. This has become a major topic.
▶ 1:21:04Sec. Cadenazzi: We spent time in congress money to work on these mineral issues and we are excited about the impact we are having on the space and we believe we are in the past 14 months the initiation has started to bend the needle substantially on availability and we are looking forward to more impact in the next two years.
▶ 1:21:20Sen. Banks: What does it mean to america and the department to rely on our adversary?
▶ 1:21:26Sec. Cadenazzi: It is unacceptable that our primary strategic competitor can turn off the spigot on a mineral which we absolutely require for the production of nearly every weapons platform.
▶ 1:21:37Sen. Banks: Mr. chairman, I yield back. Senator reed --
▶ 1:21:43Chair Wicker: Senator reed, you are recognized.
▶ 1:21:48Sen. Reed: Two quick questions. Secretary cadenazzi, we have talked about equity. This is not going to go away. There are other tools that are available. Direct ramps. Many other tools. Why was equity chosen above these other approaches?
▶ 1:22:10Sec. Cadenazzi: We believe at this time to incentivize capital and provide a signal to the market the dow is interested in solving these problems, that equity is a necessary tool for us to make that commitment. To recoup our investment over time.
▶ 1:22:38Sec. Cadenazzi: The taxpayer will be repaid through a successful investment if the market works out as we believe it will, which is we invest in the company, solve our national security problem with access to that mineral. The equity stake will pay back the taxpayer for that return. That is a great deal for the taxpayer as it will meet both of our needs. The department and the country's needs for the future.
▶ 1:23:00Sen. Reed: Let me ask another question. This is all critical in terms of the legal basis for all of these actions. Can we be assured we will get promptly the dod legal opinion on these equity deals that go through all the nuances we have spoken about this morning?
▶ 1:23:24Sec. Cadenazzi: I believe the department has worked on providing those justifications to the congress and we will go ahead and submit the request back again.
▶ 1:23:34Sen. Reed: Thank you very much.
▶ 1:23:37Chair Wicker: Any idea how much longer that will take, Mr. secretary?
▶ 1:23:43Sec. Cadenazzi: Chairman wicker, I'm not a lawyer but I will go ahead and ask the team to give us a timeline.
▶ 1:23:54Sen. Reed: You are just trying to claim the veil of innocence by claiming you are not a lawyer. I get it. The investments, the equity investments, are such that raise issues that I hope we can see analyzed in these legal opinions.
▶ 1:24:19Sen. Reed: For example, what obligation do you have as a shareholder to the company versus obligations to the united states? That is a key distinction. I know the stock that is convertible into common stock, there is the notion of distention between a stockholder and a government agent.
▶ 1:24:50Sen. Reed: That is something I hope will be captured in these opinions. Have you seen that discussion?
▶ 1:24:56Sec. Cadenazzi: I understand the concern. We established the zeal to provide for performance outcomes. The goal is not economic returns. We are not trying to excise long-term ownership of these companies. It is not to have a stay forever. Our goal is to execute some sort of exit strategy is appropriate to the moment and continue on with the next set of problems. Ideally we would not be spending time on minerals.
▶ 1:25:20Sec. Cadenazzi: We field come -- we feel compelled to do so as compelled to do so with the situation in the market.
▶ 1:25:28Sen. Reed: This is been very clear testimony and I appreciated it very much.
▶ 1:25:35Chair Wicker: Let me ask this, secretary cadenazzi. Are we expanding your workforce enough? We understood your team was working some of longest hours in the building. How is that coming along?
▶ 1:25:59Sec. Cadenazzi: In the wind big beautiful bill we received several million dollars, 20 million dollars I believe in funds for workforce expansion specifically within jeff's team and industrial base resilience. We have worked hard to fill those roles and begin the expansion. It will take some time for the money to flow in.
▶ 1:26:19Chair Wicker: The money did not arrive quite as quickly as perhaps --
▶ 1:26:24Sec. Cadenazzi: Not as quick as I would want, senator.
▶ 1:26:27Mr. Frankston: Just in the last few weeks we have brought on about four or five people alone on my team to work across a number of key sectors. The resources provided from yourself and this team has been phenomenal. We are building our capability to grow across all sectors but on vertical minerals. We brought in a third expert to help us and we will be bringing in more to cover some of the smaller sectors.
