The Tungsten Market Is Warning of an Upcoming War

Bloomberg Opinion columnist David Fickling tells us you can think of tungsten mining as “a century old prediction market for war.” As he writes in a recent piece https://bit.ly/4ySeGpo, tungsten is “a super-element that can determine the fate of nations.” While the commercial market for tungsten is fairly small, it can be crucial in war manufacturing, due to its high density and melting point. He learned more about tungsten mining, and its increasing geopolitical necessity, during a visit to Australia's Dolphin Mine, which has a history of opening up during times of war, and then closing again during times of peace. He explains to us why investors are once again interested in tungsten mining and why it's been so hard (over the last century) to sustain production outside of China. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 0:25Speaker 01

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• 1:07Joe Weisenthal?

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• 1:47Speaker 03

  Bloomberg Audio Studios, podcasts, radio, news.

• 2:02Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 2:07Tracy Alloway?

  And I'm Tracy Alloway.

• 2:08Joe Weisenthal?

  Tracy, I'm I'm in a mood of a little bit of heartbreak this morning.

• 2:12Tracy Alloway?

  Oh, mood of a little bit of heartbreak. That sounds like a country single, doesn't it?

• 2:16Joe Weisenthal?

  That's right. No.

• 2:18Tracy Alloway?

  You're singing. I know what you're sad about. You're singing the tungsten cube blues.

• 2:22Joe Weisenthal?

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

• 2:28Tracy Alloway?

  Unfortunately.

• 2:30Joe Weisenthal?

  I bought one, and it was the only.

• 2:31Tracy Alloway?

  I'm all aware.

• 2:32Joe Weisenthal?

  And it feels so good, like a nice big block of tungsten in your hand. It feels so good. It's so unexpectedly heavy. Probably like a little like mild autism, like I like really 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 love props sometimes.

• 2:49Tracy Alloway?

  I do like a good prop.

• 2:50Joe 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.

• 3:06Tracy Alloway?

  I think I know which one it is, Joe. I think I know. Let me just say.

• 3:10Joe Weisenthal?

  I have a messy desk, too.

• 3:11Tracy Alloway?

  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 promptly, like Joe, forgot about them. And actually, this is a really good analogy for what we're about to talk about because 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 desk toys.

• 3:55Tracy Alloway?

  But then you find out that you need it again. And so there's this like long running kind of boom bust cycle.

• 4:01Joe Weisenthal?

  I'm really sad.

• 4:02Tracy Alloway?

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

• 4:07Joe Weisenthal?

  I'm actually, I'm actually really sad about this. This is, by the way, a little bit of.

• 4:11Tracy Alloway?

  Can I say one more thing?

• 4:12Joe Weisenthal?

  Yeah, please, please.

• 4:13Tracy Alloway?

  I know where you can find some tungsten.

• 4:14Joe Weisenthal?

  In the West, in Western Australia?

• 4:17Tracy Alloway?

  Uh, in the Bahamas.

• 4:18Joe Weisenthal?

  Oh, really?

• 4:19Tracy Alloway?

  F T X, famously.

• 4:21Joe Weisenthal?

  Oh, that's right. That's right. Yes.

• 4:23Tracy Alloway?

  Was going to install a giant tungsten cube at their headquarters in the Bahamas. And everyone seems to have forgotten this bit of the Michael Lewis book. But at the very, very end of Michael Lewis's book on Sam Bateman Freed, 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.

• 4:43Joe Weisenthal?

  Yeah, it's 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 a storage, constant storage, like a safe or something like that, or if you have.

• 5:05Tracy Alloway?

  Or a storage unit in the jungle.

• 5:06Joe Weisenthal?

  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 non zero percent chance that you lose your asset, you misplace it.

• 5:19Tracy Alloway?

  Yeah.

• 5:19Joe Weisenthal?

  Maybe you have like some keys to a crypto wallet that you lose or whatever. So that is a way of replicating, except sort of stochastically, the negative interest rate. I think I'm going to find it. I didn't totally forget about it. I had it on my desk even as recently as a few months ago, and I have some very messy drawers. So I think I actually, I'm not, I haven't actually given up hope.

• 5:39Tracy Alloway?

  I'll create a bet on a prediction market about whether you'll find your tungsten cube.

• 5:43Joe Weisenthal?

  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 damage.

• 6:00Tracy 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 drone shrapnel and things like that. And at the same time, like a lot of other, I guess, rare earth metals, it's also becoming more important to our vision of the future, to the AI build out, things like that. So it's getting more attention. And of course, again, like a lot of rare earths, there's a limited supply and it seems to be dominated by one particular country.

• 6:33Joe Weisenthal?

