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“How Steve Jobs’ Mentor Turned a $5-Million Pipe Dream into a $340-Billion Reality”

Sniffing out some answers from the latest Oxford Club tease

By Travis Johnson, Stock Gumshoe, September 10, 2012

This one may not be entirely loaded with secret stocks, since I suspect quite a few ardent Gumshoe readers have already figured out who they’re talking about as “Steve Jobs’ Mentor” … and therefore figured out which company they’re teasing … but, well, I’m still getting a lot of questions every day on this one, so we’re going to dig in for just a moment and check it out.

The pitch comes in from Jeff Yastine for the Oxford Club, whose teaser ads we’ve covered many times over the years (toward the end of the letter they even re-tease one of their oldies, the “Black-Ops Resource that’s 51X more valuable than gold” — we covered that one in January in a Friday File for the Irregulars if you’re curious). This time around it’s another resource-related stock, despite the technology implications of that Steve Jobs connection.

Here’s a bit of the ad to give you a taste:

“Days from now, the man who inspired the legendary tech CEO will FINALLY step from the shadows of his famous protégé…

“Here’s how you can make thousands when his story ‘goes public….

“For years, this brilliant, reclusive entrepreneur has taken a back seat to his protégé…

“Even though it was his apple farm where Jobs worked in college, inspiring the company’s name.

“‘He turned me on to a different level of consciousness.’ – Steve Jobs And when Jobs revealed in a best-selling biography that this man served as his “spiritual mentor,” he garnered no praise from critics.

“And despite achieving great success, like becoming a self-made billionaire and appearing on Forbes 400 list, he still lives in the shadow of his old protégé.

“In fact, I’d guess not 1 in 1,000 people on the street even know his name.

“But all that’s about to change…

“Because a special project that Jobs’ Mentor had been developing for 10 years is nearly complete.”

Oooh … sounds very secretive and exciting, doesn’t it? Don’t worry, you’re almost “in the know!”

More temptation first:

“… the company he founded – the future ‘Apple’ of its industry – is sitting on an estimated $340-BILLION fortune according to engineering consulting firm AMEC.

“What’s even crazier:

“Jobs’ Mentor originally spent just $5 million to fund his secret project…

“As The Wall Street Journal recently confirmed: ‘It could be worth some $300 billion…’

“No gadget or computer has ever seen this kind of return on investment… Almost nothing in history compares….”

And yes, the clues keep coming … we’re told that this firm is tiny (compared to Apple, at least) with a market cap of about $7 billion, and that they’re just about to start getting attention …

“… by November of this year, every financial media outlet in the world will be reporting on this.

“Which may explain why the investment houses are already quietly buying in on a massive scale…

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“Goldman Sachs snatched up nearly 8 million shares of the company. Tradewinds has just over 5 million. Janus Capital Management took a hefty 24 million shares. And Fidelity purchased a whopping 25 million.”

So we can leave aside for a moment the fact that if it’s already been in the Wall Street Journal then certainly anyone who invests any amount of money has already learned of this special project. What on earth are they teasing?

Well, we learn that this secret “mentor” to Steve Jobs took an interest in mining and metals early on, developing a nickel deposit in North America, a rhenium mine in Australia, and a gold discovery in Kazakhstan, but that his thirst for something “historic” led him to our top secret stock pick today …

“The Company Took a Huge Risk and Hit the Jackpot! ….

“He was going to have to look for precious metals in places that other less-daring companies wouldn’t even consider.

“So when one of the world’s largest mining companies put up a “worthless” piece of property for sale, he decided to make a bid.

“It was located in a strange desert inside the borders of a safe (if undeveloped) democratic country. The temperatures ranged anywhere between -40 at night and 120 degrees Fahrenheit during the day.

“You could walk for miles in any direction and never see a human being.

“But this guy also knew to follow his instincts…

“He had seen the land… And knew the surrounding rocks were covered in blue dust – a good sign that large metal deposits sat beneath the surface. Of course, it was a long shot, but he was a gambling sort of guy.

“So he put up the modest offer of $5 million.”

So that’s where we get the “$5 million to $340 billion” bit … what, then, did they find in this godforsaken place?

“Forgotten Treasure Buried Beneath Asia’s Coldest Desert…

“The initial resource audit, performed by independent engineering consultants AMEC, confirmed 9.1 million ounces of gold and 4.6 billion pounds of copper….

“After several months, the confirmed resources were up to 13.8 million ounces of gold and 6.9 billion pounds of copper…

“Shortly after that report was released, the reserve of gold had swollen to 18.7 million ounces and the copper increased to 27.8 billion pounds.

“Then, 25.7 million ounces of gold and 59.1 billion pounds of copper!

“And based on the most recent estimate, the mine contains more than 81 billion pounds of copper and 46 million ounces of gold.”

So that’s where the $340 billion comes from — that’s roughly what that much copper and gold would be worth at today’s prices (though copper has risen a bit since the tease was written, it was $3.30 then and is around $3.60 now).

And yes, we’ll stop dancing around the point here and tell you that this is indeed Ivanhoe Mines (IVN).

Except it’s not anymore … they renamed themselves last month, so it’s now Turquoise Hill Resources (TRQ in NY or Toronto) — An appropriate name, since their major asset is the copper and gold mine that’s just starting up in Mongolia called Oyu Tolgoi, and Oyu Tolgoi is, roughly speaking, translated as “Turquoise Hill” from the Mongolian.

And Ivanhoe hasn’t just changed its name this year, it’s also finally been absorbed into Rio Tinto (RIO) — so TRQ is now officially a subsidiary of Rio Tinto, which owns 51% of the company, though it’s also, of course, publicly traded on its own. Rio Tinto had been the major partner of Ivanhoe Mines for a long period, with often disputed rights to take over the project — some court decisions over the winter, the culmination of a long fight over rights and financings and poison pills, led to the final settlement just recently of Rio funding Ivanhoe through to production and taking a controlling stake.

