Raphael Stevens

Tungsten is nearly as hard as diamond and has a high energy density, making it an important material in weapons, autos, electric car batteries, semiconductors and industrial cutting machines.
Chipmakers TSMC and Nvidia both use tungsten.
While the Biden administration raised tariffs on imports of tungsten in May, China this past weekend did not include the metal in new regulations for boosting its oversight of domestic rare earths production.

Pictured here is a stone with tungsten ore inside a mine in Germany run by Saxony Minerals and Exploration.
Picture Alliance | Picture Alliance | Getty Images

BEIJING — China dominates the supply chain for many of the world’s critical minerals, but so far it’s held off on sweeping restrictions on at least one: tungsten.
The metal is nearly as hard as diamond and has a high energy density. That’s made tungsten an important material in weapons, autos, electric car batteries, semiconductors and industrial cutting machines. Chipmakers such as Taiwan Semiconductor Manufacturing Company and Nvidia both use the metal.

“I don’t expect any saber-rattling over tungsten,” said Lewis Black, CEO of Canada-based Almonty Industries, which is spending at least $75 million to reopen a tungsten mine in South Korea later this year.
“If you get too belligerent about diversification, [it becomes a situation that’s] biting the hand that feeds you,” he said, adding that “tungsten has always been a diplomatic metal.”
While the Biden administration raised tariffs on imports of tungsten in May, China this past weekend did not include the metal in new regulations for boosting its oversight of domestic rare earths production.

But China might not be too concerned, because the Chinese government ignored the new tariffs… They completely ignored it because the Chinese don’t want tensions to rise.

Lewis Black
CEO of Almonty

“The tariffs were more of a warning shot, as Biden only put tariffs on three of the 25 strategic metals China exports,” Black said.
“But China might not be too concerned, because the Chinese government ignored the new tariffs, unlike in the past when they restricted some exports of rare earths. They completely ignored it because the Chinese don’t want tensions to rise.”

Asked last month if China would retaliate to the latest U.S. tariffs on tungsten, China’s Ministry of Commerce spokesperson He Yadong didn’t announce countermeasures. Instead, he called on the U.S. to remove the additional duties.
Commodity price reporting and analytics company Fastmarkets pointed out earlier this year that China has reduced national production quotas for its tungsten mines due to environmental restrictions.

Diversifying away from China

Still, Black expects his company to benefit from growing efforts to diversify away from China. Almonty claims the forthcoming mine in South Korea has the potential to produce 50% of the world’s ex-China tungsten supply.
Demand for non-Chinese tungsten is already on the rise.
“We see in the U.S., in Europe, they ask their suppliers for a China-free supply chain,” said Michael Dornhofer, founder of metals consulting firm Independent Supply Business Partner.

The U.S. REEShore Act — or Restoring Essential Energy and Security Holdings Onshore for Rare Earths Act of 2022 — prohibits the use of Chinese tungsten in military equipment starting in 2026, while the European Commission last year extended tariffs on imported Chinese tungsten carbide for another five years, Almonty Industries pointed out in a report.
The House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party last month announced a new working group on the U.S. critical minerals policy.

Soaring tungsten prices

Expectations for higher demand and limited supplies of tungsten have pushed prices to multi-year highs, although they have tapered off in the last several weeks.
Dornhofer said in an interview in late May that he was also seeing Chinese buyers increasing their tungsten purchases.
“Since the beginning of this year, they are not only asking for Western concentrate, but they are buying significant volumes, paying even more than Western companies are willing to pay,” he said. “Definitely [going to be] a game changer.”

Back in January, U.S.-based research firm Macro Ops said: “We’re approaching an inflection point in tungsten supply. The US will quickly run out of stockpiled tungsten and flip from net seller to buyer over the next 12-18 months.”
The U.S. Bureau of Industry and Security at the Department of Commerce did not immediately respond to a CNBC request for comment on this story.
Brandon Beylo, head of investment research at Macro Ops, told CNBC in an email there are only six companies in the U.S. with capacity to produce tungsten. He added that the U.S. hasn’t produced tungsten domestically since 2015, meaning future U.S. supply must come from overseas.
He said the firm doesn’t own tungsten-related stocks, but that he’s personally looking for ways to access the physical commodity. There are no futures for trading tungsten.

