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Silver Stocks Are Climbing, Here’s 3 To Watch

If you want to invest in silver stocks, look no further than…
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If you want to invest in silver stocks, look no further than this list

Silver stocks have been quite popular in the market for the past year and a half. When the pandemic crossed the globe in 2020, the momentum began to build. Last year, as a result of this, silver reached a new all-time high price. Many silver stocks followed suit as a result. Then, shortly after the GameStop mania, retail investors moved their interest to silver equities. Silver stocks had a temporary surge in popularity as a result of this.

Now that the year is 2021, a variety of factors are hurting the mining industry. Inflation fears are rampant in the stock market right now. In many other parts of the world, the pandemic is still going strong. Although things have cooled down in the United States, the impacts are still being felt in other countries. In the long run, this may have an impact on the supply of metals like silver.

Silver is a desirable commodity since it is a valuable metal that is also used in industrial applications. Because many industrial enterprises are currently operating at full capacity, the metal’s production numbers are improving. The Global X Silver Miners ETF (NYSE: SIL) is tracked by several silver equities. As a result, if this ETF rises or falls, numerous silver stocks are likely to follow suit. With all of this in mind, let’s take a look at three silver stocks that are currently performing well in the market.

Top Silver Stocks To Watch

  1. SilverCrest Metals Inc. (NYSE: SILV)
  2. Americas Gold and Silver Corporation (NYSE: USAS)
  3. Fortuna Silver Mines Inc. (NYSE: FSM)

SilverCrest Metals Inc. (NYSE: SILV)

SilverCrest Metals Inc. is a mining firm that seeks to purchase, investigate, and develop various sites. These precious metals-focused sites are located in Mexico. Silver and gold are the primary resources sought after by SilverCrest. It now manages the Las Chispas project in Sonora, Mexico, which consists of 28 concessions totaling 1400.96 hectares.

On September 9th, the company reported results from its 2021 infill and expansion drilling in the Babicanora area. Planned infill drilling for the Babi Vista Vein, Babi Vista Vein Splay, and Granditas Vein 1 Vein are nearing completion at the moment. The company’s drilling programs intend to increase drill density in an area. During the first 7 months of the year, 80,632 meters in 176 drill holes have been completed at Las Chispas.

CEO of SilverCrest, N. Eric Fier said, “SilverCrest’s strategy for its infill drilling program is to efficiently use our capital to optimize the LOM through increasing confidence in high-grade Inferred Resource veins proximal to planned underground infrastructure. The infill program has confirmed the presence and continuity of multi-kilogram per tonne silver equivalent grades within the footprints that helped define the veins in the 2021 Feasibility Study.” On October 7th, SILV stock went up 1.3% in the market. Will SILV be on your list of silver stocks to watch?

Americas Gold and Silver Corporation (NYSE: USAS)

When mentioning silver penny stocks, it is hard to leave out Americas Gold and Silver Corporation. Americas Gold and Silver Corporation acquires, develops, explores at, and operates various mineral properties. Most if not all of the company’s assets are located in the United States. It previously held a 100% interest in the CosalAj operations consisting of 67 mining concessions.

In September, the company announced that it has continued to add silver ounces to the Galena Complex. The company also surpassed its target additions for the year. On a consolidated and attributable basis, estimated contained metal in the proven and probable reserve totaled 32.5 million ounces of silver.

President and CEO of Americas Gold and Silver Corporation, Darren Blasutti said, “The increase in silver resources at the Galena Complex surpassed the Company’s target of adding 50 million ounces year over year and for all of the Phase 1 drilling program by over 80%, continuing to demonstrate the significant potential of the operation.” Now USAS stock is up 6% in the market with higher than average volume on October 7th. Will USAS be on your silver stock watchlist in October?

Fortuna Silver Mines Inc. (NYSE: FSM)

Fortuna Silver Mines is a precious metals mining company that explores, extracts, and processes various precious metals. The company is actively looking for silver, gold, zinc, and lead resources. The Cayloma and San Jose mines are its primary assets, although it also manages the Lindero Gold Project.

