An Insider’s Perspective in Shanghai China During COVID-19

Oscar Fuchs is an entrepreneur and podcast host from The United Kingdom but resides in Shanghai, China.

Oscar Fuchs is an entrepreneur and podcast host from The United Kingdom but resides in Shanghai, China. When discussing COVID-19 with Oscar Fuchs, Ryan Morfin asks questions concerning the social and economic impacts upon Shanghai, China in order to gain a better understanding of what may be in store for the United States. Mr. Fuchs emphasizes that the virus began sweeping the population during the Chinese New Year which has been proven to be the largest migration of people in the world. The people were discouraged from returning to their homes after the outbreak, which severely limited Chinese production.

Once citizens were finally permitted to return to their homes, Shanghai, as well as other regions of China, prioritized public safety over personal privacy. The Chinese government implemented a phone application that tracks potential and confirmed patients. Fuchs believes this was an appropriate move. Shanghai is now gradually returning to its pre-COVID state by re-opening businesses with protective restrictions, and they plan to continue the gradual easing of restrictions due to their firm belief that a second wave will not come.

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Ryan Morfin:                    Welcome to NON-BETA ALPHA, I’m Ryan Morfin. On today’s show, we have Oscar Fuchs who’s calling in from Shanghai, China. Oscar is a entrepreneur who’s recently sold his business and has been in Asia for almost 16 years as an expert in Asia and modern China. He currently has a podcast called A Mosaic of China and goes around discovering stories of ex-pats around China and the Chinese civilian population, learning their stories to tell a better and clearer story about China. Today he’s going to tell us of what China was like during the COVID crisis and how it’s recovering and what we have to look for here to in the US. This is NON-BETA ALPHA.

                                           Oscar, welcome to the show. Thank you for coming on.

Oscar Fuchs:                    Thanks so much, Ryan. Nice to meet you.

Ryan Morfin:                    Great to meet you. Well, I appreciate you being willing to chat with us a bit. I know you guys have been ahead of us the last few weeks, a few months, actually going through the COVID pandemic and wanted to pick your brain about what’s going on in China and Shanghai in particular and how you guys are dealing with it. I’d love to hear any perspectives you can share.

Oscar Fuchs:                    Yeah, it’s a weird experience being on this side of the pandemic. There are, of course, advantages me being able to say that, and there are disadvantages of having lived through that experience.

                                           Yeah, I mean, where to even begin. The story was that it hit China really at a very interesting time because it hit in Chinese New Year, which we call the Spring Festival here. The thing that that was important about that is most Chinese people have traveled at that point. The Chinese New Year holiday symbolizes the biggest mass migration in the globe every year. So people were either on holiday or they had gone to visit their parents in their home towns in the countryside when the music stopped, basically, and people were forced to stay where they were.

                                           My situation was I had booked a holiday many months before, over the Chinese New Year, and I was skiing in Hokkaido in Japan. The news was trickling out just before we left, but it really hit when we were actually in Japan. That was when we had the weird situation in terms of what do we do? We had the choice to either stay out of the country and basically live a life in exile from our homes, our jobs, our houses, our pets, or we could return to China, which at that point it was the big unknown, like why would you return to China at a time like that? In the end, we decided to return to China, even though as a UK citizen, it was actually on the same day that my government was saying that anyone who was a British citizen in China should leave.

Ryan Morfin:                    Wow.

Oscar Fuchs:                    It was very, very difficult choice, and I’m sure my story is one of many, many stories where people were either side of that decision-making process.

Ryan Morfin:                    So when you got back to China, was the local population in a bit of denial or skeptical of how serious the government was taking this or were they appreciative, and they complied quickly?

Oscar Fuchs:                    That’s a very big question. In terms of the way that the society in China works, it’s quite different to the rest of the world and, of course, in many regards, it’s much the same. But to answer that particular question, no, people don’t tend to have that attitude towards the government. They tend to be quite compliant, and they’ve gone through an awful lot. If you are in your sixties living in China, you’ve been through some historical upheavals. In general, people here are used to deprivation, at least not necessarily this generation, but the previous generation, for sure. We’re in a period now of staggering growth and wealth, but people haven’t forgotten how to manage these desperate situations. So no, there was no panic from my perspective.

                                           Now, I should mention that my perspective was based on Shanghai and we are very far from Wuhan. China is a country, but in many regards it’s a continent. It’s a huge place with 1.4 billion people with a sizable country, which doesn’t really have the same level of integration that even the States has from state to state. In terms of my experience, it was dealt with with a lot of stoicism, I must say. It was a very brutal period in terms of how the crackdown came so suddenly. In many regards, that’s the same experience that people around the world, but it was taken with a kind of workman like mentality where people just followed the rules and got on with it, which was actually very impressive to come into that situation.

Ryan Morfin:                    The food supply chain, was it up and robust or were there runs on the supermarkets for things like we’re finding comical that are out of stock, toilet paper and hand sanitizer? Was it much the same as we’re seeing here in the States, or was there a more orderly process of getting supplied for the shutdown?

Oscar Fuchs:                    Well, here, there were elements of the two. What I said at the beginning that there was advantages of being at the beginning, the advantage was we didn’t have really a period of that weird rolling, longterm panic that did lead to those strange behaviors elsewhere. It’s not a west versus east thing because there were runs on toilet paper in places like Hong Kong and Japan too. So it’s certainly not to do with the west versus the east. So no, basically not. The caveat was that there were shortages in things like face masks, and you’re right, hand sanitizer was pretty hard to come by.

