Find the nearest environmentalist (as unpleasant a task as it may be) and ask to see their phone. If they pull out a brand-new iPhone, take the time to educate them on the huge amount of rare-earth metals needed to make the circuits and hardware of a smart phone.
Rare earths power much of the digital world about us, including the screen you’re reading this article on, but as the name suggests they cannot be found in just any place. The majority of the world’s production of metals like neodymium and lanthanum must be milled from huge quantities of earth, looking for the proverbial needle in tons and tons of haystacks.
The Chinese provide most rare earths on the marketplace today due to their large supply of empty land and near-total lack of environmental regulation, making it particularly ironic for the environmentalists who couldn’t possibly give up their phone for their ideals.
At this time last year, the mining industry faced a bleak landscape. Obama’s war on coal had reached fever pitch, leading to the $1.2 billion regulation known as the Stream Protection Rule, a predictably wasteful mirror image to the Clean Water Act. Commodity prices had reached ten-year lows.
Mining companies, however, can do one thing that the federal government never can and use resources wisely. At the lowest point, mining companies paid off $20 billion in debt during 2016 and look poised to pay off another $20 billion in debt by the end of 2017. Balancing their budgets helped them to attract fresh capital and investors: the S&P/TSX Global Mining Index’s 70% growth in 2016 says more than words can.
We cannot give President Trump credit for revitalizing the mining industry before he became Commander-in-Chief, but we can certainly give him credit for making it a key point of his campaign. Every stop that Trump made in Appalachia afforded him the opportunity to hammer on the failures of the Obama Administration to keep American mining interests in the black.
In only his third week as president, Trump has given the greenlight to repeal the worst of Obama’s regulation (crafted without any input from the states themselves) and reinvigorate a coal mining community that saw 2016 production drop off by thirty percent compared to the average of the past five years.
That Democrats like Minnesota’s Rick Nolan have stepped forward to call on Trump to repeal more mining regulation suggests just how out-of-touch Obama’s policies proved.
Trump may not be able to face down the greatest enemy of the coal mining community — cheap prices. One third of Australia’s coal mining is reported to be cash-negative, indicating that it’s not just West Virginians hurt by less demand and more supply.
But what remains gloomy for coal isn’t affecting precious and base metals. Gold climbed above $1300 per ounce in 2016 for the first time in two years; the per-ton cost of iron ore doubled in 2016. It’s far too early to say that metal commodities have entered a bear market, and certainly overoptimistic to suggest they can re-capture the heights they reached in 2011, yet it indicates positive directions and strong opportunities for investment.
Mining stocks are notoriously difficult to forecast. Not only do they rely on the cost of commodities, but they also are affected by political events (Mongolia’s government has announced they’re re-negotiating a lease on a Rio Tinto copper and gold mine that, when completed, is estimated to produce four billion dollars of metal annually).
Even so, there’s some factors that make them very attractive buys at the moment. Mining composite indices reached historical lows at the start of 2016 (dropping even further than the low point of the 2008 financial crisis) and have enjoyed solid growth in the 52 weeks since.
With a low beta across the board, a higher earnings per share figure, and a return on equity due to lower debt and increased cash flow, the numbers suggest that mining stocks are on an upturn.
Metal commodities themselves have a lot of room to grow but not much incentive: as China’s consumption slows, it would require a huge incentive by the United States or European Union to match their eagerness for steel, coal, and precious metals.
Regards,
Ethan Warrick
Editor
Wealth Authority
