By Chris Berry (@cberry1)
For a PDF of this note, please click here.
The last constructive note I wrote on the uranium space occurred in March of 2014. My thesis was simple: a glut of excess capacity on world markets coupled with financing challenges for juniors and developers portrayed a sector that, despite the long-term positives, was set to underperform other commodities or indices.
It was time to take profits.
My timing couldn’t have been better with an equal-weighted basket of uranium names I’m tracking falling by almost 38% last year (this doesn’t take into account currency conversions, either, which likely would have hurt returns even more). Until one of several catalysts came into being including the oft-delayed re-start of some Japanese reactors or significantly higher uranium prices, uranium plays were likely best left on a watch list. It was also interesting to note that while the spot price of uranium rose to over $40 per pound in 2014 and a host of geopolitical issues with Russia rose to the fore, the froth didn’t transfer over to uranium equity price appreciation regardless of the market cap.
That said, I believed then and still do now, that a focus on low-cost near-term production stories offered the best way to “play” the uranium sector. While mineral exploration is a totally rational and necessary expense, “discovery holes” aren’t giving investors the returns they’ve become accustomed to in the current market environment and uranium is no exception. My thesis maintained that share price appreciation would come from one of two areas: the aforementioned low-cost near-term production stories or M&A.
By Chris Berry (@cberry1)
For a PDF of this note, please click here.
Of the Energy Metals that I am actively following, lithium stands apart from almost all others as one which I view most positively. The last lithium “boom” from an investor perspective was in 2007 when lithium exploration and development plays rocketed upwards, bolstered by the thinking that an electric vehicle “revolution” was imminent. Obviously, that was premature. EVs of all types (hybrids, plug-ins, etc) are finally starting to gain traction, but any sort of environment where vehicle electrification becomes more than a small percentage of the overall global vehicle fleet is still a ways off.
Paradoxically, I think this is a good thing if you’re an investor in lithium.
My investment case for lithium should be familiar to anyone who has read these notes in recent months, but as a brief refresher, here it is:
Lithium production is an oligopoly. Despite the strong growth rates in lithium demand (estimated at 8% per year), oligopolies do not welcome competition and therefore if you’re a company aspiring to join the ranks of producers, you need some sort of a competitive advantage or strategic relationship which allows you the possibility of achieving the lowest cost of production. The growth rate in demand is key. I can’t think of another metal I am following with such a strong forward looking growth rate – a real rarity when most commodity demand forecasts barely match global GDP forecasts.
By Chris Berry (@cberry1)
For a PDF of this note, click here.
With few exceptions, deflationary forces are likely to challenge growth in much of the world in 2015. With the global economy more tightly integrated than ever before, the risk of much of the world catching a “disinflationary” or deflationary cold is pronounced. Most commodities are trading at or near five year lows, real interest rates negative in various countries, and Central Banks are having difficulty hitting their (admittedly low) inflation targets of 2%. It’s obvious to even the most casual observer that the inflation genie is not even close to being let out of the bottle.
Given that the global economy is generally struggling to generate “escape velocity” growth, the main question is how deflation might spread? I see three transmission mechanisms:
globalization, high debt to GDP ratios, and innovation in technology spurred by R&D.
This note discusses the first two mechanisms with a focus on China’s efforts to halt the “export” of deflation.
By Chris Berry (@cberry1)
To view this entire piece in a PDF, Click here.
“It’s tough to make predictions, especially about the future.”
- Yogi Berra
In the time that I have been writing on the metals markets and global economy, one mainstay has always been reading the tsunami of year end research reports laying out predictions for the year ahead. Almost universally, these well-written and tirelessly researched musings all share one consistent trait: they are almost always off the mark.
Last year at this time, I was reading about the looming interest rate increases in the United States (not even close), Japan finally conquering deflation and returning to growth (fourth recession since 2008), oil prices never falling below $100 per barrel (no comment necessary), the junior mining markets turning higher (I think we’re several years from this) and electric vehicles taking a much larger piece of automotive market share (not yet, but eventually).
I don’t mean to denigrate those who make predictions as it’s a necessary part of portfolio construction. The fact that so many predictions are so spectacularly wrong I think speaks to how interconnected markets are which makes it difficult to anticipate any sort of domino effect.
By Chris Berry (@cberry1)
For a PDF of this note, please click here.
In 2012, Nate Silver, a well known statistician and writer, penned the book “The Signal and The Noise” which discusses using statistics and probabilities to determine real-world outcomes. With volatility in the financial markets on the rise led by a collapsing oil price and plunging emerging market currencies, determining and differentiating the signals from the noise has profound implications for navigating the metals and mining markets as we forge ahead into 2015.
With the price of a barrel of oil (WTI) currently at US $56.05 and widely believed to be headed lower and other commodities including iron ore, silver, copper, and corn under similar relentless pressure, these trends are clear signals and the “noise” they generate is the damage done to investor portfolios.
By Chris Berry (@cberry1)
For a PDF version of this note, click here.
The growth in the adoption and deployment of solar power since silicon solar cells were first discovered by Bell Labs in 1954 has been nothing short of staggering. The globally installed PV market stands at 140GW and added over 38GW in 2013 alone. In the United States in the first half of 2014, 53% of all new electric capacity came from solar, according to the Solar Energy Industries Association. While still small relative to the overall global energy mix, the rate of solar growth is what to focus on and it is indeed taking off.
As to the question of whether that growth can be sustained, the politically sensitive issue of subsidies seems to get all of the press. To me, there are other, larger, and perhaps more immediate issues regarding PV growth.
One concerns reliable access to the raw materials necessary to build and supply global PV supply chains. Specifically, I’m referring to the copper, silver, silicon, indium, etc. vital to produce existing and future solar technologies. How much do you as an investor, industry watcher, or company representative really know about the origins and supply reliability of the metals and minerals used in PV manufacture? Another issue to be watched is the changes in PV technologies and also the rate at which the technology is adopted. This also has implications for global supply chains.
By Chris Berry (@cberry1)
For a PDF version of this note, please click here.
By the time you read this, I’ll be in London attending Mines and Money as a speaker and hosting a roundtable on Energy Metals. I think it’s fitting that I’ll be in the city which was at the heart of the last Great Game, the name for the geopolitical and strategic rivalry between the British and Russian empires in the 19th century. After last week’s events in the financial markets, it appears that a new Great Game has begun. The carnage last week made two issues abundantly clear.
First, OPEC has thrown down the gauntlet and is serious about asserting its dominance in the global oil markets.
By Chris Berry (@cberry1)
For a PDF version of this note, click here.
Europe has always fascinated me. A thousand years of rich history confront you regardless of the country or city you visit. Opportunities to talk to Europeans from all walks of life about their views on current events or the global financial markets put in a unique historical context are worth the time and effort it takes to plan a trip.
My recent trip to Frankfurt, Munich, Zurich, and Geneva was no exception. I went as a keynote speaker on the Fourth Annual Zimtu Capital Bus Tour where I spoke in each city and served as a moderator and emcee. Accompanying Zimtu were a well-rounded stable of companies representing resources as varied as diamonds, potash, coal, and uranium. Representatives from the Canadian Securities Exchange along with several CSE-listed companies were also in attendance on the bus, and as these companies were not natural resource-focused (vertical farming, biotech, etc), it gave this year’s tour a more diverse flavor than in years past and everyone – from institutional and individual investors to the companies themselves – had a unique opportunity to view the small cap discovery sector in a different light.
That said, this note is really intended to focus on what European investors think of the resource sector now that we are three years into what feels like a seemingly relentless malaise.
