Luxury Hospitality, Travel and the Future of Sports Entertainment with Italo Zanzi

Despite the impact of COVID-19 on the luxury travel market, Italo Zanzi is confident in human resilience and the rebound of this market.
Italo Zanzi is the Co-Founder of TrustyLux, a travel firm focused on the luxury hospitality sector that he founded with his wife, Charlotte Zanzi. In the wake of the COVID-19 pandemic, disposable income tends to be limited, in turn people are less willing to spend money on recreational activities such as vacations. As the reopening of our nation approaches, hotels in the luxury sector needs to get ready. Services from third party vendors need to be re-engaged and the staff that has been put on temporary leave needs to be re-hired and quickly brought up to the new standards of cleanliness that need to be maintained.

How Zanzi’s firm plans on marketing itself is reliant on the upper class’ belief in the need to maintain social distancing which conflicts with the social nature of human being’s who are social creatures. Despite the impact of COVID-19 on the luxury travel market, Italo Zanzi is confident in human resilience and the rebound of this market because this is not the first time in history that the human spirit has endured challenges and pressure.

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Ryan Morfin:                    Welcome to Non-Beta Alpha. I’m Ryan Morfin. On today’s episode, we have Italo Zanzi coming to talk to us about luxury hospitality and travel, and the future of entertainment and sports. This is Non-Beta Alpha.

Ryan Morfin:                    Italo, welcome to the show. Thanks for joining us today.

Italo Zanzi:                        On the contrary, Ryan, thanks for having me. Great to see you, and great to participate. Really happy you’re doing this fantastic initiative. It’s a testament to your commitment of not only bringing together great people to share their ideas, but also your own real commitment to intellectual growth for everybody. So, thanks for having me.

Ryan Morfin:                    Thanks. I didn’t pay you to say that, but I appreciate it. Next time, I will.

Ryan Morfin:                    Well, you’ve been working in a pretty cool segment of the hospitality and travel industry, the luxury side, and you’ve done it in a global basis. I’d love to pick your brain a little bit about what was going on before coronavirus in the luxury market for hospitality and travel, and then this happens. What are your view and the people that… your customers, what are their thoughts about how this is going to play out over the next 12 months, 24 months? So, I’d love to know a little bit about TrustyLux and a little bit of what the concept is.

Italo Zanzi:                        Sure. So, we launched this with my wife who is the co-founder, but also came up with the concept, and now is our CEO, about a year and a half ago. So, it’s a very new company. We think a very innovative concept that focuses on delivering very specific and very curated insights for customers in terms of selectivity of the best properties per city, all the relevant details in a much more granular fashion than are provided today. Also, a platform for reviews that are actually helpful. We think that because of the massification of the digital marketplace, that level of authenticity and true one-to-one advice by people who have lived it, stayed there, paid for it, doesn’t exist.

Italo Zanzi:                        So, we were very much in the process of expanding the, let’s say, the profile and the engagement with our company, and then this hit. So, to your point, I think the luxury hotel marketplace is going to be very resilient, but it’s going to obviously have to deal with the shock that it’s living now. I think that comes through in a couple of different ways.

Italo Zanzi:                        First is a very practical one, which is the ability of people to move. So, unfortunately, many of the top luxury properties, because they rely on international guests and travelers, while that can’t happen, then that’s a challenge, right? Secondly, the properties themselves are not running in inexpensive way. I mean, these are luxury properties who by definition, they’re charging a premium, and in order to be worthy of that premium, they are often, or usually, delivering services that have a lot of expenses around them. Whether it’s the gardens and how many people they have to employ to maintain landscaping, whether it’s the investment that’s been made in technology in the hotel, whether it’s the staff.

Italo Zanzi:                        So, that’s a reality on the cost side that so many of these properties have to bear. I can’t really just escape from, because the idea is a bit… it’s a bit of a paradox, but the reality is you have to maintain those things because this could, and hopefully will, subside very quickly. So, you can’t just shut all that off. You can’t just leave a property in disrepair and then turn it on. You have to maintain those things.

Italo Zanzi:                        And then, I think most importantly, there is a very subtle component relative to the ownership of hotel properties, where let’s say 70% of top luxury properties carry international brand that’s attached with them, but very few are actually owned by that brand. Those are mastheads. They are franchise deals, which are done and executed very well. But beneath that, there is a local owner or ownership group that generally owns the physical property and has the responsibility for the finances of that. So, this kind of crisis, unfortunately, could create a situation where that group may have financial issues or challenges independent of what the master brand is.

