Hearings to examine rebuilding American critical minerals supply chains.

Uh, sorry to

That's quite alright.

interrupt you.

The committee meets today to discuss the state of our country's critical mineral supply chains and what can be done to make them stronger and more resilient. It's no exaggeration to say that America's resilience on Chinese critical minerals represents one of our greatest strategic vulnerabilities. Twice last year, Chinese Communist Party Leader Xi Jinping threatened to cut off exports of Chinese rare earths. This would have brought American defense manufacturing to its knees and deeply damaged the US economy. Our advanced weapon systems and key parts of our civilian economy rely on critical minerals, materials that are largely imported from China. Specifically, America imports over seventy seventy percent of our rare earths. from china these elements are the backbone of permanent magnets and perhaps the most important component for phones cars and military systems more than sixty percent of american antimony comes from china antimony is a necessary ingredient for many explosives electronics and batteries i could go on with other examples but the simple point is this The scale of China's critical minerals domination is wholly unprecedented. The situation is untenable for America's national security and economic prosperity. The good news is that the US government is forming a plan which will simultaneously re-establish critical minerals as a global free market and significantly increase American mining and production of these key elements. This effort will take more than a decade. It will face setbacks. It cannot be achieved without leaning on our allies and partners, and it will be expensive, but it is a necessary risk. The Pentagon has been and will be at the center of these efforts, given the centrality of critical minerals to our weapons manufacturing. And that brings us to the committee's interest in this matter. Joining us today are two Pentagon officials, Mister Mike, kadinazi assistant secretary of defense for industrial based policy and sir i hope i pronounced your name exactly correct

you did absolutely sir

kadinazi ok assistant secretary of defense um oh and and then mister jeff frankston acting deputy assistant secretary of defense for industrial base resilience both mister kadinazi and mister frankston and the teams they lead have done important work. They performed a deep analysis of both our military's requirements for critical minerals and the state of industrial production, from mining to refining across the globe. That data-driven approach is leading to new investments by the Industrial Base Fund, the Defense Production Act, and the National Defense Stockpile. It's also driving inter-agency investments from the development finance, Corporation, the Department of Commerce, and others. It is imperative that our investment strategy remain closely tied to the areas of greatest military need. Rebuilding America's critical mineral supply chains will require additional investments. Last year's defense reconciliation bill included five billion dollars for the Industrial Base Fund, two billion dollars for the National Defense Stockpile, and one hundred and a one hundred billion dollar loan limit for the Office of Strategic Capital. Those appropriations have already paid dividends. Last year, the Pentagon signed deals with MP Materials and a consortium of Vulcan, Rielement and Corning for magnet production. Another investment went to Element USA, which will be making progress on obtaining gallium and scandium from a recycling process. We have brought Australia, Brazil, Sa- and Saudi Arabia into deals where mining or refining opportunities do not exist here in the United States. The good news is that we do not need to outspend Communist China on this effort. We can leverage our private capital markets. One of our few remaining comparative advantages against Beijing. Many of our allies and partners have incredible mining and refining opportunities. Dozens of countries are poised to ditch the predatory debt trap diplomacy Beijing has foisted upon them in this area. As to private capital markets, I appreciate the Pentagon's use of innovative financial tools to power these deals. In some cases, Congress has spoken clearly on these tools. The committee created the Office of Strategic Capital loan program three years ago. During the Biden administration. Since then, we have remained intimately involved in amending its legislation. In other cases, such as the use of equity-based investments. Little law currently exists. I believe these equity-based investments make good strategic sense in many cases, particularly where no free market exists and where we've seen aggressive Chinese economic warfare. However, opinions range wildly between and within our two political parties. While not public, Ranking Member Reid and I had a long series of discussions with our House counterparts last year about legislation regarding equity investments. I anticipate that conversation will continue in earnest this year. This legislation is both important and urgent because rebuilding America's critical mineral supply chains will take more than a decade. We must give the free markets confidence that America's approach will stand the test of time, and succeed in unshackling the world from Beijing's market domination. To do that, 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. We will discuss equity as an investment tool. We will examine the need for continued multi-billion dollar investments in this area. We will consider further improvements to the national defense stockpile authorities. And we will expect improvements in communication from Pentagon leadership on our investment strategy. Congress understands the need to execute quickly, but that cannot excuse a lack of communication and partnership. Communication and partnership between the Congress and the administration. I hope today's hearing is beginning, is the beginning of a historic year in which this committee and the Trump administration work together to rebuild America's supply chain. So thank you to our witnesses for being here today should be very interesting and i turn to my friend and colleague ronky memory

well thank you very much mr. chairman uh good morning to our witnesses uh thank you for appearing today on a matter that is of great importance to this country and indeed the free world over the past several decades the united states has steadily lost its leadership in critical minerals from world war two through the nineteen eighties we led the way in critical mineral production and lithium ion battery manufacturing but overtime american industry shifted that production overseas primarily to asia in pursuit of core statements the consequence of those decisions are now very apparent today china dominates the processing and refining of the materials that make our most advanced weapon systems function from the rare earth elements and radar and missile guidance systems to the battery chemistry powering the next generation of drones the depommer defense accounts for less than one percent of total us critical mineral demand but an enormous range of critical military platforms depend on it congress has worked to address this issue through the success of national defense authorization acts we have increased resources for the national defense stockpile encouraged end of life recycling of weapon systems qualified domestic vendors and restricted procurement from unreliable foreign entities and those efforts matter but what has been missing is a coherent overarching national strategy that aligns the department of defense commerce energy and interior as well as our allies around a common framework without that we risk patching holes rather than building something durable i'd like to know how our witnesses regard such a strategy and what efforts are currently underway i do have one major concern regarding the defense department's current strategy and that is the use of equity investments under the defense production act in july of last year the department announced it had acquired a fifteen percent equity stake in m p materials a rare earth mining company in california at a cost of four hundred million dollars making the us military one of that company's largest shareholders since then the department has made equity investments in a number of critical mineral companies i have questions about the legal basis financial terms and strategic rationale for these transactions the legal basis in particular appears questionable the department has argued that the defense production act provides the authority for these investments however while the defense production act does authorize the purchase of industrial resources for government use it does not mention equity investments at all the fact that the trump administration's office of management and budget has subsequently requested a legislative proposal to explicitly authorize equity investment suggests that the administration itself recognizes the current authority is uncertain and that should give us pause further the department committed to purchasing magnets from m p materials at one hundred and ten dollars per kilogramme for ten years beginning in two thousand twenty eight the committee has not received an explanation of how that price was determined or why that duration was appropriate we have also heard from other domestic producers that this arrangement affects their ability to compete which raises broader questions about market effects and unintended consequences of government intervention. Finally, I understand that a small team was dispatched to evaluate the MP materials transaction, including outside consultants, but this committee has had very limited visibility into that review. I have concerns about potential conflicts of interest, given the financial interest that certain stakeholders appear to have in this transaction. The committee's interest is straightforward. We want to understand whether this transaction and the equity investment model and new supply floors more broadly represents the most effective and legally sound way to rebuild domestic critical minerals' capacity. And I look forward to a substantive discussion with our witness today. And thank you very much, Mr. Chairman.

