 We are receiving a great deal of interest on investor news right now surrounding the rare earth sector, but doesn't seem to be translating to the market. Constantine, what is going on with the rare earth market? Are you seeing the same trends happening from your perspective? Well, hi Tracy. There's never a dull moment in the rare earth industry and yeah there's all kinds of trends that it seems that the trends that were apparent in around the end of 2023 have continued into 2024. I think we're seeing a continuing slide in prices primarily for neodymium and praesiodymium which hurts the industry and hurts all the players because that's where most rare earth producers make money. I think that will, I'm a little pessimistic for the near term. I think that will continue for all kinds of reasons that we could get into it. And also I think there is a continuing interest in developing new deposits, new production, refining capacity, especially outside of China for good reasons and bad reasons, but you know that the interest continues and in my view this is when prices are down and valuations are down, this is where you spend capital to buy things and to do things on the cheap as much as possible and you take advantage for the good times when they return because they will invariably return like they always do. It's a cyclical industry and those trends are with us, have been with us for three decades and they'll be with us for at least another three. Jack, I'm certain you have something to add. Do you agree with what Konstantin has said or would you like to disagree? No, I agree except that I think that the low prices may be here for a while because the principal producer in the world is China and China is having a very bad time economically right now and it has nothing to do with where EARTS has to do with the way they organize their economy and the where EARTS are just reacting to this as Chinese internal demand goes down in a period where China had announced and nobody here pays any attention that they would double their capacity in rare earth permanent magnet production by the year 2025, in other words in 11 months. They're well on their way to doing that. The magnet producers in China are building enormous increases in capacity but right now with the Chinese economy down and Chinese people not interested in buying expensive items like cars, they've been burned so badly by real estate, I just think that since China produces in or anyway maybe 70-80% of the world's where EARTS and certainly in magnets over 90% they continue to produce, they need to sell things so the prices here are not going to go up any anytime soon. I don't know when but Konstantin made a good point I'd like to expand on this for a second. This is the ideal time for real mining and real processing companies to get into the game because right now you can buy, you can attempt to buy raw material sources on the cheap. I don't mean by the raw materials, I mean by the sources, by the mines and this is an unusual opportunity for just a very clever businessman to get in at the bottom. Of course you need capital but some businessmen have the capital and as far as processing goes, I've never thought it was such an arcane topic. The reason people don't build processing in the West is there's nothing to process so to take a flyer on building processing takes even more nerve than taking a flyer on buying raw materials. Anyway all this is happening and low price is driving it. As you know I'm not an investment advisor but I would be very very cautious of people who are producing anything. Konstantin would you like to add anything to that because again we're seeing a great deal of interest in the public market sector and of course prices and things that make sense don't always equate with what's happening on the market. Yeah I think there's always a disconnect between reality versus expectations so I think there are two and I agree with Jack, China continues to be the driver where perhaps we disagree a bit as to what is really going on in China. The Chinese consumer has not stopped buying. China grew at 5% last year at least that was the the hit the official target I would have been shocked if they hadn't and where the problem is is that the main consumer of rare earths today the magnet industry that feeds the electric vehicle production in China because China produces more than half of the world's EVs it's not growing as fast as people thought it was going to grow. It's growing but not not as fast so that has created a problem between inventories and actual production and demand so I think we are in a little bit of pain in the near term until the inventories get corrected. However we also saw very recently an increase in mining and production quota awards in China. I think this is a signal that the Chinese government is sending to the world that the Chinese domestic industry will need more rare earths and that will be met that increasing demand will be met with additional mining and additional refining in China and abroad. However in the near term I think it does create a little bit of an excess more further excess of supply over demand and Jack and I are in agreement then that in the near term and perhaps in Jack's view a little longer than the near term prices are going to