And, ironically enough, as part of the settlement … I assume because of the bad blood and the infighting … the company had to drop the Ivanhoe name long associated with Robert Friedland, the charismatic leader of Ivanhoe Mines. In fact, his name has essentially been eradicated from the company’s history books and cut out of the firm as much as possible. I don’t know if he owns any shares personally, but he is the person who is credited in this tease as “Steve Jobs’ Mentor”, and he’s now no longer involved in Turquoise Hill — he’s moved on to focus on some African mining projects with his Ivanplats exploration company that will probably go public once resource markets turn around.

Robert Friedland is certainly a fascinating figure — “mentorship” is probably a strong word for his relationship with Steve Jobs, but Jobs did really credit him, according to the Isaacson biography, for, as I interpret it, some of his ability to use force of will and charisma to lead people and “distort reality” … though the “reality distortion field” of Robert Friedland probably refers just as much to his work as an LSD dealer, the two met at Reed College after Friedland had gotten out of prison for his previous LSD career. There’s an interesting quick note on that here.

So yes, Friedland is the guy with the Jobs connection — and Jobs did indeed spend a summer at Friedland’s free love commune/apple orchard in his college years and get the Apple Computer name from that experience. But Friedland is probably not where he wanted to be at this point, astride one of the world’s largest market-changing copper mines at the point that it starts production — he’s certainly credited with much of the development, and I assume his billions of dollars will assuage the hit that his ego probably took, but it sounds like Rio Tinto is happy to be rid of him.

Which doesn’t mean that the stock can’t be a good investment, of course — it just means that the story isn’t quite as clean and tidy as it sounds from those snippets of the Oxford Club ad. Gasp! An ad that doesn’t tell the whole story? Egads!

The bigger deal with Turquoise Hill is that they’re ramping up for mega-production of copper now, they’re run by Rio Tinto with a major partner in the Mongolian government, which took essentially 1/3 ownership in exchange for letting the project move forward, and there seems to be some stability with the Mongolian government now that certainly wasn’t there a few years ago when Ivanhoe was trying to get permits and deal with threats of extremely high tax rates or royalties (though there’s still plenty of talk in Mongolia about “renegotiating” the Oyu Tolgoi deal).

You can imagine that the mine will continue to be followed extremely closely by all in the Mongolian parliament and, really, by pretty much everyone in the country, because Oyu Tolgoi itself is by far the largest capital investment in Mongolian history and will account for roughly one third of Mongolian GDP when it’s producing at the expected rate. Oyu Tolgoi is both the catalyst for Mongolia’s emergence on the world stage, and the flashpoint for political debate that essentially ends up being the argument for and against resource nationalism (ie, do we allow the private companies who found and developed this resource to profit from it, or do we seize it for “the people” … who always seem, interestingly enough, to want nicer palaces for the ruling party?). Mongolia is a democracy that has been pretty stable for years, it’s true, but that was before they had much money to fight over.

So the mine is just about ready to begin production of a considerable amount of copper and gold, building up to what they’re projecting as their “full speed ahead” production in about five years, and the mine is big enough to produce these massive piles of copper for probably 50 years, if not longer. What’s going to happen to Turquoise Hill?

Well, the short answer is, “whatever Rio Tinto and the government of Mongolia want to have happen” — you can see the latest update from the company here for their take on operations. You can see from that update that the major issues still to come are the financing package to finish the production ramp-up (they say they have enough equity funding, largely from Rio, but need $3-4 billion more in project funding to get through Phase 1), and the finalization of the plan for electrical supply — TRQ has promised to build their own power plant, probably using Mongolian coal, to power Oyu Tolgoi within four years, but until then they’re relying on power they want to purchase from China … the infrastructure is now in place, and China is likely to buy all the copper so they seem likely to happily supply the electricity, but the power purchase agreements are apparently also up for political approval.

So what you get with Turquoise Hill right now is a company that’s 51% owned by RIO, and which owns a few resources around the world but is dominated by their crown jewel, which is now 66% ownership of Oyu Tolgoi (the other 34% is owned by the Mongolian Government, who are apparently now full partners). And TRQ is at a pivotal point right now, as you would expect for a major mine that’s just about to begin producing — analysts think they’ll boost revenue by at least 500% next year with commercial production beginning in the first half of 2013, and that’s probably enough for them to turn a profit, so the shares have a forward PE of somewhere in the neighborhood of 50 right now.

No one is buying TRQ for earnings, though, they’re buying them for what they hope will be a sustainable and profitable mine that becomes a consistently profitable cash flow machine for decades — not unlike the massive Grasberg Gold/Copper Mine in Indonesia, which has been a company-maker for Freeport McMoran (and a profitable mine for Rio Tinto, which is a 40% partner) despite several waves of local controversy and political wrangling. And if the regulatory regime holds and production begins and they really ramp up to their next level of production in 2013, well, today’s price will probably turn out to be a ridiculous bargain.

Unless, of course, copper goes to $1 a pound. Which seems unlikely, given that inventories are low in London and the price has already dipped to as low as it was back in 2008. But you never know — the story for copper is all about global economic growth and infrastructure expansion, particularly in China, so be ready for the commodity price and the stock price of TRQ to react to anything that changes future expectations of copper demand in China.

I’ve never owned this stock and I’m not exactly champing at the bit to buy a large cap commodity producer right now (though RIO and VALE are dirt cheap and interesting contrarian ideas to consider these days), but I’ve been tempted by Ivanhoe from time to time as the easiest way to bet on Mongolia. They also control the SouthGobi coal project, a takeover of which by Chalco seems to have fallen through. In past years I couldn’t get a handle on the regulatory concerns and the fight for control that seems to have been going on forever, so maybe other investors are also seeing their charts clouded by those past developments and are missing an opportunity to buy a world class mine just as it begins development, that seems to be the argument of the Oxford Club folks. Do you buy it? Let us know with a comment below.