Italo Zanzi:                        That’s something the consumer won’t see because they will say, “I’m going to stay at brand A, brand B, brand C in anywhere in the world.” They trust that brand, and that’s perfect because that’s actually the model. But if all of a sudden the person who is supposed to make the rent payments or supposed to make all of P&L responsibilities come to bear has issues, which they might, because generally speaking, people are very, let’s say, invested in a lot of things, then that could be a major issue for certain properties, not necessarily for certain brands.

Ryan Morfin:                    Yeah. So, the question in the math, I guess, is, do you mothball? Are people mothballing hotels and turning off entire floors, and then just keeping the maintenance staff in place? Or are they keeping a skeleton crew so that they don’t lose the… Because at a luxury hotel, you have to hire the right person with the right customer skillset who’s got the right look and patience, if you will, for what could be a very impatient demographic of customer.

Italo Zanzi:                        Yeah. Look, I think the groups that we’ve talked to are taking a very measured, appropriate approach, which is they’ve had to put some people on, let’s say, temporary leave, particularly on the sales and growth side, which is a challenge and difficult for everybody. But I think they find that balance of, hopefully, taking care of them. I don’t know the details, but then also keeping the physical property in, at least, working order and kind of become a bit of an accordion in that when they open, they’re ready to go right away. Because what you can’t have is a situation where…

Italo Zanzi:                        Here in Miami, they made an announcement yesterday that the hotels will open first week of June. Well, you can’t be not ready. You have to be ready to go. It’s actually even more difficult because not only will your guests expect the same super standard that they had expected before, but then on top of it, they’re going to expect a level of what’s called health-related or a hygienic curation that was never part of the equation before. They were all super in terms of, let’s say, traditional upkeep, and cleaning, and hygiene, but now with the heightened sensitivity and rules, there’s, I’d say, a technological piece to it. There is a healthcare piece to it. There is a training piece to it because it’s people that have to do these things.

Italo Zanzi:                        As committed as employees all these companies have, they all need to be trained and enabled. So, there’s going to be a bit of give and take. But look, the reality is I think the people want to go back to enjoying themselves. I think that the luxury sector still has a lot of liquidity in it. There certainly are macroeconomic concerns for everybody. So, yes, there might be some pressure against the spending, but at the same time, you do have people who have been locked in their apartments or homes who want to enjoy.

Italo Zanzi:                        So, I think it will be gradual, it’ll start with more local than international. That’s by definition. Right now an American can’t go to the EU, and an EU can’t come to the United States. So, those things, hopefully, will subside and the equivalents of those around the world, but at least the properties will be open. They’ll be running, and hopefully, they’ll be able to scale their operations to a point where they’re economically feasible to survive what, hopefully, will be a onetime crisis. But that remains to be seen. That’s part of the larger question, as you know better than I, in terms of the overall economies as to whether we can find a cure or we can find a vaccine, in which case, I think everything goes back to normal pretty quickly.

Ryan Morfin:                    Well, I think you bring up a good point. Is this a onetime pandemic, or are we moving into the future where the urbanization of all these people in these mega cities is going to lead to more viruses that spread through a globalized world? I’m hoping the global demand get the governments to start focusing and investing on things like this, like consumer confidence around health standards, or going into a hotel room and trying to figure out if you fumigate it or just wipe it down, or do you…

Ryan Morfin:                    I’m one of those guys when I go travel, I don’t like to sleep on the sheets of the… or sit on top of the duvet cover, because they sometimes don’t wash those, total germaphobe. Watching that movie… What was that? Ocean’s Eleven when they’re doing the wand of the room with all those bedbugs, saw that, I was like, “Never sleeping on the hotel bed again.” But yeah, I think that’s going to be top of mind.