  Yeah, it's in, right, this is the thing. There's a lot of it, but it's expensive and low margin in typical times. And so you're just like, yeah, it's like distributed. There's some in 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 tension.

• 7:01Tracy Alloway?

  Let's do it.

• 7:01Joe Weisenthal?

  Anyway, I'm very excited to say we really do have the perfect guest, someone who we probably should have had on Odd Lots 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 has 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 joining us.

• 7:23Speaker 04

  How you doing?

• 7:24Joe Weisenthal?

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

• 7:37Speaker 04

  Yeah, I mean, tungsten, you can look at it as a bit like a sort of century old, missing prediction market for war, basically. And I didn't realize this until I started looking at tungsten. But actually, if you go back right to the turn of the 20th century, it has operated like a prediction market in the in the sense that people making real investments, once they get a sense that war is a real possibility, they put real money behind tungsten. And you can see the sort of process with that. If you're operating a tungsten mine, then you're in touch with tungsten traders, and the tungsten traders are in touch with military, you know, material companies who get the first big orders when there's a real prospect of war.

• 8:18Speaker 04

  And this this mine I visited has this extraordinary history where it first opened in 1917 during World War I. It closed at the end of the war because then the war ended. No one needed the tungsten anymore. And the European government sold it for their tungsten stockpiles. Opens up again 1938 before World War II starts. It goes through a bit of a struggle after World War II, but then it's more or less like rescued by the Korean War. It closes down almost altogether around about when Sputnik is launched and people start rethinking what war is going to be like. But then it sort of keeps going through the Vietnam War and finally closes down the Cold War. And it's been closed. This mine, it's on a, it's on a beach in an island just off the coast of Tasmania. It's a pretty isolated windswept spot in the roaring forties.

• 9:03Speaker 04

  In 1990, it closed down, the mine flooded, and it was basically been ignored for most of the last three decades. And it's now finally starting up again at this very moment when war is looking more likely.

• 9:16Joe Weisenthal?

  So this is extraordinary. But just to be clear, what is it about the properties of tungsten such that it is important for material?

• 9:25Speaker 04

  I mean, it's the same thing with the tungsten cube on your desk. It's incredibly dense. I think one of the things that attracts the crypto bros to tungsten is it's not just incredibly dense. It's about the same density as gold. But it also has this ridiculously high melting point, more than 3,000 degrees Celsius. So sort of three times hotter than lava, tungsten will still be solid. And that means that if you're trying to make projectiles with it, for instance, if you're trying to make an armor piercing 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 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 the moment. Say you're having a sort of cluster munition, a sort of a warhead that explodes into a sort of distributed charge

• 10:11Speaker 04

  so that you can take out a command post or a drone. With tungsten, you can have a bunch of very tiny tungsten pellets, and they will make a sort of metal rain that will smash anything in the vicinity. And because it's so dense, it's going to be much more effective than steel. So for all these reasons, it's just very useful for military purposes. And of course, if war is pending, people will pay any price for those sorts of physical properties.

• 10:34Tracy Alloway?

  Getting hit in the head by a tungsten cube would certainly be painful and damaging. Talk to us about the non military applications because it's possible, you know, you wrote about this new mine that's restarting. Maybe, well, we should get into what the investors actually say, the reasons behind them opening up this mine. Maybe it's because they're predicting more tungsten demand because of additional military conflict. Maybe they just think there's going to be more demand for like, I don't know, carbide tooling or something like that. What else is tungsten used for? And then also, what does, we should also talk about how colorful some of these characters are. But what is your merry band of tungsten investors say about their reasons for opening it?

• 11:15Speaker 04

  You've done your research, Tracy, haven't you? This carbide tooling, I could tell that was the, I mean, 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, then you will use the drill bit for working metal. If you're in a mine, it will be on the end of a drill bit there, or in an oil well, anywhere where you need to drill something very hard. Tungsten carbide, it's a mixture of tungsten and carbon, as the name suggests. And it's the best value way to get incredibly, incredibly sort of powerful drilling power. And that's actually essentially in all sorts of ways that I think we don't often anticipate. I was, in the course of working on this article,

• 11:56Speaker 04

  I was reading something about during World War II, when Nazi Germany, and we can talk about this later, was very concerned about its supplies of tungsten, and they were running short of supplies of tungsten. And one of the things they did is to conserve it for the weapons industry. They stopped using it in tooling. And you hear these reports of Allied soldiers capturing German tanks late in World War II, and just going, this equipment's terrible. Because they didn't have the tungsten carbide for the tooling. So the machinery wasn't working very well. The gears were all out of, out of whack, and nothing was working very well. And so, most tungsten now, eighty percent of it is just tungsten carbide, it's tools. And you can buy it in your local tool shop, you'll find it everywhere, and it's a fairly, fairly boring humdrum element. The other things,

