Resource Insider Podcast

Dr. Scott Tinker, Switch Energy — Finding the Radical Middle (#65)

Dr. Scott Tinker, Switch Energy — Finding the Radical Middle  (#65)

“I think the challenge with the renewables, the solar and wind and batteries is. People said they would be cheaper and they’re not. They are in some places at the plant gate, but not to you and me, as we’ve already discussed. They said they would be reliable and they’re not because you have to have something else to back them up. And they said they would be cleaner. And the definition was very narrow. It was a clean in the sense of CO2 emissions, not the mining.”

— Dr. Scott Tinker

Scott Tinker is a globally renowned geologist, energy expert, and advocate for balanced approaches to energy, environment, and economy.

In this episode, Scott shares his perspectives on the “radical middle,” addressing the complexities of energy systems, climate narratives, and the future of sustainable solutions.

Scott unpacks the challenges of energy poverty, the myths of energy transitions, and the pivotal role of innovation in driving global progress.

In this episode, Scott and I discuss:

  • The concept of the “radical middle” in energy policy.

  • The global realities of energy poverty and its moral implications.

  • The role of hydrocarbons and the challenges of renewable energy scalability.

  • The resurgence of nuclear energy and its potential for global impact.

  • Innovations and investment opportunities in the evolving energy sector.

  • The intersection of policy, markets, and technology in shaping the energy landscape.

Please enjoy!

Listen to the episode on Apple PodcastsSpotifyYouTube, SoundCloud, or on your favourite podcast platform.

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The transcript of this episode is included below.

Note: Transcripts may contain a few typos.

Transcript:

[00:00:00] Jamie: All right, Scott Tinker, welcome to the Resource Insider podcast. Thank you very much for joining us today.

[00:00:10] Scott: Jamie. It’s great to be here with you.

[00:00:12] Jamie: Well, I’m going to try to fit this into an hour, but I have a lot of questions for you and I’ve been preparing for this podcast for a very long time. So, thank you for taking the time out of your very busy schedule to Particularly so close to the holidays. So, we’re a couple of days away from New Year’s. We’re kind of in the little break between Christmas and New Year’s. And I’m appreciating you getting this on the books before the end of the year.

[00:00:36] Scott: Happy to do it very much. And since you haven’t shared the questions, I’m sure we will be very candid as we go forward and spontaneous.

[00:00:44] Jamie: Yeah, I’m sorry. I probably should have sent them through. So. I actually would like to start talking. Sometimes I get criticism for talking too much on these podcasts, so I’ll try to keep it brief, but about how I heard about you. So, I first came across your work or as I’m sure many other people did. After listening to an interview between yourself and Jordan Peterson. And then I followed kind of down that rabbit hole and I saw the presentation, the talk you gave at his conference last year, ARC in London, and I was really excited to listen to that conversation and hear that presentation because I felt like. You had articulated a mindset and a worldview that really closely paralleled my own in a way that I’d been kind of striving to do on this podcast and in the works, we do at resource insider very well. And so, I was excited to hear that. And that’s why I reached out to you. And we’ve had numerous interactions since then, but for viewers at home, I just kind of wanted to give that. That backstory and for people who haven’t seen your work, Scott, can you give us the high-level overview of who you are, what you do and how you got there? And we’ll obviously dig into that in some more detail over the next few minutes.

[00:02:01] Scott: Sure. Yeah. Well, it’s always good to visit with people who agree with us. Thanks for the nice intro. Yeah. I’m a geologist. By training and background and profession was in the oil and gas industry on the research end of it for 17 years. And then left that to join the university of Texas at Austin 25 years ago now. So been doing this a long time. I’m a global explorer, energy explorer. I’ve been in over 60 countries. Jamie had been fortunate to do that and deep into them seeing probably the poorest of the poor and the richest of the rich and everything in between as we’ve looked at energy systems and their environmental impacts and economic impacts around the world. So my career has taken me down lots of places both again, academic service, industry service, some government service and All that comes together in what I lovingly call the radical middle, which is where we actually try to solve real problems, you know, not getting too far out on the edges anywhere, but the practical data driven compromise world of overlap space between those entities and in a sense, the energy, the environment, the economy. So that’s been my passion for most of my career, actually. And it’s where I’m still playing around. And I think we’re making headway.

[00:03:16] Jamie: And what I really like.

[00:03:18] Scott: Hold on just one second. Oh, sorry.

[00:03:23] Jamie: Dangers of working at home during the holidays.

[00:03:24] Scott: I didn’t tell anybody I was on a podcast.

[00:03:27] Jamie: Yeah. Well,

[00:03:28] Scott: I’m on a podcast sweetie.

[00:03:30] Jamie: What I really like about your work was exactly what you mentioned there. It’s sort of finding that balance between energy, the economy and the environment. I think, you know, in your presentations, you have a great sort of graphic that demonstrates that and finding the radical middle. And can you kind of give us an overview of what that means, the radical middle? And I guess what made you start thinking about that earlier in your career?

[00:03:57] Scott: Yeah, I Can briefly define what I mean by that. And it’s that overlap space between challenges in this case, the energy world, the environmental world, and the economic world and how those all relate and what’s that overlap space look like. And again. Every single energy component has an environmental and economic impact, and I think in many ways, vice versa, Jamie. So, as you deal with this, you begin to realize that you can’t address these big challenges unless you’re willing to play with all of those things. I came to it as most things just slowly and through time and trying to understand how to get things done in that world. And it’s not easy space. You know, in that compromise world, that data world, you’re not always going to be dramatic or go viral because you make some wild statement about something. And it’s where I’m wrong oftentimes, or not completely right, let’s say. I like to, I described it to Senator Manchin’s hearing in which I testified a few years ago. The Senate Energy, for those in Canada, the Senate Energy Committee here in the US in Washington as more than, completely factual, but factually complete.

[00:05:19] Jamie: Right

[00:05:19] Scott: And it’s that effort, nobody can be factually complete. There’s too much out there, but it’s the effort to try to be as inclusive of the various components of things as we can be. And that’s what the radical middle is and it’s been radically lonely for a long time, but I think it’s starting to grow and the people that play around in there really are some, in my opinion some of the real leaders in the environment, by the way, or in the economy or in the energy world. And that’s what we’re trying to do there. And I think it’s it’s working, you know, there are a lot of people that are engaging now and willing to engage in that complicated overlap space.

[00:06:01] Jamie: Well, something that was so interesting to me is your talk at the ARC conference the YouTube video got something like two million views now, I think it’s the most viewed the most viewed presentation from that conference. And you mentioned, you know, that was been a lonely space for such a long time, but it would seem that, Maybe the rest of the world starting to catch up to you because probably four or five years ago, I think I would have been pretty surprised to see a talk about energy the economy and the environment be one of the top viewed podcast at a, or rather in videos at a, at an event like that.

[00:06:35] Scott: Yeah, that was a neat event. It was the first of its kind. They’re going to host it again in February in the coming year. And I’ll, I think I’m going to kick off the energy environment piece there. But they had, you know, faith and family. They had education, they had healthcare, they had government and policy. It wasn’t just an energy and environment conference of fun, music and the arts. So, yeah, I. I guess that may be true. Jordan asked me that on his podcast. Why are so many people watching this? Yeah. And I said, I don’t know, Jordan, maybe they’re bored. But it is, it’s that because it touches all of us and we are very much inundated. Particularly with the climate side of the environment, I think of environment broader than that, but let, you know, the climate piece, we’re very much inundated with information and sometimes fear about what’s going to happen to us in a warming world. And I think people want to know more. They think in their gut, Jamie, they get that it’s not a binary, good and bad, clean and dirty believer, denier narrative. Nothing’s that way. People know this. We’re all decently intelligent. So, they want more. And when you try to ravel some of these things in or unravel some of it, I should say, I think it’s more satisfying. They don’t like everything, but it tends to be more satisfying. And like you, people start digging in.

[00:07:59] Jamie: Yeah, well, I kind of came about this in a really roundabout way. So, I mean, as listeners will know, I spent the majority of my career in the mining industry, working on mining projects and in mining companies. And the mining industry has somewhat surprisingly, but though not really, if you’re in it. Found a way to claim a very virtuous role in the energy transition of, you know, we’re fueling the energy transition. We need copper and lithium and nickel and batteries and electrification. And, you know, without mining, there’s no, you know, there’s no renewable energy, et cetera, et cetera. And you know, every mining conference, every event has kind of latched on to that narrative as the driving force behind why you want to own metals and mining and why mining is a relative or a relevant industry. You know, 20 years ago was the rise of China. Now it’s the rise of renewables and electrification. And so, I was really quite in that bandwagon and I was like, okay, great. Like, you electrify everything and people are going to buy a boatload of copper. And, you know, I’ve invested all these companies. I’m going to be rich and it’s going to be great. And as you know, I started a carbon credit company where I’m the chairman. And again, this very much fits into that narrative that there’s going to be a push towards net zero or decarbonization or what have you in that world. And then being much more heavily ensconced in that, especially with carbon credits, I started thinking about, well, why would people buy carbon credits? And what are the actual realities of emissions look like? And what is the realities of energy demand look like? And I was shocked actually at how the narrative of decarbonization that is happening right now is. I would say my words are very disingenuous right in that renewables are growing and electrification is happening, but we’re consuming more oil, more coal, more gas than at any other time in history and the whole energy pie is growing and growing. And the energy transition is really not happening at all. In my view, there is an energy addition happening, right? There’s more wind farms and solar panels and what have you, but it’s not in any way to turn from the growth of fossil fuel consumption. And I kind of think, where am I going with that question? What I’d like to kind of open this conversation with in some ways is helping people kind of have that eye opening moment that I had, which is like, oh my God, this is so much bigger and so much more complex to solve. Then I think the common narrative is letting on and we can’t even begin to think about solving the problem, you know, depending on what that problem is and how it’s identified. Until we actually understand the scope of it. And I don’t think I don’t think even most people who are in the climate industry have any concept of the scope of the problem that they think that they are trying to address. So that’s a very wrong way to sort of open that. But can you start by just giving people an understanding of how big fossil fuels is and how important that is to what’s going on in the world or to our life in the world right now? Yeah, I guess I should say.

[00:11:21] Scott: No, it’s a very, those are good observations. And I think a real framing let me come at it from the perspective of humans. I’ll start that way. And the concept of human flourishing, if you will, I made a couple of feature length films with Harry Lynch. He’s the, Producer, director, I’m just the pretty face, you know, we partnered out there and we made one on energy we released in 2012. So that’s a dozen years ago now and filmed in 9 and 10, a long time. Went to 11 countries and looked at the best energy in the world, pros and cons of that. And it was a very popular film, 50 countries and lots of languages and continues to be shown even all over the world. And then later we got together and said, you know, we left off a big chunk of the world. Those who don’t have much energy or any or are growing into energy. So, we made a second film. The first one was called Switch. And the second one is Switch On. And that film looks at energy poverty. And I think we, again, we were the first probably to put out a film on energy poverty. And it’s since become a very popular topic for good reason, different countries, five different countries. There are people who turns out people who are living in some state of energy poverty represent about 60 percent of the world or more. So, there’s the abject property, the like dirt mud huts, no clothing, food, you know, very just abjectly poor. But then there’s this emerging group of 1 to 2 billion. That’s about a billion people, by the way, another 1 to 2 billion that are starting to come out from that. And another couple billion who let’s call them developing as opposed to developed out your window. And behind me, we are developed. We are rich. So, this huge body of humans, 5 billion people or more that don’t have access to affordable, reliable energy on a daily basis. That’s a moral challenge. It’s a moral question. It’s a reality. So, when you talk about energy addition. And I’ve used that term as well. As these people start to come from a very low per capita consumption level to one that is closer to ours, not even ours, but closer, we need more energy, the world is going to need a tremendous amount of energy to allow for that growth. So, we can’t, when people say energy transition, I think they hear going from what’s today to something different tomorrow, in that case, it would be going from coal oil and maybe even natural gas to solar, wind, electric vehicles, and ironically biofuels, which, which are just low-density hydrocarbons, you know, carbohydrates very interesting irony there. So going from fossil fuels to so called renewable energy, that’s what people think of in a transition, and that’s not what’s happening. And by the way, it’s not what’s going to happen, and I’ll be even a little stronger. It’s not what should happen, and what do I mean by those statements? Solar and wind, if you think about the amount of energy that’s collected in a unit of area, that’s because the sun and the wind are collected. So, we call that surface power density. It’s watts per meter squared. They’re very low density. You don’t get much energy from a square meter of sun or a square meter of wind. Takes a lot of surface to collect enough energy to do useful things for modern society. And that’s fine. The sun and the wind are out there. They’re free, if you will.

[00:15:09] Jamie: Yeah.

[00:15:10] Scott: But we have to, you can’t put the sun in your car. So, you have to collect it and convert it. And you mentioned mining. So, the collection systems, the solar panels, the wind turbines, the chemical batteries, lithium ion today, maybe other kinds of cations and anions in the future are mined. They’re mined from the earth or manufactured into these collection systems, and then they collect that low density energy and turn it into electricity, which does some useful work for us. And it just takes a tremendous amount of stuff to do that. Mine stuff, land stuff, water stuff. It wears out. We dump it back into the earth. And I mean that we don’t recycle and reuse it and we do it again. So, in a Ted talk a couple of years ago, I said, there’s no renewable energy to 1100 students and I had on Kevlar. So, I’m here still alive to talk to you today. The eyes got really big, you know, what the hell did this guy just say? No renewable energy. I’ve learned renewable energy in this case, they’re college students, my whole life. That’s like saying, you know, there’s no gravity or something, but what I meant by that, it comes from the earth. We make it into collection systems. We dump it back when it wears out and do it over and over. So that’s not renewable. That’s just a different form of energy collection. And I think. The challenge with solar, wind and batteries, they have a useful place for sure. And I’ve installed solar. We could talk about that, you know, down an indigenous village in Columbia, but they, you simply can’t get enough earth material and use enough land to collect the amount of energy that this growing, evolving, emerging, developing world is going to need for the future. And even if you could, it wouldn’t be in the right form because, you know, unfortunately physics makes solar and wind intermittent. And that is important. Some people will try to push that aside. Well, we can make up for that with batteries. No, it makes it intermittent. Night happens, clouds happen, non windy times happen. And so, we love energy 24/7, 365. So, I gotta have something else there when that isn’t working as a redundant, expensive backup. So where are we headed instead in this transition? And it’s been happening for centuries now, a couple centuries, is toward denser forms of energy. Things that, the bang for the buck takes less stuff, okay? And so, what are those? Nuclear is probably the leader. Uranium and thorium, radioactive elements used to, when you split them apart, fission, they make a bunch of heat. And that heat boils water, makes steam, turns a turbine, runs a generator, and makes electricity for us to use. And it doesn’t take much uranium and thorium to make a lot of electricity, a lot of heat. So, you’re getting a tremendous bang for the buck there. Not much land, not much earth material, no emissions, and always on. Okay. Well, what’s the problem? Well, there are, there’s problems with everything. There’s pros and cons or trade offs with everything. You know, the problem with nuclear is you’ve got a radioactive waste product, a fission product, not waste, but a fission product or that you have to manage and deal with. And that’s the big challenge. And it’s doable. We are, we’re handling that in reactors around the world today, but it worries some people. Now, another, ironically, maybe in some folks’ heads, another very dense form of energy is natural gas. Methane, CH4, one carbon, four hydrogens, or other kinds of gases. Gas isn’t dense. It is when you, by unit weight, okay? So, when you think about, bang.

[00:18:51] Jamie: Does that mean by the like the amount of energy per unit weight? It’s

[00:18:55] Scott: Correct. Yeah, correct. So, if you think about a an exajoule or a megawatt per unit weight a kilogram or whatever. Natural gas is denser than even oil or coal or wood, and you can’t weigh the sun and you can’t weigh the wind. And that’s why we went to a surface power density. Another Canadian boss, Vaclav Smil came up with that but my unit weight, natural gas is very dense. So, you get a lot of bang for the buck. And that’s why we’ve been transitioning from dung and wood and hay through coal and then liquid hydrocarbons toward natural gas and nuclear. For over a century now, we can try to go back to the sun and the wind. Those were the first forms of energy, by the way, we had windmills, not wind turbines, windmills to lift water and solar energy grew the hay that ran our vehicles, oxen and horses and different things. So those have been around forever. We can try to capture that low density energy, but it is a very minerals and metals and land intensive process, and that some of us might argue isn’t very environmentally green. If you will, it has a place. Don’t get me wrong. I’m not against solar and wind. I’ve not at all. I really am not. They have a role to play, but the transition is not from something to that. It’s toward denser forms of energy, and that would shock some people. Probably maybe some of your listeners. I don’t know. But that’s where it’s headed. And has been headed with growth and different wedges to help supplement that transition and it’s a good, it’s a good change less is more, you know, and that’s true in the energy world. That’s certainly true in the environmental world. Less impact is more.

[00:20:46] Jamie: When you know, when you tell me this all seems very, I don’t want to say obvious, but it all seems very logical to me that it obviously makes sense. And I think, you asked about our listeners, it will be very logical to our listeners as well. On the other hand, you’ve got a group of college students that you talk to regularly. And, you know, they I can see why that would be very surprising for them as it goes against maybe the common narrative that they’ve been inundated with since birth. But I wonder, you know, more importantly, you know, you’ve had the chance to talk to business leaders, but I think more importantly, political leaders and government officials all over the world. Is there a recognition of this sort of physical reality amongst the majority of these people that you talk to? Or or are they kind of living in their bubble of only renewables all the time, no matter what do you find there? Are the higher levels of government that you’ve talked to? You don’t have to obviously mention any names or anything like that, but you can.

[00:21:51] Scott: And you also asked me where do hydrocarbons fit in? And I didn’t even answer that question, but let me write that down. I’ll try to come into that. The political leaders and business leaders. And even the university leaders, it varies by where they are. So, I’ve been in 60 countries, luckily. And you know, in Asia, I think they’re pretty clear eyed on this. They know what it’s going to take for them to grow and it’s going to take a lot of everything. That’s why they’re leaders in solar and wind. They are manufacturing, let me step back. They own the processing of the metals, 80% of the processing, the metals on average, some a 100%, some 50 for the metals in the world, China does brilliant, bought it with belt and roads initiatives and other investment initiatives. So, they process those key metals. They manufacture the solar panels and the wind turbines and send them out to the world. And they, they really control the supply chains for solar, wind, and batteries. And that was a brilliant move. They need to, because they don’t have a lot of hydrocarbons. They’ve been looking for them, but they don’t in their own country have, China doesn’t at least have a lot of hydrocarbons. So, they went down a different road. And that’s a good thing for them. Probably pretty wise. They’re pretty clear eyed about this story. They’re building the most nuclear reactors today, along with Russia, China and Russia, 70% of the world’s nuclear, et cetera, mining the most coal and burning the most coal for affordable, reliable electricity with high environmental impact. So, there’s the trade offs to them. Now, as they come, the Middle East understand this a lot lower population, but they get it. Now they’re betting their game oil and gas. That said, the UAE is now built for nuclear reactors. They’re operating in the Middle East.

[00:23:39] Jamie: I didn’t know that. Interesting.

[00:23:41] Scott: Yes. Yeah. So, they get it.

[00:23:44] Jamie: Over what time period would you say they built those?

[00:23:47] Scott: It took about five or six years.

[00:23:49] Jamie: Yeah, how many nuclear reactors have been built in the U. S. in the last five or six years?

[00:23:55] Scott: Yeah, only one very expensive one on a brownfield, Plant Vogel, Southern Company. It took more than twice as long and twice as much money, and it was on an existing site, but it’s coming. So, I would say the people that are emerging and particularly developing understand this now they’re happy to have Europe and the US continue down this path of buying solar panels and wind turbines and batteries from them and electric cars from them and imploding our own reliable energy industries. Look, when your enemy is in the process of destroying themselves, don’t interrupt

[00:24:36] Jamie: Napoleon, right?

[00:24:38] Scott: Yeah, right. Just let it go. And it’s just shocking to me, New York state just this week passed a law. I was writing an op-ed on the plane last night about basically trying to tax the fossil fuel industry or penalize them 25 billion for climate change.

[00:24:57] Jamie: I see.

[00:24:58] Scott: And it’s incredible.

[00:24:59] Jamie: So, none of the people that actually use fossil fuels, just the people that produce it.

[00:25:04] Scott: Yeah. And so, my op-ed was about making analogies, you know, what if we were to say that anybody who sold burgers and fries or produce burgers and fries and pizza had to pay for obesity in everybody or heart disease. As opposed to the consumers of those things, and you know, just tons of analogies. So now Western Europe and the US, we got caught up in this latest thing. And we tend to get caught up in a lot of things, a lot of fads and trends, as you mentioned earlier. Climate was a, is a very sticky one. So, it captured the imaginations of young people and political leaders. Kind of one political side more than another, let’s say. And they, so they have been using that as a vehicle or a tool to instill policies and, you know, central control for things in a way that, that has been very effective so far. But I think the shine is coming off it, Jamie.

[00:26:07] Jamie: Yeah.

[00:26:08] Scott: People are starting to see their power bills and their gasoline bills and their industries are going away and the companies are running, can’t afford to compete because their electricity is so bloody expensive on and on. So, you ask the question, does every, did the leaders I talked to get it? I think they do, but they’re struggling now to unwind from the decisions and policies they promoted. And instead, a lot of them are doubling down. And by the way, your leader in Canada is doing that.

[00:26:36] Jamie: Our current leader in Canada, I, now, it appears that Canada may be on track to become the 51st state according to what you read on Twitter at the moment, but you know, although I don’t necessarily love that narrative. I do think it’s hilarious that Donald Trump is basically single handedly trolling Justin Trudeau out of office right now, so since he’s done that our minister of finance has quit and like is trying to drag Trudeau down with her so just Trump has basically accomplished in the last 6 weeks more than conservative Canadians have accomplished in the last 10 years. So, I’m kind of grateful for that, if I’m being honest. But you know, you talk about this delusion. I had a couple years ago, right around the time of the, just after Russia invaded Ukraine and Germany was experiencing an energy crisis, I had this, like, surreal experience. I was at an event in Europe and I was chatting with this guy who was effectively a green energy lobbyist in the EU. And he was talking about, oh, you know, how horrible it is that they’re, you know, reliant on Russian gas and, you know, what a terrible situation they find themselves in. And the conclusion he drew from that was that, you know, we just need to get on renewables as fast as possible. And that’s the only way we’re going to solve this problem, which is the exact opposite conclusion that I drew from that scenario, which is Germany and he was primarily focused on Germany is, you know, has more, has put more into renewables than anyone else and put themselves in a situation where they were unbelievably vulnerable. And I think you could draw a very clear line between. Germany’s energy policy and Putin’s confidence in invading the Ukraine. I think you could very easily draw that line. And I have, I’ve joked that, you’re not gonna like this joke, Scott. I’ve joked on here that Angela Merkel is the second worst German chancellor we’ve ever had. It has caused a significant amount of destruction in Europe. But like, there is some truth to that. I mean, I really do think that there’s, you know, this war probably wouldn’t be happening if Germany had more commonsensical energy policy. And that doesn’t even mean fossil fuels. It could have just been nuclear, for God’s sakes. And here we are.

[00:28:55] Scott: Yeah. Energiewende, which is the German word for their new Energy started in 2007, 2006, 2007 timeframe, Angela Merkel, and they decided to reduce their use of things. Coal, oil, natural gas, and nuclear and proceeded with it. The Fukushima Daiichi event happened pre-Ukraine, and that drove them to accelerate their decline in nuclear. And then. They finalized it after Ukraine by closing their last three nuclear power plants and building, or re opening coal plants. When they lost the gas from Russia, which stunned climate scientists. And it should have, they were aghast at that and they should be, you know, why are we building coal instead of nuclear with no emissions? And they accomplished the same dispatchable or in many cases, baseload electricity provision. So, Germany, yes, it’s easy to pick on for Germany, but they continue down these roads in some ways. And that’s the challenge I think is. How do you get more clear eyed about this? The UK has now flipped as you know, and they are starting, they’re now pushing ahead in a Germany, California, like way. Shockingly. And I don’t think this prime minister will last long. And Ed Miliband is really their energy minister. Who’s driving all this. And he’s fairly conflicted on some things too. So, you know, it does get to politics. It does get to conflicts of interest and conflicts of commitment. But Germany policy in some ways this let’s look at the good parts. They added diversity to their portfolio. That’s good. Wind is good. It’s windy in Germany. Now. A lot of the landowners are tired of building turbines everywhere. Solar not good in Germany. It’s If you look at a solar intensity map, it looks like Seattle, Washington or Vancouver, you know, so yeah, not great sun in Germany. So, you’re very inefficient or I should say, the capacity factor is a better, is low on solar in Germany and you don’t get, it doesn’t generate electricity as often as it does in really sunny places like Arizona. Okay. That’s just the reality of. Physics again, or the weather. But some of that’s good. You know, I like diverse portfolios of anything. I think adding some components of solar and wind and electric vehicles in the German mix is a good thing. If you take away coal completely, natural gas, oil completely, and nuclear, it’s not a good thing. All of a sudden, you’re limited in your options again, and they’re. Intermittent. They’re not reliable. So, you’re more dependent on others. California is importing more electricity now from other states, more petrochemical products, you know, more energy, either, either in raw form or as products than others. And. It drives up the price when you start to have these redundant backup systems or rely on others. It gets more expensive, Jamie. And this is where our three E’s, our energy, environment, economy come in. It gets more expensive. And that’s just the reality of it. You can pretend like the sun and the wind. And let me be real clear here. There’s a Lazard number, that’s a company that’s called LCOE Levelized Cost of Energy or Electricity. It’s been quoted a lot by those who want to show that solar and wind are now cheaper than coal and gas in many places. That number is a calculation of the cost of electricity at the plant gate where the electron is generated. Not to you or me. To get it to you or me, 24/7 365, requires this redundant thing or thing sitting over here to be available when night comes or the wind stops blowing. That redundant thing is very expensive. So, when I add that redundant thing into the cheaper thing, it makes it more expensive to the consumer.

[00:32:56] Jamie: Right.

[00:32:57] Scott: So, you see the price of energy in these countries.

[00:32:59] Jamie: Just to dig into that, because that’s something I hadn’t thought about before you actually mentioned it to me. So, you’ve got your wind farm or your solar panels, but you also have to have your coal fire power plant or nat gas plant or whatever in the background sitting there ready for when it’s not sunny or it’s not windy.

[00:33:15] Scott: Correct.

[00:33:15] Jamie: People don’t realize that there’s these redundancies built into this.

[00:33:18] Scott: Correct.

[00:33:19] Jamie: Yeah. Okay.

[00:33:19] Scott: They’re called load following plants in the gas world. The best one for that as natural gas, because natural gas, think of your kitchen. You don’t cook with charcoal in your kitchen because it takes a while to start up and it would make it very smoky, you know, nasty. You don’t cook with oil in your kitchen. You could cook with electricity or natural gas. Natural gas actually comes up faster than electricity. Bam. The heat’s there and you can turn it right off. So natural gas is a great load following power plant, if you will, but when it’s just sitting there idle and then it gets called on and then it’s sitting idle called on that makes that electron very expensive because you got to pay the people to build that plant and have it available with fuel. Yeah, and the other way to back that up is with batteries and you’re hearing a lot today reading a lot about grid scale batteries. And these are giant, and when I say giant, I mean the system, the battery system, not individual cells. But the system of batteries may look like a Walmart. And they’re everywhere. Okay. They’re being built everywhere. Giant lithium-ion batteries in warehouses that are getting charged, hopefully when the wind is blowing and the sun is shining and not needed as much. Hopefully I say, and then they’re there to call on when it’s not windy or sunny. And they back up that intermittency right now, we’re up to about four hours of backup. And that’s gone up from a few minutes to four hours on particular systems of electric backup from.

[00:34:54] Jamie: Is that backup for like the entire United States so it can run or.

[00:34:59] Scott: No, it’s a very strange number, but that’s how they quote it. So, what they, it’s a very strange number.

[00:35:04] Jamie: Yeah. Like what can you run for 4 hours?

[00:35:06] Scott: A very astute question, you know, 4 hours to what, run my phone or like the whole city of Houston, you know, four hours or what, and what they’re quoting is four hours to run whatever component of the grid it is they’re backing up. So, so if and yes, so if you were going to try to back up the whole nation, which you couldn’t do.

[00:35:25] Jamie: Yeah, so those batteries can’t even service the grid they’re currently on, let alone all the grids or the components of the grids.

[00:35:31] Scott: Right.

[00:35:32] Jamie: They’re not yet on.

[00:35:33] Scott: So, they’re servicing some component of the grid and they’re up to about 4 hours of capacity for that. Which is a lot, it helps in certain ways if you had to run all on battery, but hey, you know, there’s a funny term again, another German term dunkelflaute, which means sort of a, I don’t know exactly, but no wind for a longer period of time than you would expect. Although it happens all the time. And Europe just went through one of these at the end of this year, in November and December, a couple of weeks in a row where there’s no wind. And so, they’re having to call on all the backup systems. And there were rolling brownouts and things got very expensive because everybody providing is charging more. It’s a supply and demand basic economics thing. So yes, your observation. When you have an intermittent source, you have to have something there to make it reliable. And that reliability is expensive. It’s different if you have nuclear, cause that runs all the time. It’s literally very high-capacity factors in the 90%+ range, natural gas, coal, they all have times when they’re not running. You have to service the plants or your fuel supply is strained or weather can happen, etc. But we calculate all those things. So that’s one of the great challenges, I think. And again, it’s just kind of a bummer of physics for the solar and wind. I don’t use the word renewable solar and winds. They’re good for some things and not so good for other things. You asked about coal and oil and gas though, a while ago. And how much is there? It’s a finite resource at some level. So, there’s the nature only made so much in the whole tank. We have produced some of that. From the so-called conventional reservoirs. That’s where the oil comes out of the source rock, migrates into nice little potholes in the sandstone or limestone, mostly in other places called conventional reservoirs. And we’ve produced some of that. There’s still more to be found than produced. 15 years ago, actually more now, close to 25 years ago, the first attempts, but about in 2006, 7, 8, George Mitchell finally cracked the code on producing natural gas from shale, the Barnett shale, North Texas, north of in the Fort Worth area, it wasn’t economic, but he was producing it successfully, getting methane to come out and flow out of shale and that’s called unconventional shale. Gas, the gas is the same gas. It’s just unconventional reservoirs. And then along, we did that in the Barnett and the Fayetteville, Haynesville, and the Marcellus. And then in parallel later came oil out of shale, which nobody thought could happen, but the Eagle Ford, the Bakken and the West Texas. So, these are huge. The kitchen, if you will, that’s generating oil and gas, and we’re producing from it now using remarkable combination of technologies. Nothing new. It wasn’t a, it was very much of a multiple decadal thing, moving, horizontal drilling, hydraulic fracturing, which has been around for 60 or 70 years together and neater, better ways to crack into that really tight rock and produce oil and gas. And that’s opened up whole new resources for us.

[00:39:00] Jamie: Yeah. So, for people at home, so conventional is basically tapping into liquid or gaseous reservoirs under the surface. Whereas sort of there’s non conventional is pulling the gas or the weight of the oil out of basically solid rock right for by fracturing hydraulic fracturing of the solid rock. Am I summarizing that well or am I.

[00:39:20] Scott: A little different? So conventional is pulling it out of rock that has holes that are the size of the point of a pin to a pinhead. That’s what those pores look like. Think of going to the beach, it’s sand and you dump your Coke on the beach and it just soaks right in. Okay. Yeah. So, it looks like it’s kind of rocky or sandy, but there’s a lot of holes in it. When you make that sand into a rock, it’s called sandstone. And there’s still 15%. Or space in there. So that’s conventional reservoirs or limestone reefs, little holes, relatively connected that flow when you, they’re under pressure and the subsurface. So, when you drill down and poke a hole in there, the pressure releases those gases and liquids to the surface. Mostly what’s produced. And this is very important. Mostly what’s produced by conventional oil and gas production is water. Okay. Old oceans that were trapped in those sandstones and limestone reefs get buried and trapped old oceans from hundreds of millions of years ago. And that gets produced too. So, oil and gas companies are really water handling companies. They’re handling water.

[00:40:26] Jamie: Yeah.

[00:40:26] Scott: And occasionally they get some oil and gas with it, which they separate out. So that’s kind of, I hope that’s clear. The conventional reservoir scene, conventional reservoirs. Unconventional is also rock, but it’s organic, rich. Silts and muds and clays that are deposited deep in the oceans and organic material rains out of the oceans and gets buried. Oil and gas comes from organics, basically dead plants, not dinosaurs, dead plants that get buried and cooked through time. So, the carbohydrates get cooked and they become hydrocarbons. And in that old organic stuff, we call the lump term for that is shale. Okay. It’s a grab bag term for geologists used for this really fine grain material. And you make that compact that and make it into rock. And you’re right. It’s very dense. You could polish it up and you could probably put it on your kitchen counter and cut steak or cheese on there, you know, like marble or something. So, it’s very dense. The holes in that are so small, Jamie, they’re there, but they’re very small. What do I mean by that? You could fit in the Barnett shale. You could, and we’ve done the work on this. You could fit about a hundred of those holes or up to 200 across the width of one human hair.

[00:41:47] Jamie: Okay. Oh, wow. Okay.

[00:41:49] Scott: Okay. So, they’re nanometers. 50 to a 100 nanometers. A nanometer is a billionth of a meter. A billionth of a meter. A billionth of a meter. Yeah. Okay. So, these are teeny little holes. Sometimes they’re the size of a hydrocarbon molecule, one molecule or a few methane molecules. So, the gas and oil doesn’t flow out of there very well. You’ve got crack that rock in order for to create pathways for the molecules to flow to the well board. That’s what hydraulic fracturing does, or fracking. It puts water. And sand on and some chemicals, not much biocides mostly under pressure and pushes it into the rock under high pressure. And it cracks the rock and creates these pathways to flow back into the well bore and the sand grains that they put in hold the cracks open. So, this, the molecules can continue to flow. Those are called proppants. And so, when you’re down, we didn’t think we could produce oil and gas out of shale before we knew it was there, but there’s no way to get to it. And now there is a way. So, you ask about oil and gas. Here’s the simplest form. There’s something called resource. That’s the total tank. That’s what nature has made in the earth. The resource. And then there’s a technically recoverable reserve. That’s what you can get from that resource with today’s technology. And today’s price, both of those change. So, reserves change, they tend to grow because technology gets better and price dynamics happen. And then there’s something called the reserve and that’s just What we can see today that has been legally defined as some amount of producible oil and gas. Okay, so resource and reserve are different terms, and we have a limited number of shale reserves today. But we haven’t produced much oil and gas relatively out of all those shales yet. The US is leading in this. We’ve probably produced 5 to 10% of the oil and gas with all this drilling. 90% is left behind. So as technology improves. Price dynamics change. We hope to be able to get more from that shale, just like we did in conventional reservoirs. Here’s the kicker. The United States ain’t the only place with shale. It’s the source rock for conventional reservoirs. Guess who else has it? People who have conventional oil and gas, the Middle East, Russia, Latin America, you know, there are plenty of source rocks down in those parts of the world and they are quietly developing them. And they’re going to release them onto the world stage. When it becomes expedient for them to do that. And by expedient, I mean, right now it’s cheaper to produce the conventional oil and gas in Russia and the Middle East and sell it to the world’s market, bigger arbitrage. Yeah. And then as that changes and the United States starts to decline in our show production, voila. So, we have. A lot of oil and gas left in the world. If there’s a demand for it at the right price, long winded answer, but it takes a while to talk through all that.

[00:44:59] Jamie: You know, there’s a bit of a narrative going on that sort of US oil and gas or US like shale has peaked, you know, that we’ve seen the permium kind of reach its peak output or at least its peak growth and that growth is starting to decline. Do you kind of buy into that narrative that we’re near the end of sort of cheap gas or cheap oil and. And that, you know, price demand will come on to, to incentivize prices. Goal will go up to incentivize the supply to come online. Or do you think, you know, we are likely, you know, technical technology will continue to advance at the rate it has and unlock resources that we might not have been able to previously, um, get access to economically.

[00:45:40] Scott: A couple of things to unpack in that, I gave a talk two years ago in Washington, D.C. called Houston, We May Have a Problem. So yes, we have actually seen 7 of the 10 big natural gas, shale gas basins, a rollover or plateau at that time. Only 3 are continuing to go up with today’s technology and today’s price. And that’s the key. We’ve said, we’ve heard for many years. We’ve. Oil is peaked. Oil is peaked. King Hubbard. It hasn’t yet globally. So, technology continues to improve. I just described earlier, there’s a lot of resource still to go after there. So, it’s not a resource issue for the peaking. It’s really more of a technology and demand story. If something better was there to replace oil and or natural gas and whatever uses, then we might’ve seen a peak. And by something better, I mean, it has to be as affordable. And as reliable and efficient as those are, that’s very hard to do. Hydrocarbons are very tough to replace because they’re so dense and so useful in many ways.

[00:46:50] Scott: So, we don’t have that yet. And if it comes along, then you might have seen

[00:46:54] Jamie: Infrastructure as well in place. Say that again. We also have over a hundred years of infrastructure in place designed to take advantage of hydrocarbons as well.

[00:47:02] Scott: In key places. Yeah. Okay. Not everywhere it needs to be, but in key places. So, you asked, would price then adjust? I think we, it will, now the dynamics are very important as supply starts to get strained, price goes up because we still want it and then price drives technology. And more people push into technology, which finds another way to produce the next slug out of shale and price goes back down because we’ve got the supply. So, you see these fascinating technology price dynamics and then competitor technologies. And that’s really the world of energy, isn’t it? It’s all those dynamics playing together. And I think the challenge with the renewables, the solar and wind and batteries is. People said they would be cheaper and they’re not they are in some places at the plant gate, but not to you and me, as we’ve already discussed. They said they would be reliable and they’re not because you have to have something else to back them up. And they said they would be cleaner. And the definition was very narrow. It was a clean in the sense of CO2 emissions, not the mining your industry, you know, and I look, I’m a geologist. I don’t mind mining. Yeah, we, I like mining, but it’s not green, you know, mining has impacts. So, so this is the dynamic that I think these. Policymakers who bought into that whole story or dealing with and trying to kind of deny not more affordable, not more reliable. And it’s really not cleaner. Well, why are we doing it?

[00:48:43] Jamie: You really touch on, I think, what is really one of the central travesties of the climate obsession, which is that every other social and environmental impact has been pushed to the wayside. You know, When I was a kid, we used to care about water quality and air quality and land use and soils and conservation and all these and that’s all been become a secondary or tertiary conversation in service of the climate. Right? And which is why I mean. You’re like you said you’re a geologist. I’m a mining engineer. I’ve worked on a lot of mines. I mean, you look at an oil and gas well, and you look at a mega copper mine, the impact on the earth of those things is wildly different, right? Wildly different. And that’s all been sort of conveniently forgotten that exists as well. And we spent the last almost hour here kind of defining the problem. But. I’d love to talk for a minute about a couple things. Like what’s the solution here? You know, you’ve been in a phenomenal position with your PBS show Energy Switch over the last couple of years to sit down with some of the world’s leading energy experts and business leaders and government leaders and academics and what have you and hear very not conflicting, but sort of debates on different sides of the story. You’ve spent your career in energy. You know, if I were to, you know, appoint Scott Tinker, a sort of master of energy for the world. What approach should we even think be thinking about and how to actually address these problems so that it does kind of hit that radical middle so that it’s economically viable, that it’s environmentally friendly provides us or friendly Ish. It provides us the energy. We need the reliable, safe, et cetera. What should we be thinking about? And part of the reason I asked this is one it’s interesting. And I find like so few interviews actually spend any time talking about viable solutions versus problems or maybe sorry, fairy tale solutions. And two, the listeners of this podcast are primarily investors in commodity sectors. Or working in commodity sectors. And they’re interested because that’s an opportunity. You know, I see today’s energy world as one of the biggest opportunities we’ll ever see for investors of our generation. I think what we’re going to see in energy over the next decade is similar to what we saw in tech. Over the last 20 years, I think there’s going to be a lot of billionaires and millionaires made. And I know there’s a lot of people listening to this who are thinking along those lines as well. So. What do you think the real opportunity is here? And what should be happening? And, you know, people can kind of act with their wallets too. And that’s what I intend to do.

