This ad is an odd one, to be sure… it is essentially identical to an ad that was circulated in the Spring of 2017 about this “magic metal”, with Matt Badiali at the time claiming that the metal was rising in price, was about to skyrocket and provide a chance at 3,000% returns, and be a huge gainer for a $2 billion company. Now, the meat of the ad is essentially unchanged and the ad carries no date, but it is being pushed like a new idea… and the company has done poorly, thanks to falling commodity prices in the China trade dispute, and is a sub-billion-dollar company now. The ad sits out there like a timely survey of the prospects, but is really a time capsule from 2-1/2 years ago (and the stock, if you’re keeping track, is down about 30% from where it was when we first covered the ad).
So here’s our look at the ad from May of 2017, and I’ll insert some updates here and there to call attention to where the real story has changed in the interim….
Matt Badiali didn’t disappear from the newsletter firmament for very long –for many years he was the name behind Stansberry’s Resource Report (which was also called the Oil Report for a while), but he disappeared from that masthead a little while back… only to reappear in essentially the same role at Banyan Hill Publishing (which, like Stansberry, is part of the Agora family of publishers), helming an entry-level natural resources investment advisory.
This time around it’s called Real Wealth Strategist, and they’ve launched quickly — Badiali’s hiring was announced in early March, and here they are already with a superheated hype-fest of an ad campaign to recruit his first wave of subscribers.
This “Magic Metal” pitch that readers are asking about today is my favorite kind of ad, because they keep the poker face throughout — they don’t give in and say that, “OK, the ‘magic metal’ is actually magnesium” (or whatever it is), they keep the “secret” all the way to the end, so you get to double up on your voyage of discovery: First we have to figure out what the “magic metal” is, then we’ll move on to naming the one company they hint at as being the best investment for the “magic.” In their words, “This one deposit is so big it could solve the shortage crisis.”
So… step one. What’s the “magic metal?” Ready?
“It’s not silver, platinum or any other precious metal.
“It’s not aluminum, nickel, iron ore or lithium, either.
“In short, it’s a ‘magical’ metal with unheard of superpowers that other metals simply don’t have.
“For example, it doesn’t rust … it’s not flammable … it’s 100% recyclable.”
And it apparently has lots of uses:
“It’s in everything from airplanes to automobiles … batteries to boats … cosmetics to computers … surgical tools to smartphones … tractors to turbines…
It even has miraculous medicinal powers.
“Scientists are using it to fight diabetes, depression, low blood pressure, hair loss and fatigue. It aids in weight loss, improves vision and it can even protect you against many kinds of cancer.
“Hence, this “magical” metal is worth billions, maybe even trillions, to pharmaceutical companies like Pfizer, Merck, Johnson & Johnson and Bristol-Myers Squibb, to name a few.
“Recent World Health Organization statistics show that 800,000 innocent victims will get a second chance at life every year with access to this resource.”
And, of course, there’s a BIG SCARY SHORTAGE COMING!
“… there’s one giant, ugly problem.
“… demand is surging as America’s biggest companies scramble to secure more of this ‘magic’ metal.
“… no new major deposits of this metal have been discovered since 1990.
That’s why there is a massive supply and demand gap.”
We also get a few specifics on that gap, which should help to narrow it down a bit more:
“In 2016, demand exceeded the mined supply by 1.4 million metric tons.Are you getting our free Daily Update
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“In 4 years, that shortage will surge to 4 million tons.
“The United States Geological Survey recently concluded that there’s only enough reserves of this metal left to last 15 more years. That’s especially frightening when you consider demand could outpace supply by as much as 900%.
“That’s why experts are warning that we are about to see the largest shortage in decades … and that the ‘world is running out.'”
And then, the patently ridiculous:
“Mark my words, this metal will become the most fought-over, and sought-after, commodity on the planet. More than land, more than water, more than gold and more than oil.
“Wars will be fought over it. Lives will be lost.”
Really? We can’t just stick with, “prices will go up?” We have to go to wars and bloodshed? OK, fine, I guess humans will fight over everything… but if I ever finish that time machine and get to jump forward to 2050, I’m guessing I won’t be seeing an entry in the history books about the Great Zinc Wars of the 2020s.
