The Future of Banking with Vista Bank CEO John D. Steinmetz

The CEO of Vista Bank, John Steinmetz, delivers insights on how the credit markets and banking sector have been influenced by the pandemic.
The CEO of Vista Bank, John Steinmetz, delivers insights on how the credit markets and banking sector have been influenced by the pandemic. As an industry insider, Steinmetz believes that it is too early to say how credit will play out into the future due to Federal Policy which grants banks the right to modify pre-existing loans. The consequences of the recession will become apparent in the first quarter of 2021. PPP has served as a buffer for a more gradual shift towards higher unemployment rates but has also invited fraudulent players to take advantage of this stimulus.

John Steinmetz believes in the power of technology. He feels that technology will serve to accelerate the recovery due to the copious amounts of accessible tech resources which will enhance every business owners quest toward maximizing efficiency. This, and the declining use of the paper dollar, may cause an infrastructure shift in the banking industry in favor of its online platforms.

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Ryan Morfin:

Welcome to NON-BETA ALPHA. I’m Ryan Morfin. On today’s episode, we have John Steinmetz, the CEO of Vista Bank, a Texas bank that has been very involved in growth, but also making sure PPP loans get to small and medium size businesses. This is NON-BETA ALPHA.

Ryan Morfin:

John, welcome to the show. Thanks for joining us today.

John Steinmetz:

Thank you, Ryan. Appreciate the opportunity to be with you today.

Ryan Morfin:

So John, you run a bank here in Texas, and I wanted to chat with you a little bit today about the future of banking, and your views on the economic environment that we’re in. Vista Bank is a growing fast, strong bank here in Dallas, Texas. You’ve really grown the bank over the last few years, maybe you can talk a little bit about the banking sector prior to this pandemic, and what the banking sector is poised to do after the summer.

John Steinmetz:

Sure. Well, let me begin by thanking you and your viewers for allowing me to visit with you today. You obviously are dressed more appropriate. I’ve wondered oftentimes if you sleep in a tie. Now I know that that is absolutely the case. It is Saturday morning, and here at the Steinmetz household, I’m going to be sporting the old Vista Bank hat. But as you know, Ryan, Vista started in 1912. We started out as an Ag bank. I joined the organization in October of 2007, world’s greatest time to get a bank, diversify and growing. And how I think that applies to the organization today, is that it was a family-owned Row Crop Bank primarily focused on COD and about 58 million in assets today. We’re Dallas-based. We’ve moved the domicile to Dallas, and we’re just over a billion one in assets.

John Steinmetz:

So we have had some strategic growth, primarily through multiple markets entering into commercial, but what we really did see was that ’07 start was much like what we’re seeing today. And there are a lot of changes that are taking place in the industry, but also in the country in every facet. And that’s where we saw the greatest opportunity for those with dry powder. And those, quite frankly, that had the grit to dig in and battle during what are, certainly, most challenging times, personally and professionally, today for the country.

Ryan Morfin:

And so, banks take a longer term perspective. What’s your view? Credit’s obviously shifted pretty quickly in everybody’s portfolio, just given the unemployment spike and the next-level effects of unemployment, and then the damage consumer. What’s your view on how credit’s been impacted across the economy?

John Steinmetz:

You broke up for a little bit there, but I think what you’re asking is, what was the shifting credit market looking like. And I think, to be real honest, it’s probably too early to say. The Fed issued a guidance that allowed banks to put borrowers on a deferment, or IO, a modification without doing a TDR, trouble debt restructure. And so what that allowed us to do was, it allowed the industry, the financial services industry, banks in particular, to go out and modify loans to help borrowers during the COVID pandemic, and then ultimately what we’re struggling with today. So, what I believe is, that kicked the can down the road until probably the third or fourth quarter.

John Steinmetz:

I believe we’ll see the true impacts of COVID in Q1. The market obviously responded well yesterday, due to unemployment numbers not being as strong as analysts expectations. But, it’s going to be difficult to say where we’re going to be, but I think that if PPP and some of the other stimulus programs do work, and we’re hopeful they do, it’ll be shortened U… I’m not sure I believe in completely the V, but I think that the U can be a lot sharper than the U.

