Disruptive Discoveries Journal

Unicorns Vs. Dinosaurs - Who Wins in the Debate Over Growth Versus Profitability

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF of this note, please click here.

Ed. Note: This piece was originally submitted to Benchmark Mineral Intelligence in late August 2016 which may explain why some of the data is off. It was recently officially published in their magazine which is why I am now putting it on this site.

 

 

“Getting to profitability is the only way to build a sustainable business…”

-UBER CEO Travis Kalanick in response to UBER’s merger with Didi Chuxing

 

As convergence across industries continues apace and business models evolve, Mr. Kalanick’s statement above is a reminder to investors in early stage companies. As startups across various industries attain unicorn status – a valuation of at least USD $1 billion - the argument around growth at all costs versus profitability has become louder. There are over 170 unicorns in existence today, so the hunt for the “next big thing” is indeed on. With an abundance of cheap capital looking for yield, many investors appear to have set aside a preference for profitability in favor of parabolic growth. Here are the 20 largest unicorns (all privately held): 

 

Strategic Overview of the Cobalt Market

Chris BerryComment

It's been a busy few months and I'm pleased to announce that I've completed a thorough review of the cobalt market which is available for purchase. 

The report covers all aspects of the cobalt supply chain from mining, to refining, to end uses with supply and demand forecasts as well. 

I'm offering the Executive Summary and a portion of the Introduction for free. You can download a PDF version here. The cost of the full report is $500 USD which can be paid through PayPal (or we can make arrangements for a wire if necessary). As an added bonus, I'll give the first 20 people to purchase the report an opportunity for a 20 minute phone call to ask any question they want regarding the outlook for the cobalt market. 

To be clear, this is not a "stockpicking" report and so you won't find any "flavor of the month" stock picks here. What you will find is in depth data and insights into the cobalt supply chain and how the companies along it are shifting their business to capture the anticipated high growth of downstream industries. 

For more info on purchasing the report, please email me at info@house-mountain.com.

Thanks,

Chris

Lithium in Las Vegas: A Closer Look at the Lithium Bull

Chris Berry3 Comments

By Chris Berry (@cberry1)

 For a PDF of this note, please click here

 

I'm just back and recovering from a week in Las Vegas where the 8th Annual Lithium Supply and Markets Conference hosted by Metal Bulletin took place. Sentiment in the industry is overwhelmingly positive as the ubiquity of technology and the cost deflation associated with that technology (EVs, consumer electronics) means that lithium ion battery chemistry will remain central to this growth. The event was attended by  major lithium producers including Albemarle (ALB:NYSE), SQM (SQM:NYSE), and FMC (FMC:NYSE), cathode manufacturers, investment professionals, and junior mining companies, so coming away with a clear view of the market was facilitated.

It looks like my demand estimates of ~270,000 tonnes LCE by 2020 will be met. Supply, on the other hand, is always a wild card in the mining sector and my proprietary estimates

Mike's Presentation to the NY Chapter of the SME: "The Revival of Natural Resources - Inflation or Deflation

Chris Berry2 Comments

Recently Mike delivered a presentation to the New York Chapter of the SME which takes a renewed look at the inflation/deflation debate and its effects on natural resources. He tackles topics such as negative interest rates, "helicopter drops", Central Banker potential to reignite growth, currency implications, some preferred commodities, and most importantly the verdict which calls for deflationary forces to predominate before inflation, again, rears its ugly head. 

In either event, gold and silver should benefit from the forthcoming extraordinary central banking programs to stimulate escape velocity growth and hit the Feds long sought inflation target. He argues that diversification into gold and silver exposure is an appropriate risk management investment policy. 

 

Click here for a copy. 

China Outflanks Freeport To Further Consolidate The Lithium Ion Battery Business

Chris BerryComment

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:

Macro Strategy Note: The Case For Energy Metals (Revisited)

Chris Berry2 Comments

By Chris Berry (@cberry1)

For a PDF copy of this note, please click here

 

In reading the Berkshire Hathaway annual letter this weekend, I was reminded of a response Charlie Munger gave to an investor on how he tests the validity of his investment thesis. Munger’s response was, “Invert. Always invert.” The meaning here is to consciously take the other side of your thesis and try and disprove your beliefs/biases.

I’ve spent the past month or so on the road at conferences and meeting with investors to take a temperature check and “invert” our investment philosophy. We’ve also witnessed a huge increase in our subscriber base in recent weeks and so an outline of our view of the world and how we’re positioning is in order and likely overdue.

While the content here may be repetitive for long-time readers, I welcome any (constructive) comments as they can only help refine and strengthen our outlook.

Despite the overwhelming complexity of the global economy, we see a huge struggle against two headwinds. Though we’ve been involved in commodity investment for over a decade, we view the commodity super cycle (2001 – 2011) as definitively over. The end of the super cycle has left the economy with additional supply of commodities now coming on stream just as demand continues to soften.

Lithium Strategy: Re-positioning in a Bull Market

Chris Berry8 Comments

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.

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

Chris Berry1 Comment

 

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

Chris Berry1 Comment

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?