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5 Good Reasons to be Bullish on Green Energy Metals

2021.09.24
While there is little we can do to prevent climate change — the Earth is going to continue to warm until it isn’t — we can do our part…

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This article was originally published by A Head of the Herd

2021.09.24

While there is little we can do to prevent climate change — the Earth is going to continue to warm until it isn’t — we can do our part in cleaning up the atmosphere by reducing fossil fuel usage.

The modernization and electrification of the global transportation system will require a change hitherto unprecedented in the history of civilization. The fossil-fuel-based transportation system needs to be electrified, and the switch must be made from oil, gas and coal-powered power plants to those which run on solar, wind and nuclear energy. If we have any hope of cleaning up the planet, before the point of no return, a massive decarbonization needs to take place.

On top of surging demand for metals needed to feed so-called “green infrastructure” programs being rolled out in the United States, Europe and China, we have emerging structural deficits for several metals, that will keep prices buoyant for the foreseeable future.

New emissions targets being set by countries like Canada, the US, Britain, China and Japan, will mean large-scale deployment of electric vehicles, renewable power and electrical transmission, all of which will require copious metal content.

A brand-new report from Bloomberg NEF states that the transition from fossil fuels to clean energy could require as much as $173 trillion in energy supply and infrastructure investment over the next three decades.

The report identifies four key components of the energy transition — solar panels, wind turbines, lithium-ion batteries and EV charging units — that show the complexity of the supply chains needed to quit fossil fuels, and how the demand for certain crucial metals will push prices higher.

We believe we need to add a fifth: electrical transmission lines, including smart grids.

These five components will require high volumes of so-called battery metals and industrial metals. According to BNEF, the use of cobalt is expected to jump about 70% by 2030, while consumption of lithium and nickel for the battery sector will be at least five times higher. Other major beneficiaries of the green transition shift include copper, graphite, iron ore and steel. We discuss each component in turn.

Solar panels

According to BloombergNEF estimates, solar panels with the power capacity of 1 gigawatt of electricity will need about 18.5 tons of silver, 3,380 tons of polysilicon and 10,252 tons of aluminum.

Copper is also a key component of photovoltaic cells. A solar power plant contains approximately 5.5 tons of copper per megawatt of power generation. A single 660-kW turbine is estimated to contain some 800 pounds of copper.

Renewable power systems are at least five times more copper-intensive than conventional power.

More and more silver is being demanded for use in PV cells, as countries move towards adopting renewable energy sources.

As the metal with the highest electrical and thermal conductivity, silver is ideally suited to solar panels. Silver paste within the solar cells ensure the electrons move into storage or towards consumption, depending on the need. It is estimated that about 100 million ounces of silver are consumed per year for this purpose alone.

This figure is expected to rise in the coming years, with continued growth of electricity demand and renewable energy aspirations all pointing to rising solar power penetration.

Historical and forecast solar capacity by region, 2006-2025. Source: The Silver Institute & CRU Consulting

One projection has annual silver consumption by the solar industry growing 85% to about 185 million ounces within a decade, according to a report by BMO Capital Markets.

Coming off a record year despite the pandemic, the US solar industry will likely be one of the leading drivers of silver demand. Installations grew 43% year over year in 2020, reaching a record 19.2 gigawatts of new capacity. By 2030, solar installations are expected to quadruple from current levels, according to a report from the Solar Energy Industries Association and Wood Mackenzie.

As most solar panels used in the US come from Asia, the recent Biden administration ban on solar panels from China, over forced labor concerns, places the US solar industry in a bind,  potentially sparking a surge in domestic silver exploration.

Wind turbines

Wind turbines and infrastructure with the power capacity of a gigawatt (1GW = 1,000 megawatts) need about 387 tons of aluminum, 2,866 tons of copper and 154,352 tons of steel, according to BloombergNEF estimates. Permanent magnets made of rare-earth metals like neodymium are commonly used in the generators found in offshore wind turbines.

A single 2-megawatt wind turbine weighing 1,688 tons comprises 1,300 tons of concrete, 295 tons of steel, 48 tons iron ore, 24 tons of fiberglass, 4 tons each of copper and neodymium and .065 tons of dysprosium.

The Manhattan Institute estimates that building a 100MW wind farm would require 30,000 tons of iron ore and 50,000 tons of concrete, along with 900 tons of non-recyclable plastics for the large blades. The organization says that for solar hardware, the tonnage in cement, steel and glass is 150% greater than for wind, to get the same energy output.

According to The Institute for Sustainable Futures at the University of Technology Sydney, Australia analyzed 14 metals essential to building clean tech machines, concluding that the supply of elements such as nickel, dysprosium, and tellurium will need to increase 200–600%. Read more on the challenges of transitioning to solar and wind

Lithium-ion batteries

For lithium-ion batteries to be able to store 1GW of energy, BloombergNEF estimates they will require about 729 tons of lithium, 1,202 tons of aluminum and 1,731 tons of copper.

The continued move towards electric vehicles is a huge copper driver. In EVs, copper is a major component used in the electric motor, batteries, inverters, wiring and in charging stations.

A recent Silver Institute report says battery electric vehicles contain up to twice as much silver as ICE-powered vehicles, with autonomous vehicles requiring even more due to their complexity.

The Silver Institute anticipates that, due to the evolution of hybrid and battery electric vehicles, the auto industry is expected to absorb 90 million ounces of silver by 2025, rivaling silver consumption in photovoltaics, currently the largest application of global industrial silver demand.