Yes, the “Magic Metal” is zinc. Good for that extra sunscreen you put on your nose, good for galvanizing steel to fight rust, and, yes, an important mineral in the body — though those 800,000 “innocent victims” in the teaser pitch are not folks who are cured of some disease by zinc… they’re people who have zinc deficiencies, almost exclusively because they don’t eat zinc-rich foods like meat, fish, dairy or whole grains. That’s not a problem that really impacts the mining of zinc, zinc supplements are not a major part of the tonnage demand for the mineral, though it is, of course, certainly serious — especially for those who live with food insecurity. Pharmaceutical demand is maybe a one or two percent slice of the pie when it comes to zinc demand, the primary uses are galvanizing, which accounts for about half the zinc demand, brass (and bronze, to a lesser degree) and die casting, which together make up about a third of demand, and then chemicals and paint and miscellaneous industrial demand make up perhaps 15% of the pie, spread among lots of small markets (there are some primary zinc products, too, so there’s even a small amount of demand for sheets and rods of zinc, etc.)
So the shorthand way of saying that is, “zinc demand is overwhelmingly an industrial story.” If we have big infrastructure investments and lots of construction and economic activity, there’s more zinc demand… mostly because of galvanizing.
And yes, those shortfalls in the warehouses of the London Metals Exchange are real — as are the pricing increases seen recently. Zinc is still well short of where it was in the 2005-2007 peak, when China was exploding with steel demand and getting everyone excited, but it was certainly rising 2-1/2 years ago when this ad started circulating… this chart is from Infomine:
And here’s the newer update on zinc pricing, from Kitco…
So you can see that as of September 2019, it’s down maybe 10% from where it was in May of 2017… and has been on the same general “weak” trend as most of the other industrial commodities in recent months.
And Badiali says that the shortage is going to get worse:
“And I can tell you with absolute certainty that this shortage is getting worse; there’s no way to turn the supply spigot on. It’s gone from 1.2 million tons to less than 480,000 tons. That’s a 50% drop in the last 4 years.
“The price of this “magic” metal is up over 60% in the last year. But with its supply gap surging to over 4 million tons in the next 4 years as demand continues to increase … this ‘magic’ metal’s bull market has a long way to go.”
I have no idea whether the LME warehouses accurately reflect global stockpiles of zinc, but those warehouses are getting to have a bit of an echo in them at this point — here’s the five year chart from Kitco of the warehouse stocks:
But wait, that was the 5-year chart back in May of 2017… here’s what it looks like in 2019…
And, in Badiali’s words (in case you want some more confirmation that this is zinc):
“50% of ALL the ‘magic’ metal mined each year is used in galvanizing … the process used to coat iron and steel to prevent it from rusting.
“So, this ‘magic’ metal is in every bolt, nail, hammer, bridge, pipe, train and piece of industrial machinery needed for this $1 trillion infrastructure plan to move forward.”
So… part one down, what is the actual investment being hinted at? Let’s move on to those clues…
“… a small group of exploration geologists have struck the mother lode. It’s the first major deposit of this scarce metal discovered in the decades, and perhaps the last. This one deposit is so big it could solve the shortage crisis.
“This discovery could be worth hundreds of billions…
“Right now, there is a limited time to invest in the company that discovered this deposit for as little as $50 … and give your money the chance to grow as much as 30-fold.”
OK… what other clues do we get about this company?
Well, we’re told that it’s a “$2 billion North American company.” So that should ring a few alarm bells… if you’re going to grow your money 30-fold from this one, that means you think this company — presumably because of some zinc mine — is going to grow to be worth $60 billion. That’s not impossible, but it would make this one of the largest miners in the world (only BHP Billiton and Rio Tinto are larger than that among the corps of publicly traded miners). So we should probably cool our jets a little bit at this point and downgrade our expectations — it’s a lot easier for a little $20 million junior explorer with a surprisingly fantastic discovery to grow in value by 30X (which would bring the market cap just up to $600 million, which isn’t so huge), than it is for a real operating miner that already has a $2 billion valuation to show that kind of explosive growth.
What else do we learn about this company?
“… at the forefront of the battle to secure supplies is this innovative $2 billion mining firm that’s about to leapfrog its way onto the scene in a big way.
“This firm has aggressive plans to increase excavation of this “magic” metal at its mine located next to the lake beyond these trees … and it’s already begun ramping up production.”
OK, so if they’re “ramping up production” this is not a brand new discovery — that means someone probably identified the zinc (or whatever other metal they’re also finding in the mine) at least several years ago… building a mine isn’t quick or easy.
Other clues? We get some hints about the major owners:
“In the last few months alone, the Vanguard Group, TD Asset Management, Templeton and GMT Capital have invested hundreds of millions of dollars in this company.”
“… this company may be the ONLY company in the world with access to a deposit of this magnitude.”
