Resource World Magazine

Resource World - Dec-Jan 2020- Vol 18 Issue 1

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D E C E M B E R / J A N U A R Y 2 0 2 0 www.resourceworld.com 9 and probably another $10 trillion with a nominal negative yield, and given the gov- ernments around the world, including the United States, seem to be returning to bal- ance sheet expansion, which is a different way of saying degrading the purchasing power of the national currency. The mar- kets are anticipating a policy response to an economic slowdown that continues to debase the purchasing power of fiat cur- rencies, and would ultimately be very beneficial to the prices of precious metals. RW: In a recent presentation, you said "be a contrarian or be a victim" what do you mean by this? RR: Most investors and speculators suffer in broadly cyclical industries like natural resources by paying attention to headlines and allowing price actions to justify narratives. One of the lovely things about investing in cyclical industries is that over five or six years it is fairly predictable. People want shorter-term answers – they think what they want matters, but it doesn't – so if you have a commodity that is essential for the future of mankind that is priced below the cost of production what you know is that either that material becomes unavailable because the industry liquidates, or the price goes up. In the case of oil, for example, the International Energy Agency says that the fully loaded cost to produce a barrel of oil is about US $60 which includes the cost of capital and prior year industry equity write downs. So, if you make oil for US $60 a bar- rel and you sell it for US $45 a barrel, the industry as a whole loses US $15 a barrel or a billion-and-a-half-dollars-a-day. Sooner or later, and usually sooner, the industry gets tired of losing that much money and they constrain sustaining capital investments and the supply response is surprisingly short, meaning that when oil is below US $45 a barrel, a rebound to the cost of pro- duction is almost certain within a two-year time frame. The victim looks at the price of oil at US $45 and says: The charts say that the price is going lower so it must be that solar and wind and all those things are replacing oil and therefore I can't buy oil. The contrar- ian says that peak oil demand is probably reached in 2045, as a consequence of the extraordinary utility of oil and as a con- sequence of the fact that our economy, whether we like it or not, is oil dependent, MINING OUTLOOK

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