Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business
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Speaker 1: tech news. The Bloomberg Business Week Podcast with Carol Messer
Speaker 1: and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Tim, let's get to one stock that is definitely on
Speaker 2: our radar big time.
Speaker 3: Yeah, that's Starbucks. The stocks soaring the most ever on
Speaker 3: an intra day basis as the company's board orders up
Speaker 3: a half cath latte with a new CEO. And that
Speaker 3: CEO is one well known to the fast casual space
Speaker 3: and with writing a ship that's got some pretty big issues.
Speaker 2: It's an individual that's really well known to us. It's
Speaker 2: Chipotle CEO Brian Nicol. We've talked to him a lot.
Speaker 2: Named the top job at Starbucks, will take over as
Speaker 2: CEO on September ninth, replacing the existing CEO, who was
Speaker 2: ousted after less than a year and a half at
Speaker 2: the helm. Through Monday, shares in the coffee chain had
Speaker 2: plunged twenty percent this year, following two straight quarters of
Speaker 2: comp sales declined. Shares of Starbucks, though right now we're
Speaker 2: up twenty two percent today. So let's get into it
Speaker 2: with Bloomberg News consumer reporter Dina Shanker here in studio,
Speaker 2: and also with us is Bloomberg Intelligence senior credit analyst
Speaker 2: Jody Lori in Bloomberg Got Intelligence headquarters out in Princeton,
Speaker 2: New Jersey. Dina, I want to start with you to
Speaker 2: the news. What do we know? What does this mean
Speaker 2: for Starbucks? And what the Chipotle CEO, who will soon
Speaker 2: be the Starbucks CEO, Brian Nicol brings to the table.
Speaker 4: Well, one analyst called him a dream hire.
Speaker 2: For CEO I believe was the quote.
Speaker 4: He really turned things around for Chipotle, and Chipotle is
Speaker 4: just outperforming the rest of the restaurant industry. So yeah,
Speaker 4: if you're sitting in a boardroom of a restaurant company
Speaker 4: and things aren't looking so good and you're like, who
Speaker 4: can save us?
Speaker 2: He would probably be at the very top of the list.
Speaker 4: So that was a great hire for them and any
Speaker 4: someone who's also had to deal with a company that
Speaker 4: was under stress for many years, had to beef up
Speaker 4: their digital strategy and came to the company.
Speaker 2: I'm thinking about Chipotle just as the pandemic was hitting
Speaker 2: and so he really had to learn how to kind
Speaker 2: of shift the ship, if you will, at Chipotle, and
Speaker 2: he's kind of got to do some of that here.
Speaker 4: Yes, definitely. I Mean, one thing that all of these
Speaker 4: restaurant companies deal with is productivity and how quickly can
Speaker 4: they turn an order into food and put that food
Speaker 4: into a customer's hands. And Chipotle has really improved on that.
Speaker 4: Starbucks really needs that kind of improvement. So I expect
Speaker 4: that that is going to be a big priority for
Speaker 4: him once he takes the job.
Speaker 3: Hey, Jody, come on in here. Just because Brian Nichol
Speaker 3: was able to succeed so well at Taco Bell before
Speaker 3: going to Chipotle and then totally exceed expectations I think
Speaker 3: of a lot of investors of Chipotle as well, doesn't
Speaker 3: necessarily mean he can do the same thing at Starbucks.
Speaker 3: What are the challenges that he faces at Starbucks? Given
Speaker 3: the environment over the last couple of years.
Speaker 5: I think there's actually quite a few challenges that they're facing.
Speaker 5: I mean, first of all, they have a reputational risk,
Speaker 5: right They've gotten hit by different headlines over and over.
Speaker 5: So first you had the union issues, then you had
Speaker 5: the grassroots effort to sort of, you know, rake Starbucks
Speaker 5: through the mud as it related to Middle Eastern conflict.
Speaker 5: And then you now have China, which was sort of
Speaker 5: their investment arm where they were kind of going to
Speaker 5: next and so all these sort of components just ended
Speaker 5: up in not the best situation for them. So I
Speaker 5: think what they're really hoping is that he will provide
Speaker 5: that expresso shot that they're hoping for that the prior
Speaker 5: CEO didn't quite get a chance to do over the
Speaker 5: past year and a half.
Speaker 2: Jody, what does the Starbucks balance sheet look like?
Speaker 5: Starbucks balance sheet? So, taking a step back, the company,
Speaker 5: you know, went through the pandemic, like all other companies,
Speaker 5: took on a bit of debt to have a little
Speaker 5: bit more cash going through the pandemic, and once the
Speaker 5: pandemic ended, they focused on deleveraging. They got leveraged below
Speaker 5: three times, which was their target. But now the expectation,
Speaker 5: if you look at MODL on the terminal, the expectation
Speaker 5: is that it will hit to three point four to
Speaker 5: three point five times by the end of the fiscal year,
Speaker 5: which is September. So definitely a reversion from where they
Speaker 5: were in terms of improving the balance sheet that said,
Speaker 5: it's not a company that we're necessarily worried about at
Speaker 5: the moment, being a triple B company, but it could
Speaker 5: be an issue as activists get involved and as management
Speaker 5: sort of gets creative and how they turn the company around.
Speaker 3: Okay, so let's talk a little bit about how the
Speaker 3: company gets turned around, Dina, and think about this from
Speaker 3: the perspective of you know, a company that I think,
Speaker 3: for a lot of people, over the last thirty is
Speaker 3: ish years, reinvented the way that coffee was consumed and
Speaker 3: delivered here in the US at Taco Bell, Dorito's, Locos,
Speaker 3: Taco at Chipotle did a lot, as Carol mentioned, with digital.
