The German vs. African COVID-19 Response with Andreas Eller

Mr. Morfin sat down with Andreas Eller to discuss both extremes in terms of governmental responses to the COVID-19 crisis by contrasting the different approaches taken by Germany and Kenya.
Mr. Morfin sat down with Andreas Eller to discuss both extremes in terms of governmental responses to the COVID-19 crisis by contrasting the different approaches taken by Germany and Kenya. Germany has impressed the world with their shockingly low mortality rates in comparison to other countries of similar economic status. Eller believes that these statistics are a result of the German government’s quick and aggressive testing, unambiguous communication and lack of governmental impositions. The citizens of Germany took this freedom to decide and implicitly developed a standard of mutual assistance and awareness which has tremendously helped the country in their fight against the virus.

In contrast to Germany, Kenya has taken extreme economic blows due to the multitude of miscommunications between the government, its citizens, and law enforcement. Despite Kenya’s relatively harsh responses – among which include a mandated curfew and law enforcement acting on personal judgement – the virus remains overwhelming for the country.

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Ryan Morfin:                    Welcome to Non-Beta Alpha. I’m Ryan Morfin. On today’s episode, we have Andreas Zeller calling in from Berlin, Germany. Andreas is a managing partner at Open Capital Advisors at African Consulting and Financial Advisory Firm that works with governments and companies in the 21st century. This is Non-Beta Alpha.

                                           Andreas, welcome to the show.

Andreas Zeller:                Thanks, Ryan.

Ryan Morfin:                    Well, we really are honored to have you today. You have a unique perspective calling in from Berlin, Germany. Germany has been one of the best suited countries to deal with the coronavirus. But you also have tremendous experience since you live and work in Nairobi, Kenya, and you kind of see the other side of the coin, some of the countries that are less fortunate to have economic infrastructure and access to a banking system that can prop up in the economy. So really curious to hear the dichotomy of both of those types of countries and learn a little bit from your perspective. Thanks for joining us.

Andreas Zeller:                Absolutely. Great to be on.

Ryan Morfin:                    Why don’t we start off with Germany? Germany and Angela Merkel seemed to have gotten this under control and want to know from a performance standpoint, what’s driving that healthcare system to just do such a good job of having a low mortality rate and putting people out of the hospital and back into their homes?

Andreas Zeller:                Well, it’s definitely tough here. I mean, I remember when this emerged early March. It really was Italy in terms of Europe that was the concern. Now today, I think Germany’s at just about 80,000 cases, which is not insignificant. It has definitely been a hard hit country, but what that’s corresponded to is, as you said, low mortality rate and a very quick and effective response. I’ve been really impressed by, I mean, at least from my perspective, obviously as a person on the ground not involved in the inner workings of government here, the clarity of communications. It’s been very open, it’s been very clear, it’s been very regular. Hasn’t felt like there’s been misdirection. Hasn’t felt like there’s been anything hidden. It’s been very clear in terms of what we need to do and when and how, where resources can be found, aggressive testing that happened really early on. Knowing that the government was prioritizing any sort of solution, trying to find the best and brightest around the world to advise them early on gave a lot of confidence.

                                           So now even with that many affected, I do get the sense that morale has hit everywhere in the world as it is here, but people feel a lot of confidence in leadership and taking direction and acting as they need to to try and beat this thing.

Ryan Morfin:                    What’s fascinating to me is that the mortality rate is 0.4% today. It seems that the older population in Germany just isn’t catching the virus. The average age I think is 46. Where in a lot of other countries, it’s an older demographic. Why do you suppose that is?

Andreas Zeller:                I don’t think there’s any perfect answer and a lot of this is anecdotal based on just conversations. More than anything, I think there’s a cultural reason behind it. I don’t think there’s a medical reason. I guess you could argue that there’s a certain degree of testing or hospitalization solutions. But even there, I mean, that might not necessarily be so dissimilar from elsewhere in the world. What I mean by cultural is when people talk about elderly homes, staying enclosed, they really mean it. People have really followed a lot of these directives very clearly. They didn’t have to. They haven’t always been a sort of directives that are immediately followed up by say police presence or enforcement. It really is a lot of voluntary followup.

