Joe Weisenthal: Hello and welcome to another episode of the OddLots podcast. I'm Joe Weisenthal.

Tracy Alloway: And I'm Tracy Aloway.

Joe Weisenthal: Tracy, I'm um I'm in a mood of a little bit of heartbreak this morning. Oh, mood of a little bit of heartbreak. That sounds like a a country single, doesn't it?

Tracy Alloway: That's right. No, you're you're singing I know what you're sad about. You're singing the tungsten cube blues.

Joe Weisenthal: The tungsten blues. I'm actually a little shook. In 2022, remember the tungsten cube hype?

Tracy Alloway: Unfortunately, [laughter]

Joe Weisenthal: I bought one and it was the only. And it feels so good. Like a nice big block of tungsten in your hand feels so good. It's so unexpectedly heavy. probably like a little like wild autism like I like related like sort of like heavy things like weighted blankets and heavy objects and I was going to bring it to this episode because I know you you love props sometimes you

Tracy Alloway: I do like a good

Joe Weisenthal: and I was like oh I'll bring a prop I couldn't find it on my desk so we did a desk move recently and either somehow I I hope I still find it either it got misplaced in the move or because the value of tungsten has gone up so much maybe someone stole it

Tracy Alloway: I think I know which one it is Joe. [laughter] I think I know. Let me just say for listeners who were lucky enough to have missed out on the tungsten cube craze, there was a moment where for some reason it was mostly crypto bros on Twitter all seemed to go nuts for buying these tungsten cubes and then showing pictures of them on social media and then

Joe Weisenthal: promptly like Joe forgot about them.

Tracy Alloway: And actually, this is a really good analogy for what we're about to talk about, cuz we're going to talk about tungsten, the metal. And tungsten, it turns out, has gone through these cycles where for a few years, it's an absolutely essential strategic asset that you need in order to declare war. And then as soon as the war is over, you kind of forget about it. You still need it for some industrial applications or for novelty desks,

Joe Weisenthal: but then you find out that you need it again. And so there's this like longunning kind of boom bust [sighs] cycle.

Tracy Alloway: I'm really sad.

Joe Weisenthal: You're a demonstrative example of how everyone seems to forget about tungsten except China.

Tracy Alloway: I'm actually I'm actually really sad about this. This is by the way. Can I say one more thing?

Joe Weisenthal: Yeah, please. Please.

Tracy Alloway: I know where you can find some tungsten

Joe Weisenthal: in the west in Western Australia.

Tracy Alloway: Uh in the Bahamas.

Joe Weisenthal: Oh, really?

Tracy Alloway: FTX famously

Joe Weisenthal: Oh, that's right. That's right. Yes. was gonna install a giant tungsten cube at their headquarters in the Bahamas. And everyone seems to have forgotten this bit of the Michael Lewis book. At the very very end of Michael Lewis's book on Sam Beckman Freed, [clears throat] he says he found the giant tungsten cube in a storage unit in the jungle and it's probably still there because no one would want to move it.

Tracy Alloway: Yeah. So, it would be so heavy. I have to It's actually depressing me. You know, one of the reasons like I didn't buy the cube as a quote investment unquote, but I think I've always said, you know, one of the things that people don't talk about with hard asset investing is that you actually pay a negative interest rate because a you have to either pay for storage, constant storage like a safe or something like that, or if you have a storage unit in the jungle or eventually security guards, right? If you really had a lot of gold or silver or whatever. But then if you don't have that, if you don't do that then and every year there is like a nonzero% chance that you lose your asset. You misplace it. Yeah. Maybe you have like some um keys to a crypto wallet that you lose or whatever. So that is a way of replicating except sort of stochastically the ne the a negative interest rate. I think I'm going to find it. I I didn't totally forget about I had it on my desk even as recently as a few months ago and I I have some very messy drawers. So I think I actually I'm not I haven't actually given up hope.

Joe Weisenthal: I'll uh create a a bet on a prediction market about whether you'll find your tungsten cube. But anyway, setting aside desk toys, it turns out tungsten is actually, as you said, important sometimes. You know, it's not like copper or oil where it's important all the times. It seems to be a commodity that's important sometimes. And that creates, as you said, interesting dynamics.

