The Energy Sector & Policy Frameworks with Dr. Omar Al-Ubaydli, Director of Studies & Research, DERASAT

Dr. Al-Ubaydli demonstrates his expertise in the energy sector in this episode of Non-Beta Alpha by highlighting some of the difficult choices that are facing world governments.
Due to the indigenous shock of COVID-19, policy makers have been forced to establish priorities: elderly versus young lives, lives versus livelihoods, health care spending versus non-healthcare spending. These are questions that Dr. Omar Al-Ubaydli and his team at the DERASAT Think Tank in Bahrain have taken very seriously. It is not often that you consider the monetary value of human life, but given current circumstances, that may be the best way to deduce an optimal solution for policy makers.

Along with highlighting some of the difficult choices that are facing world governments, Dr. Al-Ubaydli also demonstrates his expertise in the energy sector in this episode of Non-Beta Alpha. As discussed in previous episodes, oil supply is abundant, and its lagging demand is not resulting in negative oil prices. Dr. Al-Ubaydli ensures listeners that this is a natural trend experienced by many industries, it just appears worrisome due to the appeal of energy assets.

View Transcript

Ryan Morfin:                    Welcome to Non-Beta Alpha. I’m Ryan Morfin. On today’s episode, we have Omar Al-Ubaydli calling in from Bahrain. He’s the director of economics at Derasat, a think tank in Bahrain. Today, we’re going to talk about how to value a human life, the cold economics facing policy makers today, and a little bit about what’s going on in the energy markets. This is Non-Beta Alpha.

Achmed:                           I guess I didn’t know. I guess I didn’t know.

Ryan Morfin:                    Omar, welcome to the show. Thanks for joining us this morning.

Omar Al-Ubaydli:            My pleasure.

Ryan Morfin:                    So Omar, you’re an economist and you do policy analysis amongst other things. You wrote a very interesting article that caught my attention about a week or two ago, about a framework for policy makers and for the general public to start to evaluate the risks of this crisis. And, I was wondering if you could go into a little bit about the article and a little bit about your analysis, because I think it’s a very insightful and timely conversation for us to have.

Omar Al-Ubaydli:            I’d be happy to. Thanks for your interest. So, basically, the departure point is that in lay people’s terms, in lay conversations, it’s common for people to come up with phrases such as, you can’t put a price on human lives and human lives are precious and we must protect lives at all cost, things like this. That’s okay, when you’re discussing things in a coffee shop or in a bar, but if you’re trying to choose policies, you’ve got to do a lot better than that, because the reality is that policy makers are currently having to make very tough decisions and they’re facing very arduous trade offs between things such as the lives of the elderly versus the lives of the young, lives versus livelihoods, health spending versus non-health spending.

Omar Al-Ubaydli:            And, in order to do that effectively, you have to have a way of basically valuing people’s lives financially. There’s no way around that. And, this is not something new. This is another part of the [inaudible 00:02:52]. People might think this is something that coronavirus is pushing us towards some sort of mercenary treatment, evaluation of people’s lives.

Omar Al-Ubaydli:            On the contrary, economists and social scientists, actuarial scientists have been evaluating people’s lives for decades and that’s been something that’s been used in policy for many, many years and a simple example, I read in an article the other day is the speed limit. If you want to have very, very low number of traffic fatalities, you could have the speed limit as 10 miles an hour everywhere and have almost no fatal crashes.

Omar Al-Ubaydli:            We clearly don’t have 10 mile an hour speed limits. You have 55, 60, 65, 70 and that indicates a willingness to tolerate higher incidents of deaths in exchange for traffic moving at a reasonable pace. People have to get from A to B, commerce, livelihoods and so on and so forth. So really, this technique’s existed and we’ve been using it for a very long time, and the article is about how do we do it? How do we come up with a valuation of life? Is it just something very abstract, a bunch of philosophers sitting in a room exchanging ideas, or is there some standard method, and I talk about those methods.

Ryan Morfin:                    So, you talk about a risk based approach on probabilities, and I think one of the big questions that at least I have is that there isn’t enough testing at scale, so we just don’t really have a good set of data on what the mortality risk is, or you’re probably more familiar and closer to data sets than I am. Is that a true comment and what are your thoughts on it?

Omar Al-Ubaydli:            So first of all, one of the key ways you use to estimate a value of life, is as you mentioned the risk based method. So, if you ask someone how you would just pay to avoid certain death, that’s not a very useful question, because everyone’s willing to surrender more or less, whatever they have to avoid certain death. But what you can say is, how much you’re willing to pay to, for example, avoid a one percent increase in your life [inaudible 00:05:04] death or something like that.

Omar Al-Ubaydli:            And, in that case, once you have a way of assessing how much people value a certain increase in their life and their just staying alive, you can then go from that to a value of life itself. So, these techniques estimate the value of life. How do you then apply that to the coronavirus. Then you need, as you say, something approaching accurate probabilities associated with the different outcomes in order to be able to implement this.

Omar Al-Ubaydli:            So, for example, let’s say that I worked out, usually the estimates come out to five million dollars a life when you use these actuarial techniques. So, if a life is worth five million dollars, then you can start saying something like, “Well, testing costs this much or 10 days in an ICU costs this much or 1000 ventilators cost this much, and they will save this many lives, therefore is it worth it?” And, I can do my trade offs.

Omar Al-Ubaydli:            But, a critical ingredient to making those assessments is having some accurate data on the likelihood of dying from COVID or the rate at which it spreads and how those likelihoods, how sensitive they are to various policies debated. So for example, it might be the case that someone who is over the age of 60 has a five percent chance of dying from COVID if you have social distancing implemented, whereas they may have a 50 or 50% likelihood of dying if you don’t have social distancing, and you need those inputs in order to be able to make your assessments and make your final decisions.

Omar Al-Ubaydli:            And, at the moment, as you intimated, a lot of those important data points are missing. We have set estimates. We have a lot of intelligent people dedicated to using existing data and updating that data to produce more and more accurate estimates, but the reality is that there’s still a lot we don’t know about coronavirus.

Omar Al-Ubaydli:            I think the World Health Organization, a couple of weeks ago put out a circular saying it was too early to be talking about things like immunity passports, because we don’t even have any definitive evidence that people who have coronavirus can’t get it again. So, we’re still at a very early stage in terms of … that doesn’t mean we don’t make decisions. We still have to make decisions and we have to do the best we can in terms of getting probability data, but we also have to be cognizant of the fact that our estimates are going to need to be revised, high frequency, as more and more data come in.

Ryan Morfin:                    No doubt. This is just ball parking the number, five million per life. Question for you is, this terrible disease is ravaging the older demographic. That five million per life, does that diminish as you get older? Is it based off of an earnings profile, or is it based off of … how are you building up that value?

Omar Al-Ubaydli:            So, the base value is, definitely. So, you get contingency tables. So for example, that five million might be for something like a healthy adult in their 20s. And then, that changes as things like their age profile changes. So for example, it would be discounted heavily is someone is 75 or 80 years old because that person that’s old would not be willing to pay that much to extend their likelihood of survival by a certain percentage point because they know that they’re approaching death anyway.

