Listen to Episode

Read Episode Transcript

OK. So I wanted to introduce somebody. This is an incredible story of a turn around of a business that impacts a lot of us in America, if you care about climate change, etcetera. His name is Jim Letinsky. And here's a guy who had all the success in the world running a hedge fund successfully. A business called Molly Corp goes into bankruptcy. He basically puts his entire fund in it, brings it out of bankruptcy. Manages to build one of the first minds that was completely cleared. You heard what Elon said about California in California. That mines some of these rare earths and critical metals that we need to make permanent magnets that we use in electric motors. On the front lines of climate change, building factories now in South Carolina with GM, etcetera, etcetera. So Jim's just going to walk you through a few things. We're gonna talk about some climate change stuff. Let your winners ride. Green Man David. We open sources to the fans and they've just gone crazy with them. Hey, everyone. So I'm Jim. I used to run a hedge fund and I'm now, I'm an accidental industrialist. So I want to take you through that journey. And then while I do that, it'll, you know, we'll we'll go through the problem that I'd like to solve. Just provide some context. So I think if if we think about a lot of the things that just came up with respect to the economy, it's been about a decade plus since the global financial crisis. And in that decade plus we've been in this environment where there's been essentially a full on boom a lot of money printing and essentially a a very low or negative cost of capital in growth in technology, right. And and and what we've seen now I guess we're we're on the the beginning stages of of the aftermath of experiencing that economic enema as was just discussed. But we we have just been through this period of of over a decade where there's been. All of this money that has gone gone to growth and what has happened during that time simultaneously is the real economy has been starved. You haven't seen, I doubt many of you have friends that are investing in new steel mills or aluminum mills or nickel mines, maybe nickel mines now, right? But while the real economy has been starved, actually interestingly we haven't noticed it so much, one, because we're just starting to scale into electrification. But China's made investments. So pretty much all of the incremental steel and aluminum and commodities capacity in the world over the last decade has come online because, you know, China has led the way. And you know, as an aside, interestingly about 80% of the aluminum and 8080% of the steel production in China is done with coal. So not only has this been. You know, not only have they sort of taken over the real stuff and this isn't about, you know, wherever you are on the, on the spectrum of, you know, are they just a really tough competitor or is this, you know, some kind of economic World War three, it doesn't matter. What matters is, is that the incremental stuff in the real world has really the the way has been led by China. And and so when we think about what's now happening in the world as we electrify, what I wanna move on to the next one here. I think one good thing about going after Elon is I don't have to really explain this chart. We are electrifying. And as we electrify, what a lot of people might not fully understand is that while all this real stuff has come online, the Chinese have actually moved downstream very intelligently. And so when we think about a lot of people may have heard of China 2025, but a lot of people probably haven't heard of China 2035, which is the current MO, which is to move downstream into standardization. And so actually when we look around the world today. Four of the top ten OEMs are Chinese by global battery electric share. And so when we think about the single largest private employer in the country, the auto industry, we think about all these industries that are mineral intensive. The Chinese are actually have moved downstream and these are, these are very mineral intensive industries. So what this slide shows is as we go from a fossil fuel world to an electrification world, which you know we all I think everyone in this room believes is is fake complete. And this actually excludes steel and aluminum? Just in the the content of copper, nickel, lithium and then what I focus on rare earths and some of these other things, there's seven times as much content. And so when we think about the the past of the fossil fuel driving geopolitical gamesmanship and power in the world. The future is about minerals. And. What I focus on are rare earths and so we and I'm gonna get to to my journey as an accidental industrials in a minute. But but what you can see here is rare earths they're kind of the way to think about it is sort of like a a young cousin of semiconductors to to the EV business. So regardless of of how electrification happens, regardless of battery chemistry, how that energy gets to a motor, that motor moves via magnets. And so this industry is expected to explode. And it's not just, it's not just EV's, it's, you know, wind turbines, drones, robots. Can anyone actually guess where this robot is from? This is is actually from short circuit Johnny #5, but I'm hoping Elon will get us a better robot of the future. But when we think about all these industries magnetics, it's it's really powerful. So that's where I'm focused and and this is just an example of the commodity needs as we electrify if we take those projections. Of what's going to happen in electrification just in my space. So