Tracy Alloway: Yeah. And it seems to be growing more important because going back to the military applications of tungsten, we've had a lot of wars recently and tungsten apparently is in a lot of cruise missiles and and munitions. And like a lot of other I I guess rare earth metals. It's also becoming more important to our vision of transition, green energy and decarbonization.

Joe Weisenthal: Yeah, it's in right. This is the thing. There's a lot of it, but it's expensive and low margin in type of mining in friendly western countries that are friendly to the US, some that are like more seen as geostrategic rivals, but in normal times, it's just not worth the squeeze to actually spend to spend the time and environmental costs of mining it. So, we should talk about the current state of tungsten in a state of heightened geopolitical tensions.

Tracy Alloway: Let's do it.

Joe Weisenthal: Anyway, I'm very excited to say we really do have the perfect guest. Someone who we probably should have had on OddLots a long time ago. One of our colleagues coming to us from Sydney. We're going to be speaking, of course, to Bloomberg opinion columnist David Fickling, who's just done a big reported piece about a tungsten mine in Australia and what this tells us about all the things that we're talking about. David, thank you so much for uh joining us. how you doing?

David Fickling: Great to see you. Thank you so much for staying up late to uh chat with us. Why would we talk about war, geopolitical uncertainty, all this stuff? What is it about tungsten that suddenly becomes important?

Tracy Alloway: Yeah, I I mean tungsten, you can look at it as a bit like a a sort of century old missing prediction tool.

David Fickling: Yeah, I I mean tungsten, you can look at it as a bit like a a sort of century old missing predictor of conflicts. In the 20th century, if you wanted to predict wars, you followed the tungsten. On the eve of World War I, Germany bought up most of the world's supply which was mined by the British Empire, and the British only realized when the war started, oh hang on, why have they been buying all our tungsten? During World War II, it was the focal point of all these espionage battles in Spain and Portugal, which were the main sources for Nazi Germany. And the US got incredibly caught short during the Korean War.

And that is because it is the most extraordinary substance. It is incredibly dense, identical to gold. That's why when you hold that cube, it feels so heavy. And it also has this ridiculously high melting point, more than 3,000° C. So, sort of three times hotter than lava, tungsten will still be solid.

Tracy Alloway: So this is extraordinary. But just to be clear, what is it about the properties of tungsten such that it is so useful in military situations?

David Fickling: And that means that if you're trying to make projectiles with it, for instance, if you're trying to make an armorpiercing projectile to to get through the armor plating of a tank, it's going to hold its shape. Most materials are going to sort of turn into a a mushroom and dissipate their force. This is going to go straight through to the inside of the tank, so it'll be very effective. Or also a thing that's more current at sea is these Phalanx guns, which fire thousands of rounds a minute. Because it's so dense, it's basically throwing a solid wall of metal at a cruise missile to shred it before it hits the ship. And the high melting point means when you're firing thousands of rounds a minute and the barrels are red hot, the ammunition isn't going to melt in the barrel.

Joe Weisenthal: Getting hit in the head by a tungsten cube would certainly be painful and damaging. Talk to us about the nonmilitary applications cuz it's possible. You know, you wrote about this new mine that's restarting. Maybe, well, we should get into what that mine is.

David Fickling: You've done your research, Tracy, haven't you? I mean, this carbide tooling, I could tell that was the key reason you will use tungsten is again because it's very hard. It's basically drill bits. If you're in an auto shop or a metal fabrication workshop, you'll see drill bits and cutting tools made of tungsten carbide. Because of the melting point and hardness, they don't melt when cutting at high speeds. So it's manufacturing, mining, cutting.

The Dolphin mine itself has a fascinating history. It's on King Island in the Bass Strait, which is a wild, stormy body of water between mainland Australia and Tasmania. It was discovered about 110 years ago and has opened and closed through the 20th century in line with those war cycles. In the 1970s, it was a thriving open-cut mine with a modern town and one of the largest and steepest open cuts in the southern hemisphere. Around 1990, it closed down, got flooded, and was a giant puddle of seawater for decades until recently, when it was pumped out and restarted.

Tracy Alloway: So the investors in this mine that's reopening the dolphin mine you know I called them a colorful bunch earlier and it really does I think you make this point in your piece but it really does sound like a cast of characters from like a heist movie.

