Copper...
Not a distraction from our conversation, but right on point in it...
The difficulty with copper today is an outgrowth of the globalist / socialist / mercantilist economy we have had forced on us...
The drive for "savings" enabled through centralized efficiency has costs...
As discussed more fully previously, the "market" we have today seeks to impose the costs of generating "savings" on miners (or other resource generators... oil producers, farmers) and by denying them a reasonable profit, as it aggregates the excess in benefits they enable to flow to the top of the pyramid.
So, what you end up with is mining industry being driven by minimizing "aggregate cost"... in which the most efficient projects are the most profitable and also the most massive projects...
The problems resulting from that are... exploration will deliver any number of projects which are "feasible" and able to be profitable at X price... in a range of scales enabled by the deposits varying in size and grade. But, given maybe 5 or 10 "mega" projects in the pipeline that have proven worthy... only one of them being developed in the "minimize aggregate cost" at "mega scale" model has the ability by itself to disrupt the market. So, investors fund the exploration and development of 5 or 10 "mega" potentials... that each compete to be "next"... when only one can "be allowed" to proceed... as otherwise the fact of competition will force multiple failures.
That's a "scaling issue" that is always a problem... because it means the markets aren't flexible enough to adapt to change in the short term... That was made most obvious recently with the Covid shock... and the impact it generated in driving the oil price deeply negative briefly... "Efficiency" turns out to be a thing that can't be properly defined without accounting for "over time" and without including "limits in flexibility" of the systems we create ? But, given divisions in the markets... the costs of the resulting inefficiencies are also not evenly distributed... generating trading opportunities and the need to be on the right side of them...
Where that mercantilist model is most destructive... is where we find ourselves today... when the economy is shrinking at the same time as the existing supply is dwindling... ensuring its not really feasible to develop a massive new "low cost" source as declining demand thrashes prices while costs soar... but, at the same time, if you don't fund that development... supply will soon prove insufficient to the existing demand, never mind future demand... then, as supply declines faster than demand at some point, with or without demand growth... there's "protection" built in for existing producers with a multiyear lag time and massive investment required to generate "more"...
Still requires patience in timing bottoms... as economies fall off cliffs... We're probably tied to a calendar now that is a rough mirror image of Carter/Reagan... so, I don't see much potential for any real improvement in the global economy for another year or two... with things "teetering" on the edge now... Europe and Russia are in for it, obviously... China is playing a delaying game that has narrowing potential to forestall "the same"...
And, that leaves potential in expanding warfare from the economic domain to something more kinetic as the most probable driver of significant changes in the nearer term... I think that risk is real enough that its worth avoiding exposure until it passes or is realized... although worth some effort in sussing out upside potentials based on the downside of everything blowing up ? So, context...
Take the copper case (in context)... and amplify it for silver... ?
For an investor, that still requires market and project risk analysis that considers "all the above"...
What happens to the price of X if the global trade scheme suddenly fails... and the boats stop moving ? That mercantilism is failing... that "this is what failure looks like"... doesn't dictate the failure modes or timing ?
I think it will mean new opportunity for smaller producers exists... as supply dwindles... certainly at the point WHEN demand grows again... they might fill supply gaps (for a time) between increments in mega project capacity growth ($/time) with long lead times in the mega projects once they're made possible again.
A sustained risk in that the consequences of mercantilist mismanagement generating failures... might provide excuses for even more heavy handed interventions... and greater mismanagement.
But, in any case, you'll need to time investments to the ebb and flow of both "the economy" (demand) and to "supply" enabled by others investments... and, that's harder to do when the geopolitical circumstances are murky in terms of what might qualify as future supply and what might be excluded from the market (Copper Putinesca) for reasons having nothing at all to do with "efficiency"... but all and only about the politics of who owns the mines, the minerals... or whose boat they're loaded on.
Not just in copper... "this is what failure looks like" in markets right now... is about the failure of mercantilism.
Markets coming to grips with that... unlikely to be a well smoothed function... in copper or anything else.
That's also why inflation isn't going to be contained by "a little bit more" of what they're doing... because what they're doing has almost nothing to do with the drivers of the systemic breakdowns that are occurring...
That's worth considering separately in relation to mining and metals... as higher interest rates are not going to fix what's broken in supply chains... or somehow make supply expand by itself as money becomes expensive and scarce... rather than the opposite ? The general ignorance about "what" it is that is breaking... means the errors that enabled creating the problem (over the last 50 years)... are now going to compound its failure modes by applying the opposite as is required to fix what's been broken... A spendthrift Congress lobbing $3 trillion in deficit spending at the problem... without having any idea what they were doing... is a separate issue... but, it is a larger issue that the excess in spending thus enabled had nothing at all to do with solving the problem than it is only about the scale of the excess. The Fed is now 'reeling back in" that $3 trillion in wasted expenditures with higher rates... which, also, will have no impact in addressing the underlying issues.