this is NDPR, this is the the stuff that we make the input into magnetics. You can see there's a huge deficit that is looming and it's moving on. Look at my space. Here's the challenge. So outside of us, this entire supply chain. Is essentially domiciled in China and it doesn't even have to be nefarious. But what happens when the largest manufacturers in the world are all competing for what I showed you on that prior slide, a shortage of supply. And we've seen lots of headlines, whether it's the semiconductor issue or, you know, just today there was a headline that rivian is fighting with the supplier oversight costs. You know, all of these things where we're seeing the shortages in the supply chain that are, that are flowing through. If there's an allocation of materials and the materials are controlled by China or another geopolitical rival, which downstream businesses do we think are going to get those materials, and this is actually now an existential issue for all of us. So back to my story. So this is mountain pass. This is the mine. Chamath mentioned that we bought this at a bankruptcy in my fund. So going back about five years ago, this site went bankrupt. It was a public company. It sort of, it rose and then it fell. And nobody believed that we could compete against China. And in fact, I had to. We we showed up. I showed up in the Delaware courthouse steps. I mean it was literally like out of a movie there were other creditors pushing to send this thing into bankruptcy. And you know, you look at this thing, you're like, wait, this is the one of the most valuable rare earth materials minds in the world. And and this is the future. This is a material for electrification and no one wants it. Not only does no one want it, but people think that actually we can't even produce here economically because the Chinese have taken over the industry and so we actually kicked in a couple $1,000,000 just to keep it in care maintenance, just to keep the eight employees. I'm saying going so that this thing could actually keep its permit through the bankruptcy because otherwise they were just going to raise it to the ground. So we, we went through that journey and we we ended up buying it. And so these assets, this is about $2 billion of replacement cost. Not to mention the fact that you know this is one of the marquee sites in the world and and you know it's a stable jurisdiction. All of these assets up over here to the left, these are what make it environmentally friendly so we don't put anything back into the water. Supply, we have dry tailings which essentially means that you for sure we're the cleanest rare operation in the world. If you go onto YouTube you can kind of see how historically some of that mining and processing is done, but no one wanted it and everyone thought that that this couldn't be done. But we we bought it out of bankruptcy. We we took on it was sort of a a distressed turn around and start up at the same time we had we had no accounting software. We literally had eight people in a mine and I show up on the hedge fund manager. And you know, people thought I was pretty insane. And probably if I knew what I was getting into, like I said, it was an accident. No, but I, I couldn't believe that no one else wanted to do this. And I frankly, I felt as an American somebody had to do this. And you know, there I was on the courthouse steps and so I went for it and you know, Fast forward to today and we're now, you know, we're now public. We went as smooth mentioned, went public a couple years ago or 6 1/2 billion dollar market cap. It's been, you know, obviously a massive thank you. Umm. So this has been a massive home run for for myself and my investors, but more importantly, I, I, and I don't belittle that. Ultimately, we're capitalists here. We want to do a great job for our for our clients and ourselves. But I hope that we can kind of contextualize this for what needs to happen throughout our economy. Because I do think that as painful as the adjustment may be that we're now in this. That we're about to be in. With with you know some of the the as the capital comes out of the growth space there is going to be a big beautiful bull market in real stuff and it is just beginning and I can I'll give some statistics with the besties. I don't want to ruin my besties time so I'm going to finish up real quick. But there there's a lot of stuff that needs to get built and this supply chain stuff is existential. And So what we're doing at MP you can see our stage one we're doing. We just reported our quarter a couple weeks ago we're now. From a site four years ago that I had to beg on the courthouse steps just to keep it alive. We're now doing approximately 450 million of run rate EBITDA today. So you know these and then we announced the deal, we announced the deal with GM. We're after actually have already broken ground and a magnetic facility in Fort Worth, TX and this is a scale deal, it's not exclusive. We expect to bring in other OEM's where we'll be making magnets. So we'll be shipping material that will be environmentally produced. From Mountain Pass, CA over to our site in Fort Worth and make magnetics and our goal is to build a Western magnetics champion and so I guess with all of that I would say hopefully this kind of thing can inspire you. We need the the good news is there needs to be a lot more stuff like this. I'll maybe I'll share some stats on you know some of the other space because I don't want to make this just about rare earths. But when we think about all the materials that we need for this electrification boom and the supply chain that needs to be