                                           Those were the two things I think were a little bit tough, especially with face masks, because there were some places in China where it became illegal to leave your house without face masks, even to do the emergency shopping at the local grocery. So you couldn’t leave the house. The face mask really was a symbol of your freedom or not. Of course you can improvise and you can put scarves around your face, but face masks was really what society here required from you. Which again is an interesting cultural talking point because it’s something here which people are used to seeing, but if you see it in the States or in parts of Europe, it looks a lot scarier. I can definitely see why that wasn’t taken up so much in the west as it is [inaudible 00:07:28] here in China.

Ryan Morfin:                    I know that there’s a lot of advanced technologies that are put out into the, we’ll call it the street real estate for tracking phones. It seems that China really implemented their CCTV network and facial recognition and their are 5G network to track not only people who are sick, but also the spread of the virus. Is that very prominently and probably displayed, or was it something that you guys are just used to seeing and it’s just another part of daily life?

Oscar Fuchs:                    Yeah, that’s a very good point. It is part of daily life. In general, you can see how different societies are handling this based on a very simple spectrum where you’ve got on the one side public safety and the other side personal privacy. Of course, every country, every society lies somewhere on that spectrum. China definitely leans more towards public safety at the expense of personal privacy, for sure. That’s something which we’re used to living in here. Of course, there were elements where in the States it’s the same when it comes to privacy, it’s getting harder to keep it very private life.

                                           The tracking devices is an epidemiologists dream, of course. It’s a privacy advocates nightmare. The interesting app that came out relatively recently here in Shanghai, it’s not across the whole of China, but in Shanghai, there’s an app which you pretty much have to download. It’s not mandatory, but it’s increasingly difficult to enter certain buildings without showing this app, which gives you a color. It gives you a green, amber, or red color when you log into this app. If it’s green, you can enter the building.

                                           If it’s amber or red, you have to contact a health official. What it’s doing there is it’s tracking… Well, perhaps it knows that you are already a COVID-19 patient and you shouldn’t be out of hospital, and that’s probably when it’s a red. But it could say an amber, it could be that it knows that you have just returned from overseas and you should be in a two-week quarantine period and you shouldn’t be out, or it has tracked you to a metro car where somebody later in that metro car was tested for the virus. It can track you back to that same metro car, and that’s why out of nowhere, you might suddenly find that you are an amber, which hasn’t happened to me, I’ve only had greens. But that piece of technology there is such a good example of like, wow, it really helps a slightly more closed society like China handle this kind of outbreak, but it gives you the heebie-jeebies knowing exactly what it’s tracking on your phone in doing so.

Ryan Morfin:                    Well, I’ll give you a story. Here in the US, we’ve been very upset about all the millennials going on to the beaches during spring break in March in their college holiday. There’s a technology, it’s actually public, that they basically were able to track everybody who was on the beach by their cell phone signals and fast forward, where those people ended up after they left the beach on any given day. And so they can track where that spread is going to be, and they can predict that. That’s all from public cell phone data from cell phone towers that is transmitted from everybody’s phone. I think as much as people here in the States are worried about privacy concerns, I think there’s a lot that they don’t understand they’ve already been giving up. But how has the job market changed or how was the unemployment handled in China by companies and by the government and what policies that they put in place to protect workers and keep the economy from sinking under?

Oscar Fuchs:                    Well, that’s partly the reason why I mentioned the thing about Chinese New Year, because everyone was displaced. We’re talking about really the majority of people were stuck in their hometowns with their families and were not able to even return to the factories that they worked in or their offices in the big cities. In a way, that was convenient because the government’s line basically was to extend the Chinese New Year holiday, and that’s basically what it was. Production went way down. Of course, there were some big exceptions when it comes to factories producing face masks and other equipment that were very quickly retooled in a way that I wish the States and Europe would also jump to. But the retooling effort was incredible to see here, and they weren’t able to do that in a way that is really impossible in other countries where you haven’t got such a top-down control.

                                           The thing about the government support, I’m not entirely sure. The beauty of being in a place like China and being a foreigner is that you can choose when to engage with the news and when to actually let it wash over you and bury your head in the sand, which for me was a coping mechanism. I, in those situations, just dealt with my own situation and don’t really think about the macro so much. Because that was the luxury, I guess, that I had and others certainly do not have that luxury. But what I can say about the government is that they weren’t such big handouts and they don’t have such a robust system of, it’s so ironic saying, but of socialists care. This is communist China we’re talking about. But they don’t really have much of a public safety net.

                                           Culturally speaking, the interesting point to note is that people in China generally are good savers. So even if you aren’t on a very basic income, people generally don’t overspend. And they generally, no matter how small their income, they will save 10, 15% every month. Most people, thereby, have a comfort blanket, have this little nest egg for times just like this, that there’s very little overextension of credit lines and such that we see in the west. That’s a huge sweeping generalization. I’m sure there were people who were in terrible economic hardship and still are, but that’s just a general observation about one of the differences here.

Ryan Morfin:                    Would you say that life is back to normal in Shanghai and most of China today?

Oscar Fuchs:                    Not really. The way that this thing ends is not the same as it begins. It began very abruptly and suddenly, and like, “Whoa, what the hell?” Life was so different just yesterday and suddenly it changes. The way we’re coming out of it is more of a trickle. We sort of were trickling out of our houses. We sort of were on social media. The equivalent here is called WeChat. We don’t have the same social media platforms. But we started to see on WeChat that certain restaurants were open, certain bars you could go to. Of course, they changed the seating layout so that even though these restaurants were open, you were still very far from the next person. They had social distancing within restaurants and bars, and then slowly those restaurants became less and less rigid with those rules.

