International Market And Political Issues Likely To Diminish U.S. Ability To Obtain Strategic Minerals
Instructor: Kristan Wheaton
October 10, 2012
About This Document
The national security team composed this joint LFAR from remote locations beginning on the evening of October 8, 2012 and completing on October 10, 2012. The research in this LFAR was conducted over the prior week (October 2 through October 7) through Google News searches and use of the Strategic Minerals blog. No source is more than 12 months old.
The national security team was tasked with answering the following question: what implications will international issues related to critical minerals have on U.S. national security in the next three to five years? The team seeks to create an all-encompassing answer to this question, one that draws from multiple sources and regions and which can be distilled into the most pertinent findings for American foreign policy.
Source reliability was calculated based on the Trust Scale and Web Site Evaluation Worksheet. Analytic confidence was determined based on the Peterson Table of Analytic Confidence Assessment.
Over the next three to five years, international issues including market and political conditions are likely to diminish the United States’ ability to obtain strategic minerals.
Table Of Contents
International Market And Political Issues Likely To Diminish U.S. Ability To Obtain Strategic Minerals
The United States’ ability to obtain strategic minerals is likely to diminish over the next three to five years due to international issues, including market and political conditions. Key international issues include territory disputes around China, the South African miners’ strike, attempted American prohibition of the use of conflict minerals, and U.S. failure to develop long-term plans for resource extraction in the Arctic region.
The current state of global mineral affairs is not conducive for the purchase of strategic minerals. Issues across the globe, ranging from overt national security conflicts to social and political problems present a hostile climate for strategic mineral buyers.
Territorial disputes in Asia over several small chains of islands are straining relations in the region. The Chinese government has made several bold moves over the past 9 months to draw attention to the disputed regions. The regions in question are suspected to contain valuable resource deposits, and if they are obtained by the Chinese, it would further consolidate Chinese control over the strategic and rare earth minerals market. Chinese technology industries are already suspected of depleting the nation’s vast rare earth supplies and may begin importing rare earth metals as early as 2014.
The use of overt military force in this conflict is highly unlikely and preliminary political resolutions have begun. Japanese Prime Minister Yoshihiko Noda called for political talks to contain economic fallout from the tensions in the South China Sea, echoing the historic advice of former Chinese leader Deng Xiaoping. On October 1, the Chinese delegation to the ASEAN announced it would offer 3 billion yuan (USD 474 million) for a cooperative maritime fund for member nations. For further information, see Supplemental Report 1.
The nationwide mine strike in South Africa has caused a price increase in the strategic mineral platinum. Since the strikes began, the price of platinum has risen 3 percent. On September 14, the price of platinum rose by USD 42.60 to USD 1,649.60 per ounce. The strikes in South Africa’s gold mines halted 39 percent of its gold output.
Mine strikes in South Africa continue to affect the global mining industry. South Africa produces 75 percent of the world’s platinum and is the fifth-largest gold producer. As many as 80,000 miners (16 percent of South Africa’s total mining workforce) are striking. South Africa’s mining industry has been in turmoil since August, when mineworkers at a Lonmin mine staged a strike that led to police shooting and killing 34 workers in Marikana. The unrest is spreading to other mines. For further information, see Supplemental Report 2.
Fighters staging rebellions in the Democratic Republic of Congo (DRC) are being funded by conflict minerals. Armed groups control half of the production of these minerals, generating a profit of USD 225 million annually. Almost every electronic consumer product worldwide uses some form of conflict minerals. Since 2008, the United States has provided $950 million USD in assistance to the DRC, including military education and training in conflict mitigation.
M23 militants are running mining camps in the DRC that mine conflict minerals. Participants in the African summit agreed to dispatch a neutral force in an attempt to drive the M23 militants out, but analysts believe this will have little effect on the militants. In an attempt to stop using conflict minerals, including tantalum, tin, gold, and tungsten, the Security and Exchange Commission issued a rule that all companies must report use of these minerals, so as to attempt to force companies to find their minerals elsewhere. The United States Chamber of Commerce recommends a more effective regulation by implementing managerial accountability, hiring market based experts, and enhancing cost-benefit analysis. For further information, see Supplemental Report 3.
Historic melting of the polar ice caps has led to an increase of available resources in the Arctic Circle including rare earth minerals, oil, and gas--experts estimate Arctic resources hold trillions of dollars in potential profits. Many countries are rushing to establish a diplomatic presence in the Arctic, most notably China which has made plans for up to 500 diplomatic personnel in Iceland alone. Others, such as Canada, are expanding Arctic territories.
