Thursday, 2 November 2023 — Melbourne, Australia | By Greg Canavan | Editor, Fat Tail Daily |
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In this issue: The economic illiteracy of today How Chile presents the ultimate contrarian commodities play Bill Bonner: from weapons of mass distraction to US political turmoil |
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[1 min read] Dear Reader, The financial world obsesses waaay too much about the Fed. Will it or won’t it raise interest rates? What does the pause mean? Is it dovish or hawkish? Then, when the Fed makes its call, markets go on to obsess about the next decision. And on it goes… Australia does the same with the RBA. Like interest rates are the only tool we have to control a hugely complex economy?! Employment too hot? Raise interest rates. Retail sales picking up? Raise interest rates. Meanwhile, Federal and State governments continue to spend like crazy. This soaks up labour and capital in unproductive projects. Snowy Hydro 2 comes to mind. Is anyone telling them to pull their head in? Or is it just the poor young family with a mortgage and kids to feed that must do the heavy lifting? In the meantime, let’s juice economic growth with record immigration. And keep raising rates to deter new homebuilding. Smart… Economic illiterates run this country. And it shows. Just today, Treasurer Chalmers said that we need MORE government intervention to reach Net Zero. For these people, it’s always more. To them, failure isn’t a signal that they’re doing it wrong. It’s that they’re not doing enough! How to protect yourself from this idiocy? You can’t entirely. But you can put some protective hedges in place. In the essay below, Diggers and Drillers Editor James Cooper explains why Chilean based copper explorers might be that hedge. Copper is crucial to the ‘energy transition’. Without copper, it simply can’t happen. Even WITH copper, I have my doubts about this transition. The economics don’t stack up. But hey, if at first you don’t succeed… Which means long term copper demand is all but assured. And Chile is the world’s biggest producer of the stuff. Read on to find out more… Copper Explorers in Chile…An Opportunity for the Contrarian Investor |
| By James Cooper | Editor, Fat Tail Daily |
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[4 min read] Dear Reader, Nationalisation remains a hot topic in mining circles. As supply chains tighten and long-term demand drivers strengthen, resource-rich nations are looking to capture a greater share of their mineral wealth. All across South America, Africa and Asia, countries are pushing back against the long-established norms that allow multinational miners to grow rich on the local bounty. On Monday, producer First Quantum Minerals [TSX: FM] fell almost 30% as its Cobre Panamá copper mine fell under the weight of public scrutiny in Panama. After weeks of violent protests, the government backed-out of its contract commitments to FM. The company’s future now hinges on a public referendum…given the poor sentiment, the prognosis doesn’t look good for this company or its shareholders. Cobre Panamá is a major contributor to the nation’s GDP, but this single operation also supplies around 1.5% of global copper supply. The political situation here has important implications. Emerging nations are pushing back against multinationals vying for their large, high grade deposits. But the biggest concerns are coming from Chile… Late last year, I wrote to The Insider readers (a publication available to all paid Fat Tail subscribers) about the growing threat of nationalisation in the world’s largest copper producing nation: ‘In July 2022, Chile’s finance minister, Mario Marcel, introduced a tax reform bill that raised copper mining royalties on companies that produce more than 50,000 tonnes a year. ‘It also increased revenue taxes on the largest mining producers. ‘But this is just the beginning. ‘As Reuters reports, Chile has set the constitutional groundwork that allows for the re-emergence of nationalisation of the country’s copper industry. ‘Unsurprisingly, its sparked an angry response from major mining firms, including Australia’s BHP. ‘You see, BHP has a lot at stake here…. In partnership with Rio Tinto and Japanese based JECO Corp, it operates the world’s largest copper mine, Escondida. ‘The mine, an enormous porphyry deposit located in Northern Chile sitting in the Atacama desert, provides around 6% of the worlds entire supply of copper! ‘It’s a HUGE cash cow for the company…. But it’s also juicy low hanging fruit for a government looking to reap more from its copper riches. ‘It forces BHP and other multinationals to re-think their long-term strategy in the country. ‘It means a severe pull-back on investment, including exploration, in the world’s most important copper province…. ‘Ultimately, the political landscape in Chile places even greater threats to the future supply of this important metal.’ Since then, the world’s largest miner has dangled around $10 billion in investments to entice the government to step back from its nationalistic push. BHP understands the significance…the global energy transition won’t happen without a supportive mining environment in Chile. The country feeds an astounding 20% of the global supply chain…given the metal’s key role in electrification, Chile can literally dismantle Net Zero. According to the US Geological Survey, it ALSO holds the world’s LARGEST untapped reserves. That’s important for future supply. But unlocking those reserves needs a supportive government. Without that, the country misses out on international investment… The capital that drives exploration and unlocks a new generation of copper deposits. And this investment is sorely needed… The world’s largest copper miner on the brink of collapse According to a recent Reuters report, the world’s largest copper producer sits on the edge of insolvency thanks to rising debt and missed output across its major operations in Chile. If you’re not familiar, Codelco is a legacy of previous nationalisation efforts in Chile — an amalgamation of government-controlled copper assets. For decades, the company has reigned as the world’s largest and most important supplier of global copper. As a major contributor to the country’s GDP, the company’s demise is bad news for Chile’s copper fuelled economy. It’s also exposing the deep problems resulting from government interference. Codelco’s demise is attributed to poor management and a lack of new investment in new mines and exploration. Over the last few months, Codelco has become the poster child for everything that’s wrong with nationalisation. It’s another dent in the government’s agenda, especially as it tries to restore the country’s balance sheet in the face of declining earnings from its most important revenue source. It’s these problems that signal an opportunity for me… What happens if Chile’s government backs down on its nationalistic push? As the most important region for copper mining, development and exploration…this would be enormously bullish. Especially in an age that requires vast investment in copper supply as the global economy moves towards electrification. But right now, investors remain cautious. It’s why certain stocks already exploring in Chile offer a prime contrarian trade. In fact, that was the key strategy behind this month’s Diggers and Drillers recommendation. A Canadian-listed explorer looking to develop one of the world’s largest copper deposits. It also holds enormous exploration upside, operating on exceptionally fertile grounds in Chile. It’s exploring in a region that’s played host to numerous giant copper-gold porphyry discoveries. And the ground has barely been scratched. Given the company has just announced the start of its biggest ever drill program, right now could be the ideal time to get onboard. I’m hugely excited about this opportunity and I think you will be too. If you’d like to find out more, you can do so here. Until next time, James Cooper, Editor, Fat Tail Daily Advertisement: Weird rock holds net zero hostage? Geologists just found a weird ‘defect’ in one of the commodities vital for the net-zero energy transition. This threatens to become a major roadblock to going carbon neutral by 2050... ...Unless we figure out a solution — fast. Cue two Australian miners who might have scored a major breakthrough… Learn more about them here. |
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Confessions of a Sworn Sinner |
| By Bill Bonner | Editor, Fat Tail Daily |
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[4 min read] Dear Reader, We are recounting the story of the 21st century, as told by a sinner. Yes, according to many Dear Readers, we have erred and strayed like a lost lamb. We failed to see how the internet and dot.com companies would make us all rich. And then, we wouldn’t stand up and cheer when the Bush administration announced its invasion of Iraq. If you don’t get fully on-board with the latest popular delirium, you risk getting labelled a ‘denier’…a traitor…or an anti-Semite. In 2002, for example, everybody knew Saddam Hussein was a son-of-a-bitch. And he had ‘weapons of mass destruction;’ everybody said so. But he didn’t. And it wasn’t the first time the American public was misled by its own government and its propaganda press. At the beginning of The First World War, Americans were told that the Huns were spearing Belgian babies with their bayonets, raping nuns en masse (so to speak), and cutting off hands by the thousands. Naturally, the public was quickly riled up against all things German. But when a commission was sent to look