Omar Al-Ubaydli:            So yes, so all these things, the five million I gave is a generic average across, if you picked someone at random from the population. But, the more data you give, there are ways of adjusting that value. If they have for example, a medical condition, for example if somebody has cancer, then obviously, they’re likely to die for reasons unrelated to whatever intervention you’re considering, and so the value of their life will be lower than it will be for someone who has a clean slate of health.

Ryan Morfin:                    Yeah, I know. So, it really is the insurance companies and how they look at that kind of risk. And, the other question I had for you is, as these, what we’ll call, externalities of catching the virus, the US military saying if you’ve caught the virus you can’t apply to become part of the military. There may be long term effects on health care costs.

Ryan Morfin:                    How should, I guess, the recovery of the individual at a certain inflection point, there will be a diminished value to the life going forward. We don’t know what that is. I don’t think we have enough data to understand, but there may be really negative implications in having caught this and recovered from it. What data points or how do you think the framework should be designed to evaluate the quality of life or the productivity of that life post COVID?

Omar Al-Ubaydli:            I was reading an article actually this morning saying that people have incorrectly dichotomized COVID to saying either you die or you get better, and the person writing the article, who is speaking from his own experience said that actually a significant percentage have long term complications such as kidney problems or liver problems that require constant medical attention which therefore impact quality of life, value of life and all sorts of other potential choices they have before them.

Omar Al-Ubaydli:            So again, and it sounds like a bit of a cop out, but in reality we still don’t know. But the good news is, that as you no doubt see when you open your web browser, the amount of research resources being dedicated for studying COVID is immense. You talk about all the best medical schools, all the best health department, public health departments in all the universities in the world, are literally dedicating their resources to this.

Omar Al-Ubaydli:            You have governments, civil society, the amount of data being … and money, and financial and human resources being allocated to understanding this disease, it’s long term implications, it’s short term implications, and how to combat it is something unprecedented. I’ve been in professional research for almost 20 years, and I’ve never seen a top garner this much attention. So, we will have something approaching definitive answers to the questions you’ve been posing within something as short as a year I’d imagine.

Ryan Morfin:                    Wow, that could be a long time, but I think as we’re starting to realize that as populations reopen, like in Germany or South Korea or even here in the US, these outbreaks keep bubbling up, this could be a new equilibrium stable state where we’re having a reduction in productivity due to shelter in place. So, as you’re looking at it from an economic analysis, and so let’s just assume that worst case scenario is, there’s no vaccine on the horizon, anti-virals are not being produced at levels that are meaningful, and now this is a new environment that we’re in where you really do have to keep your distance globally.

Ryan Morfin:                    Travel’s curtailed. What would policy makers need to start wrapping their heads around in terms of trying to reboot the economy, or is it helicopter money, everybody gets basic income? What is the way to bridge us either to a solution or to a new normal, to a new operating posture?

Omar Al-Ubaydli:            Well, first of all, you have to realize that many countries, including soon the OECD countries, don’t have the resources to keep up this steroid injections for the economy. So pretty soon, the hands could be forced and as many poorer countries which didn’t even have a lot then in the first place or had a half hearted lockdown because people have to be able to eat. They have to be able to get a basic standard of living.

Omar Al-Ubaydli:            In places like the UK or the US, people have some savings and they can rely on the government to give them stimulus checks that allow them to purchase food, but can’t say the same of many other countries. So, it could be the case that regardless of whatever policy the government wants to do in terms of curtailing or mitigating the spread of the disease, the hand is forced and they have to lift social distancing because people have got to eat.

Omar Al-Ubaydli:            At the moment, people are willing to tolerate social distancing, partially out of self preservation. And, partially out of obedience or wanting to go along with what society needs. But, it wouldn’t surprise me if after six months, people are like, “I’ve had it. I’m going to take my chances.” And, if you look at the mortality tables for a significant proportion of the population, I’m not a public health expert, but for a specific percent of the population, the mortality risk seems to be quite low and if it doesn’t seem like there’s a vaccine coming on the horizon, for many people they’ll just be like, “Well, I’m going to go with it. I’ll get the disease. I’ll be sick for however long it is and I’ll take my chances.”

Omar Al-Ubaydli:            So, whatever master plan the governments have, may be out of the window just because people will be like, screw it. But, let’s assume that doesn’t happen, and let’s assume that the governments are capable of maintaining control and enforcing some degree of social distancing. Then I think, you have some fundamental questions. The estimates on the impact, on certain key sectors like aviation, tourism, they’re virtually terminal or crippling.

Omar Al-Ubaydli:            And then, you have to worry about how you’re going to find jobs for all these sorts of people and it’s not just these industries. You’ve got all sorts of upstream and downstream sectors. For example, I’m based in Bahrain. Aviation is important not just because tourism is important to this region, but also because aviation is a significant source of the global demand for petroleum products.

Omar Al-Ubaydli:            So, we’re hurting because oil prices are down, partially because so many fleets are grounded. And, there I think to be honest, the longer this crisis goes, the longer societies and governments are going to head towards a situation where they’re like, “We’re just going to have to behave as if the disease isn’t there, because there’s no point in trying to work around it. It’s not going to be workable.”

Omar Al-Ubaydli:            Now, that’s all based on the worst case scenario which you presented, which is if there’s not a vaccine and the treatments are failing. It does seem, giving the volume of resources being thrown at finding vaccines and finding treatments, it does seem quite plausible that something will be found sooner rather than later. But, you never know.

Ryan Morfin:                    Yeah, no, I’m a hyper realist when it comes to these things and I’m praying to God that they do find something, because the outcome on the other side of that coin is not a good one. I’m a realist in the sense that they still haven’t found a vaccine for HIV and I know they’re two completely separate viruses, but there’s not a lot of good data points on RNA viral infection vaccines.

Ryan Morfin:                    And so, that leads me to start preparing for maybe a new operating posture which we’ve done, and I think a lot of businesses will do. But, I think as you’re saying, the cost. I’m not sure what the recent, maybe you have a better number for us, but total GDP of the world, what that looks like relative to the damage that this has wreaked havoc on. I don’t know if economists are starting to size the total loss of value in the global economy.

Omar Al-Ubaydli:            [crosstalk 00:17:53] three percent decrease in growth for the economy this year, which means that for advanced economies, that’s enough to pull many of them into negative growth for this year. But for countries that are still growing, that are lower income and growing quickly like China or India, they’ll still have positive growth, but just not as positive as before. But yeah, at the moment, there seems to be a consensus around three percent decline in global economic growth compared to what it was expected to be.

Ryan Morfin:                    And so, the analysis that I think is interesting is three percent of the total nominal amount of economic value in the world being reduced per year, until we find a new normal, versus the death toll of I guess what is an older demographic, right, they have a 15% death rate if you’re over 60, mortality rate if you’re over 60.

Ryan Morfin:                    I’m just wondering at what stage are we going to start to hear policy makers get political pressure from two different demographics? You got an older demographic who’s severely at risk, a younger demographic where if you’re under 50, they say right now in the US, you have less than a one percent chance of going to the hospital if you catch this.

