Non-Beta Alpha Clearing Week: Peter Dorsey Managing Director, Institutional Sales TD Ameritrade

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Ryan Morfin:

Welcome to NON-BETA ALPHA. I’m Ryan Morfin. On today’s episode, we have Peter Dorsey from TD Ameritrade, talking about what advisors need to do today in the do or die moment to grab on to technology and scale. This is NON-BETA ALPHA.

Ryan Morfin:

(music)

Ryan Morfin:

Peter, thank you for joining us. We really appreciate you doing the show.

Peter Dorsey:

Thanks for having me, Ryan. Pleasure to be here.

Ryan Morfin:

Well, TD has been on hypergrowth mode hence the MNA. But we’d love to pick your brain about just kind of some of the macro trends that you see in wealth management today given the volatility we have in the current economy.

Peter Dorsey:

There’s a ton to talk about Ryan. So I don’t know where you want to start, but I’ll throw out one that I think is really kind of metamorphosizing in this business and it’s technology. And as we kind of look at some of the more successful advisors out there, I kind of see a common thread between a lot of them and it’s embracing everything that they can to do a couple of different things. When you talk about growing a firm, it’s how do you use technology to capture them in the pipeline at a lower price point so it becomes actually scalable and efficient to attract those prospects and those high net worth families. The second thing is the coming intergenerational wealth transfer.

Peter Dorsey:

I’m sure you saw the Cerulli Report, but over the next 25 years, $68 trillion is going to change hands. It’s a lot of money and it’s a lot of time. And it’s just interesting to watch how some of these FinTech firms are starting to disrupt the independent space where we disrupted the wirehouses 20 years ago. And the most successful advisors, they really have to start to look at those new wealth creators and those people that are inheriting the money because they have very different opinions of money, philanthropy and what they want from an advisor. And so I think that’s probably the biggest trend. There’s obviously several others, but we can start with that one. It’s massive.

Ryan Morfin:

And I call it the FinTech wars. I think a lot of these FinTech companies are starting to vertically integrate. You saw what happened with Orion starting to put the tax stack together. Do you see that the FinTech companies that are going to emerge are going to be the ones that grow through acquisition or do you think it’s still early innings for new disrupters to come into the space?

Peter Dorsey:

It’s not too late for new entrants to come in, but that window, it’s shrinking every single quarter. And the problem is that a lot of these firms, whether it’s the TAMPs acquiring other TAMPs or TAMPs are acquiring other pieces of technology or investment management, they’re getting to scale really, really quickly. The problem for some of the new entrants is it’s tough to get to scale just growing organically. So I’m not saying it’s done for some of the new entrants, but it’s getting really hard because you see some of these mega mergers.

Peter Dorsey:

In fact, I saw one yesterday, you guys probably saw too with FormulaFolios is merging with Brookstone and that’s going to create a six and a half, I think, or $7 billion TAMP. And we saw what happened with FTJ and Orion and there’s countless other examples. With Buckingham and Loring Ward. I mean, the list goes on and on. And so you start to look at these things and everyone’s kind of chasing Envestnet which is king of the street in the TAMP world. And it’s hard to compete from a pricing and a service perspective as a new entrant. So it’s not too late for some of you newcomers, but the window, it’s getting smaller.

Ryan Morfin:

And from the custody standpoint, from that optic in the industry, do you potentially view some of these FinTech companies as potential rivals in the future?

Peter Dorsey:

That’s a great question. Right now, no. I mean, so we work… and I’m not just speaking for myself as someone who works for TD Institutional, but as an industry, as the custody industry as a whole, they’re not. They’re very much filling a void that we don’t do from a custody perspective because most of us want to embrace that choice, autonomy, whatever you want to call it, independence, open architecture. And they’re filling that void. Whether they choose to do that in the future, I think is a question that remains to be answered, but we really don’t… or I should say, I don’t really look at them that way. They’re actually very much of a complimentary partner in most cases. Having said that, you also have to look at, if you kind of broaden that lens a little bit, you have to look at betterment, you have to look at personal capital and the effects that they’re going to have, maybe not in the immediate future, but one of the effects that they might have in the next three to five years. It could be a force to be reckoned with if you’re an advisor.