• 12:41Speaker 04

  there are a few other uses for it. Like almost every critical mineral, it gets used in some weird processes in oil refineries. If you're as into critical minerals as I am, there's always like, five percent is always used as some weird catalyst in an oil refinery. And, and that's the case here. Another one that's actually quite interesting, again, because of these sort of high temperature, high strength properties, if you're making turbine blades, it's very important for turbine blades, a lot of, you know, in a jet turbine, but also in a gas turbine, which gets used a lot powering data centers and things, in LNG compressors, about, up to 10% of that alloy might be tungsten as well. So there's a certain amount of demand for that. And there is even supposedly a use in some, some

• 13:23Speaker 04

  AI chips for tungsten as well. And, but the quantities there will be absolutely tiny, because of course, anything involved in chip making, the raw materials is just infinitesimal because the chips themselves are so small.

• 13:34Tracy 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. It's like a Red Bull heir, and like, some distressed debt guys, and then some retired miners, doing one la, one last job. But when they talk to you about their reasons for reopening this mine, what did they say?

• 14:00Speaker 04

  Well, the main one I was speaking to was actually the, the chief executive of, or the executive chairman of the mine himself. He was actually, he was brought in by one of these investors. As I say, if you look at the shareholder register of this company, it's like, nothing I've ever seen of a shareholder registry, certainly of a company of sort of global importance. Like you say, I think the reason Red Bull are involved, is that there's a sort of long Central European, Germanic interest in tungsten, and Red Bull are based in Austria. A couple of them are people who-

• 14:30Tracy Alloway?

  The Austrian urge to acquire tungsten. I'm well aware.

• 14:33Speaker 04

  Yes, absolutely. The Peabody Energy, the, the, the American Coal Mining Company bought a coal mine off a couple of Australian investors about 20 years ago, and they used the payout from that to invest in this mine. They were some of the first people who were involved. There's a caterpillar dealer who actually worked at the mine in the 1960s. He's one of the shareholders. The, the state government of Tasmania is one of the shareholders because they were bailing it out. And even some of the companies that were leasing cranes and mining equipment, they basically took equity in lieu of unpaid bills. There's really hardly anything in the way of bank finance in this company at all. Its equity is about seven million Australian dollars. And the total cash some invested, since it started

• 15:17Speaker 04

  up, really tried to get back into operations 20 years ago, there's been a lot of reports and environmental studies and things over that period. Total is about 77 million dollars, you know, what Amazon spends in about four hours. So, it's really very little money. I would say their ambition, they weren't betting for 20 years on war, but their ambition was that China produces 80% of the world's tungsten. And by 2010, you were seeing China threatening Japan, for instance, over its rare earth supplies. And you could see this was a potential risk, even back then. And people around the world, there was one tiny

• 15:58Speaker 04

  tungsten mine, that the, the US is last tungsten mine was actually just east of Los Angeles. It was a sort of retired Vietnam veteran who would go up to the mountains and like, dig, dig out a few tons of tungsten every, every summer. And, and that, that went on until, he went on mining until about 2013, I think. He was talking back then, in the process of writing this article, I dug out a letter that he'd sent to Congress complaining about reducing tariffs on Chinese tungsten, because he was concerned back in 2012 that China controlled too much of this and was a strategic competitor. Back then, people weren't worried about it very much. Now, it's everything everyone worries about.

• 16:53Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets, fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 17:18Speaker 01

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• 18:54Joe 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 the peacetime tungsten market looks like, in terms of how big we're talking about, the sort of, the, I guess I would say, the, why there hasn't been so much investment, like, like, what are the economics such that generally during peacetime, it does not make sense to, to do a new project, given either the size of the market, and maybe, presumably, the cost competitiveness and the efficiency of the Chinese miners?

• 19:35Speaker 04

  I mean, I think the biggest thing, 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 has just happened to get the best geological resource of this, by far. And that's a thing that happens in mining. South Africa and Botswana have the best geological resources of diamonds, and Russia and South Africa have the best resources for platinum group metals, and Australia and Brazil have the best iron ore. That just happens. These resources are unevenly distributed around the world. And it's hard, if you don't have resources as good as that, to get a look in. China- Going back to the turn of the 20th century dominated global tungsten supply.

• 20:17Speaker 04

  And the only time that that's really changed was during a period in the Cold War when tungsten was basically closed off from the rest of the world. As soon as Chinese tungsten was able to get into the world market, their mines are the highest grade mines and there is just be more of it there. Now, some investors outside China in tungsten alongside the geopolitical argument, they would probably say, look, these mines have been mined for a century. One of the reasons China at this moment has export controls on tungsten, I think it's probably mostly geopolitics, but the defense of that that the Chinese government might have is that these mines are very old and we need to reorganize the industry because it's an underperforming industry. So there is a fairly scarce resource of this.