into these charges, it could find no one missing a hand and no credible reports of rape or infanticide. Always in Doubt Likewise, when Iraq invaded Kuwait, outrage in the US reached a fever pitch as a young girl reported that she had seen Iraqi soldiers take premature babies out of incubators and throw them on the floor to die. It later turned out that it wasn’t true. The Kuwait government had hired US consultant firm Hill & Knowlton to spin the story for the benefit of the US media. The propaganda press went to work with it, providing a reason to bring the US into the war; again, mission accomplished. Last month we were told that terrorists had beheaded Israeli babies. Joe Biden confirmed it. The Times of Israel: ‘Netanyahu’s office releases horrifying images of infants murdered by Hamas ‘The PMO said the photos released were some of what was shown earlier Thursday to US Secretary of State Antony Blinken, adding that they are ‘difficult-to-see images of babies murdered and burned by the monsters of Hamas. Hamas are not human. Hamas is ISIS.’ What actually happened? Reuters said the photos showed no beheaded babies. Forensic experts noted that when you blow things up, you also blow off heads as well as arms and legs. Snopes.com concludes a report on the subject: ‘In part, many questions about the violence remain unanswered because journalists have limited access to many parts of Israel and Palestine due to safety threats and military brigades. ‘Among the few who have gotten access, however, was Oren Ziv, a reporter with the left-leaning Israeli news organisation +972 Magazine…he shared on X a different account of what he heard from soldiers. Of the reports about decapitated infants, he said, ’we didn't see any evidence of this, and the army spokesperson or commanders also didn't mention any such incidents.’ What to think? What to believe? Sacred Elephants In the Trump years, many Dear Readers were bent out of shape by our failure to see how great the president was. They thought he was making America great again; he had said so himself. But whatever the obiter dicta of a windy prima donna, Trump’s policies were opposite to those we needed. America had problems. But they weren’t problems that could be solved by more firepower and more debt. And then came Joe Biden. For all the sturm and drang of US politics, the remarkable thing was how little policies actually changed. Every branch of government continued more or less as was before, unmolested by the new regime. Military spending went up — no matter who was in power. And deficits (despite a pause after the COVID Panic receded) increased. In 2022, the US finally goaded Russia into a war with the Ukraine…and then blocked a negotiated peace between the two of them. This year, it turned its attention to the Eastern Mediterranean, where it ‘stands with Israel’, and resists calls for a ceasefire. In the view of the US mainstream press — and many of our Dear Readers — the US was merely fulfilling its role as leader of the free world. But the dots were not lining up for us. It looked more like the degenerate empire taking another big step towards a disgraceful end — inflation and war, besmirched by war crimes. By this time, the US had been on the downslope for nearly a quarter of a century. People had learned their parts. Members of the House no longer pretended to balance the budget. They didn’t bother with budgets at all. They simply lurched from one debt ceiling…and one stopgap spending bill…to the next. Senators, meanwhile, no longer debated the pros and cons of our overseas garrisons, but ceded their responsibilities to an all-powerful executive elite. The Biden Administration — aided and abetted by lobbyists, donors, and the media — made the decisions. Hootin’ and Howlin’ Generals returned from their failures—in Iraq or Afghanistan — and were treated as military sages. Come each artillery barrage, they went before the cameras to explain why more firepower, more spending…and more meddling...were in the national interest. Then, they collected their checks from Raytheon or General Dynamics…and awaited the next flare up. The role of the masses was merely to stand up, hoot and howl in approval. Everyone played his role as best he could. Even the cynics and naysayers have their parts to play. Marcus Tullius Cicero in ancient Rome, opposed the Empire, with its far-flung wars abroad and concentrated power in the emperor at home. There was another sinner; he made enemies of the rich and powerful by insisting on sticking with traditional republican values. For his pains, he was exiled and later executed — and beheaded! Someone should read the script. It doesn’t have a happy ending. Regards, Bill Bonner, For Fat Tail Daily 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. |
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