By Chris Berry (@cberry1)
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As is the case this time of year, we start to close the books on 2015 and position for 2016. While we have effectively and indefinitely moved “to the sidelines” with respect to stock picking in the junior mining space, there were some notable successes, in particular with the merger between Western Lithium (WLC:TSXV) and Lithium Americas. This combination positions the new company in a unique strategic light as electrification, underpinned by the lithium ion battery, gathers steam in 2016. Galaxy Lithium’s (GXY:ASX) restructuring is another positive development. We’ll be watching the developments with these two companies closely.
In 2015, there was very little to be cheerful about in the metals markets and to be blunt, we expect this malaise to continue into 2016. China’s RMB devaluation last summer...
By Chris Berry (@cberry1)
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In the Autumn of 2011, my father and I were approached to present to a group of faculty and undergraduate environmental studies majors at a major university here on the East Coast of the United States. The topic was rare earths. What struck me was the fact that nobody was taking notes using a pen and paper – each student was typing away on his or her Mac or PC. While the presentation went well, we were astonished at the lack of knowledge the students had regarding the global supply chain risks inherent in many of the metals and minerals used in the technology that we take for granted. Were the students aware that the cobalt in their computer was quite likely not ethically sourced? This generated several questions. Would they be willing to pay more for a product if they could be sure people weren’t being exploited along the entire supply chain? What about the fact that many of these metals and minerals are critical for national defense and China (a strategic adversary) essentially controls the bulk of production of many of them? There were no easy answers to these questions then and there are none today. But the general ignorance of the supply chain dynamics and the strategic and tactical threats have likely increased despite a horribly depressed metals market.
Unfortunately, these students were likely a microcosm of the broader populace who are unaware of the destabilizing effects of foreign mineral dependence on supply chains for rare metals. For this reason, David Abraham’s excellent new book titled “The Elements of Power – Gadgets, Guns, and the Struggle for a Sustainable Future in the Rare Metal Age” couldn’t have come at a better time.
By Chris Berry (@cberry1)
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Ed. Note: The following remarks were those I made to investor audiences during a recent bus tour in Munich, Geneva, Zurich, and Frankfurt.
Ladies and Gentlemen, thank you for coming today and investing your most valuable asset in us, which is of course, your time. Speaking of time, what I’d like to do today is take a look back and a look forward and briefly offer some thoughts on where we’ve been in the global economy in the past year and what some of the key questions are in 2016 likely to drive the commodity and broader markets altogether.
Rather than make excuses or guesses as to why commodities continue to under perform, I’d like to examine some of our thoughts from a year ago when we were last here in Europe and see what has transpired.
Mike recently presented the attached paper (here) at the Association of Quebec Mineral Exploration (AEMQ) Conference in Montreal. In it, he looks more closely at where we are in this bear market for resources and more importantly, why we're here. Finally, he looks at some possible solutions and time frames for recovery.
We are gearing up for two trips to Europe in November (Munich, Geneva, Zurich, and Frankfurt) and December (London) and will be back shortly with details.
By Chris Berry (@cberry1)
As contrarian opportunities go, nickel offers an interesting case study. Throughout much of 2014, nickel market participants were almost universally bullish based on the Indonesian government’s plan to ban exports of nickel-bearing laterite ore. Nickel ore exports from Indonesia account for approximately 15% of global supply, so any curtailment in exports would have a material effect on pricing. It was also believed that other metals including tin would follow suit.
As China, the main destination for global nickel supply, had no real options to satisfy its insatiable demand (the Philippines is an exporter but on a smaller scale), the belief was that upward price pressure on nickel would ensue. While there was a rally after the ban went into effect, it was not sustained.
By Chris Berry (@cberry1)
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Regular readers will know of my optimism regarding cobalt. The fundamentals look sound in a metals market that, already under pressure, appears headed lower. To wit:
· Cobalt demand is growing by 6% overall with demand in the battery supply chain growing by some estimates at a CAGR of 10% out to 2020 - a good chink of the overall market. Current estimates for battery usage put the actual tonnage demanded at between 35,000 and 40,000 tpy. This is driven almost exclusively by cobalt’s use in the cathode of the lithium ion battery.
· Cobalt is mainly a by-product, produced as a consequence of nickel and copper mining rendering cobalt production hostage to the bullish or bearish tendencies of these other metals.
By Chris Berry (@cberry1)
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Recent events in the lithium and electric vehicle (EV) spaces have conspired to light a fire (pun intended) in this corner of the metals market. To wit:
Apple’s (AAPL:NASDAQ) recent public announcement of its intent to have their own EV ready by 2019 is a strong indication that a redefinition of transport is here to stay. While not a surprise, this announcement is good news as AAPL, a company with a history of transformative product development and extraordinarily deep pockets, is intent on making its mark in the EV business. While details are sketchy at this point (autonomous? Fully electric?), having a company of AAPL’s stature enter this space will accelerate adoption and interest – not to mention shine a light on raw material access and supply chains.
Regarding raw materials, the general trend of increasing prices for lithium compounds is intact with FMC Corp’s (FMC:NYSE) announced intention to raise prices for their lithium products by 15% starting October 1st. In the current market environment, there are no commodities with the same pricing power as lithium (See below for YTD metals performance). This pricing momentum's contribution to FMC’s bottom line and cash flow is likely marginal, but the price increase is an important signal.
By Chris Berry (@cberry1)
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In the 19th century, geopolitical tensions were at the fore as Great Britain and Russia jockeyed for position in much of Central Asia with an eye on protecting British interests in India. At risk was control of land and sea routes for trade. Ultimately, other countries including China, Afghanistan, and some in Europe would be drawn in and would set the stage for geopolitical rivalries which still exist today.
This geopolitical chess match became known as The Great Game, a phrase coined by Arthur Conolly, a British intelligence officer in India at the time. Control of land and sea meant not only economic security, but also the ability to project economic and political power far beyond one’s borders. The common belief that the sun “never set on the British Empire” was at risk.
About the same time (late 19th Century) in Germany, a self-taught engineer named Ferdinand Porsche built what is widely believed to be the first electric vehicle. Mr. Porsche wouldn’t found his famous automobile company until 1948. He could have hardly realized it at the time, but this invention would be the eventual catalyst for the emergence of a “new” Great Game. However, today it isn’t countries that are the main players and it isn’t trade routes that are at stake. The new players are companies and what is at stake is energy usage for mobility and continued enhancement quality of life.
By Chris Berry (@cberry1)
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It’s been interesting to read the mainstream media’s impression of the recently announced lithium hydroxide supply deal between Tesla Motors (TSLA:NASDAQ) and Rare Earth Minerals PLC (REM:LON) and Bacanora Minerals (BCN:TSXV, BCN:LON), a joint venture with lithium concessions in Mexico. Arguably the biggest misconception is that TSLA has consummated a deal with companies operating an existing mine. This is not the case as the deposit at the center of the agreement is just that – a deposit.
Semantics aside, the agreement between the companies offers an interesting window into TSLA’s supply chain strategies, and in the end what the company has really done has purchased an out of the money call option on future lithium supply.