David Fickling: Well, the main one I was speaking to was actually the the chief executive of of or the executive chairman of the mine himself. He was actually he was brought in by one of these investors. As I say that, if you look at the shareholder register of this listed company, it's mostly controlled by a few wealthy Australian families. One family made their money selling a coal mine to Peabody Energy, the American coal mining company, about 20 years ago and put the payout into this mine. They were some of the first people to stay with it. There's a major German shareholder who owns Plansee, which is one of the main fabricators of tungsten and carbide tools, and some Austrian investors.

Joe Weisenthal: Austrian urge to acquire tungsten.

David Fickling: I'm well aware.

Joe Weisenthal: Yes. Yeah. Absolutely.

David Fickling: They invested about 15-20 years ago when everyone laughed at them for buying a seawater-filled puddle. But they stayed because they saw the vulnerability of western supply chains.

Joe Weisenthal: So I definitely want to talk more about the sort of economics and significance of this mine, but can you just talk a little bit more? You mentioned China producing 80% of the world's tungsten. Can you just give us a little bit more color on what that dominance looks like?

David Fickling: I mean, I think the biggest thing and and I think this gets underestimated a bit because China does try to lock down a lot of the supply chain in a lot of critical resources, but in the case of tungsten, and I think it's actually similar in the case of rare earths. It's not just that China controls the supply chain. It's that they have driven costs down so low that it makes it uneconomic for anyone else to mine it. As you said, when prices are low, western mines can't survive. They've kept the price below the point at which western producers can break even, so since the 1980s, western mines have shut down, allowing China to secure the market.

Tracy Alloway: Can you talk to us about the market structure of tungsten as well? Because I know Joe said he didn't buy the tungsten cube as an investment, but if you had, I mean, you would have a hard time actually looking up the price of tungsten right now because it's not traded on a major exchange.

David Fickling: I think that's absolutely right. And I think this is one of the biggest problems with critical minerals generally because there's not a futures market because there's no way of hedging your costs with any mine. You are making capital investments.

Tracy Alloway: There's no forward curve at Tungsten, but we do have one ticker on the terminal which is tungsten held in warehouses in Roderdam. And I sw oh my god, this chart just makes me want to cry. It was literally it was three it was probably about $300 for

David Fickling: I should say that's $3,000 for this thing, this weird thing, which is a dry metric ton unit. It's actually about $400,000 for a ton of tungsten.

Joe Weisenthal: Wait, what? So, wait, actually, this is helpful. Great. So, when I I actually So, when I see that 3,000, what are what is this? I like learning stuff like this. What do these prices even mean?

David Fickling: So, I had to spend like half a day trying to work out what this even means. So the the price you're seeing is a thing called ammonium paratungstate which is a compound of tungsten and it's a just it's a nice easily tradable form of tungsten. You convert the ore into this chemical form. The price is quoted per metric ton unit (MTU), which is 10 kilograms.

Joe Weisenthal: Okay.

David Fickling: So if it's $3,000 a diametric ton unit, it's about $400,000 for a ton of tungsten.

Tracy Alloway: So So that's why someone stole your cube. It's good money.

Joe Weisenthal: I'm really I'm really depressed about this. [laughter]

Joe Weisenthal: I got to find it. I got to find the tungsten market.

Tracy Alloway: I'm so This I This is This is really bothering me. All right. talk to us about okay this particular mine and the numbers involved because a mining operation requires significant capital.

David Fickling: The thing that fascinates me about critical minerals is the the numbers involved are often absolutely tiny on one hand, but huge on the other. It cost about A$90 million ($60 million) to get this mine pumped out, built, and producing concentrate. That is peanuts in the mining world or defense budget world. But on the other hand, finding that A$90 million was incredibly difficult because without a futures market, how do you hedge your risk and secure commercial financing? It took 20 years to get the capital.

Tracy Alloway: I was thinking the same thing. Well, also just going back to China. So I take the point that I mean China geographically does have an advantage when it comes to a lot of rare earths and including tungsten, but their main advantage is that they can subsidize their own mines to keep prices low. If you're a western investor, you're terrified that as soon as you put capital into a mine, China will flood the market and wipe you out.

David Fickling: Yeah, I mean that and that is one of the main reasons that investors stay well away from this. It's because of the threat that prices will be driven down.

Joe Weisenthal: You know, obviously anything that is geostrategic or used in warfare will have a spike in investment.