Despite the increasing Arctic activity, the U.S. is falling behind. By failing to accede to the Law of the Sea Treaty, the U.S. has failed to lead the international community in the Arctic region. Chinese companies, many with government ties, have aggressively pursued Arctic contracts and resources. Although other Arctic nations such as Russia are continuing recent militarization campaigns in the Arctic region, the U.S. has failed to prepare, leaving ports and the U.S. Coast Guard grossly unready and vulnerable. For further information see Supplemental Report 4.
Analytic confidence for this assessment is medium. The analysts did not utilize structured methods of analysis for this report. Source reliability ranges from medium to high and sources could be corroborated. Analyst expertise is moderate and analysts worked in a team of four. Subject complexity is high and the time available for the task was adequate.
Number of Asian Territorial Disputes Likely To Increase; Strategic Minerals Driving Conflict
It is highly likely that the Chinese government will continue to bring attention to disputed regions like the Senkaku Islands, the Paracel Islands, and the Spratly Islands in the next 12 to 24 months. These islands likely contain valuable strategic mineral resources as well as offshore oil and gas deposits. The number of territorial disputes in the region of the South and East China Seas and their volatility are both likely to increase.
In September, political tensions came to a crescendo as China protested Japan’s continued occupation of the Senkaku Islands, 100 miles north of Taiwan. Experts believe the islands contain valuable strategic mineral deposits. The uproar is one event in a series of ongoing disputes involving the PRC. In July, the People’s Liberation Army announced it would send a garrison of soldiers to the Paracel Islands, a small island chain claimed by Vietnam.
The Philippines announced on October 1, 2012 that it would send 800 Marines to the Spratly Islands to further guard territorial claims there. The Spratly Islands are near active oil and natural gas fields in the South China Sea.
In response to the unrest, Beijing offered 3 billion yuan (USD 474 million) to the ASEAN for a maritime cooperation fund. China plans for this fund to cool tensions with the Philippines and Vietnam, yet to date has not established the purpose of the fund. However, this illustrates Beijing’s desire to resolve the conflict diplomatically.
Analytic confidence for this assessment is high. The analyst did not utilize structured methods of analysis for this report. Source reliability is high and the sources corroborated each other. The analyst’s expertise is moderate and the analyst worked alone. Subject complexity was medium and the time available for the task was abundant.
South African Mine Strikes Likely To Continue To Affect Global Supply Of Minerals
It is likely that the national South African mining strikes will continue to affect global supply of minerals. Key factors in this conclusion include the inability of the South African government to contain the strike, the wage disputes, and the lack of workforce in the mines.
Mine strikes in South Africa continue to affect the global mineral industry. Since the strikes began in August, the price of platinum has risen 3 percent. The strikes in South Africa’s gold mines halted 39 percent of its gold output. South Africa produces 75 percent of the world’s platinum and is the fifth-largest gold producer.
As many as 80,000 miners (16 percent of South Africa’s total mining workforce) are striking. South Africa’s mining industry has been unstable since August, when mineworkers at a Lonmin mine staged a strike that led to police shooting and killing 34 workers in Marikana. The Lonmin strike ended when the company agreed to a wage increase of up to 22 percent.
Strikes then spread to Anglo American Platinum (Amplats), one of the world’s largest platinum producers. Amplats lost about 20,000 ounces of output due to the strike. The strike at the Amplats mine resulted in the firing of 12,000 miners on October 5. Strikes have affected four Amplats mines. The strikers demanded a 12,500-rand (about USD 1,500) pay increase.
The strikes further spread to AngloGold Ashanti Ltd, the world’s third-largest gold producer. AngloGold’s South African mines were shut down after 24,000 miners went on strike to demand higher wages. AngloGold Ashanti’s South African operations accounted for approximately 32 percent of the company’s total production during the first half of 2012.
Gold Fields, the fourth-largest gold producer in the world, is also trying to end strikes at several mines. It lost about 32,000 ounces of output, because of strikes at its KDC and Beatrix sites. It is currently offering a wage increase to its lowest paid workers in an attempt to curb the strike.
The strikes are also testing President Jacob Zuma's leadership. The president is under fire for failing to address and contain the workers' protests and wage increase demands.
Analytic confidence for this assessment is medium. Source reliability ranges from medium to high. Sources can be corroborated. The analyst is of medium expertise and worked alone without the aid of structured analytic methods. The subject is moderately complex. Time available for the task was adequate.
U.S. Likely To Implement Enhanced Regulations to Stop the Trafficking of Central African Conflict Minerals In Next 3 To 5 Years
It is likely the United States will implement more rules to diminish the use of conflict minerals in the next three to five years. This is likely due to the inclusion of the M23 militants to an international mineral blacklist, the expanded mission of the Tanzanian military, the already-implemented SEC rules, and U.S. Chamber of Commerce recommendations for further prevention of the use conflict minerals.
