Ross Gregory has built his career deep diving into the needs of his clients and working with them to develop long term solutions. Now as Executive Director of Altor Capital in Korea he is bringing all of his knowhow and experience to bear on helping Korean high-tech manufacturers secure the critical minerals and rare earths they need.
On the same day that President Moon signed an agreement with Australia to boost exports of rare earths to Korea, it is the prefect time to discuss the Korea-Australia partnerships next iteration.
As Ross says, Korea’s advanced manufacturing is the powerhouse of the economy. Korea produces right across the whole of the EV ecosystem, everything from the production of cathodes and anodes, separators electrolytes as well as all the major components of cells. Korea, along with China and Japan also leads in cell manufacturing. Household names such as SK and LG energy solutions, Samsung SDI, POSCO, as well as Hyundai and Kia. All these firms have a global footprint, and they all security in their supply chains.
Given this, Australia is once again Korea’s natural partner. However, whereas previously it may have been sustainable to secure resources on a spot rate, or longer-term contracts, long-term investments are now required to secure upstream supply.
The current geopolitics are a factor here as well, as China looks to secure its own needs in its energy transition, it is vital for Korea’s national security to do the same.
Critical minerals supply chains, vital to Korea’s energy transition
Alex Jensen: It’s Wednesday, December 15th, just about halfway through the last month of 2021. And you’re listening to Koreabizcast with the KBLA. I’m your host, Alex Jenson, despite the recent challenges and other travel bubbles just inflated between South Korea and Australia, as of today, with fully vaccinated people here able to travel to Australia for the first time since early 2020. This was confirmed during President Moon Jae-in state visit to Australia when we also saw much discussion about boosting security and trade ties. More on that next as we hear from someone who has much to gain from these developments and is in a great position to explain them.
Alex Jensen: On the line then, we have Ross Gregory, Executive Director at Altor Capital. Thank you so much for being with us.
Ross Gregory: Thank you, Alex.
Alex Jensen: And that’s probably the shortest introduction I could have given you possible it could have been a much longer version including all your past highlights in Korea from Yonsei Language work to Macquarie group background, Reebok CrossFit. I mean, the list really goes on, can you in your own words, tell us a bit more about the Ross Gregory story?
Ross Gregory: Sure, I was a lawyer in Australia in Korea, working in banking and finance and M&A for quite a number of years. Macquarie hired me in Hong Kong and sent me to Korea about 17 years ago to help establish an equity derivatives business. I ran that in Macquarie Securities Korea Limited for quite a number of years, and we were a major market participant, regulatory change saw the end of that market. So, I decided to pivot initially into some private businesses which involved F&B and sports. I’m still running a CrossFit gym actually in Korea that’s been around for 10 years. And more recently, I moved initially back to Macquarie as a consultant in renewables and mining, and then decided that the space is so exciting, it justifies setting up a separate platform which I’m doing with a couple of former Macquarie colleagues where we’re assisting resource owners predominantly Australian listed owners but we have a global reach find strategic partners and capital pools to help them liberate their important critical minerals to contribute to the supply chains that need to be enhanced given the EV revolution occurring. We also work with processing firms that again assists to provide some optionality around the sourcing of processed materials. Currently, there’s a huge dependency on China. And also, we’re seeing a lot of technology that is improving the carbon footprint of the processing of battery minerals and rare earths.
Alex Jensen: We can come back, I think, to some aspects of your personal story in a moment, but I’ve got to get straight to the opportunities that you’ve just touched on at the end there because we had President Moon Jae-in in Australia. It seemed like an interesting time for holiday just before he’s about to leave office and just over a couple of months from the next presidential election here. So, with that background in mind, how exciting were the actual words that came out of his meeting with his Australian counterpart and the opportunities that were touched on in their joint statement on the subject of rare earths and critical minerals?
