Newsletter writer and researcher Chris Berry of House Mountain Partners explains what energy metals are and which ones have the brightest prospects for 2014 and beyond. He also mentions two juniors that he likes at this time, including one he believes is positioned to be one of the lowest cost producers in its entire industry.
SmallCapPower.com (SCP): Chris, please tell us a bit about your company as well as your role there?
Chris Berry (CB): House Mountain Partners is a company that I founded about four and a half years ago. What we do is write research focused predominantly on the theme of quality of life. What that really means is the following: you have a number of countries, emerging markets that have living standards that are a fraction of what we enjoy here in the West. And because of a number of factors, such as for example technology, you are starting to see living standards converge. In other words, the emerging markets and the frontier markets are catching up to the West. We are big believers in quality of life and big believers that no middle class has ever grown or sustained itself without reliable access to cheap commodities. So, what I specifically do and the niche that I tend to focus on in the newsletter that we write is what I call the energy metals. So in any metal or mineral that is used in the generation or storage of energy because that is really the backbone of the middle class, in our opinion.
SCP: So which one of these energy metals do you think has the brightest prospects for 2014?
CB: That’s a good question. They are all sort of in the doghouse right now and they have been for the last couple of years as we’ve sort of seen in the commodities space. Normally, I would have said uranium but what’s interesting is the price continues to plummet. I actual think uranium has the brightest prospects not so much for 2014 but certainly 2015 into 2016. Uranium is currently my top contrarian pick in the space. I’m also particularly interested, again looking out to 2015, in the prospects for graphite.
SCP: How do you think the talk of slowing growth in China will affect the natural resource markets?
CB: Well, I think the slowdown is undeniable. Almost any economic metric you look at is falling and it’s moderating. My take is that it is a good thing because the country saw 10% per year GDP growth for the last 20 or 30 years and that just can’t continue. The Chinese growth model of export led and investment led growth is not sustainable, so what I think you’ll start to see, and you’ve already started to see in China, is a minimizing of the reliance on investment led growth and a focus more on the consumer and consumer led and services demand. This transformation that China is going through right now is going to continue to keep a lid, I think, on the prices of a whole host of different commodities, be it copper or lithium or graphite or any of the other metals and minerals that we all follow in the commodities space. But again over the next decade to decade and a half, this is a good thing as it’s going to give the largest consumer market in the world by far an opportunity to continue to gain disposable income and kind of change this whole paradigm again from one that’s investment led to more consumer led.
SCP: I understand you also follow cobalt. What’s your outlook for this metal?
CB: Coming back to your original question about metals and minerals for 2014, cobalt would probably rank near the top there as well. Cobalt, from my perspective, is really predominantly a play on lithium-ion batteries and battery demand. My research indicates that cobalt isn’t the most critical component in a battery and certainly not the largest use but it is one of the most expensive components. I think you’re starting to see a situation where battery demand hasn’t moderated, hasn’t really slowed down in stark contrast to a number of other metrics or products out there. Cobalt interests me for a number of reasons not the least of which is the fact that it’s typically mined as a by-product. And, it’s also mined and produced in less savoury parts of the world, such as Russia and the Democratic Republic of the Congo. So, you have a critical component for a technology, that being lithium-ion batteries, that we would view as a quality of life goods and you are starting to see potentially upward pricing pressure on the metal because I think you are in the early stages of a supply pinch here.
SCP: Which junior resource stocks do you like at this time and why?
CB: In the uranium space there’s a company called Uranerz Energy Corporation (TSX: URZ) (NYSE MKT: URZ). A brand new production story is actually how I would phrase it. The company is producing uranium from an in-situ recovery process in Wyoming, so very low costs relative to some of the hard rock mining plays.
I also like (and own) shares of Argex Titanium Inc. (TSX: RGX). This one isn’t a “true” mining story. The company has a patented process to produce high purity titanium dioxide from ilmenite feedstock and is positioned to be one of the lowest cost producers in the entire industry. The feasibility study in place shows a per tonne cost of roughly $1400 and the current titanium dioxide price is $3500 per tonne. The company plans to produce up to 50,000 tonnes per year (tpy) starting in late 2015.
Additionally, Argex has an offtake agreement in place with a large European chemical producer for up to 25,000 tpy of titanium dioxide. They also have a technical services agreement in place with PPG, one of the major paint producers globally. This is a near-term production story which has potential to be one of the lowest cost producers in the world. The major challenge right now is raising the funds for cap ex – approximately $250 million.
Disclosure: Argex Titanium Inc. is a featured sponsored company and has paid SmallCapPower.com a fee for coverage. To learn more, see our full disclosure HERE >>