Ryan Morfin:

No. And I think advisors need to think about some of the business models that some of these FinTech companies have, whether it’s to displace them in the future from their clients or create a wedge between that relationship. And then the second thing is just looking at the transparency probably needed in the industry because a lot of these companies are privately held of, is it owned by competitive RA or is it owned by competitive broker-dealer? Or who’s in the cap table? Is it just venture capital? Is it a clean tech company or is there some folks kind of hidden in the cap table? As those questions start to become front of mind, as they should in my opinion, I think it’s going to be very interesting to see kind of where there may be a perceived conflict of interest in some of the aggregation strategies and the vertical integration. I think when you look at cap tables and you start to see people’s strategies unfold and it’s something we’re starting to pay attention to because some of the FinTech companies, I think, are wearing multiple hats without putting that on their marketing materials.

Peter Dorsey:

I think you’re right on that, Ryan. When I talk to advisors today, I don’t hear them a lot say, Hey, I feel threatened by some of these robos or artificial intelligence or what have you. So I’m not hearing that right now. I think that will be a different answer if you and I are having this conversation in three or four years, it might be a very different answer. But what I do see is that they’re forcing the traditional advisor, your human advisor, to add more services. So you can get away with your current pricing arrangement because the end client that you’re serving, they may not leave you for a robo at least entirely, but they might start to use them. It’s a foot. It’s a wedge in the door. It’s a foot in the door I should say.

Peter Dorsey:

And , what we’re starting to see is these end clients, they’re not as price sensitive as people think that they are, but they are very much value sensitive. Meaning, they might continue to pay your current fee when you compare yourself to some of these robos, but you better be able to justify it through means other than investment management and whether that’s tax planning, whether that’s wealth management, intergenerational wealth transfer. You have to add more services there. And so that’s the immediate repercussion that I’ve seen.

Ryan Morfin:

And we’re starting to see, we’ll call, a rotation out of index and a rotation out of some of these, we’ll call, mutual fund ETF strategies into more active management. I don’t know if you guys are seeing that as well in a lot of the advisors you talk to?

Peter Dorsey:

I would say that we’re actually seeing something a little bit different. The OCIO, the outsourced chief investment officer is actually starting to grow on our platform. So it’s new. But I think for the most part, RIA, which is the majority of our clients, they kind of look at investment management as, it’s table stakes at this point. And being able to separate yourself with performance versus a benchmark is really, really tough to do. And those who can do it, it’s expensive. So we are starting to see more and more folks move towards outsourcing their investment management, that OCIO model and allow them to concentrate and use those resources on different things.

Peter Dorsey:

So we are starting to see that trend starting to peek its head a little bit and have folks kind of turn to say, listen, it’s just not in my wheelhouse. It’s too hard. My clients don’t really understand it. They think they understand risk reward. I have this signed investment policy statement that says they want this balance. And then when I have a performance review, it doesn’t match up with their expectations. So we are starting to see that happen a little bit more and people outsource that investment management.

Ryan Morfin:

And again, if you’re going to go active, you’re going to need to have a really robust tech stack to compete in today’s fundamental analysis. It’s a different world than it was 10 years ago. Totally agree. The scale though, some of these TAMPs, that if we’re just going to stay on that for a moment, how much more MNA do you think there is and does that start to limit the number of choices people have to allocate assets to?

Peter Dorsey:

It most certainly does. And so what happens is when you have fewer players in the game there’s less choice and it’s harder to compete with those folks. So I think you’ll be left with a handful of pretty large significant players in the temp space. And they’re really starting to kind of take a look at some of the traditional e-brokers, if you will, and look at those as kind of competitors. And speaking of one that I’ve seen out there who shall remain nameless, they just launched a TAMP like platform. And so a lot of the TAMPs and I’m hearing from them directly that they’re looking at some of the e-brokers out there like they’re competition. So that’s starting to happen as well. But when you have less and less choice, pricing then gets called into question in terms of what’s going to happen with your economics and your price point.