Ross Gregory: Very exciting. I believe, despite the timing that this was not a token visit. There’s been a lot of discussion over the last 12 months about forging a closer relationship between Australia and Korea in the critical minerals and rare earths sector. The reason for that is that the two countries are natural partners Australia has the resources and mining DNA. Korea has the advanced manufacturing and downstream applications across the whole of the EV ecosystem, everything from the production of cathodes and anodes, separators electrolytes all of the major components of cells and then of course, Korea leads the world along with China and Japan in cell manufacturing household names such as SK on LG energy solutions, Samsung SDI, POSCO, Ecopro and of course, right through to the production of EVs by Hyundai and Kia. These firms have a global footprint. There is a serious deficit in supply in a number of materials covering both graphite for anodes, nickel, cobalt for cathodes and then lithium across the whole cell such that these firms need to start securing upstream supply Australia as a natural partner. In addition for Australia’s benefit, there’s an ability to re-enhance their manufacturing capacity by entering into joint ventures with Korean firms to produce the chemical components that need to be made from the raw materials, such as precursor materials, nickel sulfates, lithium hydroxide, the intermediate materials that are required to be processed to go into battery anodes and cathodes and some of these ventures could be constructed in Australia where there are efficiencies to produce the chemicals proximate to the mines.
Alex Jensen: You are already aware of the opportunities, I presume, and based on what you’re saying before about setting up this other company even before this visit by President Moon Jae-in. But how much practical benefit does it make when you’ve got the leaders of the two countries discussing this?
Ross Gregory: I think it’s a great benefit. One example is in the case of rare earths in particular the metals, neodymium, and praseodymium which are used to make permanent magnets, permanent magnets have a broad range of industrial uses but to name a couple drive trains in electric vehicles, turbines for offshore wind, electronics power tools defense, there is a dependency by China, by Korea on China which produces over 90% of the world’s permanent magnets and also process, processes the vast majority of the world’s rare earths supply from oxide to metal or from concentrate to oxide. The example that I’ll give is a firm called Australian Strategic Materials which has a Dubbo rare earth polymetallic resource and has established in Korea a metallization capacity so that with significant government support, you will see emerging a single supply chain from mine to magnet that entirely bypasses China, not for necessarily geopolitical reasons but for reasons of efficiency and diversification. And also, the metallization technology that has been developed in Korea for ASM has a much lower carbon footprint. So, we’re seeing an efficient bilateral supply chain that covers mining separation metallization and magnet production emerge with the support of both the Australian and the Korean government which is keen to ensure that has diversification of supply for the huge upcoming growth in the industries that I mentioned earlier.
Alex Jensen: I know that it may not be your direct business, the geopolitical arena, and the security issues, but we know that they can make markets twitchy and affect investor sentiment. How concerned are you that the medium particular seems to be shaping this public discourse as a kind of Australia, plus America, plus a few other allies versus China, new Cold War style atmosphere and the impact that could have on the economics of the region?
Ross Gregory: I think you can’t ignore geopolitical factors, but I see it slightly differently. China is already becoming a net importer of rare earths. So, its own supply chain is under threat just by, just due to a lack of product and an increase in demand. The amount of offshore wind and onshore wind that will be built in China in the next 10 years is mammoth. And the local demand for the production of permanent magnets will obviously be given priority over exports. So, it’s a commercial imperative in my mind putting aside any geopolitical factors to have a diversity of supply chains. You can’t assume that a country that has been supplying materials to you for the last 10 years will do so forever. Whether there are political factors involved or not. It’s Just not sensible to have a concentration of risk on a single market which has its own domestic demand growing at a huge rate of knots.
Alex Jensen: South Korea has for years been trying to pivot away, for example, to Southeast Asia. And this is a process that’s maybe been accelerated by some of these geopolitical developments and the conversations with Australia and we saw the urea diesel affected dispute recently and Australia involved in that conversation, as we heard from Ron Green, Austrade. It was great conversation which is available through our archive and Koreabizcast via your local podcast provider if I can get that shout out. And but Ross, coming back to you on those supply chains. What’s your general view of South Korea’s efforts to bring about this diversification over the last few years?
Ross Gregory: Well, the laudable and necessary, Korea is so heavily dependent on its industrial economy. It’s not a natural resources rich landmass and it’s a small landmass. So, it has to rely on the export of advanced materials. And it’s done so unbelievably well in the areas of electronics, motor vehicle manufacturing, chip manufacturing, semiconductors, shipbuilding and so forth. But in order to expand those industries, feedstock is needed and feedstock takes years to put into a supply chain in the case of a nickel mine, there’s a 5 to 10 years lead time from resource discovery to commercialization and production, particularly for a laterite mine. The same is the case with rare earths. So, you can’t just assume that because you’ve been able to buy these products on the spot market. Because there’s been an abundance of supply that when supply dries up, there’s suddenly a magical solution to it, the only way to solve the issue is to finance the mines to go into production, undergo the capex required all of the environmental permits, all the licenses and then ultimately find off takers for product and start producing this is this is a time-consuming, capital-intensive process. So I think what Korea is signaling is that there is now a willingness on the part of governments through their ECAs and other financing institutions to put more capital at risk in order to allow the nickel mines, the lithium mines, the cobalt mines, the graphite mines to obtain the necessary project financing so that they can in the next 3 to 5 to 7 years come to market with product that is going to need to meet the quite accurately for castable. And incredibly, rapidly increasing demand for product by Korea is very important conglomerate economy.
