Dryblower on mining's 'good war'

MINING is having a good war, a comment from Dryblower that some readers might find odd, until they consider how badly other industries have been hit by the COVID-19 pandemic and lockdowns, which is war by another name.
Dryblower on mining's 'good war' Dryblower on mining's 'good war' Dryblower on mining's 'good war' Dryblower on mining's 'good war' Dryblower on mining's 'good war'

Aviation, tourism, hospitality and the arts are examples of what it means to have a bad war, with wholesale closures, bankruptcies and job losses.

Why mining is doing relatively well is not hard to explain, it's all about business being almost as usual because workers have been able to maintain a safe distance from each other, and in a big, heavily-mechanised open pit, that's quite easy.

Underground mines are more difficult to manage but the strict discipline which comes with that part of the industry has been a big help because everyone has learned the importance of safety.

The difference between a good war and a bad war are pretty obvious because it really can be the difference between life and death.

But it is worth considering another aspect of the difference and that is the financial factor which is causing investors around the world to discover that they are desperately under-invested in mining stocks at precisely the time miners are money-making stars.

Gold's powerful run to an all-time high of US$1946/oz this morning, has reignited interest in the metal which has cast off its commodity cloak to re-emerge as a trusted currency, which is more than you can say for its great rival, the US dollar.

Iron ore is another money spinner for the miners but if you look at what's been happening over the past few months as COVID-19 infection rates have ballooned in the US and, to a lesser extent in the Australian State of Victoria, there appears to be an industry-wide uplift underway.

Wealth is migrating, both from industry to industry and from region to region, and if you don't believe that then take a trip back in time to see what always happens to money and valuable assets during a war - they flow to safety and to people who can afford them.

The best example of money migrating can be found in a single building in New York which houses the art collection of the late Henry Clay Frick, a man who started making coke in the 19th century for the US steel mills of another billionaire, Andrew Carnegie.

Frick used his fortune to acquire great works of art and when Europe was plunged into the first world war he plundered Europe art collections with many of the works in the Frick Collection, by great names such as Manet, Goya, van Dyck, Rembrandt and Holbein, many acquired around 1917 - an awfully bad year for war in Europe.

Australia is experiencing a similar wealth migration effect, admittedly in miniature compared to Frick's fortune, but it can be seen in the "good war" being enjoyed in the mining state of Western Australia and the "bad war" in the education and manufacturing state of Victoria.

Not only are the big iron ore miners such as BHP, Rio Tinto and Fortescue Metals, pocketing billions thanks to a sky-high iron ore price caused by the double-edged effect of COVID-19 (mine outages in Brazil and strong stimulus demand for steel in China) but smaller companies are enjoying a ride on the gold price and the rising price of copper.

Even lithium and the other battery metals are showing signs of recovery as the electric car revolution restarts thanks to the success of Tesla and the entry of other EV makers such as Ford which has just released a super-powered electric Mustang.

Behind those events, ancient and modern, is a positive message for the mining sector as it is rediscovered by investors hunting for a yield on their funds at a time of negative interest rates, and exposure to hard, physical commodities, which are better able withstand the ravages of inflation - which is on its way thanks to COVID-19 financial stimulus.

It's when you weigh up what's happening on multiple fronts that it's easy to be optimistic about the outlook for mining as it enjoys the flow of fresh funds from investors bruised by their bad experiences in other asset classes.

Banks too are re-discovering an industry they all but abandoned over the past 10 years, partly because of regulation and partly because so few bankers actually understand the process of exploration, discovery and developments - and the risks associated with each stage.

If there is an over-arching factor which explains why mining is having a good war it comes down to a single word; scarcity, which is what underpins the pseudo-science of economics, a field sometimes referred to as the study of scarcity.

As the world emerges from the COVID-19 pandemic investors will become increasingly aware that there is no shortage of cash (far too much, actually) and that means it will fall in value as inflation rises, and not enough commodities, which will rise in value.

All Dryblower can add to that "good war" outlook is a simple observation: bring it on!

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