Ryan Morfin:

You mentioned the PPP program. What were your thoughts about that? They put a lot of money out really quickly, jaw dropping, quantum leap of stimulus that we’ve never seen before. How did that go, in your opinion, from a bank standpoint?

John Steinmetz:

Well, I think it was very timely. It was imperfect. As you and I discussed, we were having this conversation on the exchange a couple weeks ago. It was a very eloquent program put together, with changes every day. But, what I think it gave people was, the time that was necessary to allow their business to keep folks employed.

John Steinmetz:

I’ve said all along, it was a great stimulus program, but what it was, was it was an even better unemployment program. I think we saw the impacts of PPP and the success of PPP yesterday with the unemployment numbers. I believe that PPP will, the Payment Projection Program, will allow small businesses to keep folks employed. And as you know, in your industry, with as many folks as you have, the most valuable asset any of us have is the human asset. So, when we take them out of our companies, and put them on the unemployment line, not only do they lose a incredible opportunity to stay with the company, oftentimes that they want to stay with, but also, we lose very well-trained, regardless of the industry, regardless of the sector, great people.

John Steinmetz:

So, I just think it’s going to be something that hopefully we look back in time and think, man, it was imperfect, there’s no doubt there was a ton of problems, there was fraud that has taken place, but at the end of the day I’m hopeful that it does make an impact for us [inaudible 00:06:24]…

Ryan Morfin:

Yeah. It’s seemed to have worked. Obviously it’s not a perfect plan, especially when you throw that kind of money out the door that fast. But you mentioned fraud. What was the type of fraud? Were people just faking payroll statements, or…? What type of fraud do you think existed? What are they saying?

John Steinmetz:

Well, any time you have a government program, any program, whether it’s government or not, you’re going to have people that understand how to beat the system. We saw some, and declined some false tax statements. This program was designed to be efficient, and I think it was. But, at the same time, banks had to respond as quickly as possible, while at the same time ensuring that safety and soundness was applied. Primarily, it’s documentation. Did these entities exist? But, I think the treasury did a great job of making some outlines that allowed us to really clearly identify what was and what wasn’t. And all we can hope is that we’ve all done, as a nation, the best job possible, as a sector of banking, to allow us to continue to grow, and supply these individuals the much needed money to keep their folks off the unemployment line.

Ryan Morfin:

Yeah. Unemployment is definitely enormous today. What is your view, and your banks view, on where we are in the economic cycle? You said you don’t think a V shape is coming, it’s more like a U shape. Do you think there’s more stimulus programs coming? And then, is that what’s going to bridge us to this U shape recovery?

John Steinmetz:

Okay, so the first question was really, do I feel like the… What was the first question? I’m sorry. It was…

Ryan Morfin:

No. The first question is, do you think there’s… Where are we I guess, in the cycle? How long do you think it’s going to take for the recovery to really take [crosstalk 00:08:24]?

John Steinmetz:

Sure. So, as your industry, clearly, watches daily, we were in a long bull run. We were poised for some type of correction. What may be unique in this case is, that this was ultimately what set the correction in place.

John Steinmetz:

Are you there?

Ryan Morfin:

Uh-huh (affirmative). Yep. I’m here.

John Steinmetz:

Yeah. So, maybe we were there, in a position where the correction was set for us, versus something that came along that was unexpected. I do believe, and I do feel personally as an editorial comment, that this correction will be faster than others because of technology, because of the things that you and your firm are doing to communicate. On a daily basis we know, at any given time I can pull up on my phone and know exactly how many assets an individual loan officer has, what their past due ratio is, what the profitability is, and I think that that’s a distinct advantage over where we were even seven years ago.

John Steinmetz:

Five years ago, we as an organization sat around the board room and said, hey, is there still a place for community banks? And I’ll be honest with you Ryan, I wrestled with whether or not Fin Tech’s was the future of banking, and if too small to be successful was even more relevant than too big to fail.