                                           For example, in the apartment building where I’m staying and have for the last month, there were immediately notices written by tenants on the wall saying, “Look, we all have to be in this together. We’re not leaving, but we’re here to help each other. So if anybody needs groceries,” people we’re trying to help each other out, but also recognizing that they were following the recommendations by the authority. I feel like that’s meant not gathering in public places. That’s meant staying inside and that’s resulted in a lower mortality rate.

Ryan Morfin:                    Yeah, it’s fascinating. I mean, Germany is obviously outperforming the rest of Europe. It’s interesting, 82% of the cases are people under 50 years old, which is kind of alarming, but those people tend to have that demographic tend to have the best outcomes. Can you talk about early testing? It seems that Germany, for whatever reason, was able to get the testing of their population accelerated faster than anywhere else. What can you say about that? Have you been tested? Do you know people who have been through this process? How is it designed? Because the way people get tested is also a very important trigger, if you will, for contagiousness. A lot of people in New York City are waiting in lines at hospitals and getting the virus while they’re waiting in line to get tested.

Andreas Zeller:                Yeah. I don’t know too much about how testing has actually been distributed, but there has definitely been a dynamic that I think is important, which is the request of the population to not request a test. The restraint that I think many people have followed when they feel symptoms, not to rush to try and get in a long line to be tested, but to stay inside, to stay in quarantine.

Ryan Morfin:                    That’s a great point.

Andreas Zeller:                The counter factual there is almost more important than the number of testing kits you have, which Germany does not have more of I think than most other countries. I’m not sure, but that’s my sense.

Ryan Morfin:                    Well, and the German economy is really like a Swiss watch, really well-maintained. What economic policies has Merkel and her team put in place to cover unemployment of some of the hardest hit sectors?

Andreas Zeller:                Well, one thing I’d say that’s been impressive is that Germany has not been a Spain and Italy or a France in terms of the level of shelter in place or equivalent. Nor even a Bay area in the US. People can travel freely. I go out on my bike every day to go to the office and back home. There is a degree of mobility that I think has really enabled more than just a core set of central services to continue work. So there’s a degree of continuity that comes there, albeit on the backdrop of making sure that you don’t have people clustering, you have people who are really taking a lot of care around sanitary condition.

                                           I think there’s one dimension around trying to keep as much of the economy running as possible within this sort of controlled situation. I think the other is his willingness to drop the sort of fiscal constraint that Germany has been famous for in the past to the EU. Germany has been very fiscally conservative, and now they basically announced, I think they call it unlimited lending option to businesses to keep them afloat. So really trying to put a stimulus package together that the likes of which Germany has never seen or Europe has never seen.

Ryan Morfin:                    Yeah. I noticed they did some type of a policy where they will cover 80% of the payroll for people to stay employed to cover the bridge of the crisis, which I think is quite… I mean, it’s very strict criteria to register, but if you can prove your company has been fatally wounded by this, they’ll cover your payroll for a few months, which is interesting. We have something maybe similar brewing here, but I don’t think this is as easy of a calculation that they have in Germany.

                                           On the flip side of this, you live in Nairobi, Kenya, and you work across Africa. We haven’t seen, I think, the spread into Africa. I think it’s probably because the testing regime isn’t there and the infrastructure’s not there. Maybe share your thoughts about what you hear on the ground in Kenya and the rest of Africa and what we might see in the years to come or months to come.

Andreas Zeller:                Yeah. The vast majority of our team is based in Africa and Kenya, Uganda, Zambia, and Nigeria. So we’ve got daily perspective across all those countries, but Kenya is the bulk of it. It’s where I spend a lot of my head space every day, though I’m not there physically right now because of the travel restrictions. The real challenge is exactly as you said, nobody’s really aware of how far it’s spread yet. As much as there’ve been some pretty direct measures taken by government, and frankly, some of the most impressive government actions in a while at the time, as difficult as it is to shut down an economy that’s already struggling, the need to do so is significant.

