By Chris Berry (@cberry1)
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Could it be that we’re starting to see some signs of life in pockets of the metals space? One such pocket involves scandium, a metal which I have written favorably on many times in recent years. The size of the global market (possibly 10 to 15 tonnes – about $40,000,000) and number of players (fewer than five) has kept investor interest at bay and really led to the chicken and egg problem I’ve discussed.
Fortunately, that may be changing. Recently, I’ve written about a few potential survival strategies for junior mining companies looking to survive what could be a few more years of sideways to down markets. These include embracing technology to lower operating expenditures or creating your own high tech value chain.
By Chris Berry (@cberry1)
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After watching the 60 Minutes report on Molycorp (NYSE: MCP) recently, I posted the following tweet:
By Chris Berry (@cberry1)
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If anything has become clear in the resource space in recent years, sustained value creation is hard to come by. The reasons for this are manifold. Last week I discussed the likelihood of M&A in the Energy Metals space but didn’t allude to how this is likely to happen. There are a multitude of ways for these arrangements to occur, but one in particular seems absent from the discussion. Given oversupply and the great engine of commodity demand (China) slowing, perhaps the time is right for a Berkshire Hathaway-style model in the Energy Metals space.
By Chris Berry (@cberry1)
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It would appear that Chair Yellen’s press conference yesterday in the set the stage for a Fed Funds rate increase in June or September of this year. We remain unconvinced.
It was interesting to note how financial markets reacted to the removal of a single word (patience) from the Fed’s most recent statement. The Dow, gold, and oil all roared higher and seemingly (for the moment anyway) forgot about the increasingly disappointing economic data in the US including housing starts, retail sales, and industrial production. Export growth also slowed, and you can thank the strong US Dollar for that.
By Chris Berry (@cberry1)
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One of the key takeaways from my recent visit to PDAC was that everyone’s looking. By this I mean everyone, be they investors, company executives, bankers, or private equity players is looking for something in Energy Metals. The distinction lies in exactly what everyone is looking for. While the traditional equity investor just wants the pain of this resource bear market to stop, there are those who I spoke with that are looking at this market as fertile territory for M&A. I could not agree more and my belief lies in one simple idea:
While we have witnessed billions of dollars of value destruction in recent years, we haven’t seen a commensurate amount of demand destruction in most Energy Metals.
By Chris Berry (@cberry1)
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As if vehicle electrification needed any more hype, Apple Inc’s. (AAPL:NASDAQ) rumored move towards producing its own EV by 2020 may have been the first sign that the whole idea of EVs has “jumped the shark.” For those of you unaware of this term, it refers to the 1970’s sitcom Happy Days when Fonzie was waterskiing and literally jumped over a shark. Happy Days was never the same and the show never quite recovered from this stunt to win viewers.
The rumors leaked last week about AAPL secretly working on developing its own EV have fanned intense speculation about how this would be accomplished. With $170 billion in cash on its balance sheet, obviously hiring the talent and research and development are non-issues.
By Chris Berry (@cberry1)
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A great deal of attention has been placed recently on the resurgence in rare earth prices and the concomitant increase in share prices. Given the general bloodbath in the mining sector since 2011, this is extraordinarily welcome news. Nevertheless, it leaves one question unanswered: Is this enough? Specifically, is a double digit increase in underlying commodity prices enough to make specific projects “economic” and justify the start of a new cycle?
I think the answer in most cases is no, but this then raises a second question. The tailwind of select higher commodity prices (should they last) will undoubtedly help project economics, so how do you accurately value a company with no revenues, no cash flows, no operating history, and management with limited (or no) operational experience?
By Mike Berry
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Bob Farrell’s Rule #9: When all of the experts and forecasters agree – something else is going to happen.
I have been through two previous oil swoons. In March 1999 oil bottomed at $10 per barrel. I was invested - a money manager with Heartland Advisers at the time. The Economist magazine (March 6, 1999) forecast oil to move lower, perhaps $2. It was a painful experience but oil never went lower.