Alex Jensen: By the way, how clear are we on the extent of supply of rare earths and critical minerals in Australia? The ones that we’ve been referring to during the course of this conversation. Is it decades and centuries unknown?
Ross Gregory: There’s plenty of material in the ground. What we know with I’d say a very high degree of certainty is that the demand for these materials is going to multiply, for example, until take the period until 2030 by multiples of 4 to 20, depending on the mineral that’s known with a high degree of certainty because with the energy transition that’s occurring, and the best example again is the electric vehicles. The major OEMs of EVs have made irreversible statements to retire ICs vehicle manufacturing plants and replace those with EV manufacturing plants. They’re doing it for commercial reasons. They’re doing it to comply with regulations. They’re doing it simply because it’s a cycle that’s commenced and if you don’t join the queue and get with the party, you’re going to be left behind. You’ve seen in Norway an 80% uptake of EVs, China in Europe going ahead at a rate of knots, GM Ford and Solana in the US now, they’ve all made major statements about the period from here to electrification and they’ve put in, put out to the market dropped years and some of these earliest 2030 For the last manufacturing of IC vehicle, the infrastructure and the manufacturing changes that are going to occur unknown with certainty, the number of vehicles sold per year, given the typical vehicle life and battery life can be predicted very accurately. Therefore, the amounts of materials that are needed in the EV ecosystem can be very accurately forecast the same as with wind and solar applications which also need a lot of these materials. We have commitments, you know, under the recent discussions in the UK to decarbonize carbonized by certain percentages by certain dates. And to do that you need to replace existing energy sources with renewable. So, this is not a false start. There have been false starts before, but this time it’s irreversible. So, the supply demand equation can be predicted with a high degree of certainty.
Alex Jensen: My worry would just be that we’re either going to find ourselves running out of these rare earth and critical minerals at some point or there’ll be a, you know, another shock that could make it unaffordable for many people to drive these kinds of vehicles and also make it difficult to replace batteries in the future as we also will have to consider the secondhand market for electric vehicles?
Ross Gregory: It’s a very, very interesting conundrum. There’s a strong amount of pressure for EV prices to come down and align with IC vehicle prices. As you say the battery constitutes a very significant component of the bill of costs in manufacturing and EV. One thing I would say is that quite often loss from the equation is the total cost of life of a vehicle. Generally, people focus on the initial outlay but it’s much cheaper once you’ve got the necessary charging infrastructure in place to run an EV than a gas powered or diesel-powered car. So, I think you’ll see different financing arrangements emerge to allow the total savings over the life of a vehicle to be somehow factored into the initial cost. But you are right, there are some risks that the shortage of minerals will see an increase in battery prices which is at odds with what the market expects. At the same time, you’ll see that mines that may have been uncommercial on the prices in 2018 suddenly becoming commercial. So that the breakeven points for these resources increase and more like mines will come online that have been waiting for financing. So, I think you’ll see a bit of push and pull. But over time, given that these resources that are not necessarily that rare, they’re just expensive to get out of the ground. You’ll see some alignment, but I would predict in about 2025 that you’re going to see some bumps in the road, but it won’t derail the passenger vehicle, EV revolution.
Alex Jensen: We’re certainly seeing more EVs on the road here in Korea and bringing our focus to Korea more generally and to the near future. The new year coming up, it’s a good time to perhaps reflect and ask ourselves where we see the local economy heading. What are some of the strong headwinds and opportunities in your view?
