Righto muddy miners, another Friday special, another bloody
Ripper delivered by Axis Mining Technology, the trusted advisor
and drill. Our survey instrumentation and
the trust we have for them is probably similar to the trust we
have with everyone else that comes on.
Just like this fella. Straight from the humidity of
Singapore. Mr Alex Turnbull, welcome to
Money of Mine Copper. Thank you mate.
You've got a light blue shirt and I thought you're not allowed
to wear them in Singapore cause of the sweat.
I thought it was white shirts only over there.
Poor mate. And there's an advanced
technological development. You can get them made in
Siyasaka so it just stays slightly off your skin so you
don't get too hot. So I've got a lot of them in
this climate. There's a there's an ice vest
under it too. Very good.
Probably. Yeah, exactly.
I've seen those people go for runs in them.
It's crazy. Trav give the bloody give the
spiel of Mr Turnbull. Another great sub stacker out
there. Yeah, he writes bit of a bit of
a frequent writer on his on his on his sub stack, which I can't
pronounce, so you've got to forgive me his syncretica.
I'm probably saying that wrong. Syncretica, yeah.
There we go. But, you know, you're, you're,
you're an investor in yeah, the materials, energy, kind of open
source modelling kind of like areas maybe he previously worked
on the, on the special seats desk at Goldie's in on the Asian
special suits desk and spends plenty of time.
I just like, you know, the way you kind of word it to me is you
think a lot about that interface of, you know, data, data
centres, chips, energy, metals. And that's, you know, that that
overlaps a fair bit with our wheelhouse and what our our
listeners think and care about as well.
So pretty, pretty keen to, to explore some of the, the things
you've been thinking about, Alex, because you know that
these are the themes that really inform the commodity cycles that
get us excited and demotivated at the same time.
Yeah, no, it's, it's it's interesting.
I mean, I've also done a bunch of policy work with a think tank
because one thing I guess I've seen now we more golden special
since we bought talus and though the assets that became talus and
like green bushes out of bankruptcy and we we literally
just underwrite the tantalum. We didn't even think much about
the lithium. And then you started to have DV
thing come along with the Nissan Leaf.
And one sort of consistent pattern is is, you know, the
tech moves that you know, are very quick cadence, but the
problem is getting mines up takes 710 years.
So there's always these kinds of moments where something happens
on the tech side and it leaves miners hanging or ultimately
something happens on the tech side and you have a bunch of
semiconductor companies saying I need a 300 tonnes of 300 million
tonnes of whatever. And there's like literally 1/4
of that available. So it's interesting as investing
because it creates these really big displacements and shocks.
But you got to kind of be following both at the same time.
But you know, it's interesting. The way you, the way you kind of
yeah, described it to me over it, you know, text exchange was,
was the, you know, the, the tech evolves.
You know, before the, the, the narratives that, you know, the
investment narratives kind of evolve and I, I guess you know,
naturally then you want to focus on what, where, where is the
tech evolving right now that will inform kind of tomorrow's
narratives. And actually, like, I'm keen to
know where are you spending a lot of your time thinking right
now because of the tech evolution?
Yeah, I think a lot of the a lot of what's happened in batteries
in terms of people getting all the cobalt out, I mean that's I
think that's largely played out. I think that people's consensus
numbers on cobalt demand been a lot lower has kind of played out
and then the split between nickel and LFP or some people
say sodium now I think that's also fairly well priced.
I'm not sure what's going to get those two metals off the off the
canvas, but that's I think that's now been absorbed.
I think what is very controversial now is how much
power a data centre is going to use and is this going to be an
additional over five years, 20% bump to US power demand because
given the state of permitting and power grids and so forth,
that's going to be very hard to implement.
But that would that would be a big change to those markets.
So spending a lot of time looking at, you know, chip and
data centre topology, how people are trying to reduce power, how
successful they've been and how much is coming down the pipe in
terms of energy efficiency. So yeah, that's been spending a
fair bit of time on that. Optical compute, photonics,
these sorts of things, yeah. So if we just to get a concept
of where you think these data centres and you know, the world
of semiconductors at the moment, rewind, I don't know, four years
ago or so when you had everyone pivoting to the future facing
metals, the everyone, yeah, cobalt, cobalt was going to be
the thing everyone getting into nickel sulphide.
Then obviously the, you know, the battery uptake change to
changed a bit and then it was all it was all about this future
EV demand and obviously lithium went bloody bananas and we're
here now and it's all just are we at that point is that is data
centres the new a VS from four years ago I.
I think so. So thematically what happened
was it's all it's like that's a really good comparison because
what happened with the EV thing was you had policy driven
massive push on EV demand, particularly in China.
And you also had a funny thing where due to the COVID mess and
a lot of normal ICE companies not being able to get their
chips made for analogue because basically all of Malaysia got
COVID simultaneously for about four months straight back in
2021. You suddenly had Teslas were
available that their operations weren't interrupted.
And suddenly there's enormous demand for for Tesla vehicles.
At the same time, you had all those mines shut down.
So you know, you're Elita Zeltur as all these guys.
So that just went vertical. And similarly, what's happened
with data centres is due to AI, suddenly people realise they
want to invert matrices a lot very quickly all at once.
So you've had this kind of demand displacement in terms of
compute. What we haven't seen though is
how people are going to kind of tamp down that demand in terms
of efficiencies and that's definitely coming.
So, so one sort of simple way to think about it is that anytime
you run something along copper wire, you've got some resistive
losses. So you know, you take two sides
of an, I don't know if you were terrible pyromaniacs as
children, but I was two sides of a 9 Volt battery.
Run a copper wire through it or try to make an electromagnet
gives off a lot of heat. If you move that to optical to
light, then there's no heat losses.