• 20:59Speaker 04

  It's about 85,000 metric tons a year is all the tungsten that's used. It's not a super exciting market because it's very expensive and because it's mainly used in places like tool shops and mines, most of that stuff gets recycled. If you're in an auto tooling shop, once your drill bit gets worn out, it might get re-ground or you might just send it and it'll be recycled. So there's not a, it's not a sort of huge demand, ongoing demand surge for tungsten. It really sort of grows at the pace of tooling capacity worldwide.

• 21:31Tracy 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 doesn't seem to have a forward curve in the way of a traditional commodity like oil or something like that. So if you're an investor trying to make a bet on a tungsten mine, it seems really hard to predict what your current returns are going to be, much less your future returns.

• 22:00Speaker 04

  I think that's absolutely right. And I think it's one of the biggest problems with critical minerals generally because there's not a futures market, because there's no way of hedging your cost. With any mine, you are making capital investments right now for something that might only pay off in years five to 10. Now, if I'm doing that with copper, I can go to the London Metal Exchange or COMEX and I can have as many contracts as I want, setting the price of copper five years hence. And then I can take that to the bank and say, look, here's my operating costs, here's the value of carbon, here's how much I'm going to produce. This is a bankable project, very simple. Totally different with tungsten. They're just, there simply is no futures market in this because it's such a tiny market.

• 22:44Speaker 04

  Most of the time, one investor I spoke to, I think he's been on a podcast before, actually, Alex Turnbull, you know, he said, sometimes it could be three, he said, like tungsten, it could be $300 dry metric ton unit, which is the unit they use. It could be 3,000, 300, 3,000, each is a reasonable price for it because depending on the, the state of supply and demand of the market, the fact that China may suddenly close off supply and China has 80% of supply and then you have most of the world fighting over the remaining 20%. Any of these prices is viable and that means that if you're stuck in the middle and most tungsten mines outside China are above that a ton level, then you find it very hard to finance your mine.

• 23:26Speaker 04

  No, no banker will really lend money to you on that basis because they don't know what your revenues are going to be next year, let alone five years from now.

• 23:35Joe Weisenthal?

  There's no forward curve in tungsten, but we do have one ticker on the terminal, which is tungsten held in warehouses in Rotterdam. And I said, oh my God, this chart just makes me want to cry. It was literally, it was three, it was probably about $300 for a ton in, when I bought it, sometime in 2022, and it is over $3,000 right now. So if I wanted to, yeah.

• 23:58Speaker 04

  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.

• 24:07Joe Weisenthal?

  Wait, what, so wait, actually this is helpful. Great. So when 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?

• 24:18Speaker 04

  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 can just put it in sacks and ship it around the world. And then I think you heat it and the ammonia comes off and you've got tungsten oxide and then you can quite easily turn it into a lot of other things. And that is priced quoted in dry metric ton units, which a few critical minerals are quoted in these, these, these units. A dry metric ton unit contains about, I think, 7.93 kilograms of tungsten.

• 24:56Joe Weisenthal?

  Okay.

• 24:57Speaker 04

  So if it's $3,000 a dry metric ton unit, it's about $400,000 for a ton of tungsten. So, so that's why someone stole your cube. It's good money.

• 25:08Joe Weisenthal?

  I'm really, I'm really depressed about this. I gotta find it. I gotta find it. Oh my God. I'm so, this is, this is, this is really bothering me. All right, talk to us about, okay, this particular mine. Walk us through a little bit more of the sort of the economics or the best case economics. Let's say it works out. What are we talking about in terms of how much investment? What a sort of flow, how much it could change, shift in terms of, you know, Australia's ability to, where would it change in terms of market share and so forth? And like, what would it represent if it were successful?

• 25:45Speaker 04

  The thing that fascinates me about critical minerals is that the, the numbers involved are often absolutely tiny. Like I said, the total cash sum invested in this in 20 years is $77 million. It's nothing. I mean, I wrote a piece about critical minerals a few, a few months ago. So, you know, think of the price of a White House ballroom, which I think, are we talking like 800 million, a billion dollars now? I can't remember what the latest, but I mean, you could solve the entire rare earths problem for the price of that. And actually some of the investors who've been putting serious money into solving the rare earths problem with China, that's the order of money that they're spending. It's in the sort of hundreds of millions of dollars.