In its electric car forecast to 2040, Wood Mackenzie finds EV sales are expected to reach 45 million units per year in the next two decades, with a total global EV stock of 323 million.

For perspective, global EV sales in 2019 were only 2.1 million, with a stock of 7.2 million EVs, according to Global EV Outlook 2020.

And this just in: Adamas Intelligence reports that new global registrations of passenger vehicles increased 109% year on year during the first six months of 2021. In a new report, Adamas analysts found 4.16 million new units were registered in H1 versus just 1.99 million units during H1 2020.

Major automakers have set their sights on being climate neutral by 2050 and they view battery electric vehicles (BEVs) as the best way of achieving that target. Change is being driven, pun intended, by stricter vehicle emissions regulations.

While some may scoff at the wild predictions, progress is being made, according to Woodmac, on the obstacles to higher EV penetration.

“The projected price of battery packs keeps dropping. We expect the US$100/KWh threshold to be breached by 2024, one year earlier than our previous projections,” says Ram Chandrasekaran, Wood Mackenzie principal analyst.

Electric vehicle sales, 2000-2040. Source: Wood Mackenzie
Source: Wood Mackenzie
Source: Wood Mackenzie

In Europe, EVs are taking showrooms by storm. Last year for the first time, Europe sold more battery-electric and plug-in-hybrid EVs than China, with Germany and France leading the way.

The jump in electric vehicle registrations during the second half of 2020 meant a 175% increase in the watt-hours of batteries deployed, according to Adamas.

Globally, the amount of lithium deployed in newly sold vehicles jumped 96%, to 57,300 tonnes of lithium carbonate equivalent, over the same period. Nickel and cobalt deployed in world battery production during H2 2020 climbed 69% and 85% respectively, according to Adamas.

In 20 years BloombergNEF says copper miners need to double the amount of global copper production, just to meet the demand for a 30% penetration rate of electric vehicles. That means an extra million tonnes a year, over and above what we mine now, every year for the next 20 years!

As we have written, the combination of structural deficits, pent-up demand, and infrastructure build-outs, are the perfect storm for nickel and graphite.

NEF predicts demand for Class 1 “battery-grade” nickel is expected to out-run supply within five years, fueled by rising consumption by lithium-ion electric vehicle battery suppliers. Nickel’s inroads are due mainly to an industry shift towards NMC 811 batteries which require eight times the other metals in the battery. (first version NMC 111 batteries have one part each nickel, cobalt, and manganese).

Lithium-ion batteries contain 10 to 15 times more graphite than lithium. An average hybrid vehicle carries up to 10 kg of graphite and a plug-in EV has around 70 kg. Every million EVs require in the order of 75,000 tonnes of natural graphite. This represents a 10% increase in flake graphite demand.

The need for lithium batteries not only for EVs, but energy storage, handheld tools like drills, and an array of consumer electronics like cell phones and laptops, is almost certain to outstrip supply. Roskill expects total graphite demand over the next 10 years to grow around 5 to 6% per annum.

Charging stations

A fast, public electric vehicle charger typically needs 25 kilograms of copper, while a smaller residential charger needs about 2 kg, according to BloombergNEF estimates. Quoting from the above-mentioned piece:

Installations of public chargers—along highways, in grocery store parking lots or at fleet depots—jumped more than a third last year to bring the global total to 1.36 million nozzles. Today’s cost pressures pale in comparison to what might happen later this decade, with copper demand for chargers predicted by BNEF to surge.

Charger installations are set to increase rapidly to reach 309 million connectors by 2040, when the sector’s annual investment will top $590 billion.

Along with copper, charging points and charging stations are also expected to demand a lot more silver.

According to the Silver Institute, silver’s use in the automotive market will see a strong rebound in 2021, to just over 60Moz. It estimates the sector’s demand for silver will rise to 88Moz in five years as the transition from traditional cars and trucks to EVs accelerates. Others estimate that by 2040, electric vehicles could demand nearly half of annual silver supply.

Electricity transmission

An important part of the shift away from fossil fuels and the aging electricity grids they feed into, is the “smart grid”. Smart grids use technology that make energy integration easier and allow for a higher penetration of renewable energy. They are deemed essential for accelerating the use of fully electric vehicles and plug-in hybrids, and for storing energy from wind and solar installations.

The adoption of smart grid technology in developed and developing countries will boost demand for copper strips used in switchgear, devices that protect equipment and circuits from power spikes. Copper is the conductor material used in transformer windings, strips and busbars. Both power and distribution transformers use copper strips. Copper is the preferred conductor material for underground transmission lines operating at high voltages, while aluminum is preferable for wiring in residences, buildings, aircraft and appliances.

Looking ahead, 5G cellular technology is set to emerge as another major driver of metals demand.

A nationwide buildout of the 5G network will require a massive amount of investment in infrastructure upgrades, placing silver in a unique position to benefit. Semiconductor ICs/chips, both within smartphones and vehicles, are used to process the frequencies 5G requires, and as electronics continue to get smaller, this will require denser packaging technologies.

Copper is also a key component of the global 5G buildout. Even though 5G is wireless, its deployment involves a lot more fiber and copper cable to connect equipment.

Finally, silver demand for “printed and flexible electronics” is forecast to increase 54% over the next nine years, rising from 48Moz in 2021 to 74Moz in 2030, meaning a consumption of 615Moz during this time frame.