Ryan Morfin:                    The friction, I think’s going to happen is, as the economy starts to sink, what the trade offs are going to be, how policy makers should be digesting the economic impact to future worker in generations versus the cost of an accelerated demise or accelerated mortality of an older generation. It’s going to be one of the most difficult conversations in the history of humanity, I think.

Omar Al-Ubaydli:            Yeah, it is going to be a difficult conversation, but I think what people are trying to do is take steps that eliminate the need for the trade off. So, I’ll illustrate what I mean by that. At the middle of March, there was an op ed in the New York Times by Paul Romer, who’s a Nobel Prize winning economist, and Garber, who’s the MD provost of Harvard University, and the subtitle for their article was, if we carry on like this, the economy will die.

Omar Al-Ubaydli:            Now, the article was not about we need to lift, open the economy, because there will be no jobs to go back to, the article was about what we should be doing in order to avoid this trade off. And by that I mean, investing in contact tracing and testing and things like this, and immunity passports, and so on and so forth.

Omar Al-Ubaydli:            So, I think that the direction, it’s unlikely that we’ll be in a situation where we have to starkly choose between opening the economy, saving people’s livelihoods versus saving the lives of the old. It’s unlikely that, because there are so many ways of alleviating that trade off, such as isolating, tracking, tracing, testing, and so on and so forth, and I’m not just saying that as rhetoric. People are going in that direction.

Omar Al-Ubaydli:            Now, what I think will, people are watching very closely, is the experience of A, developing countries which have not been able to impose a lockdown or a meaningful lockdown, and B, the case of Sweden or in South Korea, where they’ve had no lockdown and Sweden have explicitly rejected having a harsh lockdown. And, if it turns out that not imposing a lockdown doesn’t cause anywhere near as many deaths as some of the doomsayers would have you think, then I think we’ll see, I think, a readjustment of policy positions towards opening up the economy.

Ryan Morfin:                    Yeah, I know and Switzerland is starting to roll out contact tracing. The Chinese have, obviously they have the CCTV cameras and they’ve been ahead of the curve on using those apps. I think in the absence of a cure, I think that’s going to have to be the new norm and I know people here in the US, it’s interesting, are talking about privacy concerns, this and that, but I just don’t know how you have a public health response if you can’t track density and new hot spots.

Ryan Morfin:                    In the US, I don’t know if you guys have seen this or had this happen in your region, but we’re using cellphone data from towers to figure out the density and the location of people and it’s predicting a lot of new hot spots popping up in the next few weeks here in the Midwest of the country of the United States. I think it’s going to pour cold water unfortunately, on a lot of people’s optimism, which I think taking a cold math approach like you’ve proposed and it’s not a bad thing, it’s just a realistic thing, gets people to start putting their arms around the risk and quantifying the dollars and the probabilities.

Ryan Morfin:                    Maybe I can switch gears a little bit. How have things been going in the Middle East with coronavirus and there’s been a terrible outbreak in Iran, but how is the general sentiment in the GCC and how is life in Bahrain and how has it changed?

Omar Al-Ubaydli:            In the Gulf countries, governments have been relatively proactive. The infection rates are quite high in a per capita basis, especially in Bahrain. But, the fatality rates are very, very low. And again, I’m not a public health expert, but I think there’s several factors that I’m getting a sense of that contribute to that.

Omar Al-Ubaydli:            One is that in the Gulf countries, you have a very high percentage of the population is migrant workers. And, migrant workers are first of all, people who are a working age, so that means you’ve got the demographic profile skewed towards people who are young. And secondly, in order to get a visa to be a migrant worker in a Gulf country, you have to pass a health test.

Omar Al-Ubaydli:            And so, you already screen out a large number of medical conditions which tend to be co-morbidity factors in coronavirus, so you don’t have people with major respiratory problems or [inaudible 00:24:32] problems or renal problems and so on and so forth. So, you’ve already got defacto a younger and healthier population than you’ll find in lots of other countries and you’ve got relatively proactive garments and together these things have meant the fatality rates are very low thankfully.

Omar Al-Ubaydli:            But, people are quite … we happen to be a quite physical society in the sense that we’re like the Italians. We kiss, we hug, we’re not like the Swedes or the Japanese who are quite standoffish, and so there’s a big concern among the population about what life will be like after this. Are we going to be able to shake hands with you? Are we going to be able to kiss people? Are we going to be able to do the things that we’ve been used to doing for years, and then there’s also significant economic concern and austerity has been imposed, or is in the process of being imposed in all of the Gulf countries and that’s really worrying people a lot.

Ryan Morfin:                    Yeah, and this is going to, I think, also have an impact on population growth as well, which population growth and productivity gains are two major factors in economic macro GP models. Has there been any talk about what economists or labor economists think about the impact to population growth? It seems that this is probably going to put a stunt on that. I don’t know what your thoughts are.

Omar Al-Ubaydli:            I think in most economies, it’s definitely put a brake on population growth, because first of all, people aren’t getting married. You can’t get married now, because you can’t even find their prospective partner and even if they can, I’m sure you’ve also heard of marriages being called off and engagements being called off. So, in Bahrain at the moment, you can’t even do the marriage paperwork to try and even get married.

Omar Al-Ubaydli:            So first of all, people aren’t getting married, and then those who aren’t getting married are putting off child bearing, getting pregnant, because they would go to the hospital. They don’t want to have to visit clinics and expose the mother and child to the risk. So, you’ve got that, which is definitely going to have an impact.

Omar Al-Ubaydli:            And then obviously, further down the line, with the increased economic uncertainty, that will surely, for middle and high income countries, increased economic uncertainty means fewer children because people will be looking to save their money for a rainy day and create buffers rather than bear the expense. Children are, to some extent, a normal good and you need to have certain minimum level of income in order to be able to afford them in western societies.

Omar Al-Ubaydli:            In developing countries, it’s different. Especially in some of the poorer countries, you find in sub Sahara Africa, we have high birth rates. I’m not sure what the calculus there would be for having children, but it wouldn’t surprise me if the COVID has an ambivalent effect on it because birth rates there are significantly higher.

Ryan Morfin:                    So, in the austerity that you mentioned about governments and even households, how should one think of the framework in which you reallocate resources or dip deeply into savings or printing money in the government standpoint, to go in and actually flood resources into the healthcare space. Where is the tipping point of where you’re having marginal impact as well as, at what point do you say, “You know what? We can’t spend any more money.”

Omar Al-Ubaydli:            Well, I think that some of the European countries have actually successfully decreased their debt to GDP in the last five years, so they’ve given themselves a little bit of moving. But, the US is going … the public debt in the US is already high and in a place like Japan, in Japan it’s got 220% debt to GDP. And, I think the stimulus package is going to increase that by another 20%.

Omar Al-Ubaydli:            So, you’re really getting to a stage now where the people are going to start to wonder about the solvency of western governments. And, that’s why I think that the big hope is that either the disease doesn’t turn out to be as bad as everyone thinks, a herd immunity turns out to be a good solution, or that some sort of other solution comes up, because at current spending levels, 2021 can’t be like 2020.

Omar Al-Ubaydli:            There’s just going to be, it’s just fiscally not sustainable and governments will have to change their root policies or face crushing debt servicing and will have to slash … It’d be counterproductive because they’ll have to slash public programs in order just to service their debt.