Thank you very much, Mr. Ranking Member. And um Now, um, Secretary Kadinezi, we'll begin with you.

Chairman Wicker, Ranking Member Reid, distinguished members of the committee. Thank you for the opportunity to appear before you today to discuss the Department of War's strategy and actions to secure a resilient supply chain for critical minerals. This issue is fundamental to our national security and the technological superiority of our military. I am joined here today by Mister Jeff Frankston, our Acting Deputy Assistant Secretary of War for Industrial-Based Resilience, a career member of the senior executive service, Jeff is my Technical Expert on Supply Chain Resilience, the Defense Production Act, and the Industrial-Based Fund. We are thankful for the talents and selfless patriotic service of Jeff and our entire civilian workforce. Thank you, Jeff. As the Assistant Secretary of War for Industrial-Based Policy, I am responsible for guiding the department's efforts to cultivate and sustain industries that meet America's needs, and the growing demand for US capabilities from our allies and partners around the world. The strength of the United States Armed Forces is built upon a foundation of advanced technology. Our fifth-generation aircraft, precision-guided munitions, satellite constellations, and next-generation naval vessels all depend on a reliable supply of rare earth elements and minerals including gallium, antimony, germanium, and dozens of others. For decades, We have outsourced and offshored mining and processing, creating a strategic vulnerability of the highest order. Today, our primary strategic competitor, China, controls the global supply chain for numerous critical minerals. On heavy rare earths alone, China controls ninety-five percent of global output, with the United States importing almost one hundred percent of what we use, ninety percent of that coming from China. This control provides Beijing with the ability to weaponize these supply chains, threatening to disrupt our defense industrial base and compromise military readiness in a crisis this is not a theoretical risk it is a clear and present danger to our national security the department of war considers the reclamation of our critical mineral independence a strategic imperative and calls it out as such in the acquisition transformation strategy published this past november congress also clearly recognizes the need as the twenty twenty six National Defense Authorization Act classified critical minerals as strategic assets vital for national defense and economic security. Since the beginning of the administration, the Office of Industrial Based Policy has been at the very center of these initiatives. The team is working night and day to rebuild a miner- American critical mineral supply chains. In this time, we have invested nine hundred and seventy-five million dollars in minerals through Title Three of the Defense Production Act and the Industrial Based Fund. The Department of War has developed a comprehensive, multi-year strategy to address this vulnerability head-on. Our approach is founded on four key pillars, designed to create a secure, resilient, and sustainable supply chain ecosystem. Pillar one is our commitment to re-shore and onshore the production of critical minerals. We continue to map defense industry to independ- or dependence on China, and are focused on removing those dependencies from our supply chains. Congress providing five billion and the one big beautiful bill act specifically for critical minerals is a significant investment, and one we very much appreciate. We are also leveraging authorities granted by Congress, particularly under title three of the DPA and the Industrial Based Fund, to catalyze investment in domestic exploration, mining, and processing. We partner with our colleagues in the Office of Strategic Capital to offer loans, loan guarantees, and debt financing options. This expands our to our collaboration and cooperation with the inter-agency and international partners on bringing mineral supply chains to friendly shores. Through these tools, we are sending a clear and sustained demand signal to the industrial base. We are working across the entire value chain, from mine to front line, to build our resilience. For example, the MP Materials deal helped secure a domestic source of rare earth elements, and the department continues to take action concert with our inter-agency partners to decisively secure the US rare earth supply chain. The Korea Zinc effort will build a smelter in the US to produce thirteen different non-ferrous metals including germanium gallium and antimony. Metals used in space power generation, advanced optics and munitions, among other uses. Additionally, one hundred and eighty-four million in prior investments will provide high-performance magnets germanium crystal and other critical mineral derivatives, and capabilities. Next, while we prioritize domestic production, we recognize that no single nation can achieve complete self-sufficiency. Therefore, our second pillar focuses on building robust, transparent, and reliable supply chains with our closest allies and partners. This friend-sharing approach diversifies our sourcing away from high-risk geopolitical areas, and complements our pillar-one efforts to build new end-to-end sources of supply foster secure and reliable transport and logistics networks, and transform the global market into one that is secure, diversified, and resilient. We are actively working with partners to jointly invest in insecure supply from responsible mining and processing operations across the globe. For our third pillar, the department is aggressively investing in research and development to mitigate demand for the most heavily contested minerals. Our scientists at DARPA and other service research labs are pioneering the development of next generation materials and novel manufacturing techniques that can reduce or eliminate the need for certain and other critical inputs. Simultaneously, we are funding the development of advanced recycling technologies. For example, we invested twenty-nine point nine million in Element USA to recover gallium and scandium from waste from waste residue left over from alumina refining. By creating a robust circular economy, We can reclaim valuable materials from our own waste streams, from spent batteries to decommissioned electronics, turning a liability into a strategic asset and a secure domestic source of supply. As our final 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 a twenty-first century contested environment, and are taking action to acquire materials that face the most acute acute supply chain risks. Congress stepped up to help us with this effort, providing two billion dollars in the One Big Beautiful Bill Act. This modernized stockpile will provide the insurance we need as we execute our long-term strategy of rebuilding the domestic industrial base. The committee asked for an update on recent and planned deals and I am pleased to report significant progress. I will highlight two recent examples. We have finalized a landmark agreement with a Canadian partner to secure a long-term supply of gallium derived from new non-traditional mining techniques, reducing reliance on Chinese sources for this critical semiconductor material. The department also recently entered into a joint R and D agreement with Australia, to co-fund the development of substitutes for dysprosium and terbium and high-performance magnets. In closing, I want to emphasize that establishing secure and resilient critical mineral supply chains is a generational challenge, but it is a challenge we must and will meet. The era of complacency is over. The Department of War, in concert with industry, our allies and partners, and with the vital support of this committee, is committed to executing this strategy with urgency and resolve. Securing these supply chains is not merely an economic issue, it is a foundational element of our national defense. Thank you for your time, and I look forward to your questions.

Thank you, Mr. Secretary. Mister Frankston, you're recognized.