Ross Gregory: I think in Korea, the subsequent government will necessarily be very green, the opportunity for infrastructure rollout in Korea and the rate at which that can occur I think, is very strong, where the Korea becomes exclusively EV or a mixture of hydrogen which is probably going to be the case is still to be seen. But when we see Korea move, it tends to move very, very quickly. Its focus on EVs has actually been more on the exports than the domestic market at the moment partly because the infrastructure challenges in Korea given the density of population and the number of people who live in higher rises do pose some issues, but I think these will be resolved especially as faster charging units brought into the market. So, huge opportunity in Korea for local deployment of electric vehicles and hydrogen vehicles. Most definitely a massive operation for the company, for the country in terms of exports and interestingly, the Japanese auto motive manufacturers have focused a lot on hybrid vehicles which, by most analysts forecasts are not going to be that important in 5-year time. So, Korea’s got an opportunity to go well ahead of Japan, it’s already outstripping them in the production of cells. And you’ve seen LG signed big deals in the US with General Motors. Similarly, SK with Ford, Samsung has done some significant deals with Rivian. POSCO is doing something with Toyota, there’s an amazing opportunity for the Koreans in the US and Europe as well where they’ve also got Giga factories either operating or in planned production to dominate alongside China the high-end battery market, and also the EV space to be very competitive.
Alex Jensen: Moving more on to your own projects, Ross, through the Altor platform, what are you doing with the companies that you’re connecting apart from what you’ve already mentioned, today?
Ross Gregory: We assist the firms to find capital partners, this capital could be strategic in nature, or it could be financial in nature. We stray away from acting just as an agent trying to introduce parties for offtake. Because offtake by itself doesn’t necessarily help a project to get financed. So, for the small number of firms that we work for, we tend to get very deep into an understanding of the total supply chain that the products and minerals that they will produce will be put into, we try and make sure that we produce, we provide very strategic both financially and commercially, introductions of major industrials, we focus not only on the upstream but the midstream and downstream, chemical processing, metallization separation, all the aspects of taking the mine from, you know, extraction to in product in the market for the retail and business public. I guess the role you would describe is as a cell side advisor, but we feel we do quite a lot more than that.
Alex Jensen: I asked one of your close contacts here in Korea, John Walker previously about what kept him going because he’s got so many diverse interests. But when I look at your own background and what you’re doing now and continuing to strive for constant opportunities. I want to ask you the same thing because you’ve had restaurants, you mentioned CrossFit in more detail before beer interests. I mean, it seems like there’s a lot of curiosity, as well as a desire to diversify your own areas of interests can you elaborate on that?
Ross Gregory: I like getting involved in building things. So, one of the great opportunities that Macquarie gave me was the ability to build my own business, take responsibility for it, understand the risks, and execute on it. Within a very sensible risk reward framework. And I guess I’ve tried to emulate that. Some of my private businesses, some of which have gone well, some of which have not gone so well. And it’s a question of trial and error. And it’s interesting thing I’ve found in some of the smaller businesses I set up is that big businesses, small businesses very, very different. The risks and market vicissitudes that you come across in small business, I think, can be much more intimidating and challenging than with big business where you’ve got a lot of protection through the infrastructure, the accounting divisions, particularly for a big bank that risk divisions, the back office, in small business, you’ve got to do it yourself. So, what I found is that made me a bit more streetwise. And now returning to what you describe as loosely banking, but in a really exciting area of growth that relates to energy transition. I feel that I’ve now got the mixture of skills both the big end of town and the small end of town to provide some fairly sanguine advice to market participants. So, I’m excited by I guess deploying all of the skills I’ve learned at once in a consolidated way and working with firms which are predominantly Australian but seeking partnerships with Korea. So, this bridging role, given that I understand Korea and speak the language, but I’m an Australian citizen and want to see Australian companies thrive is really exciting. And I’m finding that it’s intellectually challenging to, because unlike base metals, as I mentioned, there’s some quite complex supply chains including the downstream chemical processing that occurs to bring these minerals in into the usable ecosystem. And it’s, it feels like, yet again, building a business, but one that this time I think, will have some permanence. And the next 10 years is going to be a bull market in critical resources, no doubt. And this time it’s not based just by market sentiment, it’s underpinned by a supply equation. That is unarguable.
Alex Jensen: Thank you so much for the honest assessment of your own business and your views on the wider picture as well. Ross Gregory, Executive Director at Altor Capital.
Ross Gregory: My pleasure, Alex, thank you for having me on.
Alex Jensen: And as I mentioned before, there are ways to listen to all of our past interviews through various different podcast providers but we also post a lot of our information through LinkedIn if you search KBLA there, and if you want to offer any feedback or share your story with us, just send us an email firstname.lastname@example.org.