Ryan Morfin:

And so TD has been one of the leaders, recent years, pulling folks out of the wirehouses into the independent channel. What do you make of the Morgan Stanley E-Trade deal, the Goldman Sachs Folios deal? What are the wirehouses thinking at this point as it relates to competing with the independent model and maybe competing with the custody firms as well?

Peter Dorsey:

So I think that’s the essence of one of the benefits that we’ve had. And I would say, just not speaking for TD, but as an independent industry, it’s hard to argue there’s been a more beneficial trend-

PART 1 OF 4 ENDS [00:11:04]

Peter Dorsey:

It’s been a more beneficial trend for us than people leaving the wirehouses, that journey to independence. And so when we talk to folks like that, sometimes they tend to do a two step and they’ll go from a wirehouse to an independent BD all the way to an RIA. And so when you look at that, a lot of, I think the wirehouse execs, I’m not speaking for Morgan Stanley specifically, but they think that the RIA independent model, I mean, they crush independent thinking. I worked at two of them. I know it. And it leads to this perception that the RIA space in that platform is limited, and that’s not true. But when you look at their platforms, they’re pretty robust. And so you have this kind of juxtaposition where folks are leaving because they really want, for the most part, two things; they want equity and they want control.

Peter Dorsey:

And when we talk to people who are leaving wirehouses, those are the two main things that they’re looking for and those are certainly things that you can deliver on in the RIA space. Onto your first question, Ryan, I think you look at some of these again, continued mergers on Wall Street. What I would say is that you’re now starting to see Wall Street kind of dip its toe into the RIA space, which we hadn’t seen in the past. They kind of have always shunned at the independent RIA model and I think with those two acquisitions that you just mentioned, it’s kind of proof positive that Wall Street’s getting into this space because it is the fastest growing segment in wealth management.

Ryan Morfin:

Yeah. And that’s interesting. And I think it’s going to be very interesting, like the Goldman, United Capital deal, how the private wealth guys at Goldman interact with, we’ll call it the independent arm United capital. It’s going to be interesting to see how that integration works. We’re watching that very carefully to see if the wirehouses can convince the independent minded folks to tuck back into another wirehouse. So it will be fascinating next six months, I think for those folks in New York.

Peter Dorsey:

Yeah. I’ve been watching that very closely as well. I think all of us are, and it’s fascinating actually to watch. You grab your popcorn and you kind of say, I can’t wait to see how this movie is going to end. But I look at someone like a Raymond James, they’ve kind of already proved that omni-channel model doesn’t necessarily cannibalize. So what that means to advisors, to the independent advisor is, in my mind, the implication is you got to pick up your game a little bit and you’re going to have to think about different ways to bring value to your high net worth families. So there’s my two cents on that. I don’t think it necessarily will cannibalize their existing broker business.

Ryan Morfin:

And how does TD think about this kind of Race To Zero fees on someone stock trading for folks going online, and the industry is followed, right? Versus what the advisors have to pay in terms of ticket charges. How does that no fee environment on one side foot with the conversations you have with advisors that are coming over to the platform because of the assets on that side.

Peter Dorsey:

So when you look at kind of a legacy Wall Street model, and I’ve done this because I’ve looked at and gone online and looked at their fee schedules, and they’re drastically different than what you would get in an ebroker environment. My personal opinion on this Race To Zero is it actually muddies the water of transparency, because just because the end client necessarily doesn’t see the ticket charge or the fee, doesn’t mean that it doesn’t cost them something. So it’s out there and the industry, at least from a ticket charge perspective in many places has gone to zero. Some have held the line, but the majority of folks are moving. We certainly did. And what I say and what I hear from advisors is it actually muddies the water. So they have to go through and explain to clients, well, how are these firms making money? And if you’re not making money, how can you support my business and reinvest, and how are my assets safe and secure?

Peter Dorsey:

People have to make a reasonable profit. So you look at, in one of the examples that I use with a lot of advisors when we’re having this conversation, is these firms, they have to monetize things. And it’s just like Facebook as an example, you think it’s free until you realize that whatever social media platform, you think it’s free, but they’re monetizing and selling your data all over the place. And so just because you don’t see that cost, doesn’t mean you’re not paying for it in some way, shape or form.

