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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

World Fish Stocks Are in Worse State Than Expected, Study Shows

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The world’s fish population is in a dire state, with about half of assessed stocks being overfished,
according to a study backed by Australian billionaire Andrew Forrest. 

The rate of depletion is worse than previous estimates of just over a third, Forrest’s Minderoo Foundation said in a report Sunday. A tenth of fish stocks worldwide is now on the brink of collapse, reduced to 10% of their original size, the study shows.

The findings are based on 48% of the total global catch for which there’s sufficient data, according to the report. The other half lacks information to say if they are sustainable or not. More than 1,400 stocks were assessed from 142 countries.

The journey to replenishing fish numbers isn’t easy. The report noted that it could take between three and 30 years for stocks to recover, and in many places that would require a major overhaul. The foundation recommended increased intervention and investment from governments, as well as better auditing and management practices from businesses.



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Solar demands to normalize in 2022, polysilicon price likely to remain high

Thanks to a subscriber for this report from ICBC which may be of interest. Here is a section:

While some factories have already resumed operation after the mandatory power rationing expired, for instance GCL-Poly revealed that their 36,000 tonnes polysilicon factory has already restarted production after making use of the 2-week suspension period to undergo repair and maintenance, most solar materials have also witnessed significant price increase under the adverse effect of supply reduction. One of the clear examples is the sharp price rally of silicon raw material, which is the major material for making polysilicon and on average account for 40% of polysilicon’s production cost. The silicon raw material price rose sharply from USD 2.4/kg in Aug-21 to the peak of USD 10.4/kg in late Sep-21, before gradually normalizing to USD 6/kg in Nov (See Exhibit 3), especially after the Yunnan government decided to restrict the utilization of most energy-intensive production, including silicon raw material, by 90% starting from Sep in 2021. It is noteworthy that Yunnan accounts for 20% of total silicon raw material production in China, while Xinjiang and Sichuan’s market shares are 40% and 15% respectively. In our view, the cost pressure originated from silicon raw material price rally would gradually pass down the supply chain, implying subsequent solar material price hike would continue to emerge in other segments.



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Cargill CEO Says Food Prices to Stay High on Labor Crunch

This article for Bloomberg may be of interest to subscribers. Here is a section: 

MacLennan said in September that soaring food costs would prove transitory and should dissipate in time. Since then, the rally in energy prices and continued supply-chain snarls have made markets “a lot tighter,” he said.

“When you have limited supply, that can lead to higher prices,” MacLennan said. However, he noted that China hasn’t been buying crops as aggressively as it did last year, while North American harvests are robust. “That takes some pressure off the system.”

A search for greener airplane fuel and biodiesel is also pitting food against energy production, leading to tighter edible oil supplies. Prices for palm oil, the world’s most consumed vegetable oil, have soared about 50% in the past year, while soybean oil is up 60%. Canola, also used to make oil, is near a record.

The food-versus-fuel tension will become more intense than it’s ever been in the last 15 years, MacLennan said. The day will come when more agricultural products will be used for energy than food, so it will be incumbent upon the farmers of the world to innovate and become more productive, he added.



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4 Million Tons a Day Show Why China and India Won't Quit Coal

This article from Bloomberg may be of interest to subscribers. Here is a section:

Meanwhile, mines across China and India have been ramping up production in recent weeks to ease a supply crunch that’s caused widespread power shortages and curbs on industrial activity. China’s miners have beaten a government target to raise output to 12 million tons a day, while India’s daily production is close to 2 million tons.

“The power cuts since mid-to-late September show that we are still not prepared enough,” Yang Weimin, a member of the economic committee of the Chinese People’s Political Consultative Conference and a government advisor, told a conference in Beijing on Saturday. Additional funding is needed to ensure coal plants can be used to complement a rising share of renewables, he said.

Coal’s share in global electricity generation fell in 2020 to 34%, the smallest in more than two decades, though it remains the single largest power source, according to BloombergNEF.