                                           Of course, it’s all government controlled. As a citizen, you don’t really know unless you’re in that particular business how the rules are changing over the course of days and weeks. Where we are now in Shanghai is certain restaurants, shops, I would say the main things like malls, they’re all open with the caveat that people are still all wearing masks. And there is, of course, that app, which it isn’t used everywhere. I walked into a couple of malls just this weekend and they did not require the app. They just took a temperature test. But then the certain things like theaters, theme parks, even some parks are still closed. I think there was an effort to open some of the cinemas, which I don’t know what you’d call… movie theaters in the States. But that, I think, lasted a couple of days and then they were closed again. So there was a bit of a stop start.

                                           That is the situation in Shanghai. Actually, Shanghai has about 16 municipalities within the city and each of those areas has their own rules. So I’m just talking about maybe one area of one city. China is not one monolithic place, as you know, and the situation in Shanghai is very different maybe in Chengdu or in Beijing, and it’s certainly different to Wuhan. Maybe the best correlation to what’s happening outside of China is actually Wuhan. Shanghai was so well protected with the way that they were able to close down the whole province of Hubei, which is where Wuhan is, that actually this is where maybe looking at Shanghai has some benefit. But also it can be a bit misleading because we were never in the situation, I would say, that you now see in places like London and New York, in Northern Italy, in Spain, in most hotspots around the world.

                                           It’s a very tricky thing right now, being in Shanghai. We have that luxury of seeing this, but at the same time, just to give you my personal perspective, I personally find it much harder from a mental standpoint now where I can’t distract myself in the same way that I did when I was actively battling against the outbreak. Now that we are coming out of the outbreak, it’s very difficult because the news is just about how this is taking over the world. It’s very tricky to keep yourself on a mental even keel, and that really is half of the battle. There is, of course, social distancing and keeping yourself healthy, but keeping yourself happy and positive is definitely half of the battle.

Ryan Morfin:                    How long were you guys, I guess, locked up in quarantine or stuck in the house?

Oscar Fuchs:                    The worst part of it was probably two or three weeks, which was basically when I first came back from Japan. A lot of that is not in forced quarantine, it’s self-isolation. There are different rules for different people. People who now were returning to China are on a much stricter self-quarantine. That is before, of course, they closed the borders, which they just did the other day. I have a friend who is a teacher here. He came back a week ago, and because he was going to be close to children when the schools do finally re-open, his quarantine was much stricter. He actually had an alarm on his door, which was installed by the police, and if he wanted to open his front door, he has to inform his building supervisor first and give the reasons why. And I think he is limited to a certain number of door openings every day.

                                           Again, very, very strict controls, which sound very brutal, but give the rest of the population some peace of mind, quite honestly, in this situation. But yes, to answer your question, for me personally, it was a two-week period, which was the worst. But even then, probably similar to your situations, we could still walk down the street to my local grocery and pick up supplies and come back. That was my one 10-minute outing per day, to walk down the road, pick up groceries, and come back.

Ryan Morfin:                    We’re on the social life standpoint in China, what were people doing to go out? We started to see, believe it or not, happy hours where everyone calls in on a Zoom chat line, people go into speed dating websites. Where there anything novel that you came across across China that made the news or people were discussing?

Oscar Fuchs:                    Very similar things, very similar things. Some heartwarming things like you saw in Italy where people also tend to live quite close together, and then people were their balconies singing to each other. That kind of thing we saw in China. Most people live in big cities, which are very tightly packed and lots of people shouting together in unity. But as you know, as I keep coming back to… There are these general phenomena, but it does come down to each individual and what their comfort levels are. I see three different categories. I see people who are living alone, people who are in couples, and people who are in couples with children. And those are the three different situations where I think people’s coping mechanisms were a little bit different.

                                           Again, this is universal around the world, but if you are living alone, you have to just make sure that you are reaching out in the way that you described, and in a way that you’re comfortable with. Everyone has different levels that they take energy from other people. So yeah, people generally were meeting up like that online. If you’re in a couple, actually, I think, that was my situation, and looking at my friends who were in those other situations, I feel that I was a bit lucky because you can get on with your life with your partner quite comfortably and bounce off each other in a way that is quite comfortable. You add kids to that degree, and then the kids can start to introduce a little bit more stress into your life and a little bit more distraction. So those, I think, were the three different situations we see in China and, of course, the rest of the world.

Ryan Morfin:                    And so it seems to me that… or we’ve been seeing, at least, from the footage here and some of the economic data that people are now getting back into the swing of economic output and going to work every day. And so you think the pendulum swung, and now it’s just kind of a waning and maybe wait and see if there’s a second wave?

                                           I don’t think the second wave is what people are talking about, but I think they are just looking at the pendulum swinging only in one direction at this point. Because they haven’t done-

Oscar Fuchs:                    Got it.

Ryan Morfin:                    … anything rash. When I said about people were stuck in their hometowns, about two or three weeks ago, people could leave their hometowns and start coming back to the cities, which is mainly where they’re based. And then the government watched that for a period to see if that movement of people spiked the outbreaks. When it did not, then they relinquished it a little bit further and further. That’s what I mean by the trickling, they don’t just open everything because that would be ridiculous, and that’s why you’re seeing some countries have this second wave. They have been very smart in just making it slowly, slowly, and just looking at numbers each time and then slowly just releasing the valves more and more.