continue to be under pressure. Jack you obviously want to add something to that? Yeah you know for some reason the journalists and analysts have forgotten that the rules of supply and demand and just as Constine said as long as the supply is in excess the prices are not going to go up at least not where I went to school so the problem really is going to originate in China again. I'll tell you what the great prophet Elon Musk said just I believe last week that the biggest danger to the OEM automotive industry in the West is China and he means cars. He said if America should lose the 25 percent tariff or the Chinese make even better cuts in their costs and if Europe doesn't erect a tariff then he believes Chinese electric cars will simply dominate the market in the very near term and he's really right and what Constine was saying about the Chinese economy. I agree the Chinese car makers seem to be still making a lot of cars. Where are they going to go? Well when I went to school in the 19th century I guess what happens in capitalism is if I have access production I export. Well Keith Rodgers had a brilliant article in the New York Times this week talking about BYD calling it the Tesla or China's Tesla killer. Ten years ago you wouldn't want to go anywhere near BYD. It was so important it reminded me of the old Hugo when I first saw it in China. I would never put my kids in it. However back in the days when I was working and I was doing my frequent China trips I always made it a point of going into car dealerships in China and in the last few years I've been going into electric vehicle dealerships. I have been shocked about the with a quality to price relationship of Chinese EVs because the Chinese supply chains have figured out how to keep Mercedes and BMW and Lexus and Honda and so on happy so they're taking those parts you know the finishing and the seats and the dashboard it's extremely high end and it's at a fraction of the car of the cost that you would see in North America. So BYD and Neil and Geely and Lee Otto and all those countless brands of EVs in China they're making really good cars at a very low cost. The other fascinating point in Keith Bradshaw's article is the fact that BYD guess what they just built their own ship to carry 5,000 EVs across the ocean. The Chinese industry has built 12 of those and they're getting ready to just take over the world with their EVs and I don't see Detroit or Stuttgart or Seoul Korea or Toyota City responding. I mean we're all you know in the west we're just at the mercy of whatever initiative the Chinese industry is taking and I think guess what this isn't looking particularly good for EVs in the west unless the EVs start learning from the Chinese playbook and start responding with cars that consumers want to drive at the price that consumers want to pay because so far you know Detroit and its love affair with the truck and the big SUV when you translate that into luxury big SUV EVs well you know the numbers just don't work out. Anyways I'll stop in the beginning. I have one thing to add. I also noted that article by Bradshaw and what struck me is something that I've seen several times before BYD makes 70% of the components of its cars internally okay so does Volkswagen and both of them Volkswagen just announced they're going to make the electric motors for their powertrains for EVs in the house they're building a factory in Hungary just to do that BYD already does that. General Motors is repurposing a factory to make electric motors drive motors for cars all of them we need rare affirmative magnets to build those motors but the thing here is that in America 35 years ago 30 years ago everyone made their own components General Motors had Delco, Chrysler had Mopar, Ford had you know Fomoco parts okay they all controlled their components the the cycle of capitalism in America did away with that you know to just in time supply from outside suppliers because they could squeeze outside suppliers they couldn't cut costs anymore inside now the car companies are all going back to that but is their time enough for General Motors, Ford, Stalantis, etc. I'm just talking American market to do that in time yes they can make motors they need magnets to make motors they don't know how to create a magnet industry the car companies and they're very resistant to learning they they remind me very much of the US Department of Defense. So let's jump right in here then so at some point the Chinese are going to do what they do regularly which is make an announcement that they're missing a critical mineral and then all the stocks in that particular sector look like a hockey stick for approximately three days and then return to normal what is happening with the magnetic materials in general on the planet I mean where should investors be be looking we drew a lot of attention recently to the Middle Eastern interest in Africa competing with China Constantine can you talk to that for where should investors be looking well that's a tough one and I'll pre-empt my comments by using Jack's comment earlier I'm not an investment advisor I I know what I like I I'm a patient investor personally so just as Jack is an advisor to a number of companies I recently became an advisor to a small Canadian junior with a very interesting