On September 29th, the company announced a positive construction decision for bits Seguela gold project in Cote d’Ivoire. The company will proceed with the construction of an open-pit mine at the location. Back in July, Fortuna successfully acquired Roxgold Inc. Now it will be interesting to see how FSM stock performs in the future.

Jorge A. Ganoza, President and CEO of the company said, “With a nine-year mine life in reserves, 130,000 ounces of annual gold production in the initial six years, and compelling economics, Séguéla is planned to become our fifth operating mine with first gold by mid-2023.” Now that you have the latest on Fortuna, will it make your silver stock watchlist?

Top Silver Stocks To Buy?

When it comes to investing in silver stocks, creating an investment plan can be really beneficial. This can be as basic as keeping up with current events. But what kind of news is most beneficial to this industry? Sector news, business news, and global news can all influence these mining stocks. With all of this information in mind, which silver stocks will you be keeping an eye on this month?

The post Silver Stocks Are Climbing, Here’s 3 To Watch appeared first on Gold Stocks to Buy, Picks, News and Information | GoldStocks.com.

Economics

Stocks Stink As Curve Pancakes On Stagflation Fears

Stocks Stink As Curve Pancakes On Stagflation Fears

It was another choppy day in the market which saw an overnight attempt to recover from…

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Stocks Stink As Curve Pancakes On Stagflation Fears

It was another choppy day in the market which saw an overnight attempt to recover from losses get sabotaged at the open when a sell program knocked spoos lower and the result was a rangebound, directionless grind for the rest of the day as the continued pressure of negative gamma prevented a move higher, and since they couldn't rise, stocks sold off closing near session lows. 

Granted, there was the usual chaos in the last 30 minutes of trading, when a huge sell program was followed by an almost identical buy program...

... but it was too little too late to save stocks from another down day.

While the Russell, energy stocks and banks managed to bounce and drifted in the green for much of the day - perhaps as investors looked forward to good news from JPMorgan tomorrow when the largest US bank kicks off earnings season - the rest of the market did poorly with most other sectors in the red.

Earlier today we noted that the SPY remains anchored by two massive gamma levels, 430 on the downside and 440 on the upside...

... however that may soon change. As SoFi strategist Liz Young pointed out, "It's been 27 trading days since we hit a new high on the S&P 500. The last time we went this long was...exactly this time last year. New highs happened on Sept 2nd, both years, before a pause."

In rates we saw a sharp flattening with another harrowing CPI print on deck tomorrow which many expect to roundly beat expectations...

... with the short end rising by 3bps, a move that was aided by a poor 3Y auction which saw a slump in the bid to cover and a plunge in Indirect takedown, while the long end tightened notably, and 10Y yields on pace to close 4bps lower.

The dollar went nowhere, and while oil tried an early break out and Brent briefly topped $84, the resistance proved too much for now and the black gold settled down 31 cents for the day at 83.34 although WTI did close up 4 cents, and above $80 again, at $80.54 to be precise. Still, with commodity prices on a tear, it's just a matter of day before Brent's $86 high from October 2018 is taken out.

With stocks failing to make a new high in over a month, investor sentiment has predictably soured with AAII Bulls down to the second lowest of 2021, while Bearish sentiment continues to rise.

There is another reason sentiment has been in the doldrums: traders are concerned that price pressures and supply-chain snarls will drain corporate profits and growth, and expect disappointment from the coming earnings season which according to Wall Street banks will be a far more subdued affair compared to the euphoria observed in Q1 and Q2.  Quarterly guidance, which improved in the runup to the past four reporting periods, is now deteriorating, with analysts projecting profits at S&P 500 firms will climb just 28% Y/Y to $49 a share. That’s down from an eye-popping clip of 94% in the previous quarter.

Meanwhile, adding to the downbeat mood, Atlanta Fed President Raphael Bostic finally admitted that inflation is not transitory, and the Fed should proceed with a November taper amid growing fears that inflation expectations could get unanchored. Earlier in the day was saw that 3Y consumer inflation expectations hit a record high 4.3% confirming that the Fed is on the verge of losing control.

Vice Chair Richard Clarida agreed and said that conditions required to begin tapering the bond-buying program have “all but been met.”

