Modern Monetary Theory & Global Growth w/ Richard Fisher Former Dallas Federal Reserve Bank CEO and President

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Ryan Morfin:

Welcome to Non-Beta Alpha. I’m Ryan Morfin. On today’s episode, we have former Dallas Fed Bank CEO and president Richard Fisher talking to us about his view on global growth. This is Non-Beta Alpha.

Ryan Morfin:

There’s a lot of talk about modern monetary theory. What does that mean to you and do you buy into that?

Richard Fisher:

Well, what it means to me is monetizing the debt and creating inflation. The professor that came up with this [inaudible 00:00:57] comes from Stony Brook University. I have no gripe with Stony Brook University. It’s just too appealing to the hyper-progressives, and I think we have to be careful we don’t abandon the common sense. If you lend money, it has to be paid back. If you lend it, you should lend it at a rate of return that incents you to lend it. And we can’t just take, more important than all of that, we can’t take incentive out of people to work.

Richard Fisher:

My parents came to this country with zilch, just the American dream. My father would have died before taking public monies. And he had some really awful jobs to claw his way up from scratch. So, he used to say, a job gives me dignity. And if you’re just on the Dole, which unfortunately is sort of the ultimate outcome of having a guaranteed income for everybody and a certain guaranteed cashflow, et cetera, which is what we’re talking about here with M and T. I think it takes away what made our country great, which is drive and ambition and reward.

Richard Fisher:

So if they’re talking about a modern monetary theory, which just underwrites everybody, I think it’s a mistake. This is more than just a social correction. This is just dis-incentivizing everybody. I do believe in taking care of the poor. I believe in our Sun Gard employment programs. I wish they were better administered. I do think we need to take care of those who are disadvantaged, but we don’t have to take care of everybody because otherwise there’s no incentive to work. If there’s no incentive to work, you can’t build an economy. You can’t build an economy, you can’t be a powerful force.

Ryan Morfin:

It’s a poverty trap, for sure. So, you think Jerome Powell and the FMMC, they aren’t going to go anywhere near negative rates? You don’t think that the U.S. will ever get there?

Richard Fisher:

No, they would destroy it so much in this country. Again, I want you to go back and look at the banking index for European banks. Banks cannot make money in this environment. In a zero interest rate environment it’s a tough now. It’s almost impossible. You don’t have a trading book and it’s impossible with negative interest rates. Money market funds, what will happen to the money market funds? So, no, I don’t think our capital markets are structured for it.

Ryan Morfin:

I’ve spent a lot of time looking at macroeconomic models when I was at University of Chicago and one of my favorite indicators was the productivity growth metric as a indicator for growth. How do we measure that today? Are we doing it correctly? How do we expand that in the country?

Richard Fisher:

It’s a very good question because I don’t sense that we have a full grip on it. And then remember, we’ve had a change, forgive my economic talk here. A change in the production functioning economy. We’ve gone from manufacturing to a service sector led economy that is driven by electronic means and different forms of communication. Unless people spend all their time looking at their cellphone and looking at cartoons or playing games. I don’t know about you, but my productivity is skyrocketing for the ability we can instead of flying to see you and spending all that time and money, we can have a dialogue right here. This was unimaginable years ago.

Richard Fisher:

So we have a different structure than we had before. I think we’re able to ramp things up better, even our manufacturing functions or our distribution functions and consumer goods for example, are much more efficient than they were before. That would lead me to conclude that output per worker properly measured should be going up, not down or not flat. I do think you’re right, that’s what we should be looking at. The question is, are we measuring it correctly? I think a lot of work has to be done on this.

Ryan Morfin:

You mentioned that the risk of inflation bearing its head over time and we’ve had very low consumer inflation, but I’ve talked to friends of mine who are central bankers in the Middle East. And they’ve said that they’re really quite worried that the inflation has actually been showing up in the stock market, which causes me concern. Do you think it’s been injected like steroids into financial assets and it hasn’t bled out into the rest of the economy? Is there a risk that, that eventually does bleed out into the rest of the economy?

Richard Fisher:

Well, we obviously have the markets, if you’re talking about trading markets, particularly equity markets trading near all time highs. Some would argue we’re trading two standard deviations out of the norm on the high side. And that should correct to some level. Let me just give you the simplest explanation of what we did and then I think it puts us in perspective what we did when I was at the fed.

