In response to the outbreak, Italy has discouraged citizens from leaving their residences. The Italian government requires that individuals carry government issued permission forms if they wish to leave their homes. In addition to this, they have requested support from the European Union which has just recently been addressed, they closed non-essential businesses, and took measures to ensure that the supermarkets remained well-supplied. The future of Italy is still uncertain, but it is fair to conclude that economic hardship and mass loan defaults are soon to come.
Ryan Morfin: Welcome to Non-Beta Alpha. I’m Ryan Morfin. On today’s episode we have Paolo Ravetto from Torino, Italy calling to tell us a little bit about what’s going on on the ground in Italy. There’s been good news recently out of Italy that the new infection rate is slowing, but the death toll is still growing. And so he is a few weeks ahead of the US, and has been with the rest of his compatriots on lockdown for the last four weeks. We’re going to talk to him today on Non-Beta Alpha. Paolo, welcome to the show. Thank you so much for coming on.
Paolo Ravetto: Thank you. Thank you.
Ryan Morfin: Well, so you’re up in Torino. So what football club do you support, firstly?
Paolo Ravetto: I’m a Torino supporter. That is the smallest football team in Torino, because in Torino we have another one much more famous that is Juventus, but I’m a Torino supporter.
Ryan Morfin: Fantastic.
Paolo Ravetto: We are always making a big fight between the two teams.
Ryan Morfin: I’m sure the league is suspended and I’m sure it’s making people bored out of their minds. I know there’s no sports here in the US and it has slowed down society a bit. Well, we’d love to chat with you a little bit about…
Paolo Ravetto: The league is suspended, but it’s still not finished. They still didn’t decide if the season was finished. They took time until the second half of May to decide if we are enough time to finish the league or not. So it’s still not decided. [inaudible 00:02:07], for example said, okay, the league is finished and we are still waiting to take a decision.
Ryan Morfin: Yeah, I know it’s going to impact Liverpool and the Brits as well. There’s some amazing seasons going on that have been suspended. Well, Italian football is something I watch on the weekends and so I was disappointed to see the suspension, but it makes a lot of sense. So Paolo, you’ve been ahead of the curve. Unfortunately your country was one of the first severely hit. Over the last few weeks you guys have been locked down on quarantine. Also, you work at a commercial bank in Torino. How has your day been affected? Are you still going to work every day? Are you part of the critical infrastructure of employees that go to work? Tell us a little bit about what’s going on on the ground.
Paolo Ravetto: Yes. As you said we are on the top of the curve, but we still have to wait probably a few days to see numbers going down. And now it’s about nearly three weeks that we are on lockdown. We are in quarantine. Everything when I go out in the morning for go to work fortunately, I go by walk because my job is 10 minutes walk from where I live and everything is completely unreal. The streets are empty. If I meet someone when I walk you try to avoid them and you meet the distance. And even when I entered the branch, the branch basically has been divided into two groups. One day one group works and the other group stays at home. And the next day the opposite. And we can’t meet. We can’t mix. So one day I work and one day I stay at home in smart learning or smart training.
When we are in the branch everything is completely changed. It’s completely different. It’s like to work during a war. Basically, we are at war. We are in a war that is a completely unusual war because we don’t know our enemy.
Ryan Morfin: So you’ve been literally going to work. Your bank’s been open. During the first few weeks did people come to your bank and try to pull all their money out? Was there a run to grab cash and currency in euros?
Paolo Ravetto: No, no, no, no, we didn’t. We didn’t have that. In others I heard that someone in other branches ]it was like that happened, but basically no. For sure a lot of people wanted to exit investments after the crash, the crash of the financial market, we had. When I say that I walk in the street I feel like a war. I feel like to be in a war. There’s another war on the financial market and you know better than me.
Ryan Morfin: Yeah, the markets are severely impacted by this. We’ll call it consumer destruction, demand destruction, but we’re optimistic that it’ll bounce back even in Italy, and we’re hoping you guys bounce back first.
Paolo Ravetto: Yeah, yeah, yeah, yeah. Lots of people for sure at the beginning was the panic selling. Most of them want to exit investments, but maybe it’s the worst decision. You have to wait and time will solve this situation.
Ryan Morfin: Yeah, I believe it will rebound here in the coming weeks ahead. One question I have for you since it’s part of your day job, what have your bosses or the company talked to you guys about in terms of touching money and all that? Do you wear have to wear gloves and masks at work or is it not that big of a deal and you guys are distanced away from the customers, the retail customers.