Ryan Morfin:                    Well, we’re starting to see municipalities, former residents of yours, Illinois, start to play poker with the federal government about municipal bankruptcy. I think people don’t realize how close we are to some really bad outcomes on public finance and so, I think these conversations are timely and critical because you keep printing money and like you said, people start to question, besides the consumer is questioning if the economic environment’s safe to reengage, investors buying the debt may start to question quite accurately that we’re way over leveraged.

Omar Al-Ubaydli:            And, you mentioned the municipalities, they can play poker with their federal government, because federal government is big compared to the municipalities. Who’s the federal government going to play poker with? No one can bail out the US federal government. So, there’s no soft landing there.

Ryan Morfin:                    Yeah, and that’s what’s concerning is if we get to that level where there’s a debasing of a currency, then I think it’s all bets are off, and I don’t know if that’s where people, these cryptocurrency folks say, “We told you so,” or if it leads to some type of regional or global conflicts.

Omar Al-Ubaydli:            [crosstalk 00:31:31] geopolitical aspect as you said, because a significant about of this debt is held by Chinese. It’s held by outside investors and I don’t imagine the Chinese are going to be particularly happy if the US defaults on its debt and they’re just going to be like, “Oh well, I guess we should’ve been more prudent in our investment,” no. There’ll be a price to pay.

Ryan Morfin:                    Well, it’s interesting. So, there’s a lot of hedge funds who have been, in the last few years, aggressively dogging Argentina for their debt in a mercantilist type of fashion, and I think it’s an interesting data point for investors globally to pay attention to of how that’s played out.

Ryan Morfin:                    It’s been short of conflict, and I mean short, because the hedge funds have sent mercenary sailors to go grab vessels from Argentinian navy. So, this is an interesting dichotomy of the old world that we lived in where you could print money and get away with it because you had economic growth and what happens when you take the growth engine out of the equation. You have a stark reminder of who’s swimming naked on the public finance side.

Ryan Morfin:                    Well so, this printing of money, one question I have for you, and this is an important question for central bank policy is, all this printing of money and as you made the comment and I’ve used in the past too, this kind of steroid injection from central banks into the economies of the west, at what point should we start to see inflation, because it seems like we’ve got a deflationary environment and we may go into negative interest rates, and maybe share your thoughts as an economist on those issues.

Omar Al-Ubaydli:            So, yeah, usually you’d expect quantitative easing whether it’s 15th century debasing of the physical currency or 20th century Wiemar Republic printing money to lead to inflation in consumer prices. But as you noted, we’ve had this concern since 2008 because there was a huge, there was unprecedented quantitative easing in the global financial crisis. But, we haven’t seen any consumer price inflation of note.

Omar Al-Ubaydli:            At the moment, as you say, if anything, prices seem to be heading down. So, a good question is, where is all this money going? But, if you want to know where it’s going, just look at the stock market. You’ve seen asset prices have been rising at an absurd rate, and I think it’s just completely unsustainable.

Omar Al-Ubaydli:            The last five, 10 years, there’s been a very long bull run, and every time it looks like it’s going to correct, it then picks up again, and all the liquidity the government is injecting or the central bank, I should say, the Federal Reserves, is injecting in businesses again, I imagine will work it’s way to assets again, especially because assets are easy to buy and trade and also people are fearful so they want to save and people can’t buy consumer goods because of the lockdowns and the social distancing.

Omar Al-Ubaydli:            So, I don’t think there’ll be conventional consumer price inflation for a while. That doesn’t mean that there isn’t a problem. The problem is that you’ve got huge asset inflation, which is creating asset bubbles, and these asset bubbles are creating a systemic risk in our financial system because with the Basal three, reserve requirements and so on, all sorts of financial institutions, households and private sector entities basically have balance sheets which are highly exposed to the stock market, and if a correction happens, you’re going to have a collapse in consumer spending and investment and a massive strain on the financial system including probably wide scale bankruptcies in funds, in financial intermediaries, with all sorts of terrible knock on effects.

Omar Al-Ubaydli:            So, to answer your question concisely, we are having inflation. We have been having inflation, it’s just it’s been in a class of assets rather than consumer goods, and there will be a price to pay for that once these bubbles eventually are forced to burst.

Ryan Morfin:                    So, all the money’s been propping up financial assets, and that’s where the inflation is, and so, these aren’t real earnings returns. These are central bank inflated returns and the stock market. I totally concur.

Omar Al-Ubaydli:            And, there was going to be a correction maybe a couple of years ago, but then Trump did the corporate tax cuts and so that gave them another little boost forwards. But, the writing’s on the wall. There’s going to be, of course nobody knows exactly when it’s going to happen. But the P ratios, there’s no way you can justify these kind of performance of the stocks based on any sort of tangible operational success that these companies are showing.

Ryan Morfin:                    Yeah, no, we’re on the precipice of some major companies, I think, and like you said, some of the terminal industries, travel, tourism, hotel, even energy. And so, maybe we can shift the policy a little bit to energy, because I know you do a lot of energy policy, being based in the Gulf.

Ryan Morfin:                    I get it that demand is curtailed, but some of these pricing metrics, negative dollars for oil due to storage capacity concerns, what are your thoughts on what’s going on? This seems like a surreal environment for energy crisis.

Omar Al-Ubaydli:            Well, I think the reality is that there’s just too many people making … if you’re talking about the oil part of the energy equation, natural gas energy, those are different things, but comes to oil, there’s just too many people making oil and there’s just not enough demand. And what this means is the higher cost producers need to go out of the market. And, this is being accelerated by the fact that demand is temporarily low, but this is very normal.

Omar Al-Ubaydli:            This happens in all markets all the time. The difference with oil is that it’s a sexy commodity, and it’s one that has geostrategic importance, and it’s one that is related to, it’s a linchpin of various geopolitical relationships and then you’ve got the journalists who cover it, have for many years, their living is based on sexing this thing up. If we were facing the same structural problems in the cotton industry, then it wouldn’t be headline news or-

Ryan Morfin:                    No offense to all of our folks in Georgia who grow cotton.

Omar Al-Ubaydli:            So yeah. So basically, there’s going to be a correction. It’s going to be painful, but it’s completely normal and happens in industries all the time. You look at the list of producers, whether it’s PCs or whether it’s cars or whether it’s … When I was growing up, already the UK’s car industry was in massive decline.

Omar Al-Ubaydli:            It started, that decline, in the ’60s and ’70s. Not everybody can make everything, and that’s part of the normal part of the economic cycle. It just happens to be over exposed in the case of oil.

Ryan Morfin:                    Well, and you mentioned natural gas, and there’s a dichotomy there. How is the natural gas market playing out in the Middle East?

Omar Al-Ubaydli:            So, natural gas is, so the production cycle for natural gas is fundamentally different. You don’t have some of the key production constraints you that you have for [inaudible 00:39:20] oil in the gas industry. For example, in oil, activating an oil field can take, setting aside shale oil, conventional oil can take up to five years, and then also closing down, if you close down certain oil fields, you can’t restart them.