• 26:28Speaker 04

  And this is a time when we're spending trillions of dollars on, on AI or a single fad missile, one of these missiles that uses a bit of tungsten, a single fad missile use, it costs about $10 million. So the sums that we're talking about are absolutely infinitesimal. And the amount that it can move the market, of course, it's a very small market. This mine I visited down in Tasmania, if it gets up and running, it should be able to supply about two and a half percent of the global market. Now, that doesn't sound a lot, but remember China supplies 80% of the global market. So you're actually talking two and a half percent of the remaining 20%. And actually, North Korea and Russia supply another 5%. So it's two and a half percent of the remaining 15%. It's quite, it's quite a significant percentage.

• 27:13Speaker 04

  If you go back to sort of old commodities reports from the Cold War, people would talk about the free world market. So that two and a half percent is, that's roughly one sixth of the three, of the free world market. So for a very small sum, that's the sort of thing that you can acquire in critical minerals. And yet no one is prepared to invest in it most of the time.

• 27:33Joe Weisenthal?

  It's very similar to the selling down of the helium reserve.

• 27:37Tracy Alloway?

  Yeah.

• 27:37Joe Weisenthal?

  Which is just like, which is like, the numbers are, it's so penny wise or whatever. You know, it's so like, here's this thing that, okay, could be strategic in the future and we're going to sell it for like half a billion or whatever.

• 27:48Tracy Alloway?

  Yeah, 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 it also feels like China is more willing to tolerate lower returns for some of these industries.

• 28:09Tracy Alloway?

  And I guess treat the market like a little bit more like a chessboard rather than just a sort of short-term spreadsheet. Does that mean if anyone in the West tries to start up a new tungsten mine, can China just come in and flood the market very easily and suppress prices, given that they're still the dominant producer and literally anyone else is, as you just outlined, a fraction of total production?

• 28:33Speaker 04

  Yeah, I mean, that, and that is one of the main reasons that investors stay well away from this. It's one of the main investors, they, the reasons that they've stayed well away from rare earths. At the moment, one of the reasons tungsten prices are high is precisely because China imposed export controls just around about the, the time President Trump came to office last year. That doesn't mean that exports stop altogether, but it means that if you're dependent on Chinese tungsten exports, which every tungsten consumer is dependent on, you want to get your supplies early before those export controls result in the Chinese government saying, no, you can't sell it to them. So as soon as those export controls are taken off, then that, that sort of speculative

• 29:16Speaker 04

  action that's going on in the market, that's one of the main things that's driving up prices at the moment, that speculative action goes away. And so, so that would certainly bring down prices and then in turn bankrupt a lot of miners who were dependent on those higher prices. So that's absolutely something that, that has happened in the past and not just the Chinese government. As I said, the first time this mine that I went to shut down in, in 1920, after World War I, it was because the Allies in World War I sold off all their tungsten supplies and flooded the market, a bit like, you know, the Bank of England with gold in the 1990s or any other mistake and sort of government sale of a, of a commodity.

• 29:53Joe Weisenthal?

  You know, obviously anything that is geostrategic or used in warfare will have a spike in investment and spending during a war and then it'll come down, obviously. But, you know, we have the defense industrial complex and there is an extraordinary amount of spending on munitions and so forth. It goes on in peace and wartime, et cetera, producing new missiles and there's a fortune to be made in that. At any point during, again, what we would call relatively peaceful periods, maybe the 1990s or maybe like early 2010s or something like that, were there any voices that said,

• 30:31Joe Weisenthal?

  look, as part of this strategic expenditure in the West, in allied countries, we should just maintain constant loss-making production and investment into some of these resources? Because again, the numbers compared to other defense or strategic spending just do not seem very high.

• 30:54Speaker 04

  I think there was a real lack of that. And I think one of the interesting things that I sort of realized as I was working on this piece is that part of tungsten's time in the wilderness was about a rethinking of the nature of what wars would be. Because in nineteen ninety, you have two things. You have the end of the Cold War, but then the also crucial military thing that happens is the First Gulf War. And the First Gulf War causes a lot of people in the West, particularly in the US, to really rethink what wars are going to be like in future. Back then, people thought it would be a Vietnam-type situation, potentially, before the war actually started, that this was a million-strong Saddam's army, we're going to be something that looks a little bit like Ukraine, essentially. And then, of

• 31:36Speaker 04

  course, it was this incredibly quick technological war. Iraq was very quickly devastated. You saw the sort of technological superiority of the US military. And that made people go, oh, okay, hang on, the Cold War's finished, so we don't need to be building up these huge anti-Soviet military arsenals. But also, we are going to be vastly technological superior to every foe that we're going to fight in war. So we need to have different types of weapons. And I can't remember, did you have Chris Miller on the

• 32:06Joe Weisenthal?

  We have, yeah, yeah, yeah.