So that's a matter that's. So the real, the question
abstractly is how much computation can you do with as
little electrical as possible. And that's what, you know,
people in physical labs are exploring the boundaries of, but
there's a lot of products coming to market which will facilitate
a good chunk of that. So what's the if you want to
hide in on the actual metals between the construction of the
data centres and the power supply, what are going to be the
what, what are the the big ticket items at the moment from
the first pass you'd say? Yeah, I mean, definitely it's
just, I mean, right now it's a lot of so in terms of not so
much metals themselves, but you see like a lot of the to to
dissipate all this hate. It's just it's a lot of HVAC,
it's a lot of heat management companies like Vertiv in the US
and just also just you know, simple high voltage switches.
So I think the Beige Book came out last night.
We've now got run running four straight years of electoral
components being in shortage in the US between, you know,
renewables, build out data centres and so forth.
So people who make just basic switch gears and stuff like that
or are busy. So businesses are doing well.
I think in Australia you've got various, you know, contractors
and electrical who are still absolutely booked out here.
Comical stories of, of how hard it is to get good electricians,
particularly in regional areas. And I think that's, that's
pretty much ongoing. So that, that's one stylized
fact. In terms of the metals demand
currently, it's quite very copper intensive.
But what I'm looking at is how copper intensive data centre
plans people have planned out for 2027 versus something
they've built over the last 18 months and it's quite a big
difference. So that's only I'm trying to get
some hard numbers around. It's a this might be a dumb
question, but with data centres in the heat and everything is
does silver ever come into play as a better conductor of
electricity? What the best conductor or is
it? Is that never going to be a
thing? Not too expensive in in terms of
the heat dissipation and everything.
Not not, I don't think so. What's Silver's kind of
interesting right now is that it's a lot of it's used in
solar. There are technologies to get
that, to get the silver out of solar if you go to hetero
junctions and there's guys like Sun Drive and a couple of
companies in Germany. But what's interesting is, is
that because the sector's so been so bombed out, no one's
going to do the CapEx to get rid of the silver.
So the silver intensity is going to stay and be very high and you
can run numbers which are not even close to crazy where silver
starts to become, you know, mid 30% of total global silver
production just for solar. And so that that's a metal which
could get very silly over the next couple of years if people
don't make that technology switch.
And no one's going to put that money in to make that technology
switch when they're making a negative 20% gross margins as a
lot of these guys are. So that that's a metal, which is
kind of set up an interesting way where it could get quite
bananas for a little while, frankly.
I, I think the, the elephant in the room with regards to, to
data centres is energy and where the old energy will come from.
That's obviously been a big talking point, at least in the,
the kind of circles that that we speak in.
What have you sort of learnt from from diving in to this at a
sort of broader level to start with?
Yeah. So I mean, if you think about, I
mean, data centre, basically they want to keep the ships,
let's call it that sort of more or less atmosphere, you know,
ASM like atmospheric temperature, so 20 to 40° C, You
don't want it to get too cold, too hot.
The interesting thing for a lot of these data centres is that
because they've only just become insanely power intensive quite
quickly on the AI side in terms of, you know, unit per square
metre footprint, there's a lot of stuff you can do.
And they're also, they're normally big flat, you know,
it's not like a vertical building.
So there's all sorts of stuff going on right now.
People are saying, well, maybe we just put a bunch of solar
panels on it and we just freeze a bunch of water during the day
and we just use that as like an ice battery.
There's a lot of sort of efficiencies to squeeze out of
these things that have largely not happened yet.
I think for in terms of like, you know, is coal going to stay
on the grid or is it going to continue to retire on as per
projections, you know, 3-4 years ago that what matters is a total
power demand. And what I'm saying is that I
think people's estimates are, are way too high right now.
They're going to come down to these efficiencies at the at the
ship's level. But it's, I think in the short
term, yeah, if you've got a coal plant which is due to retire in
2028, it's probably going to get punted for an extra 2 years at
this point. And is that, is that a trend you
see across across the Western world?
Is there sort of, you know, disparities in that and how it
might, you know, play out in in China versus America versus
Australia? I think so essentially in places
where you have very easy permitting to build renewables
or batteries or what have you, you still get pushed out faster.
So Germany's done all sorts of stupid things with their energy
policy, mostly around nuclear, egregiously so.
But on the other hand, they have very permissive permitting.
So just getting stuff built is easy.
It's a little bit like Queensland, but you've got that
coordinator general thing. So just like actually getting
poles and wires done is just simpler.
So yeah, we're in places where you can build the substitute or
the other sources of power things get pushed out quickly,
but where you can't build because you've just got a crazy
permitting mess. Like, I don't know, you know,
the Northeast US or California things got a bit more slightly.
Is there is there any numbers you can wrap around the power
required for these data centres? Like as a comparison to to
something else, like how energy intensive they actually are.
Yeah. I mean, look that people are
talking about a one GW data centre that's like a, that's a,
that's a, that's a, that's a big, yeah.
So, so there's one being planned.
But then they're also looking at reducing the switching
interconnect costs using some technology by about 80%.
So you know, there's this race between actually demand for this
stuff and, and the efficiencies are really starting to come
through. Whereas no one was really
engineering this stuff from a power point of view, you know,
with a big focus on power until 1218 months ago when the
densities got to the point where you had to start spending crazy
amounts on getting liquid. Like a like you'd be like a
liquid cooling interconnect to a chip which pushes through a
liquid to take off the heat because you can't actually do it
through airflow anymore. Any degree of reasonable
efficiency. So there's a lot, lot of moving
pieces right now. I feel like it's a little bit
like battery cathodes were like two years ago where nickel and
cobalt were nuts. And suddenly people in whatever
the physics of the, sorry, the chemistry lab at CATL and so
forth were told, all right, guys, like, you know, if you
want to get promoted in this organisation, you need to thrift
a lot of the expensive stuff so you get to work.