Paolo Ravetto: To be honest the bank just give us a special soap for wash our hands. So, I do it five, six, 10 times per day. If we wear gloves, some of my colleagues are wearing gloves and masks but it is their own gloves and their own masks. What I do, I keep the distance from the clients. Always not one meter as people says three-four meters because I think that one meter is not enough.
Ryan Morfin: I’m with you.
Paolo Ravetto: I have a mask I use sometimes. I have a mask that I use sometimes, but I have just two. So, in 10 days two masks are not enough. But it’s impossible to buy one at the moment.
Ryan Morfin: You know you could be careful, but if you put it in the oven at 158 degrees Fahrenheit it should be warm enough to kill the virus, but you got to make sure it doesn’t go up and flames because some of the masks are flammable. A lot of doctors in the US are doing that. They’re putting their garments in the oven to cook them to kill the virus. You guys are ahead of the curve globally. Unfortunately, one of the first countries to go through this terrible tragedy. Does the general population think that the numbers that you’re going through are the right numbers? Are they believable or is there skepticism based on what you see from ancillary numbers?
Paolo Ravetto: Numbers are completely wrong. When they say in Italy we have a hundred thousand people. In fact it is true, but that maybe one million infected, they didn’t do the test. So, we don’t know if they are infected or not. What is sure is that in Italy we started to die of coronavirus since January. The first official case was in the beginning of February, and the area near Milan at the moment is the worst area. And the doctor of the [inaudible 00:08:43] said that in the second part of January they saw a massive increase of pneumonia in the last second part. About two-three times the normal and probably was already coronavirus. But if we don’t do the test, we didn’t do the test at the time. So no one can say that.
But it’s sure that we start dying of coronavirus since January is true. That probably this virus is born in China since probably November but the officiality went in January. So, the numbers are much, much bigger than the official ones we get from the news and the TV and everything. And the doctor says that the 60%-70% of the people is symptomless. So probably at the moment I have the coronavirus, but I don’t have any symptoms.
Ryan Morfin: You don’t know.
Paolo Ravetto: So numbers is sure are much bigger. We are at the top of the curve. We hope that number is going down, but the lockdown will be still long.
Ryan Morfin: Yeah. I think two days ago you guys had 3,800 new tested infections, and then I guess less than two days ago you guys went down to 1,650. A few days is not a trend, but I’m praying to God that it is going to continue to decrease over time. That’s very interesting about the timeline that people are starting to talk about and starting to look back at data. It would suggest there’s talk out of China that in November there was an issue at one of the facilities, the virology facilities. So we are starting not to believe the storyline that this happened at the fish market in Wu Han.
I think there’s something more of that going on. We’ve talk to a lot of interesting people in Asia about that. So how has the European union, have they been supporting you guys since you guys have been the first ones to go through the crisis? Did the Italian people feel like the EU has stepped in, in a major way or have you guys been kind of on your own to deal with it as an Italian crisis?
Paolo Ravetto: This is another big issue. Until yesterday we can say yes. Until yesterday the European community was completely absent. Italy was asking to make more debt for paying people without work or support companies, but Italy was asking since three weeks, but basically we didn’t have an answer. Just from yesterday something is moving, but I think that something is moving after maybe 30,000-40,000 people. That for me personally, it’s a late answer. It’s a too late answer.
Ryan Morfin: Yes.
Paolo Ravetto: And so we will see what happens in the next few days, but we need to make more debt. We need to change the rules that relates all the countries in the European community. But, yes.
Ryan Morfin: There’s talk in finance circles about doing specialty Corona bonds for places like Italy that have been hit hard and Spain, Greece, and I’m hoping they get the support they need because you’re right. Money needs to get flowed to the people in the community that have not been able to work so they can pay their bills and buy food. Speaking of food and the grocery stores, have you guys had access to food? I mean, I love Italian food. I know Italians love their food. Have you guys had access to good food supply or has it been hard to find food over the last few weeks?
Paolo Ravetto: No, no, no. Restaurants and bars are closed, but we are lucky because in the supermarket we can always find good quality food. We have no problem of supermarkets are always full so for that we don’t have any problems. We have to cook at home.