Finally, the IMF delivered more bad news today when it cut its global GDP forecast while warning that inflation could spike, and cautioned about a risk of sudden and steep declines in global equity prices and home values if global central banks rapidly withdraw the support they’ve provided during the pandemic. In short, the world remains trapped in a fake market of the Fed's own creation.

Tyler Durden Tue, 10/12/2021 - 16:02
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Economics

The funding challenges ahead

This article looks at the Fed’s funding challenges in the US’s new fiscal year, which commenced on 1 October.There are three categories of buyer for…

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This article looks at the Fed’s funding challenges in the US’s new fiscal year, which commenced on 1 October.

There are three categories of buyer for US Federal debt: the financial and non-financial private sector, foreigners, and the Fed. The banks in the financial sector have limited capacity to expand bank credit, and American consumers are being encouraged to spend, not save. Except for a few governments, foreigners are already reducing their proportion of outstanding federal debt. That leaves the Fed. But the Fed recently committed to taper quantitative easing, and it cannot be seen to directly monetise government debt.

That is one aspect of the problem. Another is the impending rise in interest rates, related to non-transient, runaway price inflation. Funding any term debt in a rising interest rate environment is going to be considerably more difficult than when the underlying trend is for falling yields. There is the additional risk that foreigners overloaded with dollars and dollar-denominated financial assets are more likely to become sellers.

Not only are foreigners overloaded with dollars and financial assets, but with bond yields rising and stock prices falling, foreigners for whom over-exposure to dollars is a speculative position going wrong will undoubtedly liquidate dollar assets and dollars. If not buying their own national currencies, they will stockpile commodities and energy for production, and precious metals as currency hedges instead.

The Fed will be faced with a bad choice: protect financial asset values and not the dollar or protect the dollar irrespective of the consequences for financial asset values. And the Federal Government’s deficit must be funded. The likely compromise of these conflicting objectives leads to the risk of failing to achieve any of them.

Other major central banks face a similar quandary. Funding ballooning government deficits is about to get considerably more difficult everywhere.


Introduction

Our headline chart in Figure 1 shows the excess liquidity in the US economy that is being absorbed by the Fed through reverse repos (RRPs). With a reverse repo, the Fed lends collateral (in this case US Treasuries overnight from its balance sheet) to eligible counterparties in exchange for overnight funds, which are withdrawn from public circulation. As of last night (6 October), total RRPs stood at $1,451bn, being the excess liquidity in the financial system with interest rates set by the RRP rate of 0.05%. Simply put, if the Fed did not offer to take this liquidity out of public circulation, overnight dollar money market rates would probably become negative.

The chart runs from 31 December 2019 to cover the period including the Fed’s reduction of its funds rate to the zero bound and the commencement of quantitative easing to the tune of $120bn every month —they were announced on 19th and 23rd March 2020 respectively. Other than the brief spike in RRPs at that time which was a wobble to be expected as the market adjusted to the zero bound, RRPs remained broadly at zero for a full year, only beginning a sustained increase last March.

Much of the excess liquidity absorbed by RRPs arises from government spending not immediately offset by bond sales. Figure 2 shows how this is reflected in the government’s general account at the Fed. The US Treasury’s balance at the Fed represents money not in public circulation. It is therefore latent monetary inflation, which is released into the economy as it is spent. Since March 2021, the balance on this account fell by about $800bn, while reverse repos have risen by about $1,400bn, still leaving a significant balance of liquidity to be absorbed arising from other factors, the most significant of which is likely to be seepage into the wider economy from quantitative easing (over two trillion so far and still counting).




The US Treasury has draw down on its general account because had it accumulated balances from bond funding in excess of its spending ahead of the initial covid lockdown. And its debt ceiling was getting closer, which is currently being renegotiated. But this is only part of the story, with the Federal deficit running at about $3 trillion in the fiscal year just ended.

That is a huge amount of government “fiscal stimulus”, and clearly, the private sector is having difficulty absorbing it all. The scale of this deficit, debt ceilings aside, is set to increase under the Biden administration. If the US economy is already drowning in dollars, it is likely to worsen.

