Strategic Metals Supply Chain and Investment with Louis O’Connor

Patrick Daly:                     Hello, this is Patrick Daly and welcome to Interlinks. Interlinks is a program about connections, international business, supply chains, and globalization, and the effects these developments have had on our life, our work and our travel over recent times. Today, we’ll be talking to Louis O’Connor, founder and principal of Strategic Metals Invest.

                                           Strategic Metals Invest is the only industry supplier in the world to offer private investors the option to purchase and profit from owning strategic metals. The investment proposition is pretty much the same as investing in precious metals, but instead the investor is purchasing strategic metals and we’ll find out from Louis presently exactly what strategic metals are and why they have become an asset class. So delighted to have you with us today, Louis. You’re very welcome.

Louis O’Connor:              Thank you, Patrick. And it is a pleasure to be here. Thank you very much.

Patrick Daly:                     So to get started, Louis, could you give us a brief overview around your background and career to date, that’s brought you to this point as being the founder and principal of Strategic Metals Invest?

Louis O’Connor:              Okay. Well, I didn’t start in strategic metals or earth metals. I don’t even think they were named that when I started out. So I’m a native of Dublin. I was part of the immigration… Generation immigration in the, around the middle ’80s. Went to Germany, lived in Germany for eight to 10 years. I was in car business actually. And then I traveled to Latin America and spent 15 years in Panama where I had sort of a boutique concierge business where we… Once the canal, Panama Canal was handed over, to Panama became an ideal location for American retirees. So I looked after North Americans, Canadians, Europeans looking for property or retirement homes or even investments in Central America. And to some extent, South America, Columbia as well. I just returned home two years ago, primarily to do this business. I’ll explain a bit more in a minute, but my partner is in Germany and I needed to be Europe based.

Patrick Daly:                     So tell us then what exactly are strategic metals and how are they different from precious metals and why have to become an asset class that’s of interest to investors?

Louis O’Connor:              Okay. So strategic metals is an umbrella term for what some people call technology metals.

Patrick Daly:                     Is rare earth metals the same thing?

Louis O’Connor:              Covers technology metals, rare earth elements, which are the oxide [inaudible 00:03:03], then rare earth metals, which are obviously the metals and also in pallets, even green metals. Now the metals, for example, that are critically needed in for electric car magnets, I should say, solar power, wind power. So strategic metals is an umbrella term for basically all of these materials, raw materials that are needed for how we power our daily lives. I wouldn’t necessarily say they have become an asset class yet because my partner… I’m a sales partner of an industry supplier in Frankfurt. And they’re the only industry supplier in the world that offers this option to private investors. So I’ll explain a little bit further. Only 15 to 20% are of their business activities are on the investment side. And it might sound a little bit counterintuitive, but actually what’s most important about what they do is not the investment side.

                                           So I’ll just explain that. So for the last 30 years, a company that’s called Tradium, T-R-A-D-I-U-M, based in Frankfurt in Germany for the last 30 years, they have been an industry supplier. So primarily 80% of their business activities are they buy raw materials such as gallium, indium, praseodymium, all of these metals for modern technology. And they resell them back to industry and that’s primarily what they do. Now, if they didn’t do that, they wouldn’t be able to offer the investment side simply because the only end buyer for these metals are industry buyers. There’s no point in you or me buying a hundred thousand euros worth of indium, which allows you to swipe your phone among other things, and having it stored say here in a safe, in Ireland or anywhere. Because unless we’re making phones or solar panels or something, they’re of no value to us.

                                           So the key part of them being an asset class, or emerging as an asset class is that you really would want to be aligned with an industry supplier. And just to give you a quick idea, the investment offer’s only been a… Although they’re in business 30 years, the investment side has only been going for about 12 years. What they did is they bought a, what was an air raid bunker in world war II in Frankfurt, converted it to a vaulted bank level security, bonded, insured, armed guard. So it’s a full bank level, secure vault.

                                           So in 2010, they began to offer this option to investors, mostly in Germany, Austria, Switzerland. They’ve done zero marketing in the English speaking world until very, very recently. And to give you an idea, the vault now sits… The inventory in the vault, they’ve got about 200 metric tons of raw materials there, and less than 20% of those of that inventory are owned. So I’m just trying to highlight the fact that you’d have to be an industry supplier to do this.

Patrick Daly:                     And then at Strategic Metals Invest, this company that you’ve founded and are principal of, what are the services that you’re providing to investors? And what can they expect in terms of risk and performance with regard to strategic metals?