                                           I mean, Hubei, where Wuhan is based, Hubei is still on lockdown. Again, that’s why it’s different in certain places. We are hearing talk of Wuhan coming out of lockdown and they are, but the borders are still not open. So even now that there is an element of normality coming back, they are doing it in a very step-by-step way, which is very impressive.

                                           Well, Oscar, I’d like to thank you for joining us today. And for your thoughts about what’s been going on and giving us a glimpse into what it might look like here in the US in the weeks and potentially months ahead. I hope you and your family stay safe and healthy in Shanghai.

Oscar Fuchs:                    Absolutely. Thank you so much, Ryan. Like I say, keep yourself healthy, but keep yourself happy. It’s just as important. This is a really good media that you’re putting together. Even though I’m saying that, listen to this of course, but at the same time actively reduce how much news you take in, I would say. The key to happiness, I think, is to have two periods in the day where you are engaging with the news, one in the morning, one in the evening, and for the rest of the time, occupy your mind with your family, with creative pursuits, with reaching out to friends as you’ve been talking about, and the things that just make you happy. If it means breaking rules about drinking gin before 12 o’clock or having a slice of cake, then now is the time to overindulge just a little bit.

Ryan Morfin:                    Well, appreciate it, Oscar, thanks so much for your time, and we’ll look forward to staying in touch. Have a great one.

Oscar Fuchs:                    You too.

Ryan Morfin:                    Thanks for listening to NON-BETA ALPHA. Before we go, don’t forget to subscribe and leave us a review on Apple Podcasts or our YouTube channel. On our next episode, we’ll feature folks calling in from Italy to tell us how it’s going on the ground there and what they’re doing to stay positive during this COVID crisis. This is NON-BETA ALPHA, and now you know.

                                           (singing)

 

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Ryan Morfin: Welcome to Non-Beta Alpha. I'm Ryan Morfin. On today's episode, we have Pini Althaus, CEO of USA Rare Earth, talking to us about the supply chain glut in rare earth minerals. This is Non-Beta Alpha.

Ryan MorfinPini, Welcome to the show. Thank you for coming on today.

Pini AlthausThank you for having me, Ryan. Good to be here.

Ryan Morfin: So you're an investor and a miner in rare earth minerals. Can you share with our listener base, what are rare earth minerals? Why are they important and why is there a geopolitical race going on globally?

Pini AlthausYeah, I mean, rare earths are an extremely ubiquitous part of all advanced manufacturing or technology manufacturing today's day and age. Several years ago, I had not heard too much about rare earths myself. I was not that familiar with it and being involved in this sector, in this company, for the past few years has given me an education of course. And I mean, I was sad to hear that 50% of all imports into the United States contain are earth elements and it runs the gamut from consumer electronic devices that we use every day. Our cell phones, our laptops, most communication devices, medical equipment. So there's a tie with COVID, which we can touch on at your discretion. Electric vehicles, defense equipment. So pretty much anything or everything high tech today has a rare earth element or critical minerals contained within them.

Ryan MorfinAnd what are some of the names of some of the more important rare earth? I know there's lithium for batteries, but what else is considered in this category, critical?

Pini Althaus: Yeah, so lithium is a separate category to battery material. The rare earths are 17 rare earths. The four, let's call it, key rare earths that we're focused on at our company, the four rare earths that go into the permanent magnets. And these are the magnets that are found, there are a number of them in your back of your cell phone or an iPad. But if you look at an F35 striker jet, you've got about a ton of rare earth magnets in those. And we've got two heavy rare earths and two light rare earths is part of the permanent magnets. You've got dysprosium, ytterbium are the heavies, and then you've got neodymium, praseodymium as the two light rare earths. So those would be key rare earths that are the focus.

Ryan MorfinAnd you use these in, I guess, in military applications as well, but historically, where has the United States sourced the rare earth for supply chain?

Pini AlthausYeah. And that's the shocking part. We've been securing those materials from China. So China controls the rare earth sector and has done so for the past 30 years or so. And it was a significant misstep on the part of the United States, allowing China to have this control. And actually this wasn't a question of China coming in and doing anything nefarious as far as stealing IP or anything. The US government made a conscious decision about 30 years ago to allow China to come to the United States and acquire the processing capabilities for rare earths. So just as part of some background, you've got the rare earth materials containing various mining projects, but once you extract them, you have to then process them and they go through certain phases before they get to the magnet phase. And China, the thought process was let China do the mining, let China do the processing.

Pini AlthausWe don't need to do that here. And we'll buy the materials from China cheaply and the premier of China at the time, Deng Xiaoping made the comment, he said, "The Middle East has oil. China has rare earths." And unfortunately we weren't smart enough to understand what he was saying. And the Chinese understood that the future of manufacturing is going to revolve around control of the rare earth and critical mineral supply chain. So if you think about it today, Ryan, we cannot build... Forget about consumer electronics and medical equipment. We cannot build the equipment that the US Pentagon or the US armed forces require, whether it's F35 fighter jet, Tomahawk cruise missile, communications equipment, without going to China and obtaining those materials. And it's obvious to all that this should be extremely alarming. We've seen China use this as a weapon, if you will, as far as how it interacts with other countries back in 2010, when there was a dispute between China and Japan on the East China Sea.