[00:51:32] Scott: Right. Well, I’ll start with a caveat. If you listen to me for investment advice, you’ll be working until you’re older than me. And that’s pretty damn old. So, fair enough. You know, there are components to it, Jamie. There are the, there are markets. There’s the human component, there’s the resource component, the density component, technology components to it, and then the whole governments and economics, components to this, that to say, it’s not simple, you know, it’s solvable, but not simple, and there’s no one size fits all, this is really important. I think Africa is speaking loudly now at these climate conferences called COP or Conference of the Parties that happen annually saying, look, quit telling us we can’t do these things. You did. And we’re going to do it. And I think what you’re going to see in general is that in emerging economies, several billion people, they’re going to go for low, you know, the highly reliable, affordable energy, just like we did, and it’s going to be coal if they’ve got it and then other things coming in there and I can’t blame them. They probably aren’t going to clean it up much either, at least initially until they can afford that allows them to start to grow their economy a bit, build on a base and begin to afford more things. In the emerging economies, you’re seeing more of, you’re still seeing a bunch of coal if they’ve got it, but then also oil for transportation as they get cars. Oil is a remarkable transportation fuel and when it’s distilled, you know, refined gasoline, diesel, jet fuels, whatever. It’s just really dense. A lot of bang for the buck. So, you’re seeing that happen and then natural gas is starting to grow in all the economies in the world as well, because it’s such a versatile fuel, it can use it in transportation. It makes electricity, as we’ve already discussed it’s needed for fertilizers and plastics and the list is endless. What we use methane for and propane and bentane, you know, butane and pentane and everything else. So those are some of the, these are the foundational energies of things. And gas is going to be here for a long time. In the developed world, we have the luxury of being rich. So, we’re starting to transition toward other things. Like nuclear, and it’s been around a while, but I think we’re going to see nuclear come back for sure. And one of the benefits, and I think the positives is, both sides of the aisle seem to agree on that now, the political aisle. Democrats are strongly supporting nuclear, at least in this Biden administration, and I think the Republicans will as well. Young people aren’t scared of nuclear. They weren’t trained to be scared of nuclear. Like I was, they were trained to be scared of climate, you know, so they have a different fear set that they were trained to be scared of. So nuclear is coming, it’s coming back and that’s a good thing. I’m involved with several different components of nuclear companies, different kinds of investments and putting away the waste. What do you do with the waste? That’s a neat area. All the nuclear facilities and services that are needed. That’s a neat area. The nuclear mining of those things is pretty cool. And then the generation itself, a lot going on in nuclear and how it works with other things to make, like you can make hydrogen from methane with nuclear or from water. And then the sun and the wind and batteries have a role to play. I think they’re going to continue to be pushed by governments who won’t back off of their initial thinking quite yet until they’re either voted out of office or finally find some courage, but they’re going to come around. You know, solar and wind are going to be there. You’ve got to put solar and wind and other distributed forms of energy in places that have no infrastructure, like wires or roads or pipelines. First energy is often that a panel, a little pico hydro unit, or, you know, a micro turbine of some kind, wind turbine, that’s what comes first. And then you can grow from there. So, I see a lot of upside in the emerging and developing world. And then. At some scale, where the wind resource is excellent, like in the central United States, or the solar resource is outstanding, like in California, Arizona, New Mexico, parts of Texas, that makes more sense. You can collect it in an efficient way and it would be affordable. The human flourishing part of that says, however, that all the world needs energy. Not as much as we consume per person, but at some minimum level, we’ve got to enough of the energy poverty, or we’re going to see, we’re going to have issues that are going to make everything else look silly by comparison. Revolutions happen when the classes get so disparate. The lower classes say we’ve had enough of this and on a global scale, we don’t can’t afford that to happen and it shouldn’t happen. It’d be morally wrong. So, we’ve got to get energy to everyone. And I spent a lot of time working on energy poverty and in solving those issues and they’re happening. In neat ways. The bottom line on that real quickly is it’s not aid. You can’t go in and say here’s this solar panel, you know, good luck. And then you leave and they don’t even know what to do when a fuse blows or something. It has to be something that the community wants and is willing to learn about and then take care of. On a density sense, what I described is really moving from low density to high density energy. Those are the resources. And that’s a nice thing again, because it takes fewer wells and less fewer mines when you’re using high density forms of energy and the technology side. What drives those? What’s going to get more oil and gas out of shale? What’s going to allow us to technologically accomplish affordable fusion? You know, instead of fission. What’s, how are we going to create hydrogen affordably if we ever can? What’s it going to come from? Water or methane? And what’s the energy source is going to be to split those molecules? Those are very fascinating. Again, what are the competitors? So, I think there’s just the dynamics are a tremendous amount of energy investment space out there. Yeah. It’s going to vary by the economy, the resources, the education levels, the political structure et cetera, et cetera. And that’s just the reality of it. We shouldn’t try to impose some elite kind of global order on these things because we’re not smart enough.

[00:58:18] Jamie: To do the top-down approach and assume we have everything figured out and, you know, it meets the equation and then where we go. Yeah.

[00:58:25] Scott: Yeah, just do this. What governments are good for is investing in high-risk research that industries can’t afford to do. And then that research gets used in different ways for markets to then say, hey, I can use that to go do this, but at the end of the day, if markets don’t do it, we won’t scale it. So, it’s a common, I’m not against government investment, but it needs to be not buying out some failed electric car company, which is what we’re doing in the US over and over before this administration leaves. It needs to be an investing in fundamental research and the understanding the problems. That we will encounter as we go forward that then allows the markets to pick that up and go and develop it in ways that are better for all humans. Right?

[00:59:16] Jamie: Yeah, you know, I have a bit of a pet theory right now that we’re going to see a lot of money flow into energy and commodities more broadly. From two sources for one from government. I think government’s gonna wake up and say, oh, look, you know, China has its, you know, you can touch on earlier belt road policy. They’ve secured basically all the critical mineral infrastructure to process and refine these things. They have secured mineral and energy deposits all over Africa and Latin America. We are way behind and frankly, we’re going to need to mobilize billions, if not trillions of dollars to go actually out and compete on that front. So that’s one. I think that’s going to happen in the Western world.

[01:00:02] Scott: That’s an energy security issue. Yes. I completely agree. We are waking up to the fact That China controls the critical pathways for the forms of energy. We thought we wanted to go towards and it’s not secure. If I move.

[01:00:21] Jamie: It’s genius like it’s, they were thinking a hundred years into the future when, you know, thinking on 4-year terms.

[01:00:27] Scott: And they didn’t have oil and gas, they have coal. So, they’re using coal, but they didn’t have oil and gas. So, they’re doing everything else. And it’s, you know, we talked about this for many years. You could see all this happening and coming, but people wanted to put their head in the security sand, if you will, but we’re waking up now to that and China sent a signal across recently. Like if Europe says, hey, we’re going to put, we’re going to hit you with a border taxes for carbon. That’s one of the schemes China might say. Well, we’re just not going to pay them. What do you mean? Well, we’ll just sell our stuff to India. You know, they have 1.3 billion people, 3 or 4 times the population of Europe and their markets are growing. We’ll just sell our stuff to them. Good luck. They have more control than we do at this point.

[01:01:13] Jamie: Yeah, I know. I mean, we kind of control the financialized assets, but they, like the financialized system, but they control the actual physical assets. And at the end of the day, the physics, I think will win out, you know, it’s.

[01:01:25] Scott: And Russia has 11 times.

[01:01:29] Jamie: Yeah, and now the other component of this, which I think has to happen is that tech people, a lot of people disagree with this, but I think we’re going to see tech companies heavily controlling their supply chain, you know, my career has had two interesting phenomena. So, one, you know, I should have been an electrical engineer or a computer engineer because every dollar that’s been made by any engineer in my entire career has been in the tech industry. But two, a lot of business has seen a It’s been breaking apart and it’s going to, it’s been, we’ve seen a, what’s the word I’m looking for the opposite of consolidation diversification. Whereas if you go back to the sort of 80’s and early 90’s, there were these super conglomerates, right. That like controlled, you know, like. General Electric used to own copper mines, for example, and Exxon used to own copper mines in Brazil and that hasn’t happened for my entire career. But I think we’re going to start seeing that happen again with the Tesla’s and the Microsoft’s and whomever, where all of the wealth has been sucked up to 7 companies who buying out their entire supply chain is now almost a rounding error on their balance sheet. And they’re not going to be. They’re almost price insensitive right to a pound of lithium or uranium or copper or whatever it is that they’re after and you kind of are seeing these corporate corpocracies for me. Like, I don’t know if you saw it and you’re in Texas like SpaceX is building a town now, right? They’re building like the Starship or Starfleet. I can’t remember what it’s called town. And it’s like, there’s going to be a lot of advantages and being at SpaceX where you get to go send your kids to the best schools and the best hospitals and whatnot at their town. Yeah. And how long until this sort of becomes like these old super conglomerates, where they start owning the whole supply chain. And the only way we’re going to be able to compete with the China’s or the Arab countries with the sovereign wealth funds is for some of that tech money to start grabbing those assets as well. That’s kind of been my theory here. And I think we’re starting to see it play out, but does that resonate with you in terms of what you’ve been seeing?

[01:03:30] Scott: Sure. I mean, you’ve got people opening up Three Mile Island for nuclear power again, to run data centers. You know, it, they’re just going right into it. And it took tech to, I think, get the government’s attention that nuclear was a viable source. And they weren’t going to do it on solar and wind. I mean, they might say they’re going to have low emissions. They’re making all these promises. So, to honor those are actually having to go to a low emission source that is reliable and that’s nuclear. And that’s the fundamental base of the supply chain is your source of energy.

[01:04:03] Jamie: Yeah, what do you make of the, I guess, data center boom, right? You know, I’ve read things that like US energy or electricity consumption supposed to go up by like 40% over the next 10 years. These like almost outlandish seeming claims to me. Do you think it’s real that this, that, I mean, the fact that I think Microsoft’s paying something like $50 million a month just to have the option on Three Mile Island. Like the fact that they’re willing to do that speaks to me that this is real, but I’m curious what you’ve seen.

[01:04:35] Scott: Yeah, we suffer a little bit from straight line ism. So, you know, data centers will become more efficient and they’ll figure that out because it’s more efficient to find a way to. To lower your energy demand through various efficiencies in some ways, and to just let that continue to happen at those costs. But yes, I think we’re going to see an increase in electricity demand from data centers as artificial intelligence and all the components of that come into the scene. It will replace some things. AI hopefully will become. Will help us become more efficient as it’s promised to do, and therefore we won’t need as many other things necessarily, as we’ve had in the past. So, maybe AI help solve its own demand problems as it goes forward. And I’m hopeful that will happen. I also think electric vehicles are going to have some role to play, but not at the level that they’re being forecast for a lot of reasons. Not just, not least of which is the environmental impacts of batteries from mine all the way to dump, but even so. The other components, they’re heavy, which makes them more dangerous. They’re dangerous when they get on fire because you can’t put them out. You know, you can’t they’re not reliable in a sense of when it’s cold or really hot. There’s no infrastructure to charge them enough today. And you know, the government didn’t build gasoline stations. Why would the government build charging stations? Let’s let the markets figure that out. So, I think they’re gonna have a role to play, but I don’t think there’ll be demanding on the power grid as much as some would forecast them to be. And so that’s a little bit of a relief on it. And then I think also, Jamie, we’re hopefully going to start to see continued improvements in infrastructure. From the individual home all the way up through where we’re able to do what we do with less energy. And look there’s, you know, Jevons had mid 1800s. There was a, the rebound effect, if you will, of the more efficient you become with something, the more you use of it. And that’s true in every case, but at some level you, you only need so much energy to do something right. To power my home. And if I have really efficient windows and insulation and smarter meters and time of day price, there’s a lot of things that could come in that would make this home do exactly what I needed to do using less energy. And I wouldn’t necessarily buy a bigger home. And there’s a ceiling on that at some level for those of us who have reached that ceiling. Most of us, however, just coming into it. So yes, I think the demands for electricity are going to increase. I think they are going to offset molecules at some level. But we’re never going to electrify everything. We’ve got to have molecules for lots of things. I mean, everything in this room is molecules, but beyond that we have to have a, you know, you need a lot of heat to make basic stuff for human societies, like steel and cement and plastics and fertilizers, a lot of heat, and those are all molecules. It’s tough to make, get that much heat from electricity alone. You can arc nuclear but it’s, so you’re going to be burning natural gas, you’re going to be burning coal or something to get that heat. So, some balance of electricity, electrons and molecules, if you will is coming. Yeah.

[01:08:07] Jamie: Yeah. It’s an interesting time. I, you know, I think of, you know, the last 20 years, everyone seemingly has been focused on building out the digital infrastructure. And now it seems that the physical infrastructure, it’s past the carrying capacity almost to a degree. It’s that these people in tech have kind of woken up and been saying, oh look, like, the real world actually does exist, and it’s not gonna be able to support an infinite amount of cloud storage and GPUs and data centers, et cetera. And there’s this attention coming to the energy and commodity sector that I haven’t seen in my entire career. I, you know, I listen to several tech podcasts and people are talking about uranium and nuclear and natural gas as a way to power data centers. And that whole narrative is very new to me. Outside of, you know, people who work in these industries like you or I, what do you think the, this new , this new administration, the Trump presidency is going to be thinking in terms of energy and, you know, this is a little outside your wheelhouse, but how that fits into you know, manufacturing and all the downstream effects that they’re trying to encourage in the United States right now.

[01:09:18] Scott: Yeah, it’s kind of pretty closely in my wheelhouse, actually. I mean, in a soundbite sense, energy dominance, right? Yeah. And I understand that. I think. I more than think, I have some insights that, that this affordable, reliable is going to be the driver of energy policy in the US for the next four years. What makes energy more affordable and reliable to you at, to the US citizen, to the US company, very focused on the United States, less on global partners. So, with that focus in mind, it points you towards some things, continuing to develop oil and gas and try to get more from what we have, continuing to develop nuclear and both small modular reactors and all the way up to large reactors, potentially pushing hopefully on fusion research to can to bring that, let’s say, economic moment closer to us than we have in the past. The environmental impacts of that are going to be. A part of the consideration, but I don’t think they’re going to dominate it with this particular administration. And I’m not just talking about climate. I think they’re going to try to remove a lot of the.

[01:10:38] Jamie: Bureaucratic hurdles. Is that a good way to put it?

[01:10:40] Scott: Well, that, but more of the environmental hurdles from EPA that. Have been perhaps overburdened some to a point where you can’t build a nuclear power plant, you know, cause you just get to the point where somebody sues you and somebody sues you. They’re going to try to remove a lot of that. Hopefully not go too far because some of those are good and you’ve got to protect our land and air and our water for sure. So, you don’t want industry to run amok, given them, you know, most wouldn’t, but a few bad actors would always. So hopefully they’ll balance that. I think you’re going to see a lot of the constraints attempted to be removed though, from developing affordable, reliable energy. Chris Wright’s a good friend of mine. The new Secretary has been for a long time. He’s also big on energy poverty. He’s done things in Africa. He has his own little foundation. So hopefully the department of energy and others will keep that in mind. We have some of it in the US not just globally.

[01:11:38] Jamie: He was, is, or was the CEO of Liberty, right? Is that right? So,

[01:11:43] Scott: Pinnacle and then Liberty.

[01:11:44] Jamie: Drilling company. Yeah. So, he’s going to come in.

[01:11:46] Scott: It’s not a drilling. It’s a hydraulic fracturing company. So, they have fractured most, a lot of the wells that people drill and, but he’s smart guy, you know, MIT educated and does very thoughtful guy, a good friend. So yeah.

[01:12:01] Jamie: Are you excited about this change in direction as someone that’s spent his career in US energy? It’s.

[01:12:07] Scott: I think so. Yeah, I think so. A little bit. I’m sanguine too, in the sense that four years isn’t a long time. And in fact, two years, usually Senate will flip again because the administration won’t do everything it promised and it doesn’t take much to flip the Senate. So, I’m more excited about maybe course pause from the extremes we were going to everything was based on climate in the last four years and really, and this administration fought oil and despite administration fought oil and gas harder than any prior administration arguing. They say there’s more produced than ever. Well, that’s not because of them. That was because they were You know; the energy industry had a lot of momentum coming from since 2000 and just kept it going. Obama administration didn’t support oil and gas, but they didn’t fight it the same way that this one has. So, I think we need to come out of that trajectory and come back into more balance. What I hope doesn’t happen is we try in four years to go the complete opposite way. And then that causes another set of reactions to look at all this environmental destruction going on, and then the voter gets all worried about it and changes again. I’d like to see that pendulum quit swinging quite so far out, or the amplitude of the wave kind of decreased down toward our radical middle.

[01:13:27] Jamie: Well, you’ve probably done as much or more than anyone to try to moderate that narrative. primarily with the work you’ve done at Switch, right? And the Energy Switch and the various products and education entertainment shows that you’ve done there. How, what can we tell people a little bit about what you’re doing at Switch and your special? And then like, what you’d like the takeaways for people to be from those conversations or what you’re trying to accomplish there.

[01:13:56] Scott: Sure. Yeah, so I’ve been speaking about energy for a long time and back in 08 met a guy named Harry Lynch who interviewed me for a film he was making on the Barnett Shale. Early days of the Barnett. And we hit it off and he said, boy, you know, we should make a film on energy. And we did called Switch, filmed it in 9 and 10 and produced in post produced in 11, released it in 2012. Very popular film. We went to 11 countries and looked at the pros and cons of all forms of energy and they all have them. Environmental pros and cons, economic pros and cons, blah, blah, blah. Just the trade offs, if you will. And that film got very popular, was used a lot by educators. And then we continued a few years later. He’s done some other really neat things outside the energy space. I made our second film on energy poverty and along the way produced Switch Classroom, which is in Canada now too, it’s free resource to teachers. It’s a platform for them to use and grab modules to teach energy education and environmental sciences and other sciences. Teachers love it. A film based, a lot of films that we’ve produced, little short snippets, and the teachers have developed the curriculum. So, they, the kids do great on testing. And it’s, and again, it’s a supplemental free resource. They love that part. So, we’re in K through 12. We’re in the public. We’ve got a case competition that we run in universities around the world called on energy poverty. It just finished its fourth year. We’ve had a well, more than 4,000 students do it in over 50 countries, teams of four that compete to try to pick a country pairing and lift them out of poverty. And they, we have volunteer judges who have mentored and judged those teams and hundreds of those. So, for your listeners, if you want to get involved, it’s a low commitment and hugely impactful to you personally, to watch these young people from all around the world, try to figure this out, nice cast prizes and that kind of thing.

[01:15:55] Jamie: Do any of their recommendations or projects. Do they ever get implemented? Has there ever been a path for that?

[01:16:01] Scott: Yeah, we’re working on that. I’m working with a fairly well healed person in the United States and the natural gas industry and forming an energy core to address energy poverty globally with real money coming in from industry and hopefully government to help go accelerate a lot of different groups around the world who are doing addressing energy poverty and our students. Since then, alumni we formed the switch alumni network of former competitors, and they could be placed as volunteers or interns in with these groups that we would invest in and help accelerate to, you know, take a LPG facility or canisters to replace wood cooking indoors or. Or, you know, solar panels to pump water to do better irrigation, et cetera, Jamie. So, yes, that’s all evolving in real time, but we’re really trying to see how we can grow the impact of that globally. Then there, of course, there’s the public facing piece of Switch, which you mentioned the PBS show we’re filming season 7 of that in February. You were on it, did a great job there. Two guests on every episode and we pick a topic and dive into it. You guys don’t always agree on everything as you didn’t, and you do agree on some things, but that’s the point. We have this civil dialogue in a highly produced studio. You were in it and we reduce it down to 24 minutes and the PBS audience and now major podcasts, Apple, Spotify, all of them. You can listen to these dialogues between smart people and I moderate. I try not to get too involved unless I need to. And you can hear these dialogues about a topic where you realize, oh, wow, this is, there’s more to this than I thought. It’s more complicated than I thought, but they’re having a civil discussion. You know, they don’t have to yell at each other or blame each other or call each other denier. So that PBS show has become very popular. And. And we’re proud of that one. So that’s the switch energy alliance is doing a lot of things like this. I I’m kind of proud of the work and, you know, we run on gifts. It’s a 501(c)(3). So, for those in your audience who want to check us out, let me know and we’re happy to expose you to more.

[01:18:19] Jamie: Yeah, I would say from my perspective, that was, it was a phenomenal experience getting to see all the studio and the team you put together and the producers and directors, et cetera. And of course yourself moderating, you know, very I thought you did a great job sort of moderating and keeping a balanced perspective. So, and I’ve got since gone and watched many of your past episodes as well on PBS. And you really do have. Kind of the who’s who of this space on there talking about very important topics. So, I would highly recommend everybody go and check that out after this.

[01:18:51] Scott: Thank you. Yeah, thanks.

[01:18:53] Jamie: Well Scott I think I’ve kept you. I told you we’re gonna be here for an hour. I think we’re getting closer to two now. Is there anything you’d like to say, or that I haven’t touched on that you think we should talk about before we say goodbye? And I let you get back to your holidays.

[01:19:07] Scott: Yeah. You know, I would say Jamie, first of all, thank you. It’s fun. Always fun to visit with you. You got a great insight. So many things. So, thank you for hosting me. People get frustrated, you know. They say, read and hear these things and they know it’s different. They don’t know how to get involved. I would say get involved. Go, we put a lot of materials on Switch on our website. You can grab my presentation decks, slide decks, and things go speak to a school. You know, 20 kids in a classroom, it’ll make a difference or a scout troop or a church group or civic group volunteer to be a mentor in the Switch case competition. Find a way to start to engage at some local level and help raise the awareness that matters. You know, you might think, ah, 20 kids that matters. They’ll go home and talk to their parents. That teacher will have you back next year. All of a sudden, the multiplier effect is working and hundreds of people become thousands, become millions of people with a voice. Cause there are these, there are a lot of loud voices out there in this space that are not communicating what I would call factually complete information. You know, some little factoids. But not factually complete and we all need to engage in the process at whatever levels we can. To help that dialogue move forward because it’s just too important

[01:20:36] Jamie: And what’s the website people should go to find out more to get involved or volunteer?

[01:20:40] Scott: Yeah switchon.org

[01:20:42] Jamie: And you guys have a Twitter or anything people could follow?

[01:20:44] Scott: Yeah, they have it all. We have it all, but I’m, you know, it’s above my pay grade. There’s Instagram, there’s Facebook, there’s Twitter or X, you know, LinkedIn. I’m personally, I’m only on LinkedIn. So, if your folks want to find me on LinkedIn and that’s my personal one. It’s not a Switch one, but that Switch Energy Alliance at switchon.org has all of it for sure. Yeah.

[01:21:09] Jamie: Well, Scott, thank you very much for taking some time out of your day today.

[01:21:12] Scott: Yeah. You bet, Jamie. Thanks. Keep up the good work.

[01:21:16] Jamie: Thank you. Bye for now.

[01:21:17] Scott: Okay.

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Robert Bryce, Energy Expert — Breaking Down the Energy Grid (#64)

Robert Bryce, Energy Expert — Breaking Down the Energy Grid  (#64)

“European countries have looked at Russia and saying, oh, well, we can’t rely on Russian gas and they have a choice of paying, $12 or $13 for gas at TTF or having nuclear or coal. So, they don’t have another choice. They have been forced into nuclear effectively. Right. And then meanwhile, here you have big tech finally realizing with AI. Oh, we’ve been playing around with you know posing around wind and solar and you know.”

— Robert Bryce

Join us for this discussion with Robert Bryce, journalist, author, and energy expert, as we explore the complexities of global energy systems and the myths surrounding the energy transition. From the staggering scale of energy demands to the nuances of copper mining and nuclear power, Robert shares insights that will change the way you think about energy and its role in shaping the modern world.

In this episode, Robert and Jamie discuss:

  • The distinction between energy and power and why it matters.
  • The myths of energy transition versus energy addition.
  • Challenges and opportunities in copper mining and renewable energy.
  • The nuclear renaissance and its implications for energy demand.
  • Why community opposition to renewables is growing worldwide.
  • The intersection of AI, data centers, and escalating energy needs.

Please enjoy!

Listen to the episode on Apple PodcastsSpotifyYouTube, SoundCloud, or on your favourite podcast platform.

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The transcript of this episode is included below.

Note: Transcripts may contain a few typos.

Transcript:

[00:00:00] Jamie: All right, Robert, we got you for a total of 55 minutes today. Welcome to The Resource Insider Podcast. You are, I believe, I was thinking about this before coming on here, our first published author on this podcast. So, I’ve had the chance to read at least one of your books. I read power hungry. I’ve been reading your blog slash sub stack, which you have recently monetized. And I am a happy subscriber with today I want to talk about your career. Who you are, what you do. And I think most importantly for our listeners. Your view on the energy markets and the world of energy and what maybe many of us are missing there. Can you start with your sort of 30,000 ft Bio for those of you who have not heard for those out there who have not heard of Robert Bryce? 

[00:00:55] Robert: Sure, of course. Well, first things first happily married to the same woman. My wife, Lauren, and I’ve been married 38 years. We just got back from Chile, had an amazing trip to Chile. Where I talked about mining and talked back, talked to a mining company signal coppers had some amazing birdwatching experiences there. So, I’m very fortunate in my life. And we have three great kids, Mary, Michael and Jacob. So those are, my wife, my family, those are the most important things in my life. So, let’s get the first things first. I’m a reporter. I’m an author. I’ve been a reporter my whole career, never had a real job. This is what I do. Been doing it now for 35, going on, well, pretty soon 40 years. And began writing about politics edited my high school newspaper, I guess, so I, even going back to my high school years, so I’ve always been interested in journalism, always loved newspapers. And then it was started in the newspaper trade back when there were newspapers actually broadsheet and wrote for the biweekly paper here in Austin, the Austin Chronicle. One thing led to another. I went to a high-tech magazine or a technology magazine in early 2001, wrote about high tech, visited the Enron building in the summer of 2001. And was introduced to Enron broadband, which I didn’t understand. And I asked the guy at Enron broadband, well, I don’t understand your business model. Can you explain it to me? And he went through it a couple of times. I said, well, look, I’m still, I’m. I don’t really know what you’re doing here. And he, eventually just said, well, you’re too dumb to understand. So, we need to find somebody smarter than you. Long story short, five months later, they were bankrupt. And I wrote my first book on Enron. I wrote it in 6 months called Pipe Dreams: Greed, Ego, and the Death of Enron. It was published in October of 2022. I can say without bragging, it was really the first serious book on the Enron failure. And then that led to another book. And I’ve now I’ve written 6 books. My latest is A Question of Power: Electricity and the Wealth of Nations. I’ve co produced two documentaries latest one is called Juice Power Politics in the Grid. So, I’m very fortunate in my career to do what I do. And really focused on energy and power now. And these are the biggest and most important industries in the world and every other business depends on them. So, very fortunate to do what I do. And still, now at age 64, feel like I’m still learning about what’s really going on because so big and so complex. 

[00:03:01] Jamie: So, there’s a couple of things I want to touch on. One you’re, I want to understand what, I mean, you touched on it, but what attracted you to the energy industry? You’re from Austin, not, I mean, obviously Texas is a bit of an energy hub, but not Austin in particular, but two your transition out of, call it traditional journalism into independent journalism. I’d love to hear how you made that journey as well. 

[00:03:26] Robert: Well, so, I’m from Oklahoma. Tulsa’s my hometown, which as a kid, my dad had a, he had an old Pontiac station wagon or no Pontiac sedan. And on the front, he had one of those old license plates that said Tulsa oil capital of the world. Well, it was the oil capital of the world for about 20 minutes. And now it’s clearly Houston, Texas. But the Glenpool, of course, and Oklahoma was a big oil producer and its oil production peaked in the 1920s actually. And, but Tulsa, but Oklahoma is still a big gas producer today. And so, as a kid, I grew up around the oil and gas industry. I had a quail in the oil fields. I was around the business and my dad had friends. He was in the insurance business, but he had friends in the energy business. And so, I grew up around it, understanding. Well, this is really international business and really an interesting one. And then when I started in journalism, I was writing about politics, but in the 90s, I started realizing, oh, I, I can write about energy and there’s a real interest in this and not very many people understand it. And so. Yeah. One thing, some accidents, some happy accidents, but I started writing about high tech. I started writing about power demand and data centers, believe it or not. And in 2000 and so made the switch to this technology magazine, which was, went defunct a few months later, but that was really a great, a happenstance to write about power demand and data centers back then. And I’m still writing about it today. But, in terms of my. Shift from working for newspapers because I wrote for the New York Times. I wrote, as a stringer of the Christian Science Monitor and a bunch of others. But the rise of Substack and my own journey through journalism, and I worked for a couple of think tanks unhappily and now, got fired by the Manhattan Institute five years ago. And I’ll tell you just being on my own. It’s just been the best part of my career. I’ve, saved the best for last. But being on Substack, being independent has been a real blessing because I think this is the trend in journalism now away from, I think it’s partly, we met in Vancouver a few months ago. I think we talked about this, but a general decline in the public’s trust of institutions of any kind. And I think the journalism business, the media business has really betrayed in many cases, the public trust and people. Now, what I see is people, individuals, readers looking for individuals who they trust and not institutions. And so, that’s one of the reasons I’m very happy to be on Substack robertbryce.substack.com. 

[00:05:45] Jamie: So. Given that you’re now independent and can talk about whatever you want, whenever you want to do it, what is the message you’re trying to convey or the stories that you’re trying to tell to people? 

[00:05:59] Robert: I like that question. I think it’s more than anything. I, what do I do? What do I focus on? I pound the math and I pound the physics. I pound the numbers because as I say, and I do a lot of public speaking, that’s really how I make my living now is I’m, I’ve got 48 engagements on my calendar this year, so I’ve travelled a lot and very fortunate to do so. I’m going to Idaho Falls tomorrow, and then I’m in Savannah next week, and then Wisconsin talking to the cooperative’s electric co-ops in Wisconsin. But I say these are the numbers and I present the numbers on the global systems, on the US electric market on the scale of global energy use and. And try. What is my mission? What do I hope to achieve? And what in my reporting is to help people. And I think about my mother, my late mother, when I write Ann Bryce that she could understand it the first time, right? That I can present numbers and the ideas that I’m presenting in the simplest possible way. I just did a wrote a piece on the cost of natural gas versus electricity. There’s a big push on for electrify everything and to ban the use of natural gas. Well, it’s a regressive tax because you’re going to force people to use a more expensive form of energy. So that’s what I hope to do is really use the math and physics to under underscore what’s really happening in our power and energy systems. And also, to make people understand how complicated it is. 

[00:07:19] Jamie: Now if you were to convey to our audience in a sort of a quick, simple way, what are the numbers that they should think about when understanding the reality of our energy and electrical system and electricity systems? What do people miss that they should be aware of? That the general po population, the general audience doesn’t know? 

[00:07:38] Robert: I’ll, I’ll put it this way. What is the first thing they must understand before they go forward is that energy and power are not the same things. They’re commonly confused. It’s not the same thing. Energy is the ability to do work. Power is the rate at which work gets done. Energy is a sum. Power is a rate. We don’t really care about energy. What we care about is power. So, I think about your vehicle I don’t know what kind of car you drive I have a you know a Toyota pickup well I don’t care I could put peanut butter or popcorn or lima beans in the fuel tank if I thought it would give me the motive power that I want. We don’t really care about what the energy form is. We care about the power like lighting power, magnification power, communications power. That’s what we’re after. So, energy is worthless unless we can make it flow. And that’s a key distinction. And even people who are in the energy sector don’t understand it. They don’t understand the difference and we use them interchangeably. And that’s a mistake. So that’s one of the starting points. The other is just the absolutely staggering scale of global energy use. And that people assume oh we can just substitute one thing for another no no no no no no no no no no no. It’s not the substitution is not so easy because the scale is so staggeringly large people talk about electric vehicles in the United States. Okay, great Oh, well sales are up and they’re this percentage of new car sales. Okay, well then that there might be 5 or 10% of new car sales. But of the existing fleet in the United States one example 285 million motor vehicles. Of that number, 3 million are electric vehicles. So that’s less. That’s about 1%. So, when you think gasoline is going away, you need to rethink because the scale is so infinitesimally small.

[00:09:25] Jamie: Yeah, I think about that a lot when you look at when they talk about in hard numbers of the rise of renewable energy and they talk about its growth rate, but it’s very I’m struggling to find the word here, but it’s almost like it’s intentionally presented in a way to be opaque so that you cannot see what a small portion of the pie that it actually makes up. And, I think it’s someone we both read and know of someone a blogger called Doomberg who talks about this idea of there’s no energy transition. There’s purely just an energy addition going on, right? That every molecule of energy gets used by someone. And that, even though China’s, investing, however, many billions of dollars in solar panels or wind farms, they’re investing even more in, in fire power plants, and it’s just growing and growing. And people do not understand how that system works. The number that was like truly staggering for me. And I think I only read this about a year ago was that I think it was oil surpassed coal as usage of fossil as like the percentage of energy in something like the 1950s, but that the use of coal today is still four or five times bigger than it was in the 1950s, even though it’s a much smaller portion of the pie. 

[00:10:46] Robert: That’s right. 

[00:10:47] Jamie: So. 

[00:10:48] Robert: And I’ll just build on that. So, I presented I did a webinar this morning for some folks in news data and one of the points that I made in that is that today, not my numbers, the numbers, right? I pride myself on the numbers, but if they’re not mine, this, so International Atomic Energy Agency and Global Energy Monitor today in China, there’s 100 and not under construction, not talked about, not in blueprint stage under construction, 173 gigawatts of coal fired capacity.

[00:11:15] Robert: They’re building 29 or almost 30 gigawatts of nuclear. So, they’re building nearly six times more coal fired capacity in China today than they are nuclear. In India, it’s roughly the same 30 gigawatts of new coal and about 5 gigawatts of new nuclear. So, we have to be that’s the other thing I really hope to achieve and what I do is we have to be very sober about where we are as Westerners right Canadians Americans Western Europeans about what we do in decarbonization and how it affects the big picture because that’s lost amidst all these claims about oh, we’re going to lead the world and all those, other people are going to follow us. No, they’re not. They’re going to look after themselves. 

[00:11:56] Jamie: You, do you see the Chinese or the Indians or these sort of call it non-Western powers, even if they’re paying a lot of lip service to the concept of an energy transition? It doesn’t appear to be happening now, but they say, by 2050 or beyond that’s going to happen. Do you think that’s something that a lot of other nations care about? Or do you think they’re purely paying lip service to that to the West to placate people? I think I’m asking you to speculate here, but what do you find in your research? 

[00:12:24] Robert: It’s all lip service, I think, and China said, oh yeah, we’re going to get right on that. No, trust us. Well, look at what is really happening. It’s that old line about watch what they say and look at but pay attention to what they do So they’re saying oh, we’re going to peak sometime in the future Well, okay. Yeah, sometime but you also look around your point about the energy addition and it’s a point I made and I show pretty much show one slide in pretty much every presentation I give which is that since 2004 according to Bloomberg New Energy Finance, there’s been something like 4.7 trillion spent on solar and wind, 4. 7 trillion. And over that time frame from 2020 to 2023, wind and solar grew by, what was it, about 37 exajoules, something like that. At the same time hydrocarbon use grew by 120 exajoules. So, it grew three three times faster despite these trillions invested in wind and solar. So, this idea that we’re under some major sea change and that wind and solar is suddenly going to take over the world. No. Wrong. I mean, it’s just not the case look out the window and see how many cars go by and count how many are electric and count how many are using diesel or gasoline? It’s just you know, it’s vanishingly small. 

[00:13:34] Jamie: What are the challenges in wind and solar, right? Because you do hear these narratives that, they become economic and in many cases it’s cheaper than conventional fossil fuels etc. So, if that is true, then why aren’t they being rolled out and and out perform it? 

[00:13:50] Robert: Well, the physics reason is very simple. It’s power density. It’s low power density, and this is one of what I call the iron law of power density. The lower the power density, the higher the resource intensity. So, consider corn ethanol. Well, it has a very low power density because you’re trying to convert photosynthesis, which is a great process. Love me some photosynthesis, but it requires vast amounts of land. So, Bloomberg one of the very clever guys at Bloomberg calculated that in fact, the corn ethanol footprint in the United States is the size of Nebraska. The whole state that is set aside just for corn ethanol production. So, imagine the amount of inputs, the amount of land, the amount of fertilizer, diesel fuel, all, pesticides, all these things that you have to do to cover an area, the state of the size of the state of Nebraska. Well, so then go up from there where the power density of corn ethanol is measured in tenths of a watt per square meter. Wind energy is 1 watt per square meter. Solar is 10. So that’s better. Right. But still, what we see, what the limits are land use. And you see it. You’re Canadian. Look at what is happening in Ontario. I mean, a backlash all across the province against wind and solar projects. Look in, I know you’re in British Columbia.

[00:15:03] Jamie: Yeah, but you know, I’m from Ontario and where I grew up where my parents live is covered in wind farms now. It’s covered in, yeah, 

[00:15:10] Robert: I know. And the local people hate them. And this is what is happening all across all around the world. And so, I’ve maintained the renewable rejection database, which I think drives the 

[00:15:21] Jamie: Renewable rejection database. So, you track where the communities and whatnot, or local governments are coming out against it. 

[00:15:28] Robert: Yeah. And it’s, 

[00:15:29] Jamie: What are you seeing? 

[00:15:30] Robert: Well, increasing, the number just keep, the numbers just keep going up. So, these are just a few weeks out of date, but it just the US alone, at least 461 rejections or restrictions of wind energy since 2015 on the solar side, at least 274 since 2017.

[00:15:47] Jamie: And what’s the pushback? Is it they’re ugly? Is it they’re using land that could be used more productively? Like what is the pushback you see most commonly? 

[00:15:55] Robert: Very prominently. The diminution of local property values, which numerous studies have found that when you put up wind projects, local property values go down. There are people, this is the part that just, just frankly, just freaking pisses me off. You know that there are these NGOs climate activists who act like these rural people. Oh, they just don’t understand what’s good for them Oh, or it’s the hydrocarbon industry is convincing them to oppose solar and wind projects, right that there’s some big conspiracy No, there’s no conspiracy. I’ve talked with dozens of people all across the country all around the world. What are they doing? They’re fighting to protect the integrity and the character of their neighborhoods. Everyone everywhere cares about their neighborhoods and they don’t want to have their whole region covered in solar panels. A year ago, April. I was in Christiana, Wisconsin this little township. It’s in southeast of Madison. You if you picture in your mind’s eye what the bucolic perfect Wisconsin farmland looks like yeah, right. Black dirt jet black dirt, right? Perfect for corn and soybeans. The perfect silos, a lot different from the kind of the farms in Oklahoma, Texas aren’t quite so picturesque.

[00:17:08] Jamie: Yeah. 

[00:17:09] Robert: The plan is afoot to cover something like eight square miles of some of the best farmland in all of Wisconsin with solar panels. And the people in this township are saying, we don’t want this bullshit here. We don’t want this for some green. Oh, no, we want maintain this AG land. And this is the AG pushback.

[00:17:27] Robert: And there’s a group here in the US called Farmland First, that local people are concerned about maintaining agricultural land for agriculture. And this is happening again, all over the world, including in Italy.

[00:17:38] Jamie: But 

[00:17:39] Robert: it’s something, by the way, that I get worked up about. 

[00:17:41] Jamie: Yeah, no, I can see that 

[00:17:43] Robert: These people getting run over by big money by big NGOs, big corporations, big law firms, because there’s so much money at stake under the Inflation Reduction Act, billions of dollars at stake. And so, in many cases, these, these big outfits are suing local communities to try to force them to take projects they don’t want.

[00:18:02] Jamie: And is that what it is? Like we can look at this from different ways. What is driving the aggressive output to renewable energy? On the one hand, you can take the quite optimistic view that people care about the environment and the climate and they’re trying to do the right thing and yada yada. Then you can go I know many of our listeners like this, the more conspiratorial view it’s, it’s the World Economic Forum or some shadowy group of figures that’s trying to get control of people and take over everything. And then I think there’s the middle view that there are economic incentives to make this happen and people are acting towards those incentives. What, where do you, what do you feel is happening here? What do you see happening? 

[00:18:40] Robert: Well, the big push for wind and solar has nothing to do with climate change. It’s all about money. It’s just, there’s no, these corporations, they don’t have an ideology. Their ideology is their bottom line. They’re trying to make as much money as they can.

[00:18:55] Jamie: So, explain that. Why are they making so much money on this type of energy? 

[00:18:59] Robert: Because the Inflation Reduction Act is providing tens of billions of dollars in incentives. So why are companies like well BP is now saying it’s getting off of the offshore wind business. But Orsted, Equinor European companies coming into US waters to try and build offshore wind projects It’s because they can collect up to 40% or maybe even slightly more of the project cost in tax credits. So, it’s all driven by the desire to feed at the federal teat. This isn’t about climate change. There’s no moral behind this that this is about cash. And that’s the part that I see over and over again and how you know, some of these climate activists. Oh, you know these local people they’re just you know, they’re being misguided and they’re being swayed by fossil fuel interests. No Damn it. No, they’re fighting to protect their neighborhoods their homes their homesteads and well they should and I get worked up about it because I’ve met so many of these people. I’ve considered some of them my friends. And, they are motivated and they’re outgunned and outmanned and out mediated. But it’s a lot of middle-aged women working at their kitchen tables, trying to, fight off forces that they don’t really even understand how big and how powerful they are. 

[00:20:13] Jamie: Across the United States. What do you have these small, often rural communities affected by this. What are, how do local politicians respond to this? Like are congressmen on side with the people or are they more side of the corporations? What, how do you see that? 

[00:20:28] Robert: That’s interesting because the answer is it depends, right? But what I’ve seen over and over again, in fact, Madison County, Iowa, home to the bridges of Madison County, right? A famous movie, famous Broadway play, famous book in that County. They had a recall election on the board of supervisors and or actually, I don’t know if it was a recall or it was a scheduled election, but the election hinged on the candidates positions on solar and wind energy. And so, they, the people who were in favor of wind and solar got voted out and the ones who were opposed got voted in. And so, this I’ve seen many times in small in rural towns, rural cities, where the election hinges on this one issue. So, when it gets to more of the federal level, where congressmen are involved in some, it’s not quite as prominent. Although what I have seen, in fact, just in Oklahoma I’m from Tulsa. A new friend of mine, Jim Shaw, was elected to the Oklahoma House, defeated a four-term incumbent, and he ran on an anti-wind platform. And he won in Chandler, Oklahoma. So, these issues are very, getting, they’re prominent and getting more so. 

[00:21:35] Jamie: So, if you had to look ahead in the United States, say 10 years into the future maybe a little longer than that, maybe 20, because it’s going to take some while to work through all that money. How do you think the grid looks at that time? Are we, obviously you don’t think we’re all running on solar panels and wind farms. What do you think the U. S. grid looks like? 

[00:21:53] Robert: Well, it’s going to look. I think a lot like what it looks like now. I think coal will largely disappear and that coal share will largely be replaced by gas by within 20 years. We should have a fair amount of new nuclear on stream in the United States. I’m guessing you probably have maybe 10 gigawatts on by 2035. But remember, and this is something I presented on this morning. Yeah. Was that the scale again of the US electric grid is so staggeringly large. So, it’s 1300 gigawatts, 13, it’s 1.3 million megawatts. I mean, it’s hard to get your mind around. So. 

[00:22:31] Jamie: It’s hard to visualize that. 

[00:22:33] Robert: So even if you add so for instance the Vogtle three and four there are two new nuclear reactors that were added in Georgia. These are the there are no nuclear reactors under construction in the United States today. They’re projects that are moving dirt. But they’re not building the reactors themselves. So, there were two reactors built in Georgia. They’re AP1000s roughly 1100 megawatts of capacity 1.1 gigawatts. So together 2.2 gigawatts. Even if you added 10 more of those. It would still add about 11 gigawatts. That’s about 1% of the total installed capacity of the United States electric grid. I mean, so it’s going to take a long time for nuclear to move the needle in the United States. In the meantime, what’s going to be added? Well, I think a lot more solar. We’re going to add a lot more batteries this has been something that’s frankly has been surprising to me in Texas for instance where it’s a deregulated market or supposed free market. There’s no such thing as a free market in electricity but batteries have played a bigger role in Texas than I expected. And that’s been an interesting development, but I think solar and batteries are going to be where most of the investment is going because wind out wind production, wind installations are declining and solar is is far outstripping the growth in wind in the United States now.