Speaker 3: Starbucks already has a robust digital platform and it has
Speaker 3: for years. There's the China element too, and the weakness
Speaker 3: that they've seen in China. What are the challenges that
Speaker 3: he has to overcome to turn Starbucks around.
Speaker 4: So one thing that I think is particular to Starbucks
Speaker 4: that he has to think about is that one of
Speaker 4: the ways Starbucks really differentiated itself out of the gate
Speaker 4: was they were going to be committed to high quality coffee.
Speaker 4: When they started to branch out into lots of other
Speaker 4: things like music and movies and Teddy Bears in the restaurants.
Speaker 2: Howard Schulz came in, came back and said, you know,
Speaker 2: we're a coffee company. We're going to focus on coffee.
Speaker 4: We've now seen them once again branching out into lots
Speaker 4: of other things. They have lemonade refreshers, they have energy drinks, but.
Speaker 2: A lot of people like those.
Speaker 4: So I am really curious to see how new management
Speaker 4: wants to what direction they want to go, and do
Speaker 4: they want to go back to basics what worked wants
Speaker 4: or do they want to see what's working now and
Speaker 4: then maybe cut the fat.
Speaker 2: I don't know.
Speaker 4: We'll just have to wait.
Speaker 2: And see new management. But yet they've got someone who
Speaker 2: has been associated with the company for a long time,
Speaker 2: and I'm thinking about Howard Schultz. He's not on the board,
Speaker 2: doesn't have a board seat, doesn't have a formal role
Speaker 2: with the company, but he's Starbucks' sixth largest shareholder, and obviously,
Speaker 2: you know this is his company, and for better or
Speaker 2: for worse, perhaps his involvement. I mean, is it is
Speaker 2: that a good thing for him to still in terms
Speaker 2: of understanding this company, or is this a case where
Speaker 2: you have to have an outsider who under understands DITA
Speaker 2: the fast casual space kind of do his thing read
Speaker 2: new Blood.
Speaker 4: I think the real question is whether the whether a
Speaker 4: new CEO wants to stand up to Howard, because just
Speaker 4: as an outside observer, it seems like Howard really likes
Speaker 4: to share his opinions on the company.
Speaker 3: And come back to the company.
Speaker 4: They come back in return over and over again, and
Speaker 4: so you know, they hired someone really strong. So hopefully
Speaker 4: Howard will take a hint and keep some opinions to himself,
Speaker 4: or at least give them a chance to run with
Speaker 4: some things.
Speaker 2: And apparently Howard Schultz had told Melody Hobson, who was
Speaker 2: on the Starbucks board, that I guess she had told
Speaker 2: him about a week ago about her decision for Brian Nickel,
Speaker 2: and that Schultz apparently said, Melody, that's a home run.
Speaker 2: So she seemed he seems to like it. Jody, how
Speaker 2: do you think about this company? Obviously you focus on
Speaker 2: the balance sheet, understanding the finances and kind of what
Speaker 2: needs to be done there, but you know it all
Speaker 2: goes back to management and how they manage, and that
Speaker 2: will ultimately play out in the balance sheet. How do
Speaker 2: you think about the leadership of Brian Nickel, maybe what
Speaker 2: he did at Chipotlet and what he can maybe do
Speaker 2: here or has to do here.
Speaker 5: So I think we have to take a step back
Speaker 5: and think about when he was actually at Young right,
Speaker 5: he was the Taco Bell CEO, So granted he was
Speaker 5: not the Young CEO, he was not at the home. However,
Speaker 5: he did ride through the spin off of Young China.
Speaker 5: And I can't say that that's necessarily the direction that
Speaker 5: Starbucks is going. I mean didn't see that at Chipotle,
Speaker 5: but it is something that sort of lurks in the
Speaker 5: back of my mind of Okay, what's management going to do?
Speaker 5: And if you remember what happened with them, not only
Speaker 5: did they spin off YM China, but they took that
Speaker 5: cash and.
Speaker 2: Gave it to shareholders.
Speaker 5: Now, Starbucks before this, going into this, had a three
Speaker 5: year plan of giving back to shareholders twenty billion dollars
Speaker 5: and they had the cash flow for it to some extent,
Speaker 5: but you also thought, okay, some of it might be
Speaker 5: financed with debt. And so I think my question is
Speaker 5: is do they pull back on that and go full
Speaker 5: on kepex? Do they get creative with how they sort
Speaker 5: of deal with licensed versus owned stores, you know, their
Speaker 5: international business versus their their domestic. I mean, I think
Speaker 5: there's a lot of different avenues that he can look at.
Speaker 5: Never mind, of course, you know, the the transition into
Speaker 5: things like dorritos, locos, breakfast sandwiches.
Speaker 2: I don't know, late, it doesn't really lat yeahs, I'll
Speaker 2: take the coffee upstairs. All right, guys, we got to run.
Speaker 2: Thank you so much. Bloomberg News consumer reporter Dina Shanker
Speaker 2: and bloom Intelligence senior credit analyst Jody Lori shares of
Speaker 2: Starbucks hovering, you know, their best levels of the session
Speaker 2: of almost twenty two percent. On the flip side, you've
Speaker 2: got Chipotle Mexican grill off its lows, but tim still
Speaker 2: down about seven percent.
