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Why I am bearish and staying safe on short-term battery metal markets

David here. In the next 5 min, you’ll get:

💡What’s New: Markets are in a precarious spot and I’m being cautious.

🤔 Opinion: A contrarian view of the electric energy transition.

🛠️ Tools & Data: A foundational LLM just for geosciences – and more!

🎓 Developer Spotlight: There’s no I in team..but there is in AI.

Want to feature your service or product in DRIFFT? Grab an ad spot here.

💡What’s new

Battery electric index TSX is down ~15% from 2022 highs and ranging. Does this signal trouble to come, or a lull before the bull market continues?

 

S&P futures sliding too, -7% from this year’s high and -11% from 2022 highs.

Here’s another trend that surprised me–mining employment in the US is near all-time lows with no clear sign of rapid hiring and recovery.

Smells like opportunity for tech and automation.

Geopolitics - It has been suggested that the global crush on battery electric could actually exacerbate global commodity-based wars. Investors take note..as critical mineral shortages become more acute, mining projects like this one in Greenland, can find themselves quagmired in legal and bureaucratic tarpits (believe it or not, there’s insurance for that). Argentina’s copper resources are as vast as Chile’s, but their use hinges on an upcoming election.

Mining - The sentiment for battery electric minerals is bullish. Demand, if it materializes as projected, means suppliers will grow too. This week NASDAQ published its own article on deep-sea mining, which seems bullish on that front. The US will soon be in the business of cobalt processing. And it looks as if mining the moon will happen next year! However, anyone investing in new tech companies focused on resources will want to read a review of gaps, barriers, inefficiencies in mining regulations regarding new technologies. Also take a look at this short treatise of how mining innovation sends prices lower! If the end of the Obama administration (with the steep decline in GE stock prices along with the raid on Solyndra) taught me anything, it is that government initiatives to fund energy transition are not at all certain–i.e., here’s a company that claims it will reduce atmospheric carbon by mining olivine and dumping it in the ocean. That doesn’t mean you shouldn’t take government funding opportunities seriously.

Technology - While I remain highly skeptical of this bold claim for a turn-key, AI-integrated mining platform, it is interesting to think that such platforms could lower the barrier to entry for junior miners who want to improve operations. And since ChatGPT seems to still be on top in the media hype, here’s a set of ChatGPT prompts for mining engineers.

Skills & Jobs - It has been suggested that apprenticeship, trade skills, and hybrid tech skillsets could be prized over traditional degrees in the mining industry, which desperately needs new blood before the existing workforce retires. I also think in the short-term we’ll be seeing more jobs like these from major mining companies looking for “change agents” to digitize their organizations. Mean time, here’s an upcoming EU workshop on innovation in mining, as well as an introduction to how mineral resources are estimated using geostatistics.

🤔 Opinion

I am bearish on the short-term prospects of battery electric minerals. Long-term, bullish. The transition to electric energy will take longer than most are predicting.

For the past few weeks I’ve been asking myself how much I trust the hype on electric energy transition. After all, when everyone is pushing in one direction, it can often be profitable to take the contrarian short position and get paid the funding rate while waiting for a black swan.

Last year I undertook a study on valuing mining operations. I learned that markets have a long history of underestimating the ability of the resources industries to meet demand. Moreover, I don’t think anyone can predict demand to any certainty. (Not many weeks ago I saw a Fed release claiming to know what interest rates would be in 2 yrs, which seemed odd since they cannot even predict rates 3 months out.)

The economy is down and I expect more contraction. Resources would follow. When there are fewer goods being purchased by consumers, the demand for commodities that go into making those goods also slides.

You say: “What if the government spends to encourage development?” It has!

Consider: If there was a sharp increase in the price of minerals (e.g., copper, lithium, cobalt), will that necessarily create a surge in production? In fact, the opposite often happens. When prices rise, mining companies can make the same amount of money producing less, at the same time extending the life of their asset, the mine. So even if demand rises sharply, that does not guarantee supply will surge.

What does this mean for startups serving resource markets? They will need to understand the broader economics and plan their exit strategies carefully. Anyone funding these companies should be keeping a close eye on the overall economy, its appetite for battery metals, and the capital reserves of mining conglomerates that will likely be their exit.

🛠️ Tools and Data

Cutting-edge free tools to speed your work and strengthen your career.

Open-source language model for Geoscience trained by further pretraining LLaMA.

Use regression and machine learning to model copper sales and pricing.

Explores China's investment in South America, based on the China Global Investment Tracker data set.

List of 500+ geospatial companies & interactive map.

🎓 Developer Spotlight

Creator of the WALDO framework, AI-based object recognition for satellite and drone imagery.

Stephan has impressed me for several months with his rapid development and release schedule. No one else comes close to producing the same quality of work.

Thanks for reading! Want me to look into a particular topic? Email your suggestions and and I will dig.

Note: This is not financial advice. It is my opinion only. I am not a financial advisor and am not advocating any investment. Talk to your legally qualified financial professional if you want advice.