User Experience & Market Trends in The Diamond Industry with Zameer Kassam

Zameer Kassam, the CEO of Zameer Kassam Fine Jewelry, discusses how luxury markets have been impacted by COVID-19.
Zameer Kassam, the CEO of Zameer Kassam Fine Jewelry, discusses how luxury markets have been impacted by COVID-19. As seen in other industries, user experience is believed to be a major factor in a business’s survival during this pandemic and luxury goods are no exception. Kassam is a firm believer in the value of selling an experience instead of merely selling a product and he is confident that this mentality will assist in his company’s path to recovery.

As the virus progresses, Kassam believes that independent jewelers will suffer the greatest losses while the firms with deeper pockets will manage to weather the storm. However, making investments within the luxury industry should be reserved for intelligent investors with a diversified portfolio.

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Ryan Morfin:                    Welcome to Non-Beta Alpha. I’m Ryan Morfin. On today’s episode we have Zameer Kassam from Zameer Kassam Fine Jewelry, the founder of a luxury high-end jewelry maker based in New York City, who’s going to talk to us about user experience, marketing trends in technology, and the diamond industry globally. This is Non-Bet Alpha. Zameer, welcome to the show.

Zameer Kassam:              Thank you for having me.

Ryan Morfin:                    Well, we appreciate you coming on and sharing some of your insights. Zameer is the founder of Zameer Kassam Fine Jewelry and he actually does bespoke, high-end jewelry design and delivery of some beautiful pieces in New York City and the world actually. He’s traveled all over the world for work and works quite a bit with really high-end stones at the top end of the market and he’s become a friend over the years, and so I wanted to have Zameer just share a little bit about his story about what he’s been doing entrepreneurially and talk a little bit about the market that he’s in, which is high-end stones and a little bit about what’s been happening in New York City during coronavirus. So, Zameer, thanks for joining.

Zameer Kassam:              It’s very exciting to be here and to see you after so long.

Ryan Morfin:                    Yes, so Zameer, so maybe for our viewers, do you mind maybe sharing a little bit about what you do on a day-to-day?

Zameer Kassam:              Sure, so I, as you mentioned, am a fine jewelry designer. I run a company where we create pieces of jewelry that tell stories. It’s primarily the story of how someone feels about someone else, that’s secretly woven into design. So, my most typical example is the guy who’s proposing to the woman, he’s madly in love with her, and he wants to create something that’s a little bit more special than the ring that you can find off the shelf or buy online.

                                           And so, we’ll find out a little bit about how they fell in love, usually from him, and then we’ll find ways to secretly weave that into the design of her piece. So, many little details like the shape of a prong is inspired by a part of the world that she’s from or a secret gemstone in the inside, but in doing so it makes it much more meaningful and special for that moment in time.

                                           And so, it tends to be very much milestones in people’s lives, often it’s a surprise from one person to another, and it ends up being more of an experience than even just a piece of jewelry. So, I think it’s very different than the traditional industry.

Ryan Morfin:                    Maybe you could share a little bit about your journey. How did you get started in this business?

Zameer Kassam:              Yes, my journey from consultant to jewelry designer is a little bit atypical. As you know, Ryan, my family was in the jewelry business. I grew up in the industry in Canada. My parents owned a chain of jewelry stores. I didn’t at 17 years old see myself waking up every day and going to the mall, working with Mom and Dad until I was 70 years old, and so I decided to leave that, started off my career in management consulting in McKinsey & Company. I was at McKinsey for several years, had an amazing experience, still very close to the firm, but after a couple of years I wanted to try something different.

                                           I moved to India, worked for MTV Network in M&A, that was my sort of finance years. An amazing experience there launching VH1, Nickelodeon, MTV all across Asia Pacific, and the Middle East, and Australia, but at the end of the day, Ryan, I just didn’t love media as much as I loved jewelry. I felt media was transient, and jewelry apparently lasts forever, and I couldn’t really get those two to connect for myself.

                                           So I took a break, went to Harvard Business School to get my MBA. It was during the MBA program that one of my professors, Rob Kaplan, who is now the chairman of the Federal Reserve Bank of Dallas, he was actually very close to me in school, and he helped me realize that my passion was in jewelry. Most people don’t know that Rob Kaplan’s father was a door-to-door jewelry salesman back in Kansas City.

                                           So, when I went to him and said that I had this passion, but I wasn’t sure how to create a real career and a life from it, he very graciously took me aside and said, “Let me help you.” And, I ended up taking a summer internship at De Beers Diamond Jewelers, it’s a joint venture between De Beers and LVMH, to spend my second year, second semester in Botswana working in the mines of De Beers specifically in Jwaneng, which is the world’s most productive diamond mine, and that’s where some of my mining experience comes in that, Ryan, you and I have had the pleasure of working on in Afghanistan and then ultimately I took a full time job running the [inaudible 00:04:43] classes business unit for that join venture between De Beers and Louis Vuitton.