Ryan Morfin:

Yeah. No. And the evolution of the pricing model, I mean, is still very dynamic. I mean, where do you see the pricing model for RIAs and broker dealer advisors going? I mean, how do you see the pricing model evolving in the future, I guess?

Peter Dorsey:

Yeah. Look at this. So we publish on a semiannual basis through one of our subsidiaries called the FA Insights. We do a benchmarking study. And what we have seen is that the advisor fee, at least in the RIA space and the independent registered investment advisor space hasn’t moved that much. I think on average, if you look at across all of our entire business, it’s about 89 basis points. I could be wrong, but it’s pretty close to that, give or take, and it hasn’t moved that much. And so when we go out and we do these consulting agreements with these advisors, it’s one of the biggest questions that we get asked. And our answer is always this, which is, you don’t necessarily have to lower your fee because that’s going to just cut into your business and your margins forever.

Peter Dorsey:

And once you do that, it’s also very difficult to go backwards. We have seen a handful of firms actually raise their prices, which is a whole another topic, which I’m happy to discuss. But I don’t see it moving all that much, but what I do see, the pressure coming in is if you are an advisor and you’re sitting there and your value proposition is tied to investment management and maybe some light financial planning, you’re going to have to add a lot of services because it won’t happen overnight. But I think as long as the independent advisor can constantly add services to the high net worth families, I think that the fees that they’re charging can remain relatively stable.

Ryan Morfin:

That’s very interesting. So are we moving more to like a Singaporean, like family office, private bank model? Is that where you think the industry’s going?

Peter Dorsey:

It could, and that might take some time. If you look at the demographics, the average age of an advisor is about 58. So I don’t know if those folks are going to change overnight, but we do see some newer pricing models emerging. And so some of the brightest advisors that I’ve talked to, it’s not really an asset game anymore. If you kind of look at the problems that a high net worth family has, it’s a balance sheet approach. And that shift goes from just managing their assets to managing their assets and their liabilities. So that’s something that I’ve seen, not a lot of people do, but some of the brightest people that I come in contact with, I’ve heard that over the last couple years, which is, I’m not interested just in managing your assets, I want to manage both sides of the balance sheet. And there’s been, I think, rumors out there for a long time going to a flat fee and a kind of a consulting agreement.

Peter Dorsey:

I haven’t seen a lot of that at all. People are, for the most part, sticking to the traditional piece schedule of assets, but you can’t really tie your value proposition to that anymore. But we are starting to see, again, those folks shift from an assets only approach to more of that balance sheet type of approach, where they’re looking at your liabilities and your debts. What does your mortgage look like? What’s that interest rate at? And not to mention, where the interest rates are, the 10 years at. I don’t know where it is today, but give or take, around 150 basis points. Where’s your mortgage at? It’s probably not very high if you haven’t refinanced, and can you go out and outperform that? Those are the type of conversations that we see some of the more successful advisors having.

Peter Dorsey:

It’s not just performance. That’s important, but again, end clients, for the most part, don’t leave advisors because of performance, they leave them for a couple of other different reasons, which again is a whole another topic.

Ryan Morfin:

So in this new environment that we’re in, I think people are falling into one or two categories. They’re either really actively executing on a digital marketing strategy to pick up new assets and leads or they’re sitting on the sidelines. What are some of the best ideas or kind of the thought leadership you’ve come across in your conversations about getting back into the game for advisors?

Peter Dorsey:

Yeah. Well, I think whether folks like it or not, I mean, you and I are doing this over a Zoom call, which is great. But I think this does have an implication. The whole shelter-in-place has had a massive implication on this business and nobody asked for it. But I think one of the outcomes of this is it’s going to relinquish the myth that clients, they actually want to see you in person, they don’t necessarily need to. I think for the most part, what I’ve heard from advisors is, their end clients, they’re happy to meet with them in person and in many cases, they find that to be more convenient, which leads to the implication, if I was an advisor and I’m not, but if I was, is you can use technology like you and I are doing right now to capture prospective high net worth families that aren’t in your zip code, or quite frankly, aren’t even in a 30 minute drive of your house, and start to use these digital tools to go out to acquire and acquire at a low price point, so it doesn’t cost you a lot of money to bring in new folks.