Ryan Morfin:                    So, going back to what you said about gradual recovery of the hotel industry, I agree with you. It’s going to be local, like going to the local resort down the street, upstate, downstate,

Italo Zanzi:                        Right, or local flights where even if you lived in Texas, but you went to Florida or you went to California whenever they reopen, you know that you’re still within your own country’s healthcare system, you know you can get back. Because to your point, you never know when something can spike again. So, for at least a little while there’s going to, I think, be also that kind of conservatism and where do I choose to take not only yourself, but your family. So, you’re a father, you’re a husband, and I’m sure like most Americans, you even take a different level of care for those people close to you than you do for yourself that you may take certain more risks.

Ryan Morfin:                    No, that’s absolutely right. We have family in Europe and question is, can we go see them? Well, I don’t know. I mean, could you get stuck there and not see your kids, or not be able to work? That’s a big question.

Ryan Morfin:                    So, a lot of the hospitality companies, rather, we talk to are talking about a 12 to 18, 24 month recovery for the industry. But on the luxury side, I think people have access to private jets and will probably… That market’s turning back on. I know people are starting to fly around the country now for entertainment or for business. They’re trying to avoid the big airports. Are the marketing strategies changing for the high end of the market? Are they going towards more micro-targeted approach locally? How are the owner operators of these high end brands shifting marketing resources.

Italo Zanzi:                        Frankly, I think it’s a little too early to tell. Partly because you’ve astutely identified that even within luxury, there’s tiers of luxury. But I think what’s happened over time is most of the commercial properties, at least in the luxury hotel space, have become, by definition, very large because they’ve been able to tap into both the aspirational, let’s call it entry level of the luxury market, and then the uber-wealthy. So, I think what the challenge will be is they are built for scale. So, even if you have 10 or 15% of their customers that can fly around a private jet, you still do have the lion’s share of them that are, even if they’re very well to do, are flying commercial, and they have the same considerations we just talked about.

Italo Zanzi:                        But these hotels have to have everything firing in a positive way for the environment to actually make sense. By the way, a lot of people who go to these hotels don’t just go there for great food or great service, but they go there for the ambiance, and they go there for the special environment that’s produced. So, it remains to be seen whether let’s call it, a socially distanced hotel experience is actually something people continue to find enjoyable and attractive.

Italo Zanzi:                        I think that’s the challenge also for restaurants. People went to restaurants, not because they can eat something that tastes good. These days, you could have it delivered to your home if you would like. So, the food with the exception of maybe the delivery window is relatively the same. So, it’s a question of, can you replicate the experience? The reason people go there. It can be partly exclusivity, partly social, partly being able to share that with their friends and counterparts on social media. There’s a lot of reasons why people participate in luxury marketplace. Access and, let’s say, the direct service is only one of them.

Italo Zanzi:                        I don’t have an answer for you today, because I think that remains to be seen as the entire process plays out. But I will say that I think barring another collapse in terms of economic pressure, generally speaking, the liquidity should be there, generally speaking, the will should be there. So, I think that if there is a… at some point, we have a relative comfort level that this pandemic from a direct health risk is behind us. There’s always a chance of another one coming, for sure. But if it’s not this one that is front and center in terms of there being a problem, then I think you will have a very fast rebound in terms of people’s willingness to stay in spend.

Ryan Morfin:                    Yeah, I think from a consumption standpoint, if you look at the properties that have isolated villas that are spread out, I think those are going to probably be the ones that come back the fastest. Because I think even in multifamily investing, we’ve done a lot of all the attractions of going into a high end building with all these common amenities. I think you may have a small square footage apartment, but you have all these beautiful amenities. I think people are saying today, “You know what? I don’t want to be around a whole bunch of other people until I have more confidence in the health system. Let me be more [crosstalk 00:15:11].”

Italo Zanzi:                        I agree, but again, I go back to… and maybe this is just a personal thought that people have short memories and people are, by definition, social. So, I think it’s very easy to say, “Yes, people are very happy sitting around by themselves in a luxury villa,” but that is often not why people go and travel. They want to be around other people. They want to see, they want to meet, they want to promote themselves. That’s just part of the human nature these days.

Italo Zanzi:                        It is a little bit of a conflict with, let’s call it, health-related concerns in a very good, well-founded way. But if those health concerns dissipate or they’re eliminated, at least, for the short term, hopefully, science will deliver some level of solution at some point. At that point, yes, there will be certainly some people that take the uber conservative route and say, “You know what, I don’t want to be around anybody.” But in the end, I think people, again, absent a direct risk, will take on that uncertainty and return to the behavioral things that people have been proven to invest in their own time and money. Because there is that old adage, “You only live once,” and I think that that is almost a subconscious way people do live.

