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Consider:
- There is a slowing of production and dwindling of
reserves at many of the world’s largest mines.
- All the oz’s or pounds are never recovered from a mine -
they simply becomes too expensive to recover.
- The pace of new elephant-sized discoveries has decreased
in the mining industry.
- Discoveries are smaller and in less accessible regions.
- Mineralogy & metallurgy is more complicated making
extraction of metals from the mined ore increasingly more complex and
expensive.
- Mining is cyclical which makes mining companies
reluctant to spend on exploration and development.
- A looming skills shortage
- There is no substitute for many metals except other
metals – plastic piping is one exception.
- Metal markets are small so speculation is a larger
factor.
- There hasn’t been a new technology shift in mining for
decades – heap leach and open pit mining come to mind but they are both
decades old innovation.
- Country risk - resource extraction companies, because
the number of discoveries was falling and existing deposits were being
quickly depleted, have had to diversify away from the traditional
geo-politically safe producing countries. The move out of these “safe
haven” countries has exposed investors to a lot of additional risk.
- Lack of recognition for population growth, growing
middle class w/disposable incomes and urbanization as on-going demand
growth factors.
- Climate change.
Increasingly we will see falling average grades being mined, mines
becoming deeper, more remote and come with increased political risk.
Fact; The world’s resources are finite.
Fact; Supply is constrained and demand keeps growing along with the
world’s population.
Fact; A sustainable and secure supply of raw materials and energy is
becoming the number one priority for all countries.
Major powers are scrambling for as much of the world’s resources as they
can control. Exploration and drilling intensify daily. Previously
inaccessible or unprofitable areas are targeted - the days of easy access to
the globe’s resources no longer exist.
Unseen wars in previously unheard of places - soon to become front page
news - are beginning for resource control. Peace today, harmonious relations
tomorrow are nothing but fleeting illusions.
Hydrocarbons, mineral resources, fresh water and arable land are finite.
Understand someday peak oil and gas proponents will be proven right.
Understand arable, productive farmland is disappearing from overuse,
desertification and urbanization.
Understand the world’s current population of 7 billion people use 60
percent of our annual renewable freshwater supply.
The world's population is projected to hit 10 billion by 2050 - global demand
for food and water is expected to increase by 50% and 30% respectively by
2030.
“It should be pointed out that when we speak of wars in the last third
of the twentieth century we are talking about civil wars. Between 1965 and
1999 if we look at those wars in which more than a thousand people were
killed a year, there were seventy-three civil wars, almost all driven by
greed to control resources—oil, diamonds, copper, cacao, coca, and even
bananas.” William K. Tabb, Resource Wars
This is our reality - we’re living on a relatively small planet with a
finite amount of reserves and a growing human population.
Broad spectrum peak commodities is a cause for concern, for all of us,
over the short, medium and longer term.
Try and imagine the coming pressure on governments in regards to sourcing
resources on a national scale. Conflicts are inevitable.
Global distribution of mineral
reserves
One country seems to have recognized its need for security of supply and
is actively securing said resources for itself. One country is staking
claims, through aggressive diplomacy, wherever vital reserves of resources
can be found.
China’s Security of Supply
China is now the world’s largest trading country, it has the
second-largest economy and the largest economy in terms of purchasing power
parity.
In October 2015 China's leaders outlined the country's 13th five-year plan
(running from 2016 – 2020). Their goal is to continue efforts overhauling
China's investment-led economy into one driven by services and consumption.
China’s stated 2020 GDP goal requires adding an economy the size of
Switzerland's every year.
China is the only global power carrying out a concerted, long-term plan to
accumulate resources and the country is cornering many markets. Let’s take a
look at how China is securing the world’s resources…
Silk Road
“By building much-needed infrastructure across the Silk Road routes –
from roads and rail links to ports and resource pipelines – China hopes to
build “a community of common interest, destiny and responsibility.”
No country is better suited than China to lead the way on
infrastructure. Because its own development has been propelled partly by
massive investments in domestic infrastructure projects, China has plenty of
recent experience in the field, not to mention a vast construction materials
industry. Moreover, its huge volume of foreign reserves – which stand at some
$3.5 trillion and are likely to continue growing – provides the wherewithal
to fund the projects.
China has already devoted some of its reserves to capitalising the
recently established Asian Infrastructure Investment Bank (AIIB) – an
initiative that China spearheaded to support its Silk Road ambitions. With
the participation of 57 countries from five continents – including some of
America’s closest allies, such as the UK, France, and Germany, which joined
over US protests – the AIIB is the first initiative designed specifically to
fulfil infrastructure needs in the developing world, and especially the
Asia-Pacific region.
The return on these investments will be massive. Experience since the
second world war shows that developing countries capable of seizing the
strategic opportunity of the international transfer of labour-intensive
industries can achieve 20-30 years of rapid economic growth. That will fuel
the emergence of new markets coveted by more developed countries – including
China – while creating space in China for higher-value-added industries to
take hold.” ‘China’s
Silk Road Vision’ Economia
The Silk Routes, collectively known as the "Silk Road", referred
to a 7,000 mile network of interlinking trade routes that were used for three
millennia. They connected China, India, Tibet, the Persian Empire, the
Mediterranean countries and parts of North and East Africa.