Assuming the debt ceiling negotiations raise the Treasury borrowing limit, the baseline deficit for the new fiscal year must be another $3 trillion. Optimists in the government’s camp have looked for economic recovery to increase tax revenues to reduce this deficit enough together with selective tax increases to allow the government to invest additional capital funds in the crumbling national infrastructure. A more realistic assessment is that unexpected supply disruption of nearly all goods and rising production costs are eating into the recovery, which is now faltering. And it is raising costs for the government in its mandated spending even above the most recent assumptions. It is increasingly difficult to see how the budget deficit will not increase above that $3 trillion baseline.

This article looks at the funding issues in the new fiscal year following the expected resolution of the debt ceiling issue. The principal problems are its scale, how it will be funded, and the impact of price inflation and its effect on interest rates.

Assessing the scale of the funding problem

There are three distinct sources for this funding: the Fed, foreign investors, and the private sector, which includes financial and non-financial businesses. Figure 3 shows how the ownership of Treasury stock in these categories has progressed over the last ten years and the sum of these funding sources up to the mid-point of the last US fiscal year (31 March 2021). Over that time total Treasury debt more than doubled to nearly $30 trillion.


The funding of further debt expansion from these levels is likely to be a significant challenge. Initially, the Fed can release funds by reducing the level of overnight RRPs, some of which will become absorbed directly, or indirectly, in Treasury funding. But after that financing will become more problematic.

Since 2011, the Fed’s holdings of US Treasury debt have increased from 11% to 19% of the growing total, reflecting QE particularly since March 2020. At the same time the proportion of total Treasury debt owned by foreign investors has fallen from 32% to 24% today, and now that they are highly exposed to dollars, they could be reluctant to increase their share again, despite continuing trade deficits. Private sector investors, whose share of the total at 57% is virtually unchanged from ten years ago, can only expand their ownership by increasing their savings and through the expansion of bank credit. But with bank balance sheets lacking room for further credit expansion and consumers inclined to spend rather than save, it is difficult to envisage this ratio increasing sufficiently as well.

Clearly, the Fed has been instrumental in filling the funding gap. But the Fed has now said it intends to taper its bond purchases. Unless foreign investors step in, the Fed will be unable to taper. Excess liquidity currently reflected in outstanding RRPs can be expected to be mostly absorbed by expanding T-bill and short-maturity T-bond funding, which might buy three- or four-months’ funding time and not permit much longer-term bond issuance. But after that, the Fed may be unable to taper QE.

Foreign funding problems

While we cannot be privy to the bimonthly meetings of central bankers at the Bank for International Settlements and at other forums, we can be certain that there is a higher level of monetary policy cooperation between the major central banks than is generally admitted publicly. On matters such as interest rate policy it is important that there is a degree of cooperation, otherwise there could be instability on the foreign exchanges. And to support the dollar’s debasement, policy agreements between important foreign central banks may need to be considered.

This is because the dollar’s role as the reserve currency gives the US Government and its banks not just an advantage of seigniorage over the American people, but over foreign holders of dollars as well. Dollar M1 money supply is currently $19.7 trillion, approximately 50% of global M1 money stock.[i] Therefore, its seigniorage and the world-wide Cantillon effect from increasing public circulation is of great advantage to the US Government, not only over its own people but in transferring wealth from foreign nations as well. This is particularly to the disadvantage of any other national government which, following sounder monetary policies, does not expand its own currency stock at a similar rate while being forced to use dollars for international transactions.

Ensuring currency debasement globally is therefore a compelling reason behind monetary cooperation between governments. By agreeing on permanent currency swap lines with five major central banks (the ECB, the Bank of Japan, the Bank of England, the Bank of Canada, and the Swiss National Bank) they are drawn into supporting a global inflationary arrangement which ensures the stock of dollars can be expanded without consequences on the foreign exchanges.

Ahead of its massive monetary expansion on 19 March 2020, to keep other central banks onside temporary swap arrangements were extended to nine other central banks, ensuring their compliance as well.[ii] But notable by their absence were the central banks whose governments are members and associates of the Shanghai Cooperation Organisation, which will have found that their dollar holdings and financial assets (mainly US Treasuries) have been devalued without consultation or recompense.