Ryan Morfin:                    Yeah, no doubt. I feel bad for all those Instagram influencers who are now out of work. One question for you is, does this, I guess, healthcare hygiene cleaning standards at the big brands, is that a competitive advantage for some of the disruptors like Airbnb that are trying to get into the luxury market?

Ryan Morfin:                    If I’m looking at Airbnb right now… and I’ve talked to friends of mine who have to travel for family reasons, don’t want to stay at a hotel, they’re going through the mental math. Well, at least at a Marriott or a Starwood property, I know that there’s some recourse. If it’s an Airbnb, it’s just… Joe Schmoe down the street has a nice villa. Do you think this is going to put substantial, downward pressure on Airbnb? How do you think that’s going to impact some of those kinds of…

Italo Zanzi:                        I think it can go both ways. I think your point is well-taken in that with Airbnb, you are in a fixed place. Like you, everyday I read different takes on the possibility of contracting the virus through touching surfaces, nonhuman to human contact. If we were two months ago, everybody thought if you touch a door knob, you might contract the virus. Now the CDC says, “Well, it’s probably not going to come through that way.”

Italo Zanzi:                        We don’t know, somebody could come up with a different theory in about a month from now. So, I think you’re right in one way in the sense that the curation of the home would not have that kind of, let’s say, corporate stamp of approval. So, that could be a challenge. But the flip side of that is, if people are focused on just having a more private experience from a human standpoint… Because no matter what you do at a hotel, unless it’s a very boutique hotel, you are going to come in contact with more people. So, you’re going to have somebody who’s going to come and take your bags. You’re going to have somebody who comes and checks you in.

Italo Zanzi:                        No matter how private they try to make those things, there are a series of actual conveniences that are present to the consumer, whether somebody wants to use the gym or the pool. So, I think there’s a balance, and I’m not sure it’s going to swing one way or the other, frankly. I think yes, the question of the reliability of Airbnb in terms of who… Let’s not say Airbnb because it’s unfair to their company, but let’s say private stays that are owned homes will come down to almost a leap of faith or a risk calculation that a consumer makes on that particular host.

Ryan Morfin:                    I don’t know if you touched the luxury transportation market at all, but like jets, private jets. Some brokers we’ve talked to have said that activity levels are way up and pricing is coming way down as a substitute, if you will, for flying in business class.

Italo Zanzi:                        That’s correct. I think that there will be… for those who can afford it, there will be a really strong growth in private air travel. I also see, whether it’s purchasing or renting, the private boat charter business and boat ownership business actually being pretty strong as well. Because, again, it’s about creating a private enclave for yourself, your friends, your family, and trying to create a situation where even if you aren’t safer, you feel safer. So, there’s… how would I say this? There’s a substantive part of that calculation, which by the way, very few people know, and even the biggest experts in the world.

Italo Zanzi:                        And then, there’s the perceived risk, which can be as, or more important. Because if you’re going to be somewhere but have an anxiety that something bad is going to happen or could happen, then at some point, the benefit of doing it is outweighed by that, versus if you could put yourself in a situation rightfully or wrongfully, where you think you’re safe, then you might enjoy yourself. So, it remains to be seen, I think, but certainly those environments where people have some level of separation, some level of exclusivity, I think, are going to grow.

Italo Zanzi:                        Generally speaking, the people at that top of the economic pyramid are less directly impacted by the economic dips associated with this crisis. So, they’re less price-sensitive to what might occur deeper down into that pyramid.

Ryan Morfin:                    Yeah, it’s interesting. A lot of the bookings for carnival and some of the cruise lines have been wiped out this year, but they’re getting pushed to 2021. I’ve also started to see like Ritz Carlton’s going out and you’re doing a new a high end yacht experience for like 10 to 20 couples on a big boat. Are you seeing any uptick in that part of the market or you’ve come across it at all?

Italo Zanzi:                        I think it’s too early. I think it’s too early. People might, interestingly enough, take advantage of refundable opportunities to lock in experiences for the future. I mean, there’s a lot of people out there not only in boats, but in, let’s say, first-class air travel, just locking in trips places at prices that are dramatically lower than they were ever available for with the opportunity to then refund them. And then the hotel space as well.