Speaker 3: Yeah, it was Donalds, which is fourteen percent. Scott Boatwright,
Speaker 3: the COO, was named Chappole's interim CEO. So we'll follow
Speaker 3: that company and let you know any developments there when
Speaker 3: it comes to their executive suite.
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Speaker 2: In Nantucket, there's a growing sense that the roughly fifty
Speaker 2: square mile island has become a casualty in the push
Speaker 2: for cleaner energy. So any accident, however minor it might be,
Speaker 2: involving the nearby farm, was bound to become a flashpoint
Speaker 2: in the broader fight over win.
Speaker 3: And that's exactly what has happened. Here to talk more
Speaker 3: about the Nantucket rage over a broken wind turbine blade
Speaker 3: is Bloomberg News Energy and climate disasters reporter Josh Saul.
Speaker 3: He's here in our studio. Before we get too far
Speaker 3: into this, remind everyone what happened a few weeks ago
Speaker 3: on Nantucket with this accident.
Speaker 6: We'll do. And I just want to mention everyone who
Speaker 6: can't see me. I did wear my Nantuckias sweater. It's
Speaker 6: pretty good, right, pretty good. No Nantucket red pants, though
Speaker 6: that's true. That would be a whole other step. Nope,
Speaker 6: just the Solomon's, just the dad shoes. So exactly, exactly
Speaker 6: one month ago, one of the blades on the Vineyard
Speaker 6: wind farms. So this is a big, big wind farm.
Speaker 6: It will eventually be sixty two wind turbines, each as
Speaker 6: big as the Eiffel Tower with the Statue of Liberty
Speaker 6: on top of them. Will one single blade fell apart
Speaker 6: and fell into the water, and pieces of that were
Speaker 6: floating in the water. Pieces of it eventually washed ashore
Speaker 6: on Nantucket and created a real uproar on the island.
Speaker 2: What happened though, beaches closed like what kind.
Speaker 6: Of closed for a very short amount of time. People
Speaker 6: on the island were very angry. I likened it to
Speaker 6: annoy spill. It was almost like Jaws approaching the beach,
Speaker 6: like just a really big deal. And the federal government
Speaker 6: shut down both construction and electricity generation at the Vineyard
Speaker 6: wind Farm, which is still ongoing.
Speaker 3: Okay, you're from Alaska, I'm from California. We've experienced oil
Speaker 3: spills in our day. Geographically, was this environmentally the same
Speaker 3: on the same level as an oil spill?
Speaker 6: So far, it seems to be a lot smaller, a
Speaker 6: lot smaller impact. It definitely freaked people out, but we
Speaker 6: don't have any reports of dead animals. They're you know,
Speaker 6: in comparison, solid chunks of fiberglass are a lot easier
Speaker 6: to clean up compared to oil in terms of the
Speaker 6: way it spreads, the way, the way it sinks. So yeah,
Speaker 6: it seems like a much more small scale failure compared
Speaker 6: to an actual oil spill.
Speaker 2: A couple of questions, I mean, how often are there
Speaker 2: accidents with wind farms. I'm just curious about the frequency
Speaker 2: of it. And also how important though, are these wind
Speaker 2: farms to power on the island in the region. How
Speaker 2: important are they?
Speaker 6: Yeah, the so wind backers, the clean energy advocates view
Speaker 6: these is extremely important because what they're going to be
Speaker 6: doing is they're going to be sending clean energy, so
Speaker 6: carbon free energy to the shore kind of at exactly
Speaker 6: the times, like the windy periods of the day when
Speaker 6: the grid really needs it. So you can have solar
Speaker 6: on land producing a lot of energy, you know, obviously
Speaker 6: in the middle of the day when the sun is up,
Speaker 6: but wind offshore can be sending energy in you know,
Speaker 6: in the morning and the evening and end at night
Speaker 6: when when that solar power isn't available. So it's seen
Speaker 6: as a really important part of the of the transition.
Speaker 2: Josh, is it powered just to the island? Is it
Speaker 2: to other areas?
Speaker 6: I'm just curious how far this stone actually the undersea
Speaker 6: cable will bypass Nantucket and Martha's vineyard kind of running
Speaker 6: right between them to the mainland, powering the equivalent, according
Speaker 6: to the companies, of about four hundred thousand homes. I mean,
Speaker 6: these things can produce huge, huge amounts of energy. So
Speaker 6: instead of you know, instead of the you know, natural
Speaker 6: gas plants or other you know, fossil climate changing types
Speaker 6: of generation on land, while we would have you know,
Speaker 6: the offshore wind you know, these clean electrons right flowing there.
Speaker 3: A big part of your story that you wrote along
Speaker 3: with Cam and the team at Bloomberg News has to
Speaker 3: do with the implications of an accident like this on
Speaker 3: other wind farm projects throughout the United States that are
Speaker 3: planned for the future. Talk a little bit about what's
Speaker 3: being planned right now, some community pushback to these and
Speaker 3: what it could mean to have an accident like this.