It is therefore not surprising that foreign governments other than those with permanent swap lines are increasingly reluctant to add to their holdings of dollars and US Treasuries. By selectively excluding major nations such as China from swap line arrangements, by default the Fed is pursuing a political agenda with respect to its currency. International acceptability of the dollar is being undermined thereby when the US Treasury is becoming increasingly desperate for inward capital flows to fund its budget deficits.

Even including allied governments, all foreigners are now reducing their exposure to US dollar bank deposits, by 12.9% between 1 January 2020 and end-July 2021, and to US T-Bills and certificates by 20.7% over the same period. The only reason for holding onto longer-term assets is in expectation of speculative gains.

The situation for longer-term Treasury bonds is not encouraging. The US Treasury’s “major foreign holders” list of holders of longer-maturity Treasury securities, shows the list to be dominated by Japan and China, between them owning 31.5% of all foreign owned Treasuries. Japan’s cooperative relationship with the Fed was confirmed by Japan increasing her holdings of US Treasuries, but only by 1.3% in the year to July 2021, while China and Hong Kong, which between them hold a similar amount to Japan, reduced theirs by 3%.[iii] The ability of the US Treasury to find foreign buyers other than for relatively smaller amounts from offshore financial centres and oil producing nations therefore appears to be potentially limited.

We should also note that total financial assets and dollar cash held by foreigners already amounts to $32.78 trillion, roughly one and a half times US GDP — dangerously high by any measure. This total and its breakdown is shown in Table 1.


If foreign residents are to increase their holdings in US Treasuries, it is most easily achieved by foreign central banks on the permanent swap line list drawing them down and further subscribing to invest in T-Bills and similar short-term securities. As well as being obviously inflationary, that recourse has practical limitations without reciprocal action by the Fed. But a far greater danger to Federal government funding comes from dollar liquidation of existing debt and equity holdings, especially if interest rates begin to rise, bearing in mind that for any foreign holder of dollars without a strategic reason for holding a foreign currency, all such exposure, even holding dollars and dollar-denominated assets, is speculative in nature.

The question then arises as to what foreigners will buy when they sell their dollars. Governments without a strategic imperative may prefer at the margin to adjust their foreign reserves in favour of the other major currencies and gold. But out of the total liabilities shown in Table 1 official institutions only hold $4.284 trillion long- and short-term Treasuries, which includes China and Hong Kong’s holdings, out of the $7.2 trillion total shown in Figure 2 earlier in this article. The $3 trillion balance is owned by private sector foreign investors.

Excluding China and Hong Kong’s $1.3 trillion, US Treasury debt held by foreign governments is under 10% of all foreign holdings of dollar securities and cash. What is held by foreign private sector actors therefore matters considerably more, bearing in mind that it can all be classified as speculative, being a foreign currency imparting accounting risk to balance sheets and investment portfolios. If interest rates rise because of price inflation not proving to be transient, it will lead to significant investment losses and therefore selling of the dollar, triggering a widespread repatriation of global funds. A global increase in bond yields and falling equity values will also force sales of foreign securities by US investors. But with US investors being less exposed to foreign currencies in correspondent banks and with a significantly lower level of foreign investment exposure, the net capital flows would be to the disadvantage of the dollar.

Some of the proceeds from dollar liquidation by foreigners are likely to lead to commodity stockpiling and at the margin some of it will hedge into precious metals, driving their prices higher. The long-term suppression of precious metal prices would to come to an end.

Domestic problems for the Fed

Clearly, the resumption of government deficit funding will no longer be supported by foreign purchases of US Treasuries at a time when trade deficits remain stubbornly high. This throws the funding emphasis onto the Fed and domestic purchasers of government debt. But as stated above, the private sector will need to reduce its consumption to increase its savings. Alternatively, banks which have limited capacity to do so will have to expand credit to purchase Treasury bonds, which is not only inflationary, but diverts credit expansion from the private sector.