Pini AlthausSo China cut off rare earth exports from Japan for 40 days. Japan obviously being a significant user of rare earth elements for their high-tech manufacturing sector, that was stopped after 40 days. But in fact, it was President Obama that first made the United States aware of this, formed a division within the Department of Defense to handle this issue, but not much has happened. And we continue to be relying on China for these materials. And what has been made about trade war with China and whether the trade war is really the impetus for China withholding rare earth exports. And that is a huge misnomer. Whilst China had been talking or implying that they would cut off rare earth exports, the truth of the matter is that China, under it's made in China, 2025 mandate, its belt and road initiatives and others. And you seem to control the critical minerals and rare earth supply chain so that it can continue its dominance as a manufacturer or a global supplier of these materials and finished products.

Pini Althaus: It's the backbone of its economy. And in fact, China has become a net importer of rare earths from different countries like Miramar and others. So with that, they are decreasing the exports to countries like the United States, Japan and others.

Ryan Morfin: And was it ever a risk that the Chinese were going to turn off the exports of rare earth to the US during the trade war? How close were we to that? And was that ever some saber rattling that went down during trade negotiations?

Pini AlthausYeah, I think it was saber rattling. I think it would be paramount to an act of war. I can't say with any authority that that would not happen, but it would be probably, aside from war itself, it would be one of the most significant acts of war cutting the United States off from the ability to procure rare earths. But that being said, I mean, if you look at, as an analogy, the oil and gas sector and the reliance of the United States had for many, many years on OPEC countries to supply us with the oil. And we had embargoes and we had price manipulation by OPEC. This is far more significant given the ubiquity of where these rare earths go. And yes, we're always under the threat that China can cut off exports under the guise of a trade war or for any other nefarious reasons.

Pini AlthausBut I think even more importantly, to just as the natural run of the course of things with regards to their business and their desire to maintain themselves as the global leader in manufacturing and exporting of goods, China is in a position now where it actually requires these materials for their own domestic consumption and can legitimately cut off rare earth exports by stating that they need it for manufacturing and that would actually be somewhat correct. So we're in an extremely dangerous position here with this reliance on China. And it wouldn't just be China. If it was another country, it would be similar issues, not to the same extent, but reliance on one country for these materials is dangerous.

Ryan Morfin: And it's been mentioned in the past that in 2010, China flooded the market to really kill all the competitors in the rare earth mining industry. Where was the World Trade Organization during this period? And how did that play out and how does that set the chess board for China to run the tables?

Pini Althaus:

Yeah. So the WTO stepped in when China cut off rare earth exports from Japan, I think it lasted for about 40 days because the US and Japan protested the WTO, and they stepped in and China resumed exports. While I'm not an expert on these trade matters, one thing that I am aware of is that one of the reasons why China had to resume the export of rare earths was it did not legitimately need all the rare earths for domestic consumption. So therefore it was a nefarious act, if you will, to cut off rare earth exports. Now that has changed, which means China have to cut off rare earth exports today, they have a legitimate case to say that they require these materials. There's a shortage of these materials and they require them for their own domestic purposes. It is the backbone of their economy and there's very little we could do about this today, which is why it's becoming an even more urgent issue.

Ryan Morfin:

And the US government started stockpiling some of these after that incident. Can you talk a little bit about what DOD and DOE has done to start making sure that there's not a critical supply shortage going forward, and is it enough?

Pini Althaus:

Yeah, again, there is a national defense stock pile, and there are materials still that the United States needs to procure in order to shore up its stockpile. There are magnets, the finished magnet products as well, the United States government needs to stockpile. Again, there's a limited amount that the United States government has. It requires approval from Congress, whether it's in the NDAA or other approvals from Congress, to allocate monies for the national defense stock pile of these materials. That being said, there's no endless supply of these materials. And unfortunately, the apparatus, the way it's set up right now with the US government, it's going to continue to require having a secure supply chain of those materials for many, many years to come. So it's not a question of stockpiling for 10 or 20 years, and then this complacency and saying, we'll kick the can down the road. But keep in mind as well, Ryan, that US government accounts for low single digits of overall rare earth imports into the United States.

Pini Althaus:

We're talking about defense contractors, we're talking about the manufacturing sector. The direct impact this has on the economy, jobs, the automotive sector, and others is significant. So it's not just limited to the United States government. If you look at over the past couple of weeks, the sanctions that China have put on Raytheon, Boeing, Lockheed, et cetera. I mean, the question is where are they going to get those materials? And if we go beyond that, you need rare earths for the 5G network. Now that Huawei has been banned from installing the network, not only in the US but other countries, we have to have the ability to get a secure supply of these materials as well. Which currently, again, trying to control the hundred percent. So it runs across the board, both for government, defense and manufacturing in this country.

Ryan Morfin:

Well, and so help me paint a picture for our audience. Does China have all the mines for rare earth, or they're the only ones who started mining it? Or are their mines globally dispersed and nobody's been doing the actual infrastructure to do the mining?

Pini Althaus:

Yeah. So finding rare earth projects or rare earth elements is not the difficult part. It's finding them in significant quantities that makes a project economically viable. And part of that consideration are the environmental rigors that companies in the West have to adhere to. And China, even by their own admission, have had a complete disregard for mining these materials and even for processing these materials. And in fact, just the last week or so, the BBC did an expose on this, 60 Minutes has done an expose on this. But the Chinese have not denied this and have talked about cleaning up their act, but it has an effect on the bottom line for what the costs of mining and processing are if you have no environmental standards to adhere to. So China have exploited those rare earth projects they have, primarily in inner Mongolia, and have brought a number of projects online and quite quickly, and in a significant way, with a complete disregard for the environment.

