Taleh Kazimov CEO of Pasha Bank, Azerbaijan’s largest bank talks about their current conflict against Armenia, and his views on global Fintech

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Ryan Morphin:

Welcome to Non-Beta Alpha. I’m Ryan Morphin. On today’s episode, we have Taleh Kazimov CEO of PASHA Bank, the largest bank in Azerbaijan, talking to us today about the current conflict with Armenia and his views on global FinTech. This is Non-Beta Alpha. Taleh, welcome to the show. Thank you for coming on today.

Taleh Kazimov:

Hello Ryan, thank you for my invitation.

Ryan Morphin:

You got it. Well, there’s been a conflict, a war that’s really started to play out over the last few weeks between Armenia and Azerbaijan and I wanted to have you come on the show to tell some of our viewers, primarily because it’s not getting any media coverage in the United States right now, given the election.

Ryan Morphin:

But I do think Azerbaijan is an important region for the world energy production as well. A lot of Americans don’t know about the conflict that’s going on, and so would you mind maybe going over a little bit about what’s going on in the Azerbaijan region right now?

Taleh Kazimov:

Currently we are faced with a situation when we call it a war, a patriotic war. Before getting into details, I would like to address some informationals which we have in the media that can cause confusion and misunderstanding among the people who are not familiar about the actual essence of the conflict.

Taleh Kazimov:

So the last conflict, back 30 years ago was started by Armenia. They used political turmoil in the Soviet Union, in particular Azerbaijan, and occupied 20% of territory of Azerbaijan.

Taleh Kazimov:

And this unlawful act, I would call it occupation, terrorism act, resultant in the death of 20,000 people, 50,000 disabled, 4,000 people were lost, we couldn’t find them until today, one million refugees, IDPs internally displaced people.

Taleh Kazimov:

And in 1993, United Nations Security Council, which I think in front of the most important organization in the world, adopted four resolutions, 822, 853, 874, and 882.

Taleh Kazimov:

These four resolutions required immediate, complete, and unconditional withdraw of Armenian forces from occupied theater of Azerbaijani.

Taleh Kazimov:

Unfortunately this resolution still remains on the paper and today our victorious army is implementing this resolution on its own, unfortunately by military way. As every year, we had a text from Armenia side. This years, three times in a row, Armenia attacks Azerbaijan on the state border.

Taleh Kazimov:

First attack was on July and we had casualties amongst civilians and military personnel. Second act in August, they have sent a sabotage group and we detained the leader of this group and he gave the evidence and confirmed that this group has been sent to attack civilians. On Saturday, the 27th of September, another attack, and we unfortunately had victims among the civilians and military personal and Armenia so that we will restrain.

Taleh Kazimov:

But unfortunately for them, we saved enough for this time and that’s how the war started. Right?

Ryan Morphin:

And so this region, it’s a mountainous region I believe, this has been an ongoing conflict for a while. And I believe Russia has got a military base in Armenia and they’ve been trying to broker, since they’re a neighbor of yours, broker some type of a ceasefire. Is there a current talks for ceasefire? Is that something that is currently going on?

Taleh Kazimov:

We had agreed on ceasefire three times during this almost 40 days. And in the next hour, after each agreement of ceasefire, Armenia by attacking our civilians and our military personal, cancels the ceasefire.

Taleh Kazimov:

The response of Azerbaijani army is just to defend our land and to liberate from enemies occupied territory.

Ryan Morphin:

I think this ongoing turmoil that’s going on… Question for you is, how is this going to play out in your view? Do you think it’s going to be a full-scale war, or do you think you’re going to have to ask maybe some regional players like Turkey, Russia, the United nations to send in peacekeepers? Because it’s been going on consistently and I’m trying to figure out how do you guys see it playing out? What is the consensus in Baku?

Taleh Kazimov:

This is conflict between countries, Azerbaijan and Armenia, and we don’t expect a certain party to help because we have been waiting for 30 years.

Taleh Kazimov:

As I said previously, since 1993, we have the UN Security Council’s resolution and [inaudible 00:06:16] group didn’t achieve any progress in this conflict.

Taleh Kazimov:

Our position is straightforward. Our president announced it from the first day that Armenia should present a reasonable schedule, how they are going to withdraw their forces from occupied territory, and we are ready to stop immediately the war.

Taleh Kazimov:

Unfortunately, till today, we receive opposite decisions from the Armenia side that they are going to fight. This is for us, as I said, this is a patriotic war and we are liberating occupied territories of Azerbaijan.

Taleh Kazimov:

We try to do it in a peaceful way for 30 years, but unfortunately we couldn’t achieve anything and help assert part is also… We don’t see. So this is conflict about Azerbaijan and Armenia, and we are not expecting that anyone will interfere.