built, this is like this is the era of it's. As if it's, you know, the 19 teens and Ford is just out, I mean there is an entire supply chain and it's not just TV's, it's wind turbines, it's drones, it's robots and it needs to be a bunch of real stuff that we all create. And so I don't think some percentage of us don't need to necessarily debate whether crypto is going to go up or down. You know, now is a time to pivot, I think because this is something that we need to do to, to get competitive again. So I guess with that all. I'll flip the mic and feel the fire from the besties. Thank you. Tesla, in their quarterly earnings said something to the effect of, you know, we're going to consider becoming a mining company as well. Right. And then I think Elon said something on the earnings call which I thought was really interesting. He's like, I encourage every entrepreneur out there to get into lithium, please, you know, become a lithium miner. Right. So maybe if you can just quantify for us and I you showed the the the gap for your. For NDPR, but broadly speaking lithium and all the other things that we need to actually electrify and get to a reasonable place in climate change, how behind the curve are we really? So it's a great question and the data is tough because a lot of it is reliant on battery chemistry. And so we don't know exactly how much nickel it'll be, how much you know. But we do know certainly lithium, nickel, copper, all of these things it's multiple. So we need here's actually maybe this is a great stat some some good. Of course that I utilize estimated that we probably need on the order of 40 to 50 copper and nickel projects over the next couple decades. So call it roughly $200 billion of CapEx to satisfy the demand for electrification that we have over the next couple decades. And what's so interesting you mentioned and obviously I assume Elon sees this is if you look at the multiples, you know, just think about it from a strict investor point of view from a financial arbitrage standpoint. Look at the multiples of where auto, auto OEM's trade, right or you know certainly Tesla and then look at what's happening in the mining industry today. So, so actually the nickel industry is dominated by essentially Glencore and Valley, those two businesses and I'm not you know I'm not pitching stocks, but as an investor you know we'll see what the next those two businesses right now at today's commodities prices are essentially going to free cash flow themselves out in three years time to buy and they're buying back stock, right. And so this is how stark the arbitrage is that in the real. Going to be mining and materials companies. Steel companies are trading a double digit free cash flow yields. They're buying back stock. They have no leverage in their businesses. And then downstream everyone's relying on them and upstream, these guys they don't want to spend to build out new capacity because the cost of capital is too high. So what's going to happen is I think you're going to see maybe an AOL Time Warner moment. And I don't mean it the negative way, but I think you could see a Tesla or someone like that buy upstream into these industries because ultimately downstream, wow, they all realize that the real stuff is in shortage and you can't. Have the enterprise value downstream because it's like musical chairs. How much of your night when you're sleeping, do you think there's an X percent chance I'm gonna have some huge environmental catastrophe? Like part of I think, why a lot of folks, you know, folks like this, who could probably go into that business. Don't is in the back of their mind they think, man, this is like, this is a lot of gnarly stuff. If something goes wrong, how do you manage that risk and how and how big is that risk if we try to do this in America. So the single most important thing we do at MPC is safety. And we actually on our last earnings call said, you know last two years we've had two years without a lost time injury and we gave everybody, every single employee in the company of a cash bonus to celebrate that milestone, which is really critical. The reality is this isn't software. Right. It's real stuff. All we can do is our best. I I just think, I think frankly as as a human being, as an American, I would rather have minds being done in America in the state of California over elsewhere in the world where I certainly know that. I assure you that nickel mining in Russia is not as environmentally friendly as it is in Canada. Well, I think most people may or may not know this, but for example, all of the, you know, cobalt that goes into a lot of these EV's, a lot of it comes from DRC and if you go and see the state. Of governance and DRC women's rights and DRC child rights and DRC, they're not existent. And so it is a very, very complicated, dirty supply chain that feeds the beast. And even though you may think you're doing the right thing by, you know, driving this plug in hybrid or, you know, your Toyota Prius, if you trace that stuff back, it's a really complicated place and stuff. I think we've all gotten a big education on supply chain over the last two years with COVID and the value may be. Of redundancy and what happens if you give a dictator a little too much power. The Germans are learning a hard lesson about what happens when you shut down nuclear reactors and decide, hey, let's buy our let's buy our energy from Putin. The point you raised about the Germans, because I think it's a fair analogy to say that Germany is to Nat gas as we are to China supply chain. And so we see, we see this coming, right, we see and again this is this