A recent Silver Institute news release describes them as “mainstays” in a variety of electronic products, including sensors that measure everything from temperature, pressure and motion, to moisture, relative humidity and carbon monoxide. They are also used in medical devices, mobile phones, appliance displays and consumer electronics.

Printed and flexible electronics market silver demand. Source: Precious Metals Commodity Management LLC

Political and market factors  

Biden’s clean energy plans

Cleaning up the planet will not be possible without major reductions in carbon emissions from the two largest economies, the US and China.

President Biden is pushing forward on climate-oriented programs that distance himself from his predecessor and are a nod to the Democratic left that supported his bid for president.

Pro-environment actions so far include re-joining the Paris climate agreement; canceling the Keystone XL pipeline from Alberta to US Gulf Coast refineries; suspending new oil and gas leases on federal lands; and Biden’s commitment to the Leaders Climate Summit: cutting in half US emissions below 2005 levels by 2030.

Biden’s $1.2 trillion infrastructure package, passed by the Senate but not yet by the House of Representatives, includes transitioning the US transportation system to battery-powered vehicles and supporting renewable wind and solar energies over carbon-based sources like coal and natural gas.

The legislation includes rebuilding traditional infrastructure like highways, bridges and rail lines, and investing in technologies to reduce greenhouse gases. The latter includes installing thousands of EV charging stations, providing incentives to encourage Americans to buy more electric vehicles, and constructing new electric power lines that provide renewable energy and expand electricity storage.

The Biden administration is aiming for carbon-free power generation by 2035 and net-zero emissions by 2050.

The bill proposes nearly $550 billion in new spending over five years, setting aside $110 billion for “blacktop” infrastructure such as roads & bridges; $55 billion to replace lead pipes and ensure access to clean drinking water; $66B for upgrading passenger and freight rail; $65 billion for broadband; and $73 billion for clean energy. 

An even larger $3.5 trillion spending package is also under consideration by the House. It includes:

  • $198 billion in direct payments to utilities for hitting clean energy goals, providing consumers with rebates to make homes more energy-efficient, and financing for domestic manufacturing of clean energy and auto supply chain technologies;
  • $67 billion to fund climate-friendly technologies and impose fees on emitters of methane, to reduce carbon emissions;
  • $37B to electrify the federal vehicle fleet.

President Biden is showing himself to be far more adept than Trump when it comes to stick-handling large pieces of legislation through Congress. The veteran senator managed to achieve rare bipartisan support for his $1.2T infrastructure bill, despite initial widespread GOP opposition to it. As CNBC reported, The vote was the culmination of months of intense work by the White House and a bipartisan group of 10 senators, who negotiated a dizzying series of compromises that maneuvered the bill through a deeply divided Senate. 

On Wednesday Biden launched “intensive in-person engagement at the White House”, according to CNN, with plans to meet with Democrats regularly in the days ahead including House Speaker Nancy Polosi and Senate Majority Leader Chuck Schumer. The Democrats aim to pass the infrastructure bill, a key piece of his domestic agenda, through the House this fall, followed by the $3.5T spending package.

And while Biden and his Commerce Department have yet to lift Trump-era sanctions on hundreds of billions worth of tariffs mostly directed at China, he is pursuing a conciliatory approach to America’s allies that many feel is necessary to rebuild relations following Trump’s brusque foreign-policy style.

In his first address to the United Nations this week, Biden urged global cooperation and said the US “is ready to work with any nation that steps up and pursues peaceful resolution to shared challenges, even if we have intense disagreements in other areas”.

In a nod to China, the president stressed the US is “not seeking a new Cold War or a world divided into rigid blocks”, and he signaled that the US is prepared to re-join the Iran nuclear deal.

Also in his address, President Biden said the US will increase funding to developing countries to $11.4 billion by 2024, and he finished his speech with a promise, in stark contrast to Trump, that America will lead “with our allies.”

Getting back to electrification metals, the more diplomatic tone Biden is setting domestically and globally bodes well for the large volume of metals expected to be needed to complete the kinds of large-scale infrastructure build-outs being contemplated not only in the US but in China, Europe and beyond.

At the Clean Energy Week Policy Makers Symposium, Sept. 20-24, veteran Alaska Senator Lisa Murkowsi said critical minerals are important to US national security and prosperity. She noted the country has the resources to mine them domestically, and singled out Alaska as having deposits of 30 of 35 critical minerals that have been identified by the US Geological Survey.

At present, the US is 100% reliant on imports of 13 critical minerals, including graphite, the second-largest battery component in electric vehicles by weight.

A White House report on critical supply chains showed that graphite demand for clean energy applications will require 25 times more graphite by 2040 than was produced worldwide in 2020.

Earlier this year, the Federal Permitting Improvement Steering Committee (FPISC) granted High-Priority Infrastructure Project (HPIP) status to Graphite One (TSXV:GPH), which is aiming to develop America’s first high-grade producer of coated spherical graphite (CSG), integrated with a domestic graphite resource at Graphite Creek, Alaska.

During her keynote address, Sen. Murkowski said “If they, Graphite One, were able to open tomorrow the US could go from being fully reliant on foreign countries for our graphite to Graphite One being able to supply nearly all our graphite demand.”

China

Along with the US, China is also moving forward rapidly on its plans to electrify and decarbonize. The country is the world leader in electric vehicles and battery production.

President Xi Jinping last fall announced the country is aiming for carbon neutrality by 2060. (carbon neutral means emitting the same amount of carbon dioxide into the atmosphere as is offset by other means)

With China being the world’s biggest source of carbon dioxide, responsible for around 28% of global emissions, Xi’s pledge was a significant step in fighting global climate change.

