John Kaiser Talks Cobalt, Graphite, Zinc, Uranium, Tungsten at PDAC 2017

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Kaiser Research Online Publisher John Kaiser believes cobalt is the next bubble metal

SmallCapPower | April 6, 2017: Kaiser Research Online Publisher John Kaiser, in a speech at the newsletter writers’ presentations at the PDAC 2017 convention, offered up his outlook on some key commodities that resource investors should be watching. Here’s a summary of what he said.

On uranium:

Uranium may make a comeback, but the thing to really watch with that is Kazakhstan. On the supply side, Kazakhstan came out of nowhere. They are the ones responsible for the lousy uranium price. They’ve been phenomenally successful with their in-situ leaching. It’s been done in a way that would never be allowed in the United States, even if the EPA is abolished. And this is coming home to roost for them, so I don’t think Kazakhstan’s supply is sustainable.

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But we’re still going to be bearish on uranium for a while because the Japanese stockpiles have built up, and one of them has even told Cameco (TSX: CCO), “We’re not going to honor our long-term contract.” So, bearish in the short-term on uranium, but I think in a few years we will see it back in action.

But the big story is China’s awakening of its environmental consciousness. It knows that the pollution is democratic. It affects everybody. And Robert Friedland has this priceless line, “The combination of corruption and pollution is toxic to the future of the Chinese Communist Party.” And so, they know the pollution happens at the local level where they’ve lost control.

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So, their anti-corruption drive is to enable Beijing to regain control at the local level. And, of course, if they are successful in this, then we are going to see a lot of Chinese mine production diminish. And I think the big thing that we need to think about is that Chinese supply, and a lot of these metals where they dominate has, at the very least, plateaued and may even be in decline. And China, to protect domestic industries that require these metals, may introduce quotas.

On zinc:

People just focus on the fact that Western mines have depleted and new ones are not coming on-stream to replace them. And, of course, zinc tracks the macroeconomic trend. But the wild card here is China’s ability to continue its 40% supply of global zinc production. And Chinese zinc supply comes from many small, inefficient, dirty, polluting mines. Many of them probably reaching their own depletion limits anyways. So, if we get a drop in Chinese output, then we will get the price of zinc maybe hitting two dollars and perhaps staying there for a lot longer than it should, because it’s going to take a long time to bring new supply on-stream.

On tungsten:

China has a huge illegal production, a smuggling problem. Thus, if China is successful in cracking down, you’re going to see supply from China diminish. And then you’re going see that same problem that existed in 2010 make a comeback. And, of course, tungsten, China’s 85% of the global tungsten supply.

And tungsten doesn’t have any great innovations driving demand. It tracks the global economy. But if the United States is going to turn into this me first and going to, like, wall itself in, and everybody else is on their own, the United States says, “Oh, where’s our tungsten coming from?” So there’s possibly a tungsten boom coming.

On graphite and magnesium:

China dominates magnesium. Magnesium batteries may end up, down the road, displacing lithium batteries. But graphite’s primarily from China, so this is an issue. So for graphite, it’s still meaningful to check out graphite prospects and try and get one that’s going to supply the battery market.

On cobalt:

Keep in mind that the real battery material, which Robert Friedland has now been promoting, is cobalt, because cobalt is part of the battery that goes into the electric car. And you can see the price of cobalt is now skyrocketing. Hedge funds have cleaned up whatever loose stocks there are. Congo has got Kabila in there, resisting leaving. The country is becoming unstable. There’s film footage circulating now that appears to be authentic, of the soldiers just massacring people. All of this is going to probably push Congo over the edge, and Congo supplies 60% of the world’s cobalt.

Ivanhoe Mines (TSX: IVN) has operations in Congo with its Kamoa-Kakula Project and all that. And they’ve got that thing (its stock price) up, about, to over four dollars. And so the Chinese are probably going to absorb that, and they can deal with the problems because they have a long-term attitude. So, cobalt is the next bubble metal that’s out there.

Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.

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