Thank you, Mister Chairman. Um, in in addition to everything that Mister uh Kadnazi just uh mentioned, one of the things that I wanna emphasize is the full and unified inter-agency cooperation on this effort. This is a subject area that is not new, uh, but has been turbo-charged in the collaboration cooperation as we work together across each of the inter-agency partners to identify the gaps, to have common targets, common understanding of our both domestic challenges and then in particular from our perspective Department of War uh needs. And we work together on a daily if not hourly basis across the inter-agency with our international partners with industry, to identify the gaps and challenges here. Uh, our office oversees the policy for stockpile as honorable kad-nazi mentioned uh this is a key aspect that is a uh direct uh opportunity for our uh country to build a resilience uh capability uh the stockpile is one of the uh major statutory pieces that we have taken the funding uh to uh implement a direct uh challenge uh or to address a direct challenge on how we're addressing critical minerals. Uh, I look forward to answering the rest of the uh, committee's uh, questions.

Thank you very much. Well, um. Secretary Canazzi, you say the era of complacency is over. Mister Frankston, uh, Mister Frankston, you say that this issue is, is not new. Um. I've been on this committee since two thousand eight. Um. Maybe I should be ashamed of myself. How uh, how is it that China if they had persisted in their threat to cut off experts could have brought us to our knees. How did we get to this point, Mister Secretary?

Senator, we're engaged in a long-term competition with our primary strategic competitor in China. They've engaged in uh malign adversarial efforts to manipulate markets, to secure control, change supply, and to undermine our own efforts to maintain a domestic market. That's been coupled with natural economic incentives to outsource to the lowest supplier a lowest cost provider which China often is as a result of their lack of compliance with environmental and standard kind of work laws that we would have in the West, particularly in the States. And therefore, um, they've demonstrated, uh, a willingness to go ahead and create and invest these capabilities, undercutting our ability to sustain this. We've taken action in part at times we've invested, but it's been inadequate to the scale of the threat posed by China in this time. And therefore, I think, uh, the issue, the opportunity we have before us today is to go ahead and take a demonstrated, committed effort, well-resourced and aligned across both parties with the support of this committee and the Congress, to go ahead and fundamentally reshape those markets. We believe our investments and efforts at this front are are

Well, we have, we have,

still

I understand, we, we have no question of, and no, uh, no choice but to go forward as quickly as we can. And, uh, and I'm, um, I'm not pointing the finger at anybody in particular, uh, and I think I acknowledged that, that I'm, I'm a bit, uh, um, nonplussed about this. But, we've been hearing for several administrations, that China is our pacing threat. Um, a- and it just seems to me that that collectively we should have been tackling this a long time ago.

Senator, I can't speak to the previous efforts, but it's clear that the position we're in right now is inadequate to the needs of the nation. with regards to both our domestic economic performance and national security.

OK. Now, you're gonna, um you're gonna be asked ab- about this new approach. Of course, we deal with the industry a lot. But the, the idea of equity is something that, there are gonna be questions about on both sides of the dais. Um, why is it the way to go in your judgment? on this issue of critical minerals.

Senator, the the issue of or the opportunity that equity provides us is that it's a it's a catalyst for private investment and a more aggressive way of reconciling what has been a failed market-based approach to address this national security need. We have invested small amounts of money, we've provided grants, we've tried to incentivize uh through tax incentives and things like that.

How far back did we start trying that?

How far back? Sor- sorry, Senator?

As you say, we've we've tried other approaches.

I believe we tried consistently for the past ten or fifteen years,

Oh, OK.

and you sort of read the press. Um, I'm sure there are more significant investments that I'm not aware of. But it's pretty clear that the things that have been done have been adequate, inadequate to the scale and have not resulted in the outcomes that we've wanted. And I think that's the measure is, uh, on an outcome basis, as of last year, uh, and currently, our dependence on China for rare earths remains significantly high. And so the accuracy in the past have not met our needs. We think if you

But if if um if conflict had broken out in the last couple of year, last year, between the United States and China, which of course we certainly hope we can avoid by being strong enough, it would have brought us to our knees. Well, uh, could you help us understand um, uh, well, do you agree with my statement there?

Senator, it's very clear that um the willingness of China to turn off on rare earths last year uh represented a significant threat to national security and would have been debilitating to both uh domestic industry and to the defense industrial base.

Specifically?

I think there are many systems which are highly dependent upon rare earths and other elements which would have been struggled to get access to those, outside of um the national defense stockpile which thankfully we have a significant amount stored away that probably would have uh carried us through for a period of time. presumably we would have engaged in aggressive action to unlock mining, both of uh domestically and with partners to mitigate those gaps. We would have fundamentally shifted the the the production curve, in a way that would have prevented that for the long haul. But in the short term, there definitely would have been a crunch that would have impacted our ability to produce the weapon systems we need.

Thank you very much. Senator Reid.

Well, thank you very much, Mr. Chairman. Let me commend you in holding this hearing, because as you've indicated, uh we have not paid the kind of attention in the congress that we should have nor have the administration so thank you mister uh we've heard from various companies in the minerals market that an equity stake at a ten year price floor for m p minerals where the government is literally picking winners and losers puts other companies at a competitive disadvantage uh how can other domestic companies remain competitive when DOD invests so heavily in one company and provides that company a competitive advantage like a guaranteed place for.

Senator, at the time, uh, the MP materials deal we felt was necessary to meet the the needs of the moment, that is, to immediately stimulate, uh, rare earths investment and demand. The company, MP, has been invested in by the government in the past, for the past fifteen years. We've at various times attempted to, uh, move the needle on domestic At the time, we felt the need to go ahead and move forward with a more aggressive model, that would lock in the equity stake and create the off-take agreements in the price floors. The price floors were determined by a set of open market analyses, reflecting our best understanding of what an open Western market would look like, as opposed to the manipulated Chinese price floor. As we've seen since that time, prices domestically have actually increased to the point where they're roughly in some reports, um, around a hundred and ten per kilogram, which is where the price floor is at. So we think we've successfully created the, uh, the mechanism to generate more transparent and market-based pricing mechanisms. That's to everyone's benefits. We've also crowded in additional investment. We've seen additional companies committed to spending in this space. And that all is a beginning point for us to create a more liquid and robust domestic market for rare earths.

I've also been informed that MP Material, uh, Mines, rely on in their production process on a heavy rare earth element or elements from an unknown third-party source. Can you tell us what that, who that third party is and what country it is located in?