Omar Al-Ubaydli:            So, this is where you get these huge cycles in oil production and where you get cycles of production, and therefore in price. Gas is a lot more flexible and a lot more amenable and a lot more responsive to market conditions. So, you don’t have these huge cycles.

Omar Al-Ubaydli:            And then secondly, gas as an input, is a much lower input than oil, and so it has less geostrategic importance. So, it’s not such a geostrategically inflammatory issue. Oil gets used in fuel, gets used in energy production, it gets used in plastics and a much wider range of goods.

Omar Al-Ubaydli:            Gas is used much more primarily in energy production. And so as I say, although it is important geostrategically, it’s not as important as something like oil, so it doesn’t get dragged into this to-ing and fro-ing. You don’t see something like the US Saudi relationship being affected by gas prices.

Ryan Morfin:                    Well, I’d ask you, so this is obviously a cyclical issue, oversupply, demand dramatically reduced. How long do you think it is until we see a, we’ll call it, a clearing of the market of the high cost producers. How long will this take to clean up the supply problem?

Omar Al-Ubaydli:            Well, the problem is that under normal circumstances, the US, it’s producers would go bankrupt and then that’d be the end of that. But now, governments across the world have started to become much more mercantilistic, economic nationalists I would say, and it’s populist governments, and they like bailing out what they regard to be strategically important industries and oil has successfully marketed itself as a strategically important industry to the US government even though it doesn’t actually have many jobs in the large scheme of things in the US.

Omar Al-Ubaydli:            And so, you’ve got people like Ted Cruz and his pals in a place like Texas, Oklahoma, Dakotas and so on, who are quite happy to string this out for as long as they can direct government funds in that direction. So, this is going to take a lot longer to clear out than it should and then you’ve also got these Congressmen and Senators using their political clout to force or to pressure the oil producing countries including Saudi Arabia to decrease their production to extend the life of these high cost shale producers.

Omar Al-Ubaydli:            So, this is a mess and it’s not operating anywhere near as efficiently as something like the market for laptops or the market for cars, where high cost producers would go out and nobody will bat an eye.

Ryan Morfin:                    Well Omar, and I know you’re a very quantitative guy. I’ll shift the conversation to one final question. What are some of the silver linings that you see in the global economy, if any, and what books are you reading to either sharpen your curiosity or sharpen your research?

Omar Al-Ubaydli:            So, the silver linings, I’d say first of all on the environmental front, I would say that there’s a chance, so people have picked and have learnt that maybe they don’t need to consume as much as they have been used to consuming. And analogously, they’ve realized that people have been forced to invest in tele-working and working from home technologies and so on. And so, there will be potentially a lot more of that going on in a way that is both a better congestion and better for the environment, less wasteful and so on.

Omar Al-Ubaydli:            So, those are two general positives I would take from it. In addition to that, I would say that in governments where there’s good leadership, there has been … so this is something I wrote an article about recently. If you have a government, with have a good leader, but you’ve got a deep state which has been dragging a leader back, this crisis is an opportunity for them to clean house because when you’re outside the crisis, it’s hard to clean a house when your government, especially the deep state positions, because it’s very hard to show who’s doing the job properly [crosstalk 00:44:22].

Omar Al-Ubaydli:            But when you’ve got something like the coronavirus, you can see who’s competent and who’s not competent clearly, and that could give good leaders the political capital they need to just get rid of some of these impediments-

Achmed:                           Papa.

Omar Al-Ubaydli:            … to good governance. Sorry, one second.

Achmed:                           Papa, [crosstalk 00:44:42] hi.

Ryan Morfin:                    No, no worries. Who’s that?

Omar Al-Ubaydli:            That’s my son Achmed. Sorry for-

Ryan Morfin:                    Hey, hello. No, no, no. Hello.

Achmed:                           [crosstalk 00:44:54] a rainbow to [crosstalk 00:44:56]

Ryan Morfin:                    Hello from the US.

Omar Al-Ubaydli:            I’ll come in a minute okay? So yeah, so for certain leaders, but if you’ve got a bad leader don’t expect-

Achmed:                           No, no wait. I show the-

Omar Al-Ubaydli:            Sorry, one second Ryan, let me just go to-

Ryan Morfin:                    No worries, no worries, no worries, yeah. Well, Omar’s making a great point about leadership in a vacuum and leadership in a pandemic. It is definitely going to call into question, I think the … the point about deep state, the water coming out so that deep state is exposed.

Omar Al-Ubaydli:            So that’s, if you have a good leader and a bad deep state, this your time to clean house. But, if you happen to have a bad leader, it’s not going to get any better. You’re still stuck in the same situation and you can work out who I’m referring to in these situations, but as I say, and the reason I mention this is because in the Middle East you do have the situation where you’ve got some good young leaders, but crappy social services, and you see the leaders now being able to seize control and be like, “Come on, enough of this nonsense.”

Ryan Morfin:                    And, any books that you’re reading that you think are of interest?

Omar Al-Ubaydli:            So, at the moment, not really anything directly related to the coronavirus, but I have actually been reading a book recently on artificial intelligence. That’s not anything particularly new. I think everybody knows about that, but I think that the scope of these technologies is going to increase because we’re going to digitize things more than before and the more things are digitized, the more data you have, the more you can feed these machines to take positions and hopefully make things more efficient.

Ryan Morfin:                    Omar, thank you so much for joining us. We appreciate your insights. Would love to have you back in a few months as things continue to evolve and thanks for your time. Appreciate you.

Omar Al-Ubaydli:            My pleasure.

Ryan Morfin:                    Thanks. Thanks for watching Non-Beta Alpha and before we go, please remember to subscribe and leave us a review on Apple podcast or our YouTube channel. This is Non-Beta Alpha. Now you know.

Speaker 4:                        All price references and market forecasts correspond to the date of this recording. This podcast should not be copied, distributed, published or reproduced in whole or in part. The information contained in this podcast does not constitute research or recommendation from Non-Beta Alpha Inc., Wentworth Management Services LLC, or any of their affiliates to the listener. Neither Non-Beta Alpha Inc, Wentworth Management Services LLC, nor any of their affiliates make any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore, including in respect of direct, indirect or consequential loss or damage is expressly disclaimed.

Speaker 4:                        The views expressed in this podcast are not necessarily those of Non-Beta Alpha Inc., or Wentworth Management Service LLC, and Non-Beta Alpha Inc. and Wentworth Management Services LLC are not providing any financial, economic, legal accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast, by any listener, is not to be taken as constituting the giving of investment advice by Non-Beta Alpha Inc. and Wentworth Management Services LLC to that listener, nor to constitute such person a client of any filiate of Non-Beta Alpha Inc. and Wentworth Management Services LLC.

Speaker 4:                        This does not constitute an offer to buy or sell any security. Investments in security may not be suitable for all investors. An investment of any security may involve risk and the potential loss of your initial investment. Investors should review all risk factors before investing. Investors should perform their own due diligence before considering any investment.

Speaker 4:                        Past performance is not indicative of future results. Investment products, insurance and annuity products that are not FDIC insured, are not bank guaranteed, not insured by a federal government agency may lose value.

Download Transcript

Share This Episode

Subscribe To Our Podcast!