Speaker 6: That's exactly right because under Biden, who said are very
Speaker 6: aggressive offshore wind target of thirty gigawatts by twenty thirty,
Speaker 6: there are a lot of other about of a total
Speaker 6: of eight projects in development something like thirteen gigawatts you
Speaker 6: know coming on, you know, and you can imagine, you know,
Speaker 6: a gigawatt is about how much nuclear reactor produces, So
Speaker 6: it's a lot a lot of clean energy coming on,
Speaker 6: but Vineyard Wind was really seen or is really seen
Speaker 6: as kind of the marquee like kind of the first big,
Speaker 6: big project. There's been some very small pilot projects. There's
Speaker 6: a smaller a smaller wind farm off of Long Island
Speaker 6: built by other developers, but this was seen as kind
Speaker 6: of the first, like utility scale, like it produces as
Speaker 6: much power as a big gas plant. And the worry
Speaker 6: is that even these kind of small even these kind
Speaker 6: of relatively small hiccups like this, produce so much anger,
Speaker 6: produce so much pushback against this new energy source that,
Speaker 6: especially with a Trump election, he could, as he said,
Speaker 6: come in on day one and kind of drastically change
Speaker 6: the landscape for these big projects.
Speaker 2: I was thinking about that, how the outcome of the
Speaker 2: November presidential election, whoever is in the White House, that
Speaker 2: might determine the future path when it comes to wind energy,
Speaker 2: wind farms in the future, the growth of this industry
Speaker 2: or has the kind of horse left you know, the
Speaker 2: stable already.
Speaker 6: The way we think about it, projects that are already
Speaker 6: permitted and in construction would be a pretty big deal
Speaker 6: for anyone, even a p is it to sort of
Speaker 6: you know, tear out of tear out of the seabed.
Speaker 6: But projects that are you know, still have any kind
Speaker 6: of permits left to get not particularly hard for a
Speaker 6: federal agency to drastically slow down or even stop that process.
Speaker 6: Trump said at a big rally in New Jersey, like
Speaker 6: I would stop all this on day one. The worry
Speaker 6: with this is that the worry with incidents like this
Speaker 6: is that it just kind of makes it, you know,
Speaker 6: more at the forefront, more more top and hit, you know,
Speaker 6: in his mind or in his administration's mind. And just
Speaker 6: as Biden used presidential powers once he got to office
Speaker 6: to slow down or stop offshore gas and oil drilling,
Speaker 6: Trump could conceivably do the same thing with offshore wind.
Speaker 3: One thing that I was thinking about in reading your piece, Josh,
Speaker 3: is that there's kind of no free launch or no
Speaker 3: silver bullet when it comes to solving the energy needs
Speaker 3: in a renewable way here in the US and around
Speaker 3: the world. And it seems like there has to be
Speaker 3: with every project some sort of given to with a
Speaker 3: community or with a location.
Speaker 6: I think that's exactly right. No free lunch, no free energy,
Speaker 6: Like there's trade offs with all these projects, like you build,
Speaker 6: you know, even what we think of is, oh, a
Speaker 6: big solar farm in the middle of the desert. That's great.
Speaker 6: People who live nearby in Arizona are mad about, you know,
Speaker 6: all the desert tortoises being killed by the construction. And
Speaker 6: they're also like, hey, we like to ride our horses
Speaker 6: around here. It's more fun to ride your horses when
Speaker 6: it's not a solar farm. Like basically, anywhere you want
Speaker 6: to build energy, there are these tradeoffs and that's you know,
Speaker 6: one of the conservationists we spoke to on Nantucket who said,
Speaker 6: by the way, like, yeah, this is completely changed turned
Speaker 6: the tide, but like completely changed how the island feels
Speaker 6: about it. Like the island is pretty united against offshore
Speaker 6: wind at least right now. And he said, you know,
Speaker 6: and he said, there's trade offs any and there's benefits
Speaker 6: and costs with any energy source.
Speaker 2: You know, where does this leave Vineyard Wind?
Speaker 3: Right?
Speaker 2: This is the company behind the wind farms. And I
Speaker 2: also do think about like oversight. You don't want these
Speaker 2: things to fall apart. You want them to work, just
Speaker 2: like if you build a nuclear power plant, you don't
Speaker 2: want to melt down, Like you've got to make sure
Speaker 2: that there's oversight. Is there enough oversight or is it
Speaker 2: a company issue?
Speaker 7: Is it?
Speaker 2: What was it? And we just got about thirty seconds.
Speaker 6: Here Vineyard Wind and then the turbine maker, Gieve Vernova
Speaker 6: have been very active about both cleaning and cleaning up
Speaker 6: debris and also checking checking turbines to make sure this
Speaker 6: doesn't happen again. This could change some oversight or the
Speaker 6: amount of money that companies have to put forward.
Speaker 2: All right, something we're going to keep a watch on.
Speaker 2: Really good stuff, and the sweater totally appreciate that.
Speaker 1: Thank you.
Speaker 2: Josh Saul He is Energy and climate disasters reporter here
Speaker 2: at Bloomberg News. Joining us here in studio.
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Speaker 3: Our Bloomberg News colleague Will Wade, writing this week that
Speaker 3: even as temperatures on Earth smash new records and scientists
Speaker 3: warn the climate is reaching dangerous tipping points, the amount
Speaker 3: of coal being consumed keeps on growing. The basic problem
Speaker 3: is simple. Whenever the security of electricity supply is in doubt,
Speaker 3: Will writes, the imperative to contain global warming slips down
Speaker 3: the agenda. Coal, we should notice, the biggest source of electricity.
Speaker 3: It accounts for thirty five percent of the world's generation
Speaker 3: in twenty twenty three. That's according to Ember, a climate
Speaker 3: think tank.
Speaker 2: All right, so Randall Atkins knows all about this. He's founder,
Speaker 2: chairman CEO of Ramaco Resources, a publicly held six hundred
Speaker 2: and fifty million dollar market cap company that produces metallurgical coal.
