I love this story… it brings to mind the Indiana Jones-style teaser pitches about top-secret mineral riches in strange places that were so prevalent a decade ago in newsletterland… here’s a little taste:
“This Secret Research Complex…
“Hidden Away in a Small Town in Australia…
“Is About to Reveal a
“$66 Billion Breakthrough…”
Wow, so what is it? More…
“A newly discovered, one-of-a-kind mineral that holds the key to unlocking a virtually limitless supply of this ‘forever fuel…’
“And one company owns exclusive rights to the entire world’s supply… all 136 million tons of it.”
Well, we pretty much have to call “horse hockey” on that — one company owning exclusive rights to the entire world’s supply of a commodity? Nuh uh.
But still, inquiring minds want to know — what the heck is Dr. Mark Skousen talking about this time? Is it interesting, once we get past this first wave of
lying hype? The newsletter they’re pitching is Skousen’s Forecasts and Strategies, which is his “entry level” newsletter (usually about $50 a year), so I suppose we could subscribe… but that’s not the point, right? The point is that we can figure out these stocks for ourselves… and if we don’t pay for the information, we’ve got a much better chance of considering it carefully and objectively before throwing real money at an idea.
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So… let’s ID this “super salt” stock, shall we?
More from the ad:
“In a secluded region on the outskirts of Bundoora, Australia…
“An international team of highly skilled scientists has unlocked an incredible discovery…
“A virtually unlimited supply of energy…
“Locked up in a mineral that no one had even heard of 15 years ago.”
OK, so what is this mineral that no one’s heard of? Here are the hints they drop…
“This unique compound packs an incredible amount of valuable energy within its crystalline structure…
“And only one company controls complete and total access to every single molecule of this ‘super salt.’
“Since it was first discovered, the company has committed $100 million to creating a way to release the incredible amount of energy stored inside.”
And apparently there’s going to be huge demand for this “super salt”…
“Once word gets out about the incredible impact this “super salt” is going to have on the world…
“Investors are going to be stampeding into the company that controls the entire world’s supply.”
We get a few more clues about this specific mineral:
“It was first discovered in 2003 in a tiny town hidden away deep in the Balkans.
“It was unlike anything that had ever been discovered before.
“So, they called in an expert geologist from Cambridge – to examine this strange new ore.
“After extensive testing, the word came back:
“The company had discovered a new mineral that had never been seen before on earth.”
And apparently it has still not yet been discovered anywhere else…
“Unlike other minerals, this company’s “super salt” is found in just one spot. It’s the only place on the entire planet that contains this mineral.”
Really? A monopoly on a mineral? That sounds absurd. Even extremely rare metals like platinum and palladium are found in concentration, and mined profitably, in several places in the world.
See? Great story, right? This next bit even makes me visualize a scene in a James Bond movie…
“See, in the 14 years since its discovery, the company that controls this “super salt” has committed over $100 million to unlock its secrets.
“They brought together a team of elite scientists from the far corners of the world: Serbia, the United States, and Australia.
“These scientists have been sequestered on the campus of the research facility in the Bundoora region of Australia, holed up in a specially designed laboratory, in a 40-ft converted shipping container.”
You’re just waiting for the bad guy to come swooping in and pick up that shipping container with a helicopter that’s dangling a big ol’ magnet, right? Then he’ll control all the world’s energy, bwahahahahaha! Vengeance will be mine, Mr. Bond!
Back to reality, we get a couple other clues… they say that there are 136 million tons of this stuff in their discovery, and that the mine life is expected to be 50 years.
And we also get a couple clues about the company that owns it…
“… it’s not some tiny start-up that may flame out before they expand their operation.
It’s a $100 billion global giant – with a long history of technological innovation, and making money from the riches locked inside the earth.”
So what is it?
The mineral they’re talking about is Jadarite, which is indeed a newly discovered mineral that so far has been found only in Serbia… but it’s not valuable because of any particular characteristic of this mineral itself, it’s valuable because it’s a new source of boron and lithium, both of which are also available in some abundance elsewhere on earth. It also got a bit of news coverage at the time of the discovery because the chemical formula for Jadarite is very similar to what was used in at least one of the Superman movies as the chemical makeup of Kryptonite.
And, of course, it contains no energy in its own right — the value is in the elements that make up Jadarite, and that can be extracted for particular uses.
Lithium is a major part of most of our plans for a sustainable energy future, because it is a key ingredient in the most efficient batteries in mass use, but it doesn’t actually create energy — it just helps to store it.
Borates, likewise, are in great demand but don’t create anything magical — they’re used for things like making glass stronger, so smartphone screens use boron, as do detergents, agricultural nutrients and ceramics.
Skousen’s ad says that this 136 million tones of Jadarite includes 21 million tons of boron, which should be worth more than $16 billion… and 2.5 million tons of lithium, which he says makes this “one of the largest lithium deposits on earth” — at recent prices of $20,000 per tonne, that would be $50 billion worth of lithium. So that’s where the $66 billion bit comes from.
And who controls this vast Jadarite deposit? It is indeed one of the world’s giant mining companies, Rio Tinto (RIO). Which is good in that it takes a company of this massive size to sink $100 million into understanding and developing a new ore body and an extraction process for a new mineral, even before the world’s first Jadarite mine has started to be built (they’re still working on a prefeasibility study, according to their fact sheet here, so they think they’re about five years from production if they go forward on their anticipated timeline — which miners pretty much never do). But, of course, as investors it’s also bad because this big Jadarite mine, even if it produces a lot of lithium and boron a decade from now, is not going to move the needle for Rio Tinto in the near future… not when they’re producing tons of bauxite, aluminum, copper, gold, silver, nickel, iron ore and diamonds at their other mines around the world.