However, meeting its carbon-neutral goal and replacing fossil fuels will mean a 75% increase in electricity demand, and equates to a $6.4 trillion investment in new power generation capacity, according to a report from Wood Mackenzie quoted by South China Morning Post.

Growth will primarily come from solar, wind and energy storage, all of which will require copious metals.

China will continue to demand a high volume of mineral commodities needed for construction projects. China spends three times more on infrastructure than the US, claiming a million bridges including most of the world’s highest. Of the world’s 100 tallest skyscrapers, 49 are in China. The Wall Street Journal reported in April that in 2014, China used more cement in the previous three years than the US did during the entire 20th century. The country also produces more than half the world’s steel, 1ast year 14 times more than the US, according to the World Steel Association. China’s 23,000 miles of high-speed rail could link New York and Los Angeles more than eight times and Beijing plans to add 30% more track by 2025.

Of course we can’t forget President Xi’s Belt and Road Initiative. 2,600 infrastructure projects costing $3.7 trillion are linked to BRI, as of mid-2020. Think about how much metal that would entail.

Research commissioned by the International Copper Association, quoted by Mining Technology, found that Belt and Road projects in over 60 Eurasian countries will push the demand for copper to 6.5 million tonnes by 2027, a 22% increase over 2017 levels.

That much copper equates to nearly a third of the 20Mt of copper produced in 2020 — new copper supply that would need to be either mined from existing operations or discovered.  

Europe

As mentioned Europe last year sold more battery-electric and plug-in-hybrid EVs than China. EU member states have reportedly begun submitting plans under the €750 billion ‘Next Gen’ deal. The four largest EU economies, Germany, France, Italy and Spain, account for almost half the budget of the program, which focuses on climate change and digital infrastructure.

Italy is especially vulnerable to climate-related change from rising sea levels, heat waves, drought and landslides, and will therefore spend the most, €205B, on mitigation measures. The Spanish government is earmarking €70B in EU grants, focusing on renewable energy and rail mobility (also healthcare and telecommunications), France’s ‘Next Gen’ spending targets green hydrogen, lowering carbon emissions, retrofitting the energy network and modernizing railways, and Germany will spend 40% of its €28B funding package on climate policy and energy transition spending, including hydrogen infrastructure. 

Evergrande

Recently the global push to electrify and decarbonize was thrown a curveball in the form of the Evergrande crisis in China. As one of the country’s largest real estate developers, investors not only in Asia but worldwide are worried about “Asian contagion” should the company not receive a bailout from the Chinese government and become insolvent. 

A meltdown in the Chinese property market could have widespread repercussions, potentially impacting the demand for construction commodities including copper, iron ore and steel.

It’s estimated around 1.5 million people could lose the deposits on their homes if Evergrande goes under. Then there are the companies that Evergrande does business with, like construction and design firms. They could potentially go bust if their deposits aren’t repaid. The effect on the country’s financial system could also be far-reaching; Evergrande reportedly owes money to around 171 domestic banks and 121 other financial firms.

However according to Bloomberg, Global markets were offered a reprieve from Evergrande contagion fears on Wednesday, as China’s central bank boosted liquidity and investors mulled a vaguely-worded statement from the troubled developer about an interest payment. 

Despite all the “Chicken Little” headlines, I personally don’t believe Evergrande is another Lehman Brothers. A deal will be done to stabilize Evergrande’s debt and restructure bonds and loans by selling most of its assets; some investors will be repaid with real estate.

The health of the Chinese steel industry is good reason to think the markets are over-reacting to Evergrande. Take a look at rebar.

The Washington Post notes that, for all the government’s promises of [steel] output curbs, usage as of July this year was running nearly 10% higher still.

The price of the reinforcement bar used on construction sites is at almost the same elevated level it was two months ago, before its key ingredient — iron ore — starting falling and Monday drifted below $100 a tonne for the first time in over a year.

That suggests that end-use demand is still pretty much where it was before this panic started, which should deliver mill owners handsome profits, WaPo adds, concluding that, we’ve not yet seen the reckoning with its steel addiction that China, and the world, ultimately needs. Until that happens, don’t assume this market is dead.

The World Steel Association forecasts global steel demand to grow 5.8% this year to exceed pre-pandemic levels, followed by another 2.7% increase the year after. The association expects China’s steel consumption, about half of the global total, will keep growing from record levels.

Cement

Beyond China, the cement market is another sign that major infrastructure projects will be rolled out this year and over the short to medium term.

Despite covid-related construction slowdowns in 2020, global cement production was consistent with 2019 output. The biggest cement consumers last year were Vietnam, Indonesia, India and China.

According to IndexBox, between 2020 and 2030, the global cement market is set to expand at an average annual rate of 1.8% CAGR, reaching 5B tonnes by 2030.

Uranium

The global drive for increasing the amount of renewable energy and replacing fossil-fuel sources like coal and natural gas, continues to be limited due to the “intermittency” factor. Solar and wind power can only be generated when the wind blows and the sun shines, and grid-scale battery storage technology is still in its infancy.

Also, the additional megawatts of power needed to fill all of those lithium-ion batteries going into electric vehicles, along with a much higher level of grid-scale battery storage expected for renewable energy, implies a major increase in generative capacity. We know from previous articles that the mining industry will be challenged to meet the supply of copper in coming years, with shortages expected as early as 2025 without new copper mines coming onstream.

