MINING versus TECH.
If you’re a long term reader you’ll know I’ve framed tech in a rather sceptical light.
Perhaps unfairly.
But when it comes to liquidity in the financial system… There’s only so much dosh that can go around, especially within the riskiest part of the market.
And to that end, capital tends to flow into the hottest and most exciting trends.
For the moment tech dominates the minds of speculative investors.
Drilling a new mineral sands deposit doesn’t encapsulate the same excitement like sticking a microchip into a patient’s brain.
That was one of the latest headline grabbing tech innovations from Elon Musk’s Neuralink, last month.
In the battle for speculative capital, junior mining stocks continue to lag.
Yet, explorers now have to compete with a tech sector foaming on steroids… artificial intelligence.
The AI ‘revolution’ promises plenty of headline grabbing attention for the tech sector. That means even more speculative capital.
Most people believe higher prices will drive the junior mining sector higher.
That’s a fair assumption. After all, metal prices tend to rise as a function of demand.
With rising demand, we’d expect capital to flow back to the explorers in a need to boost future supply.
Yet, this simple equation is failing… Take gold.
Despite the metal trading just shy of its all-time highs over the last several months, junior gold stocks remain depressed.
That’s especially so across the explorers.
It begs the question, if higher metal prices can’t drive explorers higher, what will?
Just like the old gold rushes from the past, a surge back toward junior mining stocks often begins with a major discovery.
I’m not sure why that’s the case, but it seems to capture the imagination of investors looking to ride the next major find.
Take the Poseidon nickel eruption in 1969.
This was among the most prolific junior mining booms of all time.
In the late 1960’s the market was ripe for speculation… Nickel and copper prices were trading at elevated levels driven by the Vietnam War.
Yet that alone didn’t push junior mining stocks higher.
It was Poseidon’s major nickel discovery at Mount Windarra, in Western Australia, that finally broke the market shackles.
The rush was on.
Poseidon’s shares surged from around A$0.80 to A$12. Eventually the stock reached a precipitous peak of A$280.
The impact of Poseidon’s discovery was far reaching.
The Australian ‘ASX All Mining index’ rose 44% from October to December 1969.
Numerous explorers and mining juniors experienced triple digit gains against the backdrop of Poseidon’s frenzy.
So, how could the next junior mining speculative boom play out?
AI’s ‘disruption’ could be a blessing for explorers.
Just like the late 1960’s the stage is set.
Despite a bearish mantra, commodity prices are in fact high and well above the cyclical lows from 2016.
Take nickel, a metal that’s been in the news for all the wrong reasons… Supported by investment from China, Indonesia has been able to tap into its vast nickel laterite deposits flooding the market with new supply.
While prices have pulled back, they’re still far higher than back in 2016, a major cyclical low for the commodity market.
Back then, the metal traded for just $7,100 per tonne.
Today it’s almost double, trading at almost $18,000 per tonne.
It’s a similar story for gold, precious metals and other industrial commodities.
Have no doubt, today’s elevated commodity market is a ripe setting for junior mining speculation.
Yet, the next rush could have a rather ‘modern’ twist.
We’re already starting to see what this might look like.
Last week, Legacy Minerals (ASX: LGM) announced the discovery of a nickel-copper-iron sulphide deposit at its Fontenoy project in New South Wales.
According to the company, the discovery couldn’t have happened without the assistance of artificial intelligence.
Over the last several months the company has been sharing its data with San Francisco based, Earth AI.
The tech startup was able to generate high probability drill targets by feeding the company’s geological database into its proprietary software.
Drill logs, aerial imagery, geophysics, historic assays, scientific geological reports.
Data that would take geologists years to digest and process.
But Earth AI was able to spit out drill targets both quickly and accurately.
To be clear, it’s still very early days in terms of AI’s permeation into the mineral discovery process.
But this latest discovery offers tangible evidence of AI’s potential in exploration.
According to Earth AI, it can analyse and process data up to 100 times faster than traditional methods.
And this start-up isn’t mincing its words in proclaiming itself as a major disruptor for the industry…
“The discovery in Fontenoy, the second for us after the recent discovery of a greenfield molybdenum deposit, confirms that the future of mining lies in our technology.”
No doubt, the landscape is changing.
If the probability of discovery begins to levitate higher on the back of AI-driven software, just think about the opportunities available for companies holding prospective land?
AI could spark a sudden re-rating among explorers holding tenements in geological hot spots.
That would cause speculators to pile into companies with the best geological turf.
If AI lives up to the hype, expect a tidal wave of tech capital chasing a new boom in the mineral discovery/AI partnership.
Perhaps on a scale rivalling the Poseidon nickel surge of the late 1960’s.
Could artificial intelligence be the spark that finally ignites explorers back to life?
From competitor to partner, AI looks set to join forces with the junior mining sector in a big way.
Two high growth adrenaline fuelled sectors, the old and the new, combining to spark a new era in mineral discovery.
It’ll certainly be an interesting space to watch.
James Cooper runs the commodities investment service Diggers and Drillers. You can follow him on X @JCooperGeo.