Governments around the world especially in the emerging economies are now
beginning to worry about inflation and currency devaluation. Turkey and India
have taken emergency measures to increase rates and the U.S. is tapering as
there are growing concerns about significant declines in their respective fiat
currencies. Even the Russians and Chinese are concerned. The ruble and yuan
are hitting new lows. Paper currencies may be on the verge of failing. Eventually,
a new currency backed by gold (GLD) or silver (SLV) could be established to
restore trust.
Globally, governments have been debasing the currencies of their economies
since the 2008 crash to stimulate financial markets. The U.S. has been the
most active at quantitative easing and have artificially spiked the equity
and housing market. We may begin to see governments trying to take emergency
measures to reverse these hyper-inflationary moves through rate hikes but it
may be too little, too late.
Interest rates may soon drastically rise as the U.S. dollar, Ruble, Yuan,
Euro and Yen turn lower. Look for nations to play hardball for tangible natural
resource assets. Don't be surprised to see a rise of resource nationalism where
governments expropriate mines from private companies. Countries may look to
expand their territories for their mineral wealth.
What is going on in Crimea and the South China Sea may be just an appetizer.
Governments can devalue fiat currency and manipulate financial markets over
the short term but it can't fight the long term upward trend of metals and
commodities.
Remember what Yogi Berra said, "A nickel isn't worth a dime anymore." The
dollar, dimes and nickels have lost more than three quarters of its purchasing
power in the past 30 years. I remain steadfast in my approach to accumulate
the best mining assets in stable jurisdictions.
Precious metals and particularly industrial metals continue to maintain its
value over the long term. Despite the slowdown in the East, growth over the
long term will continue its upward rise. I continue to look for undervalued
commodities trading at multi-year lows that could have a few catalysts to drive
the price higher. For instance, I have liked uranium (URA) and rare earths
(REMX) for years as they are cheap compared to technology stocks and real estate
(XHB).
Many of the junior resource miners (GDXJ) are incredibly discounted especially
when considering long term supply demand fundamentals and the risk of inflation.
Some commodities such as copper, uranium and nickel are way off their highs
from a few years ago. Most investors chase the commodities when they are rising
or breaking out into new highs. Don't forget them now when they are on sale
and are being almost completely ignored by the investment community. Eventually,
the masses will return to our sector and the winners will be the early ones
like us.
Our junior resource miners are some of the top in their field and many have
outperformed despite the recent downturn. Don't think that just because some
are significantly cheaper doesn't mean that they are not worth owning anymore.
The opposite may be the case, these miners may be more valuable and better
bargains then in the past. Each year we lose value in our paper currencies.
Our mining assets should grow in value over the long term especially when the
commodity prices turn higher which I expect they will be very soon.
Some of us who have invested in commodities and mining stocks remember past
frenzies and price spikes as shortfalls loomed. In the late 1990s, it was palladium
that went 5-6 times its original breakout point. Remember when the industrial
metals, oil and uranium spiked in 2007 based on explosive China demand? Or
when rare earths soared after China cut off supply to China? Or when silver
ran from $18 to $50 in 2010 following QE2?
In late January I told all my subscribers that its time to watch nickel as
Indonesia instituted an export ban cutting off possibly a quarter of global
supply. Now six weeks later the nickel price powers through the critical $7
mark and Bloomberg writes an article entitled "Nickel
Heads for Bull Market..." Its better to be early, then late. Why is nickel
so important and breaking out past $7?
Nickel is used to make stainless steel which is used in a wide variety of
industrial and consumer applications. As populations expand and urbanize more
stainless steel is required. As emerging economies grow they need more nickel
for alloys used in pipelines, jet engines and nuclear power plants. More nuclear
plants, pipelines and skyscrapers are being built now than ever before.
Demand for nickel is increasing every year. Indonesia supplies over a quarter
of worldwide nickel. Over six weeks ago I wrote, "The announcement that Indonesia
has banned exports could have a dramatic effect on supply and cause a reversal
in the nickel price which is still more than fifty percent below its all time
highs."
To put this move from Indonesia to ban exports into perspective think of all
the OPEC Gulf states ceasing oil production or Chile cutting copper exports.
China may be growing nervous. Close to 75% of China's nickel pig iron supply
comes from Indonesia.
Other countries such as Japan, Australia, Canada and the U.S. could be significantly
impacted by this rise in resource nationalism in Indonesia. The nickel price
should start moving higher very soon. There are very few sources of high grade
nickel outside of Indonesia, The Philippines is another option but they are
also considering an export ban.
Even though there is still a large amount of nickel in stockpile, experts
are predicting that inventories could run out by mid 2015. Enter center stage Royal
Nickel's (RNX.TO or RNKLF) Dumont Nickel Project in mining friendly Quebec,
which could begin construction by the end of this year and start production
in 2016.
It was recently
announced that one of the largest Chinese stainless steel producers Tsingshan
is constructing a processing plant that could utilize nickel sulphide concentrate
to produce stainless steel. Tsingshan believes that it could be in operation
this year and could benefit from Royal Nickel's Dumont nickel sulphide ore.
Royal Nickel's CEO Mark Selby stated, "We view Tsingshan's investment in this
pioneering process as a significant and positive development for the nickel
sector, and for Royal Nickel."
Royal Nickel has the management team that knows nickel possibly better than
any other junior as they worked for Inco the major nickel miner which was bought
out by Vale back in 2007 for a great return for shareholders.
The rise of resource nationalism in Indonesia is nothing new. Nations may
have already been planning for the export ban this month by stockpiling. Nevertheless,
smart investors should position themselves in top quality assets like Royal
Nickel's Dumont Project as inventories begin to run down low in the second
half of this year.
There are very few high quality nickel projects ready to be built like Royal
Nickel's Dumont Project. Before the previous run up in 2006-07 there were plenty
of undeveloped projects. This is not the case today.
Royal Nickel owns one of the only mines I know of with a construction ready
project, experienced management that specializes in nickel and a strong treasury
of close to $15 million. Nickel is one of the few commodities that China needs
desperately as they have very little from their own production.
Royal Nickel's Dumont Project is one of the largest nickel deposits in the
world and probably the largest, most advanced and best quality nickel project
in control of a junior miner. With a market cap of less than $40 million, $15
million in cash, priced significantly below book value and a $1 billion NPV
top tier nickel project, Royal Nickel is significantly undervalued and could
be a ten-bagger.
Look at the Board Of Directors and Management sheet and you can see all the
top level experience formerly from Inco which rewarded shareholders with a
buyout from Vale in the last up cycle. Now may be the time to prepare for the
next bull market cycle in the industrial metals with Royal Nickel as the Indonesian
Export Ban sparks a supply shortfall going into the second half of this year.
Listen to my recent interview discussing the nickel market
and current events with Mark Selby Interim CEO of Royal Nickel and formerly
of Inco by clicking
here...
Disclosure: Author is long Royal Nickel and the company is a
website sponsor.