For these reasons, we need a form of electricity that bridges carbonized and decarbonized power, and the candidate is nuclear.

The global capacity for nuclear power is expected to grow by 27% between 2015 and 2030. Nuclear consultant UxC estimates annual uranium demand will spike by nearly 60%, from the current 190 million pounds of U3O8 to 300 million pounds by 2030.

The uranium market has been oversupplied for the past several years, which has weighed on the price, but recently it spiked to the highest level since 2015, due to a large investment from Sprott Inc. The asset management firm earlier this year launched its Physical Uranium Trust, and on Sept. 7 the trust hit $1 billion in assets. The company has reportedly amassed 24 million pounds of uranium, sometimes buying more than half a million pounds a day. In comparison, total spot volume for 2020 was 92.2 million pounds.

The spot price for U3O8, the technical name for the nuclear fuel, moved above $30 per pound in March for the first time since 2016, and it currently sits at $32.15/lb.

Source: YCharts

Conclusion

The United States is back in the fold of countries pledging to reduce greenhouse gas emissions, and that is helping to drive demand for an assemblage of metals that a global push to decarbonize and electrify is expected to require.

The new “green economy” rejects dirty sources of energy and transportation, namely coal, oil, and natural gas. Instead, it relies on carbon-friendly modes of transport and energy production, including electric vehicles, renewable power, and energy storage, as well as mobile technology (5G) and rapid adoption of artificial intelligence (AI) technologies needing increased computing power.

Transportation makes up 29% of global emissions, so transitioning from gas-powered cars and trucks to plug-in vehicles, as well as high-speed rail, is an important part of the plan to wean ourselves off fossil fuels.

However, to accomplish all of the above will require a colossal boost in the production of mined materials, including copper, silver, graphite, zinc, iron ore and steel.

Among the demand drivers of these “future-facing metals” are solar panels, wind turbines, lithium-ion batteries, charging stations and electricity transmission.

The Biden administration is gung-ho to advance major funding for clean and green energy programs which are included within the $1.2 trillion and $3.5 trillion spending packages that have passed the Senate and are currently before the US House of Representatives.

China and the European Union have grand plans of their own to decarbonize and electrify their economies, putting even more pressure on the mining industry to provide the necessary metals.

We also have to think about the developing world and its voracious demand for commodities. India for one, and Africa. According to the Center for International Policy, in 2035 the number of working-age people in Africa will exceed the rest of the world combined, and by 2050 one in four humans will be African. At 2100, 40% of the world’s population will hold a passport from an African country. Its citizens want what we as North Americans have. The World Bank estimates that Africa will need up to $170 billion in investment a year for 10 years to meet its infrastructure requirements. 

As investors we need to be correctly positioned in the companies and sectors we choose. At AOTH we don’t get distracted by headlines like Evergrande and the US Federal Reserve increasing interest rates (it can’t, and won’t). We remain focused on the long game, of stable and buoyant demand for commodities. The next commodities supercycle is being driven primarily by “green” infrastructure investments but also traditional asset replacement including aging roads, bridges and water/ wastewater system. All of this requires millions of extra tonnes of copper, iron ore, steel, cement, etc.

We must acknowledge the demand curve going forward is not a straight line. There may be hiccups along the way but the overall trend is intact. Global demand for electrification metals and industrial metals are not going away. If anything they are increasing. We therefore remain focused on identifying and investing in junior mining companies that provide the best leverage to rising commodity prices.

Richard (Rick) Mills
aheadoftheherd.com
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Energy & Critical Metals

The Ethical Investor: ESG moves, lessons from the energy crisis and JP Equities’ stock tips

The Ethical Investor is Stockhead’s weekly look at ESG moves on the ASX. This week’s special guest is JP Equity … Read More
The post The Ethical…

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The Ethical Investor is Stockhead’s weekly look at ESG moves on the ASX. This week’s special guest is JP Equity Partners’ director and partner, Nic Brownbill.

The world is in the grip of an ongoing global power crisis that has seen energy prices soaring by thousands of percentage points.

From China to Europe and now India, the cost of energy is surging drastically. The price of natural gas has even quadrupled in some parts of the world.

 

Source: IEA via Reuters

 

But economists are now warning this might be just the first of many power crunches the world will see as we transition into the new economy.

According to a research paper by CommBank’s analyst Vivek Dhar, there are two main root causes that led to the crisis — a strong demand recovery from the pandemic, and an acute shortage of two key power-producing fuels – natural gas and thermal coal.

As economies reopen, there is a sudden pent up demand from consumers which meant that factories were forced to switch on their production capacity at short notice. This was exacerbated by a colder than usual European autumn, as the continent potentially faces a more-freezing-than-usual winter season.

In China, the crisis mainly stemmed from an undersupply in local production of coals, according to Dhar, adding that coal supply has been hampered in China because of the government’s own environmental protection regulations.

So what can we learn from all this?

Dhar reckons that we are transitioning into the new economy too fast, too soon.

“What the recent energy crisis has shown is that the energy transition needs to be planned carefully,” Dhar wrote.

“This will mean significant investment in renewable generation, batteries, electricity grids and hydrogen.”

But he thinks the roll-out of a decarbonised grid and role of gas need to be clearly defined too.

“Under-investing in gas infrastructure relative to its role in coming years will only serve to make Europe’s energy market more vulnerable to prolonged gas shortages, and increase dependence on Russia.”

Like Europe, China’s decarbonisation ambition will need to be planned as well, Dhar said.