deposit in Brazil that I visited I think Brazil based on what I saw and what I talked to people about Brazil could be a game changer because it has some very very large deposits of ionic clays that do two things one they have a preferential heavy rare earth mineralization still with good light content neodymium praise you demium but more importantly a very attractive content of heavy magnetic rare earths dysprosium and terbium which the world outside of China or the world outside of Southeast Asia Myanmar Vietnam Laos is in deficit so I think this could turn to turn out to be a very interesting source of heavy as well as light rare earths Brazil the ionic clays themselves are amenable to a much easier extraction of the rare earths as well and that also means lower cost extraction of the rare earths as long as you're careful how to do it and you don't make a mess like the Chinese South China play miners did creating all kinds of damage to the environment to the point where the central government had to to step in and shut everybody down and those miners moved over to to Myanmar and Laos and to a lesser degree Vietnam as well so I think if Brazil plays its cards right and the companies that are exploring in Brazil and developing projects in Brazil one of which is has been commissioned of Saturday then I think Brazil could be a game changer so I if I were to put and let's let's face it I put in a little bit of my my own money into the projects that I advise I mean I I hate to advise without any skin in the game so I I I do like Brazil in particular Brazil has its own challenges red tape etc but they're getting it they're learning the game they've they've created some of the biggest players in the world in tantalum or niobium at CBMM and iron ore so they know how to create global champions and I think the various levels of government in Brazil are applying some of those lessons to the rare earth industry in in their country so I keep an eye on Brazil because it could be a game changer but of course that was the catalyst one of the catalyst for doing this interview today was that I noted three world renowned experts in the rare earth industry had all joined the advisory board for apia rare earth and uranium jack can I ask you why you joined this advisory board uh yes I I have to more than agree with Constantine I've been looking at heavy rare earths I on a place for some time and I believe based on what I know about the non-Chinese heavy rare earths that Brazil is the new font of material for the western world and quite frankly the interesting thing about apia apias numbers are so high compared to southeast asia it's incredible now my learned friends in southeast asia are telling me oh no no that's not ionic clay it's it's it's covalently it's minerals it's micro crystalline minerals I said so what I said the the grades are so high that if you have proportion ionic clays and minerals mixed you can extract with simple materials of ammonium sulfate and you can use sulfuric acid to get the rest the cost won't be important here because the dysprosium terbium levels are so high as are the neodymium phrasiodemiol I think and you know I'm I'm not a guy who says this very often I think apia is absolutely uh home run and that doesn't mean there won't be others but the one I'm focusing on is api because they asked me to look at this and I was astounded by by the what I think are the grades and the extent of the field uh looks like looks like it's ionic clay it's great it's been tested I believe for extraction and it's a winner so this is the United States and Europe have exactly no sources of heavy words none okay so if we don't get them from a friendly place we're screwed and as are the Europeans the problem with Brazil is political it's not it's not environmental one thing these clays have very low thorium and uranium I don't even see it measured so that's not an issue but Brazil is uh is a big country it's a modern country to a million people they have a lot of politicians there's uh there's a stampede into Brazil there's all kinds of absolutely solid projects as I mentioned earlier uh Serra Verde announced the commissioning of its plant and now they've entered production meteoric from Australia has been developing a very very interesting project on the back of a lot of work that um Jogmeg the Japanese government entity did in Brazil and it did confirm that those clays are ionic happy up recently um and the a company owned by the home office the family office brother of an Australian billionaire bought a whole bunch of concessions in Brazil some of which are ionic some of which are not but as I said there is a bit of a stampede and since jack mentioned thorium and uranium which continues to be the boogeyman uh in the rare earth industry and if you're not careful it will bite you badly um as a lot of our friends in the rare earth industry have found out you know you have to talk about energy fuels as well because energy energy fuels is acquired an acid in Brazil a heavy mineral sands acid which contains a lot of monazite which is for me one of the best possible sources for magnetic rare earths as well as a lesser source for heavy rare earths and energy fuels is only one of the very few companies in the world that can deal with uranium and thorium