geopolitical leverage. National security issue is it's it's a national security. It is, it's a, it's a, a democracy. It's a it's a democracy issue. Is it a war issue? Is it something that gets to the point where we would have to go to war if, for example, we didn't get the natural resources and critical elements? We need nothing. You say that it could not, it would happen. But could it happen where it's so important that all these other countries can electrify and and well, how about this? I'll make a prediction. I'll bet that in the next five years we will see a major household name O. Fail or need a bailout due to not, you know, prices went up on them, but lack of access to a material, some kind of critical material like you're talking to GM, afford somebody. Probably not GM. I mean, think about it. Do we, if you think about it, do we need to even predict this? We went to a number of wars in the Middle East over oil. So if this is the new oil and that is the analogy, it's clearly going to cause, you know, conflicts. And the question is, you know. Are we gonna build a strategic reserve of these materials? Do we have a strategic reserve? We we talked about the food supply problem and freeberg educated us on hey we've got like 30 days of food. This country has 90 days of food. Do we need to have a strategic reserve of these rare earth minerals in the United States, Jason, I just don't think there'll be enough because when you think about this is we're talking about a multi trillions of dollars a year to electrify across. So great demand is so great. We're talking about build up supplies. We can't build up supply or if we can't we we need to put the capital. And right now and that's why you know again we'll let the the investor Panel maybe they can can bleed into this. But that's why I think the whole space is a screaming by because if you look across all of these companies, the cost of capital is just so high. And so one of two things has to happen or both which is prices just have to go vertical or someone starts taking them out or we're just not going to have the stuff to electrify. I understand that there's now been demonstrated significantly more lithium. Tell me if I'm off on this in the oceans. Than there is in the crust and there may be systems for extracting lithium from the oceans that are electrochemical in nature that would allow us to kind of access that resource and wouldn't, you know, obviously, if you can get a system that can scale, you can get it all out very quickly. So I mean, have you looked into these systems, have a sense for the opportunity? Let me step back and then step down to that. So investment styles are cyclical just like industries, you know, I believe in cycles, right? Price. The cure for high prices is high prices, there's no question. My mind, whether it's that or there will be someone or frankly maybe someone in this audience will have some breakthrough, right? And so we will solve this problem. But the challenge is, is that I don't even think that we've ignited the proper focus and resources to actually solve this problem. And so there may be that may be an example of a solution, but that'll take 5 to 10 years. But in the meantime, there's, you know, there's a lot of resources that need to be applied to Adam Jonas, who is the. Auto analyst at Morgan Stanley calls this the mother of all CapEx cycles, I think, right? And I think his estimate was like, you know, something like $3 trillion of CapEx needs to get spent over the next decade even to have a fighting chance on all of this stuff. And so if you're looking at new areas, so take your NDPR MP materials hat off. But if you were in the same position you were. Back then. Now, not really, you don't need to go to the courthouse steps, but where would you be looking? You know, would you look at lithium? Would you look at nickel? Would you look at trying to do what, you know, China's doing and create better and simpler and cheaper chemistries for batteries? Like where would you spend your time right now if you weren't doing MP? So I I think you actually said it perfectly well in the lead in which is just anything that is real stuff. And so, yeah, all of it. Lithium, copper. Nickel, steel, aluminum, all of these areas that have been starved. The cost of capital is just so high across the board that if you can come up with solutions to deliver the shortages and again I'm not saying the next three months maybe we could have a brutal recession for six months, but we see the long term 510 year trend. I think anywhere you look in this space you're looking in the right direction. It's it's it's a wind at your back as opposed to and again I'm not you know taking a view but to come up with a new cryptocurrency right now it's it's it's a huge wind at your back relative to. Can you, could you get your mind operational in today's political environment? Do you think like if you have to start from scratch or if you found a new thing in Nevada or, you know, wherever it is? That's a great question. And that's the challenge is that it takes to, to get any of these things. It takes a decade, right? It takes if you have all the capital in place, all the human capital, all that, just the, you know, going through that process to build it, the materials cost and so could I do it. I think the world needs it. And I think that what we do environmentally is so unique that I think we could get it done. But this is a big challenge. And I think frankly, it's a, it's a, you know, you guys were talking in the last session about we need to come together. This is a big time area where we need to come together. There should be