“If coal mines and coal power plants are closed before a renewable replacement is in place, power shortages in China could be an ongoing concern.”
 

What’s happening in Australia

Australians have chosen climate change as the top ESG priority, according to the latest survey conducted by global ESG consultant, SEC Newgate.

And more than half of the 1,000 Aussies surveyed said they were happy with the direction the government is taking on the environment.

ESG Rio
Source: Survey by SEC Newgate

 

Aussie respondents also nominated retailers Coles Group (ASX:COL) and Woolworths (ASX:WOW) as the top local companies when it came to doing well on ESG metrics.

These results should provide food for thought for PM Scott Morrison, who’s currently caught in a political wrangle with the Nationals in setting our 2050 climate goals.

The PM has told Liberal colleagues that he wants to bring a binding 2050 net zero commitment to the COP26 Summit in Glasgow next month, without having to upgrade Australia’s 2030 commitments.

Nationals Leader and also Deputy PM, Barnaby Joyce, said however that he was willing to back the 2050 targets only if funding for regional producers and farmers were made as part of the deal.
 

Special guest JP Equities’ Nic Brownbill shares his views and ESG stocks

Nic Brownbill, a partner at JP Equity, told Stockhead that decarbonisation is a mega global investment opportunity, one that JP Equity wants to be all in on.

How big is the potential for ESG investing?

“We see the whole decarbonisation theme as the next mega global investment opportunity. An estimated $41 trillion is required to decarbonise the planet. It’s going to be a bigger opportunity than the crypto market, because unlike cryptos, the carbon market is going to be mandated by governments, major asset managers and pension funds.”

Which segment of the ESG market do you see outperforming?

“Some companies will fall short in trying to make their carbon targets, so the balance will need to be met with carbon credits. I think carbon emissions will eventually be metricated, and the carbon offset market is going to be a way for major companies to offset their emissions.”

Would that investment opportunity catch on in Australia?

“I believe the Australian market hasn’t really caught on to the opportunity of this yet. But I think something will really start to emerge from the COP26 conference in November, where you’ll see a sustained mega theme starting to unfold in this country.

“I think we will start to see a complete emergence of Australian companies in the carbon space over the next few months and beyond.”

What are the ASX stocks that JP Equity likes in the carbon credit space?

One ASX stock that we’ve been watching very closely is  Fertoz (ASX:FTZ). They’re a leading North American fertiliser manufacturer that produces a unique low-emission rock phosphate product that increases crop yield by 15%.

“Importantly, it can generate significantly lower CO2 emissions in manufacturing compared with other commercial fertilisers.

“This presents a really significant opportunity because agriculture as a sector accounts for 24% of all human generated greenhouse emissions. Fertoz is one of the first movers in the carbon credit market, and since May this year has been issuing carbon offset credit certificates.

“It’s not a matter of if, but when disclosure of carbon emissions will become metricated. And as a result, Fertoz is getting some strong enquiries from other companies looking to offset their footprints by buying carbon credits.”

Any other ASX stocks you like in the ESG space?

“We’re also bullish on Mpower (ASX:MPR). The company is Australia’s leading specialist in renewable energy, battery storage and micro-grid business. It has a focus on five megawatt solar farms, and is in the process of creating an initial portfolio of 20 sites across Australia in the coming years.

“That gives them an aggregate capacity of around 100 megawatts, and an estimated value of more than $150 million. It’s now down to what the team can deliver in some of those projects to build up the portfolio.”

 

Notable ASX ESG-related news during the week

Rio Tinto (ASX:RIO)

The energy giant announced that it was targeting a 50% reduction in Scope 1 and 2 emissions by 2030, and a 15% reduction by 2025 from a 2018 baseline of 32.6Mt.

Around $7.5 billion in direct capital expenditure will be spent on decarbonising Rio Tinto’s assets from 2022 to 2030, including $0.5 billion per year from 2022 to 2024.

Strandline Resources (ASX:STA)

The company released its Sustainability Report for 2021, outlining its commitment to the United Nations Sustainable Development Goals (UNSDGs).

STA said it’s focused on managing development risks at its Coburn project in WA to safeguard workers and ensure environmental compliance.

Lithium Power (ASX:LPI)

The company has appointed global consulting firm Deloitte to ensure a robust ESG program at its Maricunga project in Chile.

Deloitte has been tasked to imbed sustainable protocols in LPI’s lithium extraction operations, and to establish ambitious standards for LPI to become a carbon neutral producer, while keeping high standards on the social aspects.

Jadar Resources (ASX:JDR)

The company also said it has completed its maiden Sustainability Plan, with strategies aligned to the UNSDGs.

 

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

The post The Ethical Investor: ESG moves, lessons from the energy crisis and JP Equities’ stock tips appeared first on Stockhead.




Author: Eddy Sunarto

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Emerita Sees Continued Success In Spain

Emerita Resources Corp (TSXV:EMO) continues to report excellent results from the Infanta drill program at its Iberia Belt West Project
The post Emerita…

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Emerita Resources Corp (TSXV:EMO) continues to report excellent results from the Infanta drill program at its Iberia Belt West Project in Spain, which hosts three previously identified high-grade deposits: La Infanta, Romanera and El Cura. These are all open for expansion along strike and at depth.

On October 22, the company announced assays for the first step-out drill hole from the Infanta drill program and also the final in-fill drill holes. The significance of the in-fill program was to verify the historical drill results. They will now enable a proper 3D modelling of the deposit and will also provide additional data to be used for future metallurgical testing.