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Fred Dodini
Member
Fred Dodini
September 10, 2012 6:17 pm

My son spent two years in Mongolia (2007-2009) and is an economics major in college and very familiar with the Mongolian culture (knows the language fluently). He is familiar with the TRQ mines and how important they will be to the future of the Mongolian economy. He also said that he feels the Mongolian people are on the verge of real growth as a culture. They have high levels of literacy and when the men can finally get meaningful jobs and stop drinking, the whole culture will start to improve. Right now it is the women who are holding the culture together, but he foresees some real improvement in the social stability of the family and of society in general in Mongolia.

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Fred Dodini
Member
Fred Dodini
September 10, 2012 6:19 pm

PS. I bought some TRQ stock too.

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Marc P
Guest
Marc P
September 10, 2012 6:44 pm

This stock (IVN) has been sitting in my portfolio for quite a while and has been a real stinker, so do your due diligence and tread carefully before you make any investment of substance. There are a lot of great mining stories available without the risk involved in this project.

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Thomas Lepere
Guest
Thomas Lepere
September 10, 2012 6:58 pm

Before you revealed the tease, I bought my membership in the Oxford Club and I don’t think it has been a mistake! With a company like Rio Tinto at the helm and the people’s government being the Government of Mongollia and the RELATIVELY FEW people being represented in the Gobi Desert, Torqoise Hill looks to have a very bright destiny ahead of itself especiallly with the nearby Commodity Hogging Chinese government supplying the mining sector its electrical power for all the copper and gold purchasing power it can get.
China is blessed by the prospects of 50 plus years of mining gold & copper production through supplyiing electrical power to their Mongolian neighbor in the Gobi Desert. A lot of good such as lifetimes of jobs ad careers can come out of its production over the period of the mine’s life. This will be a boon to Mongolia’s economy just as the Papua New Ginea open pit mine had been to Freeport McMorans Exploration (FCXs) in Micronesia.
Yastine’s tease convinced me to get behind such an ambitious and productive gold & copper mining project and my investments are already profitable with only being 94% of the poroject having been completed. It’s like investing in the FCXs Grasberg Papua New Guinea project when the open pit mine had just become productive!!! I am grateful for Yastine’s tease and looking forward to increasing my overall investment in Mongalia’s “Turqoise Hill” mining project with some more investment funds.

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Jimmy James
Guest
Jimmy James
September 10, 2012 8:24 pm
Reply to  Thomas Lepere

You sound like a shill

Mike
Member
Mike
September 16, 2012 11:12 pm
Reply to  Thomas Lepere

Someone from the US accusing another country of “commodity hogging”.

Thanks, that made my day.

Allan Robinson
Member
September 10, 2012 8:37 pm

As always, a pleasure to read your great and thorough analyses, from which one can learn so much. Thanks for the interesting good work

optionsgirl
Guest
optionsgirl
September 11, 2012 3:13 am

Mongolia is going through a political upheaval. (The former president was arrested and jailed and the new government is unstable.)
24 Members are asking to re-negotiate the agreement between Rio Tinto and the govt, jumping to 50% ownership, and skipping the thirty year period previously negotiated for Rio Tinto to recoup and make some profits on this massive investment.
They are still 5 years from production.
This story of resource nationalism, greed and change in government direction is too risky for my taste.

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walter
Guest
walter
September 11, 2012 11:28 am

worked this one out for myself good one for the future i think …are you buying

Myron Martin
Irregular
September 11, 2012 1:12 pm

Like Travis I had been from time to time interested in Ivanhoe Mines and was aware of the Mongolian project for more years than I care to remember. The main reason I never bought the stock was the volatility and uncertainty evident from the corporate infighting and its location, which still seems to be at the top of readers concerns. An unstable Mongolian govt. that like other impoverished nations has little concept of what it takes to build a successful and profitable enterprise is still a wild card. When I read the story (promo) I quickly figured out what the stock had to be but was not aware of the name change which shows how far Ivanhoe had fallen off my radar screen as a possible investment, so I forwarded it to Travis as I am sure many others did.
I am more interested in finding the stocks that are at a much earlier stage of development because I do not have the amount of capital necessary to make meaningful investments in more expensive stocks. I do agree that being 94% developed and with Rio Tinto backing, this project has been to a large extent, “derisked” and if all goes well should be a highly profitable enterprise within a few years, and the stock price is not unreasonable.

I would feel more comfortable with it if TRQ held the 51%, the question is how much this project will move the needle for such huge companies so I am going to investigate long term LEAPS options, which if cheap enough will provide highly leveraged exposure with a much smaller investment.

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Sagacious
Guest
Sagacious
September 12, 2012 2:25 am

I have been an Oxford subscriber for two years and consider their advisory to be one of the most solid financial newsletters out there, plus they have a wealth of resource information for the new investor. This teaser, if “Gummie” is correct (which seems to be the consensus) must have been for one of their high end products, which I do not subscribe to, as it is not listed in any of their basic Oxford portfolios nor mentioned in their monthly advisories for Aug and Sept of this year. There seems to be some disagreement among readers regarding the stability of the Mongolian government, which I know nothing about, but I can say that if nationalization of the company’s assets occurs, as has been suggested, it could be a disaster akin to PetroBras, the Brazilian deep ocean oil driller which has seen its profits destroyed and stock price plummet 50%, despite the fact that it sits on one of the richest oil deposits extant in the world today. So, I, too would urge caution on this one.

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Bill M
Guest
Bill M
September 13, 2012 6:44 am

“Unless, of course, copper goes to $1 a pound. Which seems unlikely, given that inventories are low in London and the price has already dipped to as low as it was back in 2008.”