Ryan Morphin:

Understood, you know, RT, which is a Russian television, which is a foreign agent registered in the United States, is the only media outlet talking about this right now.

Ryan Morphin:

And they’re trying to paint this as a context of a religious war and Azerbaijan is a multi-cultural, multiethnic country. Can you talk about if you view this as a religious war, why it’s not credible to say that? And also, could you mention a little bit about maybe Russia and maybe what their role is trying to instigate this as maybe a spillover from Syria or something?

Taleh Kazimov:

Ryan, of course not. It’s not a religion war. And the reason why I’m smiling is I’ve seen all these days, formation and media in the TV, in the social networks that are many trying to present this war to the world as a religion war.

Taleh Kazimov:

Actually, it’s definitely not a religion war. As you mentioned, Azerbaijan is a multi-ethnical and multicultural country. Yes, predominantly population practicing Muslim today, but we also have Christians. We have practicers of Judaism, Krishna, Baháʼí, and other religions.

Taleh Kazimov:

So if you compare it to Armenia in 19th century, there were eight mosques. Today, there is only one mosque named the Blue Mosque. And I believe they kept it for PR purposes. I don’t believe that there are visitors there.

Taleh Kazimov:

But in Azerbaijan we have 13 churches, seven synagogues, one historical Albanian church. We have in the middle of Azerbaijan an Armenian church, and you can Google the pictures. After police come and visit, you will see how beautiful they are, how well maintained the are.

Taleh Kazimov:

And you can also Google the mosques in Karbala, under occupation of Armenia. They keep pigs shapes [inaudible 00:09:46] in our mosque. So it’s definitely not religious war from Azerbaijan’s side, definitely. Maybe from Armenia side, it might, but not from Azerbaijan.

Taleh Kazimov:

We have 69 nationalities living in Azerbaijani population for centuries in peace. We have 30,000 plus Armenian people living in Azerbaijan in peace. And you can ask me how many nationalities you have on the Armenian side? No more than four.

Ryan Morphin:

Well, and a lot of people here don’t know that some of your best allies are Israel and Ukraine. What is that relationship between Azerbaijan and Israel and Azerbaijan and Ukraine?

Taleh Kazimov:

We have Jewish ethnics in Azerbaijan. We are in very good relationship with Israel. We are partners as with most of the countries in the world.

Taleh Kazimov:

So we have support and friendship, brotherhood with Turkey. We have very good partnership relationship with Russia, with Ukraine, with Belorussia.

Taleh Kazimov:

So as with many of the countries, we have very good and strong relationship with Israel, too.

Ryan Morphin:

And a lot of people don’t know this, but you guys have been part of the international community, but Armenia has been doing a lot of work and a lot of trade with Iran. Can you talk a little bit about that?

Taleh Kazimov:

Iran is a partner of… It’s a big country and partner in the region. So we have information that there are around 20 banks and Iranian branches operating in [inaudible 00:11:37].

Taleh Kazimov:

So there is definitely flow between these two countries, but as you can see from the media all these days, Iran is also supporting Azerbaijan in terms of the territorial integrity of Azerbaijan.

Ryan Morphin:

Well, this conflict has started to bring to light what I’d call the Caspian Region and the importance of it for the energy markets.

Ryan Morphin:

But from an economic standpoint, you’re also the CEO of I believe one of the largest banks, if not the largest bank, in Azerbaijan. How has this conflict been changing or impacting the local economy?

Taleh Kazimov:

It just only… Almost 40 days passed after war started. And it’s very difficult to say exact figures, but as any war, we have a positive and negative side of the war.

Taleh Kazimov:

When it comes to the negative part, war can impact on business confidence, business climate, investment on an employment level, and budget cuts. In Azerbaijan, it’s a little bit different picture. We’ve been waiting for this for 30 years, liberating our territories.

Taleh Kazimov:

The level of confidence, the level of unite, the level of determination, of the business and population is very high.

Taleh Kazimov:

As you mentioned, we are the largest commercial bank in Azerbaijan, and we are mainly focusing on servicing the real sector of the country. On a daily basis, we are in contact with our clients partners. The level of confidence is very high. There is no step back. They are seeking for expansion opportunities, growth opportunities.

Taleh Kazimov:

When it comes to the employment level, we haven’t announced the full mobilization. Azerbaijan has more than 100,000 professional army equipped with best-in-class military equipment and technology. So there is no need for a full mobilization, that’s why impact on the employment level is low.

