By Chris Berry (@cberry1)
For a PDF version of this note, please click here.
Earlier this week, the deal in which China Molybdenum Co. (603993:SHA) agreed to pay Freeport McMoRan (FCX:NYSE) $2.65 billion for FCX’s African copper assets reaffirms our view that asset shedding from the FCX project portfolio must continue (See the press release here).
FCX, with a $13B market capitalization, made a bad bet in diversifying into the oil business at the cyclical peak and now must reckon with roughly $20B in debt on their balance sheet. The debt maturity profile of the company is shown below:
By Chris Berry (@cberry1)
For a PDF version of this note, please click here.
This isn’t a bubble…yet, but there are reasons to be cautious and a strategy reassessment is in order.
In the wake of Tesla Motors (TSLA:NASDAQ) introduction of the Model 3 “mass market” EV, lithium development and exploration company share prices have absolutely exploded higher. This is despite the fact that TSLA hasn’t actually sold (or even built) a single Model 3 yet, won’t have it on the road for years, and continues to hemorrhage money. The $1,000 refundable reservation fee is simply a free option for a potential car buyer and gives TSLA an opportunity to defray dilution.
In the wake of this news, lithium developers are “making hay while the sun shines” through some truly impressive capital raising efforts.
My estimates year-to-date show that the lithium mining industry has raised a collective $198,000,000 USD with multiple offerings oversubscribed. For an industry that only generated $1 billion USD in revenues last year, this is impressive. Especially when you consider the overall funk in the commodity sector and that no major lithium producer is included in this total.
By Chris Berry (@cberry1)
For a PDF copy of this note, please click here.
- 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.
By Chris Berry (@cberry1)
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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.
By Chris Berry (@cberry1)
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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.
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)
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.
By Chris Berry (@cberry1)
For a pdf copy of this note, please click here.
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.