Chinese have so much copper in invetory it’s piling up in slabs outside warehouses. The fact that London inventories are low doesn’t seem to be a big item…

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sigmull
sigmull
September 16, 2012 10:46 am

I’ve liked Oxford and Porter Stansberry letters for the past 2 years though I dont take their stock advice very often. I do like their overall sentiment and analyses. Gumshoe makes for a good balance. Interestingly We share only one stock in our portfolios—SDRL! I have alot of gold and silver stocks, a couple of oils (STO, DNR), and 3 pharmas–ARIA, VRTX and vvus which i have held forever. I dont understand hi-tech and have only one NUAN which I have held forever. I have also had a few stinkers best forgotten. You have taught me a lot. SAM

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kipper
Guest
kipper
September 16, 2012 12:15 pm

I have watched ivanhoe for a long time and did not invest because of the uncertainty of the government, however another mining company that caught my eye was buchans minerals which has the largest manganese deposit in north america,stable government,mining freindly and cheap @0.05c a share,bmc-tsx-v.The deposit is worth over 35billion,not bad for a company thats market cap is 8 million.I think that this is a better deal to sit on than risk money with unstable governments.

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ken
Member
September 16, 2012 12:39 pm

travis: please give me your opinion on binary options. your reply would be appreciated.thanks ken.

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francois mercier
September 16, 2012 11:44 pm

Check those guys before you put any cent in Mongolia: tugsoyun@apipcorp.com

They are physically checking the market there. I believe thay are the best advisors in Ulan Bator.
What do I understand from them? Simple.
If you bet less than US$35,000.00, consider it lost overnight.
If you come up with enough money to buy a safe position – you are eligible to humongous profits.
Anything in between will vanish at a speed inversely proportional to the amount.

Got millions? Go there with them. you will get more millions. If you do not have that time and money, think about something safer. Stocks of mining companies operating in Indonesia, you have plenty of good options to dream of good returns.

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John S Harbut
September 17, 2012 10:51 pm

If one were to look at the three year daily chart of Ivanhoe Mines, one would see that it reached about $30. a share in Nov/Dec 2010. Thereafter it steadily declined. In about the past ten trading days, it bounced off the $8.00 level about eight times. Today, it traded at around $9.50 with no gap opening to the upside. It would say that the upside potential is much greater then the downside risk at this point. The “Buy low, sell high” admonition of, was it Jesse Livermore, seems to apply here.

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Robert Newsom
September 20, 2012 3:18 pm

Who are these companies ?

John Mauldin | Sep 19, 2012
As you’ll recall, I spent much of last week with the folks at Casey Research, at their most recent investment summit. They always put on a top-notch show, and there were many impressive speakers. But, as a big fan of technology, both for its place in the future of our economy and for the sheer coolness factor of some of the amazing things we can now achieve, I really liked one talk in particular.

Alex Daley, editor of Casey Extraordinary Technology (a newsletter I look forward to reading every month), gave an excellent talk on some of the amazing under-the-radar shifts in technology that have taken place just so far this year. While I watch the latest technology developments with some zeal, it is easy to put the potential of a technology well ahead of its practical use – a mistake that can be costly for investors. Alex has proven himself quite adept at calibrating the “application curve,” and I thought we could all learn from what he had to say, so I asked him to upload a copy of his talk to the web for you to see.

You can watch the presentation here:
http://www.caseyresearch.com/articles/alex-daley
or, if you prefer to read a transcript, Alex has written up his notes, which are below.

If you like what Alex has to say, I would encourage you to take his excellent investment advisory service for a spin. I think you’ll find his regular commentary (and stock picks) as insightful as his speech. Plus, he’s very forward about his track record, an uncensored version of which appears in the back of every issue. You can give it a look here: http://www.caseyresearch.com/cm/curing-cancer.

And I’ll also suggest that if you like this forward-looking piece you might also want to check out this op-ed by Andy Kessler in the Wall Street Journal. I spent a long evening with Andy last week in Palo Alto. He’s one of my favorite authors, whose first claim to fame was turning $100 million into a billion in tech stocks and closing it down at the top. Way cool. Since then he thinks and writes and plays with his boys. But he gets the world in a way few do.

Your thinking about the future again analyst,

John Mauldin, Editor
Outside the Box
JohnMauldin@2000wave.com

2012 – The Most Important Year Yet in Technology
By Alex Daley

Many of us fondly remember the announcement that rang with the turning of the millennium: “the first map of the human genome is complete!” It was a momentus achievement to be sure, even if it did take 13 years and cost about $3 billion. That’s because none of that mattered. It was going to rush in the age of the genetic medicine, and chronic disease would be a thing of the past. Even aging could be reversed.

So, what happened to all the promise? you may wonder. Well, it’s still there. But the problem is, science fiction authors and technology magazine scribes love to announce the arrival of the future as soon as the first scientific discoveries hint at its possibilities. That creates irrational expectations, because the progress of science – from an experimenter’s vision through to technology that can be widely distributed in a commercially viable way – is not instant. Of course, industry insiders know this, and analysts like Gartner even have entire reports dedicated to the “hype cycle” concept. But, that does not stop the average journalist from prognosticating about the possibilities.

Nevertheless, progress does march forward steadily, in the background. And, when it finally breaks through from the lab to the market… boom! You have an iPhone, a flat screen television, a multi-billion dollar blockbuster drug. The last few years have brought some incredible changes, for sure. But, the big promises – genetic medicine among them – might still seem unfilled to many. But, change can come in bunches, making certain years stand out as watersheds in technology. And, 2012 might surprise you as one of those.

Consider just a few of the most vaunted areas of technology to not quite fulfill their promise just yet:

A Future Without Paper (and Books and CDs and DVDs)
It’s long been the goal of many a business to go “paperless.” To scrap the mounds of pulp and ink that once lined hallways and storage rooms of offices around the world, we pushed the limit on storage, bandwidth and our ability to digitize nearly any piece of information.

Unfortunately, the consumer always trailed a little behind business in this regard. Our lives are replete with stuff. Things. Trinkets. Junk. There is likely some Neolithic impulse driving our desire to line the walls of our homes with the things we’ve collected from our travels, whether to Tibet or the local shopping mall.

And, for a great long time a large amount of that stuff has been media. Books. Records come CDs. Libraries of VHS or DVD movies. Recorded media has been a big business since the dawn of the mass manufacturing revolution.