Senator, we're in the process of uh working through right now to go ahead and identify additional sources for rare earths to improve their processing capabilities. There's an optimal mix of light and heavy rare earths, and I think I defer to Jeff on on this, on that we were working to go ahead and strike with so we've struck additional deals with uh a brazilian company and we're in discussions with a saudi arabian company to provide access to additional raw materials

but who who is providing the material to uh um mp materials now what country what third party country and company

there's sara verde is the company in brazil we've struck an agreement with we're in the process of negotiating that and then uh modern in saudi arabia is the other company

thank you um as i requested yesterday on a phone call with the chairman uh could you provide us the uh term sheets to the deal we'd like to look in detail at what has been transpired and i think you indicated that it is winding its way up through the process but if you could give it a a little boost i'd appreciate that

rank and memory it absolutely we've submitted our request for it to be approved it is in review now

now um china is gonna try to uh triangulate circulate the get around this with the price level uh could they simply reduce their prices and cause do d to commit significant dollars to m p materials uh or in general how are they gonna frustrate you

i think part of our approach is to create a more solid western demand signal so that's where something like the preferential trade zone which is in a a market zone willingly voluntary commitment by our allies and partners to all operate in a way where we agree on price floors that essentially are set in a collaborative manner by by countries that are worried about chinese malign manipulation of markets

mmm

and that we collectively can agree on establishing price floors that will not allow them to manipulate it because we'll voluntarily agree to pay initially a higher price but as demand decreases on their end and increases on ours the prices should level into what we hope is a more transparent and reasonable global market pricing, that will work to our benefits in uh the long haul.

Uh finally the, MP materials deal relies on future appropriations uh, which calls into the question of does it comply with the Anti-Deficiency Act. Have you analyzed that and uh, determined it won't?

Senator Reid, um I've not personally conducted analysis on this, we've relied upon the Office of General Counsel and our legislative affairs teams, to um help us in moving forward from an industrial based policy stand point we've submitted requests for funds to go ahead and pay the quarterly payments that we expect are necessary to meet our offtake agreements um going forward we've planned that through the phidip and we expect that will continue to um barring any changes in policy

thank you very much mr. goodin this is uh this is good

thank you mr. ranking member senator sullivan

thank you mr. chairman appreciate you calling for this hearing um Gentlemen, thank you for your testimony. Um, look, this issue is infuriating for me because so much of the challenges we face as a country are self-inflicted, and I work in a bipartisan way on this committee a lot. But I will tell you, um. Part of the answer is how did we become so reliant on China and other adversaries of ours and critical minerals? One reason is that There's a huge difference in this town between Republicans and Democrats on who wants to develop our mines, and processing. That is a fact. And my colleagues on the other side of the island, they need to look at, they look, they need to look at this issue straight in the eye, because so many of them are afraid of the far left environmental groups say have prioritized shutting down mining and not developing critical minerals in America, and especially in my state. Let me provide a few examples. My state is estimated to have fifty-six out of the sixty critical minerals our country needs. Let me repeat that. In Alaska, the US Geological Survey has said fifty-six out of the sixty critical minerals that we need to n- to compete for our industrial base, especially in the military, reside in my state. But a core element of the far left, once they get into power, is to shut down Alaska. That's a fact. This is the Joe Biden seventy executive orders, what we call the last frontier lockup. When he got into power, he issued seventy executive orders. Let me list them right here. OK? By the way, ten of them were on, ten of them were on his inauguration day. So this was a plan. Seventy. Many of which dealt with shutting down critical minerals. Crazy. Crazy. K, and on this committee, my colleagues probably remember the Ambler Mining District, the road to the Ambler Mining District, one of the biggest critical mineral deposits in America. We debated it on this committee and to my colleagues' credits, and I wanna thank them, on this committee, we won that amendment vote of mine to have access to the Ambler Mining District, which Joe Biden shut down, one of these. I think the vote was twenty-one to six. Great victory in the NDAA two years ago. What happened? Chuck Schumer made it a priority, so did Hakeem Jeffries and the Biden administration to strip that provision out in the committee. So 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's not rocket science. And it still happens. Right now. So let me ask, um, and I appreciate the focus of this committee, but this frustrates the heck out of me, cuz it's not just, of course, killing thousands of jobs in Alaska, which nobody seems to care about. It's empowering our adversaries. So I appreciate the Trump administration's focus. By the way, the president, again reversing Biden, who reversed the president in his first term, did issue an order on the Ambler Mining District, so we're gonna start working on that. But let me ask uh you two gentlemen on another topic that we're working on in the EPW committee, major permitting reform, NEPA reform. To make it more efficient, timely and certain. To develop mines, isn't that also important? And by the way, it's another issue that my colleagues on the other side of the aisle have blocked for decades. I've worked on that issue for more than ten years. Is that important, Mr. Secretary? And how important would it be to get major NEPA permitting reform done?

Senator Sullivan, uh, absolutely, environmental restrictions have been a major point of contention for, uh, mining development production. At every turn we've looked at opportunities to develop, uh, resources on the industrial base, for example, on, on military land, which offers some alternatives for how we could implement uh environmental um risk constraints. With a defense production act does provide some, uh, remediation efforts for application of environmental standards.

Yeah.

We'd be keen to work with this committee and the Congress on opportunities where appropriate to go ahead and work on new environmental requirements.

Well, I think it's gonna be really important, even though it's not directly in this committee, for you guys to weigh in on the importance of the permitting reform. This matters to energy, it matters to everybody. We're doing a lot and it's bipartisan so far. I'm gonna submit for the record some questions on some of the investments the Department of War has made in Alaskan mining. I appreciate that very much. Let me ask you Mr. Secretary, one final quick question. I appreciated the uh eight A meeting. Uh, that's a very important issue for my constituents in terms of lethality, flexibility, war fighting, keeping the IP that the Pentagon gets to keep when they do those kind of programs. Um, limiting eight A uh opportunities in my view would be a gift to the primes, the big primes. Um, can you give me an update on how that's going? I appreciate the meeting, but that's a really.

Thank you, Senator. Uh, eight issues in the audit associated with that continue to be a major uh priority for the office of small business programs within industrial based policy we continue to focus on issues associated with fraud within the program primarily and we're really excited about finding new opportunities to bring new entrants into the space particularly through the eight programs in the future.

Would you agree that a lot of them is particularly as we talked about my constituents bring a focus on lethality flexibility and make the Pentagon more lethal as i presented to you guys

agrees

absolutely thank you thank you mr. chairman

senator sullivan uh we probably need to to put copies of those two posters in the record uh at this point so

gladly mr. chairman

unless there is objection that is so ordered senator schahin

thank you mr. chairman i i don't object to putting those in the record but i do object senator sullivan to your um blanket attack on democrats as being the reason that critical minerals aren't being developed

i said one of the reasons one of the reasons it is there's no doubt in my mind

well

senator shaheen is

i live i live it everyday

senator shaheen is recognized we'll take a second round

well i think a better way to address this issue would be for us to work together and to not name call and try and educate people on why this is so critical as you have been trying to do so uh i would hope that you wouldn't just decide that because i have a d after my name i'm not gonna be supportive of critical minerals

i would welcome the chance to i'm not saying everybody uh and you and you've been great on this uh senator schiefer

alright thank you gentlemen thank you both for joining us um i wanna go back to the equity investment question that senator reid and senator wicker both raised Because it's not clear to me what the criteria is that you're looking at in making an equity investment. So can you outline what that is and then explain whether you're focusing more on extraction or processing in terms of those investments?