[00:23:42] Jamie: What do you think about the conversion of coal fired power plants to nat gas? Is that going to play a bigger and bigger role? I read something the other day and I bet you know these stats better than I do, but it’s something like 2/3 of the decarbonization that’s occurred in America over the last decade or so can be attributed from moving from coal to natural gas.

[00:24:02] Robert: That’s right. And that’s definitely the case. I mean, that’s true. And those are EIA numbers. I mean, something like 60%, something like that, 61, 62%. And wind and solar I don’t call them renewables. I don’t call them green; I don’t call them clean. They’re alt energy. Wind and solar, they have had a role there as well. But almost all of the decarbonization that’s occurred in the United States has just been on the electricity side. Transportation is going to be very hard and will take decades if. 

[00:24:28] Jamie: Yeah. 

[00:24:28] Robert: If it ever happens because I’m not bullish on electric vehicles. 

[00:24:33] Jamie: I mean, you look at what’s happening right now, nat gas prices in Texas and the Permian where they’re basically giving it away for free sometimes paying people to take anything that gas went negative earlier this year. I mean. 

[00:24:45] Robert: It was negative. It was -$4 in July. I think it was. I mean, so it wasn’t just a, a, a few pennies. It was it was you had producers paying a lot of money to get rid of their gas and still prices went up for a little bit. I’m just looking at the front month price for Henry Hub. It’s $2.33 and it went up to about $2.60/$2.70 but now it’s back down to $2.30. 

[00:25:06] Jamie: And these prices, these numbers were like $10 during peak COVID times as well too, right? So, they’re way, way down. And what are they in Europe now? Something like $15, right? So, it’s, I think we’re trading in North America at like a quarter or a fifth of the prices in Europe at any given time.

[00:25:22] Robert: Yeah, it’s generally about a fifth or a sixth. Let me see, TTF right now, that’s the Dutch trading hub, is $12.50. So almost 6X. So what? And then in the JKM marker I keep these bookmarked the JKM. It’s about $13 bucks. Yeah, it’s it’s $12.98. Yeah, so $13. 

[00:25:41] Jamie: I mean, when you look at the US having what I believe are the biggest nat gas reserves in the world, they’re generating them at almost free much of it’s a byproduct of oil generation. I mean, when you think about that on the one hand you think about how much less carbon intense it is than coal. And then you think about the, how, what did you say? $5 trillion that have been spent on solar and wind and subsidies. I mean, what does like, what would the United States look like if that $5 trillion or a fraction of that was invested into capturing that gas, doing some form of carbon capture and sequestration, maybe if your priority is stripping CO2 emissions out of that. I mean, what would the grid look like then? To me, that just seems like such an obvious no brainer use of capital but no one, but people hate it. So why do they hate it? I know I’m asking you to answer an unanswerable question, but why?

[00:26:34] Robert: I mean my, my counter to that would be that 5 trillion should have been spent on nuclear power, right? That should have been on developing new, safer, smaller reactors, and deploying them. And instead, it was put toward wind and solar because they pull well, people like the idea of wind and solar. But I think, this is again about scale, but it’s also about money. And it’s also about this kind of romance about, alternative energy, right? That, oh, the wind and the sun are free. Well, that may be the case, but turning them into usable power is not. It’s very expensive and it requires a lot of land. And the other part of that I talked about briefly, I’ve touched on the iron law of power density. The lower the power density, the higher the resource intensity. Well, this is key because, I mean, a lot about mining and I’m getting more and more acquainted with it and understanding what the scale problem is there. And It’s not just that corn, ethanol and solar and wind require a lot of land, they require massive amounts of steel, copper, concrete, other, neodymium iron boron magnets, silicon, all of these things are required to counter the low power density that’s inherent in those forms of dilute forms of energy that they’re trying to convert into concentrated energy in the form of electricity. So, it’s one of the reasons why I’m so pro nuclear, super high-power density, 2000 watts per square meter. Wind energy is one. So, when you have that high power density, you necessarily use less stuff. So, I, we talked about copper when we chatted back and we had coffee in Vancouver, and this is one of the parts that to me is really among the most interesting things in the, in terms of the commodity markets today and about, well, what happens now? Because as I said, I was in Chile last week and talking to the guys at Sigdo Koppers and there are a lot of projects projections about oh, we have to double copper output to meet demand for EVs and for alt energy, and the Chileans are saying, are you kidding me? Well, our production has been flat for 20 years. We’re not going to double. 

[00:28:25] Jamie : So by the time this podcast comes out, the one I recorded last week should be out, which was a guy with an, by name, a guy by the name of Adam Simon from the University of Michigan who wrote that report that’s quoted by, I think every basically copper executive in the world has quoted this at least a hundred times in every presentation they’ve done, which is by 2050, we’re going to need to mine more copper than has been mined in all of human history. And we talked at length about, it doesn’t exist. It’s like, it’s not even that those mines haven’t been built. They haven’t even been found yet. And we don’t know that we can find them or where we can find them. So, what brought you like, what got you into copper? Cause that’s what we met in Vancouver a couple of months ago to talk about. You were starting to really dive into that. What piqued your interest there? 

[00:29:10] Robert: Well, I’ve been interested in it for a while, and but I was hired to do a speaking engagement in Viña del Mar in Chile, and this happened about six months ago, and I was invited, and I thought, well, okay, I better try and I better really apply myself to think about what is really going on here. And this is the part that you know once I started to look at it, I thought now this is really fascinating in terms of, you compare it to let’s we’ve been talking about shale gas in the United States Well, shale gas production, that, and nat gas production in the United States has doubled since about 2005, roughly in the last 20 years, it’s doubled and it’s incredible. Right. So that now the US produces more natural gas than what was it? Qatar. Yeah, we’re producing more natural gas in the United States and Canada, China, Iran, Norway, and Qatar combined. It’s just incredible. 

[00:30:01] Jamie: Wild. Yeah. 

[00:30:02] Robert: The Permian basin in mostly in Texas and partly in New Mexico is now producing more natural, as much natural gas as Canada. 18 billion cubic feet a day. 

[00:30:10] Jamie: And that’s like a byproduct too, right? Like they’re not looking for gas there. They’re looking for oil, 

[00:30:14] Robert: There’s no single natural gas rig running in the Permian. 

[00:30:18] Jamie: Yeah. 

[00:30:18] Robert: Back to the mining part of this, to me the key differentiator in the part that really cap is to me is so captivating is. Okay, well, the shale producers and they have a drill rig and how do they produce the gas there? They drill the bore well bore and then they pump a ton of sand and I mean a ton like tons of tons into the well bore and gas flows out, right? So, they put a lot of mass and volume down in the well and then the liquid and the gas flows out. Which is a very interesting just from a mass balance standpoint with the copper you can’t get around the mass and volume problem because you have to move so much of it physically out of the pit and to the surface and then you have a dilute or body that has to be concentrated. So, from a simple, math and physics standpoint from an energy in energy out standpoint. It’s a much more difficult problem to address. And then I assume Adam and Simon, and I’m familiar with that report. I’m very, I looked at it extensively. S&P just did an analysis earlier this year, new mines that are came on, have come online since 2000 have taken 18 years to come online. 

[00:31:30] Jamie: From permanent from discovery through permitting to construction. Yeah, that’s the average. 

[00:31:35] Robert: Actual output. So, 

[00:31:36] Jamie: and they used to be like 5, it used to be about 5. 

[00:31:40] Robert: Right? So, so these you take these, this, these ideas around demand. And then you put them actually into practice and you think, well, what does this really mean in the physical world? And I see just this collision here and you and I talked about, well, where is this investable? I mean, because if the company, if the copper companies have lower grade ore, they might be getting more dollars per pound or per ton, but their costs have gone up. So, I don’t have an answer. I’ve just, I like puzzling it puzzling over it in my head. 

[00:32:11] Jamie: Yeah. I mean, we think about that a lot. I mean, the thing that’s interesting about copper is it’s one of the most inelastic commodities in terms of bringing more online to your point, 18 years to permit built, construct and operate a new mine, and then you look at the existing copper mines in the world. I think something like 24 to 30% are all in Chile and they’re all these mega super mines, like the Escondida’s of the world that are getting deeper and deeper every year. And they’re going lower grade every year and it’s getting. The pushbacks of the pits are getting bigger every year and then the cost of loading up a mega truck full of ore and driving it to the top and the diesel you burn increase every year. So, it’s getting deeper, lower grade and more expensive to get out of the ground, right? Now, logically, one would think that the price of copper would have skyrocketed under that scenario, but it hasn’t. And you said something to me that I think you put it very eloquently that, a pound of copper today is almost as cheap as it has ever been, or cheaper than it’s ever been when you actually control for inflation. So why is that happening? And I don’t have a necessarily good answer for that, but it’s like, is that happening because we’ve just gotten so much more efficient in the whole copper supply chain that it’s just. It’s worth less today or is that price or is it priced wrong, right? Are we pricing it wrong today? And at one point, some point that, that switch flips and the true price of copper has to come into effect. And it’s not, whatever it is today, $4 or $5 a lb it’s $10, it’s $20. It’s whatever it is. 

[00:33:46] Robert: Yeah. 

[00:33:47] Jamie: I don’t know the answer to that or what has to happen for that to occur necessarily. 

[00:33:52] Robert: Yeah. Well, I just, I don’t know if your listeners are familiar with tradingeconomics.com, but this is a website that I go to a lot because you can get commodity prices there. And so, I’m looking at the copper price chart. This is the 25-year chart. So today it’s at $4.32 a lb. It was at $4.32 a lb in 2011, 2012, right? So, an inflation adjusted $, then it’s substantially cheaper, right? So, this is one of the things that to me is really fascinating about it. But the other. And this was from a Mackenzie report that was done oh, this was just a few months ago. It’s all and this was something I talked about when I was in Chile was that it’s about China. I mean, this is really a China story and that it was a Wood Mackenzie story or Wood Mackenzie report called securing copper supply. No China, no energy transition. It was fascinating. The graph there that shows since 2000, essentially all of the new smelting capacity in the world has come on stream in China.

[00:34:50] Jamie: Yeah. 

[00:34:51] Robert: And so, China is not just going to be the place where the ch the copper is smelted. It’s also where the key demand is and further that the production, you mentioned the geopolitical risk. So, Chile is 22%, Peru, 8%, about 9%. China 7% and Congo is 7%. So, you got 46% of the world’s supply of copper coming from just four countries and three of those four. Well, two of the four. I would say Chile is pretty stable, but Congo and Peru are not. And given the inelasticity of the supply, it implies, as you said, that the price should be far higher, but for whatever reason, it isn’t. So again, another interesting point, like the price of natural gas, given how much we’re burning should be higher, but we’re also producing just staggering quantities of it.

[00:35:41] Jamie: We’ve talked a lot about supply. Let’s talk about demand. So, you have mentioned, you started writing data centers, I think, in the early 2000s. That is obviously all the rage of these days. We see Microsoft partnering with the guys that own Three Mile Island, bringing on nuclear power back online. You what do you make of the potential impact of all these data centers that we’re going to be coming online to support and power AI and the effect on energy and electricity demand in the United States? And I read the other day, and this number is so high as to be unbelievable. So, I don’t know if it’s true, but that data centers alone would increase energy demand by something like 40% over the next decade or so. And I read that and I was like, that can’t be true. And like, if, even if it’s a quarter true, that’s astronomical. 

[00:36:40] Robert: This is another area, like the copper market that I look at and I think, okay, what, how do you separate the bullshit from the real story? Right. And there’s no doubt that the potential demand for AI is enormous. And you’re right. These recent announcements you’ve had Microsoft announcing that they’re going to reopen the closed reactor at Three Mile Island. You have Amazon announcing the deal that they’re going to they’ve already done it to bought the data center from Talent Energy. So, they’re going to use 900 megawatts from the Susquehanna plant. And then you have Google just announcing a deal with Kairos SMR company, Amazon announcing with X-energy Equinix and Oklo, Oracle with some unnamed SMR company. So, there’s a lot of froth around these ideas around nuclear, but remember Jamie, none of this capacity except for, well, even the Three Mile Island project, that’s going to be a couple of years before they get that back online. This is going to take a long time the nuclear sector didn’t wither over a year or two it withered over decades So it’s going to take decades to bring it back. So, in the near term, what does it mean? It means more gas demand and that’s one of the things that’s been interesting to me So you have you know companies like just presented on this that? Kinder Morgan is saying AI is going to require 10 bcf a day of additional gas demand Morningstar saying 16 JP Morgan saying 6 so and Goldman is saying that power demanded for data centers is going to go to 8% of US power by 2030 up from 3% in 2022. I’m not so sure. And the key pinch points are going to be, the gas supply, the permitting and supply chains. And this is something I’ve written about a lot of my Substack lately is availability of high-power transformers, the availability of frame class gas turbines, which now the wait times are 4 years, wait times for high power transformers 4 years and Amazon and Google for all of their money, aren’t going to be able to jump the queue.

[00:38:34] Jamie: So, what happens? They don’t get built. 

[00:38:37] Robert: They don’t get built or they get built much more slowly than people are anticipating. And, I, as we’re just talking about it, I’m spit balling here, but I think it’s gonna maybe something like the copper story, right? Where, S&P and Daniel Jurgen’s reported a lot of respect for Dan Jurgen, but he said, oh, we need to double copper supply. Well, yeah maybe, but that doesn’t.

[00:38:57] Jamie: That’d be nice. 

[00:38:58] Robert: It doesn’t happen. If it doesn’t happen, it just doesn’t happen, right? 

[00:39:01] Jamie: Yeah. 

[00:39:01] Robert: So, these things happen much more slowly than people are anticipating. The prices may increase, but it doesn’t necessarily, if the price increases, it doesn’t necessarily mean you’re going to see more supply because the constraints on the supply chain are such that there’s just no more slots in the factory. There’s no more labor that’s available to make the transformers or to make the, these F class turbines. 

[00:39:26] Jamie: What do you make of This nuclear renaissance that’s appears to be happening in the United States right now. I mean, if we go back, like, call it, so at Resource Insider, our newsletter, we had a little uranium fund that we started in 2018 and we bought up a bunch of uranium stocks and invested. Obviously, it’s done extremely well over the last few years. And we exited that recently. But when I started that, people told me I was an idiot and that no one was ever going to be using uranium again. And the reason I did it was very simple. It was to what you say, it’s the math. So, at that time, the price of uranium was below the incentive price that basically every single mine in the world would require to grow or build a new mine. So, I looked at that and I’m like, well, if there, are we never going to use uranium again, is there going to be no nuclear energy? Cause unless the answer is yes to that, then we need more uranium and the prices to go up and there’s value to be created here. So that narrative is totally shifted now. I think the price I’m going to get this wrong, but I think it’s gone from when I invested something like $20 a lb to like, now when we’re in the 80s, everyone loves uranium, everyone loves nuclear now. Why has that happened in your opinion? 

[00:40:46] Robert: Well, there are a number of factors. One, I think there’s a generational shift and this existed before the Russian invasion of Ukraine. But you know, I’m an old guy, I’m so security eligible now I’m 64. But when I was growing up, the specter of nuclear war was always with us and people and everyone societally conflated the idea of nuclear energy with nuclear weaponry and nuclear war. It was very effective, right? It was the 70s, right? This was part of that whole era. But today that age of my children’s, my children, Mary’s our oldest, she’s 31. That was never part of their youth, right? The idea. And instead, there, right or wrong, the fear that has been pushed on them as a generation has been climate change. So nuclear has had a different and the leaders of the nuclear pro nuclear movement in the US. A friend of mine, Mark Nelson from he’s now living in Chicago. He’s head of the Radiant Energy Fund. He’s been one of the most prominent advocates. Well, he’s in his thirties, right? So, he’s a different generation. So that’s been key. The Russian invasion of Ukraine has also been another key where in the European countries have looked at Russia and saying, oh, well, we can’t rely on Russian gas and they have a choice of paying, $12 or $13 for gas at TTF or having nuclear or coal. So, they don’t have another choice. They have been forced into nuclear effectively. Right. And then meanwhile, here you have big tech finally realizing with AI. Oh, we’ve been playing around with you know posing around wind and solar and you know. We’re going to buy a bunch of renewable stuff and then they realize oh, we can’t and Amazon essentially said that we can’t do this with wind and solar. So, you know, it’s taken a while Jamie but I you know, it is gratifying to see that finally this reality is setting in. So, a number of different factors that have come together at once. Let’s hope we don’t have another, another major, nuclear accident in the near term, because that could slow down some of this. But I agree, there is a unprecedented amount of momentum now in the modern era. Toward nuclear that I haven’t seen in my lifetime and really even in the last few weeks around big tech finally pivoting and saying, okay, we’re going to do this. But one last caveat, I just, I’ve made a list and I presented it. I’m going to be in Idaho Falls speaking later this week, there are 36 different companies that have SMRs that they’re trying to market 36. Only 2 or 3 of them are going to succeed. Maybe 4 or 5. 

[00:43:20] Jamie: We might be in a little nuclear bubble right now, right? In the markets. Yeah. Sorry to cut you off. 

[00:43:26] Robert: What’s the size, what’s the size of the reactor that will gain the most commercial acceptance? And what will the chemistry be? Will it be light water? Will it be high temperature gas? Will it be mol molten salt? I don’t know. I wish I did. 

[00:43:39] Jamie: I I think it’s the tech money. I’m glad you touched on that. I think that like about a year and a half ago, I started listening. I listened to several sort of tech podcasts and you would hear like the Mark Andreessen’s of the world Mark Andreessen, the head of a16z, Andreessen Horowitz, super venture capital fund, him talking about nuclear energy over and over again. And like, when I started to hear that, I was just starting to think like, there’s something happening in the zeitgeist right now. And the powers that be are starting to push this narrative down through the system. And yeah, it’s really fascinating to me. I have this. 

[00:44:13] Robert: And it’s been a process of elimination. Like, well, you throw coal out and coal has effectively been thrown out. Well, you wind and solar, you can’t and batteries just aren’t going to work at the scale that you need if you’re going to build a gigawatt data center, gas is going to fill the, to me, the interesting part is what is that gas demand going to be between now and 2035, right? And can there be enough, can you move enough molecules to the location where the data center is to then turn it into power? 

[00:44:39] Jamie: Yeah. 

[00:44:40] Robert: That’s going to be the interesting part of it and you know I’ve been talking with different people about that capability. But again, that’s going to be limited by permitting availability by high power transformers all of these other things that are supply chain related that aren’t necessarily land use related or even manpower. Because that’s the other constraint with that I keep hearing about one quote from a couple of weeks ago talking to these big EPC companies there said. The line was, if we had the parts, we don’t have the people, and if we have the people, we don’t have the parts.

[00:45:08] Jamie: Yeah. We’ve spent basically the entirety of the 20th century building out the physical capacity of North America, the roads, the highways, the power centers, everything. But the last 20 years, basically my entire adult life has been totally focused on information technology, right? That’s where almost every dollar has gone into. The Microsoft’s or the Facebooks or the whatever and trillions of dollars have been created and generated from that. But I think.

[00:45:35] Robert: Laying fiber optic lines, in the streets, right. And to the neighborhoods and yeah. 

[00:45:41] Jamie: But I feel like our now the demand of that industry, the tech industry exceeds the physical ability to service it right where we’re seeing there’s just not the energy, there’s not the infrastructure and I my pet theory and maybe I’m being hopeful on this. Is that a lot of that money is going to start being diverted back into the physical world and that we’re going to see a renaissance of engineering of physical things, material science, energy, et cetera. And I, I think where investors are going to see the most money were engineering students when I are going to have the greatest careers are going to be in the energy and the physical world. Over the next couple decades. So, I’m pretty excited about that. I don’t know if that tracks with what in your research, but that’s been my sort of pet theory for the last couple years. Now that we’re started to see the cusp of that. 

[00:46:31] Robert: Yeah, I like what you’re saying there because I think that matches with what I’ve been hearing. I’m lucky to travel a lot, meet a lot of people in my travels and, I’m doing something like 40 and 45 engagements, 50 engagements this year. I spoke to the Virginia Manufacturers Association in Virginia Beach back in July. And I remember one of the presenters they were talking about data centers and they were talking about construction in the, in that region in Virginia. And he said, I can remember it almost exactly. He said, we don’t need any more engineers. We have plenty of engineers. We need welders. We need pipe fitters. We need electricians. We need people who know how to do the physical work. And the EPC guys told me as well they’re turning down work because they don’t have the skill, enough skilled tradesmen to do the jobs. So, I think you’re right it’s the investment, not in the infrastructure. And I think I’d include roads and, the grid more broadly, high voltage transmission local distribution, but it’s also going to be about this change. And this is one of the inflationary things in the market that I think is interesting and doesn’t have an easy solution is We’re at the end of the baby boom and number of incoming college freshmen is declining. The number of people who retired during COVID has gone up. So, the number of people who are active in the particular in the United States, you can track it, who are in the labor force has gone down. And so, talking with some of these, folks about, how they’re having to pay their electric lineman more the union wages to non union workers, these are inflationary aspects that aren’t going to change because of the need for people who can turn a wrench.

[00:48:05] Jamie: All right, Robert, you got to go in a few minutes. Where can people find out more about what you’re doing? If they like what they heard here, where should they go? 

[00:48:13] Robert: Well, they should like what they heard here. 

[00:48:17] Jamie: I liked what I heard. So, thank you for taking the time. 

[00:48:19] Robert: No, it’s great. I, well, look this, I’m so incredibly lucky in my career. I’m, this is my purpose and my passion. And we got to meet and, I’m fascinated by the things you’ve been doing and how you’re investing and how you’re looking at the world. But yeah, this is I’m so so fortunate to do what I do I’m easy to find on the interweb. I’m on I write almost exclusively now on Substack robertbryce.substack.com. You can find my latest docuseries juicetheseries.com. It’s been viewed over 3 million times on YouTube It’s five-part docuseries is out now. I have 6 books. I, if I were a better marketer, I’d have one right here, holding it up called A Question of Power: Electricity and the Wealth of Nations.

[00:48:54] Jamie: I’ll see if I can photoshop it in for this. I’ll do my best. 

[00:48:59] Robert: I need to get up my game here on my marketing, but remember you don’t have to read it. You just have to buy it. That’s but yeah, that’s it. I’m on Tik TOK. I’m on LinkedIn. I’m on Twitter. I’m on all those social platforms. So, I’m easy to find.

[00:49:13] Jamie: All right. Thank you very much. Robert. 

[00:49:14] Robert: It’s been great, Jamie. Thanks a million.

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Jamie Keech

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Nick D'Onofrio

Head of Research

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Dr. Adam Simon, University of Michigan — The Copper Time Bomb (#63)

Dr. Adam Simon, University of Michigan — The Copper Time Bomb (#63)

“[…] what the data demonstrate is over the next 30 years, we need to mine 115% more copper than we’ve mined since the Stone Age. […] if we round that out, it’s double. So, we need to mine double the amount of copper than we’ve mined since […] we were walking around using stones as tools.” 

— Dr. Adam Simon

In this episode of the Resource Insider Podcast, Jamie sits down with Dr. Adam Simon, a professor and expert in natural resources economics, to explore the challenges and future of copper mining, the energy transition, and the essential role of responsible mining in global development.

Adam provides insights into the demand for copper driven by green initiatives and the massive supply challenges facing the mining industry. They discuss the complexities of meeting climate goals without compromising on metal supply, the underappreciated role of mining in modern society, and what policymakers and tech companies need to address to support responsible mining.

In this episode, Adam and I discuss:

  • The projected demand for copper and other critical metals due to green energy initiatives

  • The role of academia and the media in shaping public perception about mining

  • Why the U.S. and other governments need to support responsible mining for the energy transition

  • The under-discussed supply chain risks and potential solutions, including new mining projects

Please enjoy!

Listen to the episode on Apple PodcastsSpotifyYouTube, SoundCloud, or on your favourite podcast platform.

Enjoyed this episode? Sign up to our free newsletter to access to the latest podcasts, expert insights, and exclusive reports on our recent deals.

The transcript of this episode is included below.

Note: Transcripts may contain a few typos.

Transcript:

[00:00:00] Jamie: All right, Adam, welcome to the Resource Insider Podcast. Thank you very much for joining me this afternoon, but I guess it’s pretty early in the morning for you right now.

[00:00:10] Adam: Yeah. Thanks, Jamie. I’m happy to be here to talk about copper.

[00:00:13] Jamie: So, let me start for our listeners back home how this came about, because anyone who’s been following, investing in, or thinking about the copper space for the last several years has probably heard a statistic somewhere along the line of over the next 30 years, we need to mine more copper than we have done in all of human history to this date. And I have heard senior mining company CEOs say this and junior mining company CEOs and geologists and bankers and investors and no one has ever referenced anyone that I’ve ever heard. And I think I found myself repeating this sometimes too. And then I think I said at one time too many out loud and I thought I should probably really figure out where this statistic comes from. And after a little bit of digging, it turns out this statistic comes from you and a colleague in a report you wrote for the International Energy Forum. So, I am here today to learn why that appears to be true and what the ramifications of that might be, and potentially what we in the mining industry and elsewhere might be able to do about it.

[00:01:20] Adam: Yeah, thanks, Jamie. So, I’ve worked on copper for about 20 years. I focused on copper for my PhD dissertation and I’ve done a lot of research on copper globally. And over the last 10 years, following all of the news about the energy transition, I got really interested in all of the various media outlets coverage of copper and how much we need and you see this I mean it’s almost hourly in media outlets around the world and a couple of years ago I visited Cornell University and gave a talk and a friend of mine Larry Cathles who’s an Emeritus Professor there. He and I hatched this plan to calculate things for ourselves. So, what we did is we looked at historic copper demand. So how much copper has society used every year from 1900 through today? And those data are out there. So, everybody agrees that we know how much copper has been consumed by society. And what we did is We then took various climate mitigation strategies, whether it’s, you know, the European Green New Deal or the Inflation Reduction Act, and we said, okay, let’s calculate how much copper we need if, for example, all of the vehicles in the United States immediately become battery electric vehicles, all of the vehicles in the EU become battery electric vehicles. And so, we went through and we sort of got nerdy on it. And we did all of the map. You know, we looked in detail at batteries, battery sizes, number of kilometers that miles drive. So, we made it really quantitative, and the study that we published with the IEF, it shows conclusively exactly how much copper, like down to the kilogram of copper, is needed per year for the next 30 years for all for various climate mitigation strategies. So, switching to hybrid electric vehicles, switching to battery electric vehicles. If everyone switches to a combination of solar and wind, we calculated how much copper is needed. If everybody has 28 days of battery backup and 28 days we chose because that allows you not only to ride out a hurricane but to last several weeks after the hurricane has gone through your area. And what the data demonstrate is over the next 30 years, we need to mine 115% more copper than we’ve mined since the Stone Age. So, if we round that out, it’s double. So, we need to mine double the amount of copper than we’ve mined since, you know, we were walking around using stones as tools.

[00:04:04] Jamie: And is that assuming we hit all these targets of everyone? Driving electric vehicle, everyone having solar power, everyone having 28 days of battery backup, or is that

[00:04:15] Adam: It, it assumes that no, let me restate that. So, it’s what we did is we simply took existing climate legislation and said, okay. In order to achieve the legislation as it’s written in order to achieve the inflation reduction act. So, if you know if the entire United States gets rid of coal and natural gas, it’s gone no more oil. No more petrol. It’s gone. So a fossil fuel free world That’s what we calculated and we did that because we wanted to really get a sense of you know mathematically how much copper does this actually require and we chose copper because copper is the most fundamental mineral to all technologies, you know, you can play around with the ratio of nickel to cobalt in a cathode, you can play around with how much aluminum versus manganese is in a battery, you know, you can even transition from NMC batteries, you know, lithium ion NMC batteries to aluminum batteries, but you still need copper. And even though we might be able to decrease the amount of copper, we still need a phenomenal amount of copper. And so that was the whole goal behind our study is unbiased, unpolitical, non ideological. How much copper do we need to achieve each one of these various scenarios?

[00:05:36] Jamie: And does this, I’m sorry, I’m digging into this because I, you know, when I read through your report, it mentioned this was kind of the business-as-usual scenario. And I guess you’re accounting for all these projections and I don’t know, like, cause it’s taking into account things like there will be no more ICE vehicles by 2035 and things like that in California and this sort of thing. Right. Is this taking into account just like standard growth and urbanization in places like India and Sub-Saharan Africa and all these places where people are kind of getting lifted out of poverty over time and consuming more metals over time?

[00:06:12] Adam: It is. So, so we started with calculating business as usual. So, taking copper consumption globally for 120 years and projecting into the future. The, a compound annual growth rate for copper consumption that is consistent with historical growth rates. And, you know, you bring up a really good point. You know, if we think about per capita consumption of copper in the United States, the European Union, other more technologically and economically advanced countries, we consume about double the amount of copper per year than less developed countries. And if you put that in numbers, it’s about 1.4 billion people that consume copper at the rate that we do in the US and Canada and the EU. We’ve got another 6.6 billion people around the world who use half or even less copper. So, business as usual is simply the amount of copper that we need to continue to develop globally. And then we calculated on top of that how much additional copper is needed for various energy transition scenarios.

[00:07:26] Jamie: So, what is the response you got to this? So, you released this obviously, you know, everyone in the mining industry is ecstatic to see something like this, but there’s a lot more people that care about copper than just the miners. There’s the people that actually use it. What was the response you got? Was it. Was it disbelief? Was it disinterest? Was it fascination? Like, what, what were people coming to you and saying?

[00:07:50] Adam: So, so initially our goal was to publish this in one of the many sort of mainstream academic journals. And without naming names, your listeners can probably think of names that they’ve heard of. And Larry and I submitted it for publication and we thought, you know what, let’s just There’s no opinions here. It’s literally just math. And we provide, with the study, a comprehensive spreadsheet that literally details, line by line, how we did the math and what the numbers are that went into all of the equations. So, we thought, you know, let’s publish this in an academic journal. And we attempted to publish it in about six journals, and it was summarily rejected by each of them. And it didn’t even go to an associate editor. So, in each of the cases, we would get an email back that said something along the lines of, while we can, while your study is interesting, we don’t think that it is of wide enough interest, globally, to merit publication in our journals. Which really threw us for a loop, because if copper is the most fundamental metal for all things electrification, how can this not be of interest? So, I then reached out to Joseph McMonigle, who’s the Secretary General for the IEF. And I pitched this idea to him. I said, you know, look, would you be interested in publishing this? And he said, sure. And we had it fact checked by about 20 experts around the world. So, Larry and I were really open sending all of the details to about 20 PhDs around the world. Many of whom have had careers in the mining industry. And they fact checked every letter in the study. And since it’s been published, it’s been picked up by over a thousand outlets around the world. So, we’ve been really happy with that.

[00:09:44] Jamie: Yeah. So, I mean, what do you make? What is your conclusion in terms of why the more mainstream academic journals rejected it? Because, you know, you just said it’s been picked up by over a thousand groups pushing this out to the world. So clearly, it’s not a lack of interest, right? There’s clearly thousands of people interested in this. I would say there’s probably millions of people interested in this. So how would you, what would you, how would you characterize that?

[00:10:09] Adam: You know, all I can do is offer some opinions and some hypotheticals. I think in academia in the United States and others similarly economically developed countries. Academia has, over the last few decades, lost an appreciation for the role that mining plays for humans. And it’s not a role that’s just, you know, your newest iPhone or your newest laptop, but it’s literally development globally. And if you look at how mining is portrayed in academia, you know, whether it’s textbooks or college classes, syllabi, it’s generally portrayed negatively. You know, mining is used as examples of here is how pollution happens. And I think what that does is it almost inculcates students going through high school and college Some of whom become professors. They just developed this, you know, it’s not a hatred, but it’s a very strong dislike of mining. So, you know, now we’re at a, we’re at a, you know, a fork in the road where it’s pretty crystal clear that if we if the collective we in academia want the energy transition to happen, we need the resources to make that happen. But that means that we, as an academic community, have to support responsible mining. And I just don’t think academics are ready to make that next step.

[00:11:43] Jamie: And you, would you say that’s true across the geology schools and the engineering schools, in addition to sort of maybe more general sciences or business or what have you, like, do you even see that? I mean, and we should have, I’ll start people who are listening to this. We’ll have seen an introduction to your background by the time they’re listening to this. We didn’t talk about your background yet, but you are a professor at the University of Michigan. Have you seen that amongst your peers, even geologists that are a little hands off from mining these days, or is there a, what do you think?

[00:12:15] Adam: Yeah, I think it’s, you know, it goes beyond even hands off, you know, I think what I observe and it’s not across all faculty. I would say it’s a majority of faculty who think they understand mining. And they’ve convinced themselves that mining is to some extent inherently evil, you know. There’s the resource there’s it’s colonialism. It’s the resource curse. It’s forcing the extraction of minerals on land owned by another group of people and taking all of that value away for some benefit of a small group of people and I think they’ve simplified it to an extent that does a disservice to not the mining industry, but it does a disservice to the students taking classes because the students are taking classes and up on the stage, you know, to the students, it’s an expert in whatever field it is. And so, if that expert only uses mining in the context of negatives, then that’s what students take away. And I think that’s really what we’re seeing in academia writ large today.

[00:13:23] Jamie: How have you found these people recognize, like reconcile this? Like, how do they do the mental gymnastics to say, you know, mining’s bad. We need we don’t want to do it. Well, whilst also saying we need to electrify the entire world. We need to take all these steps because of climate change. We still need our standard of living and our quality of life. Like, is that just sort of swept under the rug and ignored? Or have you seen at least attempts at credible arguments about how we’ve take these steps without the mining.

[00:13:56] Adam: I honestly, I think I like your terminology there, mental gymnastics. I don’t hear many credible arguments, you know, I’ve heard arguments that range from, well, Adam, do you really think people in Sub-Saharan Africa want to have a lifestyle similar to ours in Michigan? And I don’t know how to even respond to something like that, because when I travel around Sub-Saharan Africa, trust me, everybody there wants a lifestyle somewhere closer to where we are than where they are today. I think a lot of people who view the mining industry in a negative way, they exonerate themselves from any any part of the benefit of the mining industry right. And so, you know, you’ve got people that will upgrade their phone every single September when a new one rolls out, even though the old one works perfectly fine and probably would work for the next 10 years. And if you engage them in a conversation of all of the resources needed for that new phone every single year or all of the resources needed for you know, refrigerating foods and hospital infrastructure, they ignore it. And I think it’s sort of on some level it’s, they know that they enjoy the benefits of mining, but they don’t want to give the perception that they support mining. And for a lot of people, I don’t know that they really understand why they have that viewpoint. I don’t think they’ve really thought it through.

[00:15:30] Jamie: This is a bit of a point of never-ending frustration for me because. There are so many call it climate change champions out there that are insistent that we must, you know, change to renewable energy and take all these steps to address emissions. But unwilling to look at any real solutions to actually do that, you know, I’ve had numerous debates with, you know, very well-educated people from Oxford, people from industry, people from banks, who’s who basically have just said, look, you know, we just need to stop emitting. We just need to stop emitting you know, the CEO of Fortescue, you know, Andrew Forrest and I think he’s worth like $20 billion. He’s putting in place you know, a hydrogen, green hydrogen plant at Fortescue. And he’s basically said, look, we need to lead the world and it’s got to be zero emissions. And I don’t see how anyone can spend more than 10 minutes, just looking at the math of what that would require to understand that going from what we are today to zero emissions is not only unlikely, but impossible over the next, say 30 years, which is often the timeframe that’s been given and then. Even if we were to do that, the like sheer amount of copper and nickel and cobalt and lithium, et cetera, et cetera, et cetera, that would be required as astronomical. And there’s a complete unwillingness to look at the compromises that will be made. And I know, I don’t know if I expect you to have an answer to that. It’s just, I’m like shocked at how the cognitive dissonance that often occurs here.

[00:17:03] Adam: I agree. You know, I teach a few classes at the University of Michigan, one of which is, it’s called Natural Resources, Economics, and the Environment. And over the course of the semester, you know, I get somewhere between 120 and 150 students, depending on the size of the classroom. And over the course of the semester, it’s interesting to listen to students, to talk to them before and after classes, and to really hear how their perceptions change over the course of the semester. You know, I get students who come in and say, I’m anti-mining. Mining is colonialism. Mining is bad. Mining is pollution. I am also 100% pro-energy transition. And so, over the course of the semester, for that student, what I do is I present them with lots of information. And I encourage the students as they take in this information, which is factual, and I have students do a lot of their own calculations, you know. Let’s figure out how much copper we need, how much cobalt we need, how much lithium we need. And at the end of the semester, what I find is, across the board, those students have changed their own perception of mining. I haven’t changed it, but they changed it. And they’ve changed it through information gathering and really teaching themselves about how much of each of these metals we need. For students who come in who are pro-mining and who are let’s say anti energy transition. They also changed similarly over the course of the semester, which is that they are pro-mining throughout, but over the course of the semester, their capitalism, you know, kicks in and they see how much financial opportunity exists in responsible mining. And what they do by the end of the semester is they really develop an appreciation for 21st century mining. Right? And mining, I mean, it’s got a checkered history, but so does everything else. And if we think about mining today and mining into the future, you know, we’re always going to expect some accidents going to happen somewhere. There’s some risk involved. But the students at the end of the semester who came in pro-mining, they realize how well mining can be done, so they feel more empowered to be able to have conversations about mining and they recognize that even if they’re, you know, they can be pro-oil, they can be pro-natural gas, but they recognize now how much of each of these metals we need just for business-as-usual growth. So, it’s sort of, it’s an all of the above.

[00:19:40] Jamie: So. We’ve talked about this demand, this kind of looming demand that very few people are aware of. Let’s talk a little bit about the supply, right? Because say, and I want to also talk about what it takes to kind of bridge that gap or what conceptually it will take, but let’s for a moment, assume that the entire world got on board and said, hey, you know what, there’s this, you know, massive demand coming on copper, let’s meet it. What do we do there? Because, you know, as I understand it, and you’ve done, obviously, more research than I have on this, those mines don’t exist today, right? Like, they’re not they’re not, there’s not enough known projects to meet that demand globally, I would think. And I don’t even mean projects that are not built. I mean, they’re not, they’ve not been discovered yet to meet that demand.

[00:20:31] Adam: Yeah, so, so in order to tackle that, we looked at historic mine production from 1900 to 2018, and we picked 2018 because then there’s no impact of the pandemic. And what we did is. We then used 118 years of mine production data. So that’s business as usual. That’s here’s how much copper mining companies in aggregate have produced every year. And what we did is we then mathematically modeled future mined copper production, assuming that the future is the same as the past. And when we did that what that math reveals is that If mining companies over the next several decades could operate and make the same number of discoveries and open the same number of mines at the same rate as they have for the last century, we would just about be able to meet business as usual demand. So that’s hypothetical. Then what we did is we dug into mining company reports for all the publicly traded mining companies. And we pulled data from countries where companies don’t disclose those data, but you can make some pretty good you can come up with some pretty good numbers. And what you realize is that over the next decade, globally, mining companies have released, communicated to the public, that from all existing mining operations, they will produce about the same amount of copper in 2032 as they did in 2022. Right. And so, this is from the mining companies, right?

[00:22:09] Jamie: 2022. Okay. Yeah.

[00:22:10] Adam: They know their mines better than anybody else. They know copper reserves, they know production rates. So based on future, you know, based on modeled market prices for copper and based on the amount of copper in every deposit, what we’re going to see over the next decade is copper production for mines is going to decline. And, you know, this is probably most notable if you look at, for example, Chile, which produces about a fifth of the world’s copper. Their national mining company, Codelco, they have released this in multiple ways over the last couple of years that they’re really concerned. Because Codelco and copper production in Chile, that has been Chile’s economy for 60 years. And they’ve told us that they’re going to start producing less copper after about 2029 2030. So, what we see then is, mining companies are not going to meet, not only they’re not going to meet the demand for the energy transition, but they’re going to struggle to meet, you know, forecasted annual growth rates for copper consumption from existing mines. Now, then you ask, okay, well, what are the mines in the pipeline? And there are a few, you know, Ivanhoe’s got their Kamoa-Kakula project in the Democratic Republic of the Congo, and that’s going to be truly a world class mine. And then you look and say, well, where else? And you hit zero really quickly, right? You look at places, for example the Resolution Mine in Arizona, which is a joint venture between Rio Tinto and BHP. That deposit was discovered almost 30 plus years ago, and it still is not in production. That deposit alone would overnight provide about 25 percent of domestic copper for the United States. They can’t get the final permits to, to start mining. You look at deposits in Alaska, like the Pebble deposit, which is in this pristine environment. I mean, I love, I have to say one of my favorite things to eat is wild caught salmon from Alaska. And I don’t want any. Possible damage to those aquatic ecosystems, but the Pebble deposit, it would overnight become the world’s leading producer, not only of copper, but copper plus gold, plus silver, plus molybdenum, plus other metals we need for the energy transition. Tellurium, we need tellurium to make cadmium, telluride, photovoltaics, thin film solar panels. And that deposit is, I mean, it’s likely to be unmined for the next few decades. So, the pipeline, it just isn’t there. And again, this is not political or ideological. It’s just the math.

[00:24:52] Jamie: Well, it’s actually almost worse than that if you think about it, because there’s mines kind of getting taken off the board now, right? Like we just God, what was the first quantum mine in Panama that just got shut down by the Panamanian government? And then we just saw Canada block the acquisition of the Warintza deposit in Ecuador by the Chinese for, you know, you know, security reasons. So, like, not only are we seeing known projects not get put into production, we’re seeing mines that are already built being stopped for whatever it is, environmental, political, social reasons. So. What let’s assume, like, what do you think has to happen for meeting that demand to be like conceivably achievable? Like, what do you, what would you like to see happen?