Consumers are charging in the opposite direction from increasing savings, drawing them down in favour of increased consumption. This is partly due to them returning to their pre-covid relationship between consumption and savings, and partly due to a shift against cash liquidity in favour of goods increasingly driven by expectations of higher prices. With their fingers firmly crossed, the latter is believed by central bankers and politicians to be a temporary phenomenon, the consequence of imbalances in the economy due to logistics failures. But the longer it persists, the more this view will turn out to be wishful thinking.

Increasing prices for energy and essential goods, which are notoriously under-recorded in the broader CPI statistics, are emerging as the major concern. So far, few observers appear to accept that they are the inevitable consequence of earlier currency debasement. There is a growing risk that when consumers realise that rising prices are not just a short-term and temporary phenomenon, they will increasingly buy the goods they may need in the future instead of buying them when they are needed. This alters the relation between cash liquidity-to-hand and goods, increasing the prices of goods measured in the declining currency. And so long as consumers expect prices to continue to rise, it is a process that is bound to accelerate until it is widely understood by the currency’s users that in exchange for goods, they must dispose of it entirely. If that point is reached, the currency will have failed completely.

It is this process that undermines the credibility of a fiat currency. Before it develops into a total rout, it can only be countered by an increase in interest rates sufficient to stop it, as well as by strictly limiting growth in the stock of currency. And even then, some form of convertibility into gold may be required to restore public trust.

This, the only cure for fiat currency instability, is too radical for the establishment to contemplate, and is a crisis that increases until it is properly addressed. The rise in interest rates exposes all the malinvestments that have grown and persisted while interest rates were suppressed from the 1980s onwards, finally ending at the zero bound.

The shock of widespread business failures due to rising interest rates will impact early in the currency’s decline when it becomes obvious that initial increases in interest rates will be followed by yet more. Importantly, the supply of essential goods is then further compromised by business failures instead of being alleviated by improving logistics. And consumer demand shifts even more in favour of the essentials in life and away from luxury and inessential spending. The poor are especially disadvantaged thereby and the middle classes begin to struggle.

The private sector’s growing economic woes further undermine government finances. Unemployment increases and tax revenues collapse, adding to the budget deficit and therefore to the government’s funding requirements. Mandatory costs increase more than budgeted. Interest charges, currently about $400bn, add yet more to the deficit.

Today, in all the major currencies control over interest rates by central banks is being challenged. Like the Fed, other major central banks are also insisting that rising prices are temporary, while markets are beginning to suspect the reality is otherwise. All empirical evidence and theories of money and credit scream at us that statist control over interest rates is being eroded and lost to market-driven outcomes.

The consequences for markets and government funding costs

There is growing evidence that accelerating monetary expansion in recent years is feeding into a purchasing power crisis for major currencies. Covid and logistics disruptions, coupled with lack of inventories due to the widespread practice of just-in-time manufacturing processes have undoubtedly made the situation considerably worse. But in the history of accelerating inflations, there have always been unexpected economic developments. Shifting consumer priorities expose hitherto unforeseen weaknesses, so it would be a mistake to disassociate these problems from currency debasements.

It is leading to a situation which confuses statist economists, who tend to think one-dimensionally about the relationships between prices and economic prospects. For them, rising prices are only a symptom of increasing demand. And so long as expansion of demand remains under control and is consistent with full employment, it is their policy objective. They do not appear to understand rising prices in a failing economy.

But classical economics and on the ground conditions militate otherwise. Inflation is monetary in origin, and it is the destruction of the currency’s purchasing power that is evidenced in rising prices. And when the public sees prices of needed goods rising at an increased pace, they begin to rid themselves of the currency. And far from stimulating production and consumption, high rates of monetary inflation act as an economic burden. Monetary policy now faces the dual challenge of rising prices and rising interest rates as the economy slumps. When central banks would expect to reduce interest rates, they will now be forced to increase them. When deficit spending is deployed to stimulate the economy, it must now be curtailed

Just when they matter most, bond yields will rise along their yield curves from the short end, and equity market values will be undermined by changing yield relationships.

Falling financial asset values become a consequence of earlier monetary inflation undermining a currency’s purchasing power. The Fed, the Bank of England, the Bank of Japan, and the ECB have all acted together to accommodate government budget deficits, to be funded as cheaply as possible by suppressing interest rates. That they have acted together has so far concealed the consequences from bond markets, whose participants only compare one government bond market with another instead of valuing bond risks on their own merits. And through regulation, banks have been made to view investment in government bonds as being risk-free for counterparty purposes.