David Fickling: I think there's a real lack of that. And one of the things I realized looking at the history is that during conflict, cost doesn't matter. In World War II, the British were mining very low-grade ore in Cornwall or importing hand-panned concentrate from Burma because they had to. But the moment the war ends, these high-cost projects collapse. We lack a mechanism to preserve these security-related supply chains during peacetime.

David Fickling: And that caused a complete rethinking of military strategy. After the Korean War, the US set floor prices under the Defense Production Act, which stimulated a massive mining boom. But when those purchase programs ended in the late 50s, the entire industry collapsed.

Joe Weisenthal: Yeah. So, I'm looking at a headline right now saying the US is inviting proposals to boost supply of tungsten and 12 other critical minerals. So, here we go.

Tracy Alloway: If you were going to encourage or make suggestions for encouraging tungsten production in the US or Australia, what would they be?

David Fickling: I mean ultimately you need to have some sort of a floor price. There is a huge debate about this because setting floor prices looks like a government giveaway or subsidy to a specific industry, similar to agricultural subsidies. But without a floor price, commercial banks won't lend, and mines won't get built. Since the global market is relatively small (about 100,000 tons a year), a government-backed floor price or Contract for Difference (CFD) scheme would be highly effective and relatively inexpensive.

Joe Weisenthal: A lot of people will argue that if you have a floor price for something, then it operates as a giveaway. But it's interesting how critical minerals are used in unexpected places. Like citric acid.

Tracy Alloway: Secure your sour flavored fruit candies now.

David Fickling: Yeah, it has some pharmaceutical applications. Citric acid excels

Joe Weisenthal: tenderizer. I know that.

David Fickling: Excels at chelating metal ions and removing mineral deposits, scale and corrosion from industrial equipment.

Tracy Alloway: Yeah, I didn't know that either. So, so if there's a citric acid expert out there, maybe that'll be our next show.

David Fickling: Yeah. No, I mean, I think that the world of mineral exploration is full of this. And here in Australia, we are seeing more exploration. Five years ago, people said certain ionic absorption clays could only be found in southern China, but now they are finding them all over Australia and North America.

David Fickling: The dominance is often because no one bothered to look elsewhere when Chinese supplies were cheap and abundant.

Tracy Alloway: Yeah. I think we should just substitute our tungsten use for gold. I mean, it's like the same density.

Joe Weisenthal: I was going to say if it's the same density, you could have just bought a gold bar.

David Fickling: You just you just buy you just start having gold based munitions. Those would slice right through, though a bit expensive.

Joe Weisenthal: Thanks very much. [music] It does seem so crazy to me that like we have this huge defense spending, yet a tiny fraction of it can't find its way to secure a vital mine.

Tracy Alloway: right. The capital outlay for a tungsten mine seems pretty small in the grand scheme of things.

Joe Weisenthal: And yet no one was like let's just guarantee a price. But that's the nature of the current transition period.

Tracy Alloway: I don't know it does seem like maybe we should restart that tungsten mine in California. Should we go?

Tracy Alloway: Oh yeah, we're going to be in Listeners, we're going to be in LA in early September.

Joe Weisenthal: Maybe we can find the guy who used to run it. We can go find that.

David Fickling: I mean, you do get some of that, and China's pork industry is a pretty good example of government intervention to stabilize supply and prices, which is lacking in western critical minerals.

Tracy Alloway: some of these long term contracts.

Joe Weisenthal: which also begs the question

Tracy Alloway: one of the big themes of our current period in time as we've discussed on the podcast repeatedly now is reshoring and redundancy.

Joe Weisenthal: and we're but in the meantime, all of this expenditure is at the margins inflationary.

Tracy Alloway: Yeah. As we talked about with Javier Blas last year, we might have to go into a bunch of vacuum cleaners and pull out some of the magnets and stuff.

Joe Weisenthal: Why don't you get into the scrap tungsten business, Joe?

Joe Weisenthal: I'm done. I'm

Joe Weisenthal: I'm done investing in tungsten especially if I can't find this thing.

Tracy Alloway: All right, no more tungsten. That's the opposite message of this entire podcast.

Joe Weisenthal: Yeah. Right. Keep thinking about tungsten.

Joe Weisenthal: Keep thinking about tungsten. All right. Shall we leave it there?

Tracy Alloway: Let's leave it there.

Tracy Alloway: This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at @tracyalloway.

Joe Weisenthal: And I'm Joe Weisenthal. You can follow me at @stalwart. Thanks for listening.