                                           Amazing experience when it’s all about diamonds, when it’s all about luxury, but at the end of the day I felt like I was selling things that are in a showcase just like my parents’ jewelry store. That’s when I decided to take that flight from London back to New York, slept on my friend’s couch from HBS, and started to think about how I would build a business that was more in line with my own desires to be close to the clients and closer to design. And, that’s actually when I started to design pieces for friends that told a little bit of the story and back then I didn’t imagine that now we would be more that 2,200 pieces and this would be its own innovative and standalone business, so it’s a bit of the long version of the background.

Ryan Morfin:                    No, that’s just fascinating. I’ve been able to watch it grow, and you’ve become a celebrity of sorts. You’ve been on the red carpet in Hollywood, the Grammy’s or the Emmy’s, people are wearing Zameer Kassam and I think it’s been a great journey to watch, and I think in today’s world a lot of our viewers have historically networked with traditional sources, golf clubs, country clubs, done traditional types of community service whether it’s on a rotary club. You’ve been great at getting your story out and telling stories and marketing yourself, and really in a very sophisticated way early on. Maybe you can talk a little bit about just how you look at marketing and your approach to marketing because I think you’ve done a great job of branding your business and yourself.

Zameer Kassam:              Well, I appreciate that, and I think a lot of where I’ve gotten to is because of my friends and clients like you who have been so supportive over the years. So, I think if I was to give a sense of what I think has been valuable to me, it’s three things. First, is a sense of passion and belief in myself. The second is around the stories I tell and third is an arming my engine of referrals to get the message out.

                                           So on the first part of that, I’m I think quite lucky that I was able to discover the passion that I have for jewelry design at a time when I still was able to get the real life experience. De Beers is now a partner with me, and we’re offering De Beers branded diamonds, that credibility was really helpful in building the business. How did I decide to launch this straight out of undergrad? I don’t think I would have been able to build a business quite as I have.

                                           So, I think in some ways learning the passion when I learned it, and being as authentic as I can be about how much I love it has given me the ability to start telling stories of people in a way that I think other people can listen. The second part of that is that all of my marketing is about people’s love stories. I’m not making up stories about anyone, nothing even on the red carpet is made up. When I’m sitting with a client learning about how he fell in love with his girlfriend walking through Central Park and I tell that story in the design of the ring, we’ll share that story on social media.

                                           And, the truth, the authenticity of that in 2020 so much of what we look at on Instagram and even on the ground and certainly sadly on the news and everything is just so questionable. I think the fact that this is one thing that is actually true really resonates and because of that I think people are really excited to not just listen to it, but to share it. And so, as you know from my business, we’re extremely lean. There’s no stores, you can’t buy anything online, there’s no inventory, and we also spend no money on marketing.

                                           When you see someone who is sharing one of our pieces on social media or telling their friends about it, it’s because they truly believe in it, and I think that arming those people with beautiful pieces of content and quotes from the story, images, videos, has led to my 2,200 clients in many ways becoming my army and sharing this idea of thoughtfulness to all the people that they know, so that when someone’s proposed with a ring and Ryan, you said we’re a high-end jeweler, we make pieces of $5,000, so it’s not all high-end, but everything has to tell a story about how someone feels about someone else.

                                           Even when I did the piece for Time’s Up and Ashley Judd, or Lupita Nyong’o and Black Panther, or the cast of Crazy Rich Asians, all of that told the story of each of their moments in time at that milestone in their life, and that’s what made it exciting for me, exciting for people to read, and then really excited for people to share.

Ryan Morfin:                    There’s corollaries to your business and to our business, so I hope you don’t find these questions remedial, but when you’re taking someone through this potentially intimate conversation or this historical milestone for them, you have to be a really good listener and maybe what are some tips for people to be good listeners? I know you do a lot of sketchbook and you do a lot of note-taking and maybe you can talk a little bit about that process of how you go into capturing all these details.

Zameer Kassam:              Sure, so I think that there’s three buckets to that. One is the mindset that you have to be in. I think two is the way you execute the process, and three is how you then carry that forward into the future. I think number one, the mindset for us isn’t quote, unquote so loosey-goosey as I think many people would imagine just sort of sitting there and dreaming the dream and learning about a love story.

                                           We’re there to serve the client. You might be a friend of mine, but for that hour, those hours, you are my client and I am your provider of something that I think is magical and beautiful, as well as a service and a product. So, we are very much in that serious mindset and our objective is in the process to learn the love story, and then bring that love story to life through design. And so, it’s very thoughtful around the objectives and then structured to meet those objectives.