Italo Zanzi:                        So, I think you do see a lot of people getting ahead of it and saying, “Well, I can get something for 60% of what would have cost previously, and then I could always cancel it.” But to go back to your question, I think, yeah, the more private it is for now, the more attractive it will be. But I would say also that many of those excursions that you’ve referenced are not only a boat trip per se, and boat is probably an insult to the yachts that people stay on. But it’s more about like… they have still to get there, right? So, they still have to fly to a pretty remote part of the world.

Italo Zanzi:                        So, if it’s in connection with a private jet, it’s one thing, but you’re talking about having to go through multiple countries, usually with different restrictions or permissions in terms of entering a country schedules, very finely-tuned connections. Generally speaking, the more exotic it is, the harder it is to actually deliver it and activate it.

Italo Zanzi:                        So, I think there’s a balance between something that sounds great in theory, and then you say, “Okay, well, we have to get 24 hours from where we live with four people and luggage in the middle of a matrix of health-related challenges and governmental restrictions.” So, there’s nothing wrong with planning it, it’s just a question of being conscious that, “Hey, you know what, we got monitor this week by week or month by month to see if it’ll actually be able to happen.”

Ryan Morfin:                    Well, it’s interesting. I used to travel a lot, so I guess I’ve gotten onto some travel lists. So, I’ve started to get marketed by like high end train lines running between major cities now, which I thought was interesting, which was never an option. I never thought… But now I’m starting to consider it. I’m like, “You know what, maybe I don’t want to go through O’Hare Airport, but I need to get to Chicago. How long is that train ride again? How do I do that?” So, it’s going to be [crosstalk 00:24:28]-

Italo Zanzi:                        Knowing you, Ryan, you would you get behind the wheel and drive the, whatever it is, 22 hours with no breaks and way too much coffee, right?

Ryan Morfin:                    Yeah. Oh, no, that’s just true. People are driving longer distances to go be with family. Well, speaking of entertainment, and I said, getting together with family is entertainment. You’re a sports executive, a media executive, you worked at big places, international soccer, major league baseball. Given this environment, we’ve just seen PGA come back a little bit, the Bundesliga in Germany, NASCAR’s coming back on. We’re a very sports-centric culture in the West. Maybe you could give me some thoughts, share some thoughts with our viewers about what is the future of sports? What are the conversations that are going on on sports media? How do we get entertainment back? Because there’s only so much Netflix I can take.

Italo Zanzi:                        I think you’ve probably running out of content, right? No, you’re absolutely right. How would I say this? It’s not about how we can get it back, it’s more question of what’s possible when. I applaud, I’d say, all of the leagues and enterprise in their prudence because the risk of this pandemic goes beyond their P&Ls. They’re bringing people, and families, and children, and all of the people they come in contact with afterwards into an environment that could, unfortunately, create a substantial life or death situation. So, it’s not one to be taken lightly, and thankfully, it hasn’t.

Italo Zanzi:                        That said, as you hopefully get towards, let’s say, the exit phase of this pandemic, it’s that balance between delivering a product to the fans while keeping everybody safe. I think the Bundesliga has done a terrific job. I mean, a really superb job. If you read some of the articles that are out there now about the behind the scenes work the league did in terms of just making sure everybody understood not only how to build the best plan, but that every person within that environment had a responsibility to make sure that the whole system worked because any irresponsibility at any part or any kind of, let’s say, negativity could destroy everything. They’ve been able to give back quickly to people an important part of their lives, which was to be able to watch live sport.

Italo Zanzi:                        Now, while they’ve made tremendous advances, the overall industry has an enormous long path to go. I think you’re going to have a situation where every league is going to have to really dissect what makes sense for them. It’s an extraordinarily complex issue. The economics associated with it, and the fan experience component are somewhat separate but related. So, most of these, let’s say, leagues or properties can go on without fans.

Italo Zanzi:                        I would say if we take a look at the economics of clubs or enterprises, that’s going to be a call that the owners are going to have to make in conjunction with their players or their athletes, because those players and athletes still have health-related concerns, but same time, they want to get paid. I don’t think… If you really cut to a economic core question that really isn’t being talked about is, if a league or an enterprise rightfully weights or floats to make a decision, do players get paid or not? Do athletes get paid or not? Because that indirectly or directly will impact the viability of the overall enterprise and the individual teams.