• 32:06Speaker 04

  Chip War, author? Yeah. I mean, I think he describes that really well, that dynamic, how basically CHIPS won the Cold War, and that caused a complete rethinking of military strategy. And so at that point, tungsten doesn't matter so much, because if you are so technologically sophisticated that you can take out enemy command posts very quickly, you can paralyze their electronic infrastructure and their entire sort of military command, and then you don't really need to be fighting this sort of war of attrition, which is where tungsten really comes into its own. Now, we've, of course, had another revolution in military affairs. We've had another sort of rethinking of what war's going to be like, because we're

• 32:50Speaker 04

  four years now into the war in Ukraine, and we've seen in Ukraine a battlefield that looks like the big battlefield of the 20th century, and it's still grinding on. And so that makes you rethink, are future wars going to look like that or not? And of course, the other thing that's looming in the future is Taiwan, a conflict with Taiwan, where you're going to be up against the, you know, biggest manufacturing power on the planet. Are you going to be able to technologically overmaster China in the way that the US in nineteen ninety overmastered Iraq? I don't think people expect that to be nearly so easy. So tungsten, again, comes into its own.

• 33:28Tracy Alloway?

  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 if you were going to encourage or make suggestions for encouraging tungsten production in the US or elsewhere, what would you be suggesting at the moment? Because there does seem to be this real tension between a potentially strategically critical resource, and then, I guess, the limits of private capital and people actually wanting to fund something that will pay off with a real return.

• 34:03Speaker 04

  I mean, ultimately, you need to have some sort of a floor price. There is a huge debate that has sparked in the critical mineral space about whether floor prices are a good thing or not.

• 34:15Tracy Alloway?

  Yeah.

• 34:16Speaker 04

  A lot of people will argue that if you have a floor price for something, then it operates as a giveaway to miners, and it's going to encourage sort of uneconomic supply. But I think in the context of what we're talking about here, that's actually the point. The only economic supply of tungsten is in China. So if that is a problem for you, you actually need a, you need a structure that's going to encourage the supply outside China, and it's going to encourage it for a set period. Now, there is a huge philosophical problem with this, because you can't do that with every single material that could be deemed critical. I saw an article the other day talking about fears that China was going to lock down the supply of citric acid. You know, there's metallurgical coal has been

• 35:00Speaker 04

  put on the US critical minerals list. Copper is on the US critical minerals list. You can justify almost anything on this basis. And that's a real problem, because the US, for instance, has set up this Project Vault, this 12 billion plan for some sort of a reserve of critical minerals, something similar to the Strategic Petroleum Reserve. But it's not very clear what the criteria will be for inclusion in Project Vault. And I think the risk is that Project Vault becomes a way of hedging price risk for fairly common commodities like copper, like nickel, like aluminium, like metallurgical coal. If the government is not very forceful, you don't actually end up getting the minerals you want in that. You just can end up with the minerals where industry wants government-backed

• 35:43Speaker 04

  price security. What you actually want is a fairly small group of minerals where there's a real strategic issue. And I think tungsten's one. I think rare earths are another. Things like gallium, germanium, these are some of the crucial ones. It'll be much cheaper, but you need to offer a medium-term price security, long enough that miners can actually borrow against that price security. So three to five years.

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• 38:27Joe Weisenthal?

  Evidently, China controls 65% to 70% of the world's citric acid supply. And citric acid has certain niche applications.

• 38:39Tracy Alloway?

  Secure your sour-flavored fruit candies now.

• 38:41Joe Weisenthal?

  Yeah, it has some pharmaceutical applications. Citric acid excels

• 38:46Tracy Alloway?

  It's a good tenderizer, I know that.

• 38:48Joe Weisenthal?

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

• 38:55Tracy Alloway?

  I did not know that.

• 38:56Joe Weisenthal?

  Yeah, I didn't know that either. So if there's a citric acid expert out there, maybe that'll be an episode we want to do. You know, David, there was a piece you wrote a very long time ago that has stuck with my head, maybe like coming out 10 years now, I think. And I think it was in the context of some of the fantasies the tech people have had about asteroid mining. And I believe you made the point that, okay, yes, there may be asteroids out there that have extraordinary deposits of various minerals and metals of all sorts. But we also have a place here on Earth that also has extraordinary deposits of minerals and metals, and that is your country of Australia. And there's a lot of

• 39:40Joe Weisenthal?

  stuff just sitting out there. But it's, and it's a lot closer than space, but it's still too far to be worthwhile to mine, which I thought was really interesting. It's like, it's right there. And yet, it's just, there's, the infrastructure doesn't exist, it's just not worth going out there. It's too much of a trek to get out to those parts of Australia. Could you talk a little bit broader about like this sort of, okay, we could say this is in the ground, but like, and we need, we want this, this is industrially useful, it's in the ground, we know where it is, we know it's rich, but it's just not worth making the long 12-hour flight or whatever it is to get out there. Now, I know it's more than a flight, but yeah, to get out there.