And that kind of happened, right?
So I think we'll see more of that sort of thing.
Right. So that's what, what, 5 to $10
billion just to power a data centre without building the data
centre effectively, Like if you've got to build a one GW
reactor to power it. Yeah, yeah.
If you, yeah, if you want to build a nuclear reactor to pair
with A1 gig data centre, it's it's pretty crazy stuff.
A lot of the really big ones and really crazy projects are in the
Middle East, but there's also a lot of them where you're saying
in the US there's one big Amazon centre where they basically
teamed up with an existing nuclear plant to take the whole
offtake and. That's that does it matter
where, where the data centres are built, where they emerge,
They just will they naturally emerge where there is a, you
know, a glut of, of, of low cost energy or is, or is there like
more to it? It depends.
I mean, so, so you know, obviously if you there's latency
as an issue. So if you, if you're whatever
requests information from, I don't know, a Spotify server on
AVPN, it's just laggy. And that's annoying if you
request it from somewhere locally.
So distance is important for certain applications.
But if you're just doing a big training run, like you're
ingesting some obscene amount of data to make GPT 5 or whatever,
location doesn't really matter. So try, so I think for
inference, which is where you actually, you know, actually run
a question to the model and get a reply.
You, you obviously don't want to be waiting 5 seconds for a
reply, but if you're just doing a big training run, I mean, you
don't care. That's not something you as a
consumer observe. So they what about the modelling
of it is like where is it sit at the moment about all this, the
power required and the copper required for data centres.
Is this like one, how much, how much exists at the moment and
what is being modelled for the future projections of these data
centres or is it, yeah, very opaque at the moment.
It's, it's pretty opaque. So if you look at, if you go to
your friendly neighbourhood consultants at Woodmac and so
forth and they try to give you a sense, you sort of and you poke
them pretty hard on the details, which is what I like to do find
there's not as much there, which is why I've been spent a lot of
time talking to interconnect companies and other sort of
businesses to really get my head around what those actual numbers
are. I think right now they're pretty
accurate on what the intensity is now.
I think they can tell you where we are today.
I think going forward, some of their projections, if you look
at various ways companies have thrifting on power and normally
thrifting on power means thrifting on COP.
They're kind of the same thing for that fundamental physical
reason. Those things are going to pick
up in a quite a big way, but really not for the next 18
months, I would say just in terms of the late times of how
people plan this stuff out. But once that starts to hit,
it'll, I think it'll be, it'll feel a little bit like what
happened with battery metals once all the Indonesian nickel
supply starts to come on or once all the mysterious spodumain out
of Africa started to turn up and people supply demand balances.
But no one could really track it at the port level that well.
So I, I think it's going to be the short like it's like a lot
of things in commodities. In the short run, momentum tends
to work, but in the long run, you know main reversions are a
real pain in the bum. Well all this bloody all that,
the heat coming out of these these data centres and the
bloody the water cooling required.
Mate, I'm bloody thirsty. If I can feel the heat, drink it
out of my green water bottle. Geez that just just green lands
popped in me head. Green water bloody tell you what
isn't. Ohh mate, have a have a look at
this. You've got me.
Pipes. Wow, water pipes.
Jesus, pipes pipes, pipes. There is water pipes flying out
the door at Greenlands. Talk about moving a shit tonne
of water. Look at the size of these pipes.
They could transport a lot of water, they could cool data
centres, they could build mines, they could.
But they could transport iced water to go straight into the
data centre to keep that bastard at 20 to 40.
You want water, you don't want water, They'll they'll fix it
both for you, right? 10K10K.
If you don't know if you want water or don't on it, I'll tell
you if you need it or not. Simple as that.
So make pipes, buddy. Hey, they're freaking huge.
Think water. Think Greenlands.
Very easy. Think data centres.
Think Greenlands. And the the to your to build on
your analogy to EVs Maddie, like the the flimsy part, I imagine
is just, you know, projecting what the the the intensity is
actually going to be over time. Like how how how how?
Well, that's, that's what happened with, didn't it?
Isn't that what also happened in the lithium modelling, how they,
yeah, they got wrong the actual amount of lithium intensity
going into the batteries, Yeah. And was kind of confused with
the inventory levels, right? Yeah, we didn't know what was
sitting, you know, at the the battery.
Maker, just a big ball of fuck. Yeah, I mean it's so it's funny
on the lithium thing. So paper just came out with a
normally what they do is they pre lithiate.
So they sort of charge the battery slightly, let it sort of
marinate for a period of time in order to develop an interface
layer on the anode, right. And so people just tried, why
don't we just run a bunch more current through it all, more
lithium out of the solution, have a thicker interface layer.
And what does that do to the properties of battery and
actually means you can get almost double the cycle life.
So great. But this is, you know, it's
funny you read these chemistry papers and some guys like, oh,
look, I've doubled the cycle up. I'm like, good for you, pal.
And they're like, yeah, but we need like 25% more lithium per
kWh. Now I'm like, that is that is
actually a big deal and resources.
So it's funny how there's people on the yeah, I think there's
often a lot of upside in talking to nerds in chemistry labs, or
at least the people who tell you at the battery companies where
their next sort of essentially cathode plans are, because it
has huge effects on supply demand balances and this stuff.
And yet you know that I find the consultants or at least the
people who produce the estimates of long term supply demand
balances are not super responsive to what's going on
there. Alex, you've, you've written a,
a fair bit talking about lithium and how the, the Aussie industry
and, and Western industries more broadly can kind of insulate
them from the, the volatility that we've seen.
You know, with prices running up to 8000 now down to a bit over
700 bucks. I think to, to start, it'd be
good to get a bit of a flavour for how you sort of put this
forward. I know you've spoken about sort
of strategic reserves. I'm not sure if you're thinking
has evolved since you you wrote about this.