Ryan Morfin: Yeah. But I think Italians enjoy home cooked food. You’re better at it than us Americans I would say. Well, the political component of this has the Italian government been unified as one government through this whole process, or has politics crept into the conversation on how to deal with the policy here.
Paolo Ravetto: Ryan, when we talk about Italian politics and stuff like that it’s always a difficult field I think. I think that at the moment we have a very good prime minister. That is a person that I’m happy to send abroad and speak about my country, and at the moment the opposition, there’s some people that I really don’t like. And I’m lucky that for the moment our prime minister is managing the difficult situation. And for sure now he is doing things step by step, little things because still we don’t have the total support of the European community. But I hope that in a few days, a few weeks, everything is going to change and we’ll have more freedom about the decision to solve this problem, this crisis.
Ryan Morfin: And so I hear that if you want to go outside to go grocery shopping or walk around, is it true you have to file a report with the police department online or how do you have to get a permit to go outsiders? Is there any truth to that?
Paolo Ravetto: Okay. Everyone that goes outside has to carry with him a little piece of paper that I declare that I’m going out and I can go out for four reasons. For work, for go to make some supermarket shopping, for medical reasons or something very important that I have to go out. And I can do a little jogging but just, this is funny, the four streets around my building. So it’s a bit boring jogging because the panorama is always the same.
Ryan Morfin: That’s more exercise than I’ve been getting.
Paolo Ravetto: Okay. It’s very boring, but if you don’t have this piece of paper the police has always the paper and take you the declaration. If the declaration is okay, you’re safe. Otherwise, you can get a fine.
Ryan Morfin: Are the taking temperatures of customers at retail stores? Have they started doing anything like that like they’re doing in China?
Paolo Ravetto: They start in some areas of that, but for the moment no. In the south a couple of places are like that happened, yes.
Ryan Morfin: What are the local journalists and medical professionals saying? Italy seems to be hit very hard. The way they explain it to us here in the US is that your population demographics, you have a lot of older Italians and they’re more susceptible. Is that the way that they’re describing it to you? Or is there something else going on?
Paolo Ravetto: Eh, no, I think it’s true. I think it’s true. We have a very old population but I don’t think it’s the only reason. But I don’t know what is the other reason. That’s a problem. For example, in Germany they have a lot of infected people, a lot. But the data are less than 1%. We are about 5% of the infected. So it’s a massive difference. It’s a massive difference. We are an old population. Yeah, yeah it’s true, but it cannot be the only reason.
Ryan Morfin: Well, it brings up the next question I have is the health systems are different. And I know in the UK they have a nationalized health system and we’re going to see unfortunately how that fares in a crisis like this. And then Germany has a very distributed model where it’s very decentralized. So they have a lot of independent centers. How has the health system set up in Italy? Is it one system run by one government or is it don by states or cities? How is it organized?
Paolo Ravetto: Okay. Let’s say until about 10 years ago, 10-15 years ago our health system was an excellence in the world and was everything managed by the government, the central government. Then in the last 15 years the staff cut everywhere. And the managing of the health and everything has been divided by region. Italy is divided in 21 regions so it’s been delegated to each region. They start to count the money to match. And now the problem is that we feel bad for intense care and the people with this Corona virus needs intense care. Now we are building new places for intense care. Our care was an excellence. Now it’s no more an excellence. Everything is turning to private like it happens in the United States or in England or in another country. So we have a problem about central healthcare.
Ryan Morfin: Yeah. I was in Europe for part of the financial crisis. Do you think perhaps the European union’s austerity measures that they put into Greece, Italy, and Spain maybe were too severe and they impeded the ability for Italy to continue to stand up infrastructure to really provide for a pandemic like this.
Paolo Ravetto: Yeah, sure. Yeah, yeah. Yeah, I think so. I think so because since the beginning of the European union we are getting poorest and poorest and poorest and poorest years by years. Absolutely. The European community is, let me say, is a German oriented community and a country like Italy, like Spain, like Greece is sometimes in a difficult situation for pay all the interest and everything. For example, Christine Laguard, the head of central European bank a few days ago said when Italy was in complete house about this virus, Central Bank is not here to manage the spread between the Italian bonds and German bonds. So, the spread went up to the stars and our stock exchange market lost 17% in one day. And then after a few days she said, well, maybe I was a bit wrong, and that’s the reason, that’s the reason. Everything is German oriented in the European community.