[00:25:40] Adam: Yeah, I think among the things that needs to happen is we need politicians in the US and other countries who are on an hourly, certainly a daily basis, advocate in some way, shape, form or fashion for the energy transition away from ice vehicles to battery electric vehicles. That’s all great. We need those politicians to come out and publicly support responsible mining, you know, in the last few years in the US. We have an administration who has You know sort of one side is all things energy transition. How many new battery manufacturing facilities can you build? Let’s count them, right? I mean, it’s just phenomenal the hundreds of billions of dollars that have been pumped into downstream manufacturing while at the same time the same administration has taken large areas of land in the United States off limits for mining, you know, you look in northern Minnesota there are several what could be really important domestic sources of copper groups off limits. You look at Resolution off limits. You look at Pebble off limits. And so, you can’t have, you can’t have it both ways. You can’t have the, you can’t expect to achieve the energy transition without the resources to make it happen. So, we need politicians to come out and in public acknowledge that this is a wicked problem. But we have a recipe to solve the problem. And here’s how we’re going to do it. And, you know, I think on one side of the political island, the United States. There’s a fear that’s gonna, it’s going to frustrate some of their constituents, but I think that the politicians can move their constituents in the right direction by taking a more public proactive stance in support of responsible mining. I also think politicians, you know, when is the last time we heard of, a roundtable, you know, a roundtable summit at the White House with the CEOs of the world’s top 50 mining companies, right? I mean, if I were Biden, and I really wanted to make the energy transition happen the way it’s described in the IRA. That’s something I might do. I might call up the CEO of, you know, Freeport and and Ivanhoe and Rio and the next 50 and say, all right, I want all of you in D. C. We’re all going to sit down and then I’m going to ask you, what do you need to make this happen? And you’re going to tell me what you need. And, you know, people in the US will say, oh, we’re doing a little bit of this. You know, there’s a little bit of mining money that went into mining engineering and mining geology at West Virginia and North Dakota. But it’s a drop in the bucket of what actually needs to happen. And if you ask those CEOs when they have been called, they’ll say never.

[00:28:35] Jamie: It’s kind of interesting, you know, just thinking about it now that in many ways, the United States is underrepresented in the mining industry, right? Like so many mining companies are based in Canada and Australia in the United Kingdom, you know, where the US you know, just so clearly dominates in tech. So clearly dominates in energy. It’s mining kind of been like the, you know, the, what do they say? The redheaded stepchild that’s been like ignored a little bit. And I think as a result it’s really not on people’s radar and in the United States and politicians and mining companies and CEOs have very limited from what I can see from the outside influence with the political class compared to say you know, the energy CEOs or the energy service CEOs who we see make the jump between government and back and forth to running these companies all the time, or the tech CEOs, right. Who are always part of these, you know, round tables or panels or what have you, but mining has been largely ignored. Do you think it’s because so few comparatively mining companies are based in the United States, or do you think it’s just because it’s. relatively a small industry.

[00:29:48] Adam: I think it’s probably a combination of, it’s a smaller industry than oil and gas. And it’s an industry that has always done its job and done its job relatively well behind the scenes, making all of the metals available for downstream manufacturing. You know, you’re right. I mean, how many times a day do we see Elon Musk is in the news about some new advertisement? But we don’t see the CEO of BHP, for example, the world’s biggest mining companies in the news, you know, almost ever. We don’t see that CEO in the news saying, you know what, we’re here to support Elon because without us, none of what he wants to happen is possible. And I think that you know, if you look at oil and gas, they spend a lot more money on public relations. You know, on average if you have a digital subscription to the New York Times or the Wall Street Journal or the Atlantic or any of the newspapers that sell advertising, you know, I’ll scroll through and there’ll be an advertisement for Chevron or Exxon or, you know, another major oil and gas company. I have never had an ad pop up from a Rio Tinto or from an Ivanhoe. They’re just not there. And I think, you know, this is it in some ways it’s to the detriment of the metals mining industry. Because the only time the public does hear about metals mining is when there is an accident. That’s it.

[00:31:23] Jamie: Yeah. Or when like some executives getting fined, you’re going to jail for bribery or something like that in some destination, you know, part of the problem is that mining is like the, almost the opposite of a consumer product. Right? Like we all use oil. We all fill our cars up with gas. Like it does play at least a small role in our everyday life. Most people have no conception of the role metal play, except for, you know, like looking at it as part of a piece of equipment or whatever but that’s it. That’s the extent of it. So, okay. I’m going to tell you my pet theory and people who listen to this podcast are probably going to be sick of me saying this, but I want to get your opinion on this. The only way for mining to matter, in my opinion, is two things have to happen. I think the United States will have to form some sort of sovereign wealth fund or investment program where they invest directly into mining metals, mining and metals projects. We are seeing that already to a degree, the Department of Energy, the Department of Defense investing in different projects. And I think the mining industry is coming up on a massive consolidation, but not in the way people think. I don’t think it’s going to be all the gold projects together or copper, whatever. I think the tech companies are going to start integrating mining companies and mining projects into their supply chain, right? If we look back, whatever it was 50 years ago, you know, we used to see Chevron and Exxon owning mining projects. We used to see them, you know, I read, I remember as a kid, as a high school student, I read Jack Welsh’s book the CEO of GE, and he talked about selling off a copper mine that GE owned somewhere in the United States, used to see these conglomerates building out their supply chain. That, you know, we’ve gone through a, call it a 50-year period of you know, decentralization in the mining industry. I think it’s going to swing the other way. And I think that’s the only way these industries get the clout that they need and have access to capital at low enough costs to actually go and buy these things and put them into production and pay the price. That’s required right or wrong. What do you think?

[00:33:32] Adam: Yeah, I agree with you. I think mining companies are in desperate need of de risking exploration for new deposits around the world and they need capital, you know I’m calling in from Indonesia, which is a country that is it’s blessed with all possible resources I mean they have an abundance of coal. They’ve got an abundance of oil. They have now an abundance of nickel leading the world in global nickel production. Which by the way, also is going to have a huge impact on cobalt production, which has the potential to reduce cobalt mining in the DRC. And, you know, when I’m here meeting with undergraduate and graduate students and professors, you know, asking them about the presence of the mining industry, It’s really small except for a few companies. And you know, one, one of the things that’s been in the news this week here is Freeport-McMoran, which is a US based company. They produce about 10 percent of the world’s copper. They have now just flipped the switch on a new smelter. So, taking copper concentrate and then ultimately producing copper cathode. Plus, other metals associated with copper, gold, silver, moly, maybe tellurium and selenium, although I don’t think they’ve released that. And the cost for that smelter, Freeport publicizes, 3.7 billion dollars. Now, that seems like a lot of money, but it’s really not. You know, at the University of Michigan, I and, talk about how students here were shocked when you start talking about the amount of money that people spend. The University of Michigan as a business, which it’s really a business. Our academic side of the business is about $3 billion a year, so that’s a smelter. Our hospital system is about $9 billion a year, so that’s roughly two and a half smelters. So, the money is out there. But it’s not being spent in a way that will actually address supply chain shortages.

[00:35:31] Jamie: Yeah, I mean, I think to put it in an even better perspective, if you look at like what Microsoft has committed to building data centers over the next two, it’s hundreds of billions of dollars, hundreds. And this is just one small part of their business, right? If you look at. Apple. Okay. You know, the ear pods at Apple, if they were a standalone business, they would be a Fortune 100 company just to the sale of the ear pods. Right? So, a smelter is a, it’s a rounding error for the, you know, Steve jobs could have put one of those on his credit card. Like it’s tiny in the grand scheme of things for these tech companies.

[00:36:06] Adam: Yeah, it’s not expensive. You know, if if any of these companies, any of these tech companies, if they really wanted to eliminate concerns, for example, about child labor in cobalt mining in the DRC, there is plenty of opportunity for these tech companies to actually pony up, move out of plausible deniability. Well, we didn’t know that there were Children who were mining the cobalt and put boots on the ground and spend the money to help develop the cobalt industry in the DRC you know, I was in the DRC last August for a month, starting a new project on cobalt supply chains. And, you know, I met a lot of men because who wake up in the morning and put in an 18-hour day with a pick and shovel digging cobalt ore out of the ground. And my wife and I have co-parented four kids, two sons and two daughters. Both of my sons are about 6’5 and I thought to myself, if it was the difference between starvation and my sons and I would dig shafts, we’d be digging shafts. And when you meet the people there, they want safety, they want to develop 21st century mines. So, where’s the money to make that happen? You know, I think maybe what we’re really saying is why isn’t the tech industry stepping up? You know, on the subject of data centers, there was an announcement this week that one of the big tech companies is signing an agreement with a new startup for small modular nuclear reactors. You know, that’s great. But where are all the resources going to come from those, for those nuclear reactors? I mean, you need a lot of copper per reactor. You need a lot of uranium per reactor. So there again, they’re only focused on downstream manufacturing, making sure the electricity can be provided to cool the data centers. But there, there seems to be. No meaningful interest in putting their dollars into upstream production of the minerals industry. I mean, sitting last night at dinner here in, in Jogja, in Indonesia. I mean, you know, I pitched to a professor, I said, what if one of these tech companies came to you and said, we want you to develop a mining exploration program to scour Indonesia for all of the possible copper deposits that are here. And then we want you to develop a program to do all of the environmental impact assessments. You know, how much would that cost? And without giving you the dollars here, Jamie, it’s a fraction of what it would cost at the University of Michigan, but nobody’s doing it. Why not? You know, you can then go from that to you take a country such as Indonesia development doesn’t happen for free right?

[00:38:49] Adam: Charity is not going to develop all of the various areas of Indonesia, or Sub-Saharan Africa, or Latin America. So, you have lots of places around the world that have the resources we need. They’ve got wicked smart people who can help solve these problems, but there’s no investment.

[00:39:06] Jamie: So why isn’t that happening in your opinion? Why aren’t these tech companies doing that? I mean, I actually know people who have worked in sort of supply chain management and blah, blah, blah, you know, high quality supply chain for Apple, for example, sourcing these things. Why don’t they just say, oh, for God’s sakes, I’ll just buy the damn thing and make sure it’s done right. It’s a rounding error to our balance sheet.

[00:39:29] Adam: I wish I knew that answer.

[00:39:32] Jamie: You know, in some ways it touches what you said earlier, right? Maybe the mining industry has just done too good of a job, right? It’s kind of like you’re working behind the scenes, the metals there when you want to buy it, it’s at a price that’s reasonable and like, that’s it. It’s not a problem. So why fix it? Do you think there’s an element to that?

[00:39:48] Adam: I think there has to be. And historically, you know, demand increased at a pretty, you know, consistent rate year over year. Now what we’re talking about is demand on steroids. Right? We’re not talking about just regular demand for metals. We’re talking about demand is going to increase significantly, and it’s going to increase really rapidly, right? I mean, boom, within a few years, we need double the amount of copper we’ve mined for the history of humanity. Coupled with the fact, you know, back to your you know, your Apple product, that sits in your ear that’s designed to be obsolete in 18 to 24 months I mean how great a marketing gimmick is that you’re going to buy something from us that we literally are going to tell you in two years will not work anymore. It is not recyclable. So, you’re going to throw it in the trash and then you’re going to come back to us and buy something new from us for more money. I think that Mining companies have always been there to provide the incremental increase in demand. But with those air pods, what are all of the metals that 10 years ago we didn’t even need? You know, before we had cadmium telluride solar panels, we didn’t need tellurium before we had lithium-ion batteries in, you know, battery electric vehicles. We didn’t need the quantities of lithium, cobalt, nickel, manganese, aluminum, copper, et cetera. And it’s that rapid increase in demand that is really going to, it’s really going to come back and it’s going to bite the tech industry and society in general in the ass. When 30 years from now there are going to be a lot of people saying, you know, oh, why didn’t you tell us? We didn’t know we needed to mine faster.

[00:41:33] Jamie: Yeah. I mean, what do you think has to happen? What is the catalyst? What has to happen for that to occur for, you know, Elon Musk at Tesla or whomever to say, Oh God, like we need to start putting money to work here. What do you think that is?

[00:41:47] Adam: I think that the people with the power of the pen simply need to make the decision that they are willing to put their money into something on the upstream supply. That’s it. That’s all that needs to happen. I mean, honestly, if Elon called me up and he said, Adam, I want to get into copper and cobalt mining in the DRC. Help me make it happen. We could make it happen, right? I mean, seriously we could go to the DRC, we could partner with faculty and students at the University of Lubumbashi and other places, and we could develop a program to supply all of the cobalt that Tesla needs, right? That could happen, and it could happen on a time scale of years to maybe at most a decade, but we’re not getting those phone calls from people in tech who want to spend that money.

[00:42:38] Jamie: Yeah, I think my thought is that something very painful has to happen before there’s action to be, that’s taken, that there has to be a shortage and there has to be a hard time getting something.

[00:42:51] Adam: Well, I guess. I was going to say, I think that’s happening for people on the political left in the US right. I mean, yeah. In the last month, Florida has been slammed with two hurricanes. I mean, it was basically like, you know, God took Florida and, you know, Mike Tyson in his prime and said, I’m going to hit you twice before. And so, they’re down and out and we’ve got people in Florida. And it’s truly a tragedy, right? I mean, myself, nobody wants somebody to have to live through the aftermath of a hurricane. But on one side of the political aisle, we have people telling us that the way to minimize future hurricanes is to rapidly move away from internal combustion engines. And you say, okay, well, here’s the recipe. Oh no, but we also, we don’t want a mine either.

[00:43:39] Jamie: Yeah. Do you think metal prices need to go up? What are your view on that? To bring these things into production?

[00:43:46] Adam: With the current business model, metal prices have to go up to stimulate mining companies to invest more in exploration. More in research and development, new technologies to explore from mineral deposits and to allow mining companies to flip the switch on existing deposits. You know, in, in the US in the western state of Idaho, there’s what we call the Idaho Cobalt Belt. Well, it’s called the cobalt belt cause there’s a lot of cobalt and we know where there are several cobalt deposits. None of them are being mined because the price of cobalt’s too low. So, if the government were to look at that and say, okay. Here is a domestic source of cobalt. We really need cobalt. What is the price that mining company X needs to flip the switch and operate and produce cobalt from this mine for 10 years, 20 years, 30 years? We’ll guarantee that. Right? Some sort of price floor. We’ll eliminate that risk. So if you, as a mining company, you have discovered a cobalt deposit, you have put together your business plan to develop, operate, maintain, and produce cobalt for the life of the mine, and you tell us, you know, it doesn’t have to necessarily be the cash cost on a, you know, dollars per ton of cobalt production, but it could be something along those lines, right? Where you tell us if you need X dollars per ton of cobalt in order to operate in the black. We will guarantee that. So, if market prices go up, you can benefit from that. You take the excess. But if market prices drop lower than your cash cost to operate demand, we’ll cover that. I mean, to me, again, that seems really simple. And we’re doing that in so many other ways with downstream manufacturing. Right? I mean, I think on some level you look at America’s big three automakers, right? They’re certainly, while there was not any, nothing on the level of collusion, right, the DOE looked at the big three and said, okay, what do you guys need in order to transition to battery electric vehicles? And let’s build in subsidies. To me, those subsidies are the same as a price floor for cobalt mining. I mean, you can quibble about the legal definition of terms, but it’s fundamentally the same thing with lithium. You know, you’ve got Albemarle lithium that has access to the Kings Mountain lithium deposit in western North Carolina. It’s one of the biggest lithium deposits in the entire world. And so why not go to Albemarle and say, you know what you tell us, what’s the price floor, right? That’d be great. What do you need us to guarantee? So that if lithium prices are above that, you profit. If lithium prices drop below that, we guarantee that we will cover the difference. Albemarle would start producing lithium from that mine next year.

[00:46:32] Jamie: Have you ever seen this happen? Is there a precedent for this anywhere? These sort of, building in these price floors to critical commodities?

[00:46:39] Adam: Yeah, you know, I, I have I have, I’ve gone down the rabbit hole trying to find really good crystal-clear examples. And in, in what you come up with is, you know, good examples would be the Civil War, World War I, World War II, where if you look at the federal spending as a percent of GDP, it went through the roof, and if you look at World War II with Roosevelt, you know, what did Roosevelt do? He literally, and maybe it wasn’t him personally, but some people suggest it was, he called up people like Henry Ford and he said, you know, look, I know that you’ve got really successful auto manufacturing facilities, but I need you to build bombers. I need you to build tanks, and I need you to build them yesterday. Can you do that for me? And Henry Ford said, yes, sir, we can. And, you know, everybody’s probably seen Rosie the Riveter, you know, I mean, that was 20 miles from my house at Willow Run airport. And literally in the span of weeks to months, these entire production facilities transitioned from making, you know, whatever the model T of 1940 was to building B2 bombers at the rate of something on the order of one per hour. When we look at the medical industry. You know, in the United States, there’s a lot of concern about the cost for prescription drugs. And among the really positive things that our current president has done is he has put price caps on insulin, right? I mean, that’s phenomenal, right? People with diabetes, that is literally the difference between life and death. And so, there are precedents, and maybe they’re not exactly the same, but it the examples that are out there indicate everything is doable. We just need the people who are in positions of leadership to actually lead

[00:48:32] Jamie: If the US government this is my, I’m thinking this through as we talk about it, what a price floor under certain commodities, what do you think would be the repercussion on the price of those commodities globally, right? If there’s a price floor on copper of $5 in the United States. What’s it, what’s the price of copper in China after that, as given China buys, I think something like half of the world’s copper goes to China at this point. How does that, does it potentially undermine the United States as competitiveness in manufacturing and electrification and all these things? Or does it just sort of bring up the price globally? What are your views on that? I’m kind of putting you on the spot here, so I don’t expect you to have it. Perfect answer.

[00:49:14] Adam: I would hope that what it would do, what I would hope is that it wouldn’t be the US only, that it would be a multi country effort. You know, you take all the countries in the OECD and it’s each of those countries that advocate the most strongly for the energy transition. So, what if they got together as a group and said, you know what, let’s use our collective power to put in place these price floors. And I think what that has the potential to do is that would buoy up global prices. That would provide certainty for mining companies to invest more in exploration, to discover the new copper deposits that we need to meet demand.

[00:49:57] Jamie: You know, we’re coming up on an hour now. So, I just have a couple questions left. And I, you know, I want to be respectful of your time. You’re supposed to start your day in Indonesia. Is there anything going on, any discoveries anywhere in the world that you’re particularly excited about that you think there’s a really perhaps under acknowledged or under understood element in the mining industry today.

[00:50:17] Adam: I think in the African Copper Belt. Which stretches roughly from Angola across the southern part of the DRC into Zambia. The discovery of the Kamoa-Kakula deposit, you know, a decade or so ago by Ivanhoe. That, that, that’s a game changer for the African Copper Belt because they discovered a type of copper mineralization that previously was relatively unknown in that area.

[00:50:46] Jamie: This is sedimentary copper, right? Is that right?

[00:50:48] Adam: It’s sedimentary hosted copper, exactly. And most of the deposits in the DRC in Zambia, what you’re mining is copper oxide close to the surface. So, if people can picture like malachite and azurite and beautiful green patinas, it’s oxidized copper that you’re mining. At Kamoa-Kakula, it’s the sulfides at depth that are being mined and that is really, that has, I think, unleashed a lot of interest in searching for and discovering similar copper sulfide deposits in the African Copper Belt. The resolution deposit in Arizona. That deposit contains, it’s got a grade of one and a half weight percent copper, which is about triple the average copper grade at similar porphyry copper deposits around the world. That deposit has the potential to literally redefine 21st century underground mining. I mean, it is responsible mining in a way that people just can’t conceive of with lots of autonomous vehicles to make it a lot safer. The footprint of mining is way lower than the footprint of mining the same amount of copper from an open pit deposit. So, I think what we’re seeing in the mining industry is we’re seeing a combination of the discovery of massive copper sulfide deposits in the African Copper Belt, and we’re seeing underground mining being done at current market prices. And I think that bodes well for copper because Most of the worlds near surface deposits, we already have found them and we’re mining them out or they’ve been mined out. So, we know that we have to go a little bit deeper below the surface in order to find copper deposits in 25 and 30 and 35.

[00:52:35] Jamie: Do you think that’s the future of copper mining? Is it underground? Is it these, maybe these big block cave mines done at scale? Yeah.

[00:52:41] Adam: I think that’s the future. You know, you look at resolution, you look at Grasberg here in Indonesia, you look at Chuquicamata. I mean Chuquicamata is arguably one of the world’s two largest open pit mines relative to Bingham Canyon outside Salt Lake City. And Chuquicamata, they were mining there for a hundred years. And now they’re mining underground and they anticipate another hundred years underground. So, you’ve got some surface footprint. But if you look, for example, at the surface footprint of these massive underground mines, it is much smaller than building and operating a huge open pit mine. And I think on that note, you know, you go back to Pebble in Alaska, there are ways to be creative there. I mean, among the concerns at Pebble is, yes, you’re going to disturb the land area where the open pit deposit will be constructed. And that has potentially negative impacts on the ecosystem, but I think they’re manageable. The bigger concern is around how do you store the tailings, the mine waste, and storing those tailings in an impoundment that is upstream of the Bristol Bay and, you know, the pristine aquatic ecosystem there. Well, why not take those tailings, dehydrate, dry stack, and get them out of there? Right. We’re seeing this happen. There’s a mine in northern Minnesota called Tamarack, and it’s a company called Talon, which is a joint venture with Rio. And Talon has done, they’ve done something in Minnesota that’s just wicked smart. What they did is, to alleviate the concerns about tailings, they said, okay, there’s a rail line that exists from here to North Dakota. There is a suitable landfill in North Dakota. So, what we’re going to do is we’re going to take all the tailings from the Tamarack facility, which is going to produce nickel and copper and cobalt domestically. We’re going to dehydrate those tailings, move them west to North Dakota, and we’re going to store them in an area. That is in no way connected to the boundary waters, which are the big concern. So, you know, there are some really bright examples in the mining industry that I don’t think the general public is aware of.

[00:54:53] Jamie: Okay. Thank you for that. Adam, one last question. If I were to give you a million dollars and you had to buy invest in one metal, can’t be copper because we’ve talked too much about that. What would that be? And say you had to hold it for 10 years. You had to hold it for 10 years.

[00:55:13] Adam: Yeah, I think the backbone for our built environment is steel and iron is that backbone. So, if I think about development around the world and the amount of steel that we need, you know, we globally consume about 300 percent more steel this year than we did in 1960. And we’ve seen how much steel has been used in China over the last 20 years as they went from a severely underdeveloped economy to the world’s number two. We’ve seen it happen in South Korea. So, I think steel and iron, that’d be where I’d put my money.

[00:55:50] Jamie: Okay. Well then, we need a second question to that because iron is not one market. It’s a different geographical market. So where would you invest in iron then?

[00:56:00] Adam: I think the really large banded iron formations that are mined in Australia. You know, they are going to produce iron for decades and decades, if not centuries.

[00:56:09] Jamie: And easy access to China and Asia and India.

[00:56:12] Adam: Absolutely. Yep. Yeah. That, that, that’d be a good place to, to store my million dollars.

[00:56:18] Jamie: That’s a good one. We haven’t had that answer before. So, I like that one.

[00:56:21] Adam: Yeah. Happy to send you my Venmo information. If somebody wants to pony up that million.

[00:56:26] Jamie: All right. I’ll put it in the show notes. Okay. Thank you very much for taking the time today, Adam. Very much. Appreciate it.

[00:56:32] Adam: Absolutely, Jamie. It’s a pleasure to be here. Thank you very much.

[00:56:35] Jamie: If anyone wants to learn more about your work, what you’re doing, is there a good place to check that out?

[00:56:40] Adam: Yeah, you know, I don’t know if I can say my email address online, but I’m happy for people to send me an email.

[00:56:46] Jamie: If you want to get a lot of emails, please do.

[00:56:48] Adam: Yeah. So, my email address is my last name, simonac@umich.edu. And you could probably stick that in the show notes. But I love talking about this topic. You know, I really do. I’m blessed to have traveled all over the world, done research on seven continents and about 75 countries. And I think about the energy transition in two ways, the energy transition to renewables in the more developed economies, And the energy transition to energy for six and a half billion people. And it’s those six and a half billion people that I’m focused on providing the resources to make sure their children and grandchildren can have lives that are similar to what my children were blessed to grow up with

[00:57:35] Jamie: Yeah. I mean, we could have a whole other conversation. I think it’s almost a billion people have access to no electricity, right? They don’t have a light bulb in their house. There’s nothing to read by at night. And, you know, they’re not worried about solar panels or windmills. They’re just worried about anything.

[00:57:51] Adam: Absolutely. And I think that number grossly underestimates the amount of people without energy. You know, if you actually look at how we calculate that, we consider a human to have access to energy if they have enough electricity to light one light bulb for four hours a day and charge two electronic devices. That’s access to energy. That is way different than the access to energy in my 4, 000 square foot house with four kids and a spouse. I mean, it is orders of magnitude difference. So, when we talk about access to energy, it’s not a light bulb and two smart phones. It’s access to medical infrastructure, healthcare infrastructure, etc.

[00:58:30] Jamie: All right, we’re going to have to save that for round two. Thank you very much today, Adam.

[00:58:34] Adam: Thank you, Jamie.

[00:58:35] Jamie: I appreciate your time.

[00:58:35] Adam: Thanks a lot.

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Jamie Keech

CIO; Editor

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Nick D'Onofrio

Head of Research

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Mark Cutifani, Vale Base Metals — Leadership, Innovation and the Future of Mining (#62)

Mark Cutifani, Vale Base Metals — Leadership, Innovation, and the Future of Mining (#62)

“Understanding your resource, your mining methods, and your efficiency—those are the three things that determine the success of a mining operation. Most companies don’t get those right.”
— Mark Cutifani

Mark Cutifani has spent over 40 years in the mining industry, rising from a cadet in a coal mine to one of the most respected leaders in global mining.

As the former CEO of Anglo American and now Chairman of Vale Base Metals, Mark has seen it all.

In this candid conversation, we dive into his journey, from his early days in Wollongong to his leadership at some of the world’s largest mining companies.

In this episode, Mark and I discuss:

  • His early life, including his unconventional motivation for joining the mining industry.

  • The key leadership lessons he has learned throughout his career.

  • How he doubled productivity and cut costs by 45% at Anglo American.

  • The importance of understanding your assets and how mining strategies can be redefined to maximize value.

  • The under-appreciated role of mining today, from its impact on urbanization and agriculture to its role in the energy transition.

  • His insights on the future of the mining industry and how companies can position themselves to thrive in a more competitive and nationalistic world.

Please enjoy!

Listen to the episode on Apple PodcastsSpotifyYouTube, SoundCloud, or on your favourite podcast platform.

Enjoyed this episode? Sign up to our free newsletter to access to the latest podcasts, expert insights, and exclusive reports on our recent deals.

The transcript of this episode is included below.

Note: Transcripts may contain a few typos.

Transcript:

[00:00:00] Jamie: Okay. Mark, thank you very much for sitting down with me today.

[00:00:04] Mark: Thanks, Jamie. Great to be here.

[00:00:06] Jamie: So we’re going to get into your view of the mining industry today, your kind of long and illustrious career. But I was thinking about how I wanted to start this interview and I recently read something that I thought might be an interesting place to pick off. So do you know what the most common career goal or like aspirational career is of a high school student today is?

[00:00:35] Mark: It’s probably not mine uh, would be my best guess. And so I’d be, I’d love to hear what it is today.

[00:00:44] Jamie: Okay, so in like the 1950s to the 60s, it was an astronaut, which fair enough, who doesn’t want to be an astronaut? But today it is social media influencer, is the number one career goal. Of like a 17, 18 year old and when I was reading your bio, as I understand it at 17 or 18 year old years old, you left high school and went and worked at a coal mine.

[00:01:14] Mark: Yes, I did.

[00:01:15] Jamie: And it’s hard to imagine the average 18 year old today getting excited about that option, but it, it sounds like you were, and I’d love to understand what was going through your head at that time and how that all came about. I know you’re from a coal mining town originally, but what kind of led to that?

[00:01:36] Mark: Well, you’re going to laugh. Uh, oh, congratulations, by the way, in choosing a career that everybody wants to be by the sound in terms of social media. So well done.

[00:01:46] Jamie: Well, I’m also, I’m, I’m also a mining engineer. So I, I have a bit of, I have a bit of both in me, I suppose.

[00:01:54] Mark: Well, I was asked that question recently. Another thing I was doing, um, and people were quite shocked by the answer, and I said that the three things that motivated me to join the mining industry were, one, girlfriend, two, being able to stay in Wollongong and continue to surf, And three, being able to earn money to pay my way through university, because my father being an immigrant from Italy, had a very traditional view about the sort of career choices I should make, being either a doctor or a lawyer.

I certainly wasn’t going to be a doctor. I’d applied and got into university to be a lawyer, but that would have meant I would have had to have gone to Sydney. And the family couldn’t help pay my way, I’d have to pay my own way. And I had a friend who was working in one of the local coal mines and said, Well, gee, we’ve got a cadet position going.

He said the trouble is, there’s about 150 applicants. I said, well, just throw my name down because if I could get that, I could go to Wollongong University, do mining. I’d be there for at least six years. I’d be earning a wage and I could support myself. So, the reality, I was lucky enough to get it, obviously.

But the motivation to join the industry. We’re certainly not as altruistic as I would like to tell the story, that’s the truth.

[00:03:23] Jamie: Okay, so we’ve got women, pop, women, surfing, and money, basically. Those are the

[00:03:29] Mark: Well, I’d like to say a woman. A woman, sorry, yes. It’s more about the girlfriend, but again at 18, I mean, what do you know about career choices and the opportunities?

What struck me? And this is the probably more interesting part. I thought, well, I could start in December and I had three months before I had to pick up the law degree and start up in Sydney. So I figured that if I really didn’t like the choice I’d made, I could change my mind. And 47 years later, I still think I made the right choice.

[00:04:04] Jamie: Yeah, you’re not going back to law school any time soon?

[00:04:07] Mark: No, not at all.

[00:04:09] Jamie: So what does a, you know, what does an 18 year old do at a coal mine when, as a cadet? What do, I mean, cadet, I don’t, I wouldn’t think is a role that exists at many coal mines today. What does that look like?

[00:04:21] Mark: Well, firstly what they do is they in the cadet role, you get experience in every department in the mine, and the plan is you do it over four years, then you go and do university full time, and you’re doing it part time university, and then you go and do two years full time to finish your degree up. In my case I got to do the early start and about three years in, I said to them I’d like to go and work as a miner, but also I don’t want to leave and do two years full time. I’d prefer to keep working and still do the two year full time university, but work on night shift. So I was able to finish the degree in the same amount of time, but I kept working all the way through. One, because I’d become a bit of an entrepreneur and I was investing in a few things as a young guy. I knew a new condo and things like that. And so I grew used to having money to spend. So, the good side of the employment is I saw every department. I worked in finance. So I worked in all of the departments and I was the guy. That if they couldn’t find anybody that would have to do a difficult job, I was the one who put my hand up and said, yeah, I’ll do a crack at it. And so the great thing about that is that I got a wonderfully diverse team. Exposure to all facets of mining which really triggered the thinking you could literally pick any career and there would be something available for you in mining. And that’s the great thing about the industry. It’s so diverse and so many opportunities.

[00:05:59] Jamie: You know, you mentioned that you kind of had that three months before school started to figure out if this was a world you wanted to live in. What Was there a moment in that three months where you were like, okay, this is for me. I love mining. Or did it happen more gradually after that? Or was there this kind of watershed moment where you’re like, this is quite special?

[00:06:21] Mark: No, probably for the first time that I really had a chance to think about career options, because I took the time to ask people. about what were the career options. It was really interesting. One of my relatives said, oh, well, your aspiration must be to be a mine manager. And I said, well, no, not really. I said, the mine manager at our mine is 30 years old. And I said, there’s a bigger career beyond that. They said, well, what’s beyond the mine manager. And we talked about the regional manager, we talked about ultimately the global head of Rio Tinto, or CLA at that time, out of Melbourne and it was something that you didn’t appreciate until you’re in the business and you ask lots of questions. And then when you looked at all the career options, I said, you know what, this is going to be quite interesting and what struck me. In the conversation was a technical background with, uh, if you, you add finance to it. And I ended up doing I did three years of an MBA and then got offered the biggest gold general manager role in the industry in Kalgoorlie. And I didn’t finish the last year, but I got the background I wanted. So there were so many options. So in that three months, I did my homework. And that’s when I thought, you know, this is a good choice. I had an option of going to BHP in personnel as well.

[00:07:47] Jamie: Like HR effectively.

[00:07:49] Mark: Yeah. In HR. And I actually looked at HR and I looked at the technical side and I said, you know what, a technical grounding in an industrial profession probably gives you a lot more openings further down the track.

And the way I describe, when somebody says to me, you’re one of the few mining guys that’s actually the CEO, I said, the one advantage I have is I know what I’m looking at in terms of a mine. And it is an advantage. But I mean, the skill sets were quite a much broader today. But in, in those times, the ability to understand what you’re looking at, the resource potential is something that I think has differentiated me. Through 47 years in the industry,

[00:08:36] Jamie: You know, it’s really interesting to me personally that you say that because I said, I’m a mining engineer as well. And I always knew I wanted to go into business. My father’s an electrical engineer. And when I was looking at university programs, I very clearly remember a conversation I had with him where we talked about, like, You can always learn business, but if you have that technical grounding of an industry, it just gives you so much more opportunity within that space. And somewhat similar to you. I mean, I had, I didn’t have a particular fascination with holes in the ground when I was 18, but I, I wanted a job where I could travel. I wanted to be able to work outside and not be in office. I wanted to, you know, make some money and mining kind of stuck. Stuck a lot of those boxes for someone that grew up in a pretty small town and hadn’t been many places. So it’s, it’s interesting to see the parallels there.

[00:09:27] Mark: Yeah. What I hadn’t appreciated in mining, and I only reflected on this after I finished my program. It’s a very broad course. So you do electrical, you do mechanical, you do civil, you do all the engineering disciplines because they’re all part of what you do. Whereas in many of the engineering disciplines, they’re much more specific. And I always say the smart guys, men and women are the electrical engineers or the chemical engineers. And we as the mining guys, we sort of tend to Be at the tail end, but it’s a much broader discipline. Yeah. That also goes more into management and again I found that to be quite useful in later years in terms of the broader management. Yeah. But I’ve inquisitive that, that think makes a difference. If you’re inquisitive you tend to sort of hunt things down, try and understand what makes them work.

[00:10:25] Jamie: I’m laughing because I remembering a professor I had in university who was a mining engineer and he worked in South Africa for years sort of big open pit mines. And he said, ah, you know, the mining engineers are the only ones that understand everything. He’s like, the rest of them are just rivet counters is what he said. which I don’t think it’s fair, which I don’t necessarily think is fair, but

[00:10:48] Mark: I think that’s right. I know there’s one thing that I do remember. We had a Chinese head of mechanical engineering and mechanics in particular. And being one of the mining engineers in a much broader class, we weren’t good for homework. And we tended to have many other activities that we put a higher priority on. And He said, okay, the exam this time around will be open book. And everybody’s going, oh, that makes it easy. Anyway, I remember but the open book was you’re allowed one page of notes. So I put my my key formulas on that one page, but the exam was not like anything we’d ever seen. And what you had to do was interpret what the question was and apply your formulas appropriately. And there were only three of us that passed the exam and I got 90 percent and because I had the formulas, I understood the logic and was able to, you know, it was a quick sort of application to me. And I remember him saying to me, he’s, you’re brighter than you look. So that’s still what I.

[00:12:14] Jamie: High praise.

[00:12:17] Mark: But, it was interesting if, if you’re in understand it, so it’s a matter of understanding what’s right and understanding the actual course and the logic of stuff is really important. And that’s what I’ve always done is dug into the theory to try and understand the topic. And that generally stood me in reasonably good stead.

[00:12:41] Jamie: And it sounds like, you know, even very early on in the industry, you had, well, you understood the potential for what a career in mining could lead someone and you had pretty big aspirations. It sounds like to take a leadership role at a major company.

[00:13:00] Mark: So I was always motivated to, I remember the career coaching conversation I had at CRA. Is this it? What, where do you want to burn? I said, I’m not sure yet, but the one thing I do know is I don’t want to be in a role and think this is it.

[00:13:17] Jamie: Yeah.

[00:13:18] Mark: Um, And I said, you know, I, I can see I’d like to be an under manager or I’d like to be a mine manager, look at Ray and Bruce, 30 years of age, and they’re in those roles and they can look forward. Think about what they might be doing next. I said I don’t know if I could be the CEO of CRA or Rio or something like that, but I just don’t want to get to a place and think, you know, for the rest of my life, this is where I’m going to be. And I’m 66 and I’m still in the same place. I don’t want to think this is it. And I keep working and I won’t retire.

[00:13:55] Jamie: Was there anyone early on that sort of took an interest in you or sort of acted as a mentor that helped you kind of.

[00:14:11] Mark: Um, I’ve been lucky. I’ve had lots of wonderful, wonderful people that have helped me on the way through. I remember a guy called Rod Rustin, who was the general manager at Westlake at the time. Had some real challenges. Uh, and, uh, And, uh, he taught me about planning and, and he got it down to understand where you want the business to be and your job as the chief design engineer is to invent ways to get there.

And I thought that was a wonderful way of sort of saying, be creative. Let’s, let’s define what best is, and you show us how to get there. And for a rural kid learning about planning and those sorts of things, and you’re, you’re being basically told. Go and out how we get there. Mm-Hmm. , that was a great opportunity and the feedback you got from the rest of the team was fantastic.

One other guy that I remember very well when I was about 32, 33 running the super pit in Kalgoorlie, which was the, myself and Tony O’Neal were, uh, I was the general manager and he was the mine manager. We developed, um, a whole new concept in Kalgoorlie, which really changed gold mining in Australia in many ways in the West Australia.

And I remember, um, the Chief Operating Officer of a home state in the US, uh, was, uh, sort of a self appointed mentor, and he’d bring me a book every three months when he visited the site, and I had to read the book, and the books were The Worldly Philosophers, Um, the covenant, which is the story of South Africa and the irony there is I ended up working in South Africa for six years, uh, and all these books about personal development and non mining stuff.

[00:15:55] Jamie: Yeah.

[00:15:55] Mark: And he said, my job is to create a full person that, that could lead the company one day. And, and he took a personal interest and he was tough. He was demanding, but also, supportive and, um, with someone that I could run ideas past without worrying that he might be critical because it was a dumb idea. Um, and I’ve had a few guys like that in my career, and so I’ve been very lucky.

[00:16:22] Jamie: What, what was the first leadership role you really took in the industry? When did you go from sort of engineer, uh, sort of, or, or, cadet initially, into taking a role where you were leading other people, making decisions, having a lot of responsibility?

[00:16:37] Mark: So the first, So there were, there were supervisory roles, and I was a mine manager, a mine superintendent at one stage, but I, I guess the, the first management role was to manage Copland, uh, so the mine where I started. I was in the management, uh, the, the manager’s role. I was probably about 27 at the time. And, um, the intention was to close the operation and there were two operations, Coal Cliff and Dark’s Forest, so they were connected. And my boss said to me, don’t touch anything. We want to close the place in 12 months. And they’ve been trying to close the place for a number of years. But in Australia at the time, it was very difficult to close stuff, the unions were very strong, uh, and politically the company was a bit nervous about shutting it. Lee Clifford actually was the, the head of the coal division. And, um, uh, we developed a plan. Rob Ruston was involved, the guy I mentioned earlier. And we developed a plan where we could actually halve our costs. And, uh, in the conversations with the team, uh, I was trying to, I was thinking about how do you, how do you, um, articulate the severity of where we are as a business, if we don’t do something different, we’re gone to, um, that, that in many ways. Uh, these were all the senior guys in the business and, and roles were bid by seniority, the amount of time you’re in the business. So the part of the business I was running were all the senior union guys. So they’re all 55 years and older. And they quite frankly, weren’t too worried. If it had to be a closure because they’d walk out with redundancy. So I then said to them that I’d been told I wasn’t allowed to touch anything. And I said that we’re known as F Troop. Now F Troop, uh, for those that can remember way back then was a TV show about the worst army team in the U S cavalry, uh, Ken Berry, Forrest Tucker, and for those my age, I’ll remember the show. So it was the worst of the army. Now a crop. And I said, that was our reputation. And that was extremely insulting to everybody. But I said, we’ve got an opportunity to show that we’re A Troop. And in the next two and a half years, safety, no accidents. We doubled productivity and we halved our costs. Very similar to the Anglo story in many ways.

[00:19:19] Jamie: Yeah,

[00:19:21] Mark: it was about a group of people who were galvanized. Behind the concept, nothing to do with money. It was all about showing that they were people that could deliver something special. And so it was us together as a small team, creating something very different. So I sort of created us against the world. But they were the ones who designed the change. And so for me, it was a great learning experience because I try to work out how to motivate people. And a group that were about to retire, they didn’t have anything else to motivate aside from that personal motivation and self pride and pride in themselves and pride in what they could do together. And, um, um, they were wonderful. And in the end, it wasn’t my success. It was their success. They did a wonderful job, but it was a great learning experience.

[00:20:12] Jamie: I’m really, Personally interested in how, how you achieve that, right? Because you’re 27 years old. These guys are twice your age. They’re approaching retirement. They’ve got a, you know, a good soft landing on the other end of that. There, it sounds like they’re being mildly disparaged, but disparaged by the company. So how do, what do you, How do you actually implement change, that change of culture and attitude? Is this, are you standing up and giving speeches? Are you sitting down one on one with these people? Are you working with key leaders and helping to propagate it through the, the, you know, the, through the F troop or, or whatever? How, how does the actually implemented those, those changes?

[00:20:55] Mark: All above. And, um, what, what Rod Rustin did in his role in the business? He defined what we had to achieve, just, you need to achieve this cost number, um, and given that labor is 50 percent of your cost, you can only do it with half the people. And by the way, you have to double your production at the same time. And so, uh, sorry, it was half the people and we had to improve our production by about 25%. So you had half the people, you had to improve 25 percent. So I started with that, and I said, the alternative is there is no operation. The most guy said, well, who cares? And I said, well, don’t forget there are young men coming through that if we don’t survive, they don’t have something to come to. So at this point, it’s not simply about us, it’s about who follows. And creating employment for potentially their own kids. So how do you bring the imperative back to them? It was a conversation. So one, it was honest. It was an honest conversation about how we were perceived. And by the way, you said they were mildly disparaged? No, they were openly disparaged and they knew it. I was the first guy to actually say After it now, after it was a bit of a makeup, but they knew they were being disparaged.