Dithering all around... means things will continue drifting apart... in the way they will... with the lack of recognition re what it is that is occurring... having no ability to change it in any way...
There is no shortage of copper in the world... which does not mean what is known to exist will ever find a way to make it to market.
Chile and Argentina have massive future supply that might be enabled... but also have elected leftist governments that are likely to obstruct development... and take investors $ away from them through expropriation if not only through obstruction. The risk itself, in becoming apparent, has already stopped most projects... and clearly has destroyed the market value of the shares of those issues... so the investment $ to move them ahead is unlikely to materialize... moving them from "current potentials" to "future opportunities" worth considering only when the risks have been managed.
Mongolia's mines... have some comparable risks... made increasingly complicated over time by the geopolitical risks. That Gazprom was an obvious value generator a year ago... did not make it a viable long term investment ? Those sorts of risks exist... so finding niches that allow you to avoid them is critical...
I still like the holdings in the royalty play in Mongolia... ex geopolitical risks... if not the actual miners.
Should note I've not done any "new" deep dive on any of this yet... so loathe to make specific picks without that...
At the same time, there are also risks tied to "environmental" activism... multiple mega projects in Canada and Alaska that could meet world needs by themselves... not of which are overly likely to happen any time soon... not only because of the long lead times in development of mega projects ?
Biden's problem with oil... shutting down U.S. production then demanding others pump more... are a bellwether. So, expect "more of the same" in other impositions of "can't get there from here" ?
See the Pebble Mine:
Biden Administration, Settling a Long Feud, Moves to Block a Mine in Alaska
EPA to decide next steps on Pebble Mine project by Dec. 2
Both sides dig in as EPA’s final decision on Pebble Mine nears
The Biden Administration's handling of the issue... entirely political... ie., "extra-legal"... I'd ignore all the stuff about any decision being "the end" of the project... as the winds changing in politics will as easily reverse the "decisions" being made politically now... when the politics change, again... as they well may on November 2nd. Court cases due to the extra legal nature of the processes enabled are likely to continue for years... before reaching a court that will consider requirements of "the law" versus "the outcome we intend".
It's a near perfect case in point though... re the "mega project scaling issues"... It doesn't HAVE to be a mega project to make sense. And, it makes no sense to obstruct it if conducted at a smaller scale...
The mercantilist "efficiency at scale" model fails because it imposes fragility... and the world tends to be a dynamic enough place that fragile things WILL get broken.
The scaling issues only one of the multiple facets in that problem... which I think is going to mean a forced re-thinking of the mercantilist model for many reasons... over the next how many years ?
So, there's a need to keep an eye out for risks... but also a need to be tuned to potential change... before it occurs... while being aware of things others choose to ignore... or choose to not understand...
NAK would likely be worth multiple dollars per share without the ongoing obstruction... or, it could be again, in the right market... ?
Jurisdiction matters... as where in the process a project is matters... and timing matters... with geopolitics.
I think Nevada still better than most... but not as good today as it has been...
Arizona one of the few and rare "improving" jurisdictions... in part because re-energizing past producers is less of an obstacle than generating new ones... and in part because it has a number of "smaller" projects that are potentially able to be made back into producers quickly and at relatively low cost... while "smaller" is somewhat offset by "higher grade" rocks...
"Safer" bets will be projects that are in safer jurisdictions, are already in development, or are nearing or already in production... so the risks are narrowed to the larger geopolitical and market issues...
And, layering over all that... still need to note that some rocks are just inherently better than others... even if that has nothing at all to do with the other risk factors considered above ? But, the quality of the rocks never matters more than the quality of the effort... the people... working to make it happen. Limit the potentials to those led by people who've done it before and succeeded... and the pool suddenly gets a lot smaller.
Worth noting that "all the other stuff" has recently become far more important as risk than the quality of the rocks... or the quality of management... and, in fact, the better the quality of the rocks, today, the more motivation there is to fight over them ?
And, don't think that's not ever a part of it.... that the Biden's might intend to kill NAK... only in order to force its ownership to change... before suddenly discovering, at some later date, that the over-riding national interest requires the development of the mine they now own... in spite of its environmental risks...?
That enough words for ya ? |
