From AI to Green Metals: Strategic Investments for a Changing World

For related podcast, see The Other Side of Green and the Bull Market of the Century for audio.

As global policymakers push forward in their attempts to transition away from fossil fuels, the demand for substitutes in the form of minerals and metals is skyrocketing. The International Energy Agency (IEA) predicts that by 2030, we will need 50 new lithium mines, 60 new nickel mines, and 17 cobalt mines to meet the growing demand for electric vehicles (EVs) and renewable energy infrastructure (see Source).

The green transition is driving this unprecedented demand for metals and minerals. EVs, solar panels, windmills, and the electricity grid all require vast amounts of copper, cobalt, nickel, lithium, and other strategic commodities.

What’s interesting is that even with all the collective trillions spent globally on renewable energy over the past two decades, it has done very little to dislodge our dependency on fossil fuels.

As Vaclav Smil recently noted, fossil fuel use has actually increased since the signing of the 1997 Kyoto Protocol and still accounts for the overwhelming share of global energy production up to this day.

“Despite international agreements, government spending and regulations, and technological advancements, global fossil fuel consumption surged by 55 percent between 1997 and 2023. And the share of fossil fuels in global energy consumption has only decreased from nearly 86 percent in 1997 to approximately 82 percent in 2022.”

His recent report, "Halfway Between Kyoto and 2050: Zero Carbon Is a Highly Unlikely Outcome," and book, How the World Really Works, are must-reads for anyone who wants to understand the facts and realities of our world today.

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The clean appearance or narratives around EVs, solar panels, and windmills belies the dirty reality that they require lots and lots of mining. EVs, for example, require 6-10 times the amount of mining compared to gasoline vehicles since they substitute one source of power (fuel) for a large range of metals that are much harder to dig out, refine, and process.

Mark Mills, Executive Director of the National Center for Energy Analytics, discussed this with us on our Financial Sense Newshour podcast last month, by offering an amazingly in-depth look at just how much earth must be dug up for just a single ounce of copper (see Mark Mills: Policy vs. Reality and the Coming Energy Storm).

Unfortunately, even with all the new mines that’ll be required in the years and decades ahead, domestic mining projects in the US face significant hurdles, with numerous proposals in Arizona, Nevada, Minnesota, Maine, and Alaska being turned down. Environmental lawsuits from various groups often delay development, resulting in a 10-15 year process to bring a new mine into production. This lengthy timeline poses a serious challenge to meeting policy goals, which require hundreds of new mines to be operational.

The supply of critical minerals is already struggling to keep pace with demand. Silver supply deficits began in 2023 and are projected to grow larger every year until 2050 (see David Morgan: Silver Breaks Through 10-Year Slump; China Now a Big Player). Copper, which Goldman Sachs has declared the new "oil," is swinging from a 130,000-tonne surplus to a 50,000-tonne deficit this year. As Mark Mills explained in our podcast above, copper grades are also declining, now just 0.2% on average today, meaning that 800 tonnes of rock must be processed to produce a single tonne of copper. Every power station, wind turbine, geothermal plant, hydroelectric dam, and EV requires large amounts of copper, making it one of the most critical commodities of a green energy transition.

As the world grapples with the challenges of the green transition, other technological revolutions are operating in parallel. AI and robotics are poised to transform manufacturing and the labor market. Companies building new manufacturing plants will increasingly rely on AI and robots, which don't require overtime, healthcare, or other benefits. While this shift may be inflationary in the short term, AI and robotics are expected to have a deflationary effect on the economy in the long run, keeping labor costs contained and increasing corporate profitability.

The geopolitical landscape is also shifting, with the US dollar's dominance being challenged by China, Russia, and a larger coalition of BRICS nations. China and emerging market countries control nearly all strategic commodities, and central banks are providing strong support for gold. Because of this, as Ronald Stoeferle in Lichtenstein recently noted, governments are changing the playbook for gold and 60/40 portfolios more generally, requiring a higher weighting of hard assets for this decade.

In light of these trends, savvy investors are focusing on commodities like copper, lithium, cobalt, nickel, base metals, iron ore, oil, and natural gas. Precious metals, particularly gold and silver, are also attracting attention as a hedge against currency devaluation and geopolitical uncertainty. Finally, technology sectors like AI and robotics are poised for significant growth as they revolutionize manufacturing and the broader economy.

Given the AI revolution, the green transition, and the debasement of currencies, these investment themes are set to dominate the landscape throughout this decade and potentially beyond. Our investment portfolios, which we manage with a long-term perspective, heavily feature these themes. They encompass sectors such as base and precious metals, energy, electricity, and technology. The specific themes we focus on include:

  1. Healthcare: Driven by the aging population.
  2. Consumer Staples: Essential goods, considering consumers are strained by debt and inflation.
  3. Base Metals: Integral to the green transition.
  4. Precious Metals: A hedge against currency debasement.
  5. Technology: Encompassing the AI revolution and robotics.

As long-term investors, we seek to identify promising themes early and sustain our investments over the long term to maintain stable and persistent returns.

To speak with any of our advisors or wealth managers, feel free to Contact Us or give us a call at (888) 486-3939.

To listen to this podcast conversation, see The Other Side of Green and the Bull Market of the Century for audio.

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Advisory services offered through Financial Sense® Advisors, Inc., a registered investment adviser. Securities offered through Financial Sense® Securities, Inc., Member FINRA/SIPC. DBA Financial Sense® Wealth Management. Investing involves risk, including the loss of principle. Past performance is not indicative of future results. This material has been provided for informational purposes only.

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