Thank you, Senator. Um, there's no criteria seen such that we're looking for equity investments as a deliberate approach. I think the the the way I would view it and describe it, ma'am, is that what we wanna do is achieve the outcomes of improved investment performance and production within the mining space particularly. And therefore, we're talking to companies about what would make them more successful over the long haul. In some cases, we've taken equity associated with direct uh DOW investment through the IBAS and DPA programs.

And I I'm not being clear, I think.

And other, yeah.

What so what determines whether you think a particular company is a good choice for that equity investment and how do you

Oh.

how do you determine that criteria and then how do you decide whether you've been successful or not

Thank you, Senator. So, uh, thank you for clarifying that. So we conduct a robust diligence process, so we actually have brought in, we have an internal effort through our, a global investment in economic security team, to do foci and intelligence analysis, uh, and and counterintelligence analysis. We couple that with external market analysis to understand the production rates of this particular mine or whatever it might be, um, associated with their place in the market. We then add in additional experts from both internal to the government, within Jeff's team or within other our partners within OSC and other agencies, to determine whether or not we think this mine can meet the targets that we have, that is, generally an increase in production from one number to another. And then, ma'am?

And

Sorry.

Did you have something else you wanted to add to that?

No, I just wanna say then we couple that all together and we make a reasonable business case analysis we hope is that determines what the right mix of direct investment and or debt may be to meet those requirements uh for the country.

And then can you answer the extraction versus processing question?

We're not overly indexed on our goal is to go ahead for every one of the critical minerals you identified which is twenty plus critical minerals we're creating what we call a value chain which goes from the mine all the way through production, refining, um to recycling. The goal is to go ahead and provide an adequate number of investments at each of those places whether directly through the DOW through our partner agencies or through for private capital to make sure that we're investing appropriately. in across each of those elements.

And and can you tell me my understanding is that the biggest issue here is not China's control of the actual critical minerals themselves, it's the processing that they do that nobody else is doing. So why how are we focusing on the processing in ways that allow us to um build that supply that we're gonna need?

Uh I actually I'll I'll let Mister Frankston weigh in on that one.

Thank you, sir, uh, Senator. Uh, for each critical mineral that we look at, uh, as Honorable Katanasi pointed out, we build a supply chain map across the board from the raw material to the finished product, and look at each stage, uh, with a domestic focus, specifically on Department of War requirements, but then building that into the broader domestic requirement piece. Uh, one of the key aspects is where does China or other, uh, competitors, uh, control over their particular critical mineral? And so it's a different story

And so are we investing in any processing, um, capability?

S- Senator, absolutely. The goal is to go ahead and for work across the entire supply value chain, and that requires having you know, raw material inputs, processing, and the ability to go ahead and move that further into the supply chain.

And can you, can you tell us what companies are doing that processing and the difference between what they're doing versus what China's doing? Because again, my understanding is one of the challenges is that China is able to do um the work without any requirements that affect the their workforce.

Senator, yesterday we provided your offices, the whole committee, a copy of an antimony value chain, which breaks that down in detail as an example of the type of analysis we're doing. It gets into the details of companies and production rates. We'll be happy to go ahead and provide additional insight into those value chains, which gets into that, and we'll provide specific um comments on the companies that are performing that we're looking to invest in in those sectors going forward.

Thank you. Thank you, Mister Chairman.

Yes, Senator.

Senator Kaine.

Thank you, Mr. Chair, and thanks to our witnesses. Um, I wish Senator Sullivan was still here. Just one comment, uh, about his concluding remarks that Democrats have been blocking permitting reform, um, for decades. I think Democrats have been working hand-in-hand with Republicans on permitting reform issues. My understanding from Democrats on the relevant committees were that those issues were closing, and there was a, a real possibility of finding a path forward that was bipartisan. But President Trump's decision to wage war on clean energy, especially a concerted effort to wage war against offshore wind projects, uh, which have been repeatedly rebuffed in courts, but that has not stopped the president from attacking offshore wind has caused the permitting reform efforts to grind to a halt. Um, uh, it seems to me in this area of critical min- uh, minerals or energy self-sufficiency, if we're gonna be all of the above, we should be all of the above and not just all of the oil gas and coal. Um, my state has been affected dramatically by President Trump's actions. We want permitting reform, but we don't want permitting reform that takes clean American domestic energy off the table. Um, to my witnesses, thank you so much for being here today, and for your work, and for your testimony. I was in Australia last week for a visit connected to AUKUS and appreciate some of the testimony earlier about AUKUS' pillar one. Australia produces uh half about half of the world's lithium, but historically has relied on China for refining. What specific steps is the DOD taking to ensure uh Australia refining and separation capacity scales fast enough to reduce reliance on Chinese processing? And this question builds upon a positive meeting that the President and the Australian Prime Minister had in October where they announced a bilateral partnership to escalate Australian uh critical mineral production and refining.

Thank you, Senator. Um, we're excited to be partnered with uh our Australian colleagues. Uh, we've invested in Alcoa uh in a partnership with the Japanese as well in Australia recently. Um, lithium is not something that we're terribly focused on within the DOW. It is not on our critical list. There, there's too many problems and so we've decided that we need to make some choices. That is something we believe we have adequate supply. from global sources, from domestic production, from our partners and allies, that for the moment, the DOW itself does not require as much uh focus on it. So we've prioritized other minerals, bitumen, germanium, gallium, uh within that.

Let let let me build on that, appreciating the comment you made about lithium, but the general issue of refining capacity is an important one. It's not just where are the critical minerals, how can we extract them and get them to market? China has sort of locked up a lot of the world's refining So in developing a critical mineral strategy that we can rely on, with a supply chain that we can rely on, what is the DOD doing to focus on the refining issue as a component of those minerals that you're concerned with?

Absolutely, Senator. Um, it's a major priority for us. We're working across, again, the value chain to make sure that for all of the critical elements that the DOW has identified that we are investing adequately in each element to include, mining, production, refining, and recycling. and an adequate allow. I'll turn it over to Jeff for any specific comments on refining.

Uh, yes. Thank you, sir. Uh, Senator, uh, Australia is a, uh, fantastic partner and ally, uh, on multiple fronts, but especially when it comes to minerals, just given what their country is blessed with and what is in the ground. Uh, from a, uh, processing standpoint, uh, we look for opportunities with all partners and allies, uh, to build a domestic, uh, capability through the Defense Production Act. Australia is actually considered a domestic, uh, uh, source. And so, uh, we are working on a number of different fronts, as Honorable Khadnazi mentioned on Alco-Co of Australia. That is a trilateral investment with Australia and Japan. Uh, but we have other open opportunities. Uh, just two weeks ago, uh, we held a defense industrial base consortium, uh, call for submissions of, uh, papers and proposals from industry across the world. That includes Australia, uh, and it's at all stages of production. Uh, and we welcome any, uh, participation, any cooperation, any collaboration that directly aligns with the President's uh agreement signed with Australia last year.