Yet, at the turn of the millennium following the release of countless MP3 players we were told, like the paperless office, that the end of physical media was upon us,. The recording industry would never survive the era of free digital downloads. The first shots were fired in the late 1990s with the dawn of Napster and the mass swapping (cough, stealing) of songs across college and corporate campuses, and the Internet. Music was going digital and it was never going back.

But, by the end of 2001, following the release of Apple’s iPod, only 1% – a single lone digit – of the sales of recorded music was digital. For years, pundits decried the fall of the record, yet five plus years later the aisles of Walmart and Best Buy were still lined with CDs.

Fast forward to 2012 and the story is much different, however. For this year will be the first in history when 50% of all music media sales globally have gone digital. Music went digital when we all stopped watching the iPod and paying far more attention to “apps” and tablets and smartphones.

And, books are now following in the footsteps of music, which of course had a head start. Amazon’s Kindle e-Reader, the iPod-like dominator that truly launched the era of the digital book, didn’t surface for consumers until 2007 – a full six years after the iPod. But, don’t let that lull you into thinking it’ll be a while before books go digital. Thanks to the accelerating pace at which new technologies are being adopted once released, the Kindle and the e-book have caught up mighty quickly.

In January 2012, a full 31% of all books other than academic textbooks sold in the US were sold in digital form. That’s all adult fiction, non-fiction, and children’s books. And that was before people started using the tens of millions of tablets, like the iPad and Kindle Fire, and e-Readers such as the revised Kindles and Barnes & Noble’s Nook line of readers, that they gobbled up at stores that very holiday season.

Despite music’s lead, if the growth rate in e-books has been holding through this year, as most surveys of the business indicate is the case, then by this point in 2012, 50% of all new books sales in the US will be digital. That’s just less than half the time it took for the same to happen to music, and ahead of what promises to be another big holiday season for tablets and e-book readers.

Thanks to the Internet, and the new classes of mobile devices, half of all books and music purchases are now done digitally.

Video, however, is the king of media by most measures – most hours per person per week spent consuming it, most revenue by a country mile if you include movies, cable and satellite TV subscriptions, broadcast, all the advertising those bring in, plus physical media. And, video has been a bit slower to see the transition, with only a smidgen of the colossal industry succumbing to the emergence of Internet delivery.

Maybe it’s the fact that video consumes significantly more bandwidth than other media, making it more difficult to download and store large amounts of it. Maybe the tightly controlled licensing of video, which with music’s struggles as a warning to heed has held prices high for longer than other media. Or maybe it’s simply the fact that cable television is already as or more convenient than a laptop or a small mobile phone screen.

Regardless, cracks are still beginning to form in the most formidable analog revenue stream in the world. In 2012, for the first time ever, more movie views will be consumed online than on physical media like DVDs. That’s a major shift from just five years ago, when it was less than 1/10th the volume, according to IHS iSuppli.

Unfortunately for the makers of content, revenues are not quite following the consumption trend. Not yet. Total streaming media sales in 2012 more than doubled from the previous year, to $992 million. However, over the same period of time, physical media sales dropped 12% to $8.8 billion – a far larger decline of $1.1 billion than the services that are supplanting them. Much of the gap is attributable to the fact that online movie services don’t tend to get the newest and highest demand content (again because licensees control it carefully), but as we remove the need for inventory, store shelf space and the rest of the costs of physical distribution, price compression will become an undeniable trend.

Add this trend to the fact that cable TV subscribers (as a % of households) have fallen for the first time in American history since the introduction of the medium, and you can see why content producers are now increasing licensing rates at a record pace–leading to the costly stand-offs many subscribers are accustomed to seeing, where channels must be blacked out on the backs of failed renegotiations with cable and satellite providers.

The dream of a digital world where all the songs, books, and videos ever produced are virtually at the tips of our fingers is suddenly just about upon us. And, in the process the economics of three very large industries are changing dramatically.

But, just like the smartphone, there is another side to this story that is easy to miss: the middle-classification of the developing world.

Today, there are more smartphones sold each year than there are PCs. The small, power sipping devices with ubiquitous Internet connections are, for a huge swath of the world’s population, the very first and currently only computer they own. For them the smartphone is not a shrunken down desktop computer, it is precisely the model for what a computer is. And, for those consumers, digital downloads will also be there from the beginning to compliment their mobile computers, fueling growth.

How much? According to McKinsey’s latest report on the subject, in China alone, urbanites earning a middle class income will grow by another one hundred million households over the next ten years.

The spread of mobile media is not going to slow anytime soon.

The Rise of the Robot
Robotics is not a new industry; any autoworker can attest to that. The very first robotic welding system was launched in 1964 in a General Motors plant in NJ. Ever since, the public imagination has been fired by visions of a world where robots replaced deadening human labor in every factory and warehouse, and robotic butlers served our every whim.

While nothing quite like either scenario has occurred in the ensuing years, industrial robotics has been growing at a steady pace, and now has become a $12 billion dollar per year industry. Robots provide precision welding at a breakneck pace; they lift and twist and turn remarkably heavy items; and take on other work that would be dangerous if not impossible for people do manually. But, while the industry continues to grow, it does so at an anemic pace, just barely outpacing global GDP growth.

However, there is another half to the market: service robots. Roughly defined, it’s anything not industrial. Or, anything that doesn’t help manufacture something. Instead, service robots help us complete more traditional service tasks, from cleaning to delivery. These helpful robots got their start as multi-armed offspring of their industrial brethren in the medical system, helping perform surgeries too delicate for clumsy human hands alone, like this Da Vinci surgical system from Intuitive Surgical:

The growth rate of medical robotics has been astounding and, as uptake from hospitals has skyrocketed, Intuitive has been one of the most successful stocks of the past decade for investors.

However, these types of human-assisted robotics are still a vestige of an earlier age, where robots were fighting with one arm tied behind their back. Or, rather, they were all arms, but were deaf and blind without even a sense of touch to guide them, making it difficult for them to navigate our complex human world.