Richard Fisher:

By cutting rates to zero in the 2008, 2009 timeframe, and then hammering down the yorker through our operation twist and then declaring large amounts of quantitative easing. There was a simple mathematical proposition and it was, you can now discount the present value of future cash flow, which is what all investors should be doing, literally to infinity. That’s the math. And you may recall that we went to zero, we said all the right things and then we started QE one. We took the balance sheet to a trillion, a quarter billion, from 700 or 800. And we did it by the last week of February of 2009.

Richard Fisher:

The S and P bottomed at 666, the devil’s number. So we called it, the book of revelations number. And it’s been on a tear ever since. So this was felt to be important because all the capital markets were strained. There was a feeling that unless we lifted the equity markets from their very, very low levels, that you wouldn’t have an impact on the rest of the economy and it wouldn’t lead to a spur of growth and consumption the unemployment et cetera. It worked. That’s the math.

Richard Fisher:

Now we’re pouring on more money when we’re not at 666. We’re trading at an all time high and we’re trading at highs in terms of multiples as well. So it begs the question, have we hyper inflated these markets and even maybe a bigger question is, but the market is now dependent on cheap money provided or guided by the fed. And what happens when that stops? I would say we are vulnerable here. I don’t know where it ends. We got scared on March 23rd, if your memory of we’ve got hammered. A good time to buy by the way as a trader. But you’re right. I think we have seen that fixed income markets are the same way.

Richard Fisher:

These are the lowest interest rates over interviews with history, for the key marker bonds in the world, the treasuries. So we have had some inflation, obviously, perhaps severe inflation in the asset trading markets. It also is one of the problems with what we did. And even Jay Powell spoke about this in our meetings. When he first came on board in 2012, June of 2012 was his first meeting. That we have to be careful here, that we are creating a put. And if the fed reacts every time that things get weak, then we create a trap for ourselves and we could pull the legs off the table very easily.

Richard Fisher:

And that’s at risk here presently as well. I do find a whole generation. I’m 71 years old. I started a debacle of 1974, ’75 on Wall Street. That’s when I started out there. I’ve seen this several times now, but I’ve never seen the central bank underwrite this degree of pricing and these kinds of multiples before. So to me, that just says at some point, the bigger you get, the harder you fall. We’ll see.

Richard Fisher:

I do think we’re going to have a lot of volatility here. I also believe it is prudent to go back to the old way of investing, which is not just buying markets, which so many young people do that not been in these debacles before, but rather doing fundamental analysis. And if you do, you have some security, as you understand what’s behind your investment.

Ryan Morfin:

Yeah. I believe active management is going to become critical going forward. I think everybody’s over correlated to the index and ETF. And so we’re seeing wealth management advice be really a sought after real wealth management advice be sought after skillset today. One question for you is, what’s a factor that you focus on for macro economic growth models? What’s most important to you?

Richard Fisher:

Do you put a gun to my head and said, you can only talk about one variable. It’d be unemployment claims. Because again, remember what drives our economy, consumption. If people don’t work, they can’t spend. They don’t work, they can’t stay to spend later. So I look at the unemployment stats and unemployment claims, and that tells me a big chunk of what I need to know.

Ryan Morfin:

And does U6, I’d be the gaping out of the U6 number, does that bother you given the jobs numbers on the headline? Look, like we bounce back faster, but the underemployment is worrying.

Richard Fisher:

Yeah. I’m sure that’s a difficult thing to measure right now, by the way, because you’re not sure who’s [inaudible 00:10:39] and who’s not. You want to bring U6 down as much as possible. These are just remind your guys it’s people that are looking for work, but can’t find it essentially or are employable and can’t find jobs. So there also is the risk of disincentive here of getting a job if you’re underwriting unemployment, to the degree, the new steps that have been taken. I don’t know where the right mix is, but I’ve heard business operators saying, “I can’t get people to come back to work because they’re getting more through unemployment now with a $600 extra benefit.” So I think the data’s a little bit sloppy here right now. I’m not sure how bad U6 really is, or it could all snap back once these incentive programs not to go back to work or taken off the table.

Ryan Morfin:

What secular forces or trends should we be watching to determine what the new stable state of the U.S. economy is going to look like? Do you think our supply chain is moving back to the U.S. even though it’s maybe at a higher cost?