All this is about to change with the turn in the interest rate trend. Monetary policy will have two basic options to weigh; between supporting the currency’s purchasing power by increasing interest rates, or to support financial markets by suppressing them. If the latter is deemed more important than the currency, it will most likely require more quantitative easing by the Fed, not less. Expressed another way, either central banks will pursue the current policy of maintaining domestic confidence and the wealth effect of elevated financial asset values and let the currency go hang. Alternatively, they can aim to support their currencies, and be prepared to preside over a collapse in financial asset values and accept the knock-on consequences.

It is a dirty choice, with either policy option likely to fail in its objective. The end of the neo-Keynesian statist road, which started out lauding the merits of deficit spending is in sight. Mathematical economics and the state theory of money are about to be shown for what they are — intellectualised wishful thinking. As the most distributed currency, the dollar is likely to lead the way for all the others, slavishly followed by the Bank of England, the Bank of Japan, and the ECB. And all their high-spending governments, addicted to debt, will face unexpected funding difficulties.



[i] See rankred.com/how-much-money-is-there-in-the-world

[ii] Reserve Bank of Australia, Banco Central do Brasil, the Danmarks Nationalbank, The bank of Korea, the Banco de Mexico, the Monetary Authority of Singapore and Sveriges Riksbank —all for up to $60bn each.

[iii] See US Treasury TIC figures









The views and opinions expressed in this article are those of the author(s) and do not reflect those of Goldmoney, unless expressly stated. The article is for general information purposes only and does not constitute either Goldmoney or the author(s) providing you with legal, financial, tax, investment, or accounting advice. You should not act or rely on any information contained in the article without first seeking independent professional advice. Care has been taken to ensure that the information in the article is reliable; however, Goldmoney does not represent that it is accurate, complete, up-to-date and/or to be taken as an indication of future results and it should not be relied upon as such. Goldmoney will not be held responsible for any claim, loss, damage, or inconvenience caused as a result of any information or opinion contained in this article and any action taken as a result of the opinions and information contained in this article is at your own risk.
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Articles

In Search of Battery Metals, BHP (NYSE:BHP) Ready to Expand to New Jurisdictions

Mining companies often need to contend with adverse factors and environments. Mining requires a complex infrastructure of mining equipment, transportation,…

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Brazzaville, called Pont de Corniche, opened 2016, connected with the Route de la Corniche in the Democratic Republic of Congo.

Mining companies often need to contend with adverse factors and environments. Mining requires a complex infrastructure of mining equipment, transportation, and resource management. The last thing miners want to contend with is a dangerous or politically unstable jurisdiction. 

However, some companies are finding that the risk far outweighs the reward and are willing to work in jurisdictions often avoided by most companies. This includes countries that contain deposits of metals and minerals gaining in value and demand, making the investment and risk worth the effort.

BHP (NYSE:BHP) is one of those companies, as CEO Mike Henry recently said that BHP is prepared to shift out of its usual operational comfort zone of advanced economies to work in “tougher jurisdictions”. Why would BHP take on more risk in countries that have politically volatile environments? To gain exposure to commodities like copper, nickel, or cobalt, for which demand is booming as they are needed for the green energy transition underway. 

Investment in projects in these areas will require careful planning and understanding the political climate of areas typically avoided by mining companies. BHP’s scale and expertise will allow it to manage those risks to capitalize on the potential profits. 

Henry commented, “But of course, the size of the opportunity needs to be commensurate with the increased management effort that is going to be required to pursue opportunities in jurisdictions that we may not currently be operating in,” Henry said. 

Where and When? 

The Democratic Republic of Congo (DRC) is host to Ivanhoe Mines’s (TSX:IVN) Kamoa-Kakula mine, also known as Western Foreland. This mine has been profitable for the company, and BHP is now holding talks with Ivanhoe over an exploration site adjacent to Kamoa-Kakula. 