[00:22:21] Jamie: And was that warranted at the time? Had they underperformed to a degree that warranted the disparagement or was there more to it than that?

[00:22:30] Mark: Um, partly, but also a function of, uh, they didn’t think they were being respected as they should have been. So I think it was both ways. But at the end. It’s the leader that has to be the one that is accountable for making a change. So my first conversation was, I know we haven’t done all the things we should have done as a company. I know we haven’t provided consistency of approach or strategic direction, but here’s where we are and here are the challenges we confront. And from my perspective, I can listen better, be more responsive to what’s important to you. But at the same time, I can’t deliver everything. And so it was a really open conversation about who we were. Now, the advantage I had is I grew up as a young guy with that, with some of those people. So they knew me and I’d been through as a minor and I’d worked underground. They knew, knew I had my degree and this was my first management job. And I told them, I said, I’m basically told not to touch anything because things could go on the way they are. They’ll be able to demonstrate to the government that we should be closed. I said, none of us should want that as an outcome, even if it’s not for us, it’s who follows. And it was that conversation, not as, not as a sort of on the pedestal, it was a conversation in the bathroom, what we used to call the change rooms. We had them all around and we had this conversation about the good, the bad and the ugly, felt both ways. What did we need to change? And I said, look, there are three things we have to do. The question is how I’ve got a view, but if it’s just my view, it’s not going to work. We need to have a view. And over the next two to three weeks, we workshop with everybody different ways and means of designing an intervention that would work. And it was significant. And that was great.

[00:24:41] Jamie: And what was the final outcome here? Presumably that mine did not get shut down and improved performance.

[00:24:46] Mark: It went for another ten years. Went for another 10 years. We got another 10. Now, it’s getting towards the end of the life of the resource, but there was still at least another 10 years that we could get, and they gave it their best and we exceeded all the outcomes that we targeted, and they got another 10 years life the operation. Now, most of those guys retired. But again, think more than anything each guy retired proud of what had been achieved because they weren’t disparaged. People knew what they’d done.

[00:25:18] Jamie: Is there anything about that outcome that surprised you at the time? Were you shocked at how well it went? Were you, was that what you expected? Has it, did it change your view on managing people, managing these businesses?

[00:25:35] Mark: Um, it was, once you’re in the conversation, the changes occurred quicker than I’d anticipate. Um, and the real part of that, I think, is they had something to prove. And again, it was a bit of a, a bit of a risk telling everybody that everybody sees this as F Troop um, because you’ve got nowhere to go if, if that goes badly. But I said to them, I said, look, we’ve got nothing to lose. Thanks. I said, I know most of you personally, I know who you are, and I know that you know how to run this place better than I do, and I’m asking for your help, and let’s see if we can create a bit of a future here for who may follow. And two person, they stood up. There were a few, there’s always a cynic and yeah, but it’ll be the same. No, we’ll, we’ll do all this and they’ll still fire us in 12 months time. And, there are a few tests too, cause we changed some of the industrial practices, using contractors, doing things that they would never agree on. And once we got to that performance level, and it was about the end of the two years, they started to test. Our resolve on sticking to some of the work practice changes, because they said, we know you’re making money now. And so we had a couple of squirmishes, uh, in testing our resolve and, but we stood our ground and we worked it out together, so, yeah. It was a great experience and ultimately ended up being the reason I ended up going to Kalgoorlie because I had someone come in to audit the work we’d done on maintenance and other things. And at the end of it, he said, look, I’m going over to run, the gold mines for Alan Bond and, the new stuff that they’ve just bought. And we need some different thinking. And, he said, we’d like you to consider the role, as a general manager of the KMA Goldmine. So it was the start of the super thing, but it was the Coakleaf experience that he said, what you’ve done with the team is very different and they’re a tough old team. And he said, he said, I’ve never seen a group of guys so committed to achieving something. So, it’s funny how the things you do turn, turn out.

[00:27:59] Jamie: And you alluded to this at the beginning of this, this topic, that this is not dissimilar from what you experienced at Anglo some years later, Anglo American.

[00:28:10] Mark: Yeah, because when, when I started at Anglo, uh, look, firstly, Anglo has been a wonderful company for a long period of time.

[00:28:19] Jamie: I think it’s 107 years old. Do I have that right? Something about that? Yeah.

[00:28:23] Mark: Yeah. Centenary was, uh, 2017. And , the world had become a much more aggressive, much modernized, so you had the rise of CRA, uh, around the iron ore assets in Australia, which is Rio. And Rio came back in and took up a big position because CRA had had started to outstrip its major competitors and it, it did a lot of things very different on the organization side. Which, which I think made a real difference. BHP, was stepping out, becoming more global. Xstrata, Mick had done a wonderful job bringing Xstrata out of the Billiton, you know, the, the mix. And then BHP, Billiton came together, and Anglo got left behind. And, with that, uh, there was restructuring. Cynthia was appointed, uh, I think around 2000. 2006 2007. She started to introduce some changes. They didn’t go all that well, although she made some serious changes, particularly in safety and other areas that I thought were company changing. But in 2013, we were missing our targets. We’d fallen well behind our major competitors. And I think our market cap was about 25, 26 billion. And, and we’re a company that in my view should have been double that at least. And so when I started Anglo, what I did find is we depleted our technical teams across the board. So as, as the group tried to manage its cost structures down, it looked at costs and not value. So it was cutting. The key areas that ultimately contribute long term value and drive productivities. And so we had to reset, we had to do something very different with the assets people. So as a starting point, it needed a. A major makeover, and um, in the period 13 14, we did a lot of restructuring of the business to set it up.

[00:30:33] Jamie: So, I have some statistics here that I have taken from the internet, so we’ll see if they’re correct. Tell me, you can’t believe everything you read on the internet, so tell me if I’ve got these right. But, from your time Starting at Anglo, it says safety improved considerably, 93 percent reduction in fatalities, occupational health improved considerably, 90 percent drop in new cases, environmental incidents down 97%, production increased by 12%, productivity more than doubled, unit costs improved by 45%, EBITDA, Increased by 40%. Did those all kind of ring true to you?

[00:31:20] Mark: Yeah, the doubling of productivity and the real cost reductions were in the range 40 to 45, I guess the most important statistic for me. From April 13 to my last day, we had delivered an average 22 percent return to shareholders. So if you invested a dollar on the first day and, and looked at it on the last day, it was worth 5. That was over nine years. So, that first two or three years were tough. Well, we did, we, we went from 68 assets down to 37 assets. But the 37 assets we kept all improved by more than 40 percent. In the period in that same period. So instead of losing 45 percent of your production, because you’ve reduced your asset base, we actually increased production over that period. That’s how we doubled productivity. Cause we went from 160, 000 people to 95, 000 people producing the same amount.

[00:32:26] Jamie: So I’m just thinking about how to address this. So you, you, you come into this role, this is one of the oldest mining companies in the world, an absolute behemoth, you know, I’ve worked for major contractors, I’ve never worked for major mining companies, but I presume the bureaucracy at that point must have been, you know, Very complex. Where do you, you know, you get parachuted in as CEO, where do you even begin to start thinking about turning the ship and solving these problems? How do you even identify and prioritize the problems? Like, what is your, what is your first, you know, you know, you think of a president, right? The first hundred days of his, uh, in office, what does he do? What’s your first hundred days as CEO of Anglo American look like?

[00:33:13] Mark: We did the first hundred days. We literally did. Oh, did you? Okay. So, so nothing new. And we call, we did a 100 day review. And in mining, if I just say most companies, and I mean most companies, don’t understand the resources they have in the ground and the potential to deliver better productivity or lower operating costs. They just, they don’t, they don’t pay attention to the nature of the resource, how big it could be, and we’re going through the same process at Vale. So that’s first point. Do we understand what we’re standing on? Second thing. is, are our mining methods. And there’s, there’s almost an infinite amount of mining strategies you can apply depending on what you’re trying to achieve. And three, Are we efficient in doing what we’ve decided to do? And so I focus on those three areas and you get put a team together. We call a salt and pepper team, a few external players that have been around for many years with internal people who understand why we’ve done certain stuff. We did an asset review. And the asset review took about six months, but we had enough in that first hundred days. And I talked to every person, every, the top 150 people one on one to our conversations right across the organization. So there was enough information to say, we’ve got to do something very difficult with our resources. Our mining strategies in key areas need to be rebuilt. And our efficiencies are probably half what they need to be. And then the asset review, which finished about three or four months later, confirm exactly where those points were. And it also identified that about 45 percent of the assets were never going to really add material value. So the question was, do you sell or maybe even shut those assets and redirect the capital that’s invested in them into other parts of the portfolio where you can get a three or four times return. And so it became around, it became focused on the assets that could really make a difference, change the mining, the understanding of the resource and the mining strategy, and then introduce industrial logic like a Ford or a petroleum plant in terms of efficiencies. And so it was a three part restructuring of the business over the next couple of years. And, and that drove productivity, operating cost reductions. Also because you’re focusing on planning the way you’re doing things, you’re also getting at safety environment. You also, I think we’re also the first group to really identify the importance of sustainability and social partnerships with communities. That was the other big issue because we were in emerging markets more so than a Rio or A BHP, we had to work with our communities in a very different way than, uh, what they had available to them with the big assets. And so it was a very different type of approach.

[00:36:36] Jamie: When you’re, you know, it’s interesting you say that sort of industrial logic approach. When, when I listened to you say this, it makes me think of I read Jack Welsh’s book. I think it was winning when I was in high school. And he talks about, you know, anything that, uh, General Electric, GE, couldn’t be a number one or number two in the world in, they shut down or sold off in their portfolio. And they really prioritized a more core. Set of assets and, and corporations. And it sounds like you sort of took a similar approach that, that these mines that you didn’t, or am I misunderstanding that?

[00:37:12] Mark: So, um, yes and no. First point, understand the assets you have and the potential they have. And most companies don’t understand the best the asset can put. So I go back to my co op live experience.

[00:37:32] Jamie: Yep.

[00:37:33] Mark: I had to reverse, you reversed, we reversed engineered the business. So my challenge to the asset team is reverse engineer every one of these businesses to be in the bottom half of the cost curve. And those that can’t be, we then got to question whether they’ve got a role in the portfolio. Because if you’re not in the bottom half of the cost curve, because of the volatility of commodity prices, there are going to be times when you don’t make cash. Right. You’ll make short term decisions to protect cash and you’ll destroy the underlying ability of the asset to deliver as good as it could be. So we made some, gave them some rules of thumb in terms of the way to look at the assets. And that’s how we then said 45 percent of the assets and that only represented about 20 percent of the production. So it sounds worse than it is.

[00:38:26] Jamie: So 45 percent of the assets only represented 20 percent of the production.

[00:38:31] Mark: Correct.

[00:38:31] Jamie: And presumably that’s the most expensive production as well too.

[00:38:35] Mark: Yes. Yes. And someone said, oh, Cutifani is shrinking the business. No, Cutifani wasn’t shrinking the business. Cutifani was going to increase the production, but do it far more efficiently. So the important thing was we actually increased our production by 12%. Uh, 14 percent by 2019 actually, but we did it at a 30 percent in nominal terms, lower price. So we doubled our margins. So we doubled the money we made. So our share price, and when I started the share price was trading 13 to 17, we ended up getting up to 40, over 40 plus dividends and everything else. But the key was take a bit of Jack Welch. Take a bit of, uh, when Alcoa was doing in control and capable and running its processes very efficiently. So it took a bit of the Alcoa stuff, took a bit of the best of what I could see in the industry, but then went out and said, and we have a guy that helps us, uh, Tony, I know, Does the mining work that I, that we worked on, he was brilliant on the mining side. The guy called Mick McAleer came out of the steel industry and was very systems orientated control systems, planning, acid integrity work. He was the best I’d seen there. And a guy called Tony Filmer, who used to run the technical group at CRA before they decided they didn’t need technology, we snapped him up and he helped with Tony O’Neill and Mick transformed the way we thought about our business. Cause the other thing was we didn’t have the big Pilbara assets, iron ore. We didn’t have Kharajas, we didn’t have Bowen Basin in coal. We didn’t have these big copper assets. We had deep difficult mines in platinum. We had small iron ore in Cumba. We had some copper assets, so we had to turn those assets into world class operations, which required a whole different approach to the way we were running the business.

[00:40:36] Jamie: And, and something I’d like to note here, what, what are the years you did this, mark? When did you start it? Was it 2013? Do I have that right?

[00:40:45] Mark: 2013.

[00:40:45] Jamie: Yeah.

[00:40:46] Mark: In 2013…

[00:40:48] Jamie: So, I mean, you had a pretty shitty market behind you most of that time too. Like,

[00:40:54] Mark: Well, ’15 was the worst.

[00:40:55] Jamie: You weren’t, you weren’t hiding behind a massive bull market that could, you could hide all the, the inefficiencies in.

[00:41:02] Mark: Well, I, I, I got a, I, I we’re all human. I recently, somebody said, oh, Mark had a, what, what’d they call me? A Fairweather, CEO. And I said, well, wait a minute. In 2015, prices were their lowest. If you looked at the basket process, the lowest they’ve been in 50 years. And I said, I had to cut 70,000 jobs, show me where that qualifies as being fair weather. We had to do the most significant restructure in the industry in 50 years. To get to the outcome, somebody said to me that when we were doing that, people were actually very respectful because we took the time to explain the problems to people and we engage them. And so even though we had to do some really tough stuff and we made mistakes. People understood the problem because we’d explained it and we involved them, uh, as we did the restructuring. So ’15 was our lowest ebb, if you like, and you’re not quite sure if the industry, if it’s going to work because China, you didn’t know if China was, um, going into a recession. So at the end of ’15, we weren’t quite sure whether it was the right call. And I had to make an even deeper cut and said, look, I may have to cut even more assets To get the debt down, but in ’15, we took 15 percent out of our costs in 12 months. So in ’16, we started to come back up. De Beers had a good, uh, first quarter in 16. People saw that our net debt was actually over a billion better than we thought it would be because we cut so much in the cost. And we started to get momentum in ’16. So, uh, ’14, ’15, we’re pretty tough.

[00:42:51] Jamie: Cause you went from 160,000 people to 90,000, I think is that those numbers ring true. And so how do you communicate that across an organization, right? When you’re, you’re cutting huge swaths of people, how do you in a sort of global organization, really reliant on people to be successful? How do you maintain that? Spirit Corps and, and, and momentum while still having to jettison a lot, a lot of jobs, unfortunately.

[00:43:21] Mark: First thing is the team was key. We confronted together the need to make change and, and the team was fully engaged on the need to make change. And then as the prices drop, people knew we had a problem. So iron ore went from $120 a ton to $40 a ton, so nobody needed to tell the Kumba team. That we’re in deep trouble. And our Kumba cost was $77 a ton. And we said, guys, we’ve got to get them under $40. And so our restructuring, uh, we changed the mining strategy. Tony O’Neill worked with Norman Mbazima and Tony recommended a whole change in the way we operated the mine. So remember that comment I made about resource and the mining strategy. Tony said, we’ve got to turn this mine around 90 degrees. Now, when you say change the whole mining strategy, it takes two years to implement that change. And we went from $77 a tonne break even. To $35 a time in the space of two years. So we had to explain it. Norman had to announce significant cuts in people against that context. But when you explain it and they see the prices, they get it. And it’s a difficult conversation, but it’s an honest and open conversation where people understand the industry. And so it’s, it’s really about being open. Now I made one terrible mistake, which, you know, you, you, you think in hindsight. When we define the 37 assets that would remain, I used in a, in an off the cuff remark, I used call the word “core”, which meant those assets that weren’t in the 37 were non-core. Well, can you imagine thinking that you are now non-core you’re working in a business that’s non-core. So you sort of want to pull the words back and stuff them back into your mouth. And so I said, look, I’ve made a mistake. That’s not the right way to talk about it, but I am talking about where we will focus our capital and people need to wear it. And I said, the most important thing is, you know, in a business where you’re going, and in many cases, you we divested, so we didn’t close them. And as I said, in domestic divestments, if we decided not to put more capital in, you’re better off selling to the asset to someone who’s going to give it a crack. And so those types of conversations, I think help make it, make it more constructive. But every word in those situations, you’ve got to be very careful to make sure it’s the right messaging. And as I said, you learn a few things and that was the, the one really important mistake that I’ve taken with me. And as, as a few of the Australian wags did, I’m non-core. So it ended up being one of those conversations that we had a bit of fun with, but, um, it was really important. You’ve got to get the people thing right. And I’ve always talked about people in the business. But as I said, we either create a business where 90,000 people got jobs or there’s none. And I said, the none’s not going to happen. We’re going to do what we have to do to make sure this business survives.

[00:46:42] Jamie: You’ve said something a few minutes ago that stuck in my mind, which is that most CEOs or management teams do not understand the assets they have. I you know, in my more limited experience than you, I would say that actually that really rings true to me. What, what makes you say that? And why do you think that is? You know, why do leaders in these companies not understand the projects they have?

[00:47:11] Mark: Let’s see. Um, I make that comment of us as professionals as a broad statement on the professional side. Plus you’ve got a lot of people who are running businesses that don’t have that experience. But if your professional team doesn’t understand the full scope of the resource and the optionality you have inside the resource, then in all likelihood, you’re not going to have the right mining methods in our industry, understanding the resource. And you would know the process we go through to model these things, but even mining strategies, you’ve got an infinite number of ways to extract the resource. And people tend to go with what they know, whereas I think maybe 5 percent of the engineers in the world, mining guys, look for new ways to do things, and I tell the story in the super pit back in Kalgoorlie in 1988, I met a guy who was talking about a mining strategy for the super pit that no one had ever seen before. And therefore they all said he was a lunatic and the geo said, he’s going to dilute the ore body. And this is Tony O’Neill and the mining guy said, well, that won’t work. And I came in out of coal, and Tony took me through the mining strategy he had in his mind. He came out of the big iron ore mines in the Pilbara. So the big iron ore mines used this big gear to mine these big ore bodies. We had small, narrow vein gold ore bodies. But we have lots of them. And they’ve been mined by underground methods. So we were mining around big holes in the ground. So it’s dangerous, or high risk, two, technically difficult, and it had all these levels of complexity. And Tony’s strategy to deal with all that was quite unique. And we had one conversation, I said, he’s got it. He’s actually got the right idea. So we then spent the next six weeks building a model, a financial model and an operating model to help people understand the concept. It took us probably another six months to get the group aligned on it. And then when we executed, it’s been a great success and it’s still operating today. And it’s one of the great successes, I think, in mining, in mining history in the last 50 or 60 years. And it was, you know, two 30 year olds that said, you know, we’re going to do something really different. Tony was the guy that got it or, or was the one who proposed it. And I helped him market that whole approach to the whole organization, and we put it into financial terms. So I was able to get the accountants on board, but that is rare in the industry. And we’ve done that a number of times. And Anglo, the Anglo conversation, you know, let’s drop 45 percent of the assets and increase our production. In the first conversation, people thought we were nuts. And we said, well, wait a minute, let’s look at Kumba. Let’s look at Mogalakwena, which is the big platinum mine, which was a platinum mine that people hadn’t really conceived how good it could be. And we went through asset by asset, changing people’s understanding. So it’s experience and it’s that inquisitive, what could be different type approach. So generally we sort of follow what’s been done. We don’t question how do we do it, you know, in a very different way. And that’s what I think we’ve brought to the industry.

[00:51:01] Jamie: It’s, it’s a really interesting conversation because I, I’m just thinking about it now, how many major or mid tier miners are propped up by one or two really high quality assets and then they drag along a bunch of mid tier, or sorry, a bunch of mediocre assets that make little or no money, right? And so much of the value of the business is contained in a, in a relatively small number of the assets owned by some of these companies. I mean, I’m sure we can all think of examples, but it’s, it does seem there’s a, somewhat of an unwillingness to, uh, cut the dead weight or to, or to have that thinking.

[00:51:35] Mark: So look, the major players have got good people because one of the good things about being a major is you’ve got a balance sheet, you’ve got cash flow. And therefore good people are attracted to those types of businesses because you can see a career and I won’t name anyone, but you know, they’re in iron ore or they’re in coal or they’re in copper and, and the ability to attract the best people is one of the ways you keep ahead of the industry. But what it does also run the risk of is you sub optimize. The ore body allows you to not be as efficient as you probably should be. And, and I’ve sort of moved between, the smaller group and the top end because I find that in that mid cluster, There’s so much more opportunity and so many assets that have been sub optimized and so much more potential that, that’s been a really interesting space to work. Yes. I’ve worked with Anglo and ran, ran the, ran one of the majors. Because at that time, Anglo was the most complex Anglo and Glencore are the two most complex major businesses because of the nature of the assets and the fact they’ve gone down trading, commercial approaches, and Anglo are did a lot of work under Peter Whitcutt in creating very different commercial model, which was very successful. So the big assets in my view, risk that, uh, less than inventive, innovative approach, uh, but in the end, it catches up with you. But in Anglo, one thing I had to say about Anglo, the reason we went the innovation approach is we didn’t have the same assets, so we had to, so in a very simple way. The nature of our assets meant that our structural cost base used to increase about seven or 8 percent a year because we were going deeper, quicker with the nature of the ore body, but if you’ve got iron ore or coal, you’re not going as deep as quick. So your structural cost base doesn’t move as quick. So we needed to move twice as fast to Rio, BHP. and Vale just to keep up. And in actual fact, we outpaced them for about seven years in our cost reduction strategy. So we moved quicker. We moved from the 49th percentile cost position to the 29th percentile. So we outpaced the three big operations on cost reduction because of the innovation that we introduced and the way we reconfigured assets. So reconfiguration plus new innovation. That was the key to Anglo’s outperformance, in my view, over that, the last seven years.

[00:54:24] Jamie: Would you have any advice for the CEO of a smaller single asset or mid tier company that, you know, doesn’t have the balance sheet of an Anglo or a BHP to necessarily hire the, you know, large teams of the most experienced people, but does want to understand their assets better and optimize them? How would you approach that if you were in that position today?

[00:54:47] Mark: Yeah, I think single asset companies, uh, and by the way, that’s a fascinating place to be, and it’s interesting and, and there’s some wonderful work being done by single asset leaders. The key is geology and understanding the potential of the resource. And the earlier you can work out the potential, then the smarter you can be with your capital in getting early cash flow. And understanding that you won’t, um, I’m trying to think of the right word. You won’t, destroy value longer term. So the key in a small company is get cashflow running as quick as you can, and then use your cashflow to then increase the size and scope of the business on the basis that you can actually self fund that growth. So you need to understand the ore body and its potential. I once did an exercise where, uh, I can talk about it now, cause it’s sort of all past history when Inco. When we did the, uh, we were joining Phelps Dodge, and we’re looking at creating this big copper company in the nickel wars many years back and, and I was, uh, leading the valuation of Phelps Dodge. And I remember presenting to the board, here’s the valuation of Phelps Dodge, and here’s the Tenke asset in the DRC. And I said, I’m valuing it somewhere between five, zero and $5 billion. And I sort of looked at me and said, what I said, I’m valuing it somewhere between five and 5 billion. And they said, well, that’s not all that helpful. I said, well, let me explain. If we were to develop it and it was sitting in the backyard in Canada, It’s a $5 billion net present value business, but it’s in the DRC. So my recommendation is we go in with a much smaller footprint. We use smaller amount of capital, mine the high grade, develop a cash flow, and then incrementally. What we call bootstrap it up to its potential. So I said, if you said, what’s the value, I’d call it a billion with the potential to get a $5 billion payoff if you’re comfortable in managing the politics. And so that bootstrapping strategy is the right type of strategy for small companies to think about when they’re developing a single asset. You can’t do a Rio or a BHP or an Anglo. You’ve got to think very differently. So you’ve got to be flexible. Okay. And that’s the key. And you see a lot of that night, I always love to see Jim Rutherford. He used to be on the Anglo board. He’s he’s the chair of Centamin. He sort of understands that dichotomy and, whilst he’s a financially trained guy, he’s been around long enough to see how those approaches can be applied. He’s doing a great job at Centamin. I think. So it’s great to watch that sort of thing playout. But, but understand your own body and what your options are.

[00:58:01] Jamie: How different is it working for a diversified miner or leading a diversified miner like an Anglo that’s, you know, got projects all over the world, but it’s also got them across a variety of commodities than a company that’s, uh, you know, a single commodity company, whether it’s, you know, a Freeport with a focus on copper or an Inco, which focus at nickel at the time. How does that change your perspective of a leader in the things you need to consider, right? Because you also need to think of your weighting across different commodities and where you want exposure and, you know, to a degree you’re, you’re being asked to predict the future, right? Because, you know, it takes years, sometimes decades to build a mine and you don’t want to build it in the wrong commodity in the wrong place that no one’s going to want in 15 years from now. How do you, how do you approach that challenge versus we’re a copper miner, we mine copper and that’s what it is.

[00:58:53] Mark: So if I’m in a single commodity, so let me start there, whether it’s gold, nickel, wherever it may be, what’s my position on the cost curve? And if I’m in a single commodity, I will want to be lower in the cost curve because my exposure to a single commodity and free cash flow is different. So you’ve got to be in the bottom half of the cost curve, but I want to be closer to the, the first quartile, say bottom of the second quartile. Because I’ve got more degrees of freedom as the price. So keep your debt low and know what you’ll do and what you’ll stop when times get tough, so what’s critical and has to be done, make sure it gets done, particularly when you’re going to afford it, but get it done and then have a package of, uh, expenditures that you can defer for a period when times are tougher and understand how to. How to manage your discretionary costs through the cycle. In a diversified, you’ve got a bit more degrees of freedom. But I still think you need the discipline by each commodity to manage that cashflow with the same logic, but you’ve got a bit more scope as a diversified to allow something to continue to invest if it’s long term accretive and the rest of the portfolio is doing pretty well. So you’ve got a lot more flexibility, and you’ve got. A lot more resource to call on to deal with a particular problem in a diversifier. So, the individual logic that you want your commodity leaders to follow is no different to being single commodity, but that you give them more freedom to put longer term investments in place and hold them in place longer. I also think the diversifieds have got the ability to, look more into, you know, Fundamental innovation as a, so at an Anglo, the way we set up our cost reduction program, which was very successful. Um, and while some would argue some of the longer term stuff wasn’t as economic in the short term, but by its very nature, that’s quite deliberate. So we would have continuous improvement at the operating side. So a general manager dealing with all sorts of issues on a daily basis, we would expect to see them improve the business three to 5%, maybe 10 percent for a really good GM or an asset that’s not doing well on an annual basis. So you’re looking for continuous efficiency improvement. And that’s why your operating model is important. The second lot is the discipline hand. So you’ve got really senior mining engineer at the center saying, you know what? The best electric shovel in the world delivers 40 million tons a year. This is what literally happened at Anglo. Well, 45 million was the best electric shovels are in the, um, coal basin in the US and Peabody’s got the best one. We said, well, why haven’t we got the best assets? So at Dawson and those operations, we said we wanted to be at 50 million tons. So you’re driving best practice through that knowledge of the industry and then they’re helping the guys implement change. And the third level, long term innovation. Not long term innovation from mining, but long term innovation from other industries. Radical ideas that will change the industry. So we had our cost improvement of productivity and programs in three levels and major diversifieds have got that capacity. And for Anglo, that was a key. I think differentiator, particularly the middle package and Donovan and the guys throwing across the fence new technologies for the guys to think about to improve our operations and, the bigger you are, the more, more latitude you’ve got in that area.

[01:03:03] Jamie: And where did you harvest ideas from? Were you looking to energy, to, you know, manufacturing? Where, where did you find the best or some of the most relevant ideas coming out of?

[01:03:13] Mark: So the operating model and the asset integrity work, we got out of the steel industry through Mick McAleer. So our operating model, where our experiences was, we could improve the efficiency of an operating site by 30 to 50%. So it was the discipline of planning and scheduling work. So if you looked across the mining industry, only about 30 percent of the work that is carried out is properly planned. And the difference between properly planned work.

[01:03:40] Jamie: That’s shocking. That’s a shocking.

[01:03:42] Mark: It is shocking, but it’s the reality. And that’s up to many audits, uh, before we introduced the operating model.

It’s not planned at the right level to do that. So it’s that logic about planning and executing work. The, the, uh, as I said, the, Uh, energy sector, uh, energy efficiency. Energy represents 20 to 30 percent of that cost. So how do you improve the efficiency of equipment? And in our eco two man program. We cut our energy consumption by about 25%. And with new technologies like course particle recovery, we can reduce our energy consumption by around 20 to 30%. This is what we’re looking at at Vale. We, we reduce our water consumption by 50 percent and we reduce, and we improve our operating throughputs by around 20%. So there are technologies that we get from processing, energy sector, uh, water in terms of understanding how to recover more water so that our water consumption. So all those industries we do what we call open forums. We said, okay, we want to reduce our water consumption by 50 percent. So we’d have all these people brought in for three days working the problem. The one criteria was we weren’t allowed to have more than 30 percent of the people in those four from external organizations that came from mining. We wanted them to be excellent. And the ideas that they brought to the table helped change how we looked at the problems in our industry.

[01:05:20] Jamie: Interesting. And, and when you’re leading one of these diversified miners, how do you, how do you make decisions on how you want to grow those businesses? Right? So at one point you’ve optimized your current assets. Things are going well, you’ve increased, you know, production, you’ve increased profits. How do you go about thinking about growing these businesses? Are you just looking for, okay, these are, you know, the best assets we can find out there that we can get the most out of agnostic of commodity or do you take a view on copper or uranium or what have you and you say okay we need to find exposure to that commodity how do how does that work

[01:06:05] Mark: i think the way We thought about it was what markets do you think will grow? And I don’t know who coined it, but we use the term future facing commodities. So we could say the demand for copper being key to the energy transition. So copper, nickel, lithium. But when we looked at, you know, those three commodities, we sort of said, well, copper, we’ve got a starting point, but we think development of Quellaveco, that’s a great place because copper’s in broad demand for a number of applications. So we thought that was a good bet. And that’s turned out to be a good bet. Uh, nickel. A little bit tougher because Indonesia is such a big player. They’re going to dominate supply maybe for five years, but long term nickels are the place to be. But you’re probably going to have to be patient to about 2028-29, where you’re really going to start to see increasing prices, but it’s a good place to be, and that’s why the Vale position was interesting for me. Lithium, right place to be from a demand point of view. But the world’s full of lithium. There’s lots of lithium everywhere. And so, thinking about, okay, is that a good place to be now? Or am I better off letting people develop lots of stuff? People are going to lose money. And at some point when the demand is starting to look like it’s going to run ahead of the ability of the industry to supply, there will be some assets you can pick up that will do pretty well. So your strategy in those areas is different depending on your view on demand and supply dynamics.

[01:07:53] Jamie: You’re the, the chair of a Vale Base Metals today. Obviously you led Anglo for a long time, Anglo American. What in your mind? What are the things going on in the world today that are driving decision making on where you want to be investing? Or, and you can speak for Vale, or you can speak generally across the industry, where these sort of major miners are looking to deploy capital today. What are the, what are the factors that are, they see as an opportunity and perhaps as a risk that they’re concerned about or trying to avoid?

[01:08:28] Mark: So if you’ve got a great iron ore asset, even at $70 a ton, whatever the number may be, it’s still a good place to be, but you’re going to have to be tight on your costs and your ability to throw lots of capital at those businesses becoming a lot tougher because you’ve got Guinea and other areas that will, will impact the supply side, but it’s still a good place to be. The world’s going to need steel. In fact, the most important metal for the energy transition is steel.

[01:09:02] Jamie: Yeah.

[01:09:02] Mark: Cause of the infrastructure. So, so there’s a big tick there. Copper, broad demand base, even if you see some substitution, if you’ve got a good copper deposit, you’re in a good place to be, um, again, It’s thinking about where you can leverage the best margins and returns. And so your capital allocation decisions are really important. And, and sometimes, you know, miners make decisions that people are critical of because they say, well, wait a minute, you’ve, I’ll give you a good example where we criticized for Woodsmith, the investment in Woodsmith, which is the Anglo polyhalide deposit. And, in us talking about that. In the end, you don’t know exactly when the market will be there, but it’s a unique product. You can mine it, and it doesn’t have to go through a lot of processing. Carbon footprint is 85 percent below other competitors, and it’s a multi salt product. Which is quite unique. Now it’s going to take time. So the question becomes, how do you put your foot on something like that and nurture it until it times, until it’s time comes? And so I still think it’s a great asset. The question is when? And that’s the, that’s a big challenge for miners because you know, you, you, you’re thinking about short term and yeah, where does a major investment, if you look at the money that BHP’s put into it’s phosphate deposits. So it’s, it’s deposits in Canada. It’s put a lot of money in there and it’s taken a long time, but in the end, that will be a, uh, a set of assets that will pay off long term. So how do you get that balance right? And you know, you’re going to get it. You’re going to, you know, as a lady, you’re going to cop some flack for somebody that thinks about the dividend in the next quarter. But if you’re going to create one of these houses. That builds off the critical mass that’s been established, then you’ve got to make some of those decisions, but then how you manage it through the process is actually,

[01:11:20] Jamie: It’s, it’s a really interesting time, right? Because we’ve all, I feel like the mining industry, I mean, I’ll, I’ll espouse my personal theory here and you can tell me where I’m wrong. So I feel like the mining industry is in a bit of identity crisis or a state of crisis right now. We see. The junior mid tier industry is extremely starved for capital right now. The exploration companies are dying on the vine right now. There’s no money that is looking to go into them, certainly in Canada, to a lesser degree in Australia. On the other hand, we constantly hear espoused, uh, you know, the energy transition, urbanization, this massive coming demand driver for metals. And, you know, we’ve, I’ve heard the term. You know, we need to mine more copper over the next, whatever it is, 25 years. And we have an all of human history today that, that comes down the pike a lot. And yet we’ve barely seen copper price move in any major way over the last several years. And we, you know, we’re seeing gold price hit all time highs, but gold miners just perform marginally. And so there’s a lot of conflicting signals right now. And I also, and I’m going to put a little tangent here. I also don’t see there are a tremendous amount of major discoveries being made or, or new mines being found. So how does the industry address this coming demand wave in theory, which has, you know, been just around the corner for the last decade or so versus the reality of a very complicated market right now. Is it just the six? Is it? Is it M&A right now within the industry and a consolidation? I mean, we saw BHP take a run at Anglo earlier this year as a potential acquisition. Are we going to see a consolidation of the major miners? Are we going to see someone start writing checks into exploration again to try to find these next tier one deposits? How do you, I realize I’m asking an incredibly complex question, but like, how do you envision this playing out? And I have some pet theories, but I’d love to hear yours.

[01:13:32] Mark: First thing, you know, as leaders in the industry, we have to go look in the mirror and admit what a lousy job we’ve done promoting our role in society. And people know I’ve been on, I’ve been harping on this for 20 years. And, um, some people say, well, you’re involved in. You’re doing too much of it. And I said, well, yeah, we have to do it. Everybody has to do their bit. Um, that may not doing it isn’t an excuse or me doing it because no one else is doing it. Yeah, we got to change the dialogue. We aren’t helping people understand how important we are today. When somebody, I say, look, I’m not, and I said, well, what do you do? Like, I actually say now I work for the industry that has the most significant, significantly positive environmental footprint on the face of the planet. Can you guess what industry I’m involved in? No one has guessed it yet that it’s mining and it’s not the obvious answer and, uh, the last time I said that they said, well, how do you get that to be net positive? And I said, well, if you just think about agriculture and without fertilizers and mechanized gear, which all come from mining products, instead of 40 percent of the planet, we’d make 50 to 60 percent of the planet to feed 8 billion people. We make agriculture or allow agriculture to be done in a much smaller footprint. So that’s a human footprint. Urban environments. If I look out your back window, I see all these high rise buildings. And infrastructure is all being concentrated. So the populations are concentrated. So our urban footprint is 15%, not 30%. Without mining, we couldn’t do it. So when I look at, we take up 0. 3 percent of the Earth’s surface. 0. 3%. And we say we reduce the human footprint by 30%. We are the key and nobody knows. And when I talk about mining products and what they’re useful, which is everything, because you don’t create matter. We still, whilst we still theoretically understand how we might do it with energy. It’s not something we do every day. So mining is relevant to society is not very well explained as a consequence from discovery to development, it now takes us 20 years where it used to take six or seven years. So we’ve got to help people understand how important mining is and so that the conversations on access to land. Have to be on the understanding that we need mining to support 8 billion people on the planet. Now, the question is, and I’m not suggesting unfettered access. But turning 20 years back into six or seven years is the only way we’re going to be able to deal with the energy transition. We’re the only way we’re going to be able to deal with a lack of water to support the globe and everything everybody wants to do. And a whole range of other things are not possible without mining. So the question is. Mining plus circular economy. So it’s not simply about money. It’s about how money can actually help create a circular economy. Cause many of the products that are used in buildings, we’ve got processes and technologies that can actually allow those technologies or those materials to be reused. So we’re the key to the future as well. And I think we’ve got to think differently and tell our story differently.

[01:17:18] Jamie: What do you think is the catalyst to make people or to enable people to kind of wake up and sort of appreciating the impact of mining? I mean, it’s, I agree with you that the industry needs to frame and champion this better, but certainly there’s a a lot of people that I think would refuse to acknowledge that based on somewhat ideological environmental positions. And what I often fear is that the only path to people acknowledging the importance of mining and to a similar degree, energy and fossil fuels is some sort of catastrophic failure of the system, right? Where there isn’t enough copper or the lights don’t turn on one day or there’s food shortages because, you know, something like 40 percent of people are fed off synthetic fertilizers or some version of that. That’s what I’m somewhat concerned about.

[01:18:10] Mark: We’re in that world now. We are in that world now, whether we like it or not. Whether it’s climate change, and I’m not going to debate, you know, the body of scientific evidence supports it. Um, and it’s not all man made, I know that. But we’re contributing to it. And we’re contributing materially to the problem and we can make a difference. So climate change, water will be, will be rapidly following climate changes, another, uh, environmental catastrophe and might be food. Um, you know, I, I’m involved with the power of nutrition as people know, and those issues are coming at us at a rate of knots and helping people understand how we find solutions and how we improve the speed to those solutions requires us as leaders to do a better job communicating to not the, well, it must be the public, but to get to key stakeholders. Sure. When somebody said, we did stuff at the Vatican, trying to engage with a broad range of, religious groups, not simply Catholic, but Catholics, the full Christian groupings, Jewish, Muslim, Hindu. And we said that explaining how important mining was to the world was something people didn’t understand. And in fact, the indigenous groups got it better than we got it in the cities because they used the earth in different ways. The Greeks understood it 2,000 years ago. So it’s, it’s getting the key players, the multilaterals, the United Nations. Let’s talk to Mr. Gutierrez and explain why mining is so important to his energy transition imperative. We need to engage those groups much more effectively. Rohitesh Dhawan, the ICMM has been a great champion for these conversations in the last three or four years, but he needs every one of the leaders in that group to talk more than he does. And to be champions, and they’re not, and we all need to be champions of the debate, and get those conversations engaged. And the one thing, and I’ve used this many times, when we got to the Anglican Church, And the Archbishop of Canterbury was involved in the work we did with the church groups. After five years, he came out with a press statement and said, Look, we’ve, we’ve looked at the Bible for the last five years. We can’t find any, any passage that argues against mining. Therefore, from our point of view, we can support mining as long as it’s done responsibly. Now, people say, oh, well, that’s a bit, that’s a bit of a giggle. I said, no, it’s not. I said, when you, and Christine Lagarde asked me, and she was at the Vatican on an ethical business conference as I was there, and she said, why did you start this mining stuff with the Vatican? I said, Christine, it’s 1. 6 billion people, a bit bigger than China. If I can get the church talking about how important mining is, and at least have local communities engage with our industry and be supportive if they do things properly, that’s a game changer for literally everyone. It changes the world. And I said, so it’s not a bad place to start, but we’ve also got to do the multilaterals. We’ve got to work with governments. We’ve got to work with all the key players that make those decisions. And we have to explain to communities why it’s so important maybe to develop this part of the town to actually support the rest of the, the countryside, the support to be successful. And so we have to do a much better job on the ground with our communities. Cause in the end, if you can get your local community relationships, right, you’ll be successful as a miner. So

[01:22:05] Jamie: Mhmm.

[01:22:06] Mark: To go from here to here and be able to cover all of those conversations. And we’re not good at it as miners.

[01:22:14] Jamie: Just thinking about what you’re saying and how, how do you envision sort of key stakeholder relationships changing in the mining industry over the coming years? Let me frame where that question’s coming from, in addition to what you’re saying. Because I think it’s a very interesting element, sort of bringing the Catholic Church or the Anglican Church on board and thinking about the constituencies that they influence and educate. But I look at, you know, we have a war going on in Europe right now. We have a war in the Middle East right now. In Canada, we have the China, we have the Canadian government blocking Chinese acquisitions of assets that are in South America, uh, but owned by Canadian companies. So the whole political landscape that mining operates in is, is changing pretty drastically, I would say over the last couple of years. Five or six years, right? We’re going from a very open border, uh, world to a much more nationalistic world, it appears to me. And that has so many implications for supply chains and whatnot. How do you envision, you know, you’re working for Vale obviously, but the whole industry addressing these challenges and sort of predicting what’s coming down the pipe. Is it. Is it closer relationships with certain governments? Is it? I don’t know. I don’t have an answer. But how do you start thinking about these problems and preparing for what might be a very different future?

[01:23:48] Mark: Well, one thing that, when Brexit was occurring, I was asked the question, what do you think of Brexit? And I said, look, I’m against anything that puts a barrier in terms of trade between nations. Today, whether we understand it or not, health of our global citizens is better than it’s ever been life expectancy. And we’ve got all sorts of issues across the block. And we could all do a lot better in helping those that, that are struggling. But trade is the key and comparative advantage. Anything that constrains trade, wars, they’re all difficult and will create, pockets of poverty that, that, we can see already emerging. Immigration, mobilization of people moving to other areas, wars, all those sorts of things are all issues. That work against trade, which is the key to lifting everybody out of poverty and, and, and, and improving everyone’s life.