 
One Belt, One Road
President Xi Jinping launched China’s “One
Belt, One Road” (OBOR) initiative in 2013. The stated aim was to connect
major Eurasian economies through infrastructure, trade and investment.
One Belt One Road, A Brilliant Plan
The “Belt” refers to a network of overland road and rail
routes and oil and NG pipelines planned to run along the major Eurasian
Land Bridges - China-Mongolia-Russia, China-Central and West Asia, China-Indochina
Peninsula, China-Pakistan, Bangladesh-China-India-Myanmar. They’ll stretch
from Xi’an in central China through Central Asia reaching as far as Moscow,
Rotterdam, and Venice.
The “Road” is a network of ports and other coastal infrastructure projects
from South and Southeast Asia to East Africa and the northern Mediterranean
Sea.
“A network of new “South-South” trading routes connecting Asia, the
Middle East, Africa and Latin America are set to revolutionize the global
economy. Trade and capital flows between emerging areas of the world could
increase tenfold in the next forty years. In the same way that trade between
the developed nations exploded in the 1950s and 1960s, we expect the 21st
Century to see turbocharged trade growth between the emerging nations."
HSBC Global Research
“In all trade corridors in which China participates, strong growth is
anticipated. So strong in fact that it is no exaggeration to highlight this
as the emergence of a new world trade order; by 2030, China will effectively
be fulfilling the central trade role occupied by the US and the EU today.”
The Super-Cycle Report, Standard Chartered Research 2010
The China
Global Investment Tracker is a comprehensive data set covering China’s
well over $1 trillion in energy, mining, real estate and high-tech global
investment and construction activity.
An article published by the New York times ‘The World According to China’
by Gregor Aisch, Josh Keller and K.K.Rebecca Lai says China has displaced the
United States and Europe as the leading financial power in large parts of the
developing world. Here’s
where China has the most influence, based on its share of foreign
investment since 2005.
From ZDNet we get the above map and the
following snippet:
“Living in the United States, the scale of foreign investment by
Chinese companies isn't so obvious. Much of the $57.8 billion of Chinese
investment in the U.S. since 2005 has been in the finance sector. I didn't
comprehend the scale of the Chinese investment until I visited Ethiopia
earlier this month where nearly all the construction projects -- including a
major light rail line -- were being done by Chinese firms (sub-Saharan Africa
has the most investment from China of any region). Many huge factories on the
outskirts of the capital city are joint projects between China and Ethiopia
with the flags of both countries flying side-by-side. The redevelopment of a
major road was paid for by Chinese government and is now dubbed
"Ethio-China Friendship Avenue." In other words, the scale of
Chinese investment is overtly apparent in Ethiopia and many other countries
around the world, if not as obvious in the developed world.”
In a recent article ‘Chinese
investment along One Belt One Road Revealed’ Finbarr Bermingham discusses
Chinese investment along the new Silk Road.
“The One Belt One Road (OBOR) initiative is the single most ambitious
infrastructure plan in the world today, and data seen by GTR
shows that over the third quarter of 2015, the vast proportion of China’s
governmental loans were disbursed along the route.”
In ‘A
Journey Along Copper’s New Silk Road’ Dave Forest gives an insight into
China’s move on copper and gold, and perhaps a taste of things to come, along
the OBOR…
“By the looks of things, investment along this “highway of the future”
will be a major trend in mining and exploration over the next decade.”
Conclusion
The First Industrial Revolution started with technological innovation
driving the slow industrialization of the United Kingdom in the 18th century
which merged into the Second Industrial Revolution around 1850. The start of
the second industrial revolution was marked by a transition of technological
leadership from Britain to the United States and Germany.
What is happening today is not being driven by technological innovation or
technological leadership, what’s driving China’s economy today is
urbanization, population growth and consumerism.
Consider what’s taking place, and the result…
- A global shift in trade with China by far the biggest
beneficiary.
- The exporting of Chinese current industrial/consumer
overcapacity to trading partners along ‘old is new again’ trading
routes.
- All road, rail and shipping lines leading back to China with
much of the world’s resources on it to build more industrial and
consumer oriented manufacturing.
China becomes the hub, no let’s change that from CHINA BECOMES,
to CHINA IS, FOR MOST OF THE WORLD, it’sindustrial/consumer
manufacturing center.
This will be accomplished by using vast amounts of the world’s resources, that
China controls through infrastructure lending and off-take agreements for
resources.
The capture of the world’s resources by China, the country’s aspirations
to become the world’s leading manufacturer and exporter of finished goods,
should be on all our radar screens.
This fascinating process, being played out on the world’s stage, is on my
radar screen.
Is it on yours?
If not, maybe it should be.
Richard lives with his family on a 160 acre farm in northern British
Columbia, Canada. He invests in the resource and biotechnology/pharmaceutical
sectors and is the owner of Aheadoftheherd.com. His articles have been
published on over 400 websites, including:
WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette,
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Richard Mills makes no guarantee, representation or warranty and accepts
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