On the ground evidence with an insider

Thursday, 15 December 2022 — Albert Park

[8 min read]

Dear Reader,

There’s a number of statistics we can use to determine a new age in mining.

While economists tend to use things like commodity inventories, Chinese imports, capital expenditure, or revenue from major mining companies….I like to think a little more outside the box.

One of the metrics I track is jobs.

Now, I’m not talking about the generic employment data released by the ABS, which breaks down employment statistics among the main sectors (mining, retail, healthcare, etc.). I mean digging into specific occupations.

You see, the mining industry needs a diverse range of professionals.

There are the trades, including diesel mechanics, plumbers, electricians, and even ‘fridgies’.

Refrigerant mechanics are needed in deep underground mines where the temperature soars thanks to the ‘geothermal gradient’…the deeper you go, the hotter it gets.

Expect higher demand for these skills as mines go far deeper in future.

University-level professionals are needed, too — mining engineers, environmental scientists, hydrogeologists, metallurgists, and geologists. Digging up rock is much more sophisticated than it seems!

But as a former geologist, I am all too familiar with the boom-to-bust nature of mining.

During the dizzy height of the last commodity boom, job advertisements in the industry propelled into new all-time highs.

How do I know? Well — like many professions in Australia — geologists use the well-known website ‘Seek’ to scour the job market.

Now I haven’t been able to access the historical data retained on Seek to provide an analytical assessment, but I can tell you that at the peak of the last mining boom, a little more than 2,000 jobs were on offer, using the keyword ‘geologist.’

But just six years later, within the depths of the commodity downturn in 2016, the number of job advertisements fell to less than 10! Most of which were short-term contracts.

Such is the extreme boom-to-bust nature of the profession.

In fact, only a small handful of geologists I worked with during the early 2000s commodity boom opted to stick with the profession…it’s a sad fact that in every downturn, many professionals are forced to leave the industry.

It’s an enormous lost opportunity for the nation, too. How much potential income does Australia lose when a large proportion of experienced ore hunters vanish from the industry? Given Australia’s dependence on mining, I would hate to try and guess.

But I digress, so back to the topic of today’s Daily Reckoning…jobs.

Seek provides us with ‘subjective data’ as to the overall health of the industry.

A quick look at Seek (today) and the number of advertisements for geologists currently sits at around 600.I have highlighted the exact number below:

Not bad at all compared to the depths of the downturn, where advertisements sat in the single digits…but still a LONG way from the 2,000 (plus) jobs posted at the peak of the last mining boom.

Now you might be taking all this anecdotal evidence with a little scepticism but bear with me for a minute. Mining employees are at the whim of commodity prices, and salaries go from extreme highs with endless choices on offer to years of unemployment.

A boom-and-bust industry means it is an all or nothing proposition for workers in this sector.

For exploration geologists, it is even more extreme.

These are the people at the forefront of discovery, bringing in a new generation of ore bodies to replace ageing mines.

But they sit at the most speculative end of the mining industry. As such, they are in a far more precarious position.

Of course, this is nothing new and has been the situation for all booms and busts gone by.

However, the early 2000s boom broke new records…all commodities, from gold to wheat, and oil to copper, recorded historically high prices.

At the time, it appeared these highs would never repeat in our lifetimes.

The record-breaking boom that defied all booms from the past meant a day of reckoning was imminent….as such, the biggest boom was followed by the largest ever bust.

The major miners, burned from making major acquisitions at the peak of the market, tightened their purse strings simply to survive.

As commodity prices got hammered, spending and investment dried up.

Barrick Gold Corp [NYSE:GOLD], the company I was working for during this era — a major global mining company and largest gold producer at the time — shut down exploration across Australia, Africa, South America, and Asia.

In fact, it sold off most of its operating mines outside of North America, including those in Western Australia, now owned by Northern Star Resources [ASX:NST].

Industry veterans describe those downturn years (2013–19) as the worse they had experienced in their 40-plus-year careers.

It goes without saying, then, the effect this had on mining staff was devastating.

Veterans left the industry. Many people I worked with over the last boom turned to new careers, teaching, nursing, finance, trades, and driving taxis…very few weathered the storm.

But the point I am trying to make here is this: while there has been a big uptick in job advertisements, it in no way represents a peak in the market.

In fact, right now, we have healthy but tepid growth, and this is the time to be entering as an investor.

But expect to see more advertisements for jobs in the mining industry as the double-whammy effects of increasing demand and lack of talent collide.

There is a massive skills and labour shortage looming in Australia, the major miners have themselves to blame for this.

Geology job advertisements — a signal of boom conditions ahead

Unlike electricians or engineers, geology job advertisements are particularly useful, as the profession is almost exclusively tied to mining…but more than that, it is a career tied to the more speculative end of the industry, exploration.

Companies looking to bring geologists on board have growth in their sights.

We could track CapEx or exploration spending for the industry at large, however, this lacks ‘geology adverts’.

Why? Companies need to get geologists on the ground first…from there, they can start developing drill targets.