John Steinmetz:

So, what we have seen through this pandemic is, and in particular PPP, I want to give praise to all of the community banks out there. This is no knock on the big banks but look, we stepped up to save Main Street. And as you know, being in the market, as Main Street goes Wall Street follows. It’s not the other way around. So, the PPP program in particular, assisted us in keeping Main Street solvent, and banks, community banks in particular, went out and made loans to small businesses that ultimately were able to do it.

John Steinmetz:

As of yesterday, we did 1,706 loans, Payment Protection Program loans. They range from $281 to 700… I’m sorry. $7.8 million. $281 loan, someone took the time to get a $281 loan. So, as we feel sorry for ourselves at times, just keep in mind these are people that… I believe, only community banks would do a loan for $281. And I’m proud of the fact that we, regardless of where someone was on the socioeconomic cycle, their race or gender, we were here to help, and I believe because of that, what we’re seeing today is, we’re seeing the impact as the companies come back together. So, community banks are needed, but I do believe scale is going to be everything over the next 10 years. And we’re going to see, at least in Texas, probably one of the greatest consolidation of banks upon this recovery as we’ve seen in our generation.

Ryan Morfin:

Yeah. No doubt Main Street needed help. It seems like from the analysis, that maybe half of the jobs we’ve lost won’t come back. So, these small businesses had their balance sheet wiped out. I think part of the genius of the PPP program is that it really injected equity into balance sheets really quickly to keep people… Give them some time to digest what was going on. But, those companies that don’t survive, they’re going to be replaced by new companies, that’s the beauty of the American dynamic and environment that we’re in. But they’re going to need to get access to credit. So, going forward, how do you think the credit markets, or the access to capital for small businesses is going to change? Is it going to be more difficult, or do you think these would be good opportunities for new businesses to start a new company?

John Steinmetz:

You know Ryan, one thing I’ve always been impressed with, about your firm and you is, that you’re always looking a little further down the line than a lot of folks. I’ve done a number of interviews surrounding this area and no one’s really asked about where credit is going to be tomorrow. I do believe credit is going to be a little more challenging to access. I do believe that one of the challenges.

John Steinmetz:

I had a chance to visit with the treasury department and secretary’s office, about this issue at hand. One thing you can not do is, you can not burden the banks, the financial services sector, to be police, ultimately a program that the government did, for the right reasons, because what we will is, we will pivot and we will take care of what needs to be taken care of.

John Steinmetz:

However, what that’s going to do is, that’s going to take you away from being able to help other small businesses grow and businesses have the access and the capital that they need to grow. Wall Street can issue more debt. They can put out sub debt, and they can put out more equity, but a lot of these Main Street businesses just don’t have the access to the capital. So, I think that’s where Vista is going to position ourselves. We are going to do everything from automation, just like we did on the forgiveness side, to ensure we’re as efficient as possible. Because what we want to do is, we want to help businesses like yours, and those out there, not only be as strong today and you’ve ever been, but also, play a small part in your success in the future. So, we are open, we are dry powder, and we are prepared to deploy it to those that are looking to grow. And ultimately that’s [inaudible 00:13:50] back on track.

Ryan Morfin:

Do you think… Is there talk amongst the policy circles that the banking sector, regulatory environment that we went in to, post the financial crisis of 2008, [inaudible 00:14:03] and all that, is that going to be reformed or do…? What kind of changes to the regulatory environment do you expect to help spur more business?

John Steinmetz:

One of the advantages of being in my 40s is that I did not experience the banking crisis of the 80s. One of the disadvantages of being in my 40s, is that I did not experience the banking crisis of the 80s. But I will tell you from a regulatory standpoint is, I got in this industry in 2002, post 9/11, the Patriot Act, BSA, we’ve always been in a highly regulated industry. And quite frankly, we’re okay with that. I think it’s an advantage that Vista Bank has. I think it’s an advantage that many banks around the country posses. A lot of these regulations are in place for the right reasons.

John Steinmetz:

Do we need reform? Sure we need reform. Is there areas that can be improved? Sure. But, as I sit in my home today, there’s reform and areas for improvement under my own roof. So, I think that what we’re going to see is, we’re going to see, under different administrations, we’re going to see a ways and a means to ensure that Main Street… Because this is not a partisan issue, we’ve got to make sure that these small businesses are in a position to one day become Wall Street companies, because they all started there. That is what we’re really focused on. We’re focused on playing by the rules that are given to us, and doing it well.