Since conflict broke out in April, 200,000 M23 militants have moved to the eastern part of the Democratic Republic of Congo (DRC), roughly 57,000 of whom have crossed into neighboring nations. The M23 militia captured border towns along the DRC and Ugandan border, subsequently paralyzing mineral trade and forcing DRC troops to retreat into Uganda. Workers are being held at gunpoint, and forced to work for little to no pay. Experts estimate that 5.4 million people in the region have died from war-related causes since 1998.
At the conclusion of the African summit in Uganda, participants agreed to dispatch a neutral force to drive the M23 militants out of the DRC. Countries excluded in the military force include the DRC, Rwanda, Burundi, and Uganda. Tanzania is the only state that has agreed to send soldiers for the mission. However, analysts predict the mission will have limited success due to the overwhelming number of militants.
The Security and Exchange Commission (SEC) has already taken steps to prevent companies in the United States from using conflict minerals in their products. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires companies to disclose their use of conflict minerals sourced in the DCR or neighboring countries. These minerals include tantalum, tin, gold, and tungsten. However, the Dodd-Frank act does not target the supply chain used to transport these minerals, and does little to actually stop the violence in central Africa.
The United States Chamber of Commerce gave the SEC over 50 recommendations to prevent the use of conflict minerals and threatened legal action if companies do not take further action. The Chamber of Commerce recommendations provide an outline for more effective regulation. These recommendations include “managerial accountability, hiring market based expertise, and enhanced cost-benefit analysis.”
The analytic confidence for this assessment is medium. Source reliability is medium and some sources were hard to corroborate. The analyst’s expertise is medium and the analyst worked alone without the aid of structured analytic methods. The subject is highly complex and the time available for the task was adequate.
U.S. Highly Unlikely To Exploit Arctic To Reduce Strategic Mineral Dependency, Despite Wealth Of Resources
It is highly unlikely that the U.S. will exploit the Arctic region to reduce its dependency on other nations for strategic minerals over the next three to five years, despite abundant reserves in the region. Key factors include gross unpreparedness, a failure to lead in the international community, and loss of the initiative to China.
The U.S. has failed to prepare for resource exploitation in the Arctic. Lacking Alaskan ports capable of supporting heavy traffic, the U.S. has not prepared for an increase in Arctic activity. With only one icebreaker vessel, the U.S. Coast Guard is neither equipped nor ready to respond to events in the Arctic. In contrast, Russia has continued a militarization campaign, moving military assets to the region and also building bigger, better icebreakers to supplement its existing fleet. Other Arctic border nations have developed national security strategies to include north of the Arctic Circle.
Despite involvement in the Arctic Council, the U.S. still refuses to accede to the Law of the Sea Treaty, which would establish comprehensive, international rules to govern the oceans. The far northern Arctic has no exact boundaries, and nations have begun haggling over borders. U.S. officials have called the Arctic region “a new frontier in our foreign policy,” yet by continuing to resist the Law of the Sea Treaty, the U.S. has missed the chance to establish a leadership role in the international community.
Despite lacking Arctic Council status, China has seized the initiative in the region by aggressively pursuing resources and contracts. Its ability to outspend all competitors provides it with extra leverage in cash-poor areas such as Greenland and Iceland. Chinese companies, many with government ties, have been investing heavily in the Arctic. Although experts believe that Chinese companies are not acting for foreign policy goals but economic ones, China already controls nearly all of the world’s rare earths production and this would further cement US dependence upon it.
Analytic confidence for this assessment is high. Source reliability ranges from medium to high. Sources could be corroborated. The analyst is of medium expertise and worked alone, without the aid of structured analytic methods. The subject is highly complex. Time available for the task was adequate.
Annex A: Sources
Supplemental Report 1 Image
Supplemental Report 2 Image
Supplemental Report 3 Image
Supplemental Report 4 Image
Annex B: Methods And Processes
The analysts worked independently to produce four topic-specific SFARs over a period of eight days. They utilized Google News searches and the Strategic Minerals blog to find sources, corroborate these sources, and to determine their level of reliability. Analysts worked without the use of structured analytic methods. Once the supplemental reports were complete, the analysts collaborated using Google Docs and Google Hangouts to produce an LFAR document over a 48-hour period.
The collaborative technology was highly conducive to answering the overall question, but the analysts experienced acute technical difficulties with Google Hangouts which made it difficult to continue working smoothly. The analysts had to make modifications to the initial plan by meeting after class to work collaboratively on the LFAR document.