CHARTS: The coming critical minerals trade war is BRICS short of a load
"While a large number of countries around the world continue to talk about securing raw material supply, China is actually doing something about it."
Ross Beaty
August 2017 – With over 40 years’ experience creating, selling and running mining companies worldwide, Ross Beaty is the founder and Chairman of Pan American Silver Corp., one of the world’s largest silver producers. He is also founder and Executive Chairman of global renewable energy company Alterra Power Corp. Ross is well-known for his environmental credentials, and was recently awarded the Order of Canada for his environmental philanthropy.
“For mining and minerals, I would say we are probably back in a bullish market, after four or five years of bearish markets. We are in a short correction today – the metal markets are still a little weaker than they have been, but they are well off the bottom line and we will continue to see new highs. Then again, each metal is different. Zinc and copper, for example, are looking quite bullish and are probably the best base metals. We are seeing moderate health in gold and silver prices, relative to the lows we saw a couple of years ago. These markets are taking a bit of a pause right now, but that is perfectly normal and healthy. These could become strong markets in the coming years, driven by demand and global monetary policy.
Large markets for lithium-ion batteries will drive lithium prices higher, though extensive supply may prevent them from becoming very strong. Cobalt prices have taken off and we should see very good markets in the future, given that cobalt is a fundamental building block of high-density lithium batteries. Palladium should be reasonably healthy. Otherwise, I am not at all sanguine about higher price prospects for iron ore, coal, nickel and most of the steel-making metals.”
“Whether or not you believe in global warming, oil and gas have extremely negative outlooks so I would not be investing in them at all right now. Oil particularly has terrible demand and supply fundamentals. Demand is declining as people shift to electric cars, while we are seeing increasing supply from the shale oil boom and lots of new oil sources globally. Gas is a bit different – it is relatively cleaner than coal and can be used as a peak energy provider in conjunction with intermittent renewable energy supply, so it has very good demand fundamentals. But because so much gas has been found in so many places, I do not see prices increasing.
Coal has poor demand fundamentals – countries are trying to reduce consumption and production for environmental reasons. I am also bearish on uranium – although it is a clean energy source, it has exceptionally high operating costs because of its radioactivity. It also does not compete against renewable energies such as wind and solar.”
“I am not exactly a Trump booster. I do not see anything he is doing as having a terribly positive effect, though probably not a terribly negative effect either. In the fullness of time, Trump will be forgotten – his policies will be ignored and he is going to have a very hard time implementing most of his plans. And this is a good thing for the world. I will be delighted to see him go.
Some say Trump is good for mining companies, but I do not think that Trump can expand demand for most metals. US consumption is ultimately dwarfed by China, so while US infrastructure spending might increase, it is going to have a negligible effect on global metal demand. China, and not the US, is the real driver of all metal demand and prices going forward.”
“In my career, I have worked in almost every country of the world, and I have seen that each one must be looked at uniquely. You can never be too clever in analysing country risk – the best can be the worst, and the worst can often be the best. Take Canada and Australia, which are generally perceived as safe countries; in the last 20 years, they have turned to very regressive taxation policies that have severely hurt the mining industry in certain regions. Likewise, Guatemala was previously perceived as a reasonably good place to work, but Tahoe’s mining licence at the Escobal mine has recently been revoked. Meanwhile, some of the countries that were terrible 20 years ago, like Bolivia, have actually worked out very well. It is important to maintain a diversified portfolio.”
“Latin America has generally been a very positive place to invest; except for Venezuela, which is a disaster. Then, of course, we have Africa. Most countries, particularly in West Africa, have been very successful for companies, despite various political and social risks. There are a couple of outliers that have been difficult, such as South Sudan, Eritrea, and South Africa, which I think will continue to be a problem.
Places I would not go? From personal experience, Russia and the ‘-stans’ are rather unfriendly to investors. I would also stay away from China, because it protects its own companies over foreign companies. I would certainly avoid Indonesia, which has been difficult for most companies. India is a nice place but hard to work in because of its bureaucracy. Many of the Islamic countries like Iran and Iraq would be challenging places to enter today.”
“I wanted to do something proactive in the business world to help shift us towards sustainable energy, so I started a renewable energy company. It has been a steep learning curve. I began focusing on geo-thermal power but it has proven a risky and difficult business, so I moved towards hydro, wind and solar power. These technologies are much less risky, easier to finance, and have global scope for expansion.
Because of the energy revolution we are living in, costs have come down especially for wind and solar energy, and in many places these businesses can operate without subsidies. Today the commercial basis for electricity generation supports renewable energy, not coal and uranium. Even the US is a great place for renewable energy, despite Trump’s ill-fated moves to support coal, because you have dynamic business leadership and a strong societal push for clean energy.”
“It is far beyond the earth’s capacity to support our current lifestyles. If we do not moderate our consumption or our growth expectations, if we do not change our lifestyles, disaster is inevitable. We are already seeing serious problems with soil, groundwater and coastal flooding in parts of sub-Saharan Africa and Asia. I am strongly advocating for more recycling and less consumption. This will mean less growth in demand for metals and minerals, but that is how it should be. It does not mean the end of the global mining industry, as minerals and metals are fundamental building blocks of our industrial society.
Within the industry, I am not an outlier in my belief that we must moderate the environmental footprint of mining – that is now more or less a universal idea. There are immense innovations happening in the industry, including around reducing use of water, land or toxic chemicals. Today, sustainability and environmental protection drive a lot of what mining companies are doing – while these issues were ignored 20-30 years ago, most executives now understand how important they are to the bottom line and to making money.”