Ryan Morfin:

Yeah. And it seems like the banks are in very good shape, right? There’s good reserves. But we started seeing some of the bigger banks start to really aggressively increase reserves for losses on their credit portfolios. Do you think that’s going to accelerate throughout the year? That additional reserves are going to be needed. Or do you think that we’ve seen the worst and things are going to start to calm down a bit?

John Steinmetz:

No, you make a great point. Banks after The Great Recession, the capital requirements were increased. So, where you saw banks with five to seven percent, now they’re at eight to 10, 11, 12% in some cases on their two to one capital. As it pertains to the lines for loan loss and reserves, I do think it’s prudent to increase your reserve. We took, in the first quarter, just based on quantitative measurements based specifically around the economic conditions, and we did put additional reserves up against it. That’s not because we were immediately expecting a loss, that had as much to do with the fact Ryan, that we see the economic conditions somewhat decreasing, and therefore we’re doing it. A lot of banks, I’m hearing, are beginning to put more of their earnings, in particular in 2020, towards their allowance, so that we can ensure that we have adequate reserves in place. And I think you’ll see that with Vista Bank as well.

Ryan Morfin:

One interesting question that came up in a different interview we had is, people aren’t really using cash as much anymore, and I think this pandemic is probably going to accelerate that. So, payment processing, technology and credit cards seem to be more important than ever. How has your bank been looking at that different space?

John Steinmetz:

There’s no doubt, and what we are seeing today, low interest rate environment, we are having to say more technology less people. And more technology less people, is going to allow us to be operationally more efficient long term. It does have a cap X in the short term. But, with these, likely, low interest rate environment we have to do that.

John Steinmetz:

More importantly what COVID has done is it has created a very unique opportunity, as you know, [inaudible 00:18:01] Vista we have a number of locations with 15 locations, and probably eight of those are in rural parts of Texas. And some of those folks were the same ones that came into the bank every day. Well, when COVID was at it’s peak, the lobby was closed, except for by appointment only. So at that time, we really were able to convert some of the holdouts per se, to go and try our technology and our app.

John Steinmetz:

At the end of this month, after three years, we’re revamping our website, we’re revamping our app, and we’re going to continue to reform what is ultimately being driven by the consumer. So, technology is allowing us to compete with the big banks, but there is still, as I mentioned earlier, too small to be successful, so I think where that number used to be a couple hundred million two years ago, I believe it’s a billion today. So, we are focused on investing in the technology. We have an incredible operations team. We spent, as a board, more money, from an operational technology perspective, in the last two and half years, than we probably have spent in 106 years. And just putting us in a position where we are a community bank with a FinTech tilt. That’s where I believe at the end of the day, people are going to feel most comfortable doing business.

Ryan Morfin:

And the cap X decisions that everybody’s going to have to make to really digitize their business is going to, I think, really be the differentiator. One area though that just continuously becoming a board issue is, cyber security. How has cyber security changed during your tenure as CEO, and where do you think it’s going for FinTech and the financial institutions?

John Steinmetz:

Well, I’ll tell you, cyber security is an issue that we face as we hold this interview. We have probably had two attempts… Just based on the law of averages, while we’re having this interview we’ve probably been attempted to be breached twice. I’m the first CEO outside of the family that previously owned, controlled this company in 105 years out of our 108 year… I guess it’s been 104 years out of 108 years of existence.

John Steinmetz:

Cyber security was not something that they focused on. It was, you had to make the loans and then you had to collect on those loans, and then redeploy the capital. Well today, it’s an area that we spend the most amount of time. And it’s probably where we’ve had our biggest losses is… It’s not probably, it is, with cyber. So, we have to continue to invest in these walls, but as our former Governor in Texas once said, if you build a wall that’s 12 feet, they’re going to build a 13 foot fence. And that’s very similar to cyber. The minute you patch one hole… These are some of the most talented cyber criminals in the world, from all over the world. And they can reach out to anyone. So, this is no different than your business, it’s one that we all have to invest in, and continue to invest in. And it’s an unfortunate reality of today, and it’s something that I suspect in our lifetime, probably won’t change.