                                           That leads into number two which is the process. We are extremely methodical. If there’s one thing Rob Kaplan taught me from … this was during when he was at HBS post-Goldman, it was that time is more valuable than money, and your clients and your teammates know that, so we are very cautious about spending too much time without getting to something really exciting in terms of experience for our clients. So, what we say is that we have a three-step process. Each process takes between half an hour to an hour and that whole process is going to be executed over the course of one to four weeks.

                                           So, if you can commit three hours to this over the, let’s say, the next three weeks, this will work for you. If you cannot commit that, maybe we’re not right for you because we need a little bit of something from you to serve you right, but we will promise you that every minute of those three steps, whether it’s two or three hours, will be exciting and fun and leave you with something tangible that you can then take even if choose not to work with us.

                                           And, I think that leads to the third piece which is that everything that we do is meant to continue to increase the emotional excitement of the people we work with. So, from the first step to the second step, we are very thoughtful of the communication we give to a client between the tutorial where we share with them in 30 minutes what we think is worth it in a diamond and what we think is not worth it, so they don’t get ripped off, to the second meeting which is a discovery of learning their love story, we’re figuring out how to make sure that they get excited about speaking to us.

                                           And then, that continues on not just in that process, but when the piece is complete you imagine you present the piece to the man and he goes to his 25th wedding anniversary and gives it to his wife, that’s usually it. I shouldn’t say any brands, but the luxury brands will give you a box and that’s pretty much as far as they go. We will get in touch with his wife. We will invite them in, or to a Zoom, we will then share with her everything that he said about her that was so magical and beautiful, so that he then realizes those hours he put in didn’t just help us create the piece of jewelry, but they were really the product, and her finding out that he put that time in is often as meaningful as the investment itself.

                                           And so, we think very longterm and we think holistically of the client as a family, not just the one person who we’re serving. Does that make sense?

Ryan Morfin:                    Yeah, it makes a lot of sense. It’s really getting a commitment from the client to be bought in or have some equity into the process, so that you’re not only getting their expectations met, but also enabling them to see value for the time they have to commit.

Zameer Kassam:              Well, it’s also enjoyable, Ryan, there’s an element to me being the entrepreneur who created the business, and I think our team of storytellers love learning the story, but when you actually have a relationship with someone that’s that deep and that lasting, it makes the hours feel like they’re not work. It makes it feel that we’re in the service of love, or the service of building heirlooms telling real life stories. That’s led to my team being people who literally join, and you I think met a few of them, they stay for a long time.

                                           We don’t have the turnover of the jewelry industry. It actually becomes really exciting to have people join a team. We’re excited to build relationships that might extend for the rest of their lives. That is an odd thing for millennials in 2020. Most of my team are relatively young and they are very excited to have now been here for three, five, seven years. We’re only eight years old, so I’m feeling like we’re on to something interesting because of those relationships.

Ryan Morfin:                    And so, you’ve been through the last cycle and high-end jewelry and precious stones, what is the elasticity of that type of investment someone’s going to make through a recession or a financial crisis? You came out of the last one. What are your thoughts about how that’s going to impact the luxury market today?

Zameer Kassam:              Well, I think it’s going to have a substantial impact. I did live through the 2008, 2009 crisis back when I was with De Beers, so I got a very bird’s-eye view of the issue as it faced different parts of the market. I think like then it’ll depend on who you are. If you’re in the very high-end, so your luxury retailer that is owned by a conglomerate, you will weather the storm because you have the pockets, the LVMH, or the Richemont pockets, and that’s going to be incredibly valuable at this time.

                                           I think if you’re an independent jeweler, which is the vast majority of jewelers in America, just talking about 40,000, 50,000 independent shops, some of them are regional chains, but they’re the vast majority of the $80 billion of diamond jewelry sales in America. There you’re going to have the majority of the impact. I think that many of them are going to have a really terrible time as they get saddled down by their debt inventory that’s not moving. Both are as a result of just old, poor business practices that have led to inventory return being lower than it needs to be and stores are closed.

                                           You can’t physically walk into the mom-and-pop shop in Wilmington, Delaware to pick up that pair of earrings for your mom because it’s closed. Now, there’s a bunch of other things that have been happening before this that were already leading to a dramatic transition in retail that was going to hit traditional retailers the hardest. This is going to be a catalyst, and those folks who don’t have balance sheets that are rock solid will fail. That’ll create opportunities for other people in the market, but that is going to be very sad to see some of the names that I’m sure your clients and your employees have gotten used to seeing in the main streets all across this country, that’s going to be tough.

