In February, the United States government introduced “Project Vault,” a $12 billion initiative to create a reserve of critical minerals for civilian uses. Not all details of the initiative have been revealed, but we know the breakdown of the funding (10 billion from the public sector, 2 from the private sector) and its general purpose: to ensure that American businesses and workers never suffer harm due to potential shortages of certain essential raw materials.
Several user companies – including Lockheed Martin, General Motors, and Google – have already joined, paying a fee and thus securing the right to draw from the reserve in case of crisis; the purchase of metals will be handled by specialized commodity trading groups such as Hartree, Traxys, and Mercuria.
PROTECTING AGAINST CHINA
Project Vault can be considered a defensive measure against China, which controls the supply chains of much of the critical elements, from rare earths to antimony to lithium, and has repeatedly limited supplies as a political lever. Beyond the strategic aspects, however, not all mining companies are convinced of the project’s merits – which directly concerns them, as they are positioned at the start of the supply chain – because they fear it could create market distortions.
WHAT MINING COMPANIES THINK ABOUT PROJECT VAULT
The CEO of the Anglo-Chilean company Antofagasta, a major copper producer, told the Financial Times that public stockpile initiatives “introduce some market distortions” that need to be “carefully assessed”: in other words, strategic reserves generate additional demand for metals that could drive prices up.
A similar position is held by the CEO of the British group Anglo American, also very active in copper: public reserves “can create surpluses and distort commodity markets.” The Financial Times also gathered statements from an anonymous mining industry executive, who said Project Vault risks raising metal prices and triggering a “hoarding” mentality, hindering free trade.
Finally, Randy Smalwood of Wheaton Precious Metals, a company specializing in gold and silver trading, believes government stockpiling programs “are not based on sound economic principles but on protectionism. I find governments really inefficient when it comes to managing these things.”
A PARADIGM SHIFT
According to Bloomberg, Project Vault “is not so much an emergency reserve as it is a state-supported market” designed to shield companies from the geopolitical uses of supplies and ensure national economic security.
Just like recent investments by the American government in numerous mining companies, of which it has become a shareholder (USA Rare Earth, MP Materials, Trilogy Metals, Lithium Americas), Project Vault symbolizes a paradigm shift in Washington: the priority is no longer the protection of the free market, but the certainty of availability of critical materials.
Companies themselves are also paying more attention to supply security and stock maintenance following a series of events – the coronavirus pandemic, wars in Ukraine and the Persian Gulf, tensions with China – that have challenged the traditional organizational model based on cost optimization and inventory minimization.
Project Vault, Bloomberg explains, “was conceived as an active, demand-oriented tool designed to mitigate supply disruptions, ensure factory operations, and even help finance new sources of critical minerals. In this way,” the agency continues, “it blurs the line between the role of the public sector and that of the private sector, redefining stockpiling both as a guarantee mechanism for industry and as an industrial policy tool.”
MARKET CONSEQUENCES
The problem – in a sense – with Project Vault is that it also deals with “niche” materials, whose trade is much smaller compared to other widely used metals and whose supply is controlled by China. Even small interventions in these markets, therefore, risk creating major distortions, driving prices sky-high and complicating future supplies.
According to Bloomberg, the central issue of Project Vault is risk allocation: “if prices fall after purchases, who will bear the losses? Without clear rules, the system could end up costing the government billions of dollars. The model also requires close coordination between government and industry, something the United States has historically struggled to achieve.”