and after all that's their business and in fact when you look at all the companies in the industry their stock is done better than others simply because of their exposure to uranium uh which is doing really well so I'm pretty sure um I'm pretty confident that Mark Chalmers and his team at energy fuels will will put together a very solid business plan as he's going around the world securing acid so you know I'd keep but ultimately Brazil is emerging as a jurisdiction that combines excellent resources in various mineralizations that with um if the world outside of China or even China plays its cards right I think Brazil will be a major source of lights, heavies, magnetics, non-magnetics but it could as I said um all of this effort in Brazil could be um a game changer no question in my mind so let me just ask you a question there um with all of these increasing demand for these magnetic materials how can the spot prices for the neodymium and dysphrosium be reducing constantly would you like to comment on that? Sure I mean um and I you know we talked about what prices should be before and and and pricing is a function of supply and demand and right now um and if you take inventories into account we're in an excess of supply position because as I mentioned earlier given China's slower growth growth nonetheless but slower than was anticipated and given growth outside of China which is also slower than anticipated you you find supply chains with a lot of inventory this happens frequently and it starts in China we've just gotten into the lunar new year what does every company in China need just before the lunar new year it needs cash and if it doesn't have cash and has inventories it sells down its inventories to get cash so they can give bonuses cash only bonuses not transfers to bank accounts and things like that so you know when when you close a plant in a company for a couple weeks for the lunar new year you shake hands with every employee and you hand them an envelope with cash and I know it sounds odd for this day and age but all the smallish companies they all sell down what they can to get cash to get ready for the lunar new year and this always happens you know industry shuts down for a couple weeks and maybe by the time all the workers go to their villages and come back it's probably closer to three weeks so during that time there's zero demand because everything shuts down in China and to make it to make you know the pressures even more pronounced the couple weeks three weeks before you go into the new year holiday everybody sells down their inventories to to get cash so this is very very seasonal in China and it shouldn't surprise anybody so you you couple that with what appears to be a Chinese strategy or the Ministry of Industry strategy to loosen the controls on mining and the supply side of things plus the continuing expansion whenever when you go to Brazil for example or when I go into the Middle East or when you're in Australia you see a lot of Chinese companies it reminds me of the 60s and the 70s where American companies and European companies were all over the world looking for resources well the Chinese companies are doing exactly the same thing now I mean you go to Brazil you will always run into two or three Chinese companies knocking around looking for lithium looking for rare earths looking for cobalt copper whatever so the Chinese economy has grown to the point where they have created their own global champions and those guys are all over the place looking for the resources so there's a competition for resources and I would have hoped that by now the west would have been would have learned something because this has been going on for a while but we almost always seem to be caught by surprise simply because we're not paying enough attention I don't know what it is but getting caught by surprise again and again and again suggests that there's something fundamentally and structurally wrong with with our collective approach it's obvious what it is there's no institutional memory here none we push out the old guys to get the cheaper young guys in and the old guys take with them the knowledge and experience of managing companies and the young guys just eff it up you know and they say well the old guys left us a mess we got to straighten this out you know you know it's interesting to me I have to say that that I've always understood that Americans don't bother to understand China now Constantine you're a traveler there you've been there's a great you know if you had a business there so you were there all the time and so you understand something about the culture nobody here in government or in Brussels or in Ottawa seems to take that into account it's China is a is not just a competitor they're the enemy okay and and my experience of the Chinese is that they're sort of confused they say why are we an enemy when we learned capitalism from you and we're competitive we're competing okay and and we go oh no you're evil bad you know so they don't seem to understand that they're supposed to be subservient and the whole thing here I'm just amazed by the lack of history knowledge here all of our companies did the same thing the first time I went to Africa was to a Renault plant in in the middle of believe me of nowhere okay