At Infanta, the step-out was conducted to expand the outer perimeter of the deposit, and the in-fill drilling was intended to confirm historical drill data within Infanta’s known mineralization zone. Step-out drill hole IN018 was drilled 40 metres to the west of the historical limits of the deposit and intersected 8.2 metres with a grade of 2.5% copper, 8.7% lead, 17.3% zinc, 223.5 g/t silver and 0.5 g/t gold. A second step-out hole was drilled 50 metres to the west of hole IN018 and intersected two zones of massive sulfide but assays have not been returned yet.

In-fill drill hole IN014 intersected 5.7 metres of 2.4% copper, 7.3 %lead, 13.4% zinc, 225 g/t silver and 0.6 g/t gold. The ongoing geophysical survey, which was suspended along with other exploration activities for the region’s hunting season, is expected to resume by the end of October.

Emerita plans to have five drill rigs operating by the end of 2021 and will include the Romanera deposit, El Cura, and other targets identified by previous geophysics work. The two drills currently on site will now focus on step-out drilling to increase the size of the deposit.

Emerita also recently provided investors with an update on the legal proceedings for the Aznalcóllar Project and the company is expecting a ruling by the Administrative Court of Andalucia in Emerita’s favour in the near future.

The Aznalcóllar Zinc Project is located in the prolific Iberian Pyrite Belt in the Andalusia region of southern Spain and is considered to be one of the world’s largest and most productive volcanogenic massive sulfide (VMS) structures. It has been mined for over a thousand years and has produced over 2000 million tons of ore.

Aznalcóllar is considered to be one of the world’s top undeveloped zinc deposits, and the project is essentially a world-class pre-production development asset. Here, the main deposit is referred to as Los Frailes, which contains a historical open pit mineral resource. Two other deposits exist on the property as well, which require further development. The Los Frailes mine operated during the 1990s until it closed due to a combination of tailings-related environmental failure and low metal prices.

After the Aznalcóllar site was rehabilitated, the government initiated a public tender process for the rights to the project and it was initially awarded to another major mining company, however Emerita believed that their bid was superior. It subsequently requested an investigation into the tender process for the property and filed a lawsuit in 2015.

In early 2021, the Spanish court concluded that the process was fraught with corruption, fraud and other malfeasance and rescinded the rights that were awarded and criminal charges were sought for the perpetrators and their enablers. In July 2021, a Spanish judge issued additional criminal indictments against the mining company and government officials who participated in undermining the public tender process for the project.

Under Spanish law, if a crime was committed during the tender process, the rights are then awarded to the next best qualified competing bid, which in this case was Emerita. Subsequently, Emerita has been waiting for the Administrative Court to conclude the process to formally award the rights to the Aznalcóllar Project to the company, which brings us to present day.

The company is planning to develop the deposit into an underground mining operation focused on mining the high-grade zones, which are estimated to contain 20 million tonnes at a grade of 6.65% zinc, 3.87% lead, 0.29% copper and 84 ppm silver. As a requirement of the project’s public tender process, Emerita submitted comprehensive. engineering, environmental and water management studies to the government, and now the company is expecting to be given the green light to proceed developing the Aznalcóllar project into an eventual producer.

Emerita is well financed, having completed a $20 million bought deal private placement in July 2021. Emerita has 182.42 million shares outstanding and due to the recent increase in the Company’s share price, a market capitalization now of $556.38 million. Even so, barring any unforeseen negative developments regarding the legal issues, Emerita Resources Corp still appears to be potentially undervalued relative to the potential value of the world-class assets it is developing.

Shares of Emerita Resources Corp last traded at $3.05.


FULL DISCLOSURE: Emerita Resources is a client of Canacom Group, the parent company of The Deep Dive. The author has been compensated to cover Emerita Resources on The Deep Dive, with The Deep Dive having full editorial control. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.

The post Emerita Sees Continued Success In Spain appeared first on the deep dive.







Author: Phil Gracin

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Von Greyerz: Shortages & Hyperinflation Lead To Total Misery

Von Greyerz: Shortages & Hyperinflation Lead To Total Misery

Authored by Egon von Greyerz via GoldSwitzerland.com,

At the end of major…

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Von Greyerz: Shortages & Hyperinflation Lead To Total Misery

Authored by Egon von Greyerz via GoldSwitzerland.com,

At the end of major economic cycles, shortages develop in all areas of the economy. And this is what the world is experiencing today on a global basis. There is a general lack of labour, whether it is restaurant staff, truck drivers or medical personnel.

There are also shortages of raw materials, lithium (electric car batteries), semi-conductors, food,  a great deal of consumer products, cardboard boxes, energy and etc, etc. The list is endless.

SHORTAGES EVERYWHERE

Everything is of course blamed on Covid but most of these shortages are due to structural problems. We have today a global system which cannot cope with the tiniest imbalances in the supply chain.

Just one small component missing could change history as the nursery rhyme below explains:

For want of a nail, the shoe was lost.
For want of a shoe, the horse was lost.
For want of a horse, the rider was lost.
For want of a rider, the battle was lost.
For want of a battle, the kingdom was lost.
And all for the want of a 
horseshoe nail
.

The world is not just vulnerable to shortages of goods and services.

BOMBSHELLS

Bombshells could appear from anywhere. Let’s just list a few like:

  • Dollar collapse (and other currencies)

  • Stock market crash

  • Debt defaults, bond collapse (e.g. Evergrande)

  • Liquidity crisis  (if  money printing stops or has no effect)

  • Inflation leading to hyperinflation

There is a high likelihood that not just one of the above will happen in the next few years but all of them.