And we’ve all got a responsibility in one way, shape, or another, and that’s a personal view. And it is a very personal view to try and make a difference. And, I think that, Our ability, um, critical minerals is a good example and critical minerals is an opportunity for the mining industry to talk about what it does and how it makes a difference. It’s also key where it can become an opportunity for cooperation not competition. Now there will be competition and there’s a obvious debate around the Chinese and domination in rare earths. Thank you. There’s the US repositioning itself in Africa, uh, looking to access critical minerals. Every country’s in the same place. These minerals are now strategic. And what I’ve said is it’s okay to be competitive, but let’s not be destructive in stopping each other from doing things. Let’s be competitive and understand how we can be constructive and not close off options, which then means people are pushed towards. You know, instead of trading, we’re firing bullets.

[01:26:02] Jamie: Yeah.

[01:26:02] Mark: So that conversation about, resources and access to resources, I think is critical. And we’re in an industry where, I’d like to see trade unfettered, almost unfettered. It has to be. Uh, we have to protect human rights and, and, and, uh, value chains being appropriately managed, but, uh, trade’s the key, and that’s my greatest fear, and I think the stakeholders, as you asked, what’s the stakeholder question, that’s why the multilaterals, uh, Faith based organizations can be more powerful than almost any because when I, when I look at faith based organizations, I don’t see religion. I see values, I see culture, and being respectful of people’s values and beliefs means that we can dialogue and find common ground. And when you talk it to a theologian, and I’m not religious, it’s just an observation on values and beliefs, that if we can at least get those dialogues running across borders. Also through the multilaterals and through other institutions and organizations, even organized labor and other groups that are concerned with human rights. It changes the nature of the dialogue, and I understand the politics, and I’m not a, I’m not a right wing loony or a left wing loony, I’m around the center depending on the circumstances, but I believe that the dialogue that sits across politics is absolutely key to maintain balance in the way we relate to each other and talk to each other, and again, it might be idealistic, but we’ve got to get out there as leaders and you and try and talk a sensible conversation as opposed to a polarizing political conversation. I think that’s clear to them.

[01:28:01] Jamie: Yeah. Yeah. It’s interesting. And do you think that the Western miners and the Western mining investment infrastructure, shall we say, is going to be able to, I mean, I don’t think it, I don’t think it has been as competitive as it once was against a Chinese investment who have really secured many of the assets globally, you know, these sort of state back entities, some of the sovereign wealth funds, obviously pouring a tremendous amount of money into into this industry, you know, I look at these, these sort of state players and I see, you know, they’re locking down assets with less concern about those assets being profitable and more concerned about them simply being feedstock into the other industries that they’re building. And are the, are the Western miners going to be able to remain competitive against that? You know, when an Anglo or a Vale needs to be a profitable company under its own right, can they compete against the Chinese, uh, state backed entity that just needs the iron ore, or a copper or lithium or what have you.

[01:29:11] Mark: First thing, um, I’m a, an absolute believer in the power of innovation and, and reward for innovation. So I’m open market. I’m an entrepreneur. I’m, I, I want to see innovation. I want to encourage innovation in every way we can. I do see problems where governments, um, overly interfere, they always influence, but where they interfere and create market disconnects that don’t allow the markets to work reasonably efficiently. And by the way, all markets need regulation and appropriate management on the basis of fairness across society because if you get that wrong, then you’ve got all sorts of other issues. So there’s a balance. What I’ve said in my dialogue with American leaders who are sort of saying, well, we’ve got to get critical minerals and we’re not going to take it from them. We’re not going to take it from them. We’re going to take it from these guys. I think. Their concern is that they can’t get certain materials, therefore they’re going to have to lock away supply. That is an entirely logical and appropriate response to, let’s say, the Chinese dominating certain markets. But I think there’s a different dialogue, and it’s a bit like the old song, The Russians love their children too. There’s a conversation. That the US and China have, I would love to see where they work out. Let’s, let’s find a compromise here, and I can only hope that in the US and in China, there’s a willingness to dialogue because the alternatives are unpalatable, and in some parts of the world, we’re seeing the alternatives play out now. And we want to see that come back. We need dialogue. So, it’s what is it jaw, jaw not war, war. And I think those sorts of issues are becoming more and more important in the world today. And in the end, we are so reliant on the leadership of China, the US and other key players that, in my view, as business leaders, if we can provide, or if we can model the behavior we would like to see, Then at least it shows that it can be done, that companies can be profitable as Anglo was the most profitable company over that period that we were involved in with the innovation and, and, and looking at how we did things differently. There are things that we can do to help each other. By the way, I would never be as arrogant to suggest that we were the example. I’m saying Microsoft, those technology companies have been so successful. What can we learn on the positive side? And at the end of the day, why wouldn’t you encourage other countries to have successful businesses? But there are a set of rules that we do need to try and align on as leaders. And I think we’ve lost that dialogue to some degree. And we need it. And as miners, because we’re across all jurisdictions, we’ve got a better dialogue amongst our industry leaders. And I think politicians have got on a country by country basis. It would be good if we could help maybe bring some of those conversations together.

[01:32:45] Jamie: It’s true. Mining really does give you a unique viewpoint of so many places in the world that the average, the average business leader doesn’t get either. Do you think, you know, you mentioned, you know, the Microsofts or whomever these sort of big, hyper successful tech companies. Do you think there’s a world where. They start to think, okay, maybe we need to start thinking about locking down our own supply chains. Maybe we’d need to be buying the tier one nickel mines or copper mines or or what have you. We need to build chips. We I mean, because if you think about throughout my career, I think probably most of your career. The mining industry has kind of become more decentralized, right? There’s been more companies. There’s been more breakup, whereas in previous, yeah, but in previous generations, you had mines owned by General Electric, by major energy companies. You had mines as components of other companies. And I wonder if we’re entering a consolidation phase where, you know, the only one who has cheap enough capital to go really be competitive and buying these things are the Teslas or the Microsoft or the Apples of the world that can go out and compete.

[01:33:52] Mark: It’s happening now. It’s happening now. Um, I, I had a conversation with Jeff Beamell in 2011.

[01:33:59] Jamie: CEO of General Electric.

[01:34:01] Mark: Yeah. We built a processing plant, a water processing plant in South Africa, and he was supplying some of the technology. And he asked me the question, he said, if, in my conversation at General Electric. What should I talk to my team about in terms of threats in respect of minerals? And I said, I said, in 10 to 20 years time, your biggest issue will be that you won’t be able to get the materials you need to make the products you produce. And he said, what do you mean by that? And I said, well, when I used my seven years, it used to take seven years, at that stage it used to take 15 years, now it’s 20 years. So I said, we just do the maths and the curves and yes, you’ll improve your efficiencies, but you’re going to run out of key materials. Now I call them special materials or materials you need to make your product. That world is now, so auto manufacturers and a whole range of other players who need very specific technologies and materials are locking their supply away as we speak. It’s happening now. Countries are saying, you know what, we’re going to have to reposition in Africa, and I won’t say who, but they’re all looking at how do they take a position in Africa, get access to copper, nickel, rare earths, a whole range of, it’s happening now. So it’s not a, this is not, 20 or 30 years away, this is in the world we’re in today.

[01:35:25] Jamie: Okay. You know, Mark, we, we’ve been at this for about an hour and a half now. This is one of my longer podcasts and I literally have pages of questions I could keep going through, but I want to, you know, start wrapping things up and be respectful of your time. Um, Is there anything happening in the mine industry right now that you’re either very excited about or maybe concerned about that people are not aware of that people that should be on people’s radar that isn’t.

[01:35:49] Mark: So I’m always excited about our industry because I think we could do so much better. I think we do so many things so well and I think Rohetish and the guys at the ICMM have been doing some really good work and really messaging quite well. I think it’s important as leaders we amplify that message. So I don’t think we’re doing our job in supporting enough, that’s first point. Second point, I think our own self awareness is increasing quite rapidly, particularly through critical minerals and trying to work out how we improve our messaging because critical minerals is an opportunity in many ways for us to talk about the industry. So how do we do that in a constructive way? So I think I’m excited that the messaging that we were driving 15 years ago, and was really difficult, is becoming easier because of critical minerals. The trouble is, the reason critical minerals are critical is because we’ve got climate change, we’ve got water, we’ve got these, so those issues worry me. And I think that we can do so much more to support those. And I think that the message is getting out that we could be a lot more assertive, a lot more vocal, a lot more assertive, and a lot more constructive in helping people understand how we can do things without, uh, destroying the planet. In fact, it’s the opposite of how we help preserve and create a more sustainable planet. So I think the understanding of those issues, the technologies that are available for us to improve the way we do our work. The improved safety performance are all things that, that I think, um, are going in the right direction, but need to go quicker. So, I’m excited about those sorts of things, those opportunities, and I’m excited about what I see in young people. I remember as an 18 year old, we talked about it earlier, you know, Wollongong, surf, girlfriend, earning my way through, you know, work and, or paying my way through university. They were the big issues at, at that time. It, it wasn’t about saving the planet or making a difference with the development of the internet, the awareness of young people in terms of the fragility of the planet.

[01:38:06] Jamie: Mm-hmm. ,

[01:38:07] Mark: the importance of making a difference. We’ve got a young generation that I think will change, as they should, the nature of the planet, and the dialogues that are possible with their awareness and their understanding of how fragile things are, I think is a great hope for the future, and so I’m ever the optimist, I’ve got seven kids and eight grandkids and anything I can do to help them have a different set of conversations and be leaders in a different, in, in how we have different conversations across the globe is, is my great hope for the future.

[01:38:44] Jamie: Okay. Thank you. All right. So I’ve got a couple of rapid fire questions before we close it off. There’s supposed to be, we’ll see how they go. We’ll see how we do. So number one, if you could buy, so all your money, all your wealth stripped away from you, you’ve got 10 million. You can buy a royalty or stream on one commodity. What do you do? What do you buy it on?

[01:39:11] Mark: Copper.

[01:39:11] Jamie: Copper. Okay. If you were 30 years old, starting a company today that was a service business to the mining industry, what would you be focused on?

[01:39:23] Mark: Resource and mining strategies.

[01:39:25] Jamie: Resource and mining strategies.

[01:39:26] Mark: We’re absolutely short that role and the last great thinker in my view in the industry was Oscar Stefan. We miss him terribly.

[01:39:37] Jamie: And this is effectively resource estimates and then wrapping the economics around that building up my plan.

[01:39:43] Mark: It’s such a big issue to the industry and it’s a skill we’re losing.

[01:39:47] Jamie: If you could have dinner with any historical figure, who would it be?

[01:39:55] Mark: Now, I’ve been asked this question, and I gave a, uh, uh, there’s so many different ways you could come at this one. Um, I guess you’d have to say Jesus Christ, um, Genghis Khan, Adolf Hitler. One, maybe you could change the course of history. Or two, you could learn something. Or three. You can have a very different perspective on the world. There’s a list there of people that have made such a difference, good and bad.

[01:40:27] Jamie: Yeah. So what would you have to eat? You’d eat olives, fermented mare’s milk, and schnitzel, I guess. That’d be quite the dinner.

[01:40:36] Mark: If it were certain characters, you’d probably suggest Arsenic, and me going down with him might be good for the world, but with others, you know, There might be pearls of wisdom, but, um, somebody that’s made a difference, and by the way, it could be Mother Teresa, uh, and listening to their perspectives, good or bad, is always a learning experience and instructive, good and bad. Um, there’s such a long list of people that I could, Humphrey Bogart, coolest guy that ever lived.

[01:41:12] Jamie: Okay. Last question. Any books you’d recommend? You mentioned you had a mentor that, you know, gave you a book every three months. Anything that really stood out? Anything you’ve recommended consistently to people you are working with? Or…

[01:41:23] Mark: Yeah, Viclav Smal. Viclav Smal. The, The Way the World Really Works.

[01:41:29] Jamie: Yeah, I have read that book. It’s great. Yeah.

[01:41:32] Mark: Yeah. It’s an eye opener for people and it’s one of the things that I think should be on the course for all kids. Uh, because I think it would change their perspective. And as I say, if you can get the kids before they’re 11 years old, you can actually have an influence on what career decisions they make, which I learned last week.

[01:41:49] Jamie: Okay. Mark, thank you very much for your time today. Any final words, final thoughts, anything people should be thinking about and you want to leave our listeners with

[01:41:58] Mark: Jamie, thank you for the opportunity. Thank you for what you do in talking about our industry and the things we do. Uh, it’s very important for us to get our message out. We don’t do it terribly well. And so we appreciate gentlemen like yourself trying to get the message out and help people understand what we do. And thanks for the opportunity.

[01:42:19] Jamie: Very much appreciated. Very happy to have you on here. You’re the first CEO of a, of a really major international mining company we’ve had, and it’s something I’ve wanted to do for a long time. So thank you for taking the time today.

[01:42:31] Mark: Thanks Jamie. And all the best.

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Jamie Keech

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Nick D'Onofrio

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John Harpole, Mercator Energy — The Future of US Natural Gas (#61)

John Harpole, Mercator Energy — The Future of US Natural Gas (#61)

“From 2004 to 2023, global spending on wind and solar totaled $4.7 trillion. And yet, during that same time period, hydrocarbon use increased 3.2 times faster. […] anything that we’re doing is more than offset by the behavior of China and India and the other countries that are starving. […] There are 1.2 billion people — 20 percent of the world’s population — that are still without access to electricity. Almost all of those people live in developing countries. […] They want a quality of life that we’ve achieved over the last 100 years that extended our lifespan by 40 years in that time. So I just, I don’t think there’s really an energy transition going on.” 
— John Harpole

John Harpole has spent over 40 years moving billions of cubic feet of natural gas across America.

He is the Founder and President of Mercator Energy, a company that brokers natural gas for producers and end-users in the western United States.

Today, Mercator manages over a billion cubic feet of gas per day, representing about 1% of US natural gas production.

In an industry known for its volatility, where fortunes are made and lost in a day, John has unprecedented access to information.

In this episode, John and I discuss:

  • Regional differences in natural gas prices and the factors driving demand in the U.S. and internationally.

  • How regulatory barriers in states like California and New York could lead to disastrous energy shortages and soaring prices.

  • The “myth” of the energy transition and why fossil fuels remain essential for energy and food security.

  • The untapped potential of the Permian Basin and how investors can find opportunities amidst an overabundance of cheap natural gas.

  • The impending surge in natural gas exports from the U.S. and the investment opportunities it presents.

  • Where John would invest his own money in the natural gas industry today.

Please enjoy!

Listen to the episode on Apple PodcastsSpotifyYouTubeSoundCloud, or on your favourite podcast platform.

Enjoyed this episode? Sign up to our free newsletter to access to the latest podcasts, expert insights, and exclusive reports on our recent deals.

The transcript of this episode is included below. Note: Transcripts may contain a few typos.

Transcript:

[00:00:00] Jamie: All right, ladies and gentlemen, welcome to another episode of the Resource Insider Podcast. Now, normally if you’re a long term listener of this episode, you are listening to me talk to leaders, investors, entrepreneurs in the mining and metal sector. That is my primary area of expertise and where I’ve spent most of my career. But I have found over the last several years, I’ve been personally investing and bringing opportunities to our members at Resource Insider more and more in the energy industry, oil and gas, within primarily the United States and North America. And I will say that has been an incredibly interesting and huge learning curve. And I’ve relied on a lot of great analysts and materials to get up that curve. But more importantly, I’ve really made a mission to get out and meet and spend time with and learn from people who have had long careers operating in this space and can provide sort of the guidance we need before, before investing our own money. And so today in this podcast, we’re going to be talking to one of those people, a gentleman named John Harpole, who is the president and the founder of a natural gas brokerage business called Mercator Energy. And I’m gonna let him tell you what that actually means. But John has been phenomenal at educating me on nat gas in the United States, how it moves around, how it’s priced, how it’s purchased a thousand other things. And so part of this conversation today is to bring that information to you, viewers, but also for me to have another chance to sit down and ask John a lot more questions because I always get a lot out of it. So John, thank you very much for, for taking some time out of your day.

[00:01:55] John: Glad to be with you, Jamie. Thank you for having me.

[00:01:58] Jamie: So I think right now we are catching you in Littleton, Colorado. Is that correct? Where you guys are based?

[00:02:04] John: Yes, that’s correct. Native to Denver.

[00:02:08] Jamie: Native to Denver. I guess that’s becoming rarer and rarer with the influx of Californians and Texans that you guys are getting on a weekly basis now.

[00:02:17] John: I don’t want to overstate it, but I think there are only about five of us left.

[00:02:22] Jamie: Are they all related to you, would you say?

[00:02:23] John: They are, yes.

[00:02:24] Jamie: Okay. So getting starting off, can you explain people what Mercator Energy is? I think This is the question I first had for you when we met, which was at the beginning of this year at NAPE for those listening, a big nat gas, or not gas, a big energy conference in Houston held every year permining. It’s very similar to the PDAC for those familiar with that. I did not know what a nat gas broker is. So maybe if you could give people a sort of a high level overview of what that is, what you do there and how you got into that. I think that would help set the tone for this conversation.

[00:02:59] John: So Jamie, a little background that kind of helps describe what a broker does, but I’ve, I’ve been in the, in the natural gas business since 1980. I graduated from the university of Colorado Boulder, but before I graduated, I worked for an oil and gas company that was owned by two Texans, Bunker and Herbert Hunt. After I graduated, I worked for General Electric, an oil and gas production company that was based in Denver. And I really started there in 1981 as an oil and gas landman negotiating contracts to go out and, you know, essentially be allowed to drill for oil and gas. In 1986, Jack GE, communicated to our president LAD Petroleum, GE’s LAD Petroleum, John Moore, and said, Look, I want to buy natural gas from my producer company, from my GE facilities. And that possibility had just been opened up because the transportation of natural gas had been deregulated. So, overnight, I was in charge of 65 GE plants in the US, most of those east of the Mississippi, in fact, probably 58 of those east of the Mississippi, and showing those General Electric industrial facilities how to buy natural gas. From their sister company in Denver, rather than from their utility.

[00:04:20] Jamie: Right. So this was internal sales for GE.

[00:04:24] John: It was, but we were still really competing against other potential suppliers, but I really started jumped into that in 1987, really. It was deregulated that interstate transportation of natural gas was deregulated in 1985 under a FERC, Federal Energy Regulatory Commission order, and so we could, in fact, then go out and own capacity in a gas pipeline, something that only interstate pipelines own capacity and prior to that. So now my company is essentially, there are five of us, and we’re essentially, I think the easiest way to describe it is a travel agent for a natural gas molecule.

[00:05:01] Jamie: Right.

[00:05:01] John: Ensure that that natural gas molecule is sold for our producer customer at the highest price possible and we track it to the sale and then we also help industrial facilities like ammonia plants buy natural gas and we try to show them the best path on an interstate or intrastate pipeline and the least expensive, most economic, most reliable path to source natural gas. So there’s, to give an idea of scale, we’ll talk a lot about scale today. The US produces about a hundred billion cubic feet of gas per day. A hundred BCF of gas per day. We manage a little over a BCF of gas just amongst the five of us.

[00:05:44] Jamie: So you’re managing about 1 percent of the movement of all the US is daily gas production.

[00:05:50] John: And you got to recognize a lot of people can claim that because it’s retraded as it moves downstream from the production wellhead. But yeah, we manage a BCF of gas per day.

[00:06:00] Jamie: So let’s start with like Nat gas for idiots here. And, and I might, I might have to include myself in that, in that category. So let’s start from the very beginning. So Nat gas is produced in a well, whether that’s a conventional well or a fracked sort of a fracked well. Doesn’t really matter. Comes out of a well. Can you walk us through kind of what happens next? And like, what’s the chain of things that have to occur before, you know, you’re turning on your stove in your kitchen and, and, and cooking some eggs with natural gas?

[00:06:31] John: So natural gas really never comes out of the ground and the quality that we need to use it at our home. Okay, so you may have wet gas, and when you say wet gas, what do you mean? Well, there may be, have so many natural gas liquids embedded within that molecule of gas, let’s say, that’s, you know, moving through a pipeline that if, if you put it into a room that was 10 by 10 by 10 A room at 10 by 10 by 10 is about a thousand cubic feet of natural gas can fit in a room 10 by 10 by 10. Well, some gas is produced where it’s wet, where there would be a, you’d be standing in a puddle of three inches of natural gas liquids. So essentially what we’ve got to do in order to get it into interstate pipeline quality spec, you’ve got to make sure that gas is not wet. Interstate pipelines don’t want wet gas because when it gets cold, it’ll freeze. You’ll have ice form inside the pipeline and you’ll clog up the pipeline. So we’ve got to prepare or condition or process. That wellhead natural gas in order to get it to the quality spec the interstate pipelines require.

[00:07:40] Jamie: Let me ask a technical question here. So does the, does the natural gas liquid, so NGLs, I think people refer to them as, do they get separated out and go somewhere else? Or do they get something, do they get processed in a manner which turns them into a gas? Or, or some combination?

[00:07:56] John: Okay. I’m actually working on an expert witness case for an attorney that’s a friend of mine right now and, and, and let’s just say in eastern Utah, the interstate pipeline recognized that a lot of the small producers couldn’t afford to strip that liquid out of the gas themselves. So that interstate pipeline wrote a tariff, the rules and regulations and said, okay, producer, I know you can’t afford to do it. You don’t have the scale to go out and do it. And build a billion dollar gas processing plant to dry out this gas, so we’ll, we’ll do it. We’ll build it. Later on, you had an enterprise product partners, big midstream company come into Meeker, Colorado, and literally build In the 19 nineties, the largest natural gas processing plants in the world that could process up between a billion to 2 billion cubic feet of gas. Essentially, they were making it so that you could drill in that area, you know, strip the liquids out of the gas. They separate that, and they send it to different points of the country and a natural gas liquids pipeline. So, but again, of the 90 some odd interstate pipelines in the US each of those require a certain quality spec that says, Hey, bring us dry natural gas. If, if, if your gas is rich in natural gas liquids, strip it out, you’ll have a different income stream for the NGLs that you sell.

[00:09:19] Jamie: And for clarity though, as I understand it, the NGLs, they’re, they’re, they’re a product in their own right as well, right? There is an end use for them and they can like propane and stuff like that, I think. Do I have that right? Yeah.

[00:09:30] John: Yes, we’re, we’re exporting, the US right now is exporting quite a bit of natural gas liquids, propane, butane, and ethane out of the Gulf Coast enterprise. There are about seven or eight different companies that have. Facilities on the water. You sit, let’s say, in the Gulf Coast, and there’s even one in Marcus Hook Philadelphia, where you can export natural gas liquids by ship to other countries.

[00:09:54] Jamie: Okay. So, okay. They’ve stripped out the liquids from the dry grass, the actual gas. What happens to the dry gas after that? Obviously, I would say I assume 100 percent of gas moved in the United States occurs in a pipeline. There’s no liquefaction of that that occurs within the continental United States, I presume?

[00:10:12] John: If there’s any LNG is kind of de minimis, and it’s just kind of a short term solution until you can get a pipeline built to an area, but even then, it’s really, really rare. So, yes, 100 percent of that 104 billion cubic feet of gas per day that we produce moves from the wellhead downstream to its end use destination.

[00:10:34] Jamie: And then so this can be used in industrial processes, this can be used to generate electricity, this can be injected directly into someone’s home for be it heating or cooking or what have you. Yeah. As the end product.

[00:10:47] John: So let’s talk about scale again. So one of our clients is an ammonia company based out of Australia, and they literally take natural gas and convert it into nitrogen fertilizer, ammonia based fertilizer. So your house up in Canada might burn about 4, 000 cubic feet of gas per month, okay, in a cold winter month, they might burn about 4 mcf thousand cubic feet per month. And again, remember 1000 cubic feet is the amount of gas it would take to fill a room 10 by 10 by 10. Well, one of our ammonia plants down in Louisiana, in Geismar, Louisiana, may burn 180, 000 MMBTU a day. When I say burn, I really mean consume, because they take that. Converted into ammonia and then current converted then into fertilizer, nitrogen based fertilizer. One of those LNG tankers that you hear about, typically those hold the average LNG tanker holds 3 billion cubic feet of gas per day. So three, three BCF, not for the three BCF encompassed in that one LNG tanker. So that 3 billion cubic feet of gas again, scale is enough to heat 42, 000 homes for a year. And it was really those LNG tankers that kept Europe going after the gas was cut from Russia after the invasion of Ukraine. We saw incredible volumes of liquefied natural gas exported to Europe to kind of maintain their ability to get through the winter.

[00:12:20] Jamie: That’s so that’s I think where we should go next, because I’d like to talk about demand and pricing on this and what I think where I’d like to start is, and you may not have these numbers off the top of your head. I’m putting you on the spot here. But do you know what percentage? Like what the breakdown of the end use for natural gas is within the United States, like what percent is, is used for nitrate fertilizers. What percent is used in the home versus industrial? Do you have a broad breakdown of where that goes?

[00:12:50] John: Good question. It’s a good question because I have the answer for you.

[00:12:53] Jamie: There we go.

[00:12:54] John: If you, if you aggregated all the fertilizer, ammonia based, nitrogen based fertilizer demand, In the world, okay, it would be about 11 billion cubic feet of natural gas worldwide that’s converted, converted to ammonia and nitrogen. So about 11 percent of what the US produces on a daily basis is converted worldwide. Well, let’s talk for a moment about

[00:13:17] Jamie: And I think the US is about 25 percent of global supply, is the number I’ve heard. I think the US is what, about 25 percent of global supply is the number I think I’ve heard?

[00:13:27] John: The US, well, the US is kind of the world’s energy superpower. So right now, in 2023, The US produced, or had LNG exports of about 114 billion cubic meters per day. Okay, 100, excuse me, per year. And Qatar, which is second to the US, was 108. Australia, 107. Russian Federation, 42.7. So, we are, in fact, the superpower. But I think a good way to dial into this is to talk about what happened in Russia. And what happened with Germany and and really the folks in Western Europe shortly after there are three kind of worldwide prices that everybody follows for natural gas are near New York Mercantile Exchange price. That’s a price located at the Henry hub here at Louisiana. You’ve got the. J. K. M. price that’s the price of LNG delivered to Asia. And then you’ve got the price delivered to Europe. Okay. On a one year look forward, what’s the price for natural gas in the US? Yesterday, it was $2. 90. That is, if you wanted to sell gas based on an IMEX price for the next year, you’d get $2. 90. The price in Asia is $13. 00. $13. 06. Price delivered to Europe is $37. Okay, during that crisis after the natural gas debacle, that price in Europe got as high as $97 per unit per day. $97

[00:15:08] Jamie: per unit per day

[00:15:09] John: of the US price shortly after the invasion of Ukraine was $70.70.

[00:15:14] Jamie: So we’re looking at something like 30 plus times the base US price today. Now, I mean, at the time, US gas price, I think, spiked almost 10 per MCF. I think, I think, or that’s,

[00:15:27] John: Yeah. They did. That was,

[00:15:29] Jamie: And was that driven by this foreign demand effect?

[00:15:32] John: Without a doubt. Yeah. Without a doubt. It was. A lot of fundamentals. That was the number one fundamental, though. But again, if you looked at a three year forward price for natural gas in the US, it’s $3.67. Asia, it’s $12.20. And Europe is $35.

[00:15:50] Jamie: So it’s going up.

[00:15:51] John: Yeah, you obviously get an idea of the demand relative to the price by those three, you know, international markers for the value of natural gas. And that’s all in Europe, that’s all things that they brought upon themselves by relying too heavily on that one supplier being the Russian Federation.

[00:16:10] Jamie: And this is very interesting to me, kind of coming from the mining sector, of the regional nature of natural gas. Because in mining, you know, an ounce of gold is an ounce of gold, it’s today something like 2,300 bucks, and it’s 2,300 bucks in Russia or in Canada or in England or in Brazil. And so it’s a very different commodity. And what, you know, We have the supply and demand dynamics here internationally. But when we look at say within the continental United States, what’s driving demand and what’s driving use cases, you know, the most simple version I always hear is it often comes down to the weather, right? That when it’s hot, people have their air conditions on more knack gas gets consumed when it’s cold and people are heating their houses, more knack gas gets consumed. Is that. Is sort of weather and I guess heating and power uses, is that the primary driver of sort of like nat gas within the United States over a given year? Or are there other big factors there that need to be considered?

[00:17:10] John: I think there are other big factors to consider. One of those is kind of the regulations that occur or exist in different areas. One example of that is that it’s very difficult to get interstate pipelines built into the far northeast. That’s why you have a New York, what we call Citigate price, that during peak day demand is off the charts relative to what it should be. If there was plenty of pipeline capacity to get that what we call Marcellus or Utica production in Pennsylvania and other parts of the world into New York City. And so pipeline and transport can play a big role in it. Now, the wild card is always weather, is always weather. And yet the systems typically are trying to be designed to what’s called a peak day, where you have all the factors. You’ve got the industrial baseload demand. You’ve got the residential demand by virtue of the natural gas fire generation and create the electricity and then you’ve got the weather factor and that peak day demand is something that we would like to think that we’re building to. But I, I see. I see a clash of kind of some of the regulatory and some of the NGO efforts to increase renewables at the cost of reliability for the delivery of fossil fuels. And if I, if I can, if I can give you one story, this is yes, please do it. And I think it speaks to it nationwide. I won’t name the investor on utility, but a good friend of mine that runs a group, a set of interstate pipelines, five of the bigger pipelines in the Western US met with one of their biggest customers a few months ago, they said, look, based on your energy plan, as we see it going forward with your heat pumps and with your natural gas fire generation to back up wind and solar, we don’t think you own enough pipeline capacity on our pipeline to meet your peak day requirements as we see them going forward. And the utility executive’s response was, well, we’re not investing in any fossil fuel infrastructure because we’ve taken a net zero pledge by 2050. So Jamie, it’s really one of my biggest concerns is that over the next five to 10 years, you’re going to see things I think break down like what we saw in ERCOT after Winter Storm Uri, when that market is tested on peak day, because of this political position that some of these utilities are taking to kind of mimic the efforts of investment that Nexterra, one of the biggest renewable providers in the country, they’re trying to appease a lot of folks that think we can do without fossil fuels, And I think we’re going to have a train wreck relative to peak day demand on some pretty stressful days for the next three to five years.

[00:20:00] Jamie: So I think this is really worth digging into and

[00:20:03] John: A lot to unpack there.

[00:20:05] Jamie: Yeah. And you referenced ERCOT, can you give the summary of that story for people who might not be familiar with it?

[00:20:12] John: So ERCOT is the Electric Reliability Council of Texas. It managed probably 95 percent of the electricity that flows in the state of Texas. It’s an animal in and own to itself. It’s not interconnected with any of the other regional independent system operators. And an independent system operator is essentially the The entity that manages electricity in a certain area. So up in the northeast, you’ve got the PJM, Independent System Operator, PJM. I’ll refer to that a little bit later as an example. So ERCOT is, has a design that’s been changed a little bit since Winter Storm Uri, where essentially they assumed that there would always be electricity available at a given price. Okay. They never anticipated that there would not be electricity available at some sort of given price.

[00:21:04] Jamie: Yeah.

[00:21:04] John: So when Winter Storm Uri rolled in, it was kind of the, the perfect storm in a sense that wind couldn’t run because of the ice storm that was occurring. So you’ll saw the availability of the wind drop off dramatically, clearly in a storm like that, you have very little, if any, solar. And the coal fire, the, the natural gas fire plants could not rely on the kind of the natural gas supply that they typically had because very few of the production areas of the natural gas element had been winterized because those same areas that you want to winterize, you don’t want to have enclosed in a big insulated building when the heat comes through in the summer.

[00:21:46] Jamie: Yeah. Interesting.

[00:21:48] John: So the presumption was on the Monday after this. Of this three day weekend that if they just unilaterally decided to raise the price, ERCOT raised the price for electricity, people would respond with electricity, but there was none to be had. What we really saw is a lot of natural gas fired generation could not get natural gas supplies through the pipelines because Electricity was cut off to the compressors and the power stations that were running gas through the

[00:22:20] Jamie: okay.

Yeah So, you know, okay. Yeah

[00:22:22] John: the opposite of a self licking ice cream cone It just the dominoes started to hit and there wasn’t a solution and so

[00:22:29] Jamie: And this is in texas, right? Like maybe the most energy friendly space in the

[00:22:34] John: starving grocery store. Yeah Grocery store just it’s And so again, one of my favorite sayings comes from one of my favorite writers, a guy that goes by the name of Doomberg, he’s on Substack, he said that in the 2000 year competition between political platitudes and physics, physics remains undefeated. So the politicians can promise all sorts of things, but on a peak day, can you deliver? And what I’m worried about is this clash of the progressive concept that we can do without fossil fuels. And that’s really assumed by a lot of people that don’t understand the scale of what fossil fuels brings to someday we’re going to just be in this great land where there are no fossil fuels And yeah, we’re still going to have electricity to flow one of your favorite writers. Daniel Yergin Once said that this is a 90 trillion dollar world economy that gets 80 percent of its energy from fossil fuels 90 trillion dollars world economy 80 percent from fossil fuels This energy transition is not going to happen overnight. It’s just not. And if I can, one more thing on scale, in trillion dollars, a million seconds is equal to 12 days. A billion seconds is equal to 31 years. And a trillion seconds is equal to 31, 000 years.

[00:24:01] Jamie: Yeah. It’s hard to wrap your mind around. That’s a very good,

[00:24:04] John: I mean, people just really can’t do it, but this, the notion of this energy transition occurring right now is just a fallacy. And I, I can share more numbers on that also.

[00:24:13] Jamie: I mean, what part of what really got me interested in natural gas was, you know working in the carbon credit sector as well, investing in that sector and looking at how emissions were. Organically reduced. And what I saw in the United States, and I’m going to get these numbers wrong, but directionally correct was that, you know, there’s been something like 5 trillion of subsidies into renewable energies globally. And again, That they had very little impact on reducing emissions. But what had made a major impact in the United States and reduced emissions by something crazy, like 30 percent over the last 15 years, was the transition from coal electricity generation to nat gas. That alone had saved, you know, I don’t know how many millions and millions of tons of emission, but to your point, it’s, it’s been the most impactful thing the United States has done to date that I’m aware of to reduce emissions, and it’s completely hated upon by, by the, the, I would say the climate evangelists you know, and, and there’s no Perhaps there will be an energy transition, but there certainly won’t be an energy transition in the next five years or the next 10 years or probably the next 25 years, in my view, and looking at nat gas and to another degree, nuclear energy as those transition pathways, I think, is the only credible way to do that. And yet it’s, it seems that there has been a lot of regulation and politics thrown in the way to make that nearly impossible.

[00:25:53] John: So you’ve just met a good friend of mine, Robert Bryce, and Robert speaks on this issue quite a bit, and I’ll just throw out three different numbers that he provides and this is in a presentation that he puts out there called what energy transition? Coal use in the last year jumped 1. 6 percent worldwide. And India’s use India’s use has greater than exceeded the combined use of Europe and North America for the first time ever. Another one from 2004 to 2023, the global spending on wind and solar totaled totaled $4. 7 trillion. And yet during that same time, time period, hydrocarbon increase, hydrocarbon use increased 3. 2 times faster. Okay. In 2023, US gas fire generation grew five times faster than wind and solar. So again, it’s difficult for people to understand that there really isn’t a transition going on that anything that we’re doing is more than offset by the behavior of China and India, you know, and the other countries that are starving. You gotta people need to realize that there are three billion people in the world that use less electricity on an annual basis than Then your refrigerator at your home. Okay, less there are 1. 2 billion people, 20 percent of the world’s population that are still without access, access to electricity, almost all of those people live in developing countries, and that includes 550 million people in Africa and 400 million people in India. You know, they want a quality of life that we’ve achieved over the last 100 years that extended our lifespan by 40 years in that time. So I just, I don’t think there’s really an energy transition going on and you know, even if there were It took oil 60 years to achieve 40 percent of the energy input for the world. Another number, natural gas took 60 years to achieve 20%. Nuclear took 80 years from discovery to widespread, widespread deployment. And it’s just, people, I don’t really, it’s such an easy way. People don’t appreciate it.

[00:28:10] Jamie: Transition narratives are really interesting, because I think I read another one once that it took wood, it took coal about 100 years from to overtake coal, or sorry, to overtake wood as the primary source of, of energy. And you mentioned Doomberg earlier, and I’m glad you did because, and for those listening at home, Doomberg is a, a phenomenal writer on energy and commodities on Substack. I subscribe to him, does a great job, and he shaped a lot of my thinking around this. But I think one of his common sentiments is that. You know, every molecule of energy created is going to be used by someone. And, you know, to your point you know, obviously renewables are up substantially, but last year, 2023, we burned more coal, more gas, and more oil than in any other year in history. And what I want to do today is. Get a better idea and for people at home to get a better idea of the opportunity to invest in natural gas. And is this something that we should be thinking about? And part of what I want to think about is. Is what, you know, we’ve talked a little bit about demand and the need for this, but what pricing is going to look like over time. And as you mentioned, you sort of touched on earlier, it’s very regional pricing and you know, what it, what it’s valued at in Henry hub in Louisiana is different than it’s valued at in the Rocky mountains in Wyoming and part of where I’ve. I’ve been learning about this is two, two very good commentators online. Again, Doomberg was one of them. The other one is a, is a fund called, I’m, I’m reading this ’cause I’m gonna get these names wrong and I’m sorry if, if you guys hear me is, Goehring and Rozencwajg, who are a fund that in New York, very commodity focused. They’re very bullish on natural gas. And they talk about a lot of reasons why they think that gas price is going to run and demand is going to run. And it’s going to be driven by these export terminals coming online and a variety of other things. We can, we should talk about that. Doomberg takes a more. I was a conservative approach where they think there’s a, they, they seem to, to, to, they seem to theorize that, you know, the, the days of very high nat gas price are over and that given the sort of the gas coming out of the Permian as a by product, and we should talk about that, and given the infrastructure in place today, that we’re going to see more stable, less volatile, but sort of moderately lower priced gas. What are your thoughts on this debate? And given how much time you spent in this and what you see on a day to day moving, moving gas around the country?

[00:30:51] John: So one of my hobbies is fly fishing. And we have a great saying that, you know, in fly fishing, you can drown in a river that averages three feet deep. In the spring runoff, that river may be eight feet deep. And so I think, I generally agree with Doomberg says, but a lot of, a lot of this will be driven by what’s the peak day demand and the peak day price and the Winter Storm, Uri black swan type event. An Oklahoma friend of mine always says that the Permian Basin is just screwing everything up. And let me, let me give you an idea what he means by that. So imagine a basin, so West Texas, Eastern New Mexico, that is producing 26 BCF of gas per day. So nearly 26 percent of what the US produces on any given day that we have an industrial potash mine in Eastern New Mexico. They got paid to take gas the last few months because there was so much gas down there. And remember, this is a basin where there’s not a

[00:31:52] Jamie: Gas has gone negative, right?

[00:31:54] John: Gas has gone negative. It’s like, please take this. We’ve got to get rid of it so that we can produce our oil. This is a basin where there’s no one drilling for natural gas. And yet this is such a monster producer that the Permian Basin would be the third largest producing area in the world if it was its own country.

[00:32:15] Jamie: For oil or gas for gas?

[00:32:17] John: For natural gas or natural gas. It produces 50, 50 percent more on a daily basis than Qatar does. Okay. So just since, since 2014, the last 10 years, the Permian Basin gas production has gone from 5.5 BCF a day to 26 BCF a day in 10 years.

[00:32:39] Jamie: And I think it’s important to note that that is a byproduct of oil, right? It’s for people who are not familiar with that concept, that people are drilling for oil and getting oil.

[00:32:48] John: It’s associated natural gas that they’ve got to do something with because they can’t flare it. So imagine those oil numbers. Those oil numbers, Jamie, in the last 10 years have gone in the Permian Basin from a million barrels a day to over six million barrels per day. Huge, huge volume. And so what the Texas or New Mexico producer has to do is find a home for that natural gas.

[00:33:10] Jamie: And so in some cases they’re paying people to take it off their hands.

[00:33:14] John: They are. That’s the market working its way into a price signal that says, Hey, come build a pipeline so we can get this gas outta here and take it down to the Gulf Coast so we can export it. So take down to,

[00:33:25] Jamie: so you’ve got, sorry about that. I didn’t mean to cut you

[00:33:28] John: off.

Take it down to Mexico so we can get rid of it also. But so you say

[00:33:33] Jamie: you’ve got this region though though. Best that. Basically creating 25 percent of the global or the national output for free or worse. So, to me, you know, you hear that, that’s very bearish for natural gas, right? When you have to give away your product. So what’s the, what’s the, what’s the counter?

[00:33:52] John: So for that region, so let’s take the other, the opposite side. Say, what is the price of New York City? Well, again, pipeline after pipeline of the pipelines is wanted to be built to New York City to the northeast of Boston has been stopped from being built by NGOs that were opposed to fossil fuel infrastructure. And so place where you want to own natural gas if you had it was New York City. Place where it’s abundant and so it’s to your point at the outset of this part of the conversation was there are regional pockets of natural gas that you want to have. Like the Haynesville area, Louisiana, Northern Louisiana. That’s an area that can easily access the export facilities. And I think the, the 600 pound gorilla we haven’t talked about yet is that we can export right now about 12 billion cubic feet of natural gas. So let’s say

[00:34:45] Jamie: 12 overseas, right? Export.

[00:34:48] John: We can export it from the Gulf Coast, a little bit from the East Coast. That export number is going to increase in the next 18 months. By by half. So instead of 12 BCF a day, it will be 18 BCF a day.

Okay. So let’s dig into why that’s about to happen, right? Let’s talk about why that’s about to happen. Yeah.

That’s why we see that price jumping. So that right today, the NYMEX is trading at $2.11 for gas tomorrow. The one year price of $2.89 for NYMEX gas, the three year price is $3.66 again, all driven by those prices that you see in Europe, a three year price in Europe, $35 The one year price in Europe going forward is $37. So the demand for what we’re producing is huge in both Asia and Europe. More so even in Europe because of what’s happened with Putin and Gazprom.

[00:35:42] Jamie: So, so why is that tomorrow and not today? Is it because these export terminals still need to be built and brought online to, in order to service that overseas demand?

[00:35:52] John: Yeah, the in service date, for example, like one down in, That one that’s fed by US gas Altamira Downing in Mexico just turned on two days ago. We’ve had the facility that’s Freeport facility has been offline for some time, just kicked back on, two BCF a day, second largest one in the US, just kicked back on about a week ago. And so, imagine that kind of demand that can turn on and off based on maybe a force majeure type situation impacting the price of natural gas. Then imagine the machine of what the Permian Basin is in terms of producing natural gas at a very discounted price. That is going to ultimately, I think, find its way, then that gas is going to find its way overseas or down into Mexico for gas fired electric generation, or even some exports on the west coast of Mexico.