Speaker 2: It's the type of coal used in steelmaking companies, also,
Speaker 2: in their words, exploring domestic production of rare elf element
Speaker 2: rear earth elements, which is what we are super interested
Speaker 2: in to hear a little bit more about. Randall joins
Speaker 2: us from Bluefield Coal Symposium in West Virginia. Randall, great
Speaker 2: to have you here with us.
Speaker 3: Yeah, I just want to start with the nuance here
Speaker 3: because and this is what I wanted. This was a
Speaker 3: really important conversation that I had with Alex Steel ahead
Speaker 3: of this interview, because I don't talk about coal every day.
Speaker 2: No you don't, but you guys were like going.
Speaker 3: I did some research. I talked to Alex Randall. There's
Speaker 3: important nuance here. I talked about electricity generation in my intro.
Speaker 3: But when, because that's when we talk about coal that's
Speaker 3: used for electricity generation, we're talking about thermal coal. You
Speaker 3: produce metallurgical coal. So explain the nuance here.
Speaker 8: Sure, well, as we say, first of all, we actually
Speaker 8: have come up with a new name. We don't call
Speaker 8: it coal. We call it carbon ore because we essentially
Speaker 8: approach it as to what its use is being from
Speaker 8: an underlying perspective. So you're absolutely correct. There's sort of
Speaker 8: three legs to the stool, as we call it for
Speaker 8: coal use. One is obviously for combustion and power, one
Speaker 8: is basically to make steel used in blast furnaces, and frankly,
Speaker 8: the third and somewhat less understood use is what we
Speaker 8: call advanced coal products and materials, which also include critical
Speaker 8: men roles in rare earth. So that's that's sort of
Speaker 8: what we've been paying a lot of attention to for
Speaker 8: about the last twelve years.
Speaker 2: Randall, Can all coal be each of these three?
Speaker 8: So, in a simple answer, all cold are not created equal,
Speaker 8: so they're distinguished by chemical properties, and the chemical properties
Speaker 8: then somewhat dictate their best and high issues. But what
Speaker 8: we've discovered, at least for the third use coal to
Speaker 8: chemical coal to advance carbon products and materials. Those can
Speaker 8: be made from either thermal or met coal.
Speaker 3: Okay, so let's move to rare Earth's and talk a
Speaker 3: little bit about what's going on in your mind where
Speaker 3: you acquired it for several million dollars. But there was
Speaker 3: this fascinating story in the Wall Street Journal back in
Speaker 3: the fall about how if everything sort of goes in
Speaker 3: your direction, there could be tens of billions of dollars
Speaker 3: worth of rare earths in that mind. What's going on there?
Speaker 8: Well, the greatest expression it's better to be lucky than
Speaker 8: smart sometimes, isn't it. So we bought this old thermal
Speaker 8: coal mine, and frankly, it took about a year and
Speaker 8: a half to figure out that making a new thermal
Speaker 8: coal mine for utility use was somewhat of a losing
Speaker 8: proposition to deploy capital on. So we pivoted and frankly
Speaker 8: took a technology route to try to figure out what
Speaker 8: else coal could be used for. That brought us into
Speaker 8: touch with a couple of the Department of Energy National Labs,
Speaker 8: and they worked with us on not only carbon products,
Speaker 8: but we're exploring, frankly, on behalf of the Defense Department
Speaker 8: where rarers might be found in the US. There's always
Speaker 8: been a thesis that they could be found in coal,
Speaker 8: but it had never been shown or proven. So we
Speaker 8: sent them some samples, took them about a year and
Speaker 8: a half, lo and behold. They come back and said, look,
Speaker 8: we found higher concentrations of rare earth in your deposits
Speaker 8: and any place we've seen outside of West China. So
Speaker 8: that's put us on this odyssey to where we stay today,
Speaker 8: where we're hoping to actually be in a position to
Speaker 8: start a demonstration facility next year to actually go into
Speaker 8: production and refining of rare earth that we already have
Speaker 8: a permit on that come from coal and the carbon
Speaker 8: material sort of around it. Most rare earth comes from
Speaker 8: hard minerals uraniums, cobalt, so lithiums, which frankly are radioactive
Speaker 8: when you mind them, and so that's why all the
Speaker 8: rare earths, frankly are sent to China for processing, which
Speaker 8: is sort of self defeating. So if we're able to
Speaker 8: actually produce rare earth from coal here in the US
Speaker 8: and process them here in the US. That's going to
Speaker 8: be a distinct advantage.
Speaker 3: Randall, I'm wondering if it's fair to say that, if
Speaker 3: everything goes according to plan with the mine that could
Speaker 3: have rare earths, would you move away completely from traditional
Speaker 3: coal mining.
Speaker 8: Well, I think the interesting thing is that it's frankly
Speaker 8: one and the same in our case, because we're mining
Speaker 8: the coal to get to the rare earth.
Speaker 3: So, yeah, explain how that processing exactly works. I know
Speaker 3: you mentioned that glad to be previously sent to China,
Speaker 3: but how do you pull it off here in the US.
Speaker 8: Sure, nothing simple, But the way it works is we
Speaker 8: basically mine the coal. The rare earths are actually contained
Speaker 8: in minerals in the coal, So what we would do
Speaker 8: is then process the rare earth out of the coal
Speaker 8: by frankly, a paralysis or a heating process, and then
Speaker 8: do various forms of separation. So, in essence, even though
Speaker 8: we're still in the coal mining business, the end product
Speaker 8: is really rare earth.