                                           I think the low end, there’s going to be a lot more absorption of the impact because the low end tends to be Walmart, Costco, and the different brands that are part of Signet Group, being Zales and the different mall-based jewelers. They’re going to get hit terribly hard. I predict at least one, maybe two large brands might even fail. Actually, I think they will fail. To be fair, I think it might be about time that some of them go through this kind of transition because it’s been generations of not innovating at that level, and we all know that with all of the unemployed in this country, those are the folks who are going to have to decide between some significant substitutes like rent and food and education versus a slightly more expensive engagement ring.

                                           And, I think they’re going to choose the necessities and that’s going to hit the low end the hardest. Again, opportunities, retail space will become available, but I think that it’s going to be really hard for some of them to survive. Does that answer your question?

Ryan Morfin:                    Yeah, that’s a great answer, and it’s interesting, so you’ve grown your business over the last decade really without bricks and mortar, more digital and more bespoke, in-person. We’ll call it high-touch delivery, and how do you envision the luxury market? You’re seeing Neiman Marcus go bankrupt, you’re seeing some of these big retailers, super box stores like Bloomingdale’s under pressure, do you think it’s going to be more by-appointment only type of private, bespoke shopper experience or what does the future of retail look like for the luxury brand?

Zameer Kassam:              Well, for the luxury jewelry brand, I think it’s going to be a moment of reckoning. I think that it’s been a while now that consumers have wanted experiences over products. You can think about 2013, 2014 everyone is saying experiences are more important than product, and my business was already born of that mindset. So, I kind of came in during the beginning of that wave, and I’m excited that we’re a part of that world of building these beautiful experiences.

                                           From there, I think that the industry had to push back because the traditional industry has inventory and they need to sell inventory, and they’ve got all these stores, and they can’t transition that quickly. I believe that the future of diamond jewelry luxury retail will involve far more of three things. Number one, the experiences have to substantially heightened and in a way that embraces technology and I feel like I’m an old man speaking in the year 2000, the jewelry is so slow that there’s not actually one player who’s truly embraced technology.

                                           So, when I say that the future involves experiences that embrace technology and really is a future for this industry, and I don’t know how that will pan out, but I believe it’ll be some combination of in-store and at home where in-store is this beautiful experience, but at home is where a lot of the research and commerce happens.

                                           I think number two, and now, I’m preaching to the choir, or maybe I’m drunk on my own Kool-Aid or some other business term, but the market, meaning people who want to celebrate milestones and do something special for the ones they love, they’re tired of doing things that are generic. How many handbags can you buy from the same brand for your wife every year, or how many cufflinks can you buy for your husband? You just can, you get tired and sick of it, and honestly, this is going to be a moment where people feel very sick of it, and we can talk about how this moment changes things even more, but I think that idea of personalization and customization, something that is made for me that is not the same as every other store and every other bride and groom, I think that’s going to become very important for the future of retail, and that’s also going to mean less inventory on hand, which should free up capital to do more interesting things.

                                           The third thing which is in my opinion about time, is that people are going to become more socially responsible around their spending. I hope people will look at this moment where the world has faced a global pandemic and we’ve had to suffer through it, but suffer through it together as a moment where we can imagine what else we can do if we come together. And so, really thinking about where the money goes, and it’s not just about whether the mine has socially responsible practices, which is a good starting point, but it’s also about who is this retailer, and how are they treating their employees? What did they do during the pandemic? What would they do in the future to make sure people are better off versus worse off? And, really double clicking in every part of that supply chain to feel like this ring doesn’t just represent the love story of my husband and I, which is what we would create, but it also represents really, truly good things in my opinion, as the consumer. Maybe not for everyone, but for me.

                                           And so, combining this idea of harnessing technology to create better experiences that engage people and the store at home, being more customized and personal, and then focusing on literally the betterment of society through the people that are involved in making these pieces, I think that’s going to redefine luxury diamond jewelry retail.

Ryan Morfin:                    I can see the future of luxury retail maybe for your use case of walking into a room and doing your … we’ll call it discovery process for the jewelry design, but having a room full of cameras, so that the person could have an augmented reality to be there while that individual is explaining to you what they’re looking for and I think VR in luxury retail is coming and the amount of capacity for data storage and pixel storage is growing. So, it’s very interesting to see what’s happening. Some of the higher-end retailers and what they’re trying to accomplish on this user experience, and I think all business to consumer businesses are going to need to start exploring, what does it mean for client experience and how much technology can you stuff into it to really stand out?

                                           So, I think that’s absolutely playing out in our business, and we’re exploring all sorts of experiments with that today. Well, so you buy a lot of these really high-end stones, and maybe you can talk a little bit about your input costs of not on a per-karat basis, but what’s happening when there’s a downturn, do you see that people rush into hard assets, non-correlated assets like uncut diamonds, or large stones? What is the market for that today and what are your thoughts about that going forward?