Yeah, no, definitely. I mean, the, so my thinking on
this comes from doing far too many lithium bankruptcies.
So, you know, obviously Talison got sold out of Sons of Gualia,
which is they messed up their gold hedge in that's another
story entirely. But then you had sort of another
wave of failures where Galaxy almost sort of drop dead.
You then had the wave of bankruptcies with sort of Alita
Altura and so forth. And the problem is that from a
policy point of view, so say you, you, you're a government,
you want everyone to decarbonize, you need lithium,
cool. But you need capital to commit
to that. And there's this end point of,
OK, 2,000,000 tonnes, 3,000,000 tonnes, LC demand out 2030,
whatever your number is. But to get there, you know, you
as an investor need to have the company survive and not die all
the time. And that's pretty challenging,
historic. And so what's banned also for
large companies, they tend to under invest because they know
these oversupply periods are brutal.
Part of the problem with lithium is that you can't really store
the end product. So hydroxide, if you try to
store that, but more than 12 months, it's very aquaphilic.
It basically absorbs water in the atmosphere and turns into
sludge. Carbonate's a bit better, but
not a lot better. So the way you kind of would
manage a market like this is being able to store Spodumain in
some way that the problem is, is that if you want to do some sort
of physical trade where you say buy a bunch of copper on the LMA
and then head to the futures curve is slipping upwards.
You can hedge that a couple of years out.
You can you can get like a good bit of leverage from bank on
that. You can't do any of that in
spodumain because there's no there's no futures, there's no
warehousing infrastructure and there's no financing as a result
of that. So This is why we kind of
overshoot all the time in lithium because there's no real
bank funding. It's kind of the difference
between a market where you've got strategic demand for storage
and physical where you know, I can go out and buy it and put it
in a warehouse and so forth as a fund.
I can't do that in spudgering. So trying to work out how to
make sponge in a little bit more of a drawn up LME style market
is a isn't, I think important because otherwise we'll get
short again. It'll take ages, people to put
supply on and we'll be up at some crazy level.
And then the governments will be upset because people don't want
to buy these because they're expensive again.
And that's sort of that sort of ping pong thing is not ideal.
There's some bag holders that have really opened.
That happens. On the.
Stocks. Yeah, I mean, so the way I model
it is that if I if you're say we're at whatever 700 bucks spot
right now, if you think the long term incentive price for spot is
say 1500 bucks or probably high if you're talking to someone
like Patron Metals or Minarez or what have you, then it is vastly
more appealing to just sit on a bunch of physical.
You can store it cheaply and the great thing about spot is it's
not very reactive. You can store it on a womb pad
for a long time and and float it later.
I mean, that's certainly happened out of bankruptcies
before than it is to keep on tripping money into some junior
mining team who are still going to conferences, still have too
much SGNA, you know, not it's a basically like there's a lot of
negative carry. I would say in the sense of like
the cost to play in a mining company, which is below it's,
you know, all the AISC is a lot higher than just sitting on
rocks. So, you know, a lot of people
want in physical training, they'll just accumulate physical
rather than trying to mess around with junior miners and
all the all the risks associated with them.
So essentially but but that's part of the reason why stuff
like copper and zinc tend to normalise a bit faster and be a
little bit more better behaved markets.
So are you saying this, you know this, this does happen, but it
tends to happen perhaps with commodity traders and people
more in private markets that we're not as sort of Privy to?
Yeah. I mean, so commodity traders can
take a view. I mean, I'll give you an
example. In 2015, it's fairly well known
Glencore accumulated a massive position in zinc and then
preceded to shut down some of those zinc capacity, which is
pretty clever depending on how you look at things.
But that's, you know, you can't actually accumulate that
physical leg in lithium. You basically just have to take
the corporate risk and if you want to mess around with futures
on, it's all cash settled. That's all references, Asian
prices, there's a little bit of bubbly wobbly stuff in terms of
how accurate those prices are. And then you know, there's stuff
you can't store, you can't sit on it for more than about 12
months at best. So that means if you, if you're
going to bet on the physical market normalising, it's going
to happen in 12 months or else you've got to flog your
inventory very quickly before it goes bad.
Whereas if I just want to make you like cop cathode, I can sit
on that for a more or less indefinite period of time.
And so essentially long term, long term value investing in
physical is not possible on lithium, which is why it feels
like a very cracked out market wherever on short term because
they kind of have to be as a current stats.
So on, on a slightly different tech, we've seen a lot of the
companies down here try to go downstream IGO Minres briefly
before they, they sold out. You've also sort of, you know,
in tandem seen a lot of discussion with, with
governments encouraging it and what not.
What, what are the kind of views you've come to take it?
You, you spend a lot of time looking at, at Asia, you know,
cattle and the like, who've done, you know, phenomenally
well in their sort of iteration and and learning turnover.
Why have we struggled so much in Australia?
I think a lot of, I mean, building a refinery is to a
certain extent it's easier if you've done them before.
And of course China's built a lot of lithium refining
capacity. There's also just some of it's
just the same reason why it costs a lot to build a railway
in Australia versus bilbon in China.
It's just labour costs, efficiencies.
You know, some people would point to C, FM, EU, no
particular opinion on my side there, but it's just, it's the
reason why I built cost building stuff in, you know, a lot more
developed jurisdictions is just generally more costly.
There's no, there's no mystery there.
I think the issue is, is that the producers, the advantage of
having downstream is that you are selling a end product which
can be sold directly to Japan or Korea or where or the US or what
have you. Whereas if you're selling spod,
to a certain extent, you are at the mercy of whatever the
Chinese market is doing. And so you particularly in a
bear market, the discounts and physical spot can be pretty
terrible. And so that's what's led to a
lot of mine failures and closures also means if you're
selling spot to China, you're facing someone in Shanghai.