Taleh Kazimov:

And in terms of the budget spending, we increase budget spending by keeping the budget deficits on a reasonable level to support country due to pandemic, COVID impact.

Taleh Kazimov:

And in positive side, I think that a lot of big opportunities, a lot of opportunities come to our economy after the liberation of the territory.

Taleh Kazimov:

You can imagine that there are the 1.7 million hectares of land for full, with mineral deposits of 155 types of deposits like gold, copper, mercury, coal mines, and others that are big water reserves. And we are going to use it to irrigate 100,000 hectare of land for agricultural purposes.

Taleh Kazimov:

Tourism is another story. This region, I believe is one of the beautiful regions first of all, by nature, second, by historical cultural heritage. We see a big opportunity in terms of tourism. It will require definitely a lot of investment because as we see, after liberating several regions last month, we see that Armenia destroyed everything, everything. There is not even a roof to place the flag after liberalization.

Taleh Kazimov:

And it will require an investment, but I believe as a nation, we have been waiting for this for a long time, and I believe every other Azerbaijani citizen is ready to invest his last dollar, last manat to rebuild this territory. And in midterm and longterm, I believe this region will boost Azerbaijan economy.

Ryan Morphin:

And I guess an economic question for you, it’s my understanding that a lot of the energy that flows through Azerbaijan, does most of the pipelines, do they go through Armenia or do they go through other pathways?

Taleh Kazimov:

All goes through Georgia.

Ryan Morphin:

Oh.

Taleh Kazimov:

Yeah, main pipelines goes to Georgia and our main is locked, let’s say. They lost this opportunity because that can be beneficial for them, also, those pipelines passed through their territory.

Taleh Kazimov:

But unfortunately, they’re not in negotiation mode. By the way, these pipelines are very important for Europe for all energy security of Europe. And this pipeline has been attacked by Armenia. And thanks to our army, we defended that. We have in Mingelchaur, which is the fourth largest city in Azerbaijan, we have one of the biggest hydroelectric power plants, and it has been attacked, too.

Taleh Kazimov:

So you can imagine the ecological and economical consequences if they would achieve their aim. So again, thanks to the army and defense, we managed to push back.

Ryan Morphin:

Yep. No, it’s, it’s been very interesting to see what you know happened between Saudi Arabia and I guess Iran, right? The attack on the pipelines, and Azerbaijan has a lot of critical pipelines, especially for Europe, as you mentioned.

Ryan Morphin:

How is low energy prices, how is that affecting the economy of Azerbaijan today? And what is your view of energy prices today?

Taleh Kazimov:

One of the hits which Azerbaijan economy faced this year was low oil prices at the first quarter, mainly first quarter of 2020.

Taleh Kazimov:

And it definitely hits the economy and brings depression on the local currency. But due to proper monetary fiscal policy of the country, we’ve managed to keep stable our local currency and preserve our foreign currency reserves for all kinds of state oil funds that remain for the three billion.

Taleh Kazimov:

We managed to increase our central banks foreign currency reserves by 4% and 6.5 billion. That was a really tough period for us, but as I said, due to proper monetary fiscal policy, we managed to avoid negative consequences of oil price decreased.

Ryan Morphin:

You know, I did speak to some friends of mine in DC about the conflict and they said that they were very impressed by the use of drones and the modernization of the Azerbaijani military.

Ryan Morphin:

Do you guys buy most of your weapons from Turkey or are they bought from China? Do you guys produce your military weapons domestically? I was told that the Azerbaijani army is very strong.

Taleh Kazimov:

It’s one of the strongest armies in CIS in terms of the technology, equipment, professionalism of the military personnel, and of course, in terms of the budget.

Taleh Kazimov:

We don’t owe, we don’t borrow drones or any other military equipment as our neighbor Armenia is doing. We buy this equipment, these weapons and equipment, drones particularly from Turkey and other military equipment we buy from Russia, Israel.

Taleh Kazimov:

I mean from all our partners. It’s not only drones, by the way, acting in the world.

Ryan Morphin:

Yep. No, there’s artillery and tanks and such. I think it’s the first kind of, I’d say, usage of drone warfare that’s playing out.

Ryan Morphin:

I know Armenia doesn’t have drones, or at least they don’t have this type of drones that you guys have, so I think they’re at a severe disadvantage. Which is, you know, an interesting kind of view of the future of warfare coming out.

Ryan Morphin:

As it relates to COVID, how is COVID being handled in Azerbaijan and how has that impacted the economy? How is that changing international banking from your perspective?

Taleh Kazimov:

It’s not secret and a surprise to anyone that the negative impact of COVID to world’s economy is tremendous, and Azerbaijan economy is not exception.

