A Wall of Worry

Supply, Demand, and Simple Economics Point to Higher Metal Prices

I perused the news over my second cup of coffee and ran into an interesting story about the Jadar mine. Bloomberg ran an essay about how long it took for giant mining company Rio Tinto to take that mine into production. 

It crystallized two of Mangrove Investor’s major themes – that new mining projects need a universal approach and that battery metals remain the place to invest.

Jadar is a giant lithium/boron mine project in western Serbia. Discovered in 2004, it took more than 20 years to develop. That includes a period when the Serbian government pulled the project’s permits and licenses due to environmental concerns. 

The mine had to revise its plan to meet an entirely new set of environmental standards. Rio Tinto plans to use electric trucks and redesigned the processing plant. This is the new reality for all mining companies building new mines. The stakeholders have much more power today. Meeting all the requirements will increase costs and add years on to development times. 

That means new metal supply will be slower than we expect. The math remains the same on the demand side. The world wants batteries for cars, for grids, for toys, etc. Demand has not slowed, as you can see in the chart below:

Lithium, which Jadar will help supply, could enter a deficit as soon as 2025. According to a CNBC article, China’s 20.4% year over year growth in lithium demand will lead that imbalance. According to the World Economic Forum, global production of lithium was 540,000 metric tons in 2020. Global demand forecast puts it around three million metric tons by 2030.

The simple economic math is that rising demand and inadequate supply drives prices up. That’s a force of nature. The only variable is time.
As we know, the copper price experienced a sharp jump in 2020:

We don’t believe that the current price reflects the “pain point” that will stifle demand. With the price of everything soaring in recent years, this seems more like an inflation reaction than a supply/demand imbalance. 

I say all that to point out that bull markets don’t go up all at once. They “climb a wall of worry.” But math doesn’t lie. We know what people want. And we know how hard it is to find, build, and produce more of the material to supply that demand. 

That’s how we will build wealth.

For the Good,
The Mangrove Investor Team

Numbers You Need to Know

40,000

Every American uses an average of 40,000 pounds of newly mined materials every year, including two tons of coal. (National Mining Association)

450,000 tons

Kennecott’s Bingham Canyon Mine is the largest artificially made excavation in the world, and is visible to the naked eye from an orbiting space shuttle.Employing some 2,000 workers, 450,000 short tons of material are removed from the mine daily. (Wikipedia)

3.9 km

The world’s deepest mine is in South Africa – the Mponeng gold mine in Gauteng province, which goes down 3.9km to the centre of the earth. Huge investment goes into developing the facilities and technology for extracting and processing these commodities. (Babcock)

What’s New in Sustainable Investing

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ESG equity funds have gone from promise to peril, with poor returns and political backlash sapping investor sentiment. Could this mean the future looks brighter and greener for stocks and bonds? (IMD)

Delta CEO lashes out at CrowdStrike: This cost us $500 million

The CEO of Delta Air Lines lashed out at cyber security firm CrowdStrike and software provider Microsoft for the computer problems that resulted in a five-day service meltdown he said cost the airline $500 million. (CNN)

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