PART II: No Discovery Means No Supply…The Clock Is Ticking - Fat Tail Daily

Major mining companies are abandoning the high-risk business of exploration. Former geologist James Cooper explains why this will be a major problem for future mineral supply.

Last week, I showed you how the big miners are abandoning the dirty, high-risk mineral exploration business.

You can read Part I of the story here.

As I pointed out, big miners like BHP and Rio Tinto once led exploration discoveries.

Today, that responsibility has been shovelled into the hands of micro-juniors.

But as I’ll explain below, this will become a monumental failure for the mining sector.

One that could open up opportunities for investors.

But first:

Why aren’t the majors getting their hands dirty?

During the last mining boom, which ended in a tumultuous bust, most of the world’s biggest mining firms dismantled their exploration teams.

Future growth gave way to capital preservation on a scale never seen before.

That’s precisely what I witnessed during my time with Barrick, formally the world‘s largest gold miner.

The company spent decades building a formidable exploration team.

Whether metal prices were up or down, Barick continued its pursuit of exploration.

That allowed it to retain the intellectual property and experts needed to make major discoveries.

Despite conditions continually shifting from boom to bust, Barrick maintained a focus on long-term growth—mineral exploration.

That uninterrupted focus led to it uncovering some of the world’s largest gold deposits, including in Australia.

Majors like Barrick have always played a core role in mineral discovery.

But here’s the problem…

Discovery doesn’t happen in a snap. It takes years of CONTINUOUS dedicated exploration work.

But juniors tend to go bust in downturns.

Projects halt, and intellectual property evaporates.

Their projects pause for years and gather dust before a new junior picks up the pieces and starts from scratch.

One project I worked on in Zambia originally started back in the 1950s!

It went from one junior to the next as the cycle pulsed from boom to bust—effectively going nowhere for over half a century!

But the big miners don’t face this uncertainty. Their vast liquidity allows them to continue exploring throughout the downturn years.

That stops projects from losing momentum.

This is why we have never faced major mineral supply disruptions in the past.

Yet, that all unhinged back in 2013

Across the globe, the world’s biggest miners began to dismantle their exploration departments.

Giving birth to what I believe will become a major mineral supply problem.

Finding the next generation of deposits now sits exclusively in the hands of illiquid, poorly funded juniors who often lack technical experience.

In my mind, the decay of mineral exploration over the last decade has been unprecedented.

The majors have always been responsible for leading discovery. But that trend ended ten years ago amid a brutal downturn in the resource market.

And despite what’s at stake for the global economy, according to AMEC (Association of Mining & Exploration Companies), annual expenditure on greenfield exploration remains subdued and stalled at around $ 1.3 billion.

Surprisingly, despite the urgent need to find new deposits: ‘Over a five-year period from FY20, greenfields expenditure has fallen more than 50%’.

There’s a structural problem here, and no one understands how disruptive this could be.

That’s why I think you have a rare opportunity to take advantage.

Something I’ve outlined in my latest report.

An opportunity that aims to capitalise on what could be our biggest challenge over the next decade.

Securing the NEXT generation of minerals.

For now, the ongoing production from ageing mines keeps this problem out of sight.

But any kind of supply disruption or increase in demand makes the issue I’ve pointed out far more visible.

This will come quickly and without warning.

I suggest you take advantage now before the supply issues begin to surface.

You can find all the details here.

Until then,

Regards,

James Cooper,
Editor, Mining: Phase One and Diggers and Drillers

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

James Cooper has been a working geologist in mines across Australia, Canada, and Africa since the early 2000s. He’s led the operations of tiny explorers through to huge producer outfits. He’s seen booms and busts firsthand and he also understands the cyclical nature of individual commodities. For example, James was right there when Barrick Gold launched an enormous $7.5 billion takeover bid for Equinox. That was the peak of the last cycle.

With his background as a geo and finance professional, he brings a unique insight and experience to Fat Tail Investment Research. He writes the broader resource-focused investing letter Diggers and Drillers and the ultra-speculative explorer-focused trading service Mining: Phase One.