Once that’s done, mining companies can deploy the enormous capital needed to get drilling underway.

It is as simple as this…first come the geo’s…then come the drill rigs.

Tracking job data for geologists (specifically) can give you an upper hand in tracking early strength in the industry.

Right now, the numbers are showing strength, but they are still a long way from the highs reached over the last boom…again, this is when you want to get on board as an investor.

That’s exactly why right now, the timing is perfect to start looking at short-term trading opportunities in the highly speculative end of the mining sector…phase one exploration companies.

Its why, we’ve just released the Diggers and Drillers publication to give readers access to some of the best mining stocks set to benefit from this emerging trend. You can find out more here.

I’ll leave it there for today.

Next week I’ll give you some further unique insights into this coming boom including some hard numbers which back my thesis.

Until then, have a great week.

Regards,

James Cooper,
Editor, The Daily Reckoning Australia

Dear Reader,

Whence cometh inflation?

Today, we turn to a Nobel Laureate economist for answers. And then, appalled, we figure it out for ourselves.

First, from The Wall Street Journal comes news that the feds are spending even more money that they don’t have:

The Federal Deficit widened to a record US$249 billion last month

At that rate, the annual deficit would grow to nearly US$3 trillion. The economy does not save that much money, so to finance the deficit, the Fed would have to print money.

But wait, revenues for the month were only US$252 billion. So, the federal government is borrowing almost as much as it receives in taxes.

Does that cause inflation?

Of course, it does.

QE to QT

Meanwhile, the Fed has switched from printing money (QE) to unprinting it (QT…in which it retires existing debt, thereby reducing the quantity of money). And it’s raising rates to keep inflation down. CBS News:

The Consumer Price Index rose by 7.1% over the last 12 months, the Labor Department said, lower than the 7.3% increase economists had expected and the slowest rate of inflation since December of 2021. Falling prices for energy, commodities, and used cars offset increases in food and shelter.

The CPI is a little lower than the month before. But it’s still more than 300 basis points above the Fed’s key rate target. Does that cause inflation?

Yes, again. Anytime the real interest rate is negative (below inflation), people are encouraged to borrow rather than save. The banks­ — including the Fed — create new money to lend out. The result? Higher prices.

But wait. Here’s an economist with a PhD, a Nobel prize, and a contrary opinion. We’re talking about Joseph Stiglitz. The Intercept:

‘The Pandemic and War — Not, Government Spending — Caused Inflation according to Nobel Prize Winner.’

A new paper by Ira Regmi and Joseph Stiglitz…suggests that we can use the tools of the government to make life better for almost everyone. If they’re wrong, perhaps that’s impossible — because the Immutable Laws of Economics simply don’t allow it — and if we try to make our lives better, we will be punished for our hubris.

Money for nuthin’

The journalist goes on to explain why he thinks Stiglitz is right; apparently, he believes that there are no immutable laws of economics. There are just opportunities for bold economists to pick up a hammer and chisel and go to work. Referring to the post-Second World War period, he says:

‘As the Polish economist Michal Kalecki wrote at the time, we had discovered we could create a more or less permanent “synthetic boom”.

‘High wages, high worker power, and low unemployment. But we have to choose to do so. We can still make that choice, but only if we understand the reality in front of us.’

There are so many idiotic ideas in this pensée we can’t begin to contradict them. If the government really could ‘choose’ to make life better for almost everyone, surely one government — eager for re-election — would have done it. But none has. So, let’s start from scratch.

People create wealth by providing each other with goods and services. There are no public policy ‘choices’ involved. People do the best they can.

Their goods and services are measured in ‘money’. If more money is put into the system, above and beyond the measure of the goods and services that the system produces, the result is inflation.

No free lunch

Adding more money creates the sensation of a boom. But it is a ‘synthetic’ boom. That is, it is a fake. There are no goods and services to support the cash provided by the manipulators. So, prices rise.

In today’s inflation, the feds fiddled with both sides of the equation. They increased the supply of money while also decreasing (by lockdowns, sanctions, and mandates) supplies of goods and services. The consumer was caught in a vice, squeezed on both sides.

That didn’t happen after the Second World War for a very obvious reason: government spending went down, not up. In other words, the Feds didn’t create a ‘synthetic’ boom at all. Instead, they stood back. Federal spending hit 40% of GDP in 1945. Three years later, it was only 10%. It was that big boost — from letting people go about their business — that created a real boom. They built houses, launched businesses, started careers, and began their families — greatly increasing the goods and services available to each other while the feds put relatively less money into the economy.

The post-war boom carried the US up to the 1970s. It was then that the Johnson Administration decided to ‘use the tools of government to make life better for everyone’. Including the Vietnamese. Johnson’s ‘guns and butter’ spending — war in Vietnam, war on poverty — both flopped. But inflation rose to more than 13%.

Government controls the money. The more it spends…the more it meddles in the economy or goes to war…the more it borrows and prints — the higher prices go. Immutable laws? We don’t know. But pretend they don’t exist…and good luck to you.

Regards,

Bill Bonner,
For The Daily Reckoning Australia