The understanding of talk law and enforceability of contracts
is going to be very different to you, historically speaking.
So we've seen a lot of situations like with a leader
where the Chinese off taker just said, actually, no, I don't want
to take it to the 800 bucks anymore spot 650 and they get
the company ran out of cash in two months or so.
So there's a there's a credit risk mitigating thing there too.
So I think there's but you know, this is another thing.
It's essentially do order companies and people who are
buyers of chemicals want to have an enforceable, stable contract
chamber. They want something which is
going to be very cheap when it's good, very expensive when it's
not, and very unreliable at any given point in time.
And so there's a there's sort of a security versus price trade
off here, which people are kind of ignoring, but tends to bite
them on the bum at the worst possible times.
I did. I did not know about that that
detail with with a leader in there and they're.
Also, yeah, and Altura, they were, they were getting they
they also had, you know, people not taking cargoes or deferring
cargoes non stop. This is yeah.
It was sort of interesting how a lot of these guys in 2019, they
didn't raise equity when they cook because they're off taker
and say no, no, no, I'm good for it, I'm good for it, I'm good
for it. And then suddenly, actually I'm
gonna take any material, get wrecked, come and send me that
is. Maybe like the last one on, on
kind of, you know, the lithium companies like you've had a fair
bit of work with the, the, the miners that have found their way
into bankruptcy for whatever reason.
Yeah, I'm, I'm. I'm guessing you'd take a
relatively positive view on the on the credit case for a lot of
these miners, but I'd be curious to know your view on the equity
case? Yeah.
I mean, so the problem is the credit case is that it's hard.
You really have, you're really kind of the problem is there's
no way to really hedge or manage physical risk now.
So the credit case is you might as well be getting paid equity
returns in the good times because you're certainly taking
something close to equity risk in the bad times.
I think on the equity case now the issue is, is that are we
going to get some voluntary reduction in supply to stabilise
the market somewhat? I think we should.
The reason is, is that a lot of these miners don't have a tonne
of debt. I guess min res is a notable
exception now. So they do have the capacity.
So we're just going to throttle back supply until this balances
and we're not going to produce any losses.
So I think there's the scope for these guys to kind of reduce
output without getting in trouble with their creditors.
Whereas a lot of these guys last time around had covenants with
creditors where they said you got to produce or like we're
going to pull on this line next week, which just made the sell
off all the worse. And so I think that there's
scope for supply discipline. Now.
I, I think the equities though that they will only bottom and
physical kind of bottoms. And the scary thing for a lot of
the equities now is a lot of these guys are making pretty
sizable cash losses. So, you know, you look at all
these names and if things don't get better soon, that you've got
to assume there's a certain amount of dilution coming down
the Pike. Given you've spent this time
looking, you know, all the way from the raw materials through
to the, the, you know, the final technology.
I'm interested to hear, Alex, what you kind of make of what
you kind of think the end game is for the European and the US
automakers given the the rise of, you know, BYU and the whole
suite of Chinese AV makers. Yeah.
I mean, there's, yeah, the Germans have not covered
themselves in glory. And I think the markets
gradually figured that out over the course of the last six to
eight months. I think the there's a lot of
moving parts here. I mean, firstly, there's a
couple of things which have kind of become quite clear from
consumer point of view in China. They've got charging stations
all over the place. People are very comfortable
buying EB's. Nobody wants to be, you know,
driving an oversized iPhone with wheels and not be able to charge
it. That's sort of a people have a
natural angst about that. So I think demand for EVs in a
lot of markets is very heavily capped by how comfortable people
are about charging. So in the US they've started to
really pick up that roll out. So that's that's been very
constructive. But in the interim, you're
seeing a lot of demand for what they call EREVS or extended
range electric vehicles. So you get about plus -100 KS of
range of the battery and then you've got plug in for the rest.
That seems to be the sweet spot for a lot of markets in the US
and a lot of Europe now too. I think what happened with autos
is they said, OK, we've got our core IC thing, we're going to
have a specialised TV thing. But then DVD take up wasn't
quite as good as they expected because people aren't quite
fully comfortable making the jump.
The guys who are doing very well right now actually Toyota,
because I've always had this sort of bias towards hybrids or
degrees of hybridization or plug in.
So yeah, so I think that's how everyone's kind of like people
haven't kind of actually, well, most of the Autocomp haven't
kind of got models which are really clicked with people that
well either on price point or sizing.
But that's starting to change and in China, of course,
everyone feels very comfortable on DVS.
They just buy them and be what is happy and maximum.
In, in China, I know you've spent a lot of time, Alex,
thinking about their, their energy market and, and the make
up of it. And, and I mean, there's a few
kind of interesting facets of the, of the Chinese energy
market that you know, aren't immediately obvious to, to, to
people, including myself until I kind of read, read, read some of
your writing. We, we all kind of know about
the, the hydropower industry that, you know, that, that, that
China's the beneficiary of. But it's not necessarily like
strictly intuitive that the, the reliance on, on or the
utilisation of hydropower actually drives demand for
import of, of, of coal and, and gas.
Can you, can you, can you tell me what, Yeah, what you found
there? Yeah.
I mean, if you think about just think about the shape of sort of
China, it's got a big sort of table top in Tibet.
And then, you know, essentially the the cradle of Chinese
civilization is basically people who grew crops in the river
systems that hang off that, namely the Yangtze and Yellow
River. So the there's an enormous
amount of hydro, but you know, as in any sort of power market
with a lot of hydro, whether that's Norway or, you know, the
Alps in Switzerland or Austria, it's variable.
And the interesting thing with the hydro in China is that a lot
of the hydro, you know, basically there's water coming
off Tibet and Sichuan and then going downhill.
There's very big high voltage to connect to southern provinces of
Guangdong and Guangxi, which are big importers of thermal coal.