Zameer Kassam:              My thoughts on investing in diamonds has always been a similar high level two, which is I don’t believe it’s for the unsophisticated investor who doesn’t have a very diverse portfolio and a very specific use case for that investment, and you can imagine over the year with the HBS background in finance and McKinsey, approached many times to help create an investment vehicle that is underwritten by diamonds. We’ve all heard about all of these.

                                           I think that at this moment in time I would be cautious because there are a number of things that are happening in the industry that are outside of COVID. If it was just COVID, then you could almost say, what is the one blacks want to rent, we can look in the past and say this is that one thing, let’s model it out, and pretty accurate predictability, figure out where we think diamond prices will go, and where the opportunities are, et cetera.

                                           So, to take a step back, I think there’s always a flight towards non-traditional assets when everything else is flux, and we know that diamonds are one of these assets that people get excited about because they’re highly portable. They do have some form of longterm value, and while they have lots of other issues, they’re also one of the very few assets like this. I think the issue is that leading into this recession or whatever we want to call it, we already had three big things happening.

                                           Number one, the trade wars between China and America are driving prices of high-end diamonds all over the map because what happens in China also impacts what’s bought by Chinese citizens in Asia and America and Hong Kong and Taipei. So, when you look at the numbers, you have to remember they’re not necessarily based on who the clients are, but they’re buying them, and the Chinese market is extremely important for high-end diamonds. So, that was already something I was facing.

                                           I think the second thing I was facing is that the EU was incredibly sluggish in their decisions around high-end diamonds, and so there was some question marks around whether or not that would return after Brexit happened, but that was sort of a third big issue. And then, the third issue in America was that there’s significant inventory that’s been sitting inside the chain that’s basically being held by the middle of the market over the last three or four years as many of these mining companies have struggled to essentially collaborate and work together to manage supply in the way that they used to.

                                           These three things have already been levers, which we weren’t sure which one would pull more, and where the diamond market would land. Now, you overlay the COVID crisis and you start that crisis in China, which is already the most important place for diamonds to be sold, and so as someone who works in the relatively high-end and with very global clientele, I’ve been noticing this happening since January when Wuhan had originally had the virus, and then as it struck through Taipei and Taiwan shut down, and Hong Kong shut down, so wearing that out is that there’s some things … and again, I’m not an investor, so please take it for what it’s worth, but I believe in the very short terms, the next two or three months, everything’s going to be on hold.

                                           The inventories that are in the market are going to be pulled offline. I think there’s going to be a lot of noise in the media about diamond prices declining and mines going out of operation, and I think there’ll be some other articles that say because the mines have gone out of operation, there’s going to be less supplies, and diamond prices are going to shoot up. It’s going to be a lot of noise. I would suggest for the next couple of months, and this is probably not what an investor who’s really excited wants to hear, but I say tune out the noise because this is going to be a time that no one really knows what’s going to happen and getting hands on inventory is actually going to be relatively tricky because inventory is literally being pulled off the market.

                                           Just like an apartment to real estate when we can’t show a house. We don’t want to show how long it’s been on the market when it hasn’t been available. I think in the immediate term once the country and the world starts to transact, there will be substantial opportunities for the individual consumer, and I think there’s going to be some big issues for the individual consumer. The big issues first will be the classics, so if you think about the majority of people who want to buy diamonds it’s almost always round diamonds and round diamonds for studs, round diamonds for rings, very classic, timeless white diamonds. Those things tend to become very heavily demanded when there’s periods of recession because leading up to that we’ve had incredible disposable incomes. People are buying second and third rings, yellow diamonds, pink diamonds, blue diamonds are all becoming much more exciting than when times are a little bit more constrained, and so as soon as you have a recession like this, round diamonds continue to hold their value.

                                           The thing that does become more of an opportunity are some of the fancier shapes and some of the other types of gemstones that are not the most traditional engagement ring. So, I predict yellow diamonds will go down substantially in price. And so, if you’re someone who enjoys that, I wouldn’t again, suggest investing in a yellow diamond portfolio, but if you’re already thinking of spending some amount of wealth on something that is going to be worn like a piece of art, and therefore you’re enjoying it and appreciating it over each day, and if you do sell it someday for more than you paid, wonderful.

                                           I think this will be an interesting time to do that. I also believe the same for certain shapes like ovals, and emerald cuts, and all of those shapes that were really popular a minute ago are going to become less popular and therefore become under-priced relative to what they’ve been even in the last six to 10 months. So, I think that’s going to be an opportunity for folks who are looking to make individual acquisitions in this year.

                                           The third thing is going to be, in my opinion, another opportunity are colored gemstones. So, emeralds, sapphires especially will go down in price as people are not acquiring their more frivolous pieces of jewelry. People will be flocking to the classics of diamonds again and that’s going to mean opportunities for some of these other secondary gemstones. Does that make sense?