So, you got to realize that in the last in the last 15 years, liquefied natural gas worldwide, the availability of this has gone up fourfold. That’s doubled its share of the natural gas trade worldwide. So LNG, LNG tankers is really a kind of a relatively new phenomenon if you’re looking at this on a 30 to 40 year scale. And we’re just seeing that expand and we’re seeing the ability to export these NGLs expand also. You can’t get enough propane and butane delivered to China, and you can’t get enough of it even through the the Panama Canal, you know, because of the issues that they’ve been having down there. So, it’s about demand.

[00:37:35] Jamie: So for people that are listening at home and thinking, okay, natural gas might be something I want to invest in, I guess they need to choose their They need to choose their place carefully, right? So they either want to get exposure to these export terminals, so gas that’s going to be going into the foreign markets, or servicing places within the United States that are not readily serviced by this cheap slash free gas coming out of Texas coming out of the Permian, right? Is that, is that a safe summary?

[00:38:06] John: Yeah. Or you may want to look at midstream companies that are addressing the overabundance of gas in the Permian who’s coming up with the best new solution. There’s an issue going on in the Permian right now where the large companies in the Permian, the Chevron’s know what they’re going to do three years from now with all their production, natural gas. Natural gas liquids and more importantly oil. It’s the hundred thousand a day type producers. I say smaller producers that have not, that have benefited by the, the expansions that have occurred because of the large companies that are going to run into trouble as the pipeline capacity, the availability of NGL capacity, export capacity out of the Permian and gas production capacity starts to tighten up and Jamie, anytime we see what I call the capacity utilization of a pipeline exceed 85 percent of that capacity that’s available, the party that owns the capacity extracts a toll from the producer that doesn’t by offering a lower and lower price. And so you can really study that midstream solution that’s being proposed by a number of different companies. For both NGLs and natural gas out of the Permian and watch what happens over time, you’re going to have the larger companies being able to get the price that they want from the smaller ones, not, not, not having that reality and at least occur for their pocketbook. So there’s an investment, even though we may be long, you know, there’s an investment, you know, where is any of this gas going to go to ammonia player? They’re, believe me, their ammonia companies that were based in Europe that saw that incredible increase in their number one feedstock cost go up such that they want to come to the US for this abundance of natural gas and for the rule of law that exists here. So a lot of different plays within the plays and, and we could go on and on and on, but those are some of the big things to watch.

[00:40:12] Jamie: You’ve been doing this a long time. And are there any like, you know, this is what’s interesting to me about natural gas is that it’s very complicated and it’s very volatile. And when you see those. those, those sort of markets, often you see a winner take all game, right? Where people who make the right bet at the right time in the right scale, make a tremendous amount of money or create a huge company or have some sort of major success. Are there any of those stories that really set you apart? Stick out to you over your career of people that have done this incredibly well, that highlight the opportunity in natural gas that you would say for investors. And then maybe some cautionary ones, if you want to touch on those too.

[00:40:54] John: There are many cautionary ones. But quite frankly, and I know, you know, this through your career, the people. That have been at the right place at the right time, you know, consider that to be lucky and they don’t have the hubris to say that I knew this was going to happen. You know what I mean? That’s why I stopped really trying to pick stocks a long time ago. And really what I focus on are what are the big events that are going to occur midterm and long term, not short term, not, not necessarily what’s going to happen the next month, but when you look at a 50 percent expansion of the LNG takeaway capacity. You understand why that two and three year price for NAD gas is, you know, two and three times higher than it is right now. You see these big kind of movements. Probably one of the best pieces of advice I ever got was that if, if you’re a trader and you’re right, 51 percent of the time, you’re lucky and you should admit your luck. But you can see these big issues kind of moving that there are five or six companies that really export NGLs out of the US and I really like energy transfer enterprise and Phillips 66. I think Phillips 66 is really a quiet company, but I, I was representing a Chinese buyer of butane and propane and they could not get enough of it. And I think that’s even more the case than it is necessarily for LNG. And believe me, it’s a lot easier to decide an export facility for propane and butane right now than it is for LNG. But we are going to be more and more Driven by a worldwide price for natural gas our prices here, but then you still have this issue of basically free gas in the Permian, which is, you know, for our, for us as being Americans is kind of a true blessing that we have that, that’s what a good friend of mine calls tiramisu, a production down in the Permian Basin that’s going to be there for many, many, many, many years.

[00:42:52] Jamie: You mentioned something that I’ve been kind of thinking about in the back of my mind a few minutes ago, which is that the opportunity to export out of Mexico. Are you able to export gas out of California or is that a, that a no go?

[00:43:08] John: No, that’s, that’s one of my great frustrations is that I actually worked on an LNG import facility back in 2003. This will give you an idea of the way that things have changed. So in 2003, before the shale revolution, we thought That by now in the 2020s, we would have to import anywhere from 25 to 40% of our natural gas. Mm-hmm , 25 to 40%. In 2003, Putin through gas problem was trying to hire 200 natural gas marketers in Houston to market Russian natural gas in the us. So in 2002 and three, I partnered up with an Indian tribe. In northwest Washington to build an import facility that ostensibly would have been on Lummi, or excuse me, tribal lands. And so you could really argue, do we have to, by virtue of our treaty rights, the Indian tribe, do we have to negotiate with the DOE or FERC for a license? And so that’s really when I got onto this thing of trying to understand what Gazprom, what Putin, what the Russian production was all about. And then think about it. We have the turnaround of the share revolution. Imagine a 2 billion pipeline being built in 2004 from the Rockies, Southwest Wyoming, all the way to middle of Ohio, where the environmental impact statement in 2003 said, Hey, by 2020, we should see an increase of demand in Ohio of about 2 billion cubic feet of gas. So we can justify this all day long, boom, the share revolution has, occurs, and instead of two BCF a day of additional demand, we’ve got 25 BCF a day of production in the Ohio. Pennsylvania area. So that’s how much this shale revolution kind of shook up the world. But it’s really the, the notion that right now you cannot export or import LNG into California, Oregon, or Washington. There’s like this blockade. And so in order to get Western US gas

[00:45:13] Jamie: California, Oregon or Washington. You can’t Washington, you can’t import LNG in or out,

[00:45:19] John: You can’t, I mean, you can’t export it. Now there’s an export facilities being built, you know, not far from you up at Prince Rupert.

[00:45:26] Jamie: Yeah.

[00:45:26] John: And LNG. So Canada will be exporting a lot of that Montey shale gas that you’ve got up there. But if we wanted, and this is the frustration, Western Colorado PE Basin. It’s as big in reserves as the Marcellus and the Utica.

[00:45:42] Jamie: Yeah.

[00:45:43] John: Yet I cannot get that world class reserve base out through the west coast of the US to China or Asia, can’t do it.

[00:45:51] Jamie: So let me ask you that

[00:45:53] John: to build south to Mexico and get it out that way.

[00:45:57] Jamie: Does California, Oregon, Washington, you know, do they rely on Coloradan or other natural gas for their own electricity? Yeah. Obviously you can’t frack, I don’t think you can do much drilling at all in California. I’m not sure what it is in Oregon and Washington.

[00:46:14] John: The in state california production in the last 10 years has dropped by probably 70%. So California relies on Southwest Wyoming, you know, the Pinedale Anaclin, the Green River Basin, the Lompsteader area, relies on Utah production, relies on production down in New Mexico and even the Permian Basin to come in by pipeline. And I really think, in terms of train wrecks, that’s where it’s going to hit, is that there’s going to be a realization that they’ve closed down too many nukes and too many coal plants, they’re relying too heavily, they’ve kind of painted themselves into this peak day and natural gas fire generation corner, if you will. And at the same time. The production and all the basins that feed other than the Permian that can feed California have seen over the last five years a 10 percent year on year decline in production. And so we’re seeing this kind of blowout certainly in January and February for Rocky Mountain based production from the San Juan Basin up to Wyoming. We’ve seen a blowout in the months when California needs natural gas for heating alone. And I think that’ll be down in December.

[00:47:26] Jamie: Presumably production is down. You said about 10 percent the basins feeding that region, but you, I think this would probably also play into the pipeline capacity as well, right? That

[00:47:37] John: Right.. But if you’re the Permian Basin, you’ll never build to California because they want to do without natural gas. So California, if you really look at it for the Permian Basin is about the sixth market of choice. You would rather take that down to the ammonia. Consumers down in Louisiana or the export facilities down the Gulf Coast to get it out of the country. And so I really see this issue developing where some of this Rocky Mountain natural gas that can get to California is going to not just see the spikes on the peak day usage that occur in January and February, but it’s going to happen really October through March because they really, you know, the adults have to show up in a room someday in California. They have to realize, and the only, the only solution that they can cite quickly will be natural gas. So that’s why I’m just a huge believer that when California figures it out, it’ll be a real benefit to the Rocky Mountain natural gas producer. But Jamie, that may take three to four to five years to play out.

[00:48:42] Jamie: How does this look on the ground when these sort of you hit these peak day numbers and you don’t have The electricity from natural gas or otherwise to service that is this like blackouts rolling brownouts? Is it skyrocketing sort of this dynamic pricing? Like what how does that actually look for if I’m a consumer sitting in my living room in California?

[00:49:07] John: So DEFCON 4 is day to day, DEFCON 3 is you’re going to have to have rolling brownouts, DEFCON 2 is you’ve got blackouts that are sustained, and DEFCON 1 is that you lose so much to gas supply that you lose pipeline pressure in your utility distribution system. Which can take two months to bring back up. Let’s just say as an example, Colorado had an issue 14 years ago, where we almost lost pipeline pressure into our utility grid here. And the estimates are that it would take a month and a half to go out and relight every pilot light at every residential water heater and cooktop stove. So again, it can get really, really, really bad. They’ll do everything they can to maintain the kind of pipeline pressure so that they don’t lose it. The kind of pressure that allows them to serve as a residential user. But we’re not seeing the infrastructure built by these investor owned utilities. So I think maintaining that pipeline pressure on a peak day sometime in the next five to ten years

[00:50:14] Jamie: becomes an issue.

[00:50:16] John: It’s huge issue.

[00:50:17] Jamie: So let me ask you this. If you lived in California right now, yeah, if you were in Sacramento, what would you be doing?

[00:50:25] John: Buy a very, very, very, very large propane tank and arrange for propane tank deliveries to my residence. And I’m not kidding. I just. You know, and even then I’m not sure how long you can keep the lights on. And I don’t mean to sound melodramatic here at all, but ERCOT came very, very close to losing utility pipeline pressure, and they did everything that they could to maintain it. But, you know, that’s kind of a DEFCON 1 experience that I hope we never really run into here. But in order to meet the peak day requirements that are forecast, As as solar and wind take more and more baseload power generation responsibility, you’re going to have to increase the infrastructure for natural gas for those peak day demands. So the PJM, I talked about that earlier, the PJM, independent system operator for that part of the New England areas of New York, the Northeast, I mean, PJM is forecast by 2040 to need 167 percent increase. In their natural gas deliverability as against measured today. And yet in that same area, Jamie, there are people that are opposed to any kind of natural gas pipelines being built in their back in their backyard.

[00:51:51] Jamie: So that’s so just to break that down. So 160 percent increase. So that means at peak times. Over 160 percent more gas needs to go through. Presumably the pipelines that exist are already more or less full. So, I mean, I know I’m making this very simplistic, but like, without more pipelines, that gas doesn’t get through. Is that safe to say? And there’s no electricity.

[00:52:15] John: Yeah. You will not have reliable service in the PJM Northeast part of the US. If you don’t see additional pipelines being built,

[00:52:23] Jamie: That’s wild. That’s, that’s wild. And that’s scary, right? Because it’s happening in California and New York, which are the two most populous places in the United States. And in some, in some, you know, there’s lots of wealthy people that live there, but a lot of the poorest people live in those places as well, too.

[00:52:40] John: The, the, my fear is that this is going to be born on the back of middle income and low income households because they can least afford kind of the backup power. Here’s.

[00:52:48] Jamie: Yeah, they’re not, they’re not buying a $10,000 generator for their house, right?

[00:52:52] John: No. This is sort of scared the hell out of you. A good friend of mine was the moderator. Of a conference for electric utility executives. Okay. Three years ago, four years ago now. And so there are 200 of these investor on utility co-op execs all at this conference over 200 in the audience. And he said, how many of you have your own independent power backup at your own residence. And he said 95 percent of the men and the people in the room raised their hand.

[00:53:21] Jamie: Because they had concerns. Yeah.

[00:53:24] John: Yes. They know. Go take a look at what’s the stock that the independent backup generator you can buy for your house. Look at their stock valuation. I can’t think of the name of the company.

[00:53:35] Jamie: I don’t know the name. Yeah. But is it going up? Is that the, the price there?

[00:53:40] John: It’s skyrocketed in value.

[00:53:43] Jamie: You know, it’s, it’s crazy to think that in like this day and age in the United States, that we’re like having the power go out is a real concern and not because we can’t do it because the regulations being put in place make it almost impossible to succeed. So here’s my question for you on that. Do you think that, you know, you mentioned the, the comments sort of event at some point physics wins over rhetoric, but Do you think that regulators and politicians in, you know, the New Yorks and Californias of the world wake up before it’s too late and say, look, we actually got to build the infrastructure to make sure we can service our populace? Or do you think something horrible has to happen before people say, oh, shit, we’re This is a real problem. We got to fix it now

[00:54:36] John: I think the Winter Storm Uri and the ERCOT example is probably the best example Is that they have kind of created a new system. It’s not an energy only bidding market system down in texas now But there’s some base load generation that if you don’t show up with it, you get fined you lose you get penalized I think the real problem is that,

[00:54:56] Jamie: but this is Texas, right? That’s the most pro energy state.

[00:55:00] John: And I think there’s going to have to be some major accidents and major prolonged outages for the regulators to wake up because they’re appealing to an audience of people that really don’t care to be educated. And when you say, what do you mean by care to be educated? The state historian for Colorado, a couple of years ago, it was a very different friend of mine. And I said, you know, Patty, if I could just sit down with someone and explain to them how this machine works and how fragile it is, I think I could change their mind. And she said, John, Some people don’t give you permission to teach them and so it’ll take that kind of an outage or problem to educate them I’ve got to tell you a funny story. This is a true story and you’re not going to believe it But

[00:55:41] Jamie: Okay, I’m ready

[00:55:42] John: member of the Colorado oil and gas association I was asked to go out and speak at different functions about hydraulic fracturing five years ago six years ago Got invited up to northern Colorado Rotary club back room of a village in lunchtime. I’m the speaker. I’m supposed to talk about hydraulic fracturing about 80 people in the room. I opened up with I said, Look, I’m going to tell you today about hydraulic fractured. If I used any kind of industry jargon, stop me, you know, raise your hand. I don’t want to lose you. So I started and I said, folks, you got to realize that we’re getting so good at drilling now that we can drill down two miles. Take a right hand turn and drill two miles through a natural gas producing formation or oil producing formation, formation that’s no thicker than this room is tall. And we’re so accurate with that drill bit because of computer technology. There’s a breakthrough is we can hit a target at the end of that two miles at the end of four miles. We can hit a target the size of a refrigerator. Well, Jamie, in the back of the room, his hand goes up, and there’s this elderly woman, and she, she, I said, yes, ma’am. She said, you mean to tell me you’re burying refrigerators underground? And the whole crowd just kind of looked at him. It was kind of one of those, I can’t believe Aunt Betty came today. So the only thing I can think of, I leaned into the microphone, I said, ma’am, that’s a metaphor. And she responded with, I don’t care what brand of refrigerator it is. Now you think that that’s a made up funny story. That is gospel truth. I’ve got witnesses. But there are people that don’t care to understand, don’t care to be taught. They have no intellectual curiosity and that’s not until There’s some kind of significant upset in their life, like doing without electricity that the regulators that are supposed to watch out for them will wake up. That’s my fear.

[00:57:38] Jamie: Yeah, and it’s a, it’s a good indicator of the, I guess call it general energy competency within the United States and, and the, the role that it plays in people’s mind, which is shockingly limited

[00:57:51] John: And the lack of intellectual curiosity.

And, you know, the fact is that the

[00:57:55] Jamie: lights have just turned on. For so many years that no one has to think about what actually has to go into turning them on and what it might actually be like if they didn’t,

[00:58:05] John: We’ve taken it for granted. And it’s a sad testimony when, when you consider that, you know, I, for me, when, when people start talking about the climate change issue, and, you know, we’ve got to eliminate fossil fuels. My first comeback is, what about fertilizer? And then people say, what do you mean, what about fertilizer? And I said, well, there are only four grains in the world, wheat, rice, corn, and soybeans, only four. And that, those make up 70 percent of the caloric intake worldwide. And each one of those grains relies heavily on three fertilizers, phosphate, potash, the two fertilizers we mine, but then also man made nitrogen based fertilizer, ammonia. And did you know, folks, that you think you’re going to do without fossil fuels, that if you do without nitrogen based fertilizers, five of the eight billion people on the planet will starve to death within five years. Plant based diets can only be, can only serve, can only help three billion people stay alive. And so then they say, well, that can’t believe that. So we’ll take Sri Lanka is an example. You know, President Gotabaya in April of 21 banned synthetic fertilizers. Okay. 85 percent of synthetic based fertilizers made from natural gas. 15% of it’s still made from coal in China ’cause they don’t have enough natural gas. So what happened in Sri Lanka, they had a 20% decline in domestic rice production is six months, a 50% surge in domestic rice prices. They paid $450 million for rice imports. They lost $425 million in their tea crop, and they incurred a $40 billion debt default. Because of that position that we cannot produce, we cannot use synthetic fertilizer. What do you think the, the, the farming wars are in the Netherlands? It’s all about their ability to use synthetic fertilizer based on natural gas, based on fossil fuels. So, okay, if you want to cure climate change or the concerns that you have by eliminating fossil fuels, the cost of that will be half the planet’s population. Those are just stone cold hard facts. I mean, Norman Borlaug, who is kind of the father of the green revolution. He was the 1970 Nobel laureate. He said, there’s a basic problem to feed eight billion people without fertilizer. You can’t do it without synthetic ammonia based natural gas feedstock based fertilizer. You can’t do it. You just never hear that discussion.

[01:00:46] Jamie: Do you think that, do you think that the policymakers driving these positions, do you think they’re just, I guess I’m kind of asking you to answer some philosophical question, but do you think they’re just naive to the role of this, or do you think there’s something kind of more nefarious there in that people are, you know, I don’t really buy into a lot of the conspiracy theory side of things, but I do think people are driven by economic incentives, and when you, there’s a lot of people incentivized to make money off the Green Revolution, they’re going to do it, and they’re going to lobby their, their congressmen and their senators to support that, and, you know, it just becomes a, it becomes a business, and this gets pushed off to the side. I’m kind of answering my own question, but what do you think is going on there?

[01:01:35] John: I think it’s a mix. So let’s, let’s talk not about a political leader, but a faith leader. Do you think, I’m Catholic, do you think my Pope is aware of what I just ran through on food?

[01:01:44] Jamie: I would say it certainly does not align with his narrative.

[01:01:49] John: His narrative is we’ve got to do away with fossil fuels, but there’s intentionally there are cardinals and advisors to him that are not telling him about this. And I’ve talked to a bishop about I said, How do I get through to make him aware of this? I said that there’s no way based on what He stated publicly that he can be aware of this. There are other politicians that see this as a way to elevate themselves because there are so many people that are just in favor of eliminating fossil fuels, eliminating fracking. When they have no concept of scale, they have no concept of the economic, societal impact that that sort of position is going to take. You know, it’s, it’s to me, that’s my worry about the future. My, I’ve got three kids all in their twenties and Jeremy, Jamie, they can give this speech and they’re constantly getting caught in arguments with their more progressive friends at that age saying, you have no idea what you’re talking about. You have some intellectual curiosity. That’s why I, I’ve told you when you said, would you like to be on a podcast? Any time, any place to get this message out. And it’s just about it’s just about fertilizer. I mean, consider this in 2019 the world you used a staggering 4. 5 billion tons of cement, 1. 8 billion tons of steel, 370 million tons of plastics and 200 million tons of fertilizer. All of those are, you know, fossil fuels are critical to the production.

[01:03:24] Jamie: Yeah. Yeah, incredibly energy intensive.

[01:03:29] John: It’s, it’s stunning how little some people care to know or want to know about the scale of this energy issue.

[01:03:37] Jamie: I’ll give you a, I’ll give you a story. It’s similar to what you just told me. So about a year and a half ago I was in where was I was in Italy and I was at an event and I met a European energy lobbyist. I think he was French, but don’t quote me on that one. And we were talking and this was as things had kind of, we’re starting to go to hell with Russia and the, and the Gazprom pipeline had been cut off. And I mean, he said to me, he was like, oh, you know, this is disaster. It’s all comes down to our reliance on fossil fuels. The sooner we get on to totally renewable energy. A problem like this will never occur and I just remember, I don’t even think I argued with him. I kind of just like sat there slack jaw and was like, this guy’s entire job is energy. And meanwhile, at this point, you know, Germany shut down their nuclear power plants. They’ve left themselves totally exposed to, to Russia. They’re firing up coal fire power plants in a way they haven’t in decades. And this

[01:04:36] John: Lignite, lignite coal.

[01:04:37] Jamie: Yeah. Yeah. Because their renewable infrastructure is failing to meet demand. And it’s like, and this guy’s only answer is, well, you know, we need more wind farms. And I was just like, how the hell does someone whose job is in this industry, not see the risks that they’ve built into their system? And I think he was totally genuine. That’s the thing. I think he, I think he believed it and it’s wild. Yeah.

[01:05:01] John: Well, think about the impact on a low income household. And I was raised in a low income household. My mom would, would sweat bullets over a hundred dollars a month gas utility bill. Think about the impact on the, what we’re seeing right now in Germany is the deindustrialization of Germany. Had that gas outage been prolonged, had LNG not been available, had we not had the shale revolution here, the amount of fertilizer that would have been available for sub Saharan Africa would have been a third of what it is now. Okay, so imagine this. Also, if you if you Peter Zion. You look at the demographics of births, 60, excuse me, 52 percent of the birth by 2050 will be occurring in sub Saharan Africa. Guess where the most difficult place to get fertilizer to on the planet is right now?

[01:05:54] Jamie: Sub Saharan Africa?

[01:05:55] John: This is a train wreck of epic proportions that’s coming our way because of this naivete or just this platitude that, hey, we can do without it. People don’t get how critical it is.

[01:06:07] Jamie: And I mean, it wasn’t that long ago that there were famines in Africa, right? All throughout Africa. When I was a kid in the 90s, I remember, you know, you see the commercials on TV raising money for it. And there were the Live Aid concerts and whatnot raising money for it. And it wasn’t, you know, it’s less than a generation ago that that was a global issue.

[01:06:25] John: Well, I think in the future, we may see some of these famines. Famines that I think will occur blamed on climate change.

[01:06:33] Jamie: Yeah. So,

[01:06:34] John: people at risk are the people, the people at risk here are the people, the 1. 2 billion people, 20 percent of the world’s population don’t have electricity right now. That some French regulator is making decisions that will impact whole regions of Africa in terms of what it might be able to, how they might be able to feed their children. And so I, I get very upset, very emotional, very concerned about it to the point where. I just, I can’t talk about it enough to people. My poor wife, I think, can give this talk right now.

[01:07:07] Jamie: Well, I appreciate you coming on today and running us through this and giving a bit of a course on this, you know, you and I have been chatting a lot over the last couple of months and you’ve been helping advise me and my team on this sector, let me ask you a question that I try to ask people so you can answer this whatever way you want. If you’re just like most of our, our listeners, middle class person, somewhere in middle America or Canada or Europe, and you’ve got 100, 000 and you want to address this problem for you personally, now thinking about what’s going on in gas, what does that look like for you? Do you, do you buy a generator? Do you invest in that gas stocks? Do you, I don’t know, buy futures? How would you do that? If I gave you that today and said, John, you got to spend that money in the next 12 hours, what do you do?

[01:08:02] John: I honestly, I think I’d look at one of the butane, propane, butane exporters, look at their whole portfolio and try to determine how much of that You know, these are big companies, obviously, Energy Transfer, Enterprise, Phillips 66. They’re only, look at butane, you know, do your own research, folks, but look at propane and butane exports on the water. There are only about seven companies that do it. The amount of demand in Asia for those two products, the ability to get it there. The ability, there’s a neat little company out of British Columbia and even I think Bellingham, Washington that’s exporting propane and butane that doesn’t have to worry about the Panama Canal capabilities. Mm hmm. I think it’s AltaGas, something like that. And i, I just, you know, check them out, but I think about the incredible demand for that product, propane and butane where it rests and then where it is, you know, where it’s located and think Permian Basin, think of some of the wetter shale gas plays and kind of noodle through it. Now for me, that would be a five year investment, not a flip it, you know, in six months, kind of a deal. You want to be risky. Watch the winter contracts for NYMEX over the next two winters. You know, take a look at the JKM price or the price delivered to Europe comparatively. You know, look at the LNG stocks, look at the LNG shipping stocks, look at the, the ship, the ship companies that own the propane and butane carriers. That’s kind of what I would dig into right now. Look at the midstream companies in the Permian that are going to have to solve the liquids, NGL and the natural gas solution for those smaller producers. There’s a lot to research a lot. And you know, the market will work this thing out. But it’s just try to understand the scale of it all and where your investment might fit in that scale.

[01:10:06] Jamie: You’ve been doing this, I think you said for almost 40 years now, you’ve been doing this pre shale revolution, during the shale revolution, post shale revolution. What’s your general sentiment on the US gas sector today? You know, comparatively throughout your career, is it, is it high, low, medium? How do you feel about it?

[01:10:25] John: Here’s a really tough part, Jamie. I looked at this a few years ago, and I think it still holds true that 90 percent of the open interest position on the NYMEX natural gas contract, 90 percent of the open interest position is the next three months. So there’s no liquidity on anything beyond three months. And that’s why I think we’re completely understating the value of that natural gas relative to the demand that we’re going to see when these new LNG facilities come on board. And the trader does the coefficient correlation predictability of that price relationship predicated on a model that’s going to completely change when these LNG facilities come online. You know, but he just can’t see the counterparty interest in it because, again, you have this short term, not mid term, not long term look on that gas. You know, as a friend of mine said, you want to buy the horse at the gate, not the finish line. And I think any investment in natural gas is going to be a good investment, but there are better investments within the trade itself also. But think about that. If only, if your NYMEX price If the open interest position on current trades is only the next 90 days, it doesn’t reflect what’s about to happen with all the huge expansion of LNG export facilities. All waters will rise, I think. We might even see a positive price in the Permian, too. We’ll see.

[01:11:55] Jamie: All right. John, we’ve come up on just over an hour now. Anything I didn’t ask that I should have asked? Anything you want to say to people before we say goodbye?

[01:12:03] John: No, just tell your friends to have some intellectual curiosity.

[01:12:07] Jamie: Well, I can tell you the people listening to this definitely do. So I think this will be very well received, and I appreciate you taking the time today.

[01:12:14] John: You bet, Jamie. Thank you.

[01:12:16] Jamie: Take care.

[01:12:17] John: You too.

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Jamie Keech

CIO; Editor

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Nick D'Onofrio

Head of Research

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Oskar Lewnowski, Orion Resource Partners — The Man Behind an $8 Billion Mining Investment Firm (#60)

Oskar Lewnowski, Orion Resource Partners — The Man Behind an $8 Billion Mining Investment Firm (#60)

This is the first long form interview with the man who built the world’s largest mining private equity firm: Oskar Lewnowski.

Over the last decade, Orion Resource Partners has gone from startup financier to the world’s dominant mining investment firm.

There is very little information about Orion publicly available, and Oskar has never done a podcast before. After meeting last year, he agreed to sit down with me for an interview and take us behind the curtain.

As public markets plunge into increased volatility, private equity investing is delivering some of the highest returns for the investors. Understanding the Orion strategy will be critical to any resource investor looking to capitalize on the commodity boom currently underway.

In this interview with Oskar, I’ll show you:

  • The Big Bet: The single commodity Oskar would invest in if he could only make one big bet.

  • The Orion Strategy: Inside Orion Resource Partners’ all-encompassing approach to delivering returns in the mining and metals sector.

  • The Magic of Accountability: The innovative financing model that ensures projects stay on track and management teams are incentivized to deliver for shareholders.

  • Leadership: Oskar’s hands-on leadership style and visionary strategies that put Orion at the forefront.

  • Mastering Risk: How Orion proactively manages risk and prevents issues from escalating.

  • The Future of Metals: Oskar’s view on the global trends shaping the mining industry and how Orion is taking advantage of it.

This interview offers a truly unique perspective. Don’t miss it.

Listen to the episode on Apple PodcastsSpotifyYouTube, SoundCloud, or on your favourite podcast platform.

Enjoyed this episode? Sign up to our free newsletter to access to the latest podcasts, expert insights, and exclusive reports on our recent deals.

The transcript of this episode is included below.

Note: Transcripts may contain a few typos.

Transcript:

[00:00:00] Jamie: All right, Oscar, welcome to the podcast today.

[00:00:02] Oskar: Thank you for taking the time out to meet with me.

[00:00:06] Jamie: So, this is your first podcast.

[00:00:11] Oskar: It is.

[00:00:12] Jamie: And I appreciate you taking the time today. Obviously, I’ve had the chance over the last year or so to get to meet you, some of the members of your team. And I’ve been really fascinated by what you’ve built here at Orion. And I think for listeners at home now who might not be familiar with Orion, what it is, what you do. I’d love to just give a brief overview of where we are today. Cause you know, we’re sitting right across from Bryant Park in New York and Manhattan. We’re on the 25th floor of a beautiful office tower. You guys, as I understand, just celebrated your 10-year anniversary at Orion. And can you give us the 30,000 foot of like what Orion is today and what you guys do?

[00:01:10] Oskar: Sure, glad to. Orion seeks to be across various products investable in respect to any and all areas of the mining vertical So, should you like to look at mining from the lens of technology? We have a venture capital business. Should you like to look at mining purely in the form of public equities? We have a public equities product. Should you like to invest in the construction end of mining as the building of mines? We have a construction financing product, and so on, so on. So, we have a number of different investable products that all work jointly to try and give insight to people in the, across the entire mining vertical, from the ore production all the way through to futures hedging. That’s, that’s the goal of the organization, and hopefully we have, after 10 years now, achieved that successfully.

[00:02:06] Jamie: And who are your, your clients? What kind of investors do you service, your LPs?

[00:02:11] Oskar: So. Our, our biggest source of capital are U. S. pension plans and sovereign wealth funds. So, our investor base is actually more on the large ticket, small number side of things rather than, say, a lot of small endowments, foundations, those kinds of things. So, we have a very concentrated, large investor base.

[00:02:37] Jamie: Okay, so you can see I have a lot of notes here in front of me. I do want to get into everything you’re doing in detail today, but I’d like to actually sort of take a step back first. And so, you’re ten years in now. I’m in this sort of beautiful, gleaming office today. If you were to take us back sort of ten years from now, when Orion started, can you kind of lay the, can you paint the picture for what I would be looking at then and what you were What you were thinking at that time?

[00:03:05] Oskar: Sure. Well, 10 years ago which was actually last September, we spun out of another firm called Red Kite. And Red Kite was in its heyday I believe the largest metals trading hedge fund in the world. And at Red Kite, I was one of the three founding partners there. We decided that it would be very useful for our physical trading business to actually finance mines as a way to secure supply. And so, we built a mine finance product alongside the trading business. And then when the mine finance business sort of matured a little bit we decided as a group that it actually behooved us to separate the business and so we did. And Orion was born out of that, out of that separation.

[00:03:51] Jamie: And were you doing, you know, physical trading similar to like a Glencore or a Trafigura?

[00:03:56] Oskar: Yes, yes.

[00:03:57] Jamie: Not just derivatives?

[00:03:57] Oskar: Absolutely. Yes, correct. So, absolutely. We did in the day at Red Kite, we did a lot of physical trading, and we continue that tradition here at Orion. Our physical offtake business is a central core of what we do. It informs us on the mine supply side. It’s a really good real time catalyst to understand if there’s anything going wrong at the mine because it shows up very quickly in production. If there’s missteps at the line, it also helps us understand the flow of physical business. It acts as a natural long position, so it’s useful for hedging as well, for the commodities futures product. So, it is actually a core activity of the business. It’s something that is really central to us since we started the business.

[00:04:47] Jamie: Do you guys, and maybe at Red Kite it’s different than here at Orion, but do you actually facilitate physical transport of goods? Whether on a train or a ship or what have you?

[00:04:57] Oskar: Absolutely. So, we take sight of cargo, physical material at a port or at a mine gate. We transship it, we insure it, we deliver to customers, we pay to merge when we have to at port. Yeah. And we actually consign to rail cars and move material around the world.

[00:05:19] Jamie: So, have you ever read the book The World for Sale?

[00:05:22] Oskar: Yes.

[00:05:22] Jamie: Yeah. And so, in that book they talk about, and for those listening at home, this is a book by two great Bloomberg journalists that really dive into the history of the commodities trading businesses. And Glencore featured heavily in there. And they talk about how Glassenberg sort of saw the writing on the wall that the margins were kind of getting squeezed out of trading and that he wanted, and he needed to own the actual assets. And it sounds like you guys had a similar realization at Red Kite. Is that fair to say that?

[00:05:56] Oskar: Yeah, it’s fair to say. Yeah. I mean, we realize that the best way to control the margin of the physical trade is to actually own the supply, right? And you don’t need to necessarily own the mine to own the supply. What you really need to do is own a long term off take contract. Now, obviously, if you’re negotiating with yourself because you own the mine, that contract is a lot easier to sort out. But it’s not necessary. And the most successful trading houses have a mix of those things. They own assets that they control and that they run their off takes off of. In some cases, they actually provide the service to a third party and it’s the mixing and matching of those things that creates a great trading book.

[00:06:39] Jamie: Do you have much of a view on there’s like the traders that became miners, I think probably the Glencore is the best example of that.

[00:06:46] Oskar: Yeah, and the traffic rulers.

[00:06:47] Jamie: Yeah. And then there’s the miners that I presume more quietly built out their own trading houses like the BHPs or something like that. Do you have a view of whether it’s easier to go one way or the other?

[00:07:00] Oskar: It’s easier to be a trader and become a miner than be a miner and become a trader. They’re very different skill sets. Right. When you are a trader physical and otherwise, you are an LME person, and you go to the LME dinner. Yeah. If you are a mining guy, then you go to PAC, right?

[00:07:17] Jamie: CIM. Yeah. And CIM.

[00:07:19] Oskar: And you go to those meetings. You don’t see very many traders at the one meeting. You don’t see any mines at the other meeting. So, there are separate worlds and there are fewer than a handful of successful stories about merging those two skills.

[00:07:33] Jamie: Yeah. So, when you wake up in the morning, look at yourself in the mirror. Do you see a trader or a miner at heart?

[00:07:41] Oskar: I see a trader. I don’t like looking in the mirror in the morning. It’s not a pretty thing, but…

[00:07:46] Jamie: So, you’re at Red Kite. Red Kite, as I understand it, still exists.

[00:07:50] Oskar: I believe so, yeah.

[00:07:52] Jamie: You left and started Orion, as I understand it, focused on the mine finance business.

[00:07:58] Oskar: Correct.

[00:07:59] Jamie: So, most of the people listening to this podcast are investors in mining. But very different than the way you would invest in mine. They’re primarily retail investors. They buy equities mostly in the public markets. Can you give us the overview of what mine finance is and what stage you’re really looking at there?

[00:08:18] Oskar: Okay, so, development of a mine, which is really a development of a project. It’s typically not called a mine until it actually produces, right? Until then, it’s really a project. A project development has two general phases. One, exploration, and the second, execution. So, they’re differentiated by what the primary activity is. So, exploration is really, as you would expect, finding the rock, finding the ore body, determining what its size is, and getting an idea of, how economically viable it is, right? Execution is, I have a viable ore body, I have a good set of economics, now I actually have to construct the mine. So that’s a building exercise. And usually, roughly said that the amount of money spent to get to a production asset is about 20 percent exploration and about 80 percent construction. So, exploration is riskier because you may find nothing after spending a bunch of money. But execution is much bigger dollar signs, but much, generally much lower risk. We are firmly in the execution camp. We are not really finance, financiers of exploration. There’s a whole, as you can imagine, there’s a whole junior mining market out there. You know, Canadian based largely, but also Australia and other countries, and they fund exploration. Once you get to us and you need the really big checks written, then you have a mine plan, you have a budget, you have permits, and then you’re ready to actually pour cement, right? And that’s where our money comes in. And what we try to do is we try to make sure that the entirety of, in our view, the scope of work and the amount of money necessary to achieve that scope of work has to be spoken for, right? You don’t want to build 90 percent of a mine because then you have nothing, but lit cash on fire, right? So, you have to know that you have all the money necessary in your estimation or in Orion’s estimation to finish a mine. And that’s what we do. And so, what we’re essentially underwriting there is a project that’s unfinanced. It trades roughly in the market at about a 4 times NAV, whereas a cash flowing growth asset trades at north of one times NAV.

[00:10:34] Jamie: And so, you’re clipping that margin.

[00:10:36] Oskar: And you’re clipping that margin, right? One divided by 4 is a two and a half multiple, right? So that, that’s essentially what we’re underwriting.

[00:10:43] Jamie: And for people at home not familiar with NAV or NAV, that stands for Net Asset Value, which is a calculation of the underlying value of the assets, typically.

[00:10:52] Oskar: Correct.

[00:10:52] Jamie: Yep. So, okay, so, is it safe to say, you know, a lot of the, especially the junior mining speculators they’re looking to knock it out of the park, right? They’re looking for those 10x returns, you know, they’re willing to, to eat some losses along the way to search for that 10x. You’re looking at a much more structured product and deployment of capital.

[00:11:14] Oskar: Exactly. Early-stage exploration is, you know, venture capital for rocks, essentially. And that is, I’m going to write a couple of zeros, I’m going to maybe cover my face once or twice, and then hopefully the rest of the time I’ve got a 3x or 5-dagger or however you want to call it. And that’s a very VC model in a way. And that works for various people that like that kind of risk. To our thinking, that’s not really very institutional in nature. And we’re looking for, um, investors, and investors are looking for us to hit singles, doubles, triples, not grand slams, right?

[00:11:49] Jamie: So, when you were sort of devising this, and what you’re saying now is, it sounds pretty obvious, and you know, this exists in infrastructure, and basically every other industry in the world. But, and I’m not an expert on this, but when I look at all the other mining PE funds, private equity funds in the world, first of all, there aren’t that many that are around for the long run and there aren’t as many, I think, that sort of take the approach that you’re taking. There’s a lot more equity focused and a lot less sort of structured finance. So, did you come at that, like, did you understand the needs of the clients you wish to service or was this just sort of how you viewed the industry, and you were scratching your own itch there?

[00:12:39] Oskar: I like the scratching your own itch analogy. I think that’s kind of more appropriate actually. It doesn’t do anyone a favor to put something together that an investor likes, that’s a great story, but isn’t fit for purpose, right? So, what a lot of people have done over time is they’ve invested in PE structures that mimic what you’d call a retail investor approach, which is early-stage equity. Which leads you to a too concentrated position. No flexibility in your capital structure and passive exits, right? Yeah. To exit your equity position, you need somebody else to buy your equity position, which means you can’t really drive that success, because unless you have all the money together to actually build a mine, you don’t have any alternative path. You either, right, if you have, if you’re looking at this from a perspective of, I’ve just funded this exploration success story, either I build a mine and go public and exit that way, or I sell this discovery to, to a third party.

[00:13:45] Jamie: Yeah.

[00:13:46] Oskar: And if you can’t sell it, and you don’t have the money to build it, then the person that you’re selling it to knows you don’t have the money to build it. You have no leverage in that transaction.

[00:13:58] Jamie: And you see this a lot, these PE funds that get trapped, right? Exactly. It’s like they own all of it, or a large, or most of it. They list it. They raise some other money. They still own the money. 40 to 60 percent of this thing. There’s no way they can sell that stock in the open market. No one else wants to finance it if they won’t finance it.

[00:14:15] Oskar: Exactly.

[00:14:15] Jamie: And then they’re trapped.

[00:14:16] Oskar: They’re trapped. Exactly, exactly right. And that is been the bane of existence for many a person in this space because they know that there’s this overhang of paper that wants to be sold. And they’re not going to get in front of that because that sales process will crush the price, right? And if they know that you can’t sell it and then there’s no financing in place because you have no more money to follow your money to actually build it, you end up in this sort of you know, sort of impasse.

[00:14:47] Jamie: Yeah. So how do you guys do things differently? How do you avoid that trap?

[00:14:53] Oskar: Well, first of all, the best way to avoid that trap is not to walk down that road where the trap is, right? And that is, right? And the way to do that is not to get involved in those early stage, more middle stage exploration plays. There’s a famous sort of curve with many different names, the most common is the Lassonde Curve, right? And that’s very low value through exploration and all the hype gets told, the share price runs up, then the people realize, oh no, oh no. There’s nobody going to buy this, but we now need, you know, a billion dollars to build the asset. Where is that coming from? The share price comes back down. Construction finances raise. This finally happens. Then the share price runs up, and then you have a publicly traded cash flowing entity, right? What we want to do is we want to get in at that trough in the Lassonde Curve and we want to get out on the first day of commercial production.

[00:15:50] Jamie: And you’re using, in these scenarios, a combination of debt, a combination of royalties and off takes, a combination of equity. Is that fair to say?

[00:15:59] Oskar: Yeah, so, what we talked about at the beginning was that there’s no point in financing the first dollar of a mine construction if you don’t have the money to finance the completion of the mine construction, right? Ninety percent of a mine is just a big hole in the ground, right? So, you have to speak for all the money, and you certainly don’t want to take that check and write one big equity check for it, right? You certainly want leverage, and you certainly want to be, you know, clever in structuring how, you know, that mine package, mine financing package is built. And for that you need to have a lot of different options in your house to do that. Because every mine is different, every cash flow profile is different. You have to bespoke your package to the needs of the client, right? And that’s not possible if you don’t have the ability to do any and all of those different kinds of structural financial tools in your tool belt. And Orion is one of the few organizations that has enough experience, enough expertise. In all of these kinds of structuring options to really tailor properly the package to the, to the needs of the mine. Additionally, what a lot of people forget to do or do poorly, that we’ve, you know, sometimes through, you know, hard yards ourselves, have to be said, learned about, is how to milestone properly, right? So, if, if you have a billion dollars that you need to build a mine, the worst thing you can do is go to the mine manager and say here’s a billion dollars call me in three years and let me know I went right, so…

[00:17:30] Jamie: You have some nice dinners.