• 40:20Speaker 04

  Yeah, no. I mean, I think that the world of mineral exploration is full of this. And here in Australia, there's plenty of very small-cap mining companies, which are essentially, like, some of them are almost like a holiday program for a geologist. It funds a geologist's expedition around the world with his hammers and his reagents. Because some of them are really just, they're just sort of wild exploration programs, hoping to find something. We see this with tungsten. This mine is an unusual one, and it had been operating for about a century already. So there's an established resource there. But I mean, to give another example, a crucial group of rare earths depends on these things

• 41:01Speaker 04

  called ionic absorption clays, which, when you get a very heavily weathered granite mountain, you end up with a lot of these clays which will capture some of the rare earths that we're most concerned about, things like dysprobium and turbium. And if you go back about five years, people would say these can only be found in southern China. And one of the problems in the world is that there is no way that you will ever find ionic absorption clays anywhere except southern China.

• 41:27Speaker 04

  But of course, now we're in a world where China is putting controls on these things. It is stopping exports of a lot of these, these particular elements. And it's at the heart of the sort of rare earth, sort of magnet supply chain concern. And believe it or not, all these ionic absorption clays are starting to turn up in other places. They're starting to find them in Brazil. They're starting to find them in Malaysia. People are starting to find them here in Australia and across parts of tropical Africa as well. People are suddenly realizing, okay, there, there are deposits there. They might not be as good as the Chinese deposits. There's a reason the Chinese deposits were the first to be explored. But if China becomes an unreliable resource, people are going to find them somewhere

• 42:09Speaker 04

  else. And I think that's, I mean, there's two twin activities that happen in, in commodities and mining. One is the sort of substitution effect. Sometimes you're just going to say, we can't use this. It's, it's become too scarce. We need an alternative. I mean, a good example of that, I think, is if you look at electric vehicle batteries, go back five, seven, eight years, people were talking about the importance of having batteries depending on cobalt. Cobalt's very heavily exposed to one country, Democratic Republic of Congo. There's a lot of child labor in the mining industry there. And also, it's in some ways not quite as good. So a lot of the Chinese battery producers started using a different

• 42:50Speaker 04

  chemistry that doesn't use cobalt, lithium ion phosphate. And so, so you've substituted away from that product and you don't need it anymore. And to go back to the analogy with asteroid mining, if a commodity is so scarce that you need to go to space to get it, you're probably going to substitute it for something else instead. However, if it's not quite as scarce as that, you're probably going to be able to send out geologists around the world and they're going to find it somewhere else. And if the established supply is insecure enough, then the alternative location is going to get more and more attractive.

• 43:23Joe Weisenthal?

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

• 43:27Tracy Alloway?

  I was going to say, if it's the same density, you could have just bought a gold bar instead of a tungsten.

• 43:32Joe Weisenthal?

  You just buy, you just start having gold based munitions. Those would slice right through that tank as well. David Fickling, it was great chatting with you. I'm so glad we made this happen. This is such a fascinating journey and great reporting that you did. So thank you so much for coming on Odd Lots.

• 43:45Speaker 04

  Thanks very much.

• 43:59Joe Weisenthal?

  It does seem so crazy to me that we have this huge, the military industrial complex, et cetera. And then there's these few things that are like rounding errors.

• 44:09Tracy Alloway?

  Right. The capital outlay for a tungsten mine seems pretty small in the grand scheme of things.

• 44:15Joe Weisenthal?

  And yet no one was like, let's just, yeah, sure, it's uneconomical, but so is all defense spending because you don't, it's loss making because there's no market use for a lot of this stuff. But it's like, I don't know, it seems like you just allocate a few billion here and there and you could alleviate some of these potential stress points. Instead, you sell down the helium reserve over 20 years for half a billion dollars or whatever.

• 44:37Tracy Alloway?

  I mean, to some extent, it does seem like a failure to predict the future, which is difficult, right? People thought that war was going to evolve in different ways. We didn't think that we would be shooting this many cruise missiles or that we would be shooting shrapnel at drones or having drones shoot this much shrapnel. And so like here we are with, to some extent, an unexpected need for tungsten and the same for helium in some sense, because we didn't know that we were going to have this semiconductor boom and things like that. So hindsight is 2020, but I don't know, it does seem like maybe we should restart that tungsten mine in California. Should we go check it out when we're, we're in LA?

• 45:18Joe Weisenthal?

  Yeah, we're going to be in, listeners, we're going to be in LA in early September.