Ryan Morfin:                    That makes a lot of sense. No, I do think all asset classes are probably on hold for the next two to three months, meaning I don’t think anybody wants to take legal enforcement actions to foreclose or push people into bankruptcy if they don’t have to, and the moral outrage that would most likely ensue I think hasn’t fully played through the system, but I think the longer this goes on I think you will see creditors and other investors start to demand performance or take enforcement actions and I think the noise and sitting on your hands that you’re talking about in this pandemic across all asset classes.

                                           So, one question I have for you is a lot of people, a lot of our viewers probably don’t know. So, people typically say, oh, the Diamond District in New York or you go into Switzerland, that’s a 20th century adage that that’s where diamonds get cut. What is the new world today? You mentioned China is one of the most important diamond markets. So, diamonds go from the mine, and where do they typically go today? Are they going to China to get cut, are they going to India, are they going to Dubai? Who are some of the new, we’ll call it leaders of the high-end stone and precious stone market?

Zameer Kassam:              So, the diamond industry trade chain has dramatically changed since the 1980s and 90s. Today, most diamonds in the world are mined in Southern Africa, primarily Botswana, which is the world’s most productive mine, the one that I’ve done quite a bit of work in Jwaneng, Botswana. In Russia, through Alrosa, which is now the world’s biggest diamond producer in terms of volume, and then you still have pockets of diamond mining that happened in Australia. Right now, Canada has shut down. Canada is a big provider when diamond prices are high-end, and the oil prices are also low, which could start up again.

                                           But, from the different places where they’re being mined, they’re almost always aggregated in central cities in those places and then sent to India. India is by far the biggest cutter of diamonds in the world. It’s quite sad though right now about 30% of the work force in Surat, Gujarat has been laid off because that’s where these tiny diamonds that feed the low end are cut and they’re typically cut by hand, that’s 300,000 people who have been laid off.

                                           So, there are millions of people who are employed by the diamond industry and just in that one city alone there’s one million diamond cutters. And so, dramatic changes are happening, but from India where most diamonds are cut, China to some extent, and then to a much lesser extent the more complicated diamonds might be cut in New York, very rarely, but sometimes Belgium, also very rarely but sometimes London. They’re then sent to the market where either they’re being manufactured into jewelry or where they’re going to be sold in jewelry.

                                           So, if you’re being manufactured into jewelry, most of that happens in China, and to some extent India, but really China. So at that point, diamonds are going to be given to China, they’re being put into all of these rings that you see in all the Zales and the other jewelry catalogs and then again to a lesser extent, to some of the luxury boutiques or some of these manufacturers who make jewelry in America, who make jewelry in the EU, who we know that most of those are very niche, the vast majority of manufacturing still happens in Asia.

                                           Then, we get finished jewelry that’s making it to the retailers. Diamonds that don’t go to the manufacturers to be set into jewelry are typically are typically sent to the diamond trading centers of the world. There’s really three, the biggest by far is New York. New York is not just where Americans transaction. Remember, it’s $160 billion diamond jewelry industry, $80 billion of that is in America, so it has the biggest market. It’s also where the world transacts. I’m based here, three quarters of my clients aren’t American, but we get the best rates on diamonds whether they’re through the De Beers network, which are Forevermark diamonds or otherwise being based here in New York because of the vast amount of supply of extraordinary options.

                                           Outside of here, another central hub would be Dubai, which is where diamonds come from some other places and I don’t do much work in the Dubai diamond forces, but you know that there’s a lot of diamond jewelry that sells in the Middle East, Northern Africa, and Asia and a lot of that happens through Dubai. That’s related to the Mumbai market as well. Mumbai has another small market, but much of that is sold in the region not to Indians consumers, and then the third is Hong Kong because Hong Kong was originally set up to serve the Asian market.

                                           These days we work very closely with Hong Kong and New York to combine as one because most of these diamond cutting businesses have multiple offices in all these cities. It used to be that there were thousands. When our parents were thinking about getting rings for our moms, they would have gone to a diamond district and there’s 1,000 people and they all have some secret relationship with each other, that no longer exists. Right now, you only have a very small number of companies that can buy diamonds from these different diamond mining companies that then goes down the chain in a much more concentrated way than it used to in the past, and a lot of those old relationships are no longer in place, which is good for people like me who are relatively new to the industry and are able to source diamonds and maybe in the 1980s I wouldn’t have been able to because I didn’t have the right family lineage.

                                           But generally speaking, if you are looking to get the best value on a diamond, you are best served purchasing it in New York, Hong Kong, and probably Dubai. Although again, Dubai I’m the least familiar with.

Ryan Morfin:                    No, that’s fascinating. The market is definitely globalized and given that the environment that we’re in and the no-touch economy, people are still falling in love, they’re still getting married, still having families, but given this … we’ll call it shelter in place and no-touch economy, how delayed or how is this going to impact the high-end retail market? What’s going to be the duration do you think before people come back off the couch and get back into buying … I don’t want to call it complex purchases, but significant purchases like this type of jewelry?