Other tungsten players going to South Korea

China dominates over 80% of the tungsten supply chain, although local production costs are rising as the mines age, according to Argus, noting Chinese imports of the metal from North Korea, central Africa and Myanmar.
“This presents an opportunity for projects outside China,” Mark Seddon, principal, consulting and analytics at Argus, said in a June 28 webinar.
Other non-Chinese companies in the tungsten supply chain are going to South Korea.
In February, IMC Endmill, an affiliate of Warren Buffett-owned IMC Group, signed an agreement with the Daegu city government for a 130 billion Korean won ($93.6 million) investment in a tungsten powder manufacturing facility, according to a local news report.
IMC Group did not immediately respond to CNBC’s request for comment.

China’s dominance in global critical minerals supply chains has been built up over several decades.
Dornhofer pointed out that efforts to produce tungsten outside of China have languished for years, including plans for a mine in New Brunswick, Canada, that would have significantly increased global tungsten capacity.
All these projects have been on the table since 20 years ago, he said. “When people tell you in two years, three years they will be in operation, it’s a question of whether you believe them. On the other [hand], the tungsten is in the ground. It’s still there.”
Almonty claims to be the biggest producer of tungsten outside China and right now, primarily operates in Portugal and Spain. The forthcoming mine in Sangdong, South Korea, closed in the 1990s.
After the mine reopens later this year, Black expects his company will account for only 7% or 8% of global tungsten supply.
“We’re not crowding out any Chinese,” he said. “We don’t intend to.”
“Now if we’re going to produce 30% to 40%, I’m taking a battle with China, which wouldn’t be a smart thing to do.” More

For customers, fintech promised the best of both worlds: The innovation, ease of use and fun of the newest apps combined with the safety of government-backed accounts held at real banks.
The collapse of middleman Synapse has revealed fintech’s promise of safety as a mirage. More than 100,000 Americans with $265 million in deposits have been locked out of their accounts.
The implications of this disaster may be far-reaching. The most popular banking apps in the country, including Block’s Cash App, PayPal and Chime, partner with banks instead of owning them.
CNBC reached out to fintech customers whose lives have been upended by the Synapse debacle. They all believed their money was protected by an FDIC safety net.

Natasha Craft, a 25-year-old FedEx driver from Mishawaka, Indiana. She has been locked out of her Yotta banking account since May 11.
Courtesy: Natasha Craft

When Natasha Craft first got a Yotta banking account in 2021, she loved using it so much she told her friends to sign up.
The app made saving money fun and easy, and Craft, a now 25-year-old FedEx driver from Mishawaka, Indiana, was busy getting her financial life in order and planning a wedding. Craft had her wages deposited directly into a Yotta account and used the startup’s debit card to pay for all her expenses.

The app — which gamifies personal finance with weekly sweepstakes and other flashy features — even occasionally covered some of her transactions.
“There were times I would go buy something and get that purchase for free,” Craft told CNBC.
Today, her entire life savings — $7,006 — is locked up in a complicated dispute playing out in bankruptcy court, online forums like Reddit and regulatory channels. And Yotta, an array of other startups and their banks have been caught in a moment of reckoning for the fintech industry.
For customers, fintech promised the best of both worlds: The innovation, ease of use and fun of the newest apps combined with the safety of government-backed accounts held at real banks.
The startups prominently displayed protections afforded by the Federal Deposit Insurance Corp., lending credibility to their novel offerings. After all, since its 1934 inception, no depositor “has ever lost a penny of FDIC-insured deposits,” according to the agency’s website.

But the widening fallout over the collapse of a fintech middleman called Synapse has revealed that promise of safety as a mirage.
Starting May 11, more than 100,000 Americans with $265 million in deposits were locked out of their accounts. Roughly 85,000 of those customers were at Yotta alone, according to the startup’s co-founder, Adam Moelis.
CNBC reached out to fintech customers whose lives have been upended by the Synapse debacle.
They come from all walks and stages of life, from Craft, the Indiana FedEx driver; to the owner of a chain of preschools in Oakland, California; a talent analyst for Disney living in New York City; and a computer engineer in Santa Barbara, California. A high school teacher in Maryland. A parent in Bristol, Connecticut, who opened an account for his daughter. A social worker in Seattle saving up for dental work after Adderall abuse ruined her teeth.