Buying shares of Rio Tinto because of this Jadarite deposit is like buying shares of Apple because you’re convinced that they’re going to have a huge business in self-driving cars someday (if you don’t know Apple, that’s a business segment that is often rumored as being of “someday” importance to them, but they barely even acknowledge investing in it today). It might work out, but you’d do better to pay attention to how Apple’s iPhone sales are doing… and what iron ore prices are doing to Rio Tinto’s operations in the Pilbara region of Australia, or what Chinese industrial production tells us about demand for base metals in general.
Yes, this is a big potential mine — Rio Tinto calls it the Jadar Project, and it is currently in the prefeasibility stage, meaning they haven’t yet begun to publish any economic forecasts about the mine… but they have been drilling for years and have identified a substantial resource base (“resource” means the stuff is likely there, “reserve” means it’s there and can be produced economically given a reasonable set of assumptions about geology and pricing)… so we just haven’t gotten to the point of understanding what it might cost, or whether the project is in fact feasible at any given price for lithium or boron. It does have the potential, they say, to become one of the largest sources of lithium in the world… but “potential” means you have to apply your own guess as to what the odds of success might be, and be prepared to have patience.
So it’s not a crazy idea, or a wild junior miner speculation — Rio Tinto is one of the strongest and most resilient mining companies in the world, and it is certainly big enough to take on this large project as they move into possible development over the next several years, but this is also an instance where it’s important to realize the time it will take to extract this value from the earth, and the relative impact it will have on a huge company.
Yes, the lithium might be worth $50 billion dollars if they can produce the 2.5 million tons of it they believe are in the Jadarite, as they are imagining with their preliminary resource statements. Maybe it will even be more, if further drilling or the analysis of the resource determines that there’s more lithium, or if prices climb higher because of electric vehicle battery demand. But this is also described as a 50-year mine — which means that those minerals will probably be extracted and processed over a very long period of time. $1 billion in 2040 is worth a LOT less than $1 billion today… and, of course, that “in the ground” value of possibly $50 billion over 50 years is a gross number, it doesn’t take into account the expense of building the mine or processing each ton of ore to extract the stuff.
If you produce 2.5 million tonnes of lithium over 50 years, that’s about 50,000 tonnes a year — assuming a steady state of production (that won’t happen, probably, but you have to start your guessing somewhere). Albemarle (ALB) and SQM (SQM) are currently the dominant producers of lithium from the Salar de Atacama in the Chilean Andes and Albemarle, the smaller of those two producers, is authorized to produce 145,000 tonnes a year for the next 25 years (it’s been producing about 80,000 tonnes, they got authorization recently to increase their quota). Even with other businesses under their umbrella, Albemarle had “only” $3 billion in revenue over the past year and has a market cap of $10 billion… both huge in some contexts, of course, but not very dramatic compared to Rio Tinto’s $90+ billion market cap. And those Salars are widely believed to be the lowest-cost way to produce lithium, my assumption is that they’re much cheaper to operate than hard rock underground mining (Salars are the salt lakes underground in the Andes, the lithium-rich brine is pumped up and allowed to evaporate in pools in the dry, sunny mountains… it takes time, but is pretty cost-efficient).
And on the more developmental side, Mineral Resources (MIN.AX, MALRY) is reportedly trying to expand production to 50,000 tonnes of lithium at Mt. Marion in Australia, another hard-rock lithium mine — they only control about half of that project, it appears (it’s a little complicated, I haven’t analyzed the company closely), but it is producing something right now, with the chance to ramp up, and that company’s valued at just over $2 billion.
So, of course, this all fits into the context of Rio Tinto, one of the largest mining companies in the world and a firm that had $40 billion in revenues last year. Bringing us to the point, again, where we must note that we don’t know what this mine will cost — will it generate a billion in revenues from lithium per year? If so, what will be the cost of extracting and processing that lithium? Of servicing the debt that will be used to build the mine? RIO’s gross margins are about 40% right now, with overall profit margins of about 22%, so even when not all of their commodities are doing well they are typically able to generate profits from their mining operations… but until the prefeasibility study and, later, the definitive feasibility study are released, we don’t really know much about how profitable this potential future mine might be.
If you want to wager on RIO at these prices, I won’t try to stop you — it’s a successful company in a challenging business, and if industrial metals have decent pricing in the years to come as the world continues to industrialize, it may well do just fine… and it even pays a dividend, so it looks like you get to earn 4% or so while you wait, with the caveat that they could slash that dividend in the future if Chinese steel demand slackens or some other big-picture trend goes against them. It’s just that we’d do well to remind ourselves that one development project, no matter how big, is very unlikely to cause the shares of RIO to even double in the next few years, let along provide life-changing returns.
If you’re convinced that the price of lithium will double over the next couple years, and you want to make a more immediate bet on that kind of move, you’ll more likely be rewarded by a position in one of the major current producers like Albemarle (ALB) or SQM (SQM), both of which are preparing to dramatically ramp up lithium production capacity, or even one of the more speculative and smaller producers like Orocobre (ORL.TO, OROCF).
That’s my take on this “super salt,” anyway… and I would be delighted to hear yours — have some thoughts to share on lithium or boron (or Jadarite), or on Rio Tinto or any of the other players? Let ’em out with a comment below. Thanks for reading!
Disclosure: I don’t currently own any of these lithium stocks, but I do own shares of Apple, mentioned above. I won’t trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.