Italo Zanzi:                        You could argue theoretically that there’s many European football clubs that lose a lot of money, and that if this had happened in May or June, and somebody would have said in July, “We’re canceling the entire season, nobody gets paid their salaries, there is no revenue,” paradoxically, there would be some teams that are better off because they lose money. Generally speaking, 80% or 90% of their costs or direct costs are labor. Then, you have to think of, of course, the player’s interest. Here you have players who are training, making themselves available, even if the games aren’t going on.

Italo Zanzi:                        So, I’m not taking a position, I’m just highlighting the two different realities. So, what is, I guess, the right of sports labor to be paid during holding periods and/or shortened seasons. The answer to that question may actually determine the overall economic result and viability for a lot of clubs and leagues. Then, you’ve got a whole question of what do you do about the fans who want to come see the matches.

Italo Zanzi:                        There’s two pieces to that, or maybe three; what are the clubs and leagues allowed to do? These are the government rules and regulations. What is actually practical given the circumstances of a stadium? You really can’t police the behavior of 60 or 30,000 people once they walk into a place. And then, there is the behavioral desires of fans, which, in some ways, is a bit easier because fans can decide to do something or not do something. They can go to a game or they can not go to a game.

Italo Zanzi:                        I think there’s no doubt that this is going to create economic. There’s no doubt it’s going to create frustration on the part of fans who want to see their teams. I think every league, and every team, and every, let’s say, enterprise is going to have to really look at how do they make the best decision for their circumstances. Because they’re not all the same.

Italo Zanzi:                        Unfortunately, there is an urgency, right? Because you can’t replace time, particularly as it relates to the athletes. The average, let’s say, career of an athlete across sports, if I had to guess, five years. Sure there are some that play 10, there are some that play two, and somewhere in between. So, five might not be the right number, but it’s probably somewhere in there. You have a player that will lose one year of their earnings, that’s 20% of probably the majority of their life earnings. So, that consideration.

Italo Zanzi:                        Then on the contrary, they have their health considerations, and that’s something players have to think about. Then, it’s a question of the clubs. Do the clubs feel like they need to do more for their fans or to protect their fans? That’s almost a philosophical issue. So, I’m not here with an answer because I don’t think there is an answer for every particular sport. There’s different logistical dynamics, there’s different economic dynamics. But I do think by and large, they’ve all been pretty responsible, and not one rushing into creating undue risk for people.

Italo Zanzi:                        But now is the time where there’s a lot of really difficult conversations that are going to be had to be had. They’re not the feel good press release conversations. They are the brass tacks numbers conversations. I think that will start with management/ownership and labor.

Ryan Morfin:                    Yeah, no, I think that is a critical point. So, there was this baseball player, I think in Tampa, a pitcher who was just… I don’t want to say lambasted in the press, but he came out and said, “Listen, I make a lot of money, and I’m not going to go back and play to put my health at risk.” But you just brought up a great point. Well, he’s also putting his economic earnings at risk.

Ryan Morfin:                    So, baseball, I think, is one of those sports where you absolutely have to have fans in the seats because the revenue model is more geared towards that. How is soccer? Is soccer one of those sports you can do… maybe, I guess in Europe and the US is different, but could you… Does Bundesliga make money, which is the TV rights? Is that going to sustain the cost structure of the clubs? Or do you think they’re still losing money as a league to go back on without the ticket revenue?

Italo Zanzi:                        That’s a great question. Look, if you don’t have people in the seats, you are going to have a substantial impact on revenue, and let’s call it ancillary revenue drivers such as merchandising, local sponsorship, in-game sponsorship, concessions, all of those things. That percentage will be smaller the bigger the enterprise is. So, if you go from a division one of any league to the third division of any league, the division one makes a disproportionately larger percentage of their money based on the domestic international broadcasting, whether it’s, let’s say, traditional television or digital and national sponsorship, which can often… you’ll still be delivered. Because a lot of it’s the field boards. A lot of it’s the consumer activation.

Italo Zanzi:                        Maybe that those companies aren’t as liquid to be able to continue those sponsorship. That’s a different conversation we should have in terms of what the supply side looks like. But they still will take a, let’s call it a 15 to 20% hit, if not more, on the gate receipt components of their revenue. And then, as you go down the pyramid, then by the time you get to a second and third division, that’s inverted. Those clubs will take in 60 to 80%, if not more, of their revenue from the gate receipts.