Taleh Kazimov:

Our GDP as of September decreased 4%, 3.9, to be more precise. We managed to keep our inflation at 2.6%. As of July, our government debt was 9.8 billion and it’s around 24.5% to our GDP.

Taleh Kazimov:

As I mentioned before, national wells, a state oil funds reserve. We kept it more or less stable at 43 billion and we have 4% increase in central bank reserves.

Taleh Kazimov:

Yes, trade total export decreased by 28%, mainly due to oil price, decreased sharp oil price decrease. As you know, 75% of total export is crude oil. Input decreased 5%, but we managed to keep trade balance and surplus 3 billion surplus. Now we have other industries like construction, 9.6%, and obviously tourism and hospitality, 55.5%.

Taleh Kazimov:

But we also have, overperformance like agriculture. We see a 1.5% growth ICT. Now 2.7% manufacturing, 6.5%. But generally speaking, I would like to pay attention that it’s not only COVID impacting our economy this year, it’s also global oil price decrease. We are an oil dependent country and COVID, which consequences of COVID will increase in budget expenditures, in health care infrastructure, and support business and population.

Taleh Kazimov:

We manage very successfully, I believe, and a certain issue this year in our economy is war, actual war. So if you combine all these three aspects, I think we manage very good in terms of when you look at 4% GDP decline. And in comparison to other countries, I think we have lower decline in GDP growth.

Taleh Kazimov:

And this is mainly because government now started very proactively implementing initiatives in diversification of the economy and rapidly respond to the crisis this year. And by 2020 results, I believe Azerbaijan will be in the list of less affected by COVID economies.

Ryan Morphin:

And you’re the CEO of a bank, so what are your thoughts on FinTech? I know you guys have a digital laboratory. How is FinTech changing banking in the future?

Taleh Kazimov:

FinTech? I think it’s yesterday. It’s not tomorrow over there. And we as a bank in 2018 to develop the digital [inaudible 00:24:19], and we brought the best in class consultants and also we were able to build, I think, a very good team, which is very important, I think most important thing.

Taleh Kazimov:

And today, 99%, 99.7% of PASHA banks customers, legal entities, and intrepreneurs interact with the banks through digital channels. All the payments, currency conversionS, statements, all the transactional business goes through the digital channels.

Taleh Kazimov:

And I think with this indicator, we can be called the first digital bank in the region. All customers interact, 89% of all customer interactions today goes through digital and digital channels. We were the first bank in the region who offered to the client a remote onboarding KYC compliance process and account opening.

Taleh Kazimov:

That was accepted by clients very well. Today, 99% of new customers and new accounts are opened online. I would like to underline once again that we are the largest commercial bank in Azerbaijan.

Taleh Kazimov:

So tthe volume of turnover of our clients through accounts and PASHA bank, almost 30% of GDP, in amount of 30% of GDP.

Ryan Morphin:

Wow.

Taleh Kazimov:

So we see as a future, and we still continue to invest in digitalization, but our next strategy, which is ’21, ’23, we will mostly focus on that data-driven business strategy.

Taleh Kazimov:

It will be more data-driven strategy and we will invest in the data and in cyber security.

Ryan Morphin:

Yeah, Taleh, you have a very cosmopolitan educational background, London, Harvard, Georgia, Azerbaijan. Who is doing FinTech the best? Is it China? Is it Germany? Is it the US?

Ryan Morphin:

Is it just totally a diversified approach? Is there one region that you think is doing FinTech for banking the right way?

Taleh Kazimov:

China is a total different story because of the scale, first of all. There are a lot of bright minds there and I think they are doing very good.

Taleh Kazimov:

What I would like to mention is also the Silicon Valley, US. So having these knowledge houses around and also the infrastructure, I think in terms of the FinTech, they are also at this stage the most leading part of the world in terms of the FinTech.

Taleh Kazimov:

But I see other countries also coming up, like Turkey, Russia, it’s the same, Germany, Israel is also very good. Yeah. UK is taking over, also. So FinTech is something that everyone is interested and keen to invest and to expand.

Ryan Morphin:

It’s a big growth area for our industry as well and for our country. Changing a little bit, maybe your perspective on what’s going on on this side of the camera, what are people in Azerbaijan saying about the US election now that it’s past and what I’ll call the choppy waves or dislocation? What are your thoughts on what’s going on from the view outside looking in?

Taleh Kazimov:

Well as Azerbaijan, we are interested in what a conscious nation is deciding on. I mean, we support what you as a country will decide about the election. And honestly, we are currently busy resolving our issues here in Azerbaijan, so that’s why I mainly focus on liberating, how the land [inaudible 00:28:52].