Pini Althaus:

So it was seen as an environmental no-no in the West for many years. Now, what's happened over the past few years is you're starting to see rare earth projects in different parts of the world sprout up. You've got the Mountain World project in Australia owned by Linus, which is a producer of Nd and Pr, neodymium and praseodymium. So two of the light rare earths. They may have some heavy rare earths coming online at some point in time. And you've got Arafura, which is another company in Australia that we're working with to assist them with their processing so they don't have to send the materials to China for processing. But really these are a drop in the bucket for what the requirements are for the United States. And certainly what the requirements are for allied countries, the EU, et cetera. So there is a race, if you will, worldwide to start bringing projects online. The Chinese are very active in trying to secure assets outside of China.

Pini Althaus:

So in Africa. They have ownership of a project in Greenland. So there is somewhat of a race. The Australian government has stepped in and has started limiting the ability for China to own, or have ownership in, or off takes for the Australian rare earth projects. And that's part of the strategic Alliance between Australia and the US. Canada, similar thing as well. There are a number of projects that are looking to come alive, but these projects are, for the most part, will take many, many years to come online. We have to expedite the process. We have to assist with a [inaudible 00:14:41] supply chain and the domestic rare earth sector, because previously investors have been scared off by things like China flooding the market, which is not a possibility at this point in time, given that China can't actually afford to flood the market. They are already very heavily subsidizing their mine to magnet supply chain there.

Pini Althaus:

This is more now a case of being able to get production from non-Chinese sources so that the United States and allies have a viable, secure supply chain of these materials. And it's a concern worldwide. We speak to governments all over the world, and we're all facing the same issue. Some more than others, especially countries like Japan, that don't have their own rare earth projects there and are reliant on Australia where they've made some investments there. And in the United States, they've made an investment recently in Africa. So there is this race, if you will. And I think we've got a five-year window here to at least stand up a few projects worldwide. Otherwise we've lost this race and we will be dependent on China for many, many years to come. And Ryan, it's a bit of a hypocrisy. If you look at it where you've got materials going through clean, green energy applications, like electric vehicles, wind turbines, et cetera.

Pini Althaus:

That we're sourcing these materials from China, where they've, again by their own admission, has been complete environmental devastation to water bodies around these mines and processing facilities, to the communities. People have been getting sick around these projects yet we're putting these materials into our electric vehicles or wind turbines. It makes no sense at all. And people are starting to wake up to this. And that's why the sector is starting to see a lot of support come out of Congress and bi-partisan support. And in fact, it's one of the only bi-partisan issues right now in Washington. And it's good to see that some things decided to move in the right direction.

Ryan Morfin:

And is there a special process? You talk about the expense, is it really difficult to mine these? You have to go through a special chemical process to extract and clean and purify. Is it a lot harder than, say, gold or silver or some of the other, we'll call, more traditional elements?

Pini Althaus:

Yeah. It's all about the processing to some extent. So if you look at MP Materials in California, which used to be Molycorp before they went through their bankruptcy. They are a miner of Cerium and Lanthanum, which are two of the light rare earths, the lower valued light rare earths. Given that they do not currently have processing technology, they are sending those materials to China for processing where China is tariffing those heavily. Linus is also, they're doing their processing work in Malaysia and elsewhere. So it's really about the processing at this stage. One of the things that we've done, after we put out our PDA last year with our upgraded resource, which now includes a significant amount of lithium. We make a decision that, based on the test work that we had done around our processing methodology, that we were not going to send our materials to China. That it's paramount for us to do this work in the United States and in a collaborative effort as well.

Pini Althaus:

We've been asked by some of our investors, "Well, why would you be looking to help other projects with their processing?" And the answer is simple. There's no one project or one company that's going to put China out of business or make a dent, or somehow be able to take care of the overall demand worldwide for rare earths and critical minerals. And it's very important for us to have processing capability in the West. So that was the impetus for us opening up our own rare earth and critical minerals processing facility earlier this year, which we did in Wheatridge, Colorado. And in fact, we've made some significant progress on the method that we're using for this. And we're starting to collaborate with Australian companies, Canadian companies. We're currently talking to a group over in Europe as well, because this has to be a collaborative effort.

Ryan Morfin:

How does Europe solve for these problems? Do they have this better under control than the US?

Pini Althaus:

No, they're in a far worse position than we are. The EU commission recently put out a report, I think, a couple of months ago that the requirement for rare earths is going to increase tenfold within a short period of time. Lithium 18 times. They don't really have rare earth projects. Again, there are the Greenland projects, which people have heard in the news recently. Those need to further development work so they don't have rare earth projects ready to come online there. There are a couple of lithium projects that are spread around Europe, but for the most part, Europe is in an even more precarious position. If you look at Germany with the auto manufacturers, you look at the big companies like ThyssenKrupp and others, all these countries and companies are looking for alternatives to China, because we've already seen in the news about China withholding or reducing exports of some of these rare earths that are required for these industries.

Ryan Morfin:

And you mentioned earlier the regulatory posture of the US makes it difficult to mine. Is it becoming a more bi-partisan issue that we need to maybe relax some regulation around the mining exercise, to incentivize private sector to come in and start producing this? Or is the Republican party versus the Democratic party on two separate pages of music?