                                           So restrictions, for example, on curfew, there’s a curfew in place in Kenya now that you can’t be on the streets at all after 7:00 PM. In Uganda and Nigeria, all public transport has been shut down completely. Can’t leave your house. It’s incredibly difficult for very dense communities that don’t have proper infrastructure anyway and typically don’t spend much time inside. They’ve done what they had to do. The real question is how sustainable that is given you don’t have the opportunity to do a bailout like you would in Germany or the US. It’s at a tipping point potentially now where everybody’s hoping that the spread can be contained before you see some real economic disaster, but everybody’s also trying to plan scenarios and rush to the right places to preempt for the possible.

Ryan Morfin:                    One of the drugs that’s been highlighted by governments and doctors around the world is this chloroquine anti-malarial drug. Does Africa have a fairly robust supply of these anti-malarial medications given the prevalence of malaria?

Andreas Zeller:                Yeah. Anti-malarials are everywhere in Africa. I’m not sure about that one in particular, but as you said, everywhere. Very readily accessible. The challenge is, it’s expensive, right? So the question once again is who pays? Now there’s of course a drug aid program. The government has various pharmaceutical distribution points that are hypothetically government subsidized, but they’re typically out of stock most places you go. Again, it becomes a real challenge to try and distribute to such a dispersed pretty low income population.

Ryan Morfin:                    Yeah. President Kenyatta, I think that’s how you say his name, and steel magnet Narendra Raval have just pledged a huge infusion of private sector capital to come in and start paying for medical infrastructure development. What role and how robust is the role of the private sector to help really stabilize a lot of these African countries and governments?

Andreas Zeller:                I just spent several hours on the phone yesterday and the day before with a number of CEOs and Kenya firms that we know well who manufacture soap and sanitary products, and who distribute them all around the country and have tens of thousands of distribution points. I was really positively surprised they’re stepping up their offering to produce that cost during the period. They’re offering to distribute at cost or fully subsidized. They want to get products out there. They want to help. A state house, which is the Kenyan white house equivalent, is onboard fully with them. Some of that partnership, I’ve never seen the likes of it, which is really encouraging. At the same time, there’s not as much depth. A lot of the private sector, these GDPs are smaller, businesses are smaller in scope and limited resources.

Ryan Morfin:                    Yeah. At least in the Western world, this is more of a food access issue, a bottleneck of supply chains, not really food supply. Do you anticipate there maybe a food supply issue in some of these African countries given the disruption in the economy?

Andreas Zeller:                There may well be. The challenge is everybody’s wrestling with this dichotomy. Right now there is a lot of challenge around interpreting what essential services means, who can be out on the streets, who can be driving around, who can be in trucks at various checkpoints. And oftentimes that legislation, which was passed by decree almost immediately, hasn’t been trickled down to law enforcement. Police are often making their own judgment calls about what is and isn’t appropriate and that creates a lot of confusion, which makes it more difficult for businesses to do their jobs, for example, distribute products. That’s then reduced and curtailed some of those distribution channels that might otherwise be open. Again, we take a lot for granted in the US and Germany and elsewhere in terms of just the smoothness with which the government can actually translate immediate legislation to action on the ground and oftentimes that’s more challenging in other economies.

Ryan Morfin:                    Andreas, you used to work at the World Bank. What role do you think these multinational institutions are going to have in trying to stabilize the world economy? Right now it’s been the global central banks, the big ones, but what do you anticipate the IMF World Bank are going to do to try to stimulate the economy or stabilize it?

Andreas Zeller:                Yeah. Well, I’ve been happy to see some immediate COVID funds come together. Both the World Bank and IFC, its private sector arm, have put together funds and repurposed funds that are billions of dollars towards this effort. They recognize it’s a drop in the bucket, but they’re putting it together. And most importantly, they’re channeling it quickly. A lot of that’s going to flow through banks, for example, in Africa. Some of it will flow through governments, but that’ll take more time and be harder to structure, try and get that money to a private sector immediately. Some of it also can be funding vehicles. I think the challenge really is you’re trying to preempt an issue right now, but once the issue really becomes, if it does, uncontrollable, you’re dealing with an economic crisis that will take likely trillions of dollars to bridge. That’s a broader global question, how we can do that.

