House Mountain Partners


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

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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.

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.

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

Chris Berry2 Comments

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.

Productivity and Energy Metals: You Can't Have One Without The Other

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By Chris Berry (@cberry1) 

For a PDF of this note, please click here


“Love and marriage, love and marriage,

Go together like a horse and carriage.

This I tell ya, brother, you can’t have one without the other.”

– Frank Sinatra


Ol’ Blue Eyes Was Right

With structural challenges still facing the metals sector as we head into 2015, finding a way to lower production costs is a must. A company’s sustainability (regardless of where it sits on the value chain) is arguably the most important issue for investors to consider. Lowering costs through either reducing operating or capital expenditures is the most obvious and easiest method, but this doesn’t create lasting value. The key is enhancing productivity through investment. It’s paradoxical to think that increasing investment can lead to lower costs in the long run, but this has been proven again and again many times.

Increased investment implies increased commodity intensity and this is why I used the Frank Sinatra quote above. Productivity goes hand-in-hand with increased investment and commodity use. In other words – you can’t have one (productivity or growth) without the other (increased metals use).

 To be sure, there are other ways to drive productivity. In his excellent book Capital in the 21st CenturyThomas Piketty argues that favorable demographics – specifically population growth – can, in part, spur overall economic growth and the productivity gains which go along with it. The challenge here is that it takes decades for this phenomenon to play out.