Because this is how empires and economic bubbles end.

The Roman Empire needed 500,000 troops to control its vast empire.

Emperor Septimius Severus (200 AD) advised his sons to “Enrich the troops with gold but no one else”.

As costs and taxes soared,  Rome resorted to the same trick that every single government resorts to when they overextend and money runs out – Currency Debasement.

So between 180 and 280 AD the Roman coin, the Denarius, went form 100% silver content to ZERO.

And in those days, the soldiers were shrewd and demanded payment in gold coins and not debased silver coins.

Although the US is not officially in military conflict with any country, there are still 173,000 US troops in 159 countries with 750 bases in 80 countries. The US spends 11% of the budget or $730 billion on military costs.

Since the start of the US involvement in Afghanistan, Pentagon has spent a total of $14 trillion, 35-50% of which going to defence contractors.

Throughout history, wars have mostly started out as profitable ventures, “stealing” natural resources (like gold or grains) and other goods–often due to shortages. But the Afghan war can hardly be regarded as economically successful and the US would have needed a more profitable venture than the Afghan war to balance its budget.

US HOPELESSLY BANKRUPT  – NEEDS TO BORROW 46% OF BUDGET

The US annual Federal Spending is $7 trillion and the revenues are $3.8 trillion.

So the US spends $3.2 trillion more every year than it earns in tax revenues. Thus, in order to “balance” the budget, the declining US empire must borrow or print 46% of its total spending.

Not even the Roman Empire, with its military might, would have got away with borrowing or printing half of its expenditure.

TOTAL MISERY AS MR MICAWBER SAID:

As Mr Micawber in Charles Dickens’ David Copperfield said:

‘Annual income 20 pounds, annual expenditure 19 [pounds] 19 [shillings] and six [pence], result happiness. Annual income 20 pounds, annual expenditure 20 pounds ought and six, result misery.’

And when, like in the case of the US, you spend almost twice as much as you earn that is TOTAL MISERY.

Neither an individual, nor a country can spend 100% more than their earnings without serious consequences. I have written many articles about these consequences and how to survive the Everything Bubble

INFLATION IS HERE

The most obvious course of events is continuous shortages combined with prices of goods and services going up rapidly. I remember it well in the 1970s how for example oil prices trebled between 1974 and 1975 from $3 to $10 and by 1980 had gone up 10x to $40.

The same is happening now all over the world.

That puts Central banks between a Rock and a Hard place as inflation is coming from all parts of the economy and is NOT TRANSITORY!

Real inflation is today 13.5% as the chart below shows, based on how inflation was calculated in the 1980s

IMPLOSION OR EXPLOSION

The central bankers can either squash the chronic inflation by tapering and at the same time create a liquidity squeeze that will totally kill an economy in constant need of stimulus. Or they can continue to print unlimited amounts of worthless fiat money whether it is paper or digital dollars.

If central banks starve the economy of liquidity or flood it, the result will be disastrous. Whether the financial system dies from an implosion or an explosion is really irrelevant. Both will lead to total misery.

Their choice is obvious since they would never dare to starve an economy craving for poisonous potions of stimulus.

History tells us that central banks will do the only thing they know in these circumstances which is to push the inflation accelerator pedal to the bottom.

Based of the Austrian economics definition, we have had chronic inflation for years as increases in money supply is what creates inflation. Still, it has not been the normal consumer inflation but asset inflation which has benefitted a small elite greatly and starved the masses of an increase standard of living.

As the elite amassed incredible wealth, the masses just had more debts.

So what we are now seeing is the beginning of a chronic consumer inflation that most of the world hasn’t experienced  for decades.

THE INEVITABLE CONSEQUENCES OF CURRENCY DESTRUCTION

This is the inevitable consequence of the destruction of money through unlimited printing until it reaches its the intrinsic value of Zero. Since the dollar has already lost 98% of its purchasing power since 1971, there is a mere 2% fall before it reaches zero. But we must remember that the fall will be 100% from the current level.

As the value of money is likely to be destroyed in the next 5-10 years, wealth preservation is critical.  For individuals who want to protect themselves from total loss as fiat money dies, one or several gold coins are needed.

So back to the nursery rhyme:

For want of a nail gold coin, the shoe was lost.
For want of a shoe, the horse was lost.
For want of a horse, the rider was lost.
For want of a rider, the battle was lost.
For want of a battle, the kingdom was lost.
And all for the want of a horseshoe nail gold coin.

Gold is not the only solution to the coming problems in the world economy. Still, it will protect you from the coming economic crisis like it has done every time in history

And remember that if you don’t hold properly stored gold you don’t understand:

  • What happens when bubbles burst

  • You are living in a fake world with fake money and fake valuations

  • Your fake money will be revalued to its intrinsic value of ZERO

  • Assets that were bought with this fake money will lose over 90% of their value

  • Stocks will go down by over 90% in real terms

  • Bonds will go down by 90% to 100% as borrowers default

  • You lack regard for your stakeholders whether they are family or investors

  • You don’t understand history

  • You don’t understand risk

The 1980  gold price high of $850 would today be $21,900,  adjusted for real inflation

So gold at $1,800 today is grossly undervalued and unloved and likely to soon reflect the true value of the dollar.

Tyler Durden
Sat, 10/23/2021 – 14:30











Author: Tyler Durden

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