Ryan Morfin:

What is your view on digital assets and some of these digital currencies? The New York State Controller is starting to put some regulatory guidance, the SCC is putting guidance. What does the banking sector think of these cryptocurrencies?

John Steinmetz:

You know Ryan, I always want you to be able to trust whatever information I provide to you, and I tell you, I just don’t know enough about cryptocurrency to really provide your listeners and your viewers a very educated response. I would just say that what we’re doing is monitoring what the Federal Reserve and the Treasury are putting out on it, and when it is a demanded product that our consumers demand, Vista Bank will pivot and be a part of that industry. But as it stands today, we’ll leave it to the banks like Silvergate and the incredible companies that are out there doing it, and hopefully keep up with it as it transitions.

Ryan Morfin:

Yeah. No, that’s interesting. We aren’t touching it either. We think it’s a little too early. There’s a lot of people… I think there’s a lot of hype, a lot of talk about it, but I don’t think governments are ever going to give up control of the monopoly on Fiat, so I think if I was a betting man I’d be willing to bet on the US government maintaining control. But-

John Steinmetz:

You know Ryan, I heard something the other day that surrounded that and they said, when Auto Max or AutoNation came along and they were going to disrupt the auto industry by doing, online, you could come out, test drive vehicles, and then you could order it and they could bring it in, at the end of the day people still want to kick the tire. So, I do believe this applies to our industry. We are going to see branch rationalization and consolidation, there’s no doubt in my mind. You have to be efficient. But, at the same time, if you invest in gold you want to be able to go and hold that gold in your hand, and I believe that people still are going to want to go their bank and be able to possess, not everyone, but most folks are going to want to be able to possess, or see, wherever their money is being held, and that’s why we’ve been somewhat cautiously optimistic that branches will still hold a place in society.

Ryan Morfin:

What is the math around… How do you size, we need a branch here, we need a physical location here, how do you look at corporate real estate from a bank’s perspective, given the digitization of the consumer’s habits?

John Steinmetz:

Sure. Well, it’s actually changed quite a bit in the last 90 days, just seeing how many folks need to be in a location. You can basically take a look at FTEs to assets and a location needs to be able to at least maintain 25 million in loans to help offset the expenses. But I’ll tell you, one of the challenges that you’re seeing, as much as anything, that COVID really accelerated was, succession planning in smaller rural parts of the entire county. I’ve spoke with CEOs outside of Texas in our industry, and what we’re seeing is the migration to suburban areas outside of communities of 2,000 plus, and so that’s becoming the biggest challenge that Vista’s having is, where do we find that next leader for the community that’s going to lead the organization and help grow the communities that we serve. So I think that’s playing as much of an impact as any. But, at the end of the day, the equation’s just total assets to FTEs, and that’s something that we can quantify pretty easily.

Ryan Morfin:

Capital One’s got… They’ve changed the format of their banks. Do you think the branch format is going to change tremendously in the future, or will we still in 10 years, have tellers behind the desk, and bank managers? How do you see the future of branch experience evolving?

John Steinmetz:

No. I think Capital One is really changing the landscape for banks in general. I’m not sure it will be something that will be integrated throughout all of North America, or beyond, immediately. But I absolutely think there will be a time… As you come to Vista Bank today, and I wish this was different, you’re now back behind plexiglass. There was a time when there was bars in front of the windows, back in the day. So now, you’re with plexiglass… What’s the difference between plexiglass and what you and I are doing? And with the integrated automated machines that we can get today, I think that you’re probably going to see more what Capital One is introducing to society, integrated as a sector. And it’s something that we are actively looking at, because we want to serve the communities that maybe, don’t have the asset quality.

John Steinmetz:

So what it could do, is it could allow you to actually enter communities that don’t hit those ratios that we discussed earlier, and really serve people where they are. And that’s what people want. But, at the end of the day, I’m not so sure that this isn’t your bank long term, right? I ran to the coffee shop earlier and didn’t bring my wallet, and was able to do a complete transaction. So, I think that’s where, going back to your BitCoin and cryptocurrency and everything else, I do think there’s going to be some transitions that take place, and branches are going to be one of them. But it’s not going to be something, in my opinion that, you can’t, at some point, whether you drive 30 minutes or an hour, I think at some point people are going to want to know that there is still an institution that stands, but I could be wrong about that.