Peter Dorsey:

The second thing that I would say on this in general, it’s hard. It’s really, really hard to grow a business. And what I would say is some of the more successful firms that I’ve seen, they’re in the business of not necessarily pursuing the next high net worth family, but they have a value proposition that’s so strong that they’re attracting people. And so when you look at this in a sense of, you’re not chasing the next prospect, which I’m sure a lot of you folks who are listening to this do, you need to think differently about that. You need to think about, why am I always chasing a high net worth family? I need to start to rethink my business, and how do I attract? The power of pull. And that starts with your value proposition and kind of how specific you can get, what you want your ideal client profile to look like.

Peter Dorsey:

I get it. When you start a business, people are willing to hire you. You’re going to take them, but as you get more mature in your business, it’s okay to be a little bit more selective and have that ideal client profile so specific that you attract people instead of going after them.

Ryan Morfin:

Well, and you mentioned something there about building your book into an ideal business versus a practice. And what are your thoughts about the MNA of these RIA businesses? Do you think there’s going to be a-

PART 2 OF 4 ENDS [00:22:04]

Ryan Morfin:

The M&A of these [RIA 00:22:01] businesses, do you think there’s going to be a forward-looking downward repricing of RIA assets? Do you think it’s going to stay the same as it was in 2019? What are your thoughts on how people are looking at valuations today?

Peter Dorsey:

Yeah. Valuations they’re not going down, they’re definitely going up. And it’s kind of what you talked a little bit, [inaudible 00:22:22] in the [inaudible 00:22:23] space, there’s a lot of buyers and there’s not a lot of sellers. And so, it doesn’t really take an economics major to do the math on that one. The prices are going high, so evaluations are definitely… They’re frothy right now, and it’s… A lot of people are attracted to that for sure, and it’s super important. The other thing that I would just implore people to look at is, valuation is obviously important, deal structure is really important too, are you getting a hundred percent cash? Probably not. Are you getting 25% cash and 75% equity? Maybe.

Peter Dorsey:

But that’s really important too. And I think it gets overlooked a lot because people get tied into this, my multiples is this, my top line is this, and if I just do this multiple this is what my business is worth, and it’s absolutely not true. I can look at two businesses of say $200 million in AUM, both doing similar top line, and value them very differently, just depending upon the demographics of the end client, how many clients they have, there’s a lot of variables that go into that. And so, when you look at those two businesses and they’re both doing the same top line revenue, and one has an average client that’s 48, and the second business has an average client that’s 68 or 78, smart sellers are going to realize that, they’re really going to dive into that, and it is going to push down the level of business B in relation to business A, because they have different demographics so they have fewer households. So, a lot of people overlook that.

Ryan Morfin:

Yeah. I know, it’s definitely the composition of expense structure and then the end client book is really showing to be a wide variance of evaluations [inaudible 00:24:15]. One other question for you is about, when you’re building out that book and you’re building out that business, can you maybe talk a little bit about the importance of that second generation and succession planning for that kind of depth of bench?

Peter Dorsey:

Yeah, really important. So, when we look at the talent in RIA space, and this goes back to Wall Street who’s playing into this game now too, there is a massive war for talent and trying to attract and retain top talent. And so, when you… If you’re a typical advisor and let’s just say you’re 68 years old, some of the junior advisors, if you will, they may not have the money to necessarily buy out some of the senior partners. So, we have seen some lending, some outside lending sources come in to lend to those junior level advisors to kind of buy out the succession, because there are a handful of firms who don’t want private equity, they would prefer to keep the ownership structure intact and keep it within the advisors and the employees that built that firm, it’s really important to them really as a core tenant.

Peter Dorsey:

But it’s something that we will pay a debt as an industry if we really can’t figure that out, because I think there’s a massive need, and I think a lot of the junior advisors that you talk to, they want to be able to do this, is just that they can’t afford it. Because they’ve built this business pretty successfully over 10, 15 years, and so if you started at that firm when you were 25 and you’re now 40, you’ve seen massive growth, in terms of organic growth, maybe an acquisition or two, the market certainly has appreciated, so the values have certainly risen.