Louis O’Connor:              So as I said, Tradium in Frankfort, 80% of what they do is as a metal supplier, that’s the primary business. And that’s what they want to keep focusing on. You could say they’ve outsourced the sales and marketing for the investment side. I’d say about maybe 10, 15% of our staff in Frankfurt work on the investment side with me, but they don’t have a sales and marketing team. They mostly use financial brokers, insurance agents in Germany. There’s quite a large variety of people can offer the product because it’s not a financial instrument. I mean, people are buying a physical asset, just like you could go into Marion gold here, Marion vaults in Ireland and buy gold and take it home. You don’t need to be an accredited investor or… Anybody can go in and make a purchase.

                                           So it’s quite easy to offer the product. But as I said, until very recently, they didn’t really do any international marketing. They do now because they’ve recently expanded the capacity to vault. It’s three times what it was. And I first became interested in them as an investor. And I had my name down, if you’re ever expanding your commercial partners or you’re looking for international partners, I’d like to be one.

                                           So I created Strategic Metals Invest in 2020 and very simply what we are is a sales and marketing arm of the industry supplier. So I’m a commercial partner.

Patrick Daly:                     And then what about the element of trust in this? So I guess this area is relatively new for many investors. I know a lot of the people you’re dealing with are in the US and the trading are in Germany, and the vault in Germany, which is in Europe, which they may tend to view in a certain way. So how do you establish trust with them from the outset?

Louis O’Connor:              The first step is due diligence. I would say the first, establishing trust is really… I mean, I have obviously a compliance package and all sample documents and what you call the legal imprint of the company they’re doing business with. But I think the the investors themselves have to do that. They have to do do due diligence. If it means getting on a plane and flying to Frankfurt. I’ve had clients come from the US and the reason I’m focusing… I’m not focusing on Ireland, UK. I mean, I do, but I’m focusing in the US because there’s more of an appetite for precious metals over there. I think maybe they’ve had wealth longer. Maybe they’ve had financial advisors longer, but they’re-

Patrick Daly:                     Well, I guess they’re more sophisticated from an investment point of view in the US, aren’t they? In general, that’s more.

Louis O’Connor:              I think so. I think they have more wealth longer and they just have a more of… Certainly for metals, they have more of an appetite, although there are businesses in Ireland now, obviously that do.

Patrick Daly:                     Well. If you go out for dinner in America, people ask you about your portfolio. Nobody in Dublin ever asks you about your portfolio. You know what I mean? They have a different attitude to investment.

Louis O’Connor:              Exactly, exactly. It’s like I was talking with a guy, a Swiss guy, we were at a conference recently, or awhile back. And he was saying that if you get on a flight, say with an American going transatlantic, by the time you get off that flight, the American will have told you everything about all the… They don’t mind, they’re very open about what they’re doing and they like to share and and gather information. But Europeans especially continental Europeans, they just. I suppose it’s not considered very polite to talk about money and stuff like that. It’s a good point. Recently, I was talking with a gentleman in Tennessee, who’s a gold book, which means he’s got a lot of gold, and that one question came up.

                                           He said, Louis, I love the whole thing. He’s done his due diligence. He said, “I like to have my gold close to home.” And what he meant was, he’s probably got it buried into back garden, I think but that was his question about trust. And I said, “If all your assets are in one currency and in one country, then it’s… In alignment with modern portfolio theory, you actually don’t have full diversification.” So once due diligence is done, once somebody has established that, right, this company is in business 30 years, that they are a bonafide metal supplier, and maybe they go to the vault and they see 200 metric tons. They know, okay, this is for real. And once that’s established, then what’s the difference of whether your metals are in Singapore or Switzerland or Tennessee? What is most interesting about them, which I’m sure we’re going to get to, is performance.

                                           For example, in the last five years, gold is up 58% from 2017 to 2022, two strategic metals on average. Now there’s 10 of them, but I averaged it out. Strategic metals are up 34% a year for that same period. So there’s a real good story to tell there if you’re an investor. What’s your most important and obviously safety, security, but what’s in it for me? What are the likely gains? And strategic metals outperform gold. And I’ll tell you why, because I know you’re going to ask me.

                                           Well, strategic metals have an intrinsic value. They’re critically needed in all modern technology, electric cars, medical devices, military applications. And there’s a surging demand. Whereas gold has an extrinsic perceived value. Gold normally just goes up price when there’s either a crisis or a perceived crisis. So that’s the real story actually. That’s why I got so excited about rare earths as an investment and also as a business.

Patrick Daly:                     What are the names of some of the? I think you said there’s 10 them. What are some of the names? We might not recognize it, but at least for you to say them here so that we hear them at least once.

Louis O’Connor:              Okay. So gallium actually is in just about everything. And then we have indium, germanium and then some of the oxides, which are the powdered form, are neodymium, praseodymium. Dysprosium. So that’s just a-

Patrick Daly:                     I don’t recall any of those from the periodic table at secondary schools.