[00:17:32] Oskar: Yeah, that’s right. Yeah. Oh, that’s Ferrari. It’s new on the lot. How’s that happen? So, what we do is we don’t finance all the money up front. We have different stages different requirements both financial budgetary, personnel and operational readiness You to draw money from us. So, you have to meet every milestone for the next ticket to arrive.

[00:17:57] Jamie: So, you accomplish X, that unlocks Y amount of capital.

[00:18:00] Oskar: Exactly right.

[00:18:00] Jamie: So, I have a question here for later, I’m going to pull it forward. So, agree or disagree? So, mining as an industry massively overcompensates its managers and massively underperforms.

[00:18:14] Oskar: I don’t believe it massively overcompensates its managers. I believe that compensation schemes could be better tailored towards success. But if you compare mining executives to oil and gas executives, for example, they’re certainly not overpaid, right? But the incentive alignment could be improved. Only about 20 percent of mining projects get built on time and on budget. On time is within six months of original timeline, and on budget is within 15 percent of original budget. So, it’s an industry that is woefully inadequate as far as returning capital properly to its shareholders, because overruns lead to dilution, lead to delays, lead to worsening conditions for mining companies and lead to long term on an industry wide basis lead to people exiting their interest in investing in the space, right? And there’s many a paper been written about value destruction in mining and don’t need to belabor that. What we have to do is we have to find a way to do that more cleverly and that path exists.

[00:19:26] Jamie: And it’s the milestones part of that, right?

[00:19:27] Oskar: Milestones are certainly part of that proper structuring of covenants for, for debt facilities is part of that, balancing the debt facilities with structures around production linked financing so that the part of the financing package is linked to production so that the company feels more comfortable about its relative leverage is important. The ability to intervene rapidly, which is important. Mining companies that have things go wrong quite often don’t have the budget or the wherewithal to deal with the problem when it’s still minor and the problem escalates. And as you know, in any of these sort of construction projects, one small thing near a bottleneck or a critical path can have a cascade effect across the entire project. And by the time you get to figure out what the original problem was, it’s morphed into something much bigger, right? There, Orion is very happy to be hands on with folks. What we do quite often is understand there’s a problem, and because we’ve seen that problem in another asset that we’ve investigated or funded, we know how to solve the problem and who the person is that can solve that problem. So, nipping stuff in the butt is another big advantage that we have. Another big lesson that we learned over time to, to have open dialogue about what is going poorly and sorting it out quickly.

[00:20:53] Jamie: You know, when you get got into this career, did you start with like, you’re we’re in New York, not exactly a mining hub. I think you grew up here, if I understand.

[00:21:03] Oskar: I did, yeah.

[00:21:05] Jamie: Were you fascinated with mining or were you fascinated with finance early on?

[00:21:08] Oskar: I was actually fascinated with finance and fascinated with finance as a sort of an oxymoron. I mean, I don’t know how. You know, finance isn’t really that fascinating as a career, but it’s where I started, right? And I really got into mining quite a while ago almost by accident. I was, you know, busy being a general corporate banker, but I got sent out to Central Asia very early in my career.

[00:21:38] Jamie: Where specifically?

[00:21:39] Oskar: I was sent out to Kazakhstan, I was sent out to Azerbaijan and I worked on a lot of the sort of post-Soviet mining industry and oil and gas industry sort of restructuring.

[00:21:49] Jamie: So, this is taking these sorts of state run organizations and listing them on a

[00:21:54] Oskar: Exactly. Listing them, selling them, running privatization campaigns for, for people’s equity in these, in these businesses. So yeah, I did, I did a lot of that at Credit Suisse.

[00:22:06] Jamie: Ah, yeah. I mean, have you, I assume you may have read Bill Browder’s book and sort of his early career in, in doing something similar.

[00:22:14] Oskar: Yeah, he was more oil and gas and very much Russia focused, and I guess I was lucky enough not to be Russia focused. And more mining than oil and gas. But yeah, essentially this was the wild east back in the day and figuring out stuff that never had to be figured out before. And it’s a really steep learning curve but fun too.

[00:22:38] Jamie: And so, did you kind of fall in love with the sector and see the opportunity there?

[00:22:42] Oskar: I did actually, yeah, I kind of fell in love with it. I’d say mining for most of the people in mining is kind of a love hate relationship. You have to, you have to kind of love it, but it drives you crazy too. At times, right. Yeah. But it’s, you know, it’s kept me busy. And mostly out of trouble.

[00:22:58] Jamie: So, if we come to today, you guys have been doing this for ten years now, it’s a very different world today. Where do you see the opportunities in mining today? Where is Orion and yourself focused on in the future?

[00:23:16] Oskar: Well, a lot has been said in the press and a lot of other sort of public announcements have been made about the importance of decarbonizing the economy and sort of you know, removing fossil fuels from the energy systems and replacing them with, you know, renewable energy. A lot less has been said, although, you know, certainly some, something’s been said about how important mining is to that conversion, right? The amount of lithium, the amount of graphite, the amount of copper necessary for a successful transition is finally starting to be understood by people. And the need for upstream supply for downstream assets be they geothermal wellfields, solar panels wind farms is finally sort of being understood by the OEMs, by general industry, by the government. You know, belatedly, the U. S. government is, it’s sort of cottoned on to the fact that they need to do something about securing critical materials to the U. S. The EU has also initiated a program as well about a year ago now to try and secure supply. So that is obviously a very big thematic that’s, that’s a booster of demand. I think the other things that are probably a little bit less well understood, that are also big sources of incremental demand for metals are the use of a great deal of metal in military situation. So regional conflicts that we’re going through now are vast consumers of metal, right? So that has to be replaced as well. That’s another source. As of about 5 or 6 years ago now, the world has finally moved to being predominantly urban. So more than 50 percent of the world’s population lives in the cities. Cities are much bigger consumers of metals than the countryside is, right? You’re moving essentially from wood construction to cement and steel construction. So that’s another big source of demand. And then lastly, incremental sources of new energy requirement. Not just for transitions, but also the amount of data centers and AI data centers that are cropping up now that need energy and need infrastructure for that energy. That’s all incremental sources of demand. And now, the important word to understand there is that they’re incremental. Right? There’s still all the underlying historical needs for metals that always existed. Like you still need copper for tubing. Right? You still need all that kind of stuff. This is all new sources of demand.

[00:25:54] Jamie: Well, the stat I read from one of the banks, one of the research groups, is that it’s something like in the next 25 years there needs to be more copper mines than all of human history up to this date or something like that.

[00:26:08] Oskar: That’s a quote that a lot of people have made. I think most recently the CEO of Rio Tinto said that at a conference. And it’s true. We do need to mine more copper in the next 25 years if we’re going to meet our urbanization demographic requirements, we’re going to meet military requirements, we’re going to need to meet energy transition requirements data center, all that stuff means we need to produce more copper. Closer to 50 million pounds of copper versus about 25 million today.

[00:26:40] Jamie: And so, we’re seeing like today, the majors reacting to this in a big way, right? We like Anglo’s now in play. BHP put a bit in for them. Glencore is kind of going around that too. So, you can see the biggest mining companies in the world are making big steps to lock down supply. But they’re really only locking down existing supply, right?

[00:27:04] Oskar: Exactly. They’re changing the ownership of supply, not adding to it.

[00:27:07] Jamie: Even, I think, was it last week, we saw the UAE Sovereign Wealth Fund, they bought a big chunk of KCM, Vedanta’s Zambian copper mine, a billion dollars, I think, for 50 percent of it. So, that’s great, and it’s good to see money flowing into, sort of, consolidation and bringing these sorts of assets offline. We still need more mines, right? We need a lot more copper mines.

[00:27:33] Oskar: We need to do three things better. One, we need to incrementally improve recycling.

[00:27:39] Jamie: Okay.

[00:27:40] Oskar: Because that’s copper breathing air. That’s, is it, is it the highest, best use of copper? Or can you recycle that into, into A better use. That’s one thing. Second, you need to maximize out substitution or thrifting. Right? So, you need to say, do I really need zinc for this? Do I really need copper for this? Is there a way to use less to get the same result? Or substitute it out with something that’s not as constrained physically as this metal is, for example. Right. So, in battery chemistry, is there a way to run a battery chemistry without cobalt? If you can figure that out, and people are talking about how to do that. Then all of a sudden cobalt becomes less of a tight market, right, because you don’t need as much for what you’re using. And then the last thing, the last one is obviously primary new supply, which is the building of mines. You need all three of those working together to have any hope of meeting these demand size targets that people are talking about.

[00:28:41] Jamie: Okay. So, with respect to the primary supply, this is going to be kind of a hard question to answer, I think.

[00:28:50] Oskar: Oh, good.

[00:28:51] Jamie: What has to happen to incentivize miners, governments, the key players here, to actually go out and make that happen? To develop new mines, to explore aggressively for new mines? Is it simply metal prices need to rise to incentivize that? Is it regulations need to change? I mean, I don’t know. Certainly, you know, America and Canada and the Western world is a little, I think a little slow to the game. You know, the Chinese have been picking up critical assets in Africa, now aggressively in Latin America for years now. What has to happen for, let’s call it, North America and Western Europe to catch up there? Or can they? I think I asked you two different questions.

[00:29:38] Oskar: Yeah, it’s okay. A complex compound question. Okay. No. Suffice it to say that the West needs to catch up. It’s not a what if or do we need to or can we or should we. It’s almost an existential question for the West at this point. If they don’t get this together, they’re looking at a long-term slowdown and decay of the economy. Their way of life. You need to do this, right? It’s a nice to have type outcome for them. Not everybody realizes that. Not everybody buys into that. Not everybody is as fully convinced as I might be that that’s true, right? So, the first thing that needs to happen is education, right? And that’s where something like a podcast comes in because these people that have various sort of agendas and have various you know, issues that they have to contend with.

[00:30:35] Jamie: And you hear that, Biden, are you listening right now?

[00:30:39] Oskar: I actually think, I think, I think, I think actually Joe is actually on board with this. I think the IRA is a really powerful piece of legislation in that direction. Right. I also, for what it’s worth, I think Donald Trump kind of sees this as one of the few bipartisan things he can actually agree with the Democrats on, so I think that that’s super helpful. But you’re right, I mean the Chinese Belt and Road Initiative has given them a pretty massive head start on this and we need to catch up, but if anybody can, it’ll be the sort of, the Western powers, pretty, you know, innovative, pretty fast at catching up. What has to happen is you need an incentive price of production. Where you asked about incentive prices. So, you need that to happen, right? Otherwise, there’s no economic benefit to the West and to the people that provide private capital to actually deploy it in this space, right? So, you know, you can, you can, you have a dollar, you can spend it on a lot of different ways to convince somebody to spend it on building a mine. Means that the mine has to return in something economic relative to its risk Versus other projects, right? And you know, is that a solar Panel is that a wind farm or is it a mine, right? The first initiative has always been for people to go downstream and fund green projects. But the returns there are, for infrastructure returns, are single digit returns now, right? The really interesting returns are now upstream, right? That’s starting to be recognized and money is moving in that direction. But you need incentive price of production. And you need certainty, and that certainty is really a question of permitting at this point, right? The last thing you want to do is spend all this money on a mine project, you know, we’re talking about hundreds of millions of dollars in some cases, only to be told that the mine is a no go because some permitting issue came up that you knew about, that other people knew about, but they just ignored, and they didn’t want to deal with it. And then they say no. And then you’re sitting there with all this money spent and nothing to show for it. That needs to change. You need certainty. You can certainly say no to a mine. You can say, I don’t like this mine. I don’t think this is in the right area. It shouldn’t be built. But, to say it’s okay and then wait till a lot of money has been spent and then say no is a problem.

[00:33:01] Jamie: So, in the lead up to this conversation, I’ve been trying to think about the problem and the solution here. I have a pet theory, but I want your feedback. So, the, you know, the problem with competing against, say, the Chinese, is You know, often they’re state sponsored. They don’t really need to make money on the acquisitions of the mines. From what I can see, you know, in the case of things like lithium, they’re just securing the feed for their downstream industries, right? And all the money is made in making the batteries or the solar panels or whatever, and they’re able to outbid almost everybody else in the world for assets. How does Because North America, you know, the Canadian, U. S., Australian mining industries compete with that when companies, private equity firms, et cetera, they actually need to make money on these investments? They have shareholders they answer to. So, I have two theories here. One is that there will need to be some form of public private partnership where the government is providing capital in order to secure assets for, for some form of national interest. Or two, that the only people that can maybe afford to compete here are the big tech companies whose cost of capital are so low who trade at such high multiples that, you know, the Teslas or the Microsofts or what have you, they’re able to actually go down and lock, lock down their feed of whatever minerals that is critical to them and not be concerned to the same degree about making money as obviously a mining company would be. What do you think?

[00:34:48] Oskar: I think you’ve identified certainly a key problem, right? Which is that the political situation in China and the SOEs that work for the Chinese state aren’t. always rational economic actors, right? They, they have a geopolitical element to them and they, they think very long term and they, they may be willing to lose money up front on something just to secure supply and to ensure the ability to bottleneck other geopolitical actors, right? And you’ve seen that in Rare Earths. You’ve seen that in a couple other situations recently. So, you’re right. That, that, you know, that’s not a level playing field from the perspective of the West, right? I’m not as deeply concerned by that, and I’ll tell you why. Making decisions on a non-rational basis, a non-economically rational basis will tend to cause problems for you in the long term too, right? So, you’ve seen a number of investments that the Chinese made under their Belt and Road Initiative in Africa go sideways really badly, right? So, there’s only so long that the, that the any kind of economy, even the Chinese economy, can tolerate abject negative returns, right? And you’ve seen that in a number of projects where they’ve overbid where they’ve constructed ports and railway systems in different countries and those railways are empty. You’ve seen, even in China itself, you’ve seen the Chinese build airports where there’s no, there’s no landing slots, right, for airplanes. So yes, you can be economically irrational, but eventually that’s going to end up costing you. And I think that is something that the West can avoid making as a mistake, that may be a mistake over time. That doesn’t solve your problem immediately, obviously. This is sort of more of a longer-term evolution of thinking. But nearby, you’re right. There’s got to be an ability for the West to compete on an economically rational basis against a, a player that’s not necessarily that and the way I think that works really ultimately is that you have a Western balanced price mechanism that, that essentially guarantees at least for some portion of the minds output, a floor price and then a floor price It looks like a price that provides a certain positive level of return to the investor and the mine and doesn’t allow a non-economic actor like the Chinese government to underbid the prices, right? Because that’s, that’s something else that happens, right, is you go in and you write yourself an economic case for an investment and then the Chinese come in and they underbid the price that you think you’re going to get for your output and then, you end up having to close your operation down, right? So interesting example today in cobalt, right? The Chinese have gone from producing China has always gone from producing 10,000 I think it’s tons maybe of cobalt to producing 100,000, right? And the whole market in the world for cobalt every year is 150,000 tons.

[00:38:01] Jamie: Okay, so they’ve just flooded the market.

[00:38:03] Oskar: They’ve just flooded the market, destroyed any ability in the West for anybody to make any money on cobalt. Everybody shuts and the West shuts down their cobalt production.

[00:38:10] Jamie: Then the Chinese can buy up all those mines if they want to as well.

[00:38:13] Oskar: Exactly right. So as long as you knew that there was going to be a guarantee from either an OEM, a tech company, or the government, or somebody that says we’re going to guarantee 40 percent of your productions at this price and with that you just about survive, then the Chinese can’t play that game with you, right? They can’t just, you know, take you out.

[00:38:33] Jamie: So, do you envision that happening kind of like on us or maybe North American based assets, or do you envision that happening for US companies on global assets that they’re involved? How, how does that might be?

[00:38:52] Oskar: I don’t know your realm? No, no. I just, I don’t, I, I don’t know how that happens. I’m just hypothesizing that that’s a path that, that people have talked about taking. To, you know, secure supply, because you don’t want to end up being completely dependent on the Chinese for sources of materials.

[00:39:11] Jamie: There’s a lot of discussion, obviously, today in terms of sort of on-shoring to America, right?

[00:39:19] Oskar: Yeah, or friend-shoring.

[00:39:21] Jamie: Yeah, probably chip manufacturing being the most prescient. But I think that there is a time when the actual deposits of onshoring for, you know, be it lithium or nickel or cobalt or what have you, there is going to be a focus on securing those in, in friendly countries in North America again. But I think, you know, to your point earlier, that means real, in a lot of places, overhauling of regulations, right? Or at least, or at least clarifying the regulatory environment. Do you think that happens?

[00:39:59] Oskar: I do believe that happens. I really just hope it’s not some kind of traumatic event.

[00:40:05] Jamie: Yeah.

[00:40:05] Oskar: That forces that to happen, right? You know, you want to, you want to take care of it before, you want to take care of those kind of problems before they become acute, right? And that’s a question of political will. And, and sometimes it takes, it takes something traumatic you know for, for the people to, to do that. I hope not, but, but who knows?

[00:40:27] Jamie: I think it probably will. You know, I think about even just Canada, right? Like it took a global pandemic for us to realize maybe we should be able to produce some vaccines within our own country. I hope you’re right. I have a hard time, seeing the politicians prioritizing that, or even being able to prioritize it if they wanted to without kind of everyday people feeling the pain of some sort of shortage of something that’s critical.

[00:40:54] Oskar: Yeah, but politicians hate when people feel pain.

[00:40:57] Jamie: Which is why they’ll try to, they’ll have the ability to solve it then.

[00:41:01] Oskar: But yeah, but this question is, if you could solve it with a band aid now, or general surgery a year from now, would you rather Fix it with a band aid. I would have thought so. But you’re right. Sometimes it takes a wound for it to work.

[00:41:15] Jamie: I would rather fix it with a band aid. I don’t know if, you know, in every country politicians even realize that band aid is necessary. So, I guess we’ll see.

[00:41:25] Oskar: We’ll see. I mean, the other thing to remember, right, is it isn’t just about permitting, right? It’s and or government acquiescence to allowing for a rebuilt mining industry in North America, right? It’s also about having the skill set to do that, right? The U. S. has had a, had a real issue with a mining workforce and a mine engineering workforce that’s aging rapidly and with very little in the form of next generation expertise being homegrown here, right? In order for the U. S. to actually build out a mining business again, it needs metallurgists, needs geologists, needs process engineering. All those guys that do that now or have done that for the in the U. S. for years are all in their late 50s early 60s at this point and the people beyond behind them are all chemical engineers or well electrical engineers are all computer coding you know they’re not learning how to do stuff that’s necessary and to make it even worse a lot of the more advanced kit that is necessary for mining these some of the equipment It’s made in China now. It’s not made in the United States anymore, right? I mean, okay, clearly, we still have Caterpillar, and we have, you know, some of the yellow kit that is necessary is made in the United States, but a lot of more specialized mining equipment, we exported all that production to China now.

[00:43:05] Jamie: Ball mills, et cetera, yeah.

[00:43:06] Oskar: Yeah, it’s not made here anymore.

[00:43:07] Jamie: I have that in my notes, actually. You know, what do you, how is Orion preparing for a talent gap? Because, you know, you’ve, you know, got a lot of money to deploy and, and support companies. And I look at myself, you know, I’m 38, I’m a mining engineer. Most people I know doing that job are, are in their 60s now. You know, there’s not a lot of people between me and the 60-year-old.

[00:43:33] Oskar: So that means you just get promoted faster.

[00:43:37] Jamie: Heaven forbid that mining company. But now how do you think about that? Right? Because you guys have been around 10 years. I assume you want to be around for a lot more, you know, how do you look for talent? Both in terms of who’s working for Orion and then who’s working at your portfolio company.

[00:43:56] Oskar: It’s a real challenge for us I mean, you know. Our technical team is based out in Colorado, right? You know, near the Colorado School of Mines. But most of the guys in our tech team are with one or two exceptions. They’re all in their late 50s, early 60s, right? And the people that we’re finding that have those skill sets are not Americans. They’re, in some cases, Canadians, and in some cases, Australians. But in a lot of cases, they’re Chileans, they’re Peruvian. You know, they’re not, and, you know, I don’t know. In inducing them to come, to move to, to the United States to do something is a challenge too. It’s a language challenge. It’s an education challenge. It’s an expense challenge. Right. It’s a visa challenge for, you know, certain you know as well. Yeah. So, we’re having to go to where they are as opposed to them coming to where we are in a lot of cases.

[00:44:48] Jamie: Does that mean, so as, so you have offices in the United States, Australia, London. Chile? Do I have that one right?

[00:44:57] Oskar: No, but we have Chilean expats working for us in those offices, for example.

[00:45:03] Jamie: Yeah, is that how you approach it? You set up an office, maybe set up a satellite office in the region?

[00:45:08] Oskar: Yeah, we are thinking of setting up a satellite office in the region. And in somewhere in the Middle East to get some of the talent there because there’s a quite a bit of talent over there We don’t know if we’re gonna do that, but we’re thinking about it But it’s you know, if you’re if you want to build a brand new mine somewhere in you know, Michigan Getting the right people there to build the mine effectively is not easy, right? It’s really challenging. And that’s another, I mean, that’s another problem that takes time to solve. You can’t just throw money at that.

[00:45:42] Jamie: If you think of the young engineers, right, they can go work at a mining company and make 150, 000 a year, or they can go become computer engineers and make 400, 000 a year in Silicon Valley.

[00:45:51] Oskar: That’s right. You can go to the office, have your dry cleaning done for you. Macchiato sent to your desk, or you can sit out in a base camp in the middle of Manitoba.

[00:46:01] Jamie: Yeah, so the case is that those jobs are not really being compensated properly to attract the talent. And for that you need higher metal prices.

[00:46:10] Oskar: There you go.

[00:46:13] Jamie: How do you guys, when you’re investing, think about teams versus assets? Because, you know, the best mining asset in the world is basically worthless without the right team to operate it and to extract it.

[00:46:29] Oskar: Yeah, but vice versa is also true. A really good mining team with an asset that shouldn’t be built is also a waste of time, right?

[00:46:37] Jamie: So how do these sort of sit in your evaluation process? Do they hold equal weight? How do you view that?

[00:46:43] Oskar: Well, our view is actually, interestingly enough, a little bit of a combination, right? We tend to believe that really good assets attract really good mining teams. Right, one of the best ways to know if an asset’s worth looking at is to look at the management team that is running that asset. Because if they are good at what they do, they will have invested, investigated that asset itself, and decided whether or not it’s worth their time to be there. I mean, very few management teams want to take on a challenging asset if they don’t have to.

[00:47:17] Jamie: They have better options.

[00:47:17] Oskar: They have better options, right? So, a good management team and a good asset tend to sort of correlate with each other. And so, we think ultimately, it’s almost always easier to change some of the management team instead of changing the asset. Because the asset is what mother nature gave you. You have to deal with it as it comes. But by and large, and this is the benefit of being in this business for so long, is we kind of know everybody in the space. We know who’s good and who’s, you know, who’s the A team, who’s the B team. And so, A team assets and A team membership tends to correlate. And so, for us, the home run is, you know, not having to choose between the two. Let’s put it that way.

[00:47:59] Jamie: Are most of your investments made with sort of the very well-known entities? In the sector, you know, I know like the Robert Friedlands of the world, for example, or do you have a lot of sort of lesser-known teams that you guys have found to be very good and don’t maybe necessarily have quite the public image as some of, some of the better-known entrepreneurs in the space?

[00:48:23] Oskar: I think that the winning combination is a little bit of both of those, right? You want your sort of, you know, pedigree names, your sort of, you know, your Frank Giustra’s and, and Regents and, and Friedlands of the, of the world. But you also have to understand that those, those names attract decent valuations, right? And so, you’re going to necessarily have to work that much harder to return something that, that you want to. The smaller, less known teams don’t attract those. those high-end valuations, but you have to, you’re taking a bit more risk that they can actually accomplish what, what you, what you think they should be able to accomplish.

[00:49:07] Jamie: So, I’m really glad you said this, because there’s this ethos, especially in junior mining, of investing in the, you know, the rockstar mining entrepreneurs, the Ross Beatys or the Robert Fruins, guys that have had these repeat successes. And a lot of the finance types, what they say to people is, you know, bet on Ross Beaty, he’s done this, or, or whomever.

[00:49:29] Oskar: Yeah.

[00:49:29] Jamie: The problem is I have seen is the reputation is priced in by the time most people get to invest right? It’s a premium because they’ve had XYZ.

[00:49:39] Oskar: And they deserve it right? It’s not it’s not like it’s not like the premium is just sort of magical It’s earned right and all those names you mentioned are all people that we have invested with and in our in our view deserve the recognition that they’ve earned right and we’re happy to be alongside them.

[00:49:56] Jamie: Yeah.

[00:49:57] Oskar: But the really big home runs are going to be outside of that sphere because the step in valuation the purchase price is Just more reasonable in some ways, right?

[00:50:10] Jamie: And that’s what I was going to say. All the big wins I’ve ever made are from relatively unknown groups of people. That are not, they have a lot of experience doing, typically I look for technical roles, because that’s where I’m maybe most apt to evaluate someone, and then they’ve stepped into the, okay, this is their first time with their own company, but they’ve worked heavily, and that’s where I’ve always had the best success.

[00:50:32] Oskar: Yeah, I mean, that’s absolutely right. The risk you’re taking is that sometimes the entrepreneurial exploration mindset that these folks have, that have found this really, you know, this jewel, jewelry box or this sort of gem of a mind somewhere, you know, after 20 years of running around finding different things, right, is, are they capable of transitioning themselves from the entrepreneurial exploration, watch every dime mentality to, okay, oh my God, I’ve got a billion dollar kitty now and I actually have to construct this mine and I have to hire a whole group of other people that I don’t necessarily know that well because I’ve just been running around with an exploration hat on. But now I actually have to manage the permitting cycle, I have to manage legal. I have to manage accounting. I have to hire a thousand people. I need to negotiate contracts and long lead item equipment. I have all this stuff to do, and there’s no way that guy that ran a small exploration company can do all that. He needs to, or she needs to rely on a whole new set of people. And can that person work within that structure effectively is a big transitional challenge for people like that.

[00:51:47] Jamie: There’s not many people that have done it successfully, right? I would make the case that most mining companies, as they go from exploration development to production, need to rotate out management teams to some degree, right? You need to bring in different leaders.

[00:52:02] Oskar: Management teams and boards, too.

[00:52:04] Jamie: And boards, okay.

[00:52:05] Oskar: Right, because sometimes what you can do is if you’re a manager that has a particularly good focus on one thing, you can rely on board members that have expertise in other areas, to help you out, right? So, what you don’t want is your board to be the, your buddies from, you know, from Canadian Finishing School or McGill or wherever, right? That you like, you know, that you play tiddlywinks with on the weekend and they’re all, you’re on board and they’re all making thirty, forty thousand dollars a year for four board meetings and having a good time. You know, that, that kind of board, Is just a, a disaster, right? So, you need to amend your board as well.

[00:52:46] Jamie: Now the average person. listening to this podcast is not ever going to own enough shares in a company to make a real, have a real voice in terms of changing up a board or influencing a management team. How do you guys approach that? Saying, okay, well, maybe it’s time for certain people to, to graduate out of this role and bring in a specialized mine builder or operator or financier of some sort.

[00:53:14] Oskar: Again, that goes back to what we talked about earlier, which is the milestone, right? So, one of the milestones that we typically develop inside a process is, how many people have you hired for these jobs? Have you, how many people have you canvassed for the job of mine manager? Who’s your procurement manager? Who have you brought on board for your corporate relations, IR, you know, how, how are these people, let’s see their CVs, let’s understand who you’ve picked and why you’ve picked them. That tells us a lot about you as a person, as a, as the CEO, is if you’ve picked your buddy that lives three houses down or if you’ve picked somebody that, you know, has a, has a pedigree. That tells us a little bit about how you want to run your business and that, that’s important, right? So, we, we try and make sure that we understand management teams and particularly management team plans. Right?

[00:54:09] Jamie: Do you assist with that? I mean, if someone says, look, you know, I haven’t done this before, what do you think? Thanks for the money. Now what do I do?

[00:54:17] Oskar: No, absolutely. So, we strongly prefer when people that want our money are also open to listening to us, right? And that goes back to what we said earlier about if there’s a problem, the worst thing you can do is try and hide that problem or downplay that problem because it won’t work. You can’t hide it from us for very long and we’ll take our own assessment as to how serious the problem is. So, if people are open with us, willing to talk to us, take our advice then it’s much more of a partnership, much more collaborative and that makes us much more comfortable. And good management teams should know where their blind spots are. They should know, I don’t, I’ve not done this before. I can use help here. And there’s nothing wrong with that. Doesn’t make you worse of a CEO or president to, to know what you know and what you don’t know. That just means that you, that you’re working, you know, for the best interests of everybody that’s a shareholder.

[00:55:16] Jamie: You know, it seems to me like a lot of mining companies, it’s a never-ending series of solving problems that come up, unexpected problems that come up. How do you guys look at sort of setbacks and investments you’ve made, because I’m sure you’ve had them at one time or another. How do you look at solving those problems?

[00:55:34] Oskar: Yeah, I mean, I think of what you say is fair that there’s problems in any ramp up or any construction project. I think. There’s two classes of problems, right? There’s unforeseeable problems, right? You know, a washout on a road and you’re trying to get equipment up to the mine. That’s an unforeseeable problem. Okay, maybe you should know that there’s a rainy season, but you know, maybe you’ve constructed the road, and you think it’s okay. That’s an unforeseeable problem. Then it’s a matter of how do you deal with that emergency, right? A foreseeable problem is a different, you Like, you should have known that this was going to be an issue, right? That, that is a concern, and that is a sort of review of how things happen and why things happen, right? The worst, though, is a foreseeable problem that becomes a recurring problem. And that’s when changes need to happen, right? So, you’ve made this mistake, you’ve done this incorrectly, and you knew you did it incorrectly and you learned from it, and then you did it again. That means there’s something systematically incorrect here and needs to change, right? And, you know, you’re allowed to, you’re allowed to learn from your mistakes, but you’re not allowed to repeat your mistakes. And that, if there’s a pattern of that happening in management, then something needs to change. Is that a complicated answer to your question?

[00:57:05] Jamie: I think that’s a clear answer to my question. Subtle, but clear. When, you know, you said something earlier that, about, you know, it’s hard to be passionate about finance, right? Finance is, you know, stereotypically a very boring career path, but, you know, potentially a lucrative one. But when I look at what you guys have done compared to your peer group in the mining industry, I see a lot of creativity there, right? You have a private equity firm, you have a, a long equities fund, you have a VC fund, you have a royalty fund, you have a trade finance division. I think there’s a bunch of other things that I’m not even aware of. How do you, you know, I can’t think of a comparable in the mining space that does this. How do you think, how do you think about creativity in this world and coming up with that? Like what, I think you’ve been not formulating this question well, but like I think you’ve done a very good job of being creative here. And where do you think that comes from in a traditionally very dry industry?

[00:58:21] Oskar: I think it comes from sort of a, a need to, for continuous improvement, right? So, as I said, we started out in a, in a different organization as a hedge fund, and then we realized that in order to improve our returns, we needed to have a physical business. And then we realized in order to improve on our physical business, we needed to have access to mine supply. Then we realized that one of the most interesting forms of, of financing are royalties and streams, and that the royalties and streaming businesses were pretty anodyne and pretty vanilla, and there’s ways to make those more interesting, and so we made those more interesting. More of a royalty product around that. Then we realized that as, as you alluded to earlier, that more mining needs to happen in the next 25 years than happened in the last 250 years. Realized that doing that without trying to make it sustainable, is a non-starter, right? So, we have to find ways to make mining more sustainable. Technology is part of that solution. So, we’ve built a technology business around that, right? So, it’s a matter of everything we do, we say, hey, this could be done better. What’s a way to do that better? Let’s create a product that takes advantage of that. And then just that mindset is, yeah, it’s driven us to where we are now.

[00:59:34] Jamie: I mean, what you’re saying sounds very basic and obvious, but

[00:59:37] Oskar: I’m good at that basic and obvious stuff.

[00:59:39] Jamie: But no one, there’s very few groups that do it. Like, it is an outlier, I think, to have this sort of range of, of products and solutions, and yeah.

[00:59:49] Oskar: Long may it last. I don’t know that I’m going to stay an outlier. I found I guess one of the, that imitation is a serious form of flattery, and that quite a few of my peers have, over the years, looked at what we do and sort of Taking a page out of our book and trying to accomplish the same. So, and I have no objection to that. I think it’s actually good for the industry overall to have more investable options than they do now, you know, more power to them for doing that. And I think it’s good for mining overall. And my view is always what’s good for mining overall is good for Orion. So, you know. Welcome to the party, frankly.

[01:00:29] Jamie: Is there anyone or any group that you look up to or take inspiration from or learn from, whether in mining or other industries, historic, otherwise?

[01:00:41] Oskar: I wouldn’t say there’s another group in mining that I kind of look up to in that sense, but I would say that a lot of the innovative ideas that we see in mining actually come out of the oil and gas space. So, we always keep an eye on that you know, industry and get some ideas about how they do things. And I think that’s stood us in good stead. Examples on the, on the royalty side that we talked about before, the VVP structures that they have in oil and gas are much more flexible in some ways than what we do in streaming here in the mining space. So, borrowing some of those ideas is something that we took a look at and have implemented. So that, that’s an example of that. So, there’s a broader range of ideas to go after. Some of the stuff that we’re looking at in technology, we’ve borrowed some ideas from, from some of the other VC firms, you know, the Breakthrough Energy folks in this world. And so, they have some pretty good structures and some good ideas on how to deploy capital. So, you know, borrowed those ideas.

[01:01:47] Jamie: Do you think there’s ever a world where Orion diversifies the commodities you invest in? Do you do energy or agriculture or commodity adjacent, like infrastructure for commodities?

[01:01:58] Oskar: I would say if there is a place that we would go to, it’ll be in the last thing that you just mentioned, which is really infrastructure.

[01:02:06] Jamie: Terminals and storage.

[01:02:07] Oskar: Yeah, exactly. So, mining is the beginning of a processing supply chain that ends with finished goods, right? And there’s a world in there where there’s mines, there’s processing, refining. Right? And then there’s a little bit, you know, sort of end use, you know production. The Chinese have, as you know, built way too many smelters and processing plants now. But specialized processing plants I think are something that would be very interesting to get involved in.

[01:02:40] Jamie: Yeah. I’m always, I’ve always been fascinated by this story of Rockefeller controlling oil and gas by controlling the railways, right? Being able to, so no. And I recently invested in a frac sand terminal in North Dakota, and I’ve always been interested in those, those key choke points for assets and how, and this has been like a pet fascination for me for years, and saying, why don’t more mining companies, and the traders do an excellent job of this, but why don’t more mining companies try to own and control these key choke points, and I don’t know if all of them do and they find themselves exposed to that. So, I don’t know where I’m going with that, but I’m, I’m happy to sit here and say that.

[01:03:23] Oskar: No, no. Look, it, it’s fair to say that mining companies are. generally, run by people that, that are engineering, geology focused engine, you know, sort of process guys. They’re not sure strategic thinkers. And for them, the big step out is to buy another mining company. Right. And you know, there’s very few of them that decide, okay, I’m going to own, you know, I’m going to own a part of the, from the mind gate to a port and put in the port and we control access through that. A little bit of that happens in Australia. I mean, there’s this sort of whole Fortescue rail situation, right? So, there’s a little bit of that, but by and large, I think mining companies have been, you know, asked to stick to their knitting on that front, and I think they take the view that mining is hard enough as it is. Not to add something that they don’t really understand to it. The potential answer, the direction might be the other way around, right? Where the OEMs and the end-users kind of migrate upstream to the mining areas, right? I mean, the U. S. had its history of that in the past, where Ford Motor Company vertically integrated all the way back to making steel for the cars that it, you know, so I don’t know if everything, you know, is all cyclical again and we end up going back to some kind of more vertical integration that way.

[01:04:37] Jamie: And this kind of gets me back to my point earlier. We’re like, at what point is, you know, Tesla’s cost of capital is going to be so low that they can just buy any and all lithium mines that they want in the United States or nickel or whatever it is they’re trying to control for, and the mining companies won’t be able to compete with them. Does that happen? I don’t know. But

[01:04:57] Oskar: I don’t know. I mean, it might. But would that, would that really be a problem? It wouldn’t be a problem. It’d be great. Yeah. Okay. I’m not, I’m not an object to that, you know.

[01:05:08] Jamie: So, we’re just over an hour now and you’ve been very generous of your time. So, I’m going to wrap it up, but I have. Three fun questions for you.

[01:05:16] Oskar: Oh, good.

[01:05:17] Jamie: Okay. So, alright. Picture this. Orion’s gone. You have a hundred million dollars. You’re allowed to invest in one commodity in the form of a stream or royalty. What do you do?

[01:05:30] Oskar: I invest in a tin stream.

[01:05:32] Jamie: Tin stream? Interesting.

[01:05:36] Oskar: You asked.

[01:05:36] Jamie: I asked. Can you elaborate?

[01:05:39] Oskar: Oh, it didn’t say I had to elaborate, but alright. I think tin is the forgotten commodity.

[01:05:43] Jamie: Yeah.

[01:05:44] Oskar: I think it’s super important for all electronics. I think it’s largely replacing or has replaced lead as a soldering agent. It’s super important in a couple of other pretty interesting technologies. It’s, you know, alongside copper, it’s important in brass for armaments and munitions. It’s also the bed that in which you make all flat glass is a molten tin bed.

[01:06:10] Jamie: And where does most tin come from? I know Indonesia is a big supplier.

[01:06:13] Oskar: Indonesia, Bolivia, is another big country.

[01:06:18] Jamie: So, no stable jurisdictions.

[01:06:20] Oskar: Yeah. And there’s no tin mines in the United States or anywhere near the United States. And yeah, and the Congo is the other big one DRC. And, and it’s important, it’s incredibly important metal and we don’t have enough of it and there are not that many new mines being built. It’s tough to find. So, I’d love a tin stream. Okay. Thank you very much.

[01:06:42] Jamie: Next question. We are currently sitting in New York City Why have you not moved to Florida like all the other financiers and in New York at this point? I thought that was the trend post COVID.

[01:06:54] Oskar: My wife won’t let me while the kids are in school. It’s the honest answer to that question.

[01:06:58] Jamie: Fair enough. Okay, two more then we’re done.

[01:07:03] Oskar: Okay.

[01:07:04] Jamie: There’s gonna be someone who’s listening to this podcast Who’s got a lot of money and says? You That Oskar guy seems pretty smart. How do I give him my money? What is the correct, can an individual invest in Orion or is this purely for institutions?

[01:07:20] Oskar: Purely for institutions.

[01:07:22] Jamie: Okay. So, for those of you who are thinking that you’re out of luck, sorry. And then the last question, if I’m a mining entrepreneur in my thirties, forties, twenties, what have you, and I think I’d really like to get some money out of those guys, what do I have to do to get that, for the project that I’m building or working on?

[01:07:42] Oskar: You need to have at least a pre-feasibility study, preferably a feasibility study. You need to have a techno economic model that goes with that feasibility study. You need to show us your permit application plan. And you need to give us access to all the data that you have in your data room on the geology of the mine that you’ve, you know, discovered what kind of processing plan you have, what kind of mind plan you have. That’s all part of the submission that you’ve made to us in the first place and the feasibility. We need to be able to assess your ESG credentials to some degree and then just contact us if you have most or all of that stuff.

[01:08:24] Jamie: Okay, so we have now eliminated 99.9 percent of Canadian companies. For that 0. 1 percent left.

[01:08:30] Oskar: No, you have not you don’t have to have everything fully baked, but you have to show us. That you’ve thought about it, that you have a plan to address it, and that you may need some budget to complete it. That’s generally enough. We will work with you. In some cases, we work with companies for several years to get them up and ready to construct. We’ve also been not known to buy mining companies outright. So, if you have something that you think is worthy of, of that kind of attention let us know.

[01:09:08] Jamie: All right, Oscar, thank you very much.

[01:09:11] Oskar: Thank you, sir.

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Jamie Keech

CIO; Editor

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Nick D'Onofrio

Head of Research

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RI QUARANTINED EP24 – Jack Lundin, CEO Bluestone Resources

***EPISODE 24***

Jack Lundin is the CEO of Bluestone Resources. He’s a trained a mining engineer who cut his teeth at Lundin Gold’s FDN Project in Ecuador, he’s also the son of mining magnate Lukas Lundin. In this conversation, Jack and Jamie discuss Jack’s first CEO role, what prepared him for it, and why he chose Bluestone’s Cerro Blanco Gold Project.

Jack sheds light on the realities of working in Guatemala, the strategy involved in running a single asset development stage company, and why the Lundin’s are consistently able to succeed to jurisdictions where others fail.

***RI QUARANTINED*** A special edition of the RI Podcast where Jamie interviews the mining industry’s top leaders and investors about the effects of the Coronavirus on the resource industry and capital markets. Jamie is currently quarantined at home in Vancouver, all interviews are conducted remotely.

RI QUARANTINED EP23 – James Withall, CEO Rupert Resources

***EPISODE 23*** James Withall is the CEO of Rupert Resources. He’s also a geologist, investor and ex-fund manager.

In this conversation James and Jamie discuss where the junior mining industry gets it wrong, how to run an exploration company like a hedge fund, how to allocate capital effectively, and why Rupert Resources represents a major opportunity for investors.

RI QUARANTINED EP21 – Joel Solomon, Renewal Funds

***EPISODE 21***

Joel Solomon is a Founding Partner of Renewal Funds, a VC firm focused on impact investing in the environmental technology, and organic food industries. He is also the author of The Clean Money Revolution.

In this conversation Joel and Jamie discuss the history of impact investing, how investors can profit while doing good in the world, the impacts of COVID19 on the world, and why Joel believes this is a great time to find quality investment opportunities.