In China, it accounted for about 62% of electricity generation last year. President Xi Jinping has set a target for the nation to peak its consumption of the fuel in 2025, and aims to have non-fossil fuel energy sources exceed 80% of its total mix by 2060.

For India, coal is even more important, representing 72% of electricity generation. The fuel will still make up 21% of India’s electricity mix by 2050, BNEF analysts including Atin Jain said in a note last month.



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Easing Auto Supply-Chain Woes May Foreshadow Path for Inflation

This note from Bloomberg may be of interest to subscribers. Here is a section:

Investors will keep a close eye on UMich inflation expectations, due at 10 a.m. NYT. Another piece of the inflation picture that bears attention is the auto supply-chain crunch that’s been an exceptionally large contributor to rising prices.

News from Toyota adds to signs that supply issues may finally be easing. The carmaker is targeting greater December output than it’s seen in recent years, with next month set to be the first time in seven months that all of Toyota’s production lines in Japan will be operating normally.

That follows an Oct. 31 report that GM had no chips-related downtime scheduled in North America, the first time it had been able to resume full production since February. BMW’s results showed it’s muscling through the chip shortage, and Ford said revenue and profit rose due to increases in chip availability and vehicle shipments. Smartphone chipmaker Qualcomm‘s outlook, and steel and freight shifts, have also added to recent signs of broader relief.

Yet consumers may not feel like there’s been a downshift. U.S. used-vehicle prices rose 9.2% in October, according to Manheim Auctions; the index was up 38% from a year earlier. Reported used-vehicle inflation is also lower than suggested by the Manheim index, suggesting another big print for November’s CPI, as my colleague Cameron Crise pointed out.



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Greenland parliament vote effectively halts Kvanefjeld rare earths project

This article from agmetalminer.com may be of interest to subscribers. Here is a section: 

Earlier this year, we touched on the snap elections in Greenland, where the victorious left-wing Inuit Ataqatigiit party ran in opposition to the promising Kvanefjeld mining project on the southern tip of the island.

Australian firm Greenland Minerals had been working to secure a mining license for the project.

“The project is centred on the globally unique Ilimaussaq Alkaline Complex in southern Greenland,” the firm says on its website. “To date over 1 billion tonnes of mineral resources (JORC-code compliant) have been delineated in the project area, across three different zones – Kvanefjeld, Sørensen and Zone 3. Mineralisation is hosted by a rock-type called lujavrite, and is enriched in rare earths, uranium, and zinc.”

However, Greenland’s parliament voted Tuesday to ban uranium mining and exploration, effectively halting the project.

On Wednesday, Greenland Minerals submitted a request for a trading halt “pending an update to the market regarding passing of legislation concerning uranium, in the Greenland parliament.” As of Wednesday, the company had yet to release a statement about parliament’s decision.



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Newcrest Joins M&A Gold Rush With $2.8 Billion Pretium Buy

This article from Bloomberg may be of interest to subscribers. Here is a section:

Newcrest Mining Ltd. agreed to buy Pretium Resources Inc. in a cash and shares deal valuing the Canadian gold producer at about $2.8 billion, adding to a wave of consolidation in the sector.

Melbourne-based Newcrest will offer Pretium holders C$18.50 ($14.87) a share, a 23% premium to the target’s closing price Monday in Toronto. Pretium’s board has unanimously recommended the transaction, although it still requires the approval of two-thirds of the company’s shareholders.   

“Our strategy is to specialize in low-cost, long-life and large-scale gold mines, and this is certainly that,” Sandeep Biswas, Newcrest’s managing director and chief executive officer, said on a media call. Adding Pretium, which owns the Brucejack operation close to Newcrest’s Red Chris mine in British Columbia, would immediately add more than 300,000 ounces a year of gold output, the company said, taking annual production to more than 2 million ounces. 