Ryan Morfin: Yeah, I believe this type of a crisis will probably wake up politicians and policymakers and the population about maybe redefining what those relationships look like. I think it’s going to be an interesting the day after this has passed us, it’s going to be an interesting economic conversation for people to have about how much control they’ve given to a Federalist body versus state’s rights. But it’s interesting. So the European banking system has been living with negative interest rates for a while. A lot of our people in America, we just can’t wrap our heads around negative interest rates. Maybe you can explain what that means. Is it customers pay the bank to keep their money there. They pay them an interest rate to keep the money safe, or how does negative interest rates affect the Main Street Italian consumer?
Paolo Ravetto: Yeah. The negative interest the only effect is that if you had a mortgage 15 years ago you pay 10% interest. Now you pay 1% for a loan so you would pay 15% and now you pay 4% for loans. And the gain of the bank related with the interest is very low. If you see the balance of a European bank, the end of the year balance of a European bank in the last two years, the commission part is higher than the interest part.
Ryan Morfin: Interesting.
Paolo Ravetto: And this never happened in 500 years history of banks. It never happened.
Ryan Morfin: And have you seen any increase in loan defaults? Obviously they’re coming. They’re coming globally because of what’s happened to the economy, but before we were getting into this crisis at the end of 2019, how was the credit market in Italy? Were you starting to see more defaults in the market or was it still pretty good growth going on?
Paolo Ravetto: No, we had a lot of defaults maybe related with the crisis in 2008-2009. So the bank had a lot of defaults from 2008 in the next years. But in the last two-three years they have been able to clean all the balance from these defaults. But now probably they have started to have other in their balance. So, since before coronavirus all the banks they’ve been able to clean all the bad part of these loans. But with this crisis for sure they would have others.
Ryan Morfin: Yeah. This inability to go to work and an inability to go out and consume is going to put a lot of companies under severe pressure. And what has the government done?
Paolo Ravetto: You can imagine the tourism in Italy now is zero. Zero.
Ryan Morfin: That’s unfortunate. We have some friends who were trying to go there right before you guys shut the country down and I was trying to tell them not to go because you don’t want to be stuck there if there’s a problem. Thankfully they didn’t go, but a lot of people were literally getting on flights almost ready to go to the airport and take off up right up into the day you guys closed the country.
And so I’m sure people will be coming back to Italy. You’re going to have an avalanche of people once we figure out how to treat this virus because I think people are waking up to the fact that maybe tomorrow doesn’t come and you better seize the day and go on vacation and stop working so much. I think that’s one thing that’s kind of paused people is the fragility of life.
Paolo Ravetto: That will happen for sure, but at the moment I can’t say when.
Ryan Morfin: Yeah. It could be up to a year.
Paolo Ravetto: Yeah. To be honest, I’m more afraid about this virus. I’m a bit more worried thinking about the future then tomorrow, what is going to happen tomorrow? Now I’m much more afraid and worried about the future than today. What’s going to happen today or tomorrow. So I hope that what you said will come soon.
Ryan Morfin: Yeah, I think we’re in choppy waters. I think it’s going to be several waves that come through the global system. I mean Africa is just starting to get it and that’s going to come. South America is just starting to get it. It’s going to come back to us. So we’ve got to find a permanent viral treatment or a vaccine so we can share it to the world.
Paolo Ravetto: Yes, yes, yes.
Ryan Morfin: So the question I have for you too, is what food do you like besides Italian food? What is your number two favorite food because I’ve never met an Italian that says Italian’s not his favorite. What’s the number two favorite food?
Paolo Ravetto: Maybe let’s say the Oriental food because it’s very different from our foods. So they have a different taste. So maybe Oriental food. I don’t want to say Chinese because I really like even the Taiwan. No, the Tai food.
Ryan Morfin: Absolutely.
Paolo Ravetto: I’ll say Oriental.
Ryan Morfin: Interesting question. One of the storylines that I’ve heard from people about trying to figure out how it got to Europe and is there any truth or is there any conversations about this that it was the Milan fashion show that had brought all these people globally together and did the virus epicenter start in Italy in Milan or what part of the country did it start in? And what’s the conversation around how, it first popped up in Italy?