Italo Zanzi:                        So, you’ve got a really challenging problem overall. The key issue for football, I think, is two things. One is what is the agreement with labor? What is your agreement with their players? You almost have to do that on a rolling basis. One of the challenges I’ve seen is a lot of the clubs out there are making these snap deals with their players saying, “Oh, we have an agreement with the player.” Well, how can you have an agreement if you don’t know what the reality is going to be?

Italo Zanzi:                        It almost needs to be a kind of a… In my opinion, it should be a pro rata discussion or, let’s say, formula based on what the relatively reasonable anticipated revenue is, and then what it ultimately becomes. You can’t make a deal if you don’t know if there’s going to be a season or not.

Ryan Morfin:                    Well, it’s interesting question. Can a team in the league… Let’s just go and say Liverpool for… I’m not making names up. Could a team in that type of a league just say, “I’m going to fire all my… because there’s no season, I’m going to fire the rest of my employees and like a reduction in force.” And then when the league gets around to getting back organized, go retry to rehire people and renegotiate all contracts, or that, by the league statute, cannot be a labor consideration?

Italo Zanzi:                        Well, I think if you’re talking about employees as being players, like putting aside not on-field personnel, because I think that’s covered probably more by English labor law than it is by anything else. By the way, player contracts might be as well. The issue would be that the value of players is not only the fact that they play on the field for you, but it’s that they have a very specific asset value to them.

Italo Zanzi:                        So, if clubs started doing that, they would actually create a much worse situation for them because they would effectively release players into free agency that have a seven or eight figure value to them, and it would be actually destroy the underlying economic asset value of the club. So, I think for everybody, it makes sense to come to some sort of agreement. My point was only that I think it’s premature to come to a longterm agreement if you don’t know what the circumstances are, unless you build a contingency that pegs it to the ultimate results.

Italo Zanzi:                        The other thing I would say… Sorry… about football is that you have a large number of clubs that are leveraged and often over-leveraged. So, if you say to a business, “Listen, you’re going to take a hit on 20% of your revenue for four months,” if it’s a business that is liquid, that has reserves, that could adjust costs in different places, whether it’s marketing or labor, then they can manage that probably for even a decent amount of time. But if you’ve got entity that is leveraged and has enormous debt service payments, that can’t get more liquidity because their max out on their debt, then you’ve got a real problem. Then you’ve got a viability problem.

Italo Zanzi:                        The problem in football is that, let’s say, that normalization of standards for clubs and their economic standing is not what it is in US leagues where the leagues take a much more active approach in terms of monitoring and regulating clubs spending, one, and two, economic conditions.

Ryan Morfin:                    Yeah. I think you highlighted the asset value of the celebrity athletes. There’s, I guess, a lot of leverage that the labor has and that side of the labor force over the owners. So, you can’t just-

Italo Zanzi:                        By the way, they’re not always celebrities. These are players who actually play very well. So, if you have a player who you own, or contracted under you for another two or three years, and that player, pre-COVID, has a market value of 30, 40 million euros, well, you’re not just going to say, “I’m going to stop paying this player, and I’ll let them go figure it out.” The player wouldn’t be thrilled. I think he’d probably, rightfully, be pretty insulted, but he would find an employer that would probably pay him more, but you would lose your asset.

Ryan Morfin:                    Speaking of players as assets, just where are some of the best soccer being played globally? Are there some surprising new markets that are opening up in Africa, or South Korea, or China, Middle East? Are there interesting new markets that are popping up from a player development standpoint that you think are interesting?

Italo Zanzi:                        Yeah, I think the top leagues in Europe are always going to be, by definition, attracting the best players. So, I think you often have to look at these kind of questions in terms of are you focused on player development? Are you focused on the actual, let’s say, competition and how compelling the league is? Are you focused on economic opportunity?