Speaker 2: I'm looking at a stat that says China produces sixty
Speaker 2: percent of the world's rare earths but processes nearly ninety percent,
Speaker 2: which means that it's importing rare earth from other countries
Speaker 2: in processing them. So what you're saying is we not
Speaker 2: only have to produce them, but we have to process them.
Speaker 2: That that's really important. What I'm curious about is what's
Speaker 2: the potential of your mind, what's the cost to bring
Speaker 2: it to potential? And what are the guarantees that you
Speaker 2: can actually spend the money and get to that potential.
Speaker 8: Sure, but to kind of break it down, you know,
Speaker 8: what you do in a mind of this nature is
Speaker 8: you go through a fairly complex technoeconomic analysis which you
Speaker 8: know breaks down not only the mining but also the
Speaker 8: processing and refinement, and you know, discover what each part
Speaker 8: of that component production costs. Will have that prepared by
Speaker 8: the end of the year with Florin Company, who's kind
Speaker 8: of advising us on that, we've got a pretty good
Speaker 8: sense of it right now, so we know that we
Speaker 8: think it is commercial. We obviously want to get down
Speaker 8: to the detail because for the public company we start
Speaker 8: throwing numbers out, we want to have some independent confirmation.
Speaker 8: But we think it will commercial basically even at today's prices,
Speaker 8: which are a little bit manipulated by China who tries
Speaker 8: to keep all the competition out off the off the field,
Speaker 8: and if we're able to do this and process it
Speaker 8: in the United States, needless to say, becomes very important
Speaker 8: strategically because frankly, as I was just saying to this
Speaker 8: group here, you know, when the Defense Department needs to
Speaker 8: get rare earth for our hypersonic missiles and drones, they
Speaker 8: unfortunately at this point have to call a procurement office
Speaker 8: in China, so that doesn't always work out quite well.
Speaker 2: So what's the potential in terms of this MIND and
Speaker 2: what it might produce and what it might be worth?
Speaker 8: Sure, so I think the initial numbers we have were
Speaker 8: that it got probably north of a million and a
Speaker 8: half tons of rare earth, which are concentrated mostly in
Speaker 8: the heavy and medium magnetic rare earth, which are the
Speaker 8: more valuable. For some context, the US uses only about
Speaker 8: ten thousand tons a year, so if we've got a
Speaker 8: million and a half plus, it's a long term supply.
Speaker 8: So I think, you know, that's that's the critical advantage
Speaker 8: that the government is trying to insent us to pursue
Speaker 8: this MIND because it could solve potentially a lot of
Speaker 8: supply problems. And then in terms of the ultimate value.
Speaker 8: You know, needless to say, rarer earth sell for a
Speaker 8: great deal more than a ton of coal. Some of
Speaker 8: the critical minerals and rare earth we've got sell for
Speaker 8: around a million dollars or more a ton. So compare
Speaker 8: that the coal that sells for thermal purposes out with
Speaker 8: for fifteen dollars a ton, or even metaur allergic coal
Speaker 8: for say two hundred dollars a ton, and you get
Speaker 8: kind of a sense.
Speaker 3: Hey, Randall, we're talking a lot about the government, and
Speaker 3: one thing that comes to mind is what a change
Speaker 3: in administration would mean for your company. How are you
Speaker 3: thinking about the election?
Speaker 8: Well, needless to say, in general, uh, as somebody who's
Speaker 8: you know, a student of the coal industry. Uh, times
Speaker 8: were a little bit more comfortable under Republican administrations than
Speaker 8: they have been under democratic administrations. I would say, you know,
Speaker 8: the main pushback, of course against coal is its use
Speaker 8: as a combustion fuel. There's less pushback for metallurgic purposes,
Speaker 8: and frankly, for rare purposes there should be none at all.
Speaker 8: And I think the interesting thing, uh, you know, administrations
Speaker 8: may come and go, but as far as the strategic requirement,
Speaker 8: particularly for rare Earth. I think that cuts across political boundaries. So, uh,
Speaker 8: you know, obviously, uh, we're already permitted, we're in the
Speaker 8: process of you know, starting our initial development and uh,
Speaker 8: you know, we'll we'll deal with whatever you know, political
Speaker 8: landscape is out there.
Speaker 3: Hey, Randall, the elephant in the room here that I
Speaker 3: kind of opened with this is climate change. And we
Speaker 3: it's it's it's own that coal is the dirtiest of
Speaker 3: fossil fuels. And I'm wondering how you think about that
Speaker 3: in terms of you know, quote unquote clean coal. How
Speaker 3: do you make burning coal release less emissions? Is that
Speaker 3: possible to make clean coal?
Speaker 8: Yeah, well, we basically have come up with, you know,
Speaker 8: a lot of one liners, one of which is coal
Speaker 8: is too valuable to burn. Another, which is what we
Speaker 8: call the cure for coal, And essentially the cure for
Speaker 8: coal is that you've got to do several things at once.
Speaker 8: You've got to basically have a solution that speaks to
Speaker 8: the decarbonization of the commodity. You've got to do something
Speaker 8: that basically, you know, supplies the value proposition or greater
Speaker 8: than it does now, and you need to be able
Speaker 8: to supply that in volumes that you know, make it
Speaker 8: sense for the coal business. That's why we've kind of
Speaker 8: turned to this use of coal as a precursor to
Speaker 8: make advanced carbon products and materials. These are things like graphite,
Speaker 8: synthetic graphite, graphene, carbon fibers, a lot of things that
Speaker 8: historically have been made from petroleum, but you can make
Speaker 8: them chemically from coal, and you can make them from
Speaker 8: coal at a vastly lower price than using petroleum. The
Speaker 8: interesting stat is that there's the same amount of carbon
Speaker 8: and a ton of coal as there is in a
Speaker 8: ton of petroleum. A ton of petroleum is like seven barrels,
Speaker 8: So you use eighty dollars a barrel, you're at, you know,
Speaker 8: five hundred and forty million permanent five hundred and forty
Speaker 8: dollars for a ton of carbon versus fifteen for coal.
