The Gold Report: What does the United Nations (U.N.)
projection of a population tsunami of 9.7 billion (9.7B) people living on
earth by 2050 mean for commodities?
Rick Mills: The statistics are mind-boggling and extremely scary.
According to the U.N., the world's population reached 7.3B in the middle of
2015. That's 1B more people sitting at the dinner table in the span of the
last 12 years. Some 60% live in Asia (4.4B people); 16% live in Africa (1.2B
people); 10% in Europe (just over 700 million [700M]); 9% in Latin America
and the Caribbean (634M). The remaining 5% live in Northern America: Mexico,
Canada and the U.S. (358M). Compare those numbers to China, which has 1.4B
people, and India, which has 1.3B. That's 19% and 18% of the world's
population, respectively.
Growth has slowed from 1.24% 10 years ago to 1.18% this year, but it still
means we are adding 83M people to the world's population annually. Half of
the global population growth between now and 2050 is going to occur in
Africa. Most of the people born between now and 2050 will be in developing
countries. When we look at the global demand for resources, the Western world
doesn't count. We here in the West are almost a rounding error in the world
population.
TGR: Can we innovate our way out of a commodity crisis?
RM: Norman Borlaug, father of the Green Revolution, said if we did
everything right, we'd be able to feed and water 10B people. We are close to
the edge The world population is projected to reach 8.5 billion in 2030, and
to increase further to 9.7 billion in 2050. The U.N. warned us when we
reached 7B people, "The world population has now reached a stage where
the amount of resources needed to sustain it exceeds what is available."
How are we going to feed, clothe and house 83M more people a year? Think
of it as building a complete self-contained city for 1.5M people every week.
It's not going to stop. In 2015, the earth's overshoot day-the day every
year when we've exhausted all the natural resources that can be renewed each
year on our planet-occurred six days earlier than it did in 2014. Humans have
exhausted a year's supply of natural resources in less than eight months,
according to an analysis of the demands the world's population are placing on
the planet.
This is when humanity goes into ecological debt. Right now, we are
consuming the equivalent of 1.4 planets a year. By 2030, 8.5B of us could be
consuming the equivalent of two planets. The median age of the global
population, that is, the age at which half the population is older and half
is younger, is 29.6 years. Half of the world's population is under 30 years
old.
About one-quarter (26%) of the world's people are under 15 years of age.
This is a lot of future consumption from people starting with much less than
we have in the West.
The ecologist Garrett Hardin introduced the idea of the "tragedy of
the commons." Think about a pasture. As farmers keep putting more
animals on the land, the cows get skinnier, but people continue to do it
because it's advantageous right up to the point that the grazing limit is
exceeded. Then all the cows die, and all of the families suffer. Fishermen
behave similarly. Hardin says the private gain of the individual is thus at
the shared cost of the whole group and ultimately catastrophic in nature. We
are doing that on a global scale and it's going to have drastic consequences.
TGR: If we're running out of resources, why are the prices of the
commodities going down instead of up?
RM: A lot of it has to do with cheap oil and gas. Saudi Arabia and
Iraq are pumping oil and gas out like crazy to punish the frackers. Zero
interest rates by the Federal Reserve cause investors to chase yield, mainly
stocks and junk bonds. People are worried about whether China's economic
growth can remain strong in the long run. Of particular importance to us is
commodities are priced in the U.S. dollar. The U.S. dollar is pretty much off
the charts, it's so strong, and it's causing a commodities pricing rout.
TGR: The other thing about the supply and demand picture for
commodities that Brent Cook has talked about is the danger of a lack of
supply in the coming decade because of a dearth of exploration that's going
on now as companies try to conserve cash. When will we start to see that
price pressure?
RM: It's hard to say. If you had asked me a few years ago, I would
have thought that we'd have seen it by now, but we seem to be careening from
one economic crisis to another and attention is elsewhere. Brent is right in
focusing on the supply side rather than demand. But there's more to it than
just the dearth of exploration. We're actually shutting down mines and high
grading the rest. The world's largest mines-the ones that supply most of our
production-are running out of reserves. New mines are harder to find. They're
more remote and infrastructure-challenged. They come with more complicated
mineralogy, meaning more expensive metallurgy. Also, we have a bit of a glut
of experienced people. But when things turn around, we're going to have a
shortage of trained people, especially the midlevel managers and professional
geoscientists.