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Email of the day on gold, ratios and real rates

In contradistinction to your bullish backdrop for gold and your contention of an eventual breakout (not breakdown) of the price, I would appreciate your comments on the relevance and significance of this part of the John Authers’ Points of Return article in Bloomberg this morning:

The Loser of the Year of the Vaccine: Gold
The last 12 months have seen a steady rise in inflation, yet gold has Authors taken a drubbing. That is weird, because the precious metal has long been regarded, more or less correctly, as a hedge against inflation and monetary debasement. There’s been a lot of both inflation and money-printing in the last 12 months, and yet gold has declined, with miners of the metal becoming the single worst-performing sector in the S&P 500.

We would have found this even harder to predict if we had been told a year ago that real yields would stay solidly and historically negative. Gold has no yield and historically has a strong inverse relationship with real yields. The less bonds pay after inflation, the less unappealing gold will appear. But real yields have remained bafflingly low and that hasn’t helped:

As the chart indicates, there is only one other period since the crisis that looks anything much like this. Unfortunately, that was in 2012 and early 2013, when real yields stayed low during the Federal Reserve’s “QE Infinity” and gold began to fall. It turned out on that occasion that the price was telling us something. The spring of 2013 saw first a dramatic fall for gold and then the “taper tantrum” as bond yields shot upward in response to a hawkish Fed.

Another indicator looks surprising. The ratio of stocks to gold, the effective price of the S&P 500 in ounces rather than dollars, has stayed surprisingly constant since Richard Nixon removed the U.S. from the last vestiges of the gold standard in 1971. The S&P has been worth more in gold terms than it was in 1971 only for a few years at the top of the 1990s bull market. Despite all the worries about debasement, that golden ratio is now stronger than it was in 1971, and at a 16-year high:

It’s possible that gold’s admirers have deserted it for cryptocurrencies, of course. There are various explanations out there. But the interpretation that it’s telling us to beware a possible tantrum in the bond market and correction in stocks seems fair.



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Treasuries Surge Despite Strong Jobs Data, Pricing In Slower Fed

This article from Bloomberg may be of interest to subscribers. Here is a section:

Gains in Treasuries may be partly driven by short-covering, which appears to have contributed to Thursday’s U.K.-led rally. CME Group Inc.’s preliminary open-interest data for Treasury futures show steep declines, in particular for the two-year note contract. Open interest in two-year note futures fell 2.3%, its biggest drop in three weeks.

Fed officials continue to emphasize that inflation is too high even as they hope to foster labor-market recovery by keeping interest rates low.

Federal Reserve Bank of Kansas City President Esther George Friday said “the risk of a prolonged period of elevated inflation has increased,” and “the argument for patience in the face of these inflation pressures has diminished.”

The declines in 10- and 30-year yields -- which fell as much as 6.5 basis points to 1.899%, the lowest since Sept. 23 -- come despite next week’s auctions of those tenors. The auctions, whose sizes were announced on Nov. 3, are smaller than the previous new-issue auctions in August, however. The reductions were the first since 2016.



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Sprott Analysis of I-80

Thanks to a subscriber for this report which may be of interest to subscribers. Here is a section:

The acquisition of Lone Tree and Ruby Hill makes I-80 the premier gold developer in the US, and on par with the best developers in Canada and Australia. For SCPe capex of US$458m, we estimate that I-80 can reach annual production of >400koz/year. Adding the Ruby Hill open pit, we estimate 2026-2031e average annual production of 500koz(peaking at 638koz) at LOM US$1,155/oz AISC. On defined resources alone, this generates an NPV5%-1850 of US$1.73bn. Uplift to producer peer averages results in annualized returns of 21-31% from present to 2026e. Moreover, all of I-80’s assets have exploration upside at depth with limited historic exploration for sulphides due to a lack of sulphide processing capacity. To reiterate: a path to 500kozpa, exploration upside, sulphide processing ability and 20% annual returns equates to one of the best risk-adjusted return opportunities in the gold miner/developer peer group. We update our model for the transaction and reiterate our BUY rating and lift our price target to C$7.00/sh on our unchanged target multiple of 0.75xNAV5%-1850. Stepping back, yes for newcomers this is a complex set of assets but upside is spectacular and with domestic US assets in a mining friendly state.  



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