That’s now being addressed with a combination of better and cheaper sensors, and a little bit of intelligence. A number of things had to come together to enable robots to take to the ground (and even in some cases, the air):

· Sensors to navigate the world with. Pioneered mostly by the military—for use in spy satellites, fighter planes and night vision goggles– sophisticated sensors now allow robots to avoid falling down stairs or to judge the distance to an object passing through its path, and they have fallen dramatically in price over the years.

· Algorithms to efficiently navigate in a complicated environment. It’s easy enough for everyone except a teenager to figure out how to clean an entire room, but try teaching your laptop how to vacuum. It’s an amazingly hard task for a programmer. Add in people and other moving obstructions you can’t just run into, and it,s taken decades of programming research to teach computers to move in the real world. But we’ve done it.

· The power to get the job done. The same technology enhancing electric cars– even if they aren’t up to par with gasoline, the rate of change will get them there at some point as they are gaining ground steadily – and making it possible to hold a powerful computer in your jeans’ pocket, is now giving robots the power sources they need to enable them to do serious computation and move around the world for hours at a time. Lower power requirements from the increasingly smaller and cheaper components are helping as well.

Those smarts, eyes and ears, and better power sources have all advanced to the point where we can now strap wheels on our robots and get them to do all sorts of things, like the latest, and cheapest yet, robotic lawnmower from Honda. Saturday mornings may never be the same. And, that robotic grass clipper is just one of an arsenal of gutter cleaning, floor mopping, and vacuuming robots now available to save you hours of labor at home.

While you may have seen a few of these home service robots, or may even own one or two of them like I do, the commercial applications are where the autonomous rubber is really meeting the road today.

Heavy industry and government have been snapping up non-manufacturing robots at an alarming pace. Excluding the already very well known Unmanned Aerial Vehicles (UAVs, or drones) that are flying over much of the Middle East and Asia (and parts of the US) as I type, there has been enormous growth in ground robots as well. Like the iRobot packbot. This versatile arm on tank-style treads is being used by the military to disarm IEDs, and by power plants so they don’t send human beings into lethal radiation when there is a problem like Fukushima. Defense contractors like UK-based QinetiQ have followed them into the market with gun toting versions of the concept, ready to replace soldiers on the ground.

The Tug (pictured), from venture-backed startup Aethon, roams the halls of hospitals dispensing medication to patients as needed. It can share the halls safely with doctors and patients alike, works around the clock, and makes no costly mistakes (at least not without a human popping in the wrong instructions). Plus, Tug, who’s been deployed in over 100 hospitals already, doesn’t mind delivering meals or linens as well. Whatever the job calls for.

Unbeknownst to most, this bread of autonomous robots now wander the high seas by the hundreds, employed to check for pollutants, measure tides, or just take videos for above ground observation by landlubber scientists. Even companies like Google and universities like Carnegie Mellon are applying the technology to build self-driving cars.

While much of the promise still lies ahead for this area, the International Federation of Robotics now pegs the Service Robotics market, excluding flying UAVs, at $13 billion annually in gross revenues, vs. only about $600 million in 2000. It now stands as the largest segment of the robotics industry.

Yet the biggest growth is still ahead for the industry, as despite those advances, there is one major impediment still in front of the industry. A roadblock that the wild kingdom conquered long ago, and that still separates us humans from the robots. That is the ability to work in teams.

Pictured below are robots from a company called Kiva Systems:

These robots operate a warehouse exactly the opposite way from how it works today. Instead of people driving around forklifts (maybe even with a few lunchtime beers in them), in order to pick stuff off vast networks of stationary shelves, the shelves drive around and bring the products to the people who load up boxes and fill trucks. In this way, you can reduce the manpower in a warehouse to a small fraction of what is needed today. And do so with laborers who do not qualify for workers comp, vacation at the Jersey shore, or require sleep. Is it any wonder then why Amazon.com bought Kiva out for a few hundred million dollars?

Despite all of these new products and systems, the robotics industry today is still in its infancy. It’s right at that confluence point where all the necessary ingredients converge to allow the industry’s growth to explode, which is exactly what’s happening. We’re a lot closer to the world of the Jetsons, with robot maids, dog walkers, factory workers, and even auto-pilot cars, than I think many imagined would happen by now. The progress is astounding and really just beginning.

Of course, one does have to start wondering what happens when the smart robots get their hands on this next technology. Will they even need us to make them anymore?

I’m kidding … sort of.

An Additive Revolution
Traditional manufacturing is a messy business. There are basically two ways to mass manufacture any given object, and both have considerable economic weak spots.

The first and oldest is the subtractive method. Take a core object and whittle it down to the desired shape. All sorts of manufacturing techniques work like this, from the literal whittling of a piece of wood, to the modern lathe or popular computer-controlled “CNC” routers that fashion much of our modern furniture and more. While effective, there are severe limits on the shapes and structures of individual objects that can be made this way. And it produces large amounts of waste that cannot always be easily reused.

The other arrived with the age of metallurgy: the mold. Refined from what was once a very inexact science, today metal and plastic objects can be cast to fit a master mold of very high precision. However, unlike with subtractive manufacturing, every object cast will be an exact copy of the original used to make the mold. Sometimes that is highly desirable. But not always, as when you want a product customized. In addition, similar limits on the output constrain what can be done in a single step, and thus many parts often must be cast and assembled later, even when made from the same material. Plus, the cost of making molds can be prohibitively expensive when you require a large number of parts.

However, with the rise of the computer in the 1980s, another form of manufacturing was conceived and began to take hold: 3D printing.

The idea is simple. Take a powder, like the ink in an inkjet printer. Spray down a thin layer, then use heat or chemicals to bond the powder together into a solid object. Then layer on some more and repeat until you slowly, one layer at a time, build up a 3-dimensional object. Hence the term additive manufacturing. Control the entire process by computer, and you can fuse layers together to build almost anything.

The premise may be simple, but the implications are far-reaching. Unlike traditional subtractive manufacturing, there is little to no waste in the process. And, thanks to the generic nature of the machines, able to control the layers one at a time from a computerized model of the object to be built, one object can be created at a time with customization, much like with a router or lathe – but far more flexible than mold-based processes.