Louis O’Connor:              Yeah. Well they probably… I mean, what’s interesting about them is they’re not all that rare, but they’re never found. They’re always a byproduct of another raw material. So they could be found in clusters all together. And it’s only in the last 30, 40 years, particularly in China, the refining, the technology has gotten better where they can separate them and they can rebuild them nearly with stronger purity levels. And also before the technology boom, they wouldn’t… It’s like it’s just the right time for these particular raw materials. They’re in, every touchscreen has them and every computer and all technology.

Speaker 3:                        93.9 Dublin South FM.

Patrick Daly:                     You mentioned China there as a source. So where are they? Where are rare earth metals produced in the world? And is there any production in developed countries in Europe or North America or do we have another strategic geopolitical issue here with the source of rare earth metals?

Louis O’Connor:              Yeah. Look, if people do a little bit of investigating, they’ll find hidden in plain sight, an unbelievable story here, for the last… Deng Xiaoping, the Chinese premier in the 1980s… Now in the 1980s, the US produced 60% of the world’s rare earths, and he made a statement at the end of the ’80s. He said, “The Middle East has oil. China has rare earths.” Now, since then, China now produces more than 60% of the world’s rare earths and crucially 87% of the world’s refining is done in China. Now that’s a very, very complicated mathematical process. It takes a long time and a lot of a lot of industry and education to get there. So just to give you an idea, there’s one mine in North America producing rare earths, which is a mountain pass in California, but all those raw materials are still sent to China for refining.

                                           So basically China’s the dominant market leader in rare earth. And the reason they are is because they decided they would be. And that’s why you see such such gains in the prices, which is China basically… Like last year, for example, some of those, dysprosium and neodymium doubled in price. The reason they doubled in prices, China doubled its production of electric cars last year domestically. So they only doled out and they, once they’d satisfied their own quotas and needs is then they, whatever was left available was given to the outside world. And that’s why you’ve got these increases in prices. That’s not going to change overnight. It didn’t happen overnight. You’ll find as well, if you look, in a very rare occurrence of agreement, both President Trump and President Biden, both signed executive orders, recognizing that American needs to wean its dependence of China.

                                           Europe needs to do the same. Now it’s not to say there aren’t rare earths in Europe and in America, but the mining process is expensive. It’s complicated. And of course US, Europe will do it more sustainably. So just on that alone, you’re looking at 25, 30% more cost. Look, it’s an interesting place to be. But from my point of view today in this discussion, as a business offering people the opportunity to physically own these metals, investors can profit. And as the last five years has proven, they can profit quite handsomely for the for the next three or five years anyway, that’s for sure.

Patrick Daly:                     You mentioned electric cars and mobile phones. So what other industries are using rare earth metals and how is the supply and demand looking for the future? As things become more technological and as we move towards electric cars on a mass scale?

Louis O’Connor:              The transition we’re about to go through to greener more sustainable energy is just… It’s hardly processable really, there’s just not enough in the supply chain. And there won’t be for a very long time. China will increase production, other countries will, but it just will take time. The industries where you’re going to see most of the growth are solar power, particularly photovoltaic, which is thin film solar, which basically means in the next three to five, 10 years, the side of your building and then all the windows in a home will be able to absorb… With indium, can absorb solar rays and transform into electricity. So there’s new applications, new technologies coming. Like the back of your phone.

                                           It won’t be too long because of rare earths, you won’t need a charger for your phone. It’ll charge just from having indium all around the interface. So solar power, wind power. One wind turbine needs about two tons of rare earths, a powdered form because they’re light. And they need to be light, for manufacturing and stuff, electric cars. I mean, every car manufacturer in the world is going electric. Fact, the US Army just announced they will have an all electric non-tactical fleet by 2035. And by 2050, they’ll have an all electric tactical fleet. So everywhere you turn is demand for these raw materials, and there’s no way that they can keep up with that supply wise.

Patrick Daly:                     So how are the disruptions that are going on at the moment related to COVID… China is still badly affected by COVID. And the war in Ukraine. How are they affecting the supply and demand at the moment?

Louis O’Connor:              Well, COVID certainly did. And that’s why we had that… We saw some additional increases. Some of our metals doubled and tripled in price last year. I would say that’s a bit of a anomaly, because of COVID. The reason Ukraine and Russia, the reason you’ll see spikes in demand there is Europe is looking… Even Ireland now has great potential wind power. You could say, I suppose, China has rare earths, the Middle East has oil, we have wind here in Ireland. The North Sea as well. So Europe wants to win its dependence off Russia. So there’ll be more demand for raw materials there, but the most important driving factor behind price increases in the supply and demand is the fact that if you look at China’s future’s policy, which was released, the year 2000. And it was actually called China, the 25 Year Planet was shot, China 2025.