▶ 1:26:53Mr. Frankston: Some of the underlying sub-tier and enabling things like chemicals for leaching for critical minerals. Looking across all these areas. We are very much appreciative and looking forward to bringing on more personnel.
▶ 1:27:04Chair Wicker: I'm glad you are appreciative. Sometimes those ponies going from one side of the river to the other are a little slow getting across the bridge. Senator warren.
▶ 1:27:22Sen. Warren: Thank you, Mr. chairman. When you sign a contract you expect to get what you paid for at price. On the date that was spelled out in the contract, but not for deity. When the dod signs contract , contractors often delivered late, years late, and billions of dollars over budget.
▶ 1:27:51Sen. Warren: Recently the gao found in fy 2024, dod's major weapons programs were 18 months behind schedule and would cost $50 billion more than budgeted just the year before. $50 billion in one year. That is not an oops. That is two times with the government's been childcare that year.
▶ 1:28:21Sen. Warren: General dynamics boiler program, an extra $1 billion. Raytheon's radar, another $6 billion. Northrop grumman's sentinel program, $36 billion over budget. All are at least three years behind schedule. And now dod is ramping up investments in critical minerals. You have to worry are we just going to see the same thing again? Mr.
▶ 1:28:48Sen. Warren: Cadenazzi, you were the principal advisor on industrial base policy. Does it help or hurt our national security when dod signs a contract for the equipment it needs and it actually gets it years later and for billions of dollars more?
▶ 1:29:08Sec. Cadenazzi: Sec. Cadenazzi: it is brutal and that happens. Everyone in the department agrees the performance of the industrial base and our contractors delivering weapon systems has been unsatisfactory over an extended period of time and we are making sure we get the outcomes which are expected for us to meet requirements for the war fighter.
▶ 1:29:30Sen. Warren: Unsatisfactory might be the understatement of the day. If you bought something and then the company said pay us more and we will give it to you a year later, he would report them to the authorities. But defense contractors are a year late and over budget and what happens?
▶ 1:29:54Sen. Warren: The reagan taxpayer dollars and they shall out billions of dollars to their shareholders and their executives. In 2024, raytheon, general dynamics and northrop grumman each spent $3 billion on stock buybacks and dividends. Their executives you will be happy no did just fine. Raytheon's ceo earned $18 million.
▶ 1:30:23Sen. Warren: General dynamics, -- northrop grumman, $24 million. Mr. cadenazzi, does it help or hurt our national security when giant contractors spend billions of dollars on stock buybacks and ceo payouts at the same time that they are failing to deliver weapons on time and on budget?
▶ 1:30:46Sec. Cadenazzi: Senator, we agree that companies investing in share buybacks, dividends and oversized executive compensation relative to their poor performance is a concern. We are not happy with it, and state -- hence the eo about outcomes.
▶ 1:31:07Sec. Cadenazzi: We are making it clear we think the misalignment of capital and unwillingness to invest first in war fighter performance and system performance and delivery rates readiness is more important relative to these other financial incentives. We recognize there are market expectations to meet. The first needs to be delivering for the war fighter.
▶ 1:31:30Sen. Warren: We are just really reaching a point where enough is enough. Our recent trump administration executive order announced a plan to prohibit buybacks, dividends and excessive compensation for companies that failed to deliver to our war fighters. It's a good start, but defense contractors are already bragging to their shareholders that they are not going to change. Obviously they are not very afraid of you at this point.
▶ 1:31:58Sen. Warren: When asked if northrop grumman would continue paying dividends, the ceo said yes. 100% yes. Raytheon, which the president called out as a problem said they "remain committed to the dividend. " I'm out of time so I can do this for the record. Mr.
▶ 1:32:23Sen. Warren: Cadenazzi, would dod benefit from changes in the law to give this executive order more teeth and show companies that we are actually serious?
▶ 1:32:35Sec. Cadenazzi: Yes, senator.
▶ 1:32:36Sen. Warren: I don't say this often but I think the trump administration has hit the nail on the head on the problem here. But congress needs to codify these tools to ensure that contractors prioritize delivering on time and on budget, not just lining their own pockets. Thank you very much, Mr. chairman.
▶ 1:32:57Chair Wicker: Thank you very much and I agree, senator, with that sentiments. This concludes today's hearing. The question for the records are due within two business days of the conclusion. We are adjourned.