A single copy of a thousand different objects, or a thousand copies of a single one, can be created with no change in the economies of doing so, just as a home printer can print a letter one moment and a photo the next.

Now, machines like this one from 3D printing conglomerate Stratasys are showing up on shop floors everywhere from the aerospace to automotive industries, and from architectural offices to high school classrooms:

Despite its genesis in the 1980s, the technology has taken decades to perfect. Once only able to work on brittle types of plastic, systems have now been created to work with a wide variety of practical materials like flexible plastics, or steel and aluminum, all the way to the emerging ideas of biological materials or even… chocolate. Printed biomatter is still a research experiment, unfortunately. But the other applications have taken off like bottle rockets in recent years.

Sales of industrial AM systems in recent years have experienced a growth rate of over 35,000%:

User cases like BMW’s underscore the importance of the technology. During the design phase of a new or improved vehicle, BMW will go through many iterations of a part to get it exactly right. Previously, they used CNC routers to create prototype fixtures for the car. However, when they moved to using a printer from Stratasys – one of the largest 3D printer manufacturers in the world – BMW was able to reduce the cost of each test part by 58%. Better than that, their wait time for a newly designed part fell 92%. That’s an astounding change to the financials of the process, and a huge leap forward in terms of their ability to bring a design to life quickly.

Sales are being propelled by a rapid increase in the speed and precision of the machines, as well as the aforementioned explosion in available materials. They are moving forward so fast that researchers at Vienna University of Technology have recently set a world record for both size and speed using a “selective laser sintering” style machine. They built a scale model of an F1 car that is only a fraction the width of a human hair, just a few nanometers in size. And, they did so at a rate equivalent to 5 meters of material per second – a blistering pace by any manufacturing standard.

While this type of work still requires highly precise machines with steep price tags, the prices are dropping rapidly. And, that is thanks in large part to the group of people who did the same for the personal computer: hobbyists.

3D printers are nearly as numerous in the personal world as the industrial one. To date, it is estimated that more than 50,000 personal 3D printers have been purchased or built. Open Source projects like the RepRap, a partially self-replicating printer (it can print a number of its own parts), and a fervent community referred to as Makers are driving down prices rapidly. According to market researchers Wohlers Associates:

“Printrbot is another example of a RepRap derivative. The goal of Printrbot’s Brook Drumm was to raise $25,000 at Kickstarter, which was met in December 2011. Drumm went on to receive pledges of $830,827 from 1,808 backers. The small machine sells as a kit for $549–699.”

3D printing is a remarkable emerging industry, and at approximately $500 million dollars annual revenue in size today, has a great future ahead of it, for both consumers and investors. The technology is just now making the turn up that hockey stick-like growth curve, and over the long run may have as much effect on manufacturing as the PC had on knowledge work – an economic revolution of immense proportions.

The Biological Renaissance
The biggest unfulfilled promise of all has been from medicine. Wired magazine and Popular Science have filled our heads for decades with images of microscopic robots flooding through our cells, scrubbing plaque from our arteries, eating tumors, helping boost our immune systems. There were to be pure genetic cures for nearly every disease imaginable, from Alzheimers to cancer.

How many of these scenarios have come to pass? Very few, as we can all see. But life-changing medicine is close. Biotechnology is only beginning to arrive at a point of confluence, thanks to: the rapid acceleration of computing power in the last decade, the tools and techniques that were pioneered in the research boom following the completion of the human genome project, and the advances in working at the nanometer (i.e. sub-cellular) level made by the semiconductor industry over the past two decades.

The original human genome project was like the invention of the lever or the wheel. A remarkable accomplishment in its own right, but more importantly a toolset that would come to be used for all sorts of ends, constantly refined to be both better and cheaper over time.

That first genome sequencing took 13 years to accomplish, at a gross cost of over $3 billion. Come 2012, the cost of sequencing a new complete human genome has fallen to just $10,000, and takes about one day. That is an increase in speed and decrease in cost that would make even Gordon Moore blush. And, that is not the end of the advance. Genetic sequencing is well on its way to $1000 or less, according to most biotech industry analysts, while machines with superfast, sequencing-specific chips will reduce basic decoding to a matter of hours in the near future.

Today, more than 50,000 complete human genomes have been recorded for medical study. That number will double again by next year. And, literally billions of individual genetic tests are now being performed each year.

All this investment into understanding our genes, and the rest of our biology, has begotten the rise of numerous new industries that were merely speculations in the scientific papers of a decade ago.

Three prime examples:

2012 marked the first commercial sales of an anti-body drug conjugate for use in humans.

In the early 1980s, the study of “monoclonal antibodies” – our bodies’ own immune systems’ master keys that can unlock the doors of virtually any complex cell – was just coming into the fashion. Even at that time, the potential of so called anti-body drug conjugates was becoming obvious to scientists. One of the more pressing problems facing the designers of modern pharmaceuticals, and especially biological drugs, has been how to defeat the incredible defense systems our cells have erected to prevent contamination and infection. But antibodies are designed to do exactly that, and in a highly targeted fashion, finding only the cells they fit and promoting intra-cell treatments without needing a massive engineering project to do so. Harnessing that unique property, and using it to deliver anything from chemical agents to DNA-targeting drugs, has long been a goal of scientists keen to open up all sorts of new therapeutic possibilitie s.

Washington-based Seattle Genetics, whose work to encapsulate chemotherapy agents into monoclonal anti-bodies won approval from the FDA in late 2011 for the treatment of Hodgkin lymphoma and anaplastic large-cell lymphoma, has been pioneering this space. Their future planned products include a version of the same formula that targets renal cell carcinoma, pancreatic, ovarian and lung cancer, as well as multiple myeloma and several types of non-Hodgkin lymphoma. The continued success of anti-body drug conjugates could mean a major leap forward in our ability to attack diseases that have previously proven nearly impossible to treat effectively.