One last question, back to lithium. Uh, a few weeks ago the DOD announced that twenty-five vendors had been invited to compete in phase one of a drone dominance program. Lithium ion batteries are a critical enabling technology for drones, but China does control much of the upstream supply chain for processing battery materials. what are the requirements for the drone dominance vendors to source battery or other materials from the US or allied suppliers?

Thank you, Senator. Uh, the the battery's issue is a critical one, not just for uh, for drones, but for the entire um uh, supply chain for the Defense Department of War. So, minerals uh, that go into those batteries are uh, available we think in for lithium, more or less. Um, there's challenges associated with some of the alternatives, so there are alternative chemistries for batteries. We have a large team that works within industrial-based policy on batteries issues. We convened a whole of government effort two weeks ago, three weeks ago, to go ahead and look at batteries opportunities and the threat from uh China's control of markets on batteries. So we're working with our colleagues to go ahead and identify alternative sources in chemistries, and then to work with the teams that are driving drone adoption to identify the right mix of controls on access to battery raw materials and uh technologies, uh, going forward. Thank you.

Senator Kelly.

Thank you, Mr. Chairman. Uh, Mr. Kadenzy Kadenazy. Did I get that right?

Yes, Senator.

And, Mr. Frankston, thank you both for being here. I wanna ask you about how we supply semiconductors to the defense industrial base. As you both know, semiconductor's going a lot of stuff, used by our military and semiconductor technology advances. rapidly, more is lost as processing power doubles every eighteen months. The DOD's procurement programs do not operate at that same kind of speed. And the end result is some of our most advanced uh weapon systems are relying on chips that are old, uh sometimes outdated, sometimes decades behind the state of the art technology. And historically, DOD has relied on a small number of trusted foundries um which are fabs that not only serve you know they serve government customers so would you both agree that this approach has not succeeded at protecting DOD's access to the best chips in the world for its most important programs

Senator we've perennially under-invested in the technology and the engineering necessary to migrate our systems to go ahead and leverage the most current state of the art chips And as a result, we do have a legacy infrastructure which produces a large number of the chips that meet our needs which are essentially based upon older technology, so concur entirely.

So it sounds like an area where we could put some focus on and try to fix.

Absolutely, Senator, there's a challenge.

So, and we've worked on this committee for years to try to solve this issue by uh placing production lines that meet DOD's security requirements in commercial fab facilities so DOD can get those leading chips. without compromising in any security and these programs, there's a couple of them, one is the secure enclave, the other is the microelectronics commons. And these programs, they've been stood up. And they're fully funded. And they're getting ready to produce some chips. There's just one problem here, major DOD programs are still choosing to have the old outdated foundries produce the chips, not the new ones. Um, so would you both agree that there are meaningful strategic advantages to sourcing leading-edge chips for our major programs?

Senator, I concur in the the the need for us to go ahead and continuously improve the security of our chip infrastructure and the chips themselves, and that the tools that are in place under secure enclave, et cetera, uh, provide us new alternatives to deliver upon that in this regard.

But why haven't we used those alternatives?

So there's price considerations and engineering considerations migrating from the current chip infrastructure to new chips and new security models. And I think inherently it's a cost issue that programs have been incentivized to sort of, you know, go short shrift on this and not pay the bill, and that we need to incentivize them to pivot to actually investing in the infrastructure change as necessary, to take full advantage of this for the future.

Can you give it a, can you give an example of like how much, how much more does a chip coming out of the secure enclave cost for like a weapon a weapon system, like percentage-wise.

Sen- Senator, I can Senator, I'm I'm not sure I can uh I can comment thoughtfully on the cost of chip. We can get back to you on that. I think there's a bigger issue of the certification cost for these new systems. When you change the chips, you often have to requalify um systems and their performance. It becomes a cost driver for test, for engineering. There's a whole bunch of anil- ancillary pieces that go into it. And and the bill gets pretty large, millions of dollars into the tens of millions of dollars, to go ahead and make these changes, unfortunately.

How about for new weapon systems? brand new

the the the challenge we've had is that often the firms that deliver these weapon systems are incentivized for ease of access and approval to leverage infrastructure that's already approved and tools that are already approved so therefore to go ahead and launch a new weapons platform with a brand new security or or it infrastructure whatever that might be or or microelectronics infrastructure uh is often cost prohibitive and not incentivized by the programs themselves

but we but we funded the secure enclave and the microelectronics commons are they not approved

the senator they i believe that they are and that we're in the process of migrating to that those requirements over the next five years or so however i do think there's gonna be uh a bit of a tail in a lag and particularly a bill associated with how we make that migration work

what we could what could we do to make that migration happen more more quickly

senator i think we'd be keen to work with you and the committee on uh

Alright. Thank you. Thank you, Mr. Chairman. I yield back my six seconds.

Quite generous of you, Sergio Arana.

Thank you, Mr. Chairman. Uh, before I b- begin my questions, I would like to note that, uh, we all acknowledge both the democrats and the republicans acknowledge the importance of critical minerals and our over reliance on china at the same time though there are environmental concerns with mining these resources and i just wanna put on the record my opposition to this regime's attempt to reverse a twenty year ban on mining near minnesota's boundary waters and while access to critical mineral minerals uh supplies domestically are important we can't just toss out the the kinds of environmental concerns that have to do with contamination of local lakes and rivers as is the case in the in the minnesota situation so environmental uh requirements are important we don't just toss those things out because we wanna mine critical minerals uh i you've been asked uh the mr. secretary a number of questions relating to uh the four hundred million in equity that we have with mp materials and i'm i made a note that you said that uh we pursued equity ownership uh to address failed marketplace efforts i don't know what that means because you can uh argue that there is failed marketplace efforts to uh to justify equity shares and i suppose any number of uh private entities and it's really hard for for us to determine whether that is uh an accurate uh depiction uh the the the reasons for it or not but this is very unusual for the government to acquire equity shares and you know there are issues relating to competition uh uh or the lack thereof when we get an equity share in a private entity so i just wanna raise my concerns and there's also an issue whether or not the defense production act even gives authority under the act for the us to uh achieve equity shares and there's a question is if that uh authority is deemed not existent i don't know what that does to the equity shares four hundred million uh does that mean that that deal has to be unwound it reminds me very much of the supreme court's decision on the unconstitutionality of the tariffs and the billions of dollars that are uh the they're gonna be arguments about returning all of that let me turn to something that i think uh we uh i think it is very positive in in um on this issue of uh critical minerals and that has to do with recycling of critical minerals from end of life equipment so i'm i'm glad to see that in your testimony you refer to uh recycling as one of the ways that we're gonna address our need for uh critical minerals and um especially obtaining critical minerals from spent lithium ion batteries so i wanted to ask you what progress are you making in this area of recycling And are you preparing any demonstration projects to so to scale these recycling technologies up?