TGR: You have written that the coming scarcity of resources could
be a security issue for countries that are not being proactive. You say that
China is going out securing future supply. What are some examples of that?
RM: China is trying to revive the old land and maritime Silk Roads.
The new initiative is called One Belt, One Road (OBOR). This is a massive
build-out of infrastructure, including tens of thousands of kilometers of
roads, rail and ports. We're talking almost 100,000 kilometers (100,000km) of
rail networks just in Eurasia. We're talking about close to 70% or more of
the world's population, 30% of the world's economy, 25% of the world's good
and services.
China has invested $30B in a $100B Asian Infrastructure Investment Bank to
lend money to the countries along the planned route. China also has $4
trillion in foreign reserve that it is going to lend to countries along the
routes. It will build ports, railroads, highways, airports, schools and dig
wells. All these countries have to do is sign an offtake agreement for
natural resources. That is happening right now.
Source: Ahead of the Herd
All of that overcapacity that people think China screwed up on, all the
megafactories, all the ghost cities, wasn't a mistake. This was planned.
China wants to become the manufacturing center for 70% of the world. That's
how it's going to do it, by the largest resource grab in history and the
continuing urbanization (30M per annum) of its population.
TGR: Once the rest of the world understands they need to secure
their piece of the shrinking pie, what are the specific commodities and
companies that could benefit from this?
RM: Commodities have the benefit of being real things you can hold
in your hands, whether it's nickel or precious metals or copper or ownership
of uranium companies. These aren't paper promises like fiat currencies. These
are things that have value and are going to become increasingly scarce and
valuable going forward.
TGR: Let's start with gold. What are the companies that could
benefit from a return to higher gold prices?
RM: New Carolin Gold Corp. (LAD:TSX.V) has an old gold mine,
the Ladner gold project outside of Hope in British Columbia. I've said for
years that sometimes your best investment is taking a good project screwed up
by management and then having new management come in and right the ship. New
Carolin's project fits the bill.
The other thing that's a positive is that with the Canadian dollar so weak
against the U.S. dollar, gold isn't $1,100 an ounce ($1,100/oz). In Canadian
money, it's CA$1,600/oz. Being two hours outside of Vancouver and a half an
hour outside Hope for supplies, its costs should be in the lowest quartile of
producers. New Carolin could surprise people to the upside with just how much
gold it has, the grade of it, the fact that it's close to surface and
everything is so close in the lower mainland-supplies, infrastructure and
workers who can sleep in their own beds at night.
TGR: When can we expect to see a resource estimate or some other
catalyst on that project?
RM: New Carolin is raising the money to acquire the remaining 60%
of the project. We should hear some news on that soon. Then the drill program
will start this spring. We should see 3,000-4,000 meters (3,000-4,000m) of
drill results this year. I think it's going to surprise a lot of people with
just how much gold is up there.
TGR: Do you see similar upside for any companies in the silver
space?
RM: Kootenay
Silver Inc. (KTN:TSX.V) has the Promontorio project, which has 110
million ounces (110 Moz) of silver equivalent. Just a few kilometers away
Kootenay found a fabulously rich, near-surface, pure silver discovery called
La Negra. Kootenay is going to come out with an NI 43-101 resource on La Negra
this year. I think that the two projects can be combined and mined as one.
Kootenay is also going to be drilling, looking for some of the higher-grade
zones on Promontorio.
Kootenay also took advantage of the discount prices at the bottom of the
market and bought Northair Silver Corp. (INM:TSX.V), with its La Cigarra
project that has 62Moz in the Measured and Indicated (M&I) and Inferred
categories, for $11M. There's unbelievable blue sky potential on that project
as there is on La Negra. At La Cigarra, Kootenay is going to be drilling the
RAM zone, and update the NI 43-101. Among Kootenay's three projects, we're
going to see well over 200 Moz silver and silver equivalent, half of it pure
silver. Again, lots of drilling, lots of high grade, huge discovery upside
and an NI-43-101-compliant resource coming.
TGR: What is the supply-demand picture for nickel?
RM: I have long thought that nickel and copper have some of the
better supply-demand fundamentals going forward. Asia is now by far the
largest regional market for nickel representing 65% of total world demand.
China alone now accounts for close to 44% of world nickel demand. Investors
need to be looking down the road.
TGR: What company do you like in the nickel space?