Ryan Morfin:

No, I think you’re right. I think we, as a society, realize the importance of grocery stores. Amazon had some troubles fulfilling shopping requests, and you needed to get to a grocery store to get your food. You didn’t want to depend on an Amazon truck not showing up. So I think, just in time inventory’s probably going to move to just in case. So I think people are going to be more supportive of physical, tangible retail services, including banking. Well, shifting gears a little bit, more of a policy question too. I know Libor is going to be ending, and how is that going to impact the capital markets and the lending sector? And what is the benchmark going to be going forward for floating rate debt? How’s the financial system reacting to this?

John Steinmetz:

I’ve always been somewhat surprised that the US has put any emphasis on Libor. We have a prime system and the prime system works. I’ve always said Libor is nothing more than prime minus, and it’s a fancy way of saying finance versus finance. So, obviously it changes on a more daily basis, and some would argue is a better reflection of the current market conditions. But, at the end of the day, I just don’t see this being something that’s very disruptive. It’s going to take us back to the way that we do business in the US, for the most part, on a prime system, and Libor will have to phase out. It is phasing out. I think… What is the deadline? You probably know when it’s effectively phased out. Isn’t it 2022 maybe, or 21?

Ryan Morfin:

Yeah. I think it’s coming in Q1 of 21, I’ll have to check. But yeah, it is. It’s coming around the corner. There’s billions and billions of dollars of debt that’s tied to the Libor benchmark, and you’re right, prime works. I don’t know why people aren’t just moving to that-

John Steinmetz:

Well, and I think they’re going to have to fairly transition folks to a new system, to a new measurement. And prime minus is… We know how often our Fed meets and that’s when prime moves, and people all can anticipate that. I don’t think it’s going to be as disruptive as a lot of people are saying. And I think that’s quite frankly, why you’re not hearing more concern. We heard more about our computers would crash in 2020, than this entire monetary grading system on Libor. So, hopefully we’ll see that transition well.

Ryan Morfin:

One question is, after the financial crisis, the banking system went through obviously, a huge shock, and there was a lot of consolidation. And then the Fed came in, and the banking regulators came in and created this frame work of these stress tests. Have those been working? Are those accurately providing enough cushion in the banks? Or are they too conservative or…? What is the conversation amongst bankers today? What does the future of the stress tests look like? And is it burden, or is it a welcomed piece on infrastructure for you guys?

John Steinmetz:

Stress testing is, I think very… Well, we stress test every day. And I think that it is a… Is it a burden? Sure. It’s a burden when your not doing it on a regular basis. But, anyone should be stress testing a lot of areas of their life. So, for a bank to not be required to stress test… In fact, we’re now looking at going back to… And this was counsel that was given to me. Go back and look at the 80s, go back and look at the .com bust, there are some similarities, even though one had to do with real estate and one had to do completely with technology.

John Steinmetz:

Then also, where is it at? So, we’re going to stress test our portfolio, I think that’s why you’re seeing a lot of the banks put up a reserve, additional reserves against it. As we said it, it’s really hard to tell who is and who isn’t going to pay when this is all over. But, if you’re prepared, you have the adequate reserves, you’ve done the necessary stress testing. So, I really commend… Even though it does take time and it is sometimes a challenge. I commend the stress testing requirements that are in place today, and I think it makes us a better system long term. That’s where you’d speak to some and they would say it’s just another added burden added by the regulatory bodies, but… There’s very few regulations that are in place today that weren’t put in place for the right reasons, and our job if we’re going to do any reform, is to make sure that they still make common sense, and apply to a rational resolution if [inaudible 00:32:17] accurately.

Ryan Morfin:

What do you think the political environment’s going to look like I guess, for banks in the future? I know, unfairly, the banking sector sometimes has been put in the cross hairs of certain parties. You guys are the ones that are going to help give access to credit to the new set of entrepreneurs in this recovery. What is the banking sector trying to do to maintain or manage a fair reputation from the politicians?

