HomeBase MetalsWhich commodity should we be focusing on?

Which commodity should we be focusing on?

Since the 2008 Global Financial Crisis, a reduction in expenditure on infrastructure has been a common theme as governments have depleted pension funds in bailing out the financial service industry.

With the advent of COVID-19 and many more job losses, the key word amongst politicians is ‘let’s rebuild infrastructure’. This should stimulate the economy and create much needed jobs across many sectors.

In general, infrastructure should be replaced every fifteen to twenty years, but based on the number of potholes and collapsing bridges which have become common occurrences worldwide, this is seldom the case. Post Covid-19 could be the perfect time.

Watch: Circular economies – how to remove waste from value chains

Therefore, as the world prepares itself for a possible uptick in infrastructure renewal and development across the globe, opportunity rears its head.

“Scrapping the new word for mining”

The important question one needs to ask is: where lie the opportunities for the mining sector? In looking at commodities simplistically one can distinguish commodities across two high level dimensions:

  • Those that are scrapable – the likes of copper, nickel, steel, PGMs; and
  • Those that cannot be scrapped – likes of limestone, dolomites, and gypsum

Take, for instance, scrapable commodities: one can either go mining at the cost of billions in funding and wait ten years for a return, or you can set up a scrapping facility for a few hundred million dollars and you’re in business.

The negative impact of increasing CO² emissions and alike have impacted negatively on the global climate and seen a swing towards a greener cyclical economy.

Today in large well-developed economies like Tokyo in Japan, people have created algorithms that can predict the commodities that will annually be recycled. Scrapping has grown and is now big business and an essential part of the supply demand balance.

Steel scrap is in excess of 50% and PGM more than 25%, with more to come across the commodity sector. So scrapping is one place to be.

On the other side, the more traditional mining play which I associate with is the non-scrapable commodities which, through experience, once utilised cannot be recovered.

The cost of bringing these to production generally requires low capex, they are often on surface and suited to free digging or some drilling and blasting.

However, on the downside, they are generally of low value and the majority of costs are tied to logistics (+75%). The infrastructure industry require tons of these materials for the conversion of iron into steel and the manufacturing of cement.

For each ton of steel to be produced, we need at least two tons of cement.
Take China as an example. Over the past 50 years, per capita consumption of steel has accelerated from just over twenty to five hundred. India is currently sit on 60 and looking to over 400.

Africa, in dire need of both urbanisation and infrastructure, currently sit on less than 10. Collectively Asia, India and Africa have populations of just under 4.4 billion people all with similar demands.

My instincts say that if you want to go mining the non-scrapple commodity market is the place to be, with significantly increased demand and focus on replacement in developed economies, and urbanisation and infrastructure in developing economies.

A move from big deep level mining to scrapping is a must with lower capex and quicker returns. Perhaps, as suggested by the CEO of Impala Platinum some months ago, the last deep level shaft has already been sunk and mining as we know it today will change forever.

I do believe there is glimmer of hope for the traditional miner as we move into an era of electric vehicles which should support demand for lithium, manganese, nickel, and cobalt but we have significant refined resources on surface that can be recovered by simple algorithms and scrapping.

About the authorOver recent years Dean Cunningham (Director at Micofin) has been the orchestrator of a number of local and international transactions in the mining, downstream and energy and utilities sectors – coupled with Micofin and its strategic partners’ (Wood, Practara, NEXUS Intertrade and Africa House) objectives to take skills, technology, and capital to Africa, with a firm understanding of doing the work and creating jobs here at home.