Italo Zanzi:                        The Middle East has built out a lot of leagues recently. They don’t have a big following, but they do invest very substantially in bringing great talent there. So, you have a lot of great talent, but you don’t have necessarily an environment of tens of thousands of people in the stadium supporting their club. On the flip side of that, one of my favorite leagues to watch is Argentina. Because you have effectively the stars of tomorrow playing who are as good or better than the ones who are already in Europe, but they’re playing with a passion and a hustle that is unparalleled. Let’s say the passion of the fans and the followers is top in the world than any sport. So, to me, if someone were to say to me, “Tell me what league to watch outside of the top five or six in Europe,” I would say Argentine league 100%.

Ryan Morfin:                    That’s good. I’ll have to check that out. Well, as we look into the crystal ball in the future, what are some things that you’re optimistic about how we’re going through this crisis? Where are some of the silver linings, in your opinion?

Italo Zanzi:                        I think human resiliency is at the top of that list. I think people were and are rightfully concerned about their and their family’s wellbeing in terms of their health and happiness. But I think as time goes on… In reality, if you think of the big picture, you’re looking at so far a couple months of challenge for the world, which is not an extraordinarily long period of time. This is by… Sorry, certainly, I should have started with this… by no means to be dismissive of the horrible tragedy that’s taken so many people’s lives. This has been an absolute horrific situation for so many people around the world, but everyone at some point has to look forward.

Italo Zanzi:                        I think if you look at history and the things that people have faced, or, let’s say, communities and populations have faced in the past, the human spirit has always endured one way or the other, and there’s been a recovery. So, again, if you look at the amount of time that the world and countries have been under pressure, this is still not that long a period that we’ve been in this.

Italo Zanzi:                        Personally, I hope that our collective international minds, people who are much smarter than I, can come up with solutions in terms of treatments and/or vaccines to be able to prevent this. I think even after, yes, will there be a heightened concern about this happening again? Sure. I’m not a scientist, but I think if you did find a cure for this, it’s not that there’s a greater likelihood something else is going to pop up tomorrow. I think that’s the piece we have to get to. I think that’s the hope that most people have that there is a termination point where we say. “You know what, a year from now, COVID is a remote risk, very remote risk, or no risk at all.”

Italo Zanzi:                        Frankly, I think… I was talking with a colleague the other day, I think one of the biggest challenges is going to be when we do have treatments and/or vaccines, this is probably the first time that that will have to be distributed to everybody in the world. So, if there’s seven and a half billion people in the world down to the most remote, to the most neediest, we’re going to have to distribute, and should distribute, the cure or the preventative remedy for everybody in the world. That in itself is a massive undertaking. That in itself, I think, should be planned now.

Italo Zanzi:                        Because what wouldn’t be fair is that we find a cure and everybody’s sitting in New York, London, and Tokyo, yeah, they’re fine, but we leave Africa, Southeast Asia, Latin America to their own devices. Actually, executing that delivery of whatever the solution might be is not easy. There’s a human-to-human interaction there. So, those are the kinds of things that worry me in addition to give me hope that sometime soon we’ll have a solution, but it’s like how do we roll that out?

Ryan Morfin:                    What books are you reading right now, or what podcasts are you listening to, or literature?

Italo Zanzi:                        Non-Beta Alpha. Everyday, all day.

Ryan Morfin:                    There you go.

Italo Zanzi:                        [inaudible 00:44:39] question, Ryan.

Ryan Morfin:                    Checks in the mail.

Italo Zanzi:                        Actually, I’ve taken the time more for personal development of skillsets that I hadn’t had before. So, I’m doing a lot of online training, whether it’s in digital advertising, marketing, trying to learn as much. I’m a bit of a historical war junkie as it comes to YouTube content and stuff like that, so that’ll never change. But in terms of my own development, I’ve always been more about, say, practical application than theory.

Italo Zanzi:                        So, I don’t read a lot of maybe the same books that others do. I try to actually read the synopsis or the opinions of other people on those things that give me the takeaways. But what I actually do is I dig into the plethora of training that there is out there online as it relates to, and particularly in my case, reaching consumers through the different digital tools out there. So, that’s how I spend my time in addition to a lot of other stuff.

Ryan Morfin:                    Italo, thanks for joining the show. We appreciate you coming on. We’d love to have you back in weeks.

Italo Zanzi:                        Fantastic. Thanks, guys.

Ryan Morfin:                    Thank you for watching Non-Beta Alpha. Before we go, please remember to subscribe and leave us a review on Apple Podcasts or our 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 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:


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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