John Steinmetz:

Sure. Well, I think it’s not received undue and unfair scrutiny. Look, our sector is divided amongst many. You’ve got FinTech, you’ve got large corporations, community banks and if you look at the PPP program, and the unemployment numbers that came out, I could argue that the bankers, around the country, were working around the clock. I spent a total of four and a half days not working in the office. Many, many, many bankers in our organization pulled all nighters that they haven’t pulled since college. Some of these folks being in their late 50s, to ensure that Main Street business owners are able to get the money before quote unquote it runs out on the PPP loan.

John Steinmetz:

So, I’m hopeful that… Look, politicians on both the left and the right recognize that these are first responders. At the end of the day, when the Fed had to push out… Or the treasury wanted to push out a bunch of money to the hands of those that needed it most, the banks stepped up. And that was community banks and big banks. So, I’m hopeful that some of the rederick that’s just used during campaign season, but then spills over after because their trying to keep up some campaign promise, that we begin to look at what is really, again, useful, and makes common sense.

John Steinmetz:

I hope I’m answering your question, but what I really want to say is, look, banks are playing a very strong part in society. And not all banks got bail outs, not all banks were part of the sub prime credit market, and I’m not sure even those banks that did get bail outs were a part of that, that they intentionally did it as oftentimes they’re described as. That does not apply to everyone, obviously, but let’s give folks, some of it, the benefit of the doubt if we can.

Ryan Morfin:

Yeah. No doubt the banking sector saved a tremendous amount of jobs by turning that PPP program out the first wave, and then the second. And you’re right, they don’t get a lot of credit. But, I’m hoping that gets brought up, how many jobs were saved and businesses were saved. And hopefully, small business owners step up and actually make that heard, because I do concur. A lot of people worked tirelessly to save those businesses. So given that you’re in Texas, and you’re a bank in Texas, can you share some of your views from the oil patch and what’s happening there? How is that going to impact the banking sector, given maybe, the over leverage that has occurred in that sector in the last decade?

John Steinmetz:

Yeah. This is one that’s a bit odd to me, and history tends to repeat itself over and over. As oil goes in Texas, Texas goes. As Texas goes we’d like to think sometimes the nation goes, because we are an economic stimulator. Oil is important to our economy, and it’s important to the economy as a whole. And I think Independence is showing that. But I believe that what we’re going to see today is that, the volatility is really impactful to all areas, and every business in our state and in our country. It’s not a Texas issue, this is one that impacts us all. We want to see fair and equitable gas prices, at the same time, it is challenging for a lot of banks.

John Steinmetz:

Fortunately Vista does not spend a lot of it’s capital in the oil sector today. But let me tell you, when it was popping Ryan, there were people asking us, “Why are y’all not doing more in energy?” It’s just too volatile for our size organization, but when you get larger, it’s one that you have to be in, and I think the banks are doing a better job because of what you mention either, higher capital requirements. And that’s why you’re seeing banks rebound, even with some of the larger energy exposure. In the end, I’m hopeful that what we see is… We see banks handle this type of commodity exposure. And that’s going to make the industry as a whole, better, long term.

Ryan Morfin:

Are you guys still doing a lot of Ag loans? What is the health of the American farmer today? How are they doing?

John Steinmetz:

I would say… I can only speak to a couple of sectors because that’s where we really spend most of our time, but… Agriculture’s always going to be a challenge. Economies of scale matter in our country today, but I would say that I’ve seen it worse. I’ve certainly seen it better. But, for where we are today, the economic stimulation that the farmers and the producers have received, I think, has assisted those folks be in the best position possible. They’re buying some of the large equipment that helps have a supply chain in various other areas.

John Steinmetz:

But, I think food and fiber is the backbone of our country. It’s more important than what you and I do every single day. So, I’m hopeful that we continue to support our Ag producers, so that they can in turn support us. Because one thing we do know Ryan, is that we do not want to be dependent on other countries for food or fiber, like we have been for energy. And regardless of your party affiliation, where you believe on the political scale, it is good for the United States of America to not be dependent on any other country. Can we produce things elsewhere for less? Absolutely. And that creates a competitive landscape that allows us to get things for less. But at the end of the day, the United States of America is strong enough to where it should be able to supply itself, and we have the natural resources to do that.