‘A reckoning underway’

Since Yotta, like most popular fintech apps, wasn’t itself a bank, it relied on partner institutions including Tennessee-based Evolve Bank & Trust to offer checking accounts and debit cards. In between Yotta and Evolve was a crucial middleman, Synapse, keeping track of balances and monitoring fraud.
Founded in 2014 by a first-time entrepreneur named Sankaet Pathak, Synapse was a player in the “banking-as-a-service” segment alongside companies like Unit and Synctera. Synapse helped customer-facing startups like Yotta quickly access the rails of the regulated banking industry.
It had contracts with 100 fintech companies and 10 million end users, according to an April court filing.
Until recently, the BaaS model was a growth engine that seemed to benefit everybody. Instead of spending years and millions of dollars trying to acquire or become banks, startups got quick access to essential services they needed to offer. The small banks that catered to them got a source of deposits in a time dominated by giants like JPMorgan Chase.
But in May, Synapse, in the throes of bankruptcy, turned off a critical system that Yotta’s bank used to process transactions. In doing so, it threw thousands of Americans into financial limbo, and a growing segment of the fintech industry into turmoil.
“There is a reckoning underway that involves questions about the banking-as-a-service model,” said Michele Alt, a former lawyer for the Office of the Comptroller of the Currency and a current partner at consulting firm Klaros Group. She believes the Synapse failure will prove to be an “aberration,” she added.
The most popular finance apps in the country, including Block’s Cash App, PayPal and Chime, partner with banks instead of owning them. They account for 60% of all new fintech account openings, according to data provider Curinos. Block and PayPal are publicly traded; Chime is expected to launch an IPO next year.
Block, PayPal and Chime didn’t provide comment for this article.

‘Deal directly with a bank’

While industry experts say those firms have far more robust ledgering and daily reconciliation abilities than Synapse, they may still be riskier than direct bank relationships, especially for those relying on them as a primary account.
“If it’s your spending money, you need to be dealing directly with a bank,” Scott Sanborn, CEO of LendingClub, told CNBC. “Otherwise, how do you, as a consumer, know if the conditions are met to get FDIC coverage?”
Sanborn knows both sides of the fintech divide: LendingClub started as a fintech lender that partnered with banks until it bought Boston-based Radius in early 2020 for $185 million, eventually becoming a fully regulated bank.

Scott Sanborn, LendingClub CEO
Getty Images

Sanborn said acquiring Radius Bank opened his eyes to the risks of the “banking-as-a-service” space. Regulators focus not on Synapse and other middlemen, but on the banks they partner with, expecting them to monitor risks and prevent fraud and money laundering, he said.
But many of the tiny banks running BaaS businesses like Radius simply don’t have the personnel or resources to do the job properly, Sanborn said. He shuttered most of the lender’s fintech business as soon as he could, he says.
“We are one of those people who said, ‘Something bad is going to happen,'” Sanborn said.
A spokeswoman for the Financial Technology Association, a Washington, D.C.-based trade group representing large players including Block, PayPal and Chime, said in a statement that it is “inaccurate to claim that banks are the only trusted actors in financial services.”
“Consumers and small businesses trust fintech companies to better meet their needs and provide more accessible, affordable, and secure services than incumbent providers,” the spokeswoman said.
“Established fintech companies are well-regulated and work with partner banks to build strong compliance programs that protect consumer funds,” she said. Furthermore, regulators ought to take a “risk-based approach” to supervising fintech-bank partnerships, she added.
The implications of the Synapse disaster may be far-reaching. Regulators have already been moving to punish the banks that provide services to fintechs, and that will undoubtedly continue. Evolve itself was reprimanded by the Federal Reserve last month for failing to properly manage its fintech partnerships.

In a post-Synapse update, the FDIC made it clear that the failure of nonbanks won’t trigger FDIC insurance, and that even when fintechs partner with banks, customers may not have their deposits covered.
The FDIC’s exact language about whether fintech customers are eligible for coverage: “The short answer is: it depends.”