RM: North American Nickel Inc. (NAN:TSX.V) has a huge land
package, pretty much the entire Greenland Norite Belt. The company spent the
last few years exploring and drilling, and found many mineralized zones. This
is the year it is going back in a search for tonnage. It has commitments for
financing from the Sentient Group and its other large investors. We could see
a starter 10-15 million tons of high-grade nickel sulfide, 2% equivalent,
close to tidewater. North American Nickel has its own port and will be able
to ship concentrate anywhere in the world. Again, that very well could be the
start of a world-class deposit.
TGR: Marin Katusa has talked about the security of supply
concern, particularly when it comes to the fact that when we moved away from
Russian uranium, we switched to more Kazakhstan uranium. Do you see that as a
catalyst for uranium prices and domestic producers?
RM: The U.S. consumes 55 million pounds (55 Mlb) of uranium each
year and imports over 90% of the uranium it uses. What could be more
important to a country than security of energy supply in the form of nuclear
fuel in the United States?
Energy
Fuels Inc. (EFR:TSX; UUUU:NYSE.MKT; EFRFF:OTCQX) is set up to be the
premier U.S./North American uranium producer. It's undervalued, and that's
why it's well worth putting on your radar screen. You buy at the bottom
because of what you think is going to happen in the future.
TGR: Energy Fuels just completed a merger. How big a role could
that company play in fulfilling domestic demand?
RM: Energy Fuels has two of North America's key production centers:
the White Mesa mill in Utah and the Nichols Ranch processing facility in
Wyoming, which it acquired when it took over Uranerz Energy Corp. The White
Mesa mill is the only conventional uranium mill operating in the U.S., and it
has a licensed capacity of over 8 Mlb/year U3O8. The Nichols Ranch processing
facility is an in situ recovery center with a licensed capacity of 2 Mlb.
Energy Fuels has the largest NI 43-101 uranium resource portfolio in the U.S.
and two producing mines.
TGR: A growing aging population also needs healthcare. You've
written about a mining company that's turning itself into a life science
company. How does that work? Are there crossover skills? What does that mean
for the investor?
RM: Expedition Mining Inc. (EXU:TSX.V) acquired all the
shares of BSS Life Sciences Inc. Imagin Medical CSE (IME.TSX.V) is the new
company being formed by the reverse takeover.
White light is the standard convention and it's what is commercially
available in all endoscope devices manufactured today. White light has
visualization limitations for all cancer types because white light cannot
pass through tissue or blood and cannot illuminate tumors beneath the skin
surface. White light is also not effective in visualizing the borders or
margins of the tumor to determine where it starts and ends, especially after
the initial removal of the main mass. Imagin Medical will commercialize an
ultrasensitive, next-generation imaging technology for extremely accurate
visualization of cancers.
TGR: Will it be the same management team and investors?
RM: A couple of Expedition's directors will stay but the management
of BSS is going to be the management of the new company.
TGR: Staying on the healthcare theme, you recently wrote that the
World Economic Forum estimated global diseases will kill 36M people every
year and cost upward of $47 trillion by 2030, and you point to diabetes as
one of the four biggest killers. What companies are you watching that are
focused on solving that problem?
RM: Sernova Corp. (SVA:TSX.V) developed an under-the-skin
implanted medical device the size of a credit card called the Cell Pouch. It
generates and maintains a blood vessel-rich, ideal environment for stem cells
or therapeutic cells. The idea is the cells will monitor blood sugar levels
and secrete insulin, effectively becoming a mini-pancreas, controlling
diabetes. It has been tested on small and large animals and has been proven
safe and compatible with humans. The company is expecting to be in clinical
trials in people shortly.
We're also doing the same thing for hemophilia.
TGR: Are there any catalysts coming up for that company in 2016 we
should be watching?
RM: I think there will be a validation event when some large pharma
wants to partner on trials.
TGR: What is the one piece of advice you have for investors bracing
themselves for 2016?
RM: We live on a small planet with finite resources. Much of the
world's undeveloped resources lie within China's One Road One Belt
initiative-what this author believes is a massive resource grab.
Resources-real things-are going to become a dominate investment theme and
should be on everyone's radar screens. It is an exciting time for the
healthcare sector, patients, and, yes, investors, with many disruptive
innovations on the near horizon.
Picking the companies offering the most for the least with good management
teams is the way to prosperity.
TGR: Thanks for your time. It's always a pleasure.
Richard Mills is host of www.Aheadoftheherd.com
and invests in the junior resource sector. His articles have been published
on over 400 websites.
