Newsletter 036

Good morning, afternoon, or evening, folks — Dan Goldin here.

America is suffocating under well-intentioned regulations. That’s what everyone keeps telling me. And they’re not entirely wrong.

But “regulation” can become the catch-all excuse that explains everything and solves nothing. Sometimes the actual bottleneck is chemistry; sometimes it’s geography; sometimes it’s logistics. And those we can do something about.

Case in point: copper. I’ve been looking at this critical element, and keep coming back to a question that nobody seems to be asking…

…keep reading to see what I mean.

IN THIS WEEK’S EDITION:
🪨 The copper conundrum
🫵 Per Aspera building sentiment
🚀 Friends in high, hard places

Forwarded this email? Subscribe to Per Aspera here.

Without copper, you cannot electrify America, and without electrification, you do not have an AI supercycle:

For today’s big question, we ask: Why are we concentrating nearly $50B of copper investment in two of our most water-stressed states?

Copper is the second-best electrical conductor on Earth (after silver, which costs 80x more). Fortunately, America is endowed with nearly 50M tons (50,000 kt) of copper, which is ~15% more than China. We produce ~1,700 kt of copper content annually: ~1,100 kt from domestic mine production, and recover ~720 kt from scrap. On paper, this should be enough!

But sourcing copper, whether from mines or scrap yards, is only half the job. Ore must be smelted into crude copper, then refined into pure metal. Because we lack the processing capacity to refine all of our domestic copper ourselves, we export 325 kt of concentrate and net exports of 518 kt of scrap each year. Then we turn around and import 720 kt of refined copper to meet our 1,600 kt demand.

In essence, we are paying to move rocks across the ocean twice.

In 1980, we had 16 primary copper smelters producing nearly 1,400 kt annually. As regulations tightened, operators faced a choice: spend billions retrofitting facilities to get compliant, or ship the concentrate overseas. And so began the mass extinction event for America’s primary smelters, leaving us with two survivors: Miami in Arizona, built in 1915, and Kennecott in Utah, which opened in 1995.

There was good reason for those tightened regulations. Silent Spring awakened the country to industrial pollution in the ‘60s, with the Clean Air and Water Acts passing in 1970 and ‘72. And smelting is where the environmental problems concentrate: sulfur dioxide that causes acid rain, sulfuric acid from refining, enormous water volumes contaminated with heavy metals. The communities near these plants — Anaconda, Hayden, El Paso — bore the costs in poisoned soil and elevated cancer rates.

Less weary of caustic byproducts, an ascendant China made the opposite bet, building 97% of all new global smelter capacity over the past two decades. Today, it processes 45% of global refined copper with more smelting capacity than everyone else combined.

The environmental concerns were real, and they remain real. Smelting copper produces toxic waste that has to go somewhere. But the result of us not accounting for this externality — or innovating around it — is that we’re now dependent on China for processing capacity we used to have ourselves.

The clean processing technologies everyone talks about — scrubbers, closed-loop water treatment, electrochemical processes — aren’t ready for primetime.

And so our dependency gets more acute by the day. We need more processing capacity, but we can’t build it the old way…and the new way isn’t ready yet.

What we are doing is investing tens of billions into new copper mining projects.

Two of the states receiving the most investment are already rationing water:

We're pouring capital into pulling more rock out of the ground — in the most water-stressed states in the country — while doing almost nothing to process it domestically.

The mines have to be where the ore is, because, well, you can’t move a copper deposit. But smelters don’t need to be next to the mine site. Today, the two are often thousands of miles apart — concentrate departs Arizona by rail for a port, crosses the Pacific for processing, and comes home as imported, refined copper.

The question we’re asking is not whether to ship concentrate, but where.

Sitting on the Great Lakes, with 20% of the world’s fresh surface water, Michigan has got the goods. Not only does it have the water, it has:

When you see it enough times over enough cycles, you start to notice this pattern: A project will get announced in a water-stressed area. Then, it will stall, as water rights are contested. Permitting drags on for years, environmental reviews proliferate, and local opposition hardens as communities grow increasingly recalitrant against the notion of giving up their scarcest resource. (Can anyone think of any other class of megaprojects that are currently facing the same dilemma???)

The Great Lakes region has the water, infrastructure, and workforce, but it's received almost no critical minerals processing investment. I don't fully understand why. Maybe it's the assumption that smelters need to be near mines. Maybe it's regulatory uncertainty in the Midwest. Maybe it's just inertia: this is where copper projects have always been, so this is where they continue to be.