FDIC safety net

While their circumstances all differed vastly, each of the customers CNBC spoke to for this story had one thing in common: They thought the FDIC backing of Evolve meant that their funds were safe.
“For us, it just felt like they were a bank,” the Oakland preschool owner said of her fintech provider, a tuition processor called Curacubby. “You’d tell them what to bill, they bill it. They’d communicate with parents, and we get the money.”
The 62-year-old business owner, who asked CNBC to withhold her name because she didn’t want to alarm employees and parents of her schools, said she’s taken out loans and tapped credit lines after $236,287 in tuition was frozen in May.
Now, the prospect of selling her business and retiring in a few years seems much further out.
“I’m assuming I probably won’t see that money,” she said, “And if I do, how long is it going to take?”
When Rick Davies, a 46-year-old lead engineer for a men’s clothing company that owns online brands including Taylor Stitch, signed up for an account with crypto app Juno, he says he “distinctly remembers” being comforted by seeing the FDIC logo of Evolve.
“It was front and center on their website,” Davies said. “They made it clear that it was Evolve doing the banking, which I knew as a fintech provider. The whole package seemed legit to me.”
He’s now had roughly $10,000 frozen for weeks, and says he’s become enraged that the FDIC hasn’t helped customers yet.
For Davies, the situation is even more baffling after regulators swiftly took action to seize Silicon Valley Bank last year, protecting uninsured depositors including tech investors and wealthy families in the process. His employer banked with SVB, which collapsed after clients withdrew deposits en masse, so he saw how fast action by regulators can head off distress.
“The dichotomy between the FDIC stepping in extremely quickly for San Francisco-based tech companies and their impotence in the face of this similar, more consumer-oriented situation is infuriating,” Davies said.
The key difference with SVB is that none of the banks linked with Synapse have failed, and because of that, the regulator hasn’t moved to help impacted users.
Consumers can be forgiven for not understanding the nuance of FDIC protection, said Alt, the former OCC lawyer.
“What consumers understood was, ‘This is as safe as money in the bank,'” Alt said. “But the FDIC insurance isn’t a pot of money to generally make people whole, it is there to make depositors of a failed bank whole.”

Waiting for their money

For the customers involved in the Synapse mess, the worst-case scenario is playing out.
While some customers have had funds released in recent weeks, most are still waiting. Those later in line may never see a full payout: There is a shortfall of up to $96 million in funds that are owed to customers, according to the court-appointed bankruptcy trustee.
That’s because of Synapse’s shoddy ledgers and its system of pooling users’ money across a network of banks in ways that make it difficult to reconstruct who is owed what, according to court filings.
The situation is so tangled that Jelena McWilliams, a former FDIC chairman now acting as trustee over the Synapse bankruptcy, has said that finding all the customer money may be impossible.
Despite weeks of work, there appears to be little progress toward fixing the hardest part of the Synapse mess: Users whose funds were pooled in “for benefit of,” or FBO, accounts. The technique has been used by brokerages for decades to give wealth management customers FDIC coverage on their cash, but its use in fintech is more novel.
“If it’s in an FBO account, you don’t even know who the end customer is, you just have this giant account,” said LendingClub’s Sanborn. “You’re trusting the fintech to do the work.”
While McWilliams has floated a partial payment to end users weeks ago, an idea that has support from Yotta co-founder Moelis and others, that hasn’t happened yet. Getting consensus from the banks has proven difficult, and the bankruptcy judge has openly mused about which regulator or body of government can force them to act.
The case is “uncharted territory,” Judge Martin Barash said, and because depositors’ funds aren’t the property of the Synapse estate, Barash said it wasn’t clear what his court could do.
Evolve has said in filings that it has “great pause” about making any payments until a full reconciliation happens. It has further said that Synapse ledgers show that nearly all of the deposits held for Yotta were missing, while Synapse has said that Evolve holds the funds.
“I don’t know who’s right or who’s wrong,” Moelis told CNBC. “We know how much money came into the system, and we are certain that that’s the correct number. The money doesn’t just disappear; it has to be somewhere.”
In the meantime, the former Synapse CEO and Evolve have had an eventful few weeks.
Pathak, who dialed into early bankruptcy hearings while in Santorini, Greece, has since been attempting to raise funds for a new robotics startup, using marketing materials with misleading claims about its ties with automaker General Motors.
And only days after being censured by the Federal Reserve about its management of technology partners, Evolve was attacked by Russian hackers who posted user data from an array of fintech firms, including Social Security numbers, to a dark web forum for criminals.
For customers, it’s mostly been a waiting game.
Craft, the Indiana FexEx driver, said she had to borrow money from her mother and grandmother for expenses. She worries about how she’ll pay for catering at her upcoming wedding.
“We were led to believe that our money was FDIC-insured at Yotta, as it was plastered all over the website,” Craft said. “Finding out that what FDIC really means, that was the biggest punch to the gut.”
She now has an account at Chase, the largest and most profitable American bank in history.
— With contributions from CNBC’s Gabriel Cortes. More

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