and in the French you know former French Empire but Renault was global in the 30s as was forward well our companies pulled back the Europeans pulled back I think for economic reasons and the Japanese Koreans Chinese they're just saying hey that's a good model we'll follow it so we have to wake up soon well I mean there are signs that we are learning we in the West we are learning from past mistakes but those signs are not very strong and frequent and I think the link between industry and government has been has broken or has become adversarial in the West where in China it's much more collaborative you know on my last trip there I was reading articles about the government encouraging EV producers and EV supply chains to invest abroad so they can continue the dominance of the industry so you see investment in Mexico for example by Chinese companies and I don't think they're ready to come into the States yet or well a little less so into Canada but there they will ride the EV gravy train for a very long time and they will be extremely difficult to dislodge from that leadership position and government is helping them along in terms of you know economic structures incentives making their life easier access to cheaper power access to lower carbon footprint power all those things that sometimes in North America we think you know it's socialism well maybe it is maybe it isn't but right now our system especially when it comes to power generation alternative power generation and electric vehicles is playing catch up and as I've said in our interviews before the Chinese are excellent students of history and they learn from their mistakes and we need to do a lot of the same thing we need to understand that history behind the development of certain industries and I think definitely we need to learn from our mistakes because there's an old ancient Greek saying that committing the same mistake twice is not a sign of a wise person and I think with in the west we have collectively committed the same mistake more than twice so what does that say about this but regardless again I'll I'll stop my pontificating here Japan was about a decade ago Konstantin that you told me that I should be paying more attention to the Japanese market when it came to the magnetic materials market would you like to comment on their role in all of this right now well the the biggest company in the magnet industry outside of China is Shinetsu and they have I think responded brilliantly to the Chinese challenges so what did they do they built a very large magnet facility in Vietnam on the back of a magnet recycling metal making alloy making so they're fully integrated in Vietnam and that allows them to compete with on cost and quality because in my view just so I put my biases on the table the best magnets in the world are made by Shinetsu and perhaps Hitachi but Shinetsu is clearly in the lead and they have a cost structure with their base in Vietnam that is now cost competitive with the lowest cost producers in China so yeah I would keep paying attention to what the Japanese supply chain participants are doing in this field because Shinetsu is not going to give up in fact I think they're ideally positioned to take advantage of whatever growth comes in the west and they will continue to to have a big piece of that pie the rest of the Japanese companies unfortunately I don't think they have adjusted as effectively as Shinetsu so they're going by the wayside Hitachi on the other hand they continue to innovate they continue to do things and we'll see how that plays out JVC TDK sorry not JVC TDK I meant I always get confused with initials and acronyms TDK is a player and they they need to to respond or they'll continue to stay a small player and also you you should continue to pay attention on innovation that comes out of Japan like Hitachi I keep calling it Hitachi it's Pretaria they they've developed a new electronic steel for electric motors that is amorphous and it it it imparts an additional 5% efficiency to the design of a motor so the Chinese the Japanese will continue to to push the R&D envelope and some of the bigger and better companies will continue to get more and more competitive in the industry Jack would you like to add anything further yeah the biggest car company in the world on any given day is Toyota they they they compete with Volkswagen for the title largest producer of cars on the planet and the chairman of Toyota said a couple of weeks ago that his company is going going to focus on a future market there's one third EVs one third hybrids and one third gasoline and kerosene diesel cars and I thought that was absolutely brilliant because he was a sane outlaw what everybody Detroit whispers they know that hybrids are the way to go the ideal maximization of efficiency of both fuels electricity and and hydrocarbons and the Toyota people just said you know the hell with that word we're just going to tell you word why they're people are asking him why is Toyota slow on electric cars no no we're developing our three-part model of our of our offering okay so to show you just how trend setting that was within a week General Motors whose chairman whose president had said no more anything but electric vehicles by 2030 suddenly announced next year we're going to have