Ryan Morfin:

Yeah. No doubt this pandemic has really I think, strategically put at the top of the agenda, what supply chain needs to come back to the US and what’s too critical to trust to allies or pure competitors. Given the environment that we’re in, maybe, what are some silver linings that you see in the banking sector, or in the economy, that make you optimistic about America?

John Steinmetz:

Well, let me say, I am extremely optimistic about our sector, about your sector, and about America as a whole. I think that, certainly we’re going to see some challenges, but is civilization as we know it coming to an end? Absolutely not. Look, are we taking on more debt by having these stimulus programs? Sure. But, how is it relative to the rest of the world, and are we positioning ourselves to be as strong as possible?

John Steinmetz:

I genuinely believe the US has a lot of issues today that we will tackle over the next 20 years, but I am extremely encouraged by the entrepreneurism that I’ve seen through this time. I’ve seen entrepreneurs step up like never before. I’ve seen community bankers in Hamlin, Texas make loans to people in Austin, and let me tell you something, Hamlin and Austin are ying and yang. But, we’ve pulled together, much like after 9/11. There was a rallying cry that came through this.

John Steinmetz:

The silver lining to me is that, we were on a long bull run, and we were going to have some type of correction, and I’m hopeful that what this has done is rattled the cages of our country, and allowed us to pull together and recognizing, shop local, support your company. There is a place for community banks. The silver lining for us is, five years ago we were sitting around the board room and we didn’t know whether or not there was really a place for us. Today I will tell you, there is absolutely a place for community banks. We are the the [inaudible 00:40:58] Main Street, and so hopefully we can work together to try to only make this country better.

Ryan Morfin:

Well, a funny question for you. Who’s your favorite Fed governor? If you have one.

John Steinmetz:

That’s not a funny question, that’s a trick question because it comes back to you. Let’s just say that, those that truly take in the banking sector as a whole.

Ryan Morfin:

Yeah. I think my favorite, just listening to him speak, is Dick Fisher here, from Dallas. That guy’s been just calling it real for a long time. Yeah. What about… Any books you’ve been reading over the summer, or things that have peaked your curiosity?

John Steinmetz:

Well, The Outsiders is a good one. Outsiders is a book that talks specifically about thinking on a contrarian view, and how you can do things differently. I think Audible’s a great resource. As we’ve been just out, there’s no reason you have to listen to music, you can get educated. But I would encourage you, and maybe anyone else, to check out Outsiders. It’s not one that gets enough attention, and actually it points on some really good attributes, that quite frankly, you already possess. When are you going to write your first book?

Ryan Morfin:

I’ll tell you what, I’ve got some ideas but I don’t know if they’re adventurous. I’m pretty nerdy and go deep in the brush. But John, I appreciate you joining us. We’d love to have you back in the months ahead. And thanks for all the hard work I know you guys have been doing to keep small entrepreneurs and businesses afloat over the last few months.

John Steinmetz:

Well thank you, Ryan. I appreciate the opportunity to speak on behalf of Vista, and thanks for everything that you’re doing for not only the financial services sector, but all of your amazing, amazing team have done for this community. So, thanks for everything you’re doing and have a great day brother.

Ryan Morfin:

Thanks John. Thank you for watching NON-BETA ALPHA and before we go, please remember to subscribe and leave us a review at Apple Podcast or our YouTube channel. This is NON-BETA ALPHA, and now you know.

John Steinmetz:

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 the 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. The views expressed in this podcast are not necessarily those of NON-BETA ALPHA Inc. or Wentworth Management Services 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. or Wentworth Management Services LLC to that listener nor to constitute such person a client of any affiliate of NON-BETA ALPHA Inc. or Wentworth Management Services LLC.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

Yes.

Ryan Morfin:

Who do you think is going to win the election?

Pini Althaus:

Which election?

Ryan Morfin:

The US election.

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

Thank you, Ryan. Thanks for having me.

Ryan Morfin:

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

 

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

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

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

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