We need to dispense with conventional thinking to work our way out of this one. We have enormous demand for this resource right now.

The mining investment pipeline is full — Resolution Copper ($8B+), Hudbay's Copper World ($1.7B), the Bagdad expansion, Florence, Cactus. Comparatively few dollars are going toward processing, despite our ~700-800 kt gap. It’s time to start getting a bit more creative with where we stand up the next generation of smelters. Because we do need a next generation.

If we, as suppliers, put capacity in places where water isn’t the gating factor — where communities want the investment, where rails and ports are already in place — and we, as buyers, accept a premium for cleaner processing technology — as the price of doing it here in the U.S., and shoring up our supply chains, we might find that pyrrhic permitting victories were fights we never needed to pick.

Let’s turn a regulatory problem into a logistics problem. Logistics problems have solutions.

Agree? Disagree? Something I missed? Write in to me here with what you think. Would love to hear from you.

Last week, we asked you whether you were bullish / bearish / or in between about the buildout of the American Renaissance. 👇 This how you all voted.

One sharp take from camp "⚖️ Bull long-term, skeptic short-term":

On Monday, the U.S. government entered into a $1.6B letter of intent to USA Rare Earth — representing one of the largest federal commitments to domestic rare earth production in American history. The $1.6B deal is structured as debt + equity for a ~10% stake, plus additional warrants that could bump federal exposure higher.

This embodies an approach we have not seen in decades: the government is not only investing in the supply-side through direct equity positions but also proposing to drive the buy-side by creating a stockpile mechanism that could stabilize prices and support domestic production. The success of this strategy will swing on whether political commitment can outlast the 5-10 year timeline to bring a greenfield project to production.

The maker of ChatGPT has issued a new Request for Proposals (RFP), seeking U.S. hardware manufacturing partners. “Building the infrastructure required to power advanced AI presents a historic opportunity to strengthen domestic supply chains and reindustrialize the country⁠, OpenAI says. “If we seize it, we can catalyze U.S. manufacturing, modernize our energy grid, create well-paid jobs, and strengthen American leadership. Infrastructure has long been destiny when it comes to America’s economic success, and that will be especially true in the Intelligence Age.”

Interested parties — of which there should be many on Per Aspera’s subscriber list — can read the RFP here. You have until June to get your initial proposals in!

VLEO Is Open For Business
Albedo CEO Topher Haddad has published a refreshingly honest post-mission writeup of Clarity-1, the startup’s first satellite. “We took a big swing with our pathfinder,” Topher writes, setting out to prove was that commercial spacecraft can survive very low Earth orbit (VLEO) — an altitude regime written off for decades as too punishing for sustained operations.

There are a couple ways to chase higher-resolution Earth observation:

Albedo took the second path. Their verdict: VLEO works. The startup achieved the vast majority of its mission objectives, and walks through what they’re now fixing and why. Topher writes:

One VLEO mission down. Many more to come!

Make More in America (in Austin, Texas, Specifically 🤠)
Major s/o to our friends at CesiumAstro who have secured ~$200M in financing from the Export-Import Bank of the United States (EXIM), in partnership with JP Morgan ($185M debt facility from EXIM + $15M revolving credit from JPM). The startup will use its new dry powder to expand into a 270,000 sqft. facility in West Austin, establishing a vertically integrated U.S. mfg HQ for its space and defense communications hardware.

“This transaction sets a new benchmark for how federal financing tools and private-sector capital can work together to reshore manufacturing, create American jobs and strengthen U.S. leadership in strategically vital industries,” said JPM’s Liam Sargent. Moreover, this is the largest deal ever under EXIM's "Make More in America" initiative and a good precedent for how space and defense companies can access non-dilutive growth capital. Founders, take note!

A fantastic quest: introducing The American Housing Corporation // DOE on the hunt for batteries with 4x the energy density of Li-Ion // 12% of employed U.S. adults use AI daily in job // Microsoft introduces Maia 200, its 2nd-gen custom AI silicon // Nvidia releases Earth-2 family of weather models /// the PRC is training AI on hawks and coyotes, to develop AI control systems for drone swarms, robot dogs, and other autonomous systems // And some longer reads for the road: The Adolescence of Technology // Building Brains on a Computer // TSMC Risk.