a Chevrolet hybrid added to the line and we will continue to make hybrids etc okay what i'm saying is this is a trend and people don't need to worry about what about rare earths rare earth permanent magnet motors will still be used in hybrids because you have it's not a you don't need a little tiny motor you need a large motor to move the car because even if you only have 50 or 60 miles electric the electric motor has to move the water two tons of car so we're still going to be needing we're a permanent magnet motors the most efficient latest weight motors but in the in the end who's going to make you do you know how long hybrids have been made by foreign general motors logs you know at least last 20 years but guess who introduced the hybrid into into the world car culture that's right Toyota if you remember the Prius 1997 it was introduced that's 20 let's see 27 years ago they've sold millions of them they're still selling them okay now because in 1996 as they were rolling off the production lines i was in japan photographing for our annual report because back then we had books with a lot of photographs in the nether annual reports uh one of our partners in japan uh nippon ytrium we were supplying ytrium four five nines to them and they were turning six six and a half nines ytrium oxide and they were supplying the panasonic toyota battery joint venture the nickel metal hydride battery and that battery is what was going into the prius so right we did a photo shoot for the first generation prius that was owned by the ceo of nippon ytrium a lovely japanese man mr kato kato um and that continued um hi and toyota today probably has the best hybrid system uh out there to to show my partiality again but there is a reason you know back in in my recent uh past when i was still working uh one of my last decisions a ceo um anneal was to uh build a new rare catalytic materials plant um the largest of its kind in uh in china because in our own internal evaluation the catalytic converters in internal combustion engines and hybrids um we all still have another 10 to 15 years run rate um and there's a lot of demand that will come from those cars and and let's be cynical about it the fundamental reason to quote uh the former ceo of umicore that you know three four years ago over dinner we're talking about well is everything going electric and our conclusion was no because there is no way that the infrastructure and tracy have made this point before in our conversations the infrastructure in the world the mining infrastructure the resource extraction the refining the supply chains that this is the industrial part of the evi infrastructure is not going to develop fast enough and it will take trillions of dollars of investment on top of that you have to take the power generation infrastructure the power transmission infrastructure and the charging infrastructure which doesn't really exist i mean let's face it if we all drove electric cars we wouldn't be able to charge them because we you know the power isn't generated and the power isn't transmitted and we don't have any chargers to plug into unless we want to do like chicago a month ago and wait for a couple of hours um to for our turn on the on the high speed chargers so it will take longer and it will cost more money for the infrastructure both the power infrastructure and the resource and manufacturing infrastructure to catch up with all the projections that the governments are imposing on the industry that by such and such a year you will not buy an internal combustion engine and so on and we both again quoting my my my friend mark greenberg uh the former CEO of yamakore we both felt that the natural bridge technology to an eventual electric future is hybrid and that will take 15 years 10 years 20 years something of that order of magnitude and naturally you know the japanese have been at the forefront and the germans have caught up and the the sabbia tract of hybrids coming out of germany as well and now north america is responding so because government is not moving fast enough and the industry is not moving fast enough in order to meet all the requirements for an eventual electric vehicle future can i add one thing tracy uh i was told that and i remember this international harvester which few of you remember used to make cars they were called scouts they were the original competitor to the jeep okay and in the 1980s the engineers at harvester came up with the idea of a hybrid they made a hybrid scout but nobody was buying the scout and you know i i i had friends who had scouts and they were they were in love with them they wouldn't give them up but they stopped making them well toyota bought a license for the technology that's i was told how it started okay and by the way your 1996 photos remember in 96 they were making 97s the model year was 97 so i was right it was 97 when they introduced them but in any case notwithstanding that uh this technology came out of the west and as usual we didn't pay attention to it i'd like to thank both of you for joining us today to give us an update on what you're seeing happening happening with the rare earth market specifically in the magnetic materials thank you jack and of course as always thank you constantine thank you tracy good to see you jack peace