Thank you, Senator. Uh, a great example of of our recycling capabilities is uh through the Defense Logistics Agency uh through their uh germanium uh recycling program. Uh, they have taken night vision optics that have been decommissioned uh after uh periods of use. and have been able to harvest back uh the materials so that they have a ready supply of ready material uh for the warfighter for the defense industrial base as a reserve into our

uh so i'm i'm sorry i am running out of time but i wanna make sure that that uh uh you are both of you are very committed to showing up the recycling aspects of critical minerals and that you are spending the kind of uh money that we need in r and d for this purpose are you are you one committed to recycling and two do you have i i had a question as to whether or not you have uh any demonstration projects to show us your progress in this area

senator we're absolutely committed we recognize that recycling would be a critical um source of supply for us for the long haul and there are multiple demonstration projects underway uh within the r and e portfolio research engineering portfolio um we'll go ahead and and come back to you on the report uh what those projects are

And are you making it clear to the private sector that they also can participate in uh the developing the the kind of recycling of uh critical minerals from spent uh materials?

A- absolutely.

So that they can put their energies and brain power to enabling us to recycle.

Absolutely, Senator, we put out our requirements often to the market and hope that we can bring the best of breed capabilities back for us to leverage uh in these decisions and these analyses.

mr. jimmy can i just ask one short question about uh a provision we put in last year's ndaa

yes ma'am

so section fourteen twelve of the fiscal year twenty twenty twenty six ndaa requires the defense logistics agency to report to sask and hask on best practices to expand their strategic material recovery and reuse program by march first twenty twenty six that is right around the corner is that report on schedule

Senator, the Defense Logistics Agency is uh a separate agency, field agency within acquisition sustainment. I'll bring that request back to Honorable Duffy who is the Under Secretary for ANS and we'll um find out.

This uh this is an issue, you know, I mean, you uh recycling is a very important part of the testimony you gave and um and yet uh you're not the one that's able to tell us whether this report is gonna be on time or not. But, I appreciate your conveying it to the appropriate entity in DOD. Thank you.

Thank you for agreeing to do that, Mr. Kadinazi. Senator Banks.

Thank you, Mr. Chairman. Mr. Kadinazi, can you speak to the specific importance of the Department of War's equity investments and how they played a role in supporting the department's critical mineral supply chain, uh, security, and, and in other words, what is, what is uniquely helpful to equity stakes relative to other kinds of support that we would use.

Thank you, Senator. Thank you, Senator. Um, we believe that given the the frailty of many of our minerals markets, that equity is a necessary component to go ahead and drive alignment of the companies, make a clear commitment from the government that we're interested and we're committed to not just the market but the company in question hence the the rigorous diligence that we conduct on that company and its performance. That we can then crowd in private capital which will allow us to go ahead and expand our operations and leverage less uh taxpayer money to go ahead and achieve our ends but also signal a real change in how we plan to operate and the the demand signal for that particular component uh or mineral going forward it's it's been vital um it's been very successful though far it forges a true partnership with the company in question and allows us to plan for the long haul again our goal in this is not equity outcomes for um ROI for economic or financial returns those those were funds would return to the Our goal is uh to improve mineral production and the availability of those minerals to the Department of War and more broadly uh to the nation.

Ha- has the department ever used a equity investment tool before?

Prior to the current administration? I believe we used tools like warrants during say the two thousand eight financial crisis.

Yes. Um, so there, so there is a, there is a precedent.

It has happened in the past, different format, but yes.

Yeah. Can you talk about how we might use it in the future?

Senator, we believe that um where opportunities exist for the government to supplement um our spending with external capital, that equity is a is a is a powerful tool for us to incentivize the investment of our partners in industry and private capital markets, and to accelerate uh the pace at which we're able to go ahead and generate new production capacity we would anticipate using this as an alternative to other financing mechanisms uh where we've tended to offer grants to companies, to to facilitise for example. where we might wanna go ahead and offer an incentive for them to self-facilitize, or alternatively for us to take an equity stake uh going forward.

Are there uh additional authorities that you need as we head into NDAA season that might help you provide equity investments in other sectors too?

We recognized that there was a robust discussion last fall with regards to um equity um language in the twenty eight or twenty six appropriations or an authorization bill that did not uh reach fulfillment, we're eager to continue those discussions to make sure that we're all in alignment on the appropriate uh use and controls on the application of equity.

Can you walk us through uh consequences for the department when the Chinese first expanded their rare earth export controls last Oc- October? What what did that do to us?

Senator, it was absolutely a crisis. Uh, um, I came in after that, and so I think having discussed with the team The commitment to to national security and the minerals front has been very vigorous since. Uh, I didn't discuss minerals at all with, uh, the committee when I was confirmed, uh, or in my committee discussions last, uh, fall. Um, but this has become a major topic. We spent a substantial amount of time and the Congress's money to go ahead and work on these minerals issues and we're really excited about the impact we're having on the space. And we believe we're over the past fourteen months, the administration has already started to bend the needle substantially on availability, and we're looking forward to more impact over the next few years.

And what does it mean to America and to the department specifically to be reliant upon our our biggest adversary?

Well, it's it's unacceptable from a national security standpoint that um our our primary strategic competitor can go ahead and turn off the spigot on a mineral which we absolutely require for the production of nearly every weapons platform.

Mister Chairman, that's all I have. Thank you. I yield back.

Thank you so much.

Thank you very much. Sochereed, you're recognized.

chairman uh just two uh quick questions if i may uh secretary casanasi uh we've talked about equity uh this is an issue that's not gonna go away uh but uh there are other tools that are available direct grants um many other tools so uh why was equity chosen above these other approaches

senator we believe that at this time to go ahead and incentivize enough private capital, provide a clear signal to the market that the DOW itself is interested in outs outsol- solving these problems which are outsized relative to our normal focus on it, that equity is a national necessary tool for us to make that commitment. We also think it provides a tool to recoup our investment over time, that is the taxpayer will be repaid through a successful investment if if the market works out as we believe it will, which is we invest in a company, we solve our national security problem with access to that particular mineral, that our equity stake will actually pay back the taxpayer for that return. We think that's a a great deal for the taxpayer, as it's gonna go ahead and meet both of our needs uh, within the department and the country's needs for the future.