Zameer Kassam:              Well look, I think it’s going to dramatically transform the way people think about this category depending on who you are and how you purchased things before. So, I’m going to focus on the wealthiest category because that’s generally who would be acquiring jewelry after a time like this. I think there’s a positive and negative impact. I think on the positive side, you’re not going to be taking that trip that you were planning on taking with the kids to trek through the North Pole or whatever else you were thinking of doing. You’re probably not even thinking of doing that epic proposal skydiving over the Champs-Elysees or whatever that would be for the 28-year old today who’d doing that.

                                           What you will be doing still is proposing to her. You’re still going to be celebrating 25 years of love and maybe these six, seven, eight weeks, three months of sitting at home next to her watching her take care of the kids, seeing how she takes care of you while you’re working, seeing how you take care of her while she’s working, I believe that’s going to remind people of why we’re even bothering with … this sounds kind of like an aggressive statement, but life. At the end of the day, we don’t actually need a ring. Nothing that I can create for you will feed you, it will not keep the lights on, it will not do a thing for you, but what it will do is celebrate the way that you feel about someone and say that you’re grateful for that and hopefully we do a good enough job of telling the story, so it’s not just a rock on her hand.

                                           I think that that will become more special and meaningful to people as they come out of this. And so, from that perspective, people may not be spending money on the experiences traveling and going to all the fine restaurants every night, and that might actually mean that they save more of their resources towards fewer things that really matter. I’m hoping, I believe one of those things that matters will be something like this which is an engagement ring or a piece of jewelry, but done in a way that is much more meaningful than walking into a store and buying something off the shelf.

                                           On the flip side, I think people are going to be thinking very hard about real estate, about their additions to their homes if they have a home, but now they’ve been living in it, and they’ve realized we need to put some more money into this to make this house a home. If their kids have been in college, and they haven’t been thinking about being close to them, I think some people are going to think about getting an apartment close to where their kids are, maybe starting to invest in being a bit deeper in their lives as their kids have kids, and making some of these real life decisions a little bit sooner than they would have.

                                           And, I think that’s going to change potentially the way that they think about making luxury purchases, but I do think that the traditional jeweler selling a ring on a bend, or whatever color box is going to have to think very hard of how to stay relevant in a post-COVID world.

Ryan Morfin:                    Well, and you’re obviously very close to the wedding market. Have weddings pretty much in New York all come to a screeching halt, have been rescheduled, or are you hearing about hidden, secret rendezvous wedding parties that are happening even though there’s not supposed to be more than 10 people gathering? What have you been hearing on the ground?

Zameer Kassam:              Well, Ryan, I can tell you that I’ve heard whispers of things happening in the country and certainly in the world because remember, some of our clients and friends have homes in places that aren’t so impacted and the homes have a lot of space. In New York City, everything is shut down, and I’m physically located in the heart of Midtown on 56th just off the Park, and there’s no one even thinking about having a celebratory glass of wine on the street even though you probably could right now because no one’s policing these things.

                                           But, almost all of the weddings of all the clients that I’ve been lucky enough to create pieces for and have been invited to have been postponed. The majority of them have been postponed from September and onwards. I think that there’s been a lot of sadness around what that means in terms of family members who may not be able to travel after this has happened, specifically grandparents, and then really thinking about whether we have a wedding that now … is it still going to be in Tuscany or will we actually have it close to our parents in Chicago and our grandparents? Because this is now a new norm, and so I think number one, nothing is happening. Number two, big decisions are being made about whether we’re going to have a wedding that’s the same size, that’s going to be in the same place, and really focusing on what matters in a wedding.

                                           But, I think number three, there’s at least an attempt to have a little bit of celebration. I attended a bachelorette party which was all on Zoom, and I can tell you that there are businesses that are being made for bachelor and bachelorette parties that are meant to mimic the Vegas experience. I’m not going to give anymore information about that. It was very strange, but I applaud the effort. There’s also a number of new websites that are creating packaged gifts that you can send to all your bridesmaids to let them know that they’re bridesmaids. They can open it up and have a drink together.

                                           People are trying to innovate and make the most of the situation and I think that is creating a little bit of … it’s helping the time pass and the downside of this become manageable, but I think by and large, all celebrations of love have been very much put on hold for the next couple of months. That said, there are many people who are getting married with certain timelines for immigration reasons. You can imagine with many of my clients working in finance and being from all over the world, meeting at business school, one of them not necessarily from America, in this environment where the wedding is who knows when, a visa still expires. That’s going to happen.