So essentially when the hydro availability is excellent and
there's lots of power to export from these inland provinces
close to the southern ones and there's a bit of a, you know,
humid, my chase moment for thermal exporters.
And so, yeah, so I do track it because it is important
statistically sort of more medium term signals and Asian
demand for thermal coal. Northern China is kind of its
own thing. They have plenty of coal in the
north. They, you know, unless they do
something silly on the supply side, it's it's a little bit
more of a stable system. So, yeah, but you know, this is
a thing in Europe too. I mean, the years where they've
got weak hydro, suddenly the market feels super tight and
gas. And there's a reason for that,
right? And the good news is that in
most countries you can get really good dam and rainfall
data. And China, the hydro data is
they kind of often put it online and make it very difficult to
scrape and they pull it off. It's it's a little bit of a cat
and mouse game in terms of analysis.
But yeah, it's worth the trouble I generally find.
So is it literally how much it the variability in the hydro
based on how much it rains in Tibet?
Is it as simple as that? Yeah.
I mean, basically you get the monsoon, right?
Comes off the Indian Ocean, bang.
It's the, you know, Himalayas, A lot of it lands on the Indian
side, a lot of it flows up onto the Chinese side, and then that
sort of drives China's hydro system as it goes towards the
East China Sea. That's pretty simple.
So it's sort of this monsoon. The funny thing is now in India,
because you've got also some coal imports there, the
behaviour of the monsoon on the Indian side now substantially
impacts demand for import thermal coal there.
So I didn't do hydrological engineering, but sometime or
meteorology, but it's sort of kind of important to.
Transfer stuff like. Asian.
Column close enough, yeah. Yeah, it is.
It is what it is. It's if it moves the market hard
and it's under under covered, then I'll take a crack at it.
Sure. You you checked in the number
that it at times can translate to 4% of the global electricity
output. Yeah, Yeah, that blew my mind.
But and, and this stuff can swing.
So if you think of like in a commodity market, if you're like
global supply demands like 345 percent tight, I mean that is
that's, that's like 2022 crisis grade stuff.
And this stuff can be up and down 20% year to year.
So it's an enormous influence not just on their market, but
globally. So yeah, it's worth tracking.
Yeah, it's it's they don't make, they don't make your life easy.
Like I said, there's not like a nice little data API where you
can pull down all the dam levels and everything that's going on
minute to minute like you can in Norway or or Switzerland for
that matter. Is that just tying back into you
said global, global energy demand and then heading towards
this future of EVs, if everyone, if there's is a massive uptake
and everyone's charging EVs overnight, how much is that?
Is that negligible or massive in terms of global power demand
once you're replying combustion? Look, it depends on, there's
lots of different numbers. There's so many studies on this,
right? You kind of start to get a sense
of what the error bars are on the numbers.
If you look at moving everyone to EVs and then you've got, you
know, moving industrial processes to hydrogen or, or
heat pumps or what have you. Normally the bump is somewhere
in the order of 20 to 25% off the baseline.
So that's substantial. But that's something which plays
out over, you know, to 2050 or one of you 0 targeted.
So that's, you know, you can kind of absorb that.
The data centre stuff is a bit spicy because people are saying
some investment banks anyway are saying we're going to be 20% up
in six years and that's, that's a big deal.
If that's real. I'm becoming a little bit more
sceptical on how real that is. But that's a real thing.
So yeah, but the interesting thing is also like you've got
all these EVs on on and people can sort of time their charging
and then people put solar on their houses.
Then you know, how much at the substation that you actually
seen demand go up? And what does the shape of that
look like? And it's, and they need to say
this, electrical engineers spend a lot of time modelling this
stuff out. It's kind of interesting, but
it's all it's an emerging picture as.
Yeah. So for the data centres like
when this big uptake of them, if it does happen, is that going to
replace anything in the world like reduce the need of anything
or is it just going to be a pure edition of the need for copper,
the need for extra power etcetera?
Well, I mean, there's obviously all these efficiencies you get
from these. So I mean, I use AI use like
Claude's pretty good. If you're writing code, if you,
you know, feeling a bit dusty 1 morning and you're not really
feeling like writing some boilerplate stuff, you can get
AI to do a lot of that for you. Now that's kind of a big deal.
Does that replace anything in the physical world?
Well, TBD for example, one thing that's kind of crazier this AI
stuff is that because you can now essentially brute force
modelling physical chemistry. So how ions move through a
substrate or what have you, people are now the search for
better battery cathodes is now increasingly happening in
silicon. And then they go from say 3
million options down to 70. And then they test those 70 on a
wet bench. So I think you're going to see
it in terms of the speed up in technology in a lot of areas.
But I think it's going to be big in pharmacology.
You've already seen that and also in physical chemistry for,
you know, battery cathodes, materials and that sort of
stuff. So it's it's not like you can
just sort of go into a couple of line items in Excel model and
show where it's going to turn up, but it is sort of popping up
all over the place. So I think, I think one of the
big pieces we haven't yet spoken about that ties in is stationary
storage. What, what do you kind of make
of the consensus growth numbers out there for stationary storage
and you know how that plays into metals demands and all these
sorts of things? I, I think it's so I think it's
sort of interesting. There's there's often a very
it's it's, it's tricky to model. The reason is, is that right
now, given spreads you see intraday in say the NEM in
Australia, NSW or Victoria or something, you know, prices are,
I could open, you've probably seen that open NEM website.
You can see prices are basically negative for about four or five
hours a day. Now they get smashed up to like
300 bucks for about 90 minutes or two hours around dinner time.
And then it's back down to something sensible for people
who want batteries. They're absolutely meant to you.