                                           And that clearly states that China wanted to be domestically self-sufficient in 10 different technologies by 2025. They’re very close to achieving that, with 80% of the refining in rare earth. So sometime between now and 2030 China will become self-sufficient. And the rest of the world, the west anyway, will be waiting on what China will release to them after they’ve satisfied their own domestic needs. That’s what will drive every time they restrict quotas or they they keep more for themselves. Prices will spike and at the moment, believe it or not, Europe or the US, they don’t have a supply chain of rare earths. They’re completely dependent on China.

Patrick Daly:                     Yeah. That’s, I imagine something that’s causing concern in the White House and in Brussels. And maybe they’re thinking about plans for remedying that. Although, as you said, it’s going to take a long time. I guess it would take them… If they decided they wanted to have an independent capability, how long would it take them? Would it take a decade? Would it take more?

Louis O’Connor:              I’d say at least… I was chatting with a gentleman, his name’s Jack Lifton, and he’s, I’d say he’s the foremost authority on rare earth in the US. He’s been talking and knows about rare earths since the 1960s, he’s more of an academic. And he made a very good point to me. I mean, he said, “Louis,” he said… He was talking that hearing what President Biden was saying, and even Trump before about that, all of a sudden America’s going to create its own supply chain. He gave me example. He said, “The refining process of rare earths, it’s very, very complicated.” It’s mathematics basically. He said, “You need geologists and scientists.” And he said, “China has probably been educating about…” I think he said in the US, there’s about maybe 200 of these specialist geologists being educated a year in the US.

                                           He said, “China’s knocking out about 200 of them a week and have been doing for the last 30 years.” So it’s just not that you… Just again, I’d say you’re looking at a generation. I mean, I’m not an metals expert like Jack. I mean, I’m very, very new to the industry, but speaking with the experts in Frankfurt and Jack over in the US, there’s no easy solution. I’d say we continue to see price increases. And the manufacturers and stuff just factor the prices in. People will still pay, continually pay more money for the new iPhone.

Patrick Daly:                     Yeah. Okay. Maybe as you come into the last few minutes we’ll change tack a little, and I might just ask you what kind of things you like to get up to in your spare time when you’re not working and thinking about rare earth metals?

Louis O’Connor:              Right. Well, I’m very excited to be home in Ireland. I mean, as I said, I had 10 years in Germany, pretty much 20 years in Latin America. And we moved home, as you know, pretty much three weeks before this pandemic kicked in. So my wife’s Mexican, my two kids were born in Panama. We moved to Tipperary. And even though we’re coming up on two years at home, I just feel like we arrived a week ago, or maybe a month ago because everything was locked down.

                                           You know that lovely new, fresh… Even though I’m Irish and stuff, I mean, I’ve moved home. It’s a different country than I left 30 years ago. So just Ireland, actually the novelty and the newness and the adventure of being here for me and seeing my kids go… My kids are a little Latinas, they never owned a jacket in their life till they moved here and had to buy one in July. So yeah, just loving west coast, like we go over to Liscannor and the Lahinch to swim and stuff. So just enjoying being home at the moment and the fresh air and course, the lovely long evenings, you know?

Patrick Daly:                     Yeah. Are you reading or listening to anything, books, audio books, podcasts of interest that would inspire you or that you’d recommend?

Louis O’Connor:              Recently I read Empire of Pain, which is not a great story, but about the Sackler, the dynasty and that. Reading Putin’s People at the moment about… It’s funny, it’s very funny. You know what? It’s funny, the last two books, the message that you see, which is true as well. Any of these, what you might call evil or greed or power grabs or stuff, it usually starts out as a good idea. Somebody thought they were doing right. If you look at the founder of the Sackler family, he did this internship as a doctor in a sort of asylum in America, in New York. At that time, the only treatment they had for depression and stuff was electric shock therapy and things like that. And he wanted to find a better way to take care of people, you know?

                                           They actually were involved in Valium and lithium in their early days. And the same, even… It’s just an interesting concept. You know, everybody already always thinks they’re right. If you’re in, whether it’s a country that’s having a disagreement or a neighbor or a business everybody usually sort of feels they’re right. So it’s interesting that in such a divided climate, I suppose I’m talking about North America though, because a lot of my clients are there, but got to find a common ground, you know?

Patrick Daly:                     So where can people find out more about you and about the investment options that you have?

Louis O’Connor:              The website is Strategic Metals Invest and they can go there and download the digital prospectus or they can email. It’s info@Strategic Metals Invest.com.

Patrick Daly:                     Okay. It’s important there’s an S there in the metal, Strategic Metals Invest-

Louis O’Connor:              Metals. Yeah.

Patrick Daly:                     I made that mistake, so. Well thanks very much Louis. Pleasure to talk to you again. Wish you the very best with this for the future, both professionally and personally.

Louis O’Connor:              Thank you Patrick.

Patrick Daly:                     Thanks also to our listeners for tuning in. And any comments or questions, just drop me a line on P Daly, P-D-A-L-Y @albalogistics.com, and keep well and stay safe. Until next time.