The DRC  has also made it clear that it wants to open it doors wide for foreign investment, particularly for its copper and cobalt deposits. This would exploring outside of many companies’ “comfort zones”, but would also put companies who invest in these countries at an advantage in the future.

Besides the growing demand for these metals and minerals, there is also the probability that politically volatile jurisdictions could transform rapidly into stable ones, making it even more attractive for mining companies. But the miners who are first into these countries will have more attractive terms and a lower overall cost as incentives are higher and competition is lower.

While BHP is prepared to move into new areas, the company will be exploring opportunities in the “areas we like” as well. That may mean higher costs as some projects become less accessible, but BHP is prepared to invest in the effort to maximise returns in countries it has operational experience.

Henry continued, “I want to be clear we don’t see exploration success as being confined to moving into new jurisdictions. We know there is more copper to be found in the areas we like but it is going to be harder to find and perhaps deeper, which is going to bring different technological and financial challenges,” he said.

The Democratic Republic of Congo’s First Mover Advantage

In an effort to court more foreign investment, the DRC has paved the way for simpler and smoother deals to be made with lower taxes and support from local communities. This has made it a new focus for some miners.

Murray Hitzman, a former US Geological Survey scientist who spent more than a decade touring the southern Congo and advising mining projects, said the region’s rich cobalt and copper deposits began life at the bottom of shallow, ancient seas eight hundred million years ago. Over time, sedimentary rocks were buried under gentle hills, and salty liquids containing metals seeped into the earth and mineralized the rock.

A quarter of the world’s gold, tin and tantalum reserves are produced by artisanal and small miners. The artisanal miners are particularly interested in copper and cobalt; cobalt is a major attraction due to its high value-weight ratio, but efficient copper mining requires large-scale operations. A handful of mines provide semi-formal access for artisanal miners as part of the site, but industrial mining companies are in the default position of refusing to cooperate with them.

Africa Moving Rapidly

In recent decades, African governments have lifted restrictions and privatized their mining industries, attracting significant foreign direct investment. As a result, these industries have been dominated by transnational corporations such as Glencore, AngloAmerican, and Barrick Gold. These companies operate outside the formal reach and control of African governments and sit next to artisanal and small-scale mining sectors.

At the peak of the commodity boom in 2007 when the Democratic Republic of Congo began implementation of the EITI, decades of conflict, political instability, corruption, looting, and mineral smuggling decimated the mining sector, once the country’s growth engine. In the last decade of civil war and conflict, flagship industrial mining has declined, while informal artisanal mining has expanded. Now that peace has returned to most parts of the country and a new democratically elected government is in place, the potential is excellent for mining to contribute to economic growth.

The Government of the Democratic Republic of Congo is also helping artisanal miners to earn a living by opening up new artisanal mining zones. The increasing global demand for battery minerals represents a unique opportunity to develop a model for socially responsible business. The benefits of this model can be applied to the estimated 40 million artisanal miners around the world who work to extract various minerals for a living.

Cobalt is an indispensable mineral used in batteries for electric cars, computers, and mobile phones. Demand for cobalt is rising as electric cars are sold in Europe, where governments encourage sales with generous environmental bonuses. Recent projections from the World Economic Forum and the Global Battery Alliance suggest that demand for cobalt to be used in batteries by 2030 will quadruple as a result of the boom in electric vehicles.

While the country has pledged approximately $6 billion to revamped infrastructure and expanding electricity and water access to new areas, infrastructure remains a major challenge. The Democratic Republic of Congo has one of the biggest minerals reserves in Africa, with copper reserves of 120 million tonnes and cobalt reserves among the largest in the world, over 45 million tonnes of lithium reserves, 31 million tonnes of niobium, zinc, and manganese, and over 7 million tonnes of gold reserves of 600 tonnes. To mine all those minerals takes a lot of energy. 

A 700 MW deficit exists in the former Katanga province in the mining sector, where there are no projects, resulting in 1 GW of energy imports from neighboring countries. However, with companies like BHP looking to possibly enter the country for new projects, all of that could change very quickly.

 

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.

The post In Search of Battery Metals, BHP (NYSE:BHP) Ready to Expand to New Jurisdictions appeared first on MiningFeeds.

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