Peter Dorsey:

But you’re 40 and you might have a kid or two, and you might not have a couple of hundred dollars burning a hole in your pocket to buy out some of these firms, and it could be more than that. So, we are starting to see that, and it’s something that I think as an industry we really have to figure out because there’s of course certain amount of private equity, but there’s only a fixed amount that can go around in that sense. So I think we really have to figure that one out as an industry and figure out how we can kind of pass that baton on internally.

Ryan Morfin:

And there’s been some recent changes to the industry with the launch of Reg BI, how are you guys looking at that? And what kind of changes do you think are on the horizon, not only operationally but also from a regulatory viewpoint?

Peter Dorsey:

Yeah. I mean… So that just went into effect literally a couple of days ago, right? At the end of June. And so, I heard a really interesting statistic that I think there’s, I don’t know, roughly 12,500 or so SEC registered firms on our platform, speaking alone, I know that a lot of firms by the deadline hadn’t gotten their paperwork back into the SEC. So, we’ll see what happens there. But I think it’s been interesting to watch this play out over the years probably decades, from the initial suit of the Merrill Lynch rule, to the DOL, which died on the vine, and now you have the Reg BI, and Reg BI is now here to stay. So ultimately, my opinion is, it’s really good for the investing public that we finally have something, is it perfect? Absolutely not. Is it better than nothing? No question.

Ryan Morfin:

Yeah. No, it’s… I think transparency on fees is just going to force the client communication around value and value as services to become more critical going forward. What are some best practices around that?

Peter Dorsey:

Yeah. I think it’s not just that it’s… One of the core tenants of Reg BI, is to put common language that your average person can read and more importantly can understand. Because if you look at some of these investment policy statements quite frankly, and if you look at some of the product disclosures when you mail out whether it’s a mutual fund, an ETF, or God forbid, an alternative, they can get complicated. And… So I think having that tenant in there for Reg BI to say, “I’m going to explain how you’re paying me and some of the third party providers, and I’m going to do it in a way that’s in plain English so someone outside of this industry can actually understand the associated fees and costs with these products that they’re paying,” I think it’s good thing.

Peter Dorsey:

Is it perfect? No, it’s not. I mean, I think Reg BI could have gone a little bit further, it didn’t. But overall, it’s really good. And I think that’s one of the largest best practices for advisors, is to have that… Whatever you have, it needs to be documented, and that’s probably number one. Number two, it’s got to be in plain English. And you got to have policies and procedures in place, so when you, hopefully don’t, but if you do inadvertently violate Reg BI, what are your policies and procedures and how are you going to do that? Is going to be super important and something that I think will be looked at when the regulators eventually come knocking at your door.

Ryan Morfin:

So, as you guys are looking at the business and managing your team as an executive from TD, how has the way you guys do business and transitions and business development, how has that changed for TD? How are you guys kind of leading the change from your perspective?

Peter Dorsey:

Well, when this started… Let’s just make the math easy here, and say it was six months ago that we all started to kind of shelter-in-place, a little less than that. But, we kind of went and always kind of have led with an associate first kind of mentality. Because, the way I look at it is, and some people disagree with this, but that’s okay, the associate always has to come first, your people have to come first. A lot of people say, “No, the client has got to come first.” But, if you focus on your people, your people take care of the customers, and then the customers take care of the bottom line, the output, which is your revenue, your top line, your profits. So, we’ve done some things that I think are pretty unique in the industry, which is, we went to a work-from-home environment, it took us… We have well over, I think we have 1100, 1200 people, most of whom because we’re a regulated entity like most of the folks who are listening to this, they go into an office every single day.

Peter Dorsey:

And we went to a work-from-home, I would say it took us about a week, and that’s being really conservative, it probably took us less time. And even folks that you would traditionally think couldn’t work-from-home like our trading group, we had them all working from home and we have the technology to do that. I would say, our CSI scores, our Net Advocate Scores, they’ve been stable to steadily rising. And so, as we kind of look at, do you go back to work? What does your return-to-office strategy look like? We’ve said, “Listen, we’ve got to put the health of our associates first and we’re going to continue to work-from-home.”