Taleh Kazimov:

But definitely we believe in democracy and whatever will be the election results, so this is what US citizen choose.

Ryan Morphin:

And Taleh have you guys had access to Russian vaccines? I have had some friends who’ve taken it for the coronavirus. Is that available, or what’s going on on the vaccine front in the region?

Taleh Kazimov:

We have, I believe… I don’t know. I don’t have an exact answer to that because maybe I’m not too informed about this, but being a good partner with Russia, I believe we will also consider this opportunity. But this is more healthcare systems decision and I’m not [inaudible 00:29:46].

Ryan Morphin:

I’m not either, but I’m letting Google become my doctorate in medicine, I guess.

Ryan Morphin:

So in this season, season two, we asked kind of the same six questions to all of our guests at the end of each episode, and they’re usually yes or no kind of questions.

Ryan Morphin:

And if you want to add more context, please feel free. But so here we go. The first question is if there was a COVID vaccine available, would you take it today? Yes or no?

Taleh Kazimov:

Personally?

Ryan Morphin:

Yeah, personally.

Taleh Kazimov:

No, I guess.

Ryan Morphin:

Yep. Well, who wins the election is the second question, but nobody knows. I know you guys are dealing with more pressing matters in Azerbaijan.

Ryan Morphin:

What type of shape of an economic recovery do you think we’re in a globally [crosstalk 00:30:40] Is it an V shape, is it a W? Yeah. What are we in a recovery, and if so, is it a V or is it a sideways L? A U?

Taleh Kazimov:

At the beginning of the pandemic, we all, at least in Azerbaijan, we all saw that it will take couple of months, three to six months, and that’s it.

Taleh Kazimov:

But as what we see is coming back, and I think it will be more W shape.

Ryan Morphin:

W shape. Is there anything that you’re particularly proud of this summer? Anything that you did like read books, created new projects while over the summer?

Taleh Kazimov:

Over the summer, at least we managed to protect ourselves from COVID. In the summer period, we have a peak for this virus in Azerbaijan, and we managed what I think for the summer, the most important thing to keep safe, our team as a bank team, which is very important to us.

Taleh Kazimov:

We managed to support our clients in this very tough period of lockdown, and we keep our financial sustainability of the organization. That was very critical, systemically important for the organization. I think all the focus all the summer was in this direction.

Ryan Morphin:

And questions for you. Did you have a lot of your employees working from home or were they just socially distance at the office? How are people handling commercial activities during the pandemic in Azerbaijan?

Taleh Kazimov:

All the digitalization which we’re doing for the last two and a half years helped us a lot in the peak of pandemic in the summer. Only 4% of employees from the headquarter was at work, yes, and all our branch network employees came to work only 42%.

Taleh Kazimov:

So we think we manage very well. So in overall, it’s never been more than 20% of those working at the premises. Remaining 80 was [crosstalk 00:33:09]

Ryan Morphin:

Are there any reasons to be optimistic for the 2021 global economy?

Taleh Kazimov:

Really the situation which we face this year, the pandemic situation which is like Pandora’s box and it’s [inaudible 00:33:32]. And everything depends on how long it lasts. Everything really depends on how long it lasts.

Taleh Kazimov:

I really expect that a vaccine will be in place next year, and we’ll recover from the global lockdown environment and industries will recover.

Ryan Morphin:

Is there anything that you’re watching or reading or listening to that you’d like to share with our audience? Any books or podcasts?

Taleh Kazimov:

Currently, the only there are only two things which we are following, is US elections and our current situation conflict zone.

Ryan Morphin:

Well, I understand. Is there any last comments you’d like to share with our viewers about the current situation and about the US Azerbaijani relationship?

Taleh Kazimov:

About US Azerbaijan relationship?

Ryan Morphin:

Mm-hmm (affirmative).

Taleh Kazimov:

From the first day of our independence, we have very good relationship and a partnering relationship. We believe that for a fruitful prosperous future this relationship should be strengthened both on political and economical level, and I think this is the only way for us.

Ryan Morphin:

Well, we appreciate the US Azerbaijani relationship. We appreciate you coming on the show and sharing your thoughts. And we pray that your current conflict ends in amicable terms and we hope that we can see you soon in the US or in Baku. So God bless and please be safe.

Taleh Kazimov:

Ryan, thank you very much for this opportunity to talk to you and your audience. I want to once again underline that this is not a regions war. This is a patriotic war to liberate our land. Nothing more and nothing less.

Taleh Kazimov:

So thank you very much, again. Hope to see you soon in Azerbaijan or in US. And good luck with your election.

Ryan Morphin:

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

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

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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.

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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.

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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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