• 45:21Tracy Alloway?

  Maybe we can find the guy who used to run it.

• 45:23Joe Weisenthal?

  We could go find, yeah, let's go check out the, I also, you know, I just think that, again, one of the things I always think about with respect to China specifically is the fact that there's not really a business cycle there. And they've never, they don't have these like, they have secular busts, like obviously real estate, et cetera. But you know, there's been this sort of like refusal to accept the premise that overall recessions are an inevitability. And therefore you don't get these like periods where it's like big industries that were once important hollow out. And then it's like, oh, it's so costly to restart them.

• 45:59Tracy Alloway?

  I mean, you do get some of that. And China's pig pork industry is a pretty good example of that, where there was a shortage and prices went up. And so the government provided a bunch of support. It over expanded, prices collapsed, and then a bunch of private operators went out of business. So there is some of that. But I do think in general, China is more willing to accept just lower returns in general for some of these industries.

• 46:21Joe Weisenthal?

  For some of these long term.

• 46:22Tracy Alloway?

  Which also begs the question, if, one of the big themes of our current period in time, as we've discussed on the podcast repeatedly now, is that everyone seems to be trying to build up their own supplies, their own responses to like certain chokeholds in the global economy. And so one of the concerns that you see now, and David talked about it, is well, if everyone's trying to create their own supply of tungsten, even if it's a relatively small supply, even if it doesn't actually take that much capital to create a new tungsten mine, if everyone's doing it all at once, and then you don't have a definitive buyer of last resort at the end, then like, people are going to think that we're going to become oversupplied.

• 47:05Joe Weisenthal?

  And we're, but in the meantime, all of this expenditure is at the margins, inflationary. And so, so you have the double whammy of more spending on nonproductive things because they're strategic and the diminishment because of anxiety about security of free trade. So you get the double, lots and lots of spending and replication of spending across multiple geographies and countries.

• 47:28Tracy Alloway?

  The one other thing I would say is, whenever we do these commodities episodes, and especially lately, given what happened with oil supply in Iran, I kind of, I always marvel at the market's, I guess, creativity or ingenuity when it comes to responding to some of these shocks. So Japan had its supply of a bunch of rare earths, including tungsten, cut off by China, which I'm sure at the time was thought to be an absolutely dire thing for a lot of Japanese industry, including car makers. But in the end, it ended up dealing with it reasonably well by sourcing recycled supply and scrap tungsten and things like that. Now, again, if China stopped exporting tungsten to everyone in the world, would

• 48:11Tracy Alloway?

  there be enough scrap tungsten to replace that supply? Probably not. But for some of these supply shocks, it does seem like you can get pretty good response.

• 48:20Joe Weisenthal?

  Yeah. As Javier, 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.

• 48:27Tracy Alloway?

  Why don't you get into the scrap tungsten business, Joe? I can get you started with some like metal tool bits. I had one that split the other day, which was really weird and unusual and scary.

• 48:38Joe Weisenthal?

  I'm done investing in tungsten, especially if I can't find this thing. I just like don't want to ever think about it again.

• 48:44Tracy Alloway?

  All right. No more tungsten. That's the opposite message of this entire podcast episode.

• 48:50Joe Weisenthal?

  Yeah, right. Keep thinking about tungsten.

• 48:51Tracy Alloway?

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

• 48:53Joe Weisenthal?

  Let's leave it there.

• 48:54Tracy Alloway?

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

• 49:00Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Kermit Rodriguez at Kermit Armit, Dashell Bennett at Dashbot, Cale Brooks at Cale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And for more Odd Lots content, go to Bloomberg.com/oddlots, who have a daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 49:22Tracy Alloway?

  And if you enjoy Odd Lots, if you want to support a speculative Odd Lots mission to the Bahamas to find that giant FTX tungsten cube, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 50:16Speaker 06

  This is Robert Smith from Business History. If you're listening to this, there's a good chance you're a small business owner. And like every small business owner, you started with a dream to do what you love and watch it grow. What you probably didn't dream about? Keeping up with cyber threats. That's where Mastercard can help. With access to tools that help identify cyber threats to better protect your business. Building your dream business, priceless. For cybersecurity in a changing world, there's Mastercard. Learn more at mastercard.com/smallbusiness.

• 50:45Speaker 07

  If you enjoy Bloomberg podcasts, you'll love listening to Bloomberg 991 FM in the DMV. Hi, this is Amy Morris. Here in the district, the story is always changing from the White House and Capitol Hill to K Street, Wall Street, and the Fed. Bloomberg 991 keeps you connected to the news that's driving decisions in the nation's capital and around the globe. Check us out at 991 FM or stream us anytime on the Bloomberg Business app.