Speaker 8: So when you think about use of things like carbon fibers,
Speaker 8: which have properties that are frankly, yeah, superior to steal
Speaker 8: in terms of lightweighting. Okay, that type of thing, it's
Speaker 8: a fairly compelling economic argument to use coal.
Speaker 2: All right, We certainly could continue. There's lots more, certainly
Speaker 2: when it comes to environmental impact, but hopefully now next
Speaker 2: time Randall Atkins. We hope you can continue this conversation, founder,
Speaker 2: chairman and CEO ram A Co Resources. This is Blueberg
Speaker 2: brother Marco.
Speaker 1: Journal.
Speaker 2: How about you let me drive?
Speaker 4: Oh no, no, no, no, honey, please, how do the riding gravels?
Speaker 1: Let's mate, I want to drive.
Speaker 7: It's a good question time.
Speaker 1: This is the drive to the Globe.
Speaker 7: Dot com for me.
Speaker 1: I think we'll buy around on Bloomberg Radio.
Speaker 2: All right, everybody, eighteen minutes or so.
Speaker 3: To go until we wrap up the Treaky Friday. No,
Speaker 3: it's not freaky Friday.
Speaker 1: I don't know.
Speaker 2: I don't even know what to call it.
Speaker 3: Taco Tuesday.
Speaker 2: I'm looking for a Taco Tuesday. Thank you so much.
Speaker 2: Thank you to Pole. Moving on to Starbucks. All right,
Speaker 2: we're pretty much hovering near our highs of the session.
Speaker 2: We've seen investors move into both stocks and bonds, which
Speaker 2: doesn't typically happen, but here we go on this Taco Tuesday.
Speaker 2: So let's get to it with Aaron Cannon, co founder
Speaker 2: and CEO over at Clear Harbor Asset Management. They've got
Speaker 2: one and a half billion in assets under management. Joining
Speaker 2: us once again from Stanford, Connecticut. Forgive us. It's a
Speaker 2: little bit of a wacky day, Aaron, how are you.
Speaker 7: I'm doing just fine. Thanks for having me back well too.
Speaker 2: We're hanging in there. The recent bat of volatility a
Speaker 2: week ago or so, we would have been having a
Speaker 2: very different conversation the three of us. Was that volatility
Speaker 2: that we saw one week ago yesterday noteworthy or to
Speaker 2: be considered expected considering the run up that we've seen
Speaker 2: in the overall equity markets and in particular in some
Speaker 2: specific names.
Speaker 7: Well, that's a great question, Carol. I think at the
Speaker 7: end of the day, we're at a point of transition
Speaker 7: on a monetary policy front, and we may be at
Speaker 7: a point of transition on an economic growth front. And
Speaker 7: we know what we saw a week ago was a
Speaker 7: huge sort of shuddering of markets, and really what sparked
Speaker 7: that was a major transition in monetary policy in Japan.
Speaker 7: And you know, I think that while our economic picture
Speaker 7: is decelerating, there's hope for a soft landing. We've seen
Speaker 7: nice disinflationary trends which are now leading the market to
Speaker 7: conclude that the FED is going to cut rates in September.
Speaker 7: They're even calls last week in the middle of the
Speaker 7: spike in volatility, to sixty five on the Vicks for
Speaker 7: the FED to cut inter meeting. But I do think
Speaker 7: the Fed should should cut, and I think they should
Speaker 7: probably start when they said they will, which will be September.
Speaker 7: And I think where maybe there's some nuance that may
Speaker 7: be helpful to ponder is the degree to which the
Speaker 7: US dollar relative to the end could trigger another round
Speaker 7: of yen unwinding, the yen carry unwinding, and certainly monetary
Speaker 7: policy officials would would not welcome that, neither would investors.
Speaker 7: And so that leads me to think that maybe the
Speaker 7: FED cuts in September, but it's a much more gradual
Speaker 7: cut unless the economic data really surprises significantly to the
Speaker 7: downside here in the US, so as to not you know,
Speaker 7: have a huge gap between rates in Japan relative to
Speaker 7: the United States, and therefore have the end be in
Speaker 7: a position where will really appreciate quite significantly. We had
Speaker 7: a nearly eleven percent appreciation in the end just over
Speaker 7: the last couple of weeks, and I think that was,
Speaker 7: you know, to a great extent, what has triggered us
Speaker 7: so much of that volatility that we saw last last week.
Speaker 3: Aaron, when you say gradual cuts, do you mean twenty
Speaker 3: five basis points at September, and then maybe two more
Speaker 3: twenty five basis points pass point cuts, so you have
Speaker 3: seventy five BIPs by the end of the year.