Recommended For You

View Transcript

Ryan Morfin: Welcome to Non-Beta Alpha. I'm Ryan Morfin. On today's episode, we have Pini Althaus, CEO of USA Rare Earth, talking to us about the supply chain glut in rare earth minerals. This is Non-Beta Alpha.

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

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

Ryan Morfin: So you're an investor and a miner in rare earth minerals. Can you share with our listener base, what are rare earth minerals? Why are they important and why is there a geopolitical race going on globally?

Pini AlthausYeah, I mean, rare earths are an extremely ubiquitous part of all advanced manufacturing or technology manufacturing today's day and age. Several years ago, I had not heard too much about rare earths myself. I was not that familiar with it and being involved in this sector, in this company, for the past few years has given me an education of course. And I mean, I was sad to hear that 50% of all imports into the United States contain are earth elements and it runs the gamut from consumer electronic devices that we use every day. Our cell phones, our laptops, most communication devices, medical equipment. So there's a tie with COVID, which we can touch on at your discretion. Electric vehicles, defense equipment. So pretty much anything or everything high tech today has a rare earth element or critical minerals contained within them.

Ryan MorfinAnd what are some of the names of some of the more important rare earth? I know there's lithium for batteries, but what else is considered in this category, critical?

Pini Althaus: Yeah, so lithium is a separate category to battery material. The rare earths are 17 rare earths. The four, let's call it, key rare earths that we're focused on at our company, the four rare earths that go into the permanent magnets. And these are the magnets that are found, there are a number of them in your back of your cell phone or an iPad. But if you look at an F35 striker jet, you've got about a ton of rare earth magnets in those. And we've got two heavy rare earths and two light rare earths is part of the permanent magnets. You've got dysprosium, ytterbium are the heavies, and then you've got neodymium, praseodymium as the two light rare earths. So those would be key rare earths that are the focus.

Ryan MorfinAnd you use these in, I guess, in military applications as well, but historically, where has the United States sourced the rare earth for supply chain?

Pini AlthausYeah. And that's the shocking part. We've been securing those materials from China. So China controls the rare earth sector and has done so for the past 30 years or so. And it was a significant misstep on the part of the United States, allowing China to have this control. And actually this wasn't a question of China coming in and doing anything nefarious as far as stealing IP or anything. The US government made a conscious decision about 30 years ago to allow China to come to the United States and acquire the processing capabilities for rare earths. So just as part of some background, you've got the rare earth materials containing various mining projects, but once you extract them, you have to then process them and they go through certain phases before they get to the magnet phase. And China, the thought process was let China do the mining, let China do the processing.

Pini AlthausWe don't need to do that here. And we'll buy the materials from China cheaply and the premier of China at the time, Deng Xiaoping made the comment, he said, "The Middle East has oil. China has rare earths." And unfortunately we weren't smart enough to understand what he was saying. And the Chinese understood that the future of manufacturing is going to revolve around control of the rare earth and critical mineral supply chain. So if you think about it today, Ryan, we cannot build... Forget about consumer electronics and medical equipment. We cannot build the equipment that the US Pentagon or the US armed forces require, whether it's F35 fighter jet, Tomahawk cruise missile, communications equipment, without going to China and obtaining those materials. And it's obvious to all that this should be extremely alarming. We've seen China use this as a weapon, if you will, as far as how it interacts with other countries back in 2010, when there was a dispute between China and Japan on the East China Sea.

Pini AlthausSo China cut off rare earth exports from Japan for 40 days. Japan obviously being a significant user of rare earth elements for their high-tech manufacturing sector, that was stopped after 40 days. But in fact, it was President Obama that first made the United States aware of this, formed a division within the Department of Defense to handle this issue, but not much has happened. And we continue to be relying on China for these materials. And what has been made about trade war with China and whether the trade war is really the impetus for China withholding rare earth exports. And that is a huge misnomer. Whilst China had been talking or implying that they would cut off rare earth exports, the truth of the matter is that China, under it's made in China, 2025 mandate, its belt and road initiatives and others. And you seem to control the critical minerals and rare earth supply chain so that it can continue its dominance as a manufacturer or a global supplier of these materials and finished products.

Pini Althaus: It's the backbone of its economy. And in fact, China has become a net importer of rare earths from different countries like Miramar and others. So with that, they are decreasing the exports to countries like the United States, Japan and others.

Ryan Morfin: And was it ever a risk that the Chinese were going to turn off the exports of rare earth to the US during the trade war? How close were we to that? And was that ever some saber rattling that went down during trade negotiations?

Pini AlthausYeah, I think it was saber rattling. I think it would be paramount to an act of war. I can't say with any authority that that would not happen, but it would be probably, aside from war itself, it would be one of the most significant acts of war cutting the United States off from the ability to procure rare earths. But that being said, I mean, if you look at, as an analogy, the oil and gas sector and the reliance of the United States had for many, many years on OPEC countries to supply us with the oil. And we had embargoes and we had price manipulation by OPEC. This is far more significant given the ubiquity of where these rare earths go. And yes, we're always under the threat that China can cut off exports under the guise of a trade war or for any other nefarious reasons.

Pini AlthausBut I think even more importantly, to just as the natural run of the course of things with regards to their business and their desire to maintain themselves as the global leader in manufacturing and exporting of goods, China is in a position now where it actually requires these materials for their own domestic consumption and can legitimately cut off rare earth exports by stating that they need it for manufacturing and that would actually be somewhat correct. So we're in an extremely dangerous position here with this reliance on China. And it wouldn't just be China. If it was another country, it would be similar issues, not to the same extent, but reliance on one country for these materials is dangerous.

Ryan Morfin: And it's been mentioned in the past that in 2010, China flooded the market to really kill all the competitors in the rare earth mining industry. Where was the World Trade Organization during this period? And how did that play out and how does that set the chess board for China to run the tables?

Pini Althaus:

Yeah. So the WTO stepped in when China cut off rare earth exports from Japan, I think it lasted for about 40 days because the US and Japan protested the WTO, and they stepped in and China resumed exports. While I'm not an expert on these trade matters, one thing that I am aware of is that one of the reasons why China had to resume the export of rare earths was it did not legitimately need all the rare earths for domestic consumption. So therefore it was a nefarious act, if you will, to cut off rare earth exports. Now that has changed, which means China have to cut off rare earth exports today, they have a legitimate case to say that they require these materials. There's a shortage of these materials and they require them for their own domestic purposes. It is the backbone of their economy and there's very little we could do about this today, which is why it's becoming an even more urgent issue.

Ryan Morfin:

And the US government started stockpiling some of these after that incident. Can you talk a little bit about what DOD and DOE has done to start making sure that there's not a critical supply shortage going forward, and is it enough?

Pini Althaus:

Yeah, again, there is a national defense stock pile, and there are materials still that the United States needs to procure in order to shore up its stockpile. There are magnets, the finished magnet products as well, the United States government needs to stockpile. Again, there's a limited amount that the United States government has. It requires approval from Congress, whether it's in the NDAA or other approvals from Congress, to allocate monies for the national defense stock pile of these materials. That being said, there's no endless supply of these materials. And unfortunately, the apparatus, the way it's set up right now with the US government, it's going to continue to require having a secure supply chain of those materials for many, many years to come. So it's not a question of stockpiling for 10 or 20 years, and then this complacency and saying, we'll kick the can down the road. But keep in mind as well, Ryan, that US government accounts for low single digits of overall rare earth imports into the United States.

