By Chris Berry
Introduction
After a recent slump, solar power has shown tremendous growth. Global photovoltaic (PV) capacity is 139 Gigawatts (GW) as of the end of 2013 and another 44.5 GW is forecast to be added in 2014. One GW is enough electricity to power between 750,000 and 1,000,000 US homes. The 44.5 GW mentioned above is almost a 21% increase y-o-y and equals the output of 10 nuclear reactors, according to Bloomberg.
Overcapacity has resulted from government subsidies and has served to push panel prices down, helping to make solar more cost competitive with other fossil-fuel based sources of electricity. Dozens of panel makers still exist which implies further consolidation in the industry despite the projections mentioned above.
We are focused on finding value along supply chains across an entire industry and to that end the solar panel manufacturing business offers an interesting case study in finding value in a global “low growth” or “slow growth” environment. One of the key questions for market participants is “how will a panel manufacturer compete and thrive in a hyper competitive industry despite the rosy growth prospects?” Price declines and competition will hurt margins which in turn have the potential to impact investment returns.
The key is solar cell efficiency.
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.
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.
Here is the link to Mike's most recent presentation to the FFIEC in Arlington, Virginia earlier this week. It is lengthy, but discusses numerous topics including the Inflation/Deflation debate, Commodities, Banks, Jobs, Currencies, Deficits, and Emerging Markets.
You can download a copy here.
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:
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.