Richard Fisher:

I do think it’s back. There isn’t motion to move it back to the United States. But I think the major factor is to what happens in the e-world and the internet and with 5G. We are now used to remote communications and remote work. One of the things we’ve gone through at Barclays, for example, where I’m senior advisor after 911, and I wasn’t there at 911, I was in a previous career. But to take all those people and just aggregate them and have them trade these large portfolios in fixed income and make banking transactions funds was really difficult because you couldn’t have in that downtown. Those downtown buildings in Manhattan, it would have been bombed. Now we have the electronic means to do it.

Richard Fisher:

So it’s not, I think a major thing is happening here. The highly dense metropolitan areas will be depopulated. People will be able to commute from further away. And those that commute from further away may need to have a different educational skill set than what we’ve had thus far. This is a whole chain reaction that works the way through the economy that COVID has accelerated. I think it’s going to happen faster than people think.

Richard Fisher:

I’ll give you an example. Even in China. If you’re buying foodstuffs in China, what you do is you go online, you send a signal to the supplier, let’s say it’s PepsiCo company, I’m on the board of, or X, Y, Z, or B Cherry or whatever the name of the Chinese company is. And then it is delivered to you. It’s called C… Excuse me, O2O, Online-To-Offline. If I believe, if you look at the Chinese statistics of the growth with that mode of delivery system in the last three months, it’s probably accelerated 50 to 60 to 70%. That’s a new way to do things.

Richard Fisher:

So the e-world changes the way we operate, the way we structure, the way we position our workforce, the way we deliver our products, the way we warehouse those that have to be delivered, the way we entertain. There are huge changes taking place in our economy right now and I think a smart investor is going to be able take good advantage of that, which I know is what your guys are going to do.

Ryan Morfin:

Absolutely. Absolutely. So how do we address innovation in the U.S. economy? I mean, we’ve got immigration trends right now that are not maybe increasing our human capital education policy may be failing us in K through 12 and maybe there’s an education bubble and higher ed fueled by cheap student debt. I mean, how do you look at America’s ability to innovate in this e-world?

Richard Fisher:

Well, there is the American way and we always come up with something. You touched on two very important things. So we’re about to wrap up here, but now again, I’m the child of immigrants. I’m willing to bet, you’re the child of immigrants.

Ryan Morfin:

I am.

Richard Fisher:

We all are [inaudible 00:14:43] ultimately. I mean, no one was here originally unless you’re native American. And that has been, the genius has helped drive our [inaudible 00:14:51]. We bring brain power. It could be the Italians that came in to build the New York subway system, which people tend to forget about. It can be the Indians that have come in to help in our high tech sector or the Russians or the Hispanics or anybody, including my parents who came from Australia and South Africa with nothing.

Richard Fisher:

I really do worry that we’re cutting off our nose to spite our face by having a, an indiscriminate immigration policy, but also by cutting it off. This America first stuff, even Donald Trump wasn’t a native American, by the way. So, that’s one thing. And then the second thing, I do think the Achilles tendon here for us is our primary and secondary education system. If we don’t improve that, we cannot compete with the Chinese. When Mao was in power, even through Xi Jinping, there were a total of a million university students in China, and then they were taught Mao thought, which was useless.

Richard Fisher:

If you look at the number of STEM students that they have now, and the effort they put into this and how hard they work and how their incentive to do it. We don’t have that in our country. We may not be able to. We don’t have a central demand command economy, but we have to improve our primary and secondary education system. Unless we do that, we’re doomed. And on that happy note, I just want to tell you, it has been fun for me. Thank you.

Ryan Morfin:

Well, sir, thank you so much. You’ve been very generous with your time and we appreciate you joining us and we hope to see you soon when you return back to Dallas. It is hot down here. So veil sounds like a great idea.

Richard Fisher:

42 degrees this morning. It’s sunny and beautiful.

Ryan Morfin:

Fantastic. Well thank you so much, sir and we appreciate your time. Thank you for watching Non-Beta Alpha. And please remember to leave us a review on Apple podcast and our YouTube channel. This is Non-Beta Alpha and 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:

Yes.

Ryan Morfin:

Who do you think is going to win the election?

Pini Althaus:

Which election?

Ryan Morfin:

The US election.

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

Thank you, Ryan. Thanks for having me.

Ryan Morfin:

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

 

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