                                           And so, there’s certainly been an uptick in the number of people quietly getting court ceremonies that no one knows about because you still can, just to make sure that that step has been put in place for the longterm visa while the wedding is still being planned.

Ryan Morfin:                    And, the people who have to move these are hotels, and caterers, and vendors, are they being reasonable about pushing things back or are you hearing horror stories where contracts are contracts and if you don’t show up with your guests you still owe us for the hotel room? I’ve heard about that for a business conference. I don’t know if that’s bleeding into the wedding environment.

Zameer Kassam:              I’ve heard only great things. I’ve heard great things in that, again, in my world, my part of the market, most of our clients are working with hotels that are major hotel chains or institutions in the city that they’re in, and everyone knows what we’re going through, and many of these are in Italy and in Spain, and so they really have felt the crux or they’ve been in the heart of this.

                                           So, I’ve heard very positive stories from the hotels. I haven’t heard much from the caterers because I think they’re generally managed by the hotels. I also see it from the other side. I have many wedding industry friends, planners, florists, folks who make the cakes and do some of the decorations, and their revenue has completely dried up during this time. Now, one would argue that they are the ones who paycheck protection programs have been designed for and I do hope that they’re able to tap into that. I know that it’s been quite difficult from what I’ve heard from many of these people to tap into that because they don’t have the complex or the large loans from the big organizations and institutions and personal bankers who can fast track through the process.

                                           So, my belief is that if this second round, and we’re speaking today when the second round has not yet lost its funds, has not yet run out of funds, if this second round reaches the creative individuals who run all of these businesses, they will be okay if it does not, I think there’s going to be a very sad for the people who make weddings and incredibly beautiful love celebrations happen in this country.

Ryan Morfin:                    Well, I think the industry’s a huge industry, and people don’t think about it as a business, but it is a tremendous business, a lot of money spent every year, and you’ve had the privilege of going to so many amazing weddings. Maybe you can share a crazy story about one of the more unique venues without naming names of where you went and maybe some of the things that have, over the last decade, even wowed you given that you probably see some of the best of the best around the world.

Zameer Kassam:              I’ve definitely seen some amazing, and wild, and crazy things at the weddings that I’ve been to. I can say that the most original wedding was the wedding of … and I will happily say the name because there were articles written about it, which is Abba Abubakar, who is the son of the former vice president of Nigeria. Now, I got to meet him through actually friends of mine who work in finance from HBS, and so I was lucky enough to design the engagement ring and design the jewelry and when I met them I had no idea what the wedding would be like.

                                           The wedding in Dubai itself was magnificent, 1,000 people, really lavish and fun, and I thought that was just incredible in and of itself. Then, at the end of night, I met his father, and his father said, “Well, of course you’re joining us for the wedding.” I said, “But, sir, I just came from the wedding.” He said, “No, no, no, no, you’re joining us for the wedding.” And, I was so confused. He said, “No, this was not the wedding. This was just the Dubai party. The wedding’s in Nigeria, it’s next weekend. I’ll see you there.” And, I had no plans to be there, I had no flights, had nothing packed, but as you know, Ryan, I enjoy the adventure of life.

                                           And so, I said yes and I went all the way to Abuja and when I got to Abuja there were cars taking us to another city named Yola … flights to Yola and then from Yola we drove to a village named Jada and along the drive, two-hour drive, the streets were lined with people singing and chanting love songs in Hausa, which is the Northern Nigerian language. As we get to … I don’t even know how to explain it, like a custom built stadium for 30,000 people to celebrate this wedding, and that went on for three days.

                                           So, I can’t even begin to explain the things that I saw and learned in that wild experience. Being there, not just with this couple, but in such a foreign place. I had never been to Nigeria before, and experiencing this with 30,000 people for days and days, it really shows when we think about community and what community means when there’s a wedding in the community, that’s the ultimate. This wedding was for everyone, and so that was the most memorable, and there’s certainly other ones that have had some crazy moments and celebrities that drop by and people that are shuttled on helicopters from the Athens Airport to the resort in Greece. Really, there’s a helicopter? Yes, okay, two thumbs up, but it’s been an amazing thing because I believe that you get to see the best of people, the best of their families, their favorite things at a wedding, and when I’m invited it’s the greatest honor of my life to attend.

Ryan Morfin:                    Well, no doubt you’ve always been an adventurous soul and have really taken advantage of going to see the world, and I think a lot of people who may have not made time to travel, once this is all over, are going to make the time to go out and see the world now that they’ve been cooped up for the last few weeks. Well, Zameer, I really wanted to thank you for joining us, and sharing a little bit about your story and please let us know if you ever start up Zameer because I’m wealth management. I’ll be a client, and I very much appreciate your time.

Zameer Kassam:              I appreciate the opportunity and let me know if there’s any way I can be helpful. All right, and stay safe.

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