Pini Althaus:

Yeah. Good question, Ryan. I mean traditionally the Republican party is obviously being more pro-mining and in favor of less regulation when it comes to these things. With regards to our project, we're on Texas state land. So we don't trigger federal environmental permitting at this point in time. And obviously Texas being Texas, a mining state and oil and gas state, things are a lot easier in Texas than they are on projects on federal land where the Bureau of Land Management controls the environmental process around that. But the thing is here, and I don't want to step into what other companies are doing, et cetera, but we do need to be reasonable about allowing projects to come online if they're adhering to environmental standards that are acceptable worldwide. And what we do know, is that China is destroying the environment and cities and water bodies around their mines and processing facilities.

Pini Althaus:

We have standards here in the United States, and I think what we need to do is make it easier for companies to mine, while at the same time protecting the environment. And there are ways to do that. And we're definitely seeing buy-in from Congress, from both sides, with regards to looking how we can stand up a secure supply chain. And, obviously under the Obama administration, they had very strict regulations when it comes to mining. And that's changed under the Trump administration. Hopefully what we start to see is some normal middle ground that'll allow other projects to come online.

Ryan Morfin:

And typically in these rare earth mines, is it amalgamation of different minerals that are all consolidated together and you have to separate them out? Or do you ever find pure play, Europium, I can't even pronounce some of these. Gadolinium, Cerium. I mean, are they all mixed together and you've got to filter and sift them through, or are they pure play mines?

Pini Althaus:

No, they're generally they have a mix. So they're polymetallic projects. They have a number of different materials. Some projects, you more to what we call the light rare earths like MP in California or Linus in Australia. Our project is actually on the opposite end of the spectrum. We have a very high concentration of heavy rare earths. That being said, we do have to go through a process of separating these materials. But the case of our project where we've got 30 materials. We're not going to produce 30 materials. We're not going to market 30 materials. So what we're doing is we're focusing on the key materials that are marketable, that we need for permanent magnets, lithium as well, and working on the separation and the optimization of those materials in particular. But we're all faced with the same processing challenges and that is something that can't be set.

Pini Althaus:

There's no easy way to do this. There are different technologies that have been used in different parts of the world. So predominantly there's a process called solvent extraction, but it's big, it's bulky, it's not benign. It's a bespoke solution for one particular project. So it doesn't work for feedstock from other projects. What we've done is we're using a processing technology that's actually been around since the 1940s. It was part of the Manhattan Project. It's called continuous ion exchange. In fact, the Chinese use it to increase the purities from 99.99 to four nines, five nines, and even six nines. So for some applications you require higher purity levels. It's a far easier processing method to scale up and to take feedstock from other projects. In fact, we've demonstrated for the Department of Energy that we can take coal waste from Pennsylvania and do high purity separation of rare earths using our processing methods. So it's not a step that can be skipped unless one needs to send it to China for processing, which is not going to help us with our objectives here.

Ryan Morfin:

How many other, we'll call it, going concerns on any other businesses that are doing this, that are trying to, I guess, start the development of these mines. Are you guys one of a few or are you one of many? And is it an international or just a US game? Who's leading the charge at going after this?

Pini Althaus:

Yeah, well, I'd say the Australians are leading it outside of China right now. You've got some really good projects in Australia. Again, more skewed toward the light rare earths. There's one more heavy rare earth project in Australia, which is not yet producing. The United States, you've got MP Materials, you've got Ucore in Alaska, you've got the Bear Lodge project in Wyoming, which is also another light rare earth project. So as far as a heavy rare earth project that looks like it will come online in the near term, that would be our project. In Canada there are a couple of projects there as well, and again, more skewed toward the light rare earths. But we really need to get as many of these projects online as possible. Because again, I don't see it as competition. We all have a problem doing supply agreements or offtake agreements for our materials.

Pini Althaus:

In fact, one of the things that we're going to have to consider is looking at potentially scaling up our production, based on the demand that we're already starting to see. And I think other companies would find that as well. So it's all about the economics of the project. You have projects that were economically viable back in 2012 or rare earth prices with 35% or so higher than they are today, and are not necessarily viable today. So that's the challenge as well, economically viable projects. And we've got to get as many of them online as possible. It takes many, many years. I mean, our project has had over $70 million put into it to get to where we are today, and we're close to getting to the production scenario. It all revolves around processing at this point in time.

Pini Althaus:

We'd be very happy to see another couple of projects come online, because this is extremely important for national security and for the economy as well. I mean, if you think about it, Ryan, if you've got a billion dollars of rare earth materials, that translates into a trillion dollars or I should say trillions of dollars of finished product. So you've got a magnet in your phone there that's worth a couple of dollars and the cell phone's a thousand dollars. And electric vehicles and defense applications even more.

Ryan Morfin:

Yeah, everyone has one of these iPhones now, and there's tremendous amounts of rare earth on the circuit boards here. And I think people take it for granted that that supply chain is not secure right now. So one question for you, there's talk of this maybe medium term to longterm, but there's talk about mining in space. Do you think that's a feasible option in the longterm, medium term? What are your thoughts on that?

Pini Althaus:

No, that's just ridiculous. I mean, we're trying to find ways to make mining on earth economically viable. I think the cost of going up to space would be more than what our capex will be bringing our entire project into production. I mean, we've got about a 350 to $400 million capex to bring 130 year mine life into production. I'm not an aerospace expert, but I think sending a rocket, building a rocket ship and sending it up, I think maybe on the fuel alone, you could bring a couple of projects into production. So unless we have a fortunate situation or an asteroid lands on earth, and fortunate if it lands somewhere where we don't care, I don't see how that happens. And if it's big enough, it's a problem as well. It's nonsense. And even, options aside of the deep sea mining for rare earths, I mean, you've got all sorts of environmental issues around that as well. I think we need to look at projects that we can bring online, that can be done so in an economic way, that can be done so in an environmentally responsible way.