Peter Dorsey:

The second thing that I would say on this because I’m sure it’s on everyone’s mind is, if we do return to the office, what does that look like? What is our policy going to be like? I mean, when you have a client come in, do you have to wear a mask? Do you have to restock the office with different partitions to make sure that people can keep that social distance? And in fact, we did a study, we released it yesterday, on a survey kind of saying, if you’re an advisor, what is your return to office strategy? And we said, we read that 65% of the RIAs that we surveyed, are already back in the office in some way, shape, or form. And if you include the people who intend to return to the office in the next 30 days, that number jumps up to 80%. So, only 3% of the people we surveyed, do not plan to go into the office ever again. So, the overwhelming majority of advisors are back in the office in some way, shape, or form.

Ryan Morfin:

And that’s interesting, is that 65% everybody, all the staff, is back full-fledge?

Peter Dorsey:

No, it’s not. So that’s an important differentiator, it just means that they are in the office in some capacity, it could be part time, it could be rotating staff so you have an A group, you have a B group. I’ve seen some advisors do that before, they have separate entrances, and the A group sits on this side, and the B group sits on this side, it gets cleaned regularly. But, it’s just… That’s 65% is just in some way, shape, or form, certainly not full-time.

Ryan Morfin:

Yeah. No, it’s going to be interesting to see how… The genie is out of the bottle, if you require everybody to come back. I mean, we’ve told everybody on our team, “You can stay probably home until Q1 of next year, if you need to, if you want to.” But we’re testing our employees if they want to come back, and trying to make it a clean zone and a safe environment so that they feel there’s some confidence level that they’re not going to catch it while they’re at the office. But, I think taking care of your people is critical. I think it’s good business, like you said, and it’s really a differentiator. Because there’s a lot of companies who haven’t been doing that, and…

PART 3 OF 4 ENDS [00:33:04]

Ryan Morfin:

There’s a lot of companies you haven’t been doing that and their employees are looking … Because I think healthcare outcomes are a lot more important than economic outcomes, especially … Unemployment was really low before. I mean, I don’t know if it is really hit the white collar portion of the economy yet, but a strong economy where there’s not a lot of unemployment, if you don’t treat your people right, they’re going to find a better outcome.

Peter Dorsey:

Yeah, no question. And you have to, I think be considerate of … You and I are roughly the same age. I would assume in pretty good health, but yet you can’t make that assumption for everyone. Every family that you employ has a different responsibility. They might have elderly parents living with them. They might have children with asthma. You just don’t know. I kind of have to trust your people and manage to that. If you have a problem with that, in managing your people, you can deal with that in a couple of different ways, whether it’s giving them better technology or better training and holding them accountable, but you really have to give them that choice because everyone is in a bit of a different circumstance.

Peter Dorsey:

And so we looked at this and said, listen, if we want it to go back tomorrow, if there was a vaccine today and we could vaccinate everyone within the next week, it would still take us probably 60 to 90 days to get back into the office because as a large organization, we’re still going to have to make some adjustments within our office space, whether it’s restocking the facilities, creating more social distance between some of the open floor plans and cubes, replacing some of the old traditional kind of cloth barriers with glass, so that can be washed and disinfected. Even if we wanted to and could go back tomorrow, it’s going to take us two to three months anyway.

Ryan Morfin:

Yeah, no, it’s going to change definitely people’s appetite for commercial real estate. I think the wirehouses are starting to evaluate if they need to have all that real estate for these advisors, because the productivity is still up. One question I have for you as it relates to the wirehouse advisors, from a business development standpoint, have they on average been waiting for things to kind of find a new steady state or are there a lot of movement in the pipeline and is it still a very active period for transitions?

Peter Dorsey:

Yeah. I mean the transitions have been pretty active. We continue to see them on a fairly regular basis from wirehouses, and from the independent BD space. So it really hasn’t slowed down. I mean, it did get, quite frankly, if you had asked me that question in like April, I’d probably say, yeah, it’s … People are a little bit shaken by that, but obviously the market bounce back and sort of people’s confidence in their ability to move. So we haven’t really seen too much of a slowdown in the interest of people wanting to go independent.