Paolo Ravetto: Okay. Yes, the area around Milan for sure at the moment is the one with the highest number of cases of coronavirus. More than the Fashion Week that for sure was the exact thing in those days. And there’s a city near Milan that is called the Bergamot where there was a massive number of people because the football team of Bergamot had an historical result in the West League against Valencia, a Spanish football team. And they played in Bergamot so there were thousands of supporters that had two days party in the street with thousands of people in the street. And so Bergamot after two weeks was really the worst city in Italy. I saw something on TV that, for me, will be very difficult to forget because Bergamot is a city of about 100,000-120,000 people. It’s a little city.
And in a week they had more than one people died so there was 1,000 coughing to manage. And there was a so big number that they called the army. The army arrived with trucks and there were images of the line of trucks of the army full of burials to bring out of the city. When I saw that I said wow.
Ryan Morfin: That’s a sobering moment.
Paolo Ravetto: Yeah, yeah. The unofficial week football results and a lot of… Milan is always a couch. Many any image even in New York. There’s thousands of millions of people walking in the streets every day.
Ryan Morfin: Did you guys have a lot of trade or a lot of business with China because it popped up in China and then it popped up in Iran and then it popped up in Italy. What kind of economic or travel relationship with Northern Italy and China exists? Is there a very strong tie?
Paolo Ravetto: The relation we have is all the made in Italy. It is not just fashion, it’s furniture, quality in general. Everyone likes made in Italy so we have strong relation with a lot of countries, yes.
Ryan Morfin: Yeah. And speaking of Russia sent doctors and hospitals supplies. Was that, was that meaningful or was it political meaning did they really step up and, and send doctors to get involved in taking care of patients or was it just a cargo plane full of supplies?
Paolo Ravetto: Okay. First of all we have to say thanks to each country that helps us. The first thing you have to say is thanks. If we talk about Russia we have to specify something, because Russia didn’t send doctors. Russia sent a special corps of the army trained for bacteriological war. China sent the top they had. Someone says that most of them are doctors from the army against the bacteriological war and like that. But a lot of them are secret agents from in Italy to check out how is the situation.
It’s something a little bit strange. People are talking about that. I don’t know the truth but first of all we have to say thanks because they are working for us. There’s some political reason in the back that we don’t know too.
Ryan Morfin: I think any help, any anybody who’s willing to put the gloves on and help out at a hospital today is a hero. So take all the help we can get. New York City is the same way.
Paolo Ravetto: They are more than doctors. They are special forces.
Ryan Morfin: Yeah, they’ve also sent, the doctors would have been enough. They sent this the special forces doctors. In New York they also sent some supplies as well and they’ve been helping out where they can. It’s good and hopefully some of the world leaders start to look at this opportunity as a way to get past differences and focus on helping each other through this crisis.
Because I don’t think we’re anywhere near out of the woods yet unfortunately. Well Paulo, I really appreciate you joining us today and talking to us about what’s going on in Italy. I’m optimistic that you guys are starting to come down from the peak and we’ll be watching and praying for you guys and thank you so much and stay safe.
Paolo Ravetto: Okay. Thanks, Ryan. It’s been a pleasure to talk with you and a big hug to all the Americans.
Ryan Morfin: We love Italy in America, yes. Everything will be okay. Thank you so much. Have a great day. Bye bye.
Paolo Ravetto: Okay. Bye bye. Thank you.
Ryan Morfin: Thanks for listening to Non Beta Alpha, and before we go please remember to subscribe and leave us a review on Apple podcasts or YouTube channel. This is Non Beta Alpha. Now, you know.
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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 Morfin: Pini, Welcome to the show. Thank you for coming on today.
Pini Althaus: Thank 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 Althaus: Yeah, 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 Morfin: And 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 Morfin: And 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 Althaus: Yeah. 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 Althaus: We 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 Althaus: So 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 Althaus: Yeah, 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 Althaus: But 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?
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.
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?
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.
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.
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?
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.
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.
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.
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.
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.
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?
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.
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.
How does Europe solve for these problems? Do they have this better under control than the US?
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.
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?
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.
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.
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?
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.
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.
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?
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.
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.
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.
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?
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.
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.
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?
Who do you think is going to win the election?
The US election.
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.
Third question. What type of economic recovery are we in? What type of shape is it taking? A V-shape, W, U, L?
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.
During lockdown this summer and quarantine, was there anything in particular that you accomplished that you're particularly proud of?
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.
Are there any silver linings that you see in the economy going into 2021?
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.
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?
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.
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...
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.
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.
Thank you, Ryan. Thanks for having me.
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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