Pini Althaus:

I mean, one of the things that we've done at our project is we've got in excess of 60% of the materials that have come out around top, will have a clean green energy applicability to them. So we're using the benign processing method. We're going to be using renewable energy on site. In fact, we will likely be putting a solar farm on site as well. We've talked to a couple of companies that have approached us about that, and we'll be a net producer of power for the surrounding area. So there are ways to do it which don't affect the environment. Obviously if there's a project that's situated on a sensitive area, that's a unique situation for that specific project. We've seen it with the Pebble project, which is not a rare earth project. The Pebble project in Alaska where their environmental concerns is we've been recognized by both Republicans and Democrats, but we have to be reasonable about the projects that don't have environmental concerns.

Ryan Morfin:

So Pini, in season two, we ask all of our guests a series of six questions. They're usually, yes, no questions, but trying to take a survey of our conversations. And if you want to add a little context to the yes or no, feel free, but here goes the first question. If there was a COVID vaccine available today, would you take it?

Pini Althaus:

Yes.

Ryan Morfin:

Who do you think is going to win the election?

Pini Althaus:

Which election?

Ryan Morfin:

The US election.

Pini Althaus:

Well, I think it looks like Joe Biden's going to win it, but I think what happens, if we go past January six from my understanding is that the house will vote on it and it's one vote per state. But I don't know if I see it getting there at this point in time. I really don't have a crystal ball.

Ryan Morfin:

Third question. What type of economic recovery are we in? What type of shape is it taking? A V-shape, W, U, L?

Pini Althaus:

Yeah, I think 2021 is going to be challenging. I think we've been, and rightly so. I mean, we've had no choice as of almost every other country. We've been printing money for the past year because of COVID. And I think we've got to brace ourselves that, at some point in time, the chickens come home to roost. It was a necessary step. People needed it on an individual level. Businesses needed it as well, but I think we've got to do whatever we can to stimulate the economy, give people confidence to go out and work again, employ people. So I think we've got to watch ourselves, especially in 2021. And I have some concerns, but long-term, I think the approach in the United States is a healthy one.

Ryan Morfin:

During lockdown this summer and quarantine, was there anything in particular that you accomplished that you're particularly proud of?

Pini Althaus:

Yeah. A great amount of family time, which, if you would've asked me a few years ago if I could sit at home and be at home for six months, I would have told you absolutely not. I wouldn't be able to do it for six days, but it has... I'm sure it's done this with a lot of families as well. It's brought families together. We had a baby actually last year on Thanksgiving. So I was doing a lot of travel at the time and thought I wouldn't get to see my daughter in her first year or couple of years too often. And being home with her every day is actually been just the most amazing experience. So thankful at least for some silver lining in COVID.

Ryan Morfin:

Are there any silver linings that you see in the economy going into 2021?

Pini Althaus:

Yeah, I think we've gone through an absolute beating and it looks like we've got the ability to come out of it. And I think that's a testament to how strong the economy was built up in the years preceding COVID. So overall I remain an optimist. I mean, we are a country built on opportunity and going out and making it happen. And we're not a socialist country sitting and waiting for people to send us paychecks or wealth distribution or anything like that. I think the American dream still lives on. I think if you go out and you're willing to work and put your head to it and heart in it, I think we do have the ability to climb out of it. So if we look at what the economy is doing over the past few weeks, it looks like it's starting to rebound. And to me, that's assuring because it could go completely one way as well.

Ryan Morfin:

And the last question is, is there anything that you're watching, or listening to, or reading today that has been impactful on your thinking that you'd like to share with our audience?

Pini Althaus:

Yeah, that's a good question. I think it's been more personal stories. The news, I sort of take that in context or with more than a grain of salt. In some cases stay off the news channels for a number of days at a time, it became quite repetitive. But I think on the personal side, talking to friends, my family's all back home in Australia, they've just come out of 110 day lockdown, which we can't relate to that. It's been very trying on them and seeing the fortitude that they've had to come out of that and stay intact. I think the mental health issues that will come out of COVID are going to have a far longer effect than the economic issues. I think we're going to have to focus on mental health issues in this country for a long time to come.

Pini Althaus:

The impact on kids has been significant with regards to lockdown or remote schooling, et cetera. But to see people come through it. I think it's a testament to people in general and to the country and other countries as well, to see got that fortitude and survival instinct to try to get through whatever adversity we can. So hearing the personal stories, the challenges that people have gone through, I think it's made me a lot more aware of things that I have to be thankful for and where we can help out other people as well. I think we have to be united going forward because there are things...

Pini Althaus:

I think one of the things that COVID has shown us is we can get into this complacency and life goes on and we go one day to the next. And all of a sudden we get hit by something that affects everybody equally. I mean, COVID, whilst there were groups of people, whether it was the elderly or people with underlying health conditions, that got hit the worst. I mean, we all got hit in some form or another. So really, this should be something that unites us, not divides us.

Ryan Morfin:

Well, Pini, I appreciate you coming on today to talk to us a little bit about the supply chain crimp on rare earth and we'll definitely keep an eye on it and would love to have you back in the future.

Pini Althaus:

Thank you, Ryan. Thanks for having me.

Ryan Morfin:

Absolutely. Thank you. Bye-bye. Thanks for watching Non-Beta Alpha. And before we go, please remember to like, and subscribe on Apple podcasts and our YouTube channel. This is Non-Beta Alpha, and now you know.

 

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