And, finally, one last little burst of clues for us:
“While most of the world’s largest deposits of this ‘magic’ metal are in Australia, India, Mexico, Peru and Sweden … this mining outfit is in an unlikely place … just north of the U.S. border.
“This Canadian-based mining firm was formed over 90 years ago. Its new CEO is a 30-year mining pioneer, and he’s using his industry contacts to bring in the world’s best geologists and the best mechanical, metallurgical, and mining engineers in the world … and I am confident this firm will give investors the opportunity to turn every $1,000 into $31,130 … likely more.”
But wait! There’s also a little throwaway clue on the actual order form:
“The surest way to ‘magic’ metal riches is to invest in the mining pioneer sitting on 22 million tons of recoverable reserves of gold, silver, and, of course, this “magic” metal in its mine.
“As this shortage continues to spiral out of control like experts forecast it will, the profits for early investors will be through the roof.”
And we get some photos of the mine operations that will help to confirm the Thinkolator’s answers… so I can tell you, dearest readers, that this “Magic” Metal miner is… Hudbay Minerals (HBM in both Toronto and NY). And no, none of those clues have been updated since May of 2017.
Hudbay has operations in both Peru and Canada, but the mine being teased here is their operation in Manitoba — the zinc “discovery” is presumably a reference to what is now the Lalor mine, a zinc deposit found in 2007, though their long-producing 777 mine is also a big zinc producer (777 is closing in on the end of its mine life in 2021… Lalor, which is a couple hundred kilometers away, just got to commercial production a couple years ago and is expanding zinc production). The photos that Badiali borrows for his presentation are, at least in one case I can confirm, of the 777 mine.
You can see Hudbay’s “key facts” on the Lalor mine here — they were treating it as a primary zinc mine a couple years ago, with the copper and gold “byproduct credits” meaning that the cash cost per pound of zinc was negative seven cents, but it’s now touted (including in their September 2019 investor presentation here) as a copper mine, with new discoveries and mine plans emphasizing gold and copper production over the zinc production (which is still large). In many ways, the hope is just that Lalor and their South American mines can make up for the huge shortfall in production that will come when the 777 mine is closed in a couple years.
Hudbay does have some analyst coverage, and back in May of 2017 those analysts were predicting $1.54 in earnings in 2019…. but now that we’re most of the way through 2019 the estimate is that they’ll lose a few cents a share this year, and that they will earn 20 cents next year and 30 cents the year after that. That’s an indication of how quickly mining company prospects change when the pricing of their commodities change (or, as importantly, when future expectations for those commodity prices change).
And yes, Hudbay has been around and producing for a very long time. If you’re checking on those other clues, they did just get a new CEO, internally promoted, in 2016, and he is a 30-year mining veteran — that’s Alan Hair… and Lalor (in Snow Lake) and 777 (in Flin Flon) are both “just north of the U.S. border,” as long as you use the term “just north” like the folks who are used to rural Western living and might drive for a couple hours to get groceries… they’re roughly in the middle of Manitoba if you’re going from South to North, about 500 miles from the North Dakota border.
Will Hudbay soar on a rise in zinc prices? Well, it would probably help a lot… the shares certainly rose a bit into the end of 2017 as zinc was rising. Copper and gold and silver are all important as well, with copper probably providing at least as much leverage as zinc when it comes to Hudbay’s revenues… so really, it’s a pretty solid exposure to basic metals, and that means it’s pretty solid exposure to global infrastructure spending, particularly in China. If that picks up, zinc and copper prices will rise and Hudbay’s earnings should rise quickly, which should boost the share price. If China sinks into recession and copper falls a dollar and zinc stays steady, things will be much less pretty. I wrote that last bit in 2017, and it’s still true now — the trade war the the general unease about global growth that’s rolling along with the trade war are wreaking havoc on base metal commodity prices.
And no, I still don’t see any meaningful way for them to grow by 3,000% — unless you’re talking about a 20-year period that includes them making a bunch more discoveries along the way. Mining is not scalable, you’ve got to have the deposits and you’ve got to produce them, which means moving tonnes and tonnes of rock, and it takes a long time to develop and improve mines. If copper rises nicely and zinc goes to $3 a pound, though, their earnings could easily double or triple, though replacing the lost production from the 777 mine will also be a costly challenge that’s already impacting their earnings.
I’m no expert on Hudbay, that’s just what I shared a couple years ago and can update in a few minutes today. If you’ve got some perspective on Hudbay, or on zinc, or on whatever else, feel free to unleash it upon us with a comment below. We’ve also left the original comments appended to this article, in case that provides some historical wisdom for you… Thanks!