House Mountain Partners

A Closer Look at Uranium: Is This Dog About To Have its Day?

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By Chris Berry (@cberry1)

 For a PDF version of this note, please click here.  

 

 

·         A full five years after the meltdown at the Fukushima-Daiichi nuclear facility very little has changed within the nuclear industry.

·          Nuclear power’s contribution to the global electricity mix remains steady at roughly 11% according to the IEA.

·         Globally, the nuclear fleet numbers 440 in size across 30 countries requiring around 170 million pounds of uranium. 66 reactors are under construction and another 173 are planned[1].The existing fleet generates 382 GW of electricity.

·         The uranium market is adequately supplied with current demand at 172 million pounds of U3O8 and primary supply of 146.5 million pounds plus secondary supplies of 42.9 million pounds as of 2014.

·         The current uranium spot price of around $28 per pound reflects an evolving dynamic consisting of excess supply, reactor underfeeding (excess enrichment capacity), and uncertainty around the Japanese reactor fleet where only three of the 54 reactors are back on line.

·         Current prices are too low for producers to consider major capital investments with many believing that the incentive price is ~$65 per pound.

·         The recent Paris COP21 agreement, whereby 193 countries agreed in principle to move towards carbon-free sources of energy is a catalyst for cleaner sources of energy. Nuclear currently stands alone as the single scalable source of base load electricity. Japan’s intention to re-start a select number of reactors in their existing fleet going forward is also a positive catalyst, though many are disappointed that this hasn’t happened sooner.

·         Another tailwind has come from the strength of the US Dollar. The USD has appreciated by 16% against the Canadian Dollar, 29% against the Kazakh Tenge, 20% against the Australian Dollar, and 59% against the Russian Ruble – all major uranium producing jurisdictions. This has alleviated producer margin compression somewhat.

·         New reactor technologies, including Small Modular Reactors (SMRs), are a welcome sign but could be indicative of lower long-term uranium demand. This will be an interesting dynamic to watch closely.

·         Despite the many paradoxes, uranium remains critical to the growth of zero-emission base load electricity; I believe the underperformance of a basket of uranium names demonstrates a unique contrarian opportunity in a moribund commodity sector.

Another Way to Think About Lithium - The Separator Business

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By Chris Berry (@cberry1)

 For a PDF copy of this note, please click here.  

 

 

We’ve just returned from PDAC and lithium is all the rage. The specialty chemical’s parabolic price spike has altered the landscape and as I predicted late last year, a crop of juniors has flocked to the space. While this is dangerous and may serve to confuse investors, it doesn’t negate the fact that the lithium demand story is real.

Given the supply tightness, elevated prices for lithium concentrate, lithium carbonate, and lithium hydroxide are going to remain a fact of life for perhaps the next 18 months. The recent binding off-take agreement Galaxy Resources (GXY:ASX) signed for 60,000 tonnes of lithium concentrate at US $600/t (FOB) with 50% of the total order value paid up front in cash ($18 million) is only the latest exciting example of a lithium market taking shape.

All of this brings us back, however, to a question we’ve discussed publicly: as the lithium mining space continues to evolve, how do you play lithium outside of investing in the miners? 

Is it Different This Time? - Separating Hype from Reality in the Lithium Ion Boom

Chris BerryComment

Here is the link for my recent remarks at PDAC regarding how to interpret the lithium market. The presentation is "picture heavy" as I generally hate powerpoint and minimize words in favor of images.

Nonetheless, reach out to me if you'd like a deeper discussion on these issues.

The presentation looks at the reasons why the lithium ion battery is increasingly important in our daily lives and offers a few thoughts on what to look for and avoid as you start to understand an increasingly interesting and pivotal space. 

Infrastructure for the 21st Century: Building a Non-Chinese Rare Earth Supply Chain

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By Chris Berry (@cberry1)

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  • After a tumultuous few years unleashed by geopolitical rivalries in Asia, the rare earth sector has mean reverted with rare earth element (REE) prices having fallen by as much as 90% from their peak in 2011.
  • It is interesting to note that the core issue which drove exponential gains in rare earth prices – supply chain dependence on China – is still a reality.
  • In the wake of Molycorp’s (MCPIQ:OTCBB) spectacular implosion and bankruptcy and the financial struggles of Lynas (LYC:ASX), many are questioning whether or not a REE supply chain outside of China is even feasible.
  • While the collapse in REE prices has rendered most non-Chinese deposits uneconomic, a weaker local currency coupled with government support may be enough to begin to establish a reliable source of saleable REE products outside of an increasingly unstable China.
  • Additionally, reports have emerged that many REE producers inside China are operating at a loss.
  • Thanks to these market inefficiencies, this industry is set to consolidate. Expect to see M&A and co-opetition as the industry adjusts to a new normal of lower prices despite healthy demand.
  • This white paper looks at the current state of the REE sector and aims to present a vision of what a REE supply chain might look like in this new macroeconomic environment.

Negative Interest Rates: A Primer

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By Chris Berry (@cberry1)

For a PDF copy of this note, please click here. 

 

It is widely acknowledged that credit is the lifeblood of an economy. It provides the leverage for growth. The interest rate assigned to a fixed income security can then be thought of as the “cost” or “price” of the credit.

This makes sense as lenders want to ensure their assets (cash, typically) earn a return above the risk free rate. To be clear, there is much more to determining an interest rate, but this is the basic premise.

What happens, though, when that rate goes negative?

This note is a primer on negative interest rates, a phenomenon not unheard of, but increasingly en vogue in the wake of the Bank of Japan’s surprising (or maybe not so surprising) announcement to set the interest rate they charge commercial banks to deposit money at the BoJ at -0.1%.

Forecasting Lithium in 2016: What are the Salient Issues?

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By Chris Berry (@cberry1) 

For a PDF copy of this note, please click here. 

 

If recent mainstream media, sell side, and newsletter writer coverage wasn’t enough to convince you, it is all but obvious that lithium has emerged as an investible asset class for 2016 and beyond as the broader commodity sector continues to struggle with overcapacity and slack demand. While the excitement is born of strong growth in technologies requiring lithium (mainly electric vehicles and energy storage), the real reason for investor excitement boils down to one issue: price.

As The Economist shows, the lithium carbonate spot price has gone parabolic.

Is this the Final Leg Down in the Commodity Cycle? How Much Lower for How Much Longer?

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By Chris Berry (@cberry1)

For a PDF version of this note, please click here.

 

If anything is clear after the start of 2016, the global economic rebalancing that central banks around the world are trying to engineer is not proceeding according to plan. The circuit breaker fiasco in the Chinese equity markets is the latest example giving investors pause with respect to what is truly “going on” in China. The Shanghai composite equity index has lost almost 15% of its value YTD and few see good reason for this slide to halt aside from intense government support and RMB devaluation. Money continues to flow out of China as we speak.

2016: There's Something in the Air

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By Chris Berry (@cberry1)

For a PDF version of this note, please click here.

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...

Rare Metals on a Collision Course - Book Review of "The Elements of Power: Gadgets, Guns, and the Struggle for a Sustainable Future in the Rare Metal Age" by David Abraham

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By Chris Berry (@cberry1)

For a PDF of this note, please click here. 

 

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.