I mean, you can do sort of back of the envelope stuff even
assuming they don't get any of this spending reserve or
frequency and ancillary services revenue, they're they're doing
great. But the interesting thing is as
a lot of storage goes in those spreads will come down pretty
hard. So there's kind of an
equilibrium where you need enough spread to justify that
store stationary demand. I think it's very robust now,
but in 3-4 years where the spreads going to be And then if
you've got Snowy 2, at least in Australia, coming over the top
with a hammer in 2028, then is that going to slow down?
I think in the meantime there's sort of going to be a a speeding
up and slowing down thing where spreads very wide now.
Doesn't make sense to build a solar farm if you're going to
have to sell it for negative power.
That's pretty stupid. But then people pile into
batteries, solar farm gets a better level, people dump in
more solar and there's going to be sort of a, a bit of a sort of
out of sequence sort of sign and cause waves thing going on
there. Reminds me of the avocado farms,
'cause they remember when avocados were like 7 bucks and
the people who had farms were minting it and then so everyone
bloody planted avocado farms everywhere.
They take six years to come to fruit and then by then there was
like avocado, 2 bucks 'cause there's so many more avocados.
Thought the cure for high prices is high prices would have.
Been more in the Neero resource. That's odd.
I think I think that's exactly right.
I mean, the difference is though is like in solar, it takes like
an 18 months, two years to throw up the farm, so long as you get
your permits, batteries. It's like some of the sometimes
you can put these installations together 6 to 12 months.
Yeah. So, so it's going to be a little
bit more of a tighter cycle, but I think that you're going to
start to see that play out a bit and it should mean prices are
mostly a bit less cracked out going forward.
Well, where things get spicy and even in the electrical
engineering you guys do these big models, there's a guy called
Tom Brown at University of Berlin.
He does some great stuff. The time that's going to always
going to be dicey is like it's cold winter, not a lot of sun,
not a lot of wind. And that's when things will get
silly. So that's where you're going to
need electrolysis for, you know, 150 hours of a winter where
things are not great and the prices will always be nuts then.
And then they'll be, you know, 2530 bucks for most of the rest
of the time. Is it just a function of like of
of like the, you know, the best implementation and requirement,
all that sort of stuff is just a function of the penetration of
solar and, and, and wind in any, in any market.
Yeah, I mean places like Australia, it's super cheap.
I mean, The thing is, is that I mean, people get very political
about nuclear. And my opinion is that if you're
summer, which is has not much sun, not all, not great wind and
it's cold said you're crazy not to the nuclear like it is
absolutely unhinged. Like people say no, Poland
shouldn't and you kill. I'm like, well, what are they
going to do? This is like, what are their
choices here? Whereas if you're somewhere like
a lot of wind, a lot of sun, you know, you can do a decent amount
of pumped hydro, you're Argentina or Australia.
I mean, you've got plenty of choices.
You don't need to do anything large and complicated.
You can just do dumb modular stuff.
So I think it's going to be very much how people do this energy
transition is going to be very much a depend on your local
endowment, physical endowment and that'll define what's going
to be the lowest cost option. One of the one of the your non
consensus kind of calls last year, which sort of, you know,
played out to be pretty, pretty correct was, I mean, you're
pretty pessimistic on the outlook for for met coal when
when consensus was pretty, pretty optimistic.
And I think you were, you were sort of looking at the the, the
displacement of, of seaborne met coal as a result of, of lower
cost Mongolian coal feeding into into China.
Yeah. Like, how did you kind of come
to that view and how have you seen it play out since?
Yeah, I mean, so I I did a I did in 2016, 1716 there was like a
bankruptcy of a Mongolian coal producer.
So I always done a lot of Asian distressed that stuff.
So I got involved in that. So I got to know that company
recently. Well, what was kind of
interesting during COVID, China did a bunch of very silly things
in the coal market, which I wrote about, I think it was.
But basically they if they shot their border with Mongolia, OK,
so you can't get Mongolian Coca Cola anymore because you're
worried the Mongolians all have COVID and they're going to pull
it. China, fine.
But then they also had a massive fight with Australia over
whatever it was Scott Morrison ticked them off about.
It was COVID inquiry, which I think was probably a good idea.
So then you see, so where were they going to get their Metcal?
So you've kind of Mongolia's out, Australia's out.
At the same time, they started to run a very big stimulus.
So METCO got very silly. And then of course with Russia,
a lot of the met coal supply from the Donbass or exported
through ports near Crimea and so forth, that just tightened the
market further. So to just say it went, it went
absolutely been honest and justifiably so and sort of so
we're involved in owning Alpha Metallurgical in the US and a
few others because it was just amazing.
It was just a market which I didn't think could get this
tight in any feasible state of the world.
But you just have like 1 global policy era after another.
And I think at that point that was got up to 600 bucks or
something silly. I think what was interesting was
that after China kind of lost control of COVID, they then
effectively let it RIP and then reopen the Mongolian border.
And they were also trying to get more Mongolian output even
before they kind of towel chopped on on COVID.
And then of course, you had this supply shock of, you know,
something like 50 million tonnes of net hitting the market, not
hitting the global market. And you couldn't see it in the
shipping data because it was all right, you know, done moved
across by trucks and rail, but the market started to weaken.
And yeah, Mongolia just keeps on producing more because their
cash costs are like 75 bucks to look into the Chinese border.
So not a lot to slow them down there.
So you shared some comments in in a sub stack piece that you
wrote at the time as well. And the, the gist of it is you
were falling into question the yes, the, the pay, the bonus
structure and everything of the, the Aussie producers, given that
they weren't able to massively capitalise or at least expand
production in a significantly tight market where process was
super elevated. What was it, you know,
reflecting back on a year later, do you have views on how the,
you know, RAM is structured for these guys and the the
performance that the Aussie players had at the.
Time I I think I think it's it was kind of weird because that
was about as good amount as you could ever hoped for right.
I mean, the Russians have basically taken Outback, got any
dumbass supply from Ukraine is gone.