Peter Dorsey:

And again, people move for a lot of different reasons, but the common threads are they want control, they want equity. They feel like in the wirehouse spaces, they manage from a compliance standpoint, the lowest common denominator. They’re very restrictive from a compliance standpoint, I get it, I hear it all the time and I’m not picking on any one specific one. It’s just they’re large businesses with tens of thousands of advisors and they kind of have to do that. I get it. People are essentially getting tired of that and those secular trends, they really haven’t changed all that much. We’ve been fortunate that the interest has been pretty steady and the trend towards independence.

Ryan Morfin:

Well, I guess I’d ask a few final questions. One would be, what is your view on the U.S. economy? Is it a V shape? Is it a swoosh? A W? Great depression? What are your thoughts on where we’re going?

Peter Dorsey:

I don’t know if you want to listen to my thoughts because I’m by no means an economist or a market forecaster, but my own uneducated personal opinion is it’s hard to be super confident in the market after, call it a 10 year bull run. And there’s just so many factors and variables that just … I mean, who put a worldwide pandemic into their back test of their forecasts? It just didn’t happen. And there’s just so much, whether it’s the shelter in place, whether it’s geopolitical unrest, I don’t know.

Peter Dorsey:

The one thing I’ll say is that in the longterm it’s always been a bad bet to be a bear on the market. Longterm, that bet has never paid off. So I would say the short term, I really don’t know. Longterm, I’m pretty optimistic. I think overall, as I look at a lot of the FinTech spaces in my space, and when you listen to really smart advisors who look at other industries, they’re super positive on the economy longterm, no question about it.

Ryan Morfin:

Yeah. What books are you reading to stay on top of the industry, on top of the markets? Who are some of the thought leaders you follow and kind of how are you handling maybe this extra time at home since you don’t have to travel?

Peter Dorsey:

Yeah. I’ve definitely replaced my plane flights with reading some books. I’ll run off a couple, if you haven’t read it, I’m sure you have. Principles by Ray Dalio was just unbelievable. I mean, just his personal story and the way he runs the business, super unique. I love that one.

Peter Dorsey:

Non-business related, right now I’m reading Sapiens, I’m about three quarters of the way through it by Noah Harari. That is a blow your mind book. It is a very, very big picture and a history, quite frankly, on human evolution for the last 2 million years. I can’t put it down. I’m about three quarters of the way through it.

Peter Dorsey:

Another one that I picked up because actually an advisor who I really respect said, you should pick up High Performance Habits by Brendon Burchard. That book I’ve started, so I still have those two books going right now. The High Performance Habits book is … I mean, I’ve read a lot of these kind of self-help, kind of how to run a better business type of book. This one is good. It’s long. I just started it. So I’m only, I think one or two chapters into it, but I can say so far, it’s really, really good.

Ryan Morfin:

That’s fantastic. Well, I appreciate you coming on the show. I’ve read the Principles and Sapiens, but I’m definitely going to pick up High Performance Habits. We’d love to have you come back on in a few months as this kind of continues to evolve and have a conversation about how things are continuing to play out.

Peter Dorsey:

We’d love to do it. I appreciate the invite. Honored to be here.

Ryan Morfin:

Thank you so much. Have a great day.

Peter Dorsey:

Do the same. Thank you for watching Non-Beta Alpha. And before we go, please remember to like, and subscribe to us on Apple podcast or YouTube channel. This is Non-Beta Alpha, and now, you know.

Speaker 1:

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PART 4 OF 4 ENDS [00:41:40]

 

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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.

 

The unique history of a Maryland based distillery and craft secrets on how to make great American Bourbon w/ Admiral Scott Sanders Founder of Tobacco Barn Distillery

The unique history of a Maryland based distillery and craft secrets on how to make great American Bourbon w/ Admiral Scott Sanders Founder of Tobacco Barn Distillery

The unique history of a Maryland based distillery and craft secrets on how to make great American Bourbon w/ Admiral Scott Sanders Founder of Tobacco Barn Distillery

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