Ryan Morfin:                    Yeah. I mean, there’s also the NGOs that are floating around Africa trying to help. Who are the major players right now in East Africa or Central Africa on the healthcare side today? Who’s doing the most, do you think?

Andreas Zeller:                Well, I mean, we’ve been talking with USAID once a week. They’ve been really doing phenomenal work. They are talking a lot about not only aid, but private sector support. The British have been really active too, DFID. Both have been donors pumping hundreds of millions of dollars into Kenya and East Africa and they’re really trying to focus on what they can do to help. I think that’s critical. A lot of other European countries are following suit as well, especially in Francophone West Africa, the French, as well as other donors. NGOs tend to be a bit smaller but are very active on the front lines too, often in communities they know very deeply, which is just as critical.

Ryan Morfin:                    That’s interesting. Western aid and USAID, the UK, Germany, all helping with their international donor programs. And a dichotomy there, and I’m curious what you think the view on the ground is in Kenya, the Chinese have been very active commercially tying aid to commercial projects in Africa over the last decade. Do you think there’ll be any resentment from governments that the Chinese kind of withheld the information in the short term in January and December when they knew there was a new respiratory issue? Now it’s going to come and wreck havoc on the global economy. Do you think there’ll be any blow back in Africa on the Chinese Africa relationship?

Andreas Zeller:                Interestingly, there’s actually been a very positive response to China. Jack Ma and other Chinese business people have been stepping off planes, unloading testing kits and masks throughout East Africa, which has been a lot more of a quick and concrete response than some of the donors have provided. Yes, that’s only a drop in the bucket. But the fact is they’re trying to come and provide actual hard content to address the issue. Now, the real challenge is, will the dollars follow? Will China aid [inaudible 00:16:29]? In the past in issues like this, China has not been as active on the donor front for Africa. They’ve been around to build infrastructure typically funded by their own loans, but it hasn’t translated into aid that’s really critically needed. So the question really is not even how the disease occurred, but rather will they step up and help them to get medication?

Ryan Morfin:                    I know this is one perspective, but what do you think the German sentiment is around that issue? Are people frustrated that they didn’t get better information? I mean, I know the UK has voiced frustration. The US Senate has also done the same, US Intelligent Community has also come out with a report yesterday saying that they definitely withheld information. What do you think the German sentiment is on that issue?

Andreas Zeller:                I think historically the first to react have been obviously US and China given various disputes between the two. Germany and the EU has tended to stay out of that as the EU tries to figure out its place in the world. I have not heard any sentiment there to that extent. I’m not sure to what extent in political circles that’s the case. I think the resentment has… Not resentment, but the concern has been more how Germany will have to play a role within the European community to potentially support other European countries that may not be as fiscally responsible in crises like these.

Ryan Morfin:                    Well, that’s a great question. I mean, there’s talk of COVID bonds being floated in Europe for some of the economies like Greece and Spain and Italy that are already having fiscal problems, monetary problems. But a question is, I guess, how is this going to get funded? Do you think the European Union is going to have to step in and float some type of specialty bond or is each country on their own? And if they are each on their own, does this weaken the European solidarity around EU?

Andreas Zeller:                That’s the key question. It wasn’t helped by Brexit before the corona crisis obviously. There’s been a lot of conversation about the future of the EU and of fiscal arrangements within it. I think the corona crisis has also made everybody look domestically more than ever before. Germany has an obligation it feels to its citizens first and foremost around stimulus, which is why you saw the reaction that you did. I think they’re taking a very egocentric mindset as well, but it’s really a question of to whom do you have an obligation for the first duty of care? I think in crises like this, that becomes extra challenging. So I’m really curious to see what happens.

Ryan Morfin:                    One of the questions is the migration across Europe. Are borders getting closed right now, or is it still a pretty easy kind of free floating Visa regime?