Speaker 7: Yeah, and again I'm sorry of making this point that
Speaker 7: if the Fed is of the view which I'm sure
Speaker 7: they are, that yes, they have a dual mandate, but
Speaker 7: they have to think about what happens to employment and
Speaker 7: what happens to pricing, if volatility were to spike, if
Speaker 7: investors were to become rattled, if consumers therefore were to
Speaker 7: become rattled as well. And so while I would be
Speaker 7: in the camp of, you know, without having to worry
Speaker 7: about the n on wine if that were not an issue,
Speaker 7: or global capital markets more generally, of maybe something more
Speaker 7: aggressive approach to cutting rates over the next quorder to
Speaker 7: two maybe they'll they'll they'll perhaps be taking their time
Speaker 7: so as to not alter this sort of relationship in
Speaker 7: dollar end to any great degree going forward. We know
Speaker 7: the Bank of Japan essentially signal to the market after
Speaker 7: the twelve percent slump in the NICK just one day
Speaker 7: last week that you know, may maybe they'll be a
Speaker 7: little more cautious. They won't hike rates as aggressively and
Speaker 7: so that was an interesting marker across the pond for sure.
Speaker 2: So I am curious to aaron our pullbacks opportunities to
Speaker 2: buy are are they time to rethink kind of your
Speaker 2: acid allocation?
Speaker 7: I mean, I always think, you know, when in the
Speaker 7: context of an overall sort of multi asset class portfolio
Speaker 7: for types of clients that we manage money for here
Speaker 7: at Clear Harbor, sort of the high net worth ultra
Speaker 7: high net worth, non for profit clients, you always want
Speaker 7: to know what's your target allocation? Are you under that
Speaker 7: at the position level, at the asset class level, are
Speaker 7: you over it? Is there a time to sort of rebalance?
Speaker 7: And oftentimes when there's a market swoon like that, it's
Speaker 7: a time to sort of think about, you know, adding
Speaker 7: to things that perhaps you were slightly underweight. It's also
Speaker 7: a time to think about, you know, correlations. When volatility rises,
Speaker 7: things tend to correlate again, particularly in the day when
Speaker 7: that spike occurs, but to sort of think about correlations
Speaker 7: during times of uncertainty, but also during times of normalization.
Speaker 7: And so I think, you know, going forward to what
Speaker 7: we believe to be the case is, you know, on
Speaker 7: the fixed income side, maybe moving duration a little further
Speaker 7: out the curve. I think a lot of fixed income
Speaker 7: dollars with individuals and even some institutions is hugging the
Speaker 7: sort of one to six month part of the curve
Speaker 7: in the form of treasury bills, and you know, maybe
Speaker 7: moving away from that notion. If you look at treasury
Speaker 7: bills even today, you know you can go out to
Speaker 7: three months and yield five percent. But now, unlike just
Speaker 7: a couple of weeks ago, you have a four handle
Speaker 7: on your treasury bills. So you may want to be
Speaker 7: thinking about moving out the curve, maybe not to ten
Speaker 7: years or thirty years, but certainly two, three, four, five years,
Speaker 7: because you.
Speaker 2: Think we've topped out? Do you think we've in terms
Speaker 2: of rates along the yield curve, the US yeal curve,
Speaker 2: do you think we've you know, the idea of five
Speaker 2: or six which we were talking about not so long ago,
Speaker 2: more consistently, Do you think we've topped out here and
Speaker 2: that where we are right now? Or where do you
Speaker 2: think we are? You know when it comes to the
Speaker 2: two and the ten in particular.
Speaker 7: I mean, the short answer is I don't know, but
Speaker 7: I do think that it seems as though the balance
Speaker 7: of risks would suggest more incremental weakness in the economy
Speaker 7: and more incremental weakness and employment, which would suggest that
Speaker 7: nominal rates could come down. But what I do know
Speaker 7: just by looking at the break even inflation relative to
Speaker 7: let's say the nominal tenure treasury rate, is that ten
Speaker 7: year treasuries are not particularly expensive right now. They're not
Speaker 7: uber cheap, but within the context of the last two years,
Speaker 7: they're quite attractive, and so it gives some confidence to
Speaker 7: sort of say extending duration right now with the long
Speaker 7: term inflation rates where they are, tenure break evens are
Speaker 7: only two point zho nine to two ten on Bloomberg terminal.
Speaker 7: Today is sort of attractive.
Speaker 3: Okay, we got CPI tomorrow, we got retail sales coming
Speaker 3: on Thursday. Gosh, we have even more. We've quite a
Speaker 3: bit with so much economic data this week. Yeah, we
Speaker 3: do aaron just thirty seconds, what could surprise to the
Speaker 3: upside and sort of like shatter the soft landing narrative
Speaker 3: thirty seconds.
Speaker 7: Well, of course, if CPI is for some reason hot,
Speaker 7: which the market is not anticipating. With the treasury markets
Speaker 7: off what five seven basis points today, meaning prices are
Speaker 7: higher yields are lower and PPI was was on the
Speaker 7: softer side. That would maybe bring some pause, but it
Speaker 7: doesn't make a trend. I think the trend if you
Speaker 7: look at core inflation, headline inflation has been downward. A
Speaker 7: slightly elevated CPI number probably would spook the market too much.
Speaker 7: I still think September cut is in the cards. I
Speaker 7: think retail sales would be a surprise if they're really overshot,
Speaker 7: given what we're seeing in earnings, whether it's today with
Speaker 7: Depot or consumer staples companies, there's a lot of caution
Speaker 7: on the consumer fund right now.
Speaker 2: All right, good to keep in mind as we go
Speaker 2: through those data points. Aaron Karn Aaron Kennon excuse me,
Speaker 2: co founder and CEE at Clear Harbor Asset Management, joining
Speaker 2: us as he has before from Stanford, Connecticut. They've got
Speaker 2: about one and a half billion in assets under management.
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