Disruptive Discoveries Journal

Formerly Morning Notes

Case Study of a Growth Driver - Silver Use in Solar

Chris Berry

By Chris Berry

 

Since the beginning of the commodity downturn in 2011-2012, I have been vocal on the need to analyze each metal or mineral individually as they aren’t all created equal. You run the risk of throwing out the “baby with the bath water” and missing investment opportunities.

The same argument holds true when you look at individual demand components for a given metal or mineral. With that in mind, recent research I’ve done on the solar photovoltaic (PV) manufacturing industry has shed light on some astounding growth rates for one metal in particular: silver.

Solar Backgrounder

I don’t intend to enter into the debate about the economics of renewable energy here, but do believe that solar power is going to continue to become more and more mainstream as costs along the entire value chain continue to plummet. A good primer on how PVs work can be found here

2014 Q2 Economic and Energy Metals Review & Second Half Outlook – Part I

Chris Berry

By Chris Berry
 

  • During the second quarter of 2014, many share prices of energy metals companies struggled for direction after the dust settled from the Tesla (TSLA: NYSE) Gigafactory announcement.                                                     

  • Our theme of viewing the supply and demand dynamics of each energy metal individually continues to be the best course of action as the trajectories of each metal may differ. For example, lithium carbonate prices remained healthy while uranium prices fell by 8% in Q2 and are down 21% YTD.                                   

  • The recent precious metals price spike did not transfer over into the industrial or base metals sector.

  • Though economic data continues to improve selectively, there are still too many economic headwinds in place. Therefore only those resource investments that demonstrate the ability to produce at lowest-cost quartile costs or those that have a disruptive competitive advantage should be considered at this time.          

  • Despite nascent inflationary pressures, we are still inclined to believe that deflation (or disinflation) is the predominant threat to growth. The recent US Q1 GDP print of a 2.9% decline has many concerned that this was due to more than “the weather”.                   

  • We think that the second half of 2014 will be just as challenging as the first half for reasons we outline below.

 

Different Quarter, Different Catalysts

When Elon Musk announced plans to build a Gigafactory in the Western US (and has since discussed building multiple facilities), this sent select energy metals share prices into the stratosphere. Many believed this was the “turn.” The dust has since settled.....

Company Update: EMC Metals Attains a Major Financing Milestone

Chris Berry

By Chris Berry

 

 

A Major Hurdle Cleared

When I wrote about EMC Metals (EMC:TSXV, EMMCF:OTCBB) last month, the main issue facing the company was clear: raise approximately $2.6 million by the end of June or risk losing control of the Nyngan scandium deposit. This $2.6 million was broken down in two pieces: AUD $1.4 million was due to EMC's former JV partner to complete the buyout of the JV and award EMC 100% ownership of the Nyngan deposit. In addition to this, $1.2 million was outstanding on a promissory note held by investors close to the company which was due at the end of this month and used Nyngan as collateral. Should EMC fail to raise sufficient funds, they risked losing control of Nyngan.

This would have been significant for a number of reasons including the fact that the deposit is truly world class - a phrase I despise, but I can't think of another way to describe it. 

Is This the Turn in the Metals Markets?

Chris Berry

By Chris Berry

  

 

 

  • Precious metals roared higher yesterday.
  • This was presumably due to a confluence of events including Iraq dissolving into civil war, more unrest in the Ukraine, and Fed Chair Yellen's dovish remarks regarding keeping rates low for an extended period.
  • Lest we get too excited, base metals were left in the dust and bond yields fell precipitously.
  • These two reliable indicators of growth (and inflationary expectations) lead us to believe that what happened yesterday was either short covering or a profit taking opportunity and nothing more.

 

Plus Ca Change…..

I'll admit to being surprised at the move in gold and silver yesterday. It's almost as if people were looking for an excuse to take metals prices higher. 

Company Report: Site Visit to Argex Titanium

Chris Berry

By Chris Berry

 

It has often been said that the titanium dioxide (TiO2) market has been untouched by innovation for decades since DuPont pioneered the TiO2 chloride production process in the 1940s. There are likely numerous reasons for this, but the ability to maintain a healthy profit margin is likely most prevalent among them. As the saying goes...if it ain’t broke, don’t fix it.

While the price of a number of commodities and chemicals remains high on a historical basis thanks to Chinese demand and the commodity super cycle, this seemingly insatiable appetite has led to an era of abundance and overcapacity which has appeared to put a “lid” on prices while allowing costs of production to continue to creep upwards. Companies must achieve lowest-cost producer status or risk losing market share. The TiO2 market is not at all immune from this scenario and is arguably ripe for new entrants thanks to the lack of innovation in the industry mentioned above. I recently had the opportunity to meet with Argex Titanium (RGX:TSX, ARGEF:OTCBB) company management in Montreal and tour the existing pilot plant and location for the first TiO2 plant in Valleyfield, Quebec.

The Lithium Market - Desperate for Disruption

Chris Berry

By Chris Berry

 

Separate and Unequal

In a note I wrote last week, I discussed the danger in assessing all critical metals together rather than individually. I am just back from serving as the Chair of the 6th Lithium Supply and Markets Conference hosted by Industrial Minerals. Of the many takeaways, this idea of analyzing the prospects for these metals separately is no more evident than in the case of lithium.

In the wake of Tesla’s (TSLA:NASDAQ) Gigafactory announcement, many lithium junior companies, who were left for dead, were given a new lease on life.  I have written in the past about the challenges I think must be overcome to make the Gigafactory a reality, and am still unconvinced that a junior mining company not close to production can participate and benefit its shareholders, but we shall see. I try and make a habit of not betting against terminally successful visionaries like Elon Musk.

It is clear that the automotive sector is the real growth driver for lithium, as David Merriman of Roskill pointed out in his remarks:

Profiting from Disruption and Unfairness: Critical Metals in an Age of Excess

Chris Berry

By Chris Berry

 

 

There are convincing arguments to be made for both embracing and shunning the junior sector at this point in the cycle. At risk of flip-flopping, our take is more nuanced, but throwing the “baby out with the bathwater” at this stage is an unwise move.

I have said since Q4 2013 that I believe most commodity markets have finally bottomed. This does not mean that we have turned the corner and the commodity super cycle will pick up where it left off. That said, I think it’s worth examining the forces that brought us to this point and determining how to navigate in the current market environment.

 

A Band Aid on an Amputation

Recent attempts by global central banks to “fix” the global economy have clearly failed. One wonders if they can succeed in this task given their present set of tools. Flooding the global economy with excess liquidity thanks in part to a low (or zero) interest rate environment has only masked the challenges we face.