a grand bargain, right? There should be. The environmentalists should say, OK, I accept that we need this stuff. I accept that we don't want it to be only made in Russia and China. And they should loosen up on some of the permitting stuff. And I think the people who are just like, you know, drill, drill, drill, mine, mine, mine, don't care, need to accept that we need to have really tough standards. And I think we should have some kind of grand bargain and it could be, you know, tax policy focused on it, but there needs to be some kind of coming together in our country to recognize that we need this. Let's be intellectually honest. People are hypocrites that the people in the EU, people in the United States, they want the energy they wanna cheap. They're complaining about the expense of, you know, even a modest increase in energy across 10 percent, 20%, which they could withstand. They will complain about it and they they will not allow fracking in their country, but they're more than willing to let Russia frack for it. They don't want the Cobalts coming out of the ground in California. They're more than willing to let 15 year olds. Dig it out of the ground without a mess. 8 year olds. As horrific as it is, and there is intellectually dishonest. It's hypocrisy. And I think we have to own the fact that we want to live in large houses and we want to blow the air conditioner on some ridiculous setting. America's homes are three times bigger than other homes to build on this 22 very quick stories, there's a massive deposit of lithium in Nevada, which would be enough to basically feed Tesla and another OEM. OK, so this would get probably somewhere between. One and 1 1/2 million cars, pure electric, on the road by 2030, and there they were completely permitted by the BLM, the Bureau of Land Management. And there was a lawsuit that was filed, and it's still wrangling its way through the federal court system. And what it is, is a claim that that the there is an upper wood grouse that could be endangered through this mining. They have yet to find an actual upper wood grouse in the area. Right. But nothing can happen theoretically. And so the problem is that we've now delayed two years. You know, it could get resolved this year, but it could be another two or three years, which means the lithium isn't actually available until 2020. Global warming continues. That's one story. Second story is that just yesterday, the California, the City of Costa Mesa rejected a bid to build an electrolysis facility to create 100 million liters of clean water every single day. But the desal plant, the desal plant because they didn't want it? Because they're gonna lose some jellyfish or something. No, they just didn't want it. They thought it's unsightly. I don't want this in Costa Mesa. And meanwhile we're in a, you know, pretty. It's a Costa, it's a Mesa. So, you know. And and so to your point, when the rubber meets the road, these unfortunate decisions get made and there's no way to. You know, sort of come top. These people wanna take 30 minute showers. I mean, that's the hypocrisy of it. If Americans really want to talk about conservation of all 30 minutes, there's nothing wrong with a 30 minute shower. Well, listen, I wasn't calling you out specifically, but since you uncloaked yourself, it's it's gratuitous. In fact, it's completely gratuitous and it's such a great point. And my, my entire argument is that we're gonna we we will answer this question as a country either now or later. And the point about four of the 10 largest auto OEM's in the world are now Chinese companies. And so. This is now a competitive issue and so we can we can keep kicking the can or we'll face a crisis. Are you we will launch by the government are you beloved by like can you kind of like beeline and just cut through the nonsense because of Nevada government looks like you. Well, I think, I I think that it's fair to say that the the local officials are very happy with what we've done with what we've achieved. And right the in Fort Worth, TX the the magnetic facility, you know that we have some partnerships with DoD. The president announced those are the things in in Texas. In Texas. So I think that there is frankly support from both sides of the aisle for what we're doing. You know, there were executive orders on the rare earth magnetics industry specifically, both in the Trump administration and in the Biden administration. So I think what we're doing is hopefully nonpartisan and and frankly I think all of this should be and that that's, you know, the point about the grand bargain. But even you raised a great point about just all of this stuff that it's, you know, there's so much pushback and we need to, we need to figure out a way to get past that because this stuff. Just has to get made. I think it's incredible what you're doing. I mean, I'm a huge fan. Disclaimer, I was also an investor. Yeah. Well, yeah. And I am not an investment company, but we do appreciate you giving us the education and and we do need to be independent from communist countries and really have the supply chain situation dialed in. So we appreciate the hard work for America and and for freedom. And I'm a huge fan of you guys. So thank you. Well done. Let your winners ride Rain Man David Sachs. We open sources to the fans and they've just gone crazy with it. Love you, queen. Besties are gone. That is my dog in your driveway. Ohh man. We should all just get a room and just have one big huge order because they're always useless. It's like this, like sexual tension that they just need to release somehow. B. Where did you get munchies? I'm going.