2012 marks the culmination of well over a decade of research into pathway inhibitors with the marketing of the first anti-cancer drug of its kind.

Another major source of focus in cancer is moving beyond the traditional “slash, burn and poison” regimen of surgery, radiation, and chemo, and into a host of new therapies that aim straight at the biological roots of cancer. One such approach has been to target the replication ‘pathways’ that enable cancer to grow unabated in our bodies. By interrupting these core growth factors, cancer’s progress can be slowed or halted, allowing doctors more time to effectively treat tumors. This small molecule technology targets directly at the biological mechanisms that make cancer tick, and has the potential to eventually change the way we treat cancer altogether.

Small outfit Curis, Inc. has been at the forefront of developing pathway inhibitors. Partnered with Genentech, the companies won approval for Everidge in January 2012. This remarkable new drug treats Basal Cell Carcinoma, an often disfiguring type of skin cancer that has previously resisted treatment. While there is still a long path ahead for the technology, it is one of the most promising new types of cancer therapy now becoming available to doctors and patients, because of the rapid increase in biological research capabilities.

But, of course, the true holy grail of medicine has been, since the days of Watson and Crick, direct genetic treatments.. After all, 2 out of 3 people will die from conditions that have been shown to have strong genetic roots – cancer, heart disease, and diabetes among them.

Thus far, progress along this line has been slow. Despite the rapid advances in the cost and speed of genetic sequencing, and the huge public and private investments into genetic medicine, little has changed since the 1990s when permanent genetic modification experiments were all but halted due to disastrous results.

In order to move genetic medicine forward, we needed a working paradigm to even approach the problem. Our genes are incredibly complex bits of code, which function in ways that are still imperfectly comprehended. But, as our understanding has increased, so have our methods for manipulating these processes. That is why in 2006 the Nobel Prize in medicine went to the inventors of a technology called antisense, or more specifically, RNA interference. Antisense technologies turn off the expression of particular genes in a way that is predictable and temporary, promising the ability to treat patients with simple injections or even pills for genetically-rooted disorders. The potential of gene silencing drugs is beyond compare in biology today. So, how far along is this technology?

2012 will also mark the first time an antisense drug – a temporary off switch for gene expression – has been approved for wide use.

Kynamro, an antisense drug from Isis pharmaceuticals and Genzyme, targets patients with familial hypercholesterolemia: those patients whose high cholesterol is linked to the production of a protein dubbed apo-B for short. The result is a significant decrease in production of LDL (i.e. bad) cholesterol for a subgroup of patients who have been otherwise resistant to more traditional treatments like statins. The FDA is now considering Kynamro, with a positive decision expected by January of 2013. Regulatory approval is pending in Europe, as well.

2012 also featured major advances in the treatment of countless other diseases, from hepatitis-C to lupus to leukemia, both in the lab and through trial approvals. The rate of advancement in biotechnology is advancing at a pace as rapid as that showcased by the falling price of genetic sequencing. Entirely new markets like biological molecular testing are emerging to make advances not just in treatment, but in diagnosing of diseases.

While sectors like robotics were founded well back in the 1960s, with researching dating back well before that, the biological revolution only really got underway once we: were able to reliably work at the nanometer level; had the computer power to deeply analyze and store millions of chemical sequences; developed specialized silicon and fluidic systems tailored to analyzing biological compounds; and invented tools to study and understand and manipulate the complex structures that underlie life itself.

The era of biological medicine, just like robotics, additive manufacturing, and digital content, is now upon us. Like any technological revolution, it will take decades fully to develop. Yet as it rounds into form, the $750 billion per annum drug industry, and our lives, will never look quite the same again.

Alex Daley is chief technology investment strategist at Casey Research, a leader in subscriber-supported investment research. He has spent his career working with emerging technologies, collaborating with scientists and entrepreneurs as an angel investor, as a consultant to venture capitalists, and as a member of the famed Bill Gates research team at Microsoft. Today, he and his team work to identify the most promising up and coming public companies in areas such as software, Internet services, semiconductors, and biotechnology.

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DaveM
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DaveM
October 4, 2012 3:53 pm

Let’s be fair here: would you bet on ANY start-up enterprise based in the middle of Mongolia? This company does not need to be studied for the potential value of the deposits it is projected to mine, but for the politics in the locations at which it operates. The Chinese have run transmission lines for electricity to the Mongolian location, in anticipation of a reliable source of copper and other minerals. Which ought to build confidence, BUT, China will want something in return for its investment. That could mean anything from minerals delivered at a reduced price to outright nationalization of the mine. Neither of which is likely to be good news for shareholders.

Turquoise Hills Resources stock has been on a downward slide since the beginning of the year, losing more than half its value so far. Just where the promised huge returns might come from I have no idea, but I don’t see this one living up to the puffery. Of course….if a stock truly was a boom in the making, it would not need to be advertised and no one would need to pay just to learn the name of the company involved.

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FinWizz
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FinWizz
February 12, 2013 9:37 am

I too had TRQ on my radar… I even had a thread on A.D.V.F.N, dedicated to it (IVN) anyway, but the board takover caused me some concern, and the lastest information regarding the Mongolian Gov’t sounds pretty much like many developing nations the world over. Politicians get elected by making promises to the electorate, and as long as they get their share the deal goes through. Woe betide you though if you get caught with your hands in the cookie jar, and end up in jail, because the next lot will want their cut too.
Hugo Chavez, Christine Kisrchner et-al… I’ve been watching a miner for over ten years with mines in 6 countries, a going concern gold miner, nickel mine, and a moth-balled processing, smelting, refining plant that would cost $750m to build from scratch, and it has to go cap-in-hand to a foreign nation’s investment pool to get it back into operation because the nutter in charge has “resource nationalisation” as his stick to beat the corporate interests of the US and UK with… (you get the idea)

Anyway, if the nutter goes, it will be a 10 bagger minimum, unless someone worse gets in.

Economics, Politics, and greased palms… And we wonder why the Banking system almost ground to a halt…

F.

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