Andreas Zeller:                Nope, it’s closed. Borders are closed for all but essential travel. So outside of each individual country returning to that country, borders are otherwise closed, and that’s to prevent spread for frankly vacations and other travel that may have haphazardly spread the virus.

Ryan Morfin:                    I know there’s a lot of refugees coming still from Syria through Turkey into the European Union. Have they tried to cramp that down? I know in the US, the Southern border has now been militarized by North Comm, which is the military command structure for the North American continent. Have you seen a mobilization because you’re closing the borders in Europe to try to stop the flow of migrants coming in from Turkey?

Andreas Zeller:                I just read an article the other day that one of the Merkel interviews stated that refugees were still being accepted by Germany, which I was surprised, frankly, because if you’ve got closed borders in a sort of crisis you’ve got, it seems like it’d be challenging to keep that flow open, but they’ve done it. I imagine the flow is significantly reduced because of that, because of border controls, because they are heavily policed now. The airports are pretty empty. Flights are, I assume based on what people have told me, all have been canceled. Nearly all have been canceled. So I imagine it’s a pretty small steady flow of prearranged refugees at this point.

Ryan Morfin:                    Andreas, you spent time on Wall Street, you spent time with the World Bank. I’m curious, especially for our viewers that don’t have Africa on the map often for their investment allocations, what are some of the things that attracted you to Africa? Why is people like Jack Dorsey, Twitter, Bill Gates, why are they so focused… Jack Ma, all these billionaires are really excited about Africa as you are. What is driving that interest and that excitement about the future of the 21st century of Africa?

Andreas Zeller:                Yeah, it’s interesting. I mean, when I was at Credit Suisse doing MNA and in New York and at IFC doing private equity around the world based in DC, what was interesting is that the lack of investment float Africa relative to its population, its potential, and that’s only growing. Africa becomes a super critical investment destination with too little capital flowing and a lot of up market opportunity, both to export and domestically. Yeah, there’s a lot of challenge in the market, but if you understand how to navigate it, understand what sectors really have growth potential and can operate a sophisticated enough operation locally, those flood gates open. It’s been really impressive last 10 years I’ve lived in Kenya, just seeing the degree of investment that’s come into various opportunities and the potential return. We’ve seen this, not only in technology, which is of course a major growth sector, but also just in agribusiness and energy, renewable energy and manufacturing and some of these core fundamental drivers sectors.

                                           As we look forward in Africa, it scales well beyond the billion people it is now, it can’t be ignored and it’s going to be one of the most central places for return. Obviously you have to do it carefully, but that’s what’s attracted me.

Ryan Morfin:                    No doubt. In terms of this coronavirus situation that we’re in globally, we’re going to have to make sure that it’s taken care of in Africa too because without taking care of it as a global pandemic, we’re going to continue to see waves spring across the world. Well, we’d welcome to have you back in the coming weeks or months ahead when you get back to Nairobi. I’m sure there’s going to unfortunately be a lot of evolving changes on the fight against coronavirus in Africa, and we’d love to pick your brain. Please reach out to us when you’re back in Nairobi. Stay safe. Thank you so much for joining the show, Andreas.

Andreas Zeller:                Absolutely, and thanks for doing it. It’s really helpful communication for everyone.

Ryan Morfin:                    Thanks a lot. Thank you for listening to Non-Beta Alpha. Before we go, please remember to subscribe and leave us a review on Apple Podcast or our YouTube channel. On our next episode, we’re going to talk to one of the owners of 44 Farms, one of the largest organic cattle farms in the country, what they’re doing to ensure that food supply equals food access and some of the interesting things in genetics that are going into our food supply today that all Americans should be made aware of. This is Non-Beta Alpha, and now you know.


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:


Ryan Morfin:

Who do you think is going to win the election?

Pini Althaus:

Which election?

Ryan Morfin:

The US election.

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

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

Pini Althaus:

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

Pini Althaus:

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

Ryan Morfin:

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

Pini Althaus:

Thank you, Ryan. Thanks for having me.

Ryan Morfin:

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


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