Pini Althaus:

We're talking about defense contractors, we're talking about the manufacturing sector. The direct impact this has on the economy, jobs, the automotive sector, and others is significant. So it's not just limited to the United States government. If you look at over the past couple of weeks, the sanctions that China have put on Raytheon, Boeing, Lockheed, et cetera. I mean, the question is where are they going to get those materials? And if we go beyond that, you need rare earths for the 5G network. Now that Huawei has been banned from installing the network, not only in the US but other countries, we have to have the ability to get a secure supply of these materials as well. Which currently, again, trying to control the hundred percent. So it runs across the board, both for government, defense and manufacturing in this country.

Ryan Morfin:

Well, and so help me paint a picture for our audience. Does China have all the mines for rare earth, or they're the only ones who started mining it? Or are their mines globally dispersed and nobody's been doing the actual infrastructure to do the mining?

Pini Althaus:

Yeah. So finding rare earth projects or rare earth elements is not the difficult part. It's finding them in significant quantities that makes a project economically viable. And part of that consideration are the environmental rigors that companies in the West have to adhere to. And China, even by their own admission, have had a complete disregard for mining these materials and even for processing these materials. And in fact, just the last week or so, the BBC did an expose on this, 60 Minutes has done an expose on this. But the Chinese have not denied this and have talked about cleaning up their act, but it has an effect on the bottom line for what the costs of mining and processing are if you have no environmental standards to adhere to. So China have exploited those rare earth projects they have, primarily in inner Mongolia, and have brought a number of projects online and quite quickly, and in a significant way, with a complete disregard for the environment.

Pini Althaus:

So it was seen as an environmental no-no in the West for many years. Now, what's happened over the past few years is you're starting to see rare earth projects in different parts of the world sprout up. You've got the Mountain World project in Australia owned by Linus, which is a producer of Nd and Pr, neodymium and praseodymium. So two of the light rare earths. They may have some heavy rare earths coming online at some point in time. And you've got Arafura, which is another company in Australia that we're working with to assist them with their processing so they don't have to send the materials to China for processing. But really these are a drop in the bucket for what the requirements are for the United States. And certainly what the requirements are for allied countries, the EU, et cetera. So there is a race, if you will, worldwide to start bringing projects online. The Chinese are very active in trying to secure assets outside of China.

Pini Althaus:

So in Africa. They have ownership of a project in Greenland. So there is somewhat of a race. The Australian government has stepped in and has started limiting the ability for China to own, or have ownership in, or off takes for the Australian rare earth projects. And that's part of the strategic Alliance between Australia and the US. Canada, similar thing as well. There are a number of projects that are looking to come alive, but these projects are, for the most part, will take many, many years to come online. We have to expedite the process. We have to assist with a [inaudible 00:14:41] supply chain and the domestic rare earth sector, because previously investors have been scared off by things like China flooding the market, which is not a possibility at this point in time, given that China can't actually afford to flood the market. They are already very heavily subsidizing their mine to magnet supply chain there.

Pini Althaus:

This is more now a case of being able to get production from non-Chinese sources so that the United States and allies have a viable, secure supply chain of these materials. And it's a concern worldwide. We speak to governments all over the world, and we're all facing the same issue. Some more than others, especially countries like Japan, that don't have their own rare earth projects there and are reliant on Australia where they've made some investments there. And in the United States, they've made an investment recently in Africa. So there is this race, if you will. And I think we've got a five-year window here to at least stand up a few projects worldwide. Otherwise we've lost this race and we will be dependent on China for many, many years to come. And Ryan, it's a bit of a hypocrisy. If you look at it where you've got materials going through clean, green energy applications, like electric vehicles, wind turbines, et cetera.

Pini Althaus:

That we're sourcing these materials from China, where they've, again by their own admission, has been complete environmental devastation to water bodies around these mines and processing facilities, to the communities. People have been getting sick around these projects yet we're putting these materials into our electric vehicles or wind turbines. It makes no sense at all. And people are starting to wake up to this. And that's why the sector is starting to see a lot of support come out of Congress and bi-partisan support. And in fact, it's one of the only bi-partisan issues right now in Washington. And it's good to see that some things decided to move in the right direction.

Ryan Morfin:

And is there a special process? You talk about the expense, is it really difficult to mine these? You have to go through a special chemical process to extract and clean and purify. Is it a lot harder than, say, gold or silver or some of the other, we'll call, more traditional elements?

Pini Althaus:

Yeah. It's all about the processing to some extent. So if you look at MP Materials in California, which used to be Molycorp before they went through their bankruptcy. They are a miner of Cerium and Lanthanum, which are two of the light rare earths, the lower valued light rare earths. Given that they do not currently have processing technology, they are sending those materials to China for processing where China is tariffing those heavily. Linus is also, they're doing their processing work in Malaysia and elsewhere. So it's really about the processing at this stage. One of the things that we've done, after we put out our PDA last year with our upgraded resource, which now includes a significant amount of lithium. We make a decision that, based on the test work that we had done around our processing methodology, that we were not going to send our materials to China. That it's paramount for us to do this work in the United States and in a collaborative effort as well.

Pini Althaus:

We've been asked by some of our investors, "Well, why would you be looking to help other projects with their processing?" And the answer is simple. There's no one project or one company that's going to put China out of business or make a dent, or somehow be able to take care of the overall demand worldwide for rare earths and critical minerals. And it's very important for us to have processing capability in the West. So that was the impetus for us opening up our own rare earth and critical minerals processing facility earlier this year, which we did in Wheatridge, Colorado. And in fact, we've made some significant progress on the method that we're using for this. And we're starting to collaborate with Australian companies, Canadian companies. We're currently talking to a group over in Europe as well, because this has to be a collaborative effort.

Ryan Morfin:

How does Europe solve for these problems? Do they have this better under control than the US?

Pini Althaus:

No, they're in a far worse position than we are. The EU commission recently put out a report, I think, a couple of months ago that the requirement for rare earths is going to increase tenfold within a short period of time. Lithium 18 times. They don't really have rare earth projects. Again, there are the Greenland projects, which people have heard in the news recently. Those need to further development work so they don't have rare earth projects ready to come online there. There are a couple of lithium projects that are spread around Europe, but for the most part, Europe is in an even more precarious position. If you look at Germany with the auto manufacturers, you look at the big companies like ThyssenKrupp and others, all these countries and companies are looking for alternatives to China, because we've already seen in the news about China withholding or reducing exports of some of these rare earths that are required for these industries.

Ryan Morfin:

And you mentioned earlier the regulatory posture of the US makes it difficult to mine. Is it becoming a more bi-partisan issue that we need to maybe relax some regulation around the mining exercise, to incentivize private sector to come in and start producing this? Or is the Republican party versus the Democratic party on two separate pages of music?