Now, let me ask just uh another question. Um Uh, this is all critical in terms of the legal basis for all of these actions and uh uh can we be assured that we will get promptly the uh DOD legal opinion on these equity deals that go through all the nuances we've spoken about this morning?

Senator, I believe that the department's OGC has worked on providing those legal justifications to the to the Congress, and um we'll go ahead and submit that request back again.

Thanks very much. Uh

Yeah, do you have any um idea of uh how much longer that will takes, Mister Secretary?

Uh, Chairman Wecker, I do not, I'm not a lawyer and I'm not an OGC, um but I will go ahead and ask uh the team there to to give us a timeline.

So to read.

No, I um Um, you're just trying to claim the veil of innocence by claiming you're not a lawyer. OK, I get it. Um, No, uh, the uh investments uh the equity investments uh are such that raise issues that i hope we can uh analyze in these legal opinions for example what obligation do you have as a shareholder to the company and to the versus what obligation do you have to the united states that's a a key distinction um and i know the uh present investments are in the form of preferred stock that's convertible into common stock but there's still that whole notion of uh this tension between a stockholder and a government agent and uh that's something i hope will be captured in these opinions do you have you seen that

so

discussion

so senator i absolutely understand the concern we've established these deals to provide um for performance outcomes Our goal is not economic returns. We're not trying to excise uh long-term ownership of these companies. The goal is not to have a stake forever. The goal is to achieve our outcome, execute uh some sort of exit strategy as appropriate to the moment, and then continue on with uh the next set of problems for the DOW. Ideally, we wouldn't be spending much time on minerals. We feel compelled to do so as a result of the situation in the market.

No, uh, well thank you very much, Mr. Secretary and Mr. Frankston, for your very, very a clear and um testimony i appreciate it very much uh do you have a question

uh let me ask you this uh secretary catanasi um are are are we expanding the your um workforce enough we had understood that in your team um they were working some of the longest hours in the building how is that um How's that coming along?

In the one big beautiful bill, um, Chairman Wicker, we received uh several million dollars, twenty million dollars I believe, in funds for workforce expansion, specifically within Jeff's team in industrial-based resilience. Uh, we've worked incredibly hard to, to go ahead and fill those roles and begin the expansion. It's taken some time for the money to flow in, but I'll think I'll, I'll turn it over to Jeff.

Oh it did uh, the money didn't arrive uh quite as quickly as perhaps

Not as much as I want, et cetera, yes.

I thought it would. Right.

Uh, uh, thank you, sir, uh, thank you, Mister Chairman, uh, just in the last few weeks we've brought on about four or five people alone, uh, on my team to work across a number of key sectors. So, the resourcing provided from this committee, from yourself, from this team has been, uh, phenomenal. We are building our capability to grow across all sectors, but in particular focus on critical minerals. We just brought in a third expert, uh, to help us and we're gonna be bringing in more to cover in some of these smaller sectors, uh, and the some of the underlying sub-tier and enabling things, chemicals uh for uh leaching for critical minerals looking at recycling look across all these areas so we are uh very much appreciative and looking forward to bringing on more personnel

well i'm glad you're appreciative uh sometimes those ponies um going from one side of the river to the other are a little slow getting across the bridge senator warren

uh thank you thank you mister chairman So, when you sign a contract, you expect to get what you paid for at the price and on the date that was spelled out in the contract. But not for DOD. When DOD signs contracts to buy equipment for hundreds of billions of dollars, giant defense contractors often deliver late, years late, and billions of dollars over budget. So, recently the GAO that in FY twenty twenty four DOD's major weapons programs were eighteen months behind schedule and would cost fifty billion dollars more than budgeted just the year before fifty billion dollars in one year that is not an oops that is two times what the federal government spent on child care that year now general dynamics oilership program an extra billion dollars, Raytheon's air and missile defense radar, another six billion dollars, Northrop Grumman's Sentinel program, thirty-six billion dollars over budget, and all are at least three years behind schedule. And now, DOD is ramping up investments in critical minerals. And you gotta worry, are we just gonna see the same thing again? So, Mister Katanasi, you are the principal DOD 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?

Senator, it's absolutely brutal when that happens, and I think everyone in the department agrees that the performance of the industrial base and our uh contractors that are delivering weapons systems has been unsatisfactory overall for an extended period of time. Hence the aggressive effort we've been making to go ahead and focus on manufacturing and the dib to make sure that we start to go ahead and get the outcomes which are expected for us to meet the requirements of the warfighter.

Yeah, well, I I gotta say, uh, unsatisfactory might be the understatement of the day. Look, if if you bought something and then the company said, pay us more and we'll give it to you a year later, You'd report them to the authorities, but defense contractors are a year late and over budget. And what happens? They break in taxpayer dollars and then they shell out billions of dollars to their shareholders and to their executives. So, in twenty twenty four, Raytheon, General Dynamics and Northrop Grumman each spent three billion dollars on stock buybacks and dividends their executives. you'll be happy to know did just fine too. Raytheon's CEO earned eighteen million dollars, General Dynamics' CEO made twenty-three million dollars, and Northrop Grumman's made twenty-four million dollars. So, mister Kadinatsi, 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.

Senator Warren, we agree that companies investing in share buybacks, dividends, and uh oversized executive compensation relative to their poor performance is a concern. We are not happy with it, hence the EO that came out regarding warfighter outcomes. Hence our incredible focus on trying to drive and prove outcomes from these companies going forward, and making it clear that we think that the misalignment of capital And the un- and um unwillingness to invest first in warfighter performance and system performance and delivery rates readiness is a more important thing relative to these other financial incentives that we recognize that they're, uh, have market expectations to meet. Their first expectation needs to be delivering for the warfighter.

Well, I, I appreciate this, but you know, we're just really reaching a point where enough is enough. A recent Trump administration executive order announced a plan to prohibit buybacks, dividends and excessive compensation for companies that fail to deliver to our war fighters. It's a good start, but defense contractors are already bragging to their shareholders that they're not gonna change. So, obviously, they're not very afraid of you at this point. When asked if Northrop Grumman would continue paying dividends, the CEO said, quote, " Yes, yes, One hundred percent, yes. Raytheon, which the president called out as a problem, said they quote " remain committed to the dividend". So, let me just ask, I'm out of time here so I can do this for the for the record, but Mister Katanasi, would DOD benefit from changes in the law to give this executive order more teeth and show companies that were actually serious?

Yes, Senator. We'd appreciate the opportunity to work with you and the committee on that issue.

Good. You know, 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. So thank you very much, Mister Chairman.

Thank you very much, uh, and I agree, Senator, uh, with, uh, with that, uh, sentiment this concludes today's hearing question of the record be due within two business days of the conclusion we're adjourned

thank you