Pini Althaus:

Yeah. Good question, Ryan. I mean traditionally the Republican party is obviously being more pro-mining and in favor of less regulation when it comes to these things. With regards to our project, we're on Texas state land. So we don't trigger federal environmental permitting at this point in time. And obviously Texas being Texas, a mining state and oil and gas state, things are a lot easier in Texas than they are on projects on federal land where the Bureau of Land Management controls the environmental process around that. But the thing is here, and I don't want to step into what other companies are doing, et cetera, but we do need to be reasonable about allowing projects to come online if they're adhering to environmental standards that are acceptable worldwide. And what we do know, is that China is destroying the environment and cities and water bodies around their mines and processing facilities.

Pini Althaus:

We have standards here in the United States, and I think what we need to do is make it easier for companies to mine, while at the same time protecting the environment. And there are ways to do that. And we're definitely seeing buy-in from Congress, from both sides, with regards to looking how we can stand up a secure supply chain. And, obviously under the Obama administration, they had very strict regulations when it comes to mining. And that's changed under the Trump administration. Hopefully what we start to see is some normal middle ground that'll allow other projects to come online.

Ryan Morfin:

And typically in these rare earth mines, is it amalgamation of different minerals that are all consolidated together and you have to separate them out? Or do you ever find pure play, Europium, I can't even pronounce some of these. Gadolinium, Cerium. I mean, are they all mixed together and you've got to filter and sift them through, or are they pure play mines?

Pini Althaus:

No, they're generally they have a mix. So they're polymetallic projects. They have a number of different materials. Some projects, you more to what we call the light rare earths like MP in California or Linus in Australia. Our project is actually on the opposite end of the spectrum. We have a very high concentration of heavy rare earths. That being said, we do have to go through a process of separating these materials. But the case of our project where we've got 30 materials. We're not going to produce 30 materials. We're not going to market 30 materials. So what we're doing is we're focusing on the key materials that are marketable, that we need for permanent magnets, lithium as well, and working on the separation and the optimization of those materials in particular. But we're all faced with the same processing challenges and that is something that can't be set.

Pini Althaus:

There's no easy way to do this. There are different technologies that have been used in different parts of the world. So predominantly there's a process called solvent extraction, but it's big, it's bulky, it's not benign. It's a bespoke solution for one particular project. So it doesn't work for feedstock from other projects. What we've done is we're using a processing technology that's actually been around since the 1940s. It was part of the Manhattan Project. It's called continuous ion exchange. In fact, the Chinese use it to increase the purities from 99.99 to four nines, five nines, and even six nines. So for some applications you require higher purity levels. It's a far easier processing method to scale up and to take feedstock from other projects. In fact, we've demonstrated for the Department of Energy that we can take coal waste from Pennsylvania and do high purity separation of rare earths using our processing methods. So it's not a step that can be skipped unless one needs to send it to China for processing, which is not going to help us with our objectives here.

Ryan Morfin:

How many other, we'll call it, going concerns on any other businesses that are doing this, that are trying to, I guess, start the development of these mines. Are you guys one of a few or are you one of many? And is it an international or just a US game? Who's leading the charge at going after this?

Pini Althaus:

Yeah, well, I'd say the Australians are leading it outside of China right now. You've got some really good projects in Australia. Again, more skewed toward the light rare earths. There's one more heavy rare earth project in Australia, which is not yet producing. The United States, you've got MP Materials, you've got Ucore in Alaska, you've got the Bear Lodge project in Wyoming, which is also another light rare earth project. So as far as a heavy rare earth project that looks like it will come online in the near term, that would be our project. In Canada there are a couple of projects there as well, and again, more skewed toward the light rare earths. But we really need to get as many of these projects online as possible. Because again, I don't see it as competition. We all have a problem doing supply agreements or offtake agreements for our materials.

Pini Althaus:

In fact, one of the things that we're going to have to consider is looking at potentially scaling up our production, based on the demand that we're already starting to see. And I think other companies would find that as well. So it's all about the economics of the project. You have projects that were economically viable back in 2012 or rare earth prices with 35% or so higher than they are today, and are not necessarily viable today. So that's the challenge as well, economically viable projects. And we've got to get as many of them online as possible. It takes many, many years. I mean, our project has had over $70 million put into it to get to where we are today, and we're close to getting to the production scenario. It all revolves around processing at this point in time.

Pini Althaus:

We'd be very happy to see another couple of projects come online, because this is extremely important for national security and for the economy as well. I mean, if you think about it, Ryan, if you've got a billion dollars of rare earth materials, that translates into a trillion dollars or I should say trillions of dollars of finished product. So you've got a magnet in your phone there that's worth a couple of dollars and the cell phone's a thousand dollars. And electric vehicles and defense applications even more.

Ryan Morfin:

Yeah, everyone has one of these iPhones now, and there's tremendous amounts of rare earth on the circuit boards here. And I think people take it for granted that that supply chain is not secure right now. So one question for you, there's talk of this maybe medium term to longterm, but there's talk about mining in space. Do you think that's a feasible option in the longterm, medium term? What are your thoughts on that?

Pini Althaus:

No, that's just ridiculous. I mean, we're trying to find ways to make mining on earth economically viable. I think the cost of going up to space would be more than what our capex will be bringing our entire project into production. I mean, we've got about a 350 to $400 million capex to bring 130 year mine life into production. I'm not an aerospace expert, but I think sending a rocket, building a rocket ship and sending it up, I think maybe on the fuel alone, you could bring a couple of projects into production. So unless we have a fortunate situation or an asteroid lands on earth, and fortunate if it lands somewhere where we don't care, I don't see how that happens. And if it's big enough, it's a problem as well. It's nonsense. And even, options aside of the deep sea mining for rare earths, I mean, you've got all sorts of environmental issues around that as well. I think we need to look at projects that we can bring online, that can be done so in an economic way, that can be done so in an environmentally responsible way.

Pini Althaus:

I mean, one of the things that we've done at our project is we've got in excess of 60% of the materials that have come out around top, will have a clean green energy applicability to them. So we're using the benign processing method. We're going to be using renewable energy on site. In fact, we will likely be putting a solar farm on site as well. We've talked to a couple of companies that have approached us about that, and we'll be a net producer of power for the surrounding area. So there are ways to do it which don't affect the environment. Obviously if there's a project that's situated on a sensitive area, that's a unique situation for that specific project. We've seen it with the Pebble project, which is not a rare earth project. The Pebble project in Alaska where their environmental concerns is we've been recognized by both Republicans and Democrats, but we have to be reasonable about the projects that don't have environmental concerns.

Ryan Morfin:

So Pini, in season two, we ask all of our guests a series of six questions. They're usually, yes, no questions, but trying to take a survey of our conversations. And if you want to add a little context to the yes or no, feel free, but here goes the first question. If there was a COVID vaccine available today, would you take it?

Pini Althaus:


Ryan Morfin:

Who do you think is going to win the election?

Pini Althaus:

Which election?

Ryan Morfin:

The US election.

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

Thank you, Ryan. Thanks for having me.

Ryan Morfin:

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


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

read more

Want to join our show?

Would you like to be a guest on the Non-Beta Alpha Podcast? Please click below and let us know that you are interested in being a guest on the podcast and we will get back to you shortly.

Skip to content