Like you should be able to ramp your output.
But it was interesting that they couldn't get their output up.
And I met with White Haven, with a couple of other guys in
Singapore, and I wasn't sort of satisfied with the answer they
have why they couldn't get up. And some was definitely due to a
tight labour market. And I think that's that was fair
enough. But yeah, underperformance was
quite surprising. And it's, you know, a lot of
these mining management teams, like, look at this, we're making
record EBITDA. I'm like, yeah, but you can't
even lift volumes into like a $600.00 met market.
What's up with that? So that was a bit strange.
I didn't love. I thought they were doing
victory laps they hadn't really earned.
Unless they could take credit for shutting the Chinese border
with Mongolia or kicking off the Ukraine war, they didn't really
have a hand in it. How much of that do you kind of
view US mines having a a natural sort of run rate?
Obviously, like you said, there are a lot of yeah issues within,
within Australia, labour being one of them, energy price, all
these sorts of things. Weather events happened.
But a lot of mines tend to kind of have a, a natural run rate.
And I say this from someone who's never really worked on a
mine, but it's from the outside seems very hard, you know, to
ramp up production even when prices are very high as much as
you'd kind of want to. Do you have any learnings on
that kind of? Front, Yeah, yeah, we looked at
it, on it, we went through a couple of the mines in Australia
and like, of course there's like a constraint so there's some of
it's just yellow goods on site or labour.
So how you know how much you can, you know your long wall
only has certain capacity and a lot.
But often with these plants, it's like there's a constraint
at the wash plant. And what we found was there
wasn't like an obvious constraint at the wash plant for
a lot of these installations. They just couldn't get up there,
their earth movements a lot. Now that might have just been
entirely driven by labour. That was definitely one bit of
feedback we got. I reckon that that rang pretty
true. But I was surprised how little
flex there was in the system, despite the fact when you look
at what the headroom is at a system level at a mine, it
seemed to have some capacity to move.
So that was a bit of a surprise. So yeah, it was it's it's a
mystery. I I hope someone gets a
comprehensive answer at some point, But I was shocked at how
non elastic the sort of supply curve was in the space of a
pretty crazy price fight. I think, I think on your point,
JD, I think the natural run rate of mines is also it's very
capital sensitive like your Kathleen Valley for instance,
that could that could do 6,000,000 tonne if they put an
underground crusher in and a conveyor and and everything like
that. So like I think probably your
narrow vine golds and that they're very, they've got a
natural run, right. But I think these big like your
big copper and lithium projects depending on the capital.
It's capital and time, right? Because you would have easily
been able to raise money or debt if the the met coal price is 600
bucks. But obviously it takes time to
get everything humming and stuff so.
Yeah, I I was, I think that's a good point.
Like all the like the like more base metals like copper, gold,
that's like a very capital intensive and also just more
energy intensive. I think Amo had something where
they looked at like electrifying mines and it's quite clear like
a gold project just uses way more power.
But for bulks and like more earth movement driven stuff, it
theoretically should be simpler so long as you you've got
capacity in your wash plan or whatever.
But yeah, that just, it just didn't ramp, which was
interesting. I never quite could get a clear
answer on why literally no one could get their numbers up.
Well, that's, that's the underground like natural mining,
right? I'm probably talking about open,
open pits, probably a bit different in terms of MMS
dictate the mining, right? Yeah, the natural, the natural
mining right when you're in an MMSJV is like, they'll tell you
what they're mining and then they're like, we need more.
They're like, okay, we'll get it, Yeah.
It really depends who the contractor is and if you've got
MMS around and the commodity price is flying and you want
more coming out the ground, so. It'll be a better IR and MPV and
the heck mate, the numbers will be better than yours as well.
Yeah. Well, it's like the maximum
possible mining, right? Plus 50% is what MMS mining
supply. Yes, exactly.
Yeah. And they take the risk off your
hands, you know? So most risk free.
So where's that you're saying? JD no risk, maximum mining rate
plus 50% if you'll want it. Because they'll just do it and
it's pretty much free. It's a classic.
Win, win, win, Matthew. It is a win win win.
www.miningservices Go MMS, go MMS, go do a you know people
that are doing a JV with MMS Anyone.
They're happy, minimum 8 hours sleep at night.
They have no worries at all. They just zonked.
You want good sleep? You want to look after your
health? Get an MMS JV.
Pick up the phone. So, so looking forward in the in
the met coal market, every single producer that I looked at
that the annual report of August was super bullish India in, you
know, the next decade, the next two decades and add to 2050.
Given given the you know, decade you've been looking at the Met
coal market, what do you kind of make of this this emergence?
Are they kind of looking for someone to piece in the model to
show the growth to investors or do you think this is legitimate?
I think it's, look, I mean that there's going to be more steel
demand, right? I don't think it's ever going to
be anything like China in terms of per capita or what have you,
but the number's going to go up. I mean, I'm not, I'm not some
insane person. However, the interesting thing
when I look at India's options, India has a lot of thermal Co.
So they don't think they're, you know, to the extent they can
sort out their internal constraints, whether it be rail
or, you know, funky political stuff in the Eastern states,
they can they can produce as much coal as they probably need.
What's going to be interesting on the met coal side is these
are all going to be quite new steel plants.
So China's essentially made its choices in terms of its mix of
blast furnace versus EAF and their demand probably drops over
time. And but they're going to they're
going to have the same mix of plants, I think.
But India, the interesting thing is, is that you can now get do
direct reduction plants. There's a Italian company called
Danieli which makes steel plant equipment.
And you can now take that natural gas crack into the, you
know, carbon dioxide and hydrogen and then use the
hydrogen as a direct reduction mechanism.
And the pitch Danieli is well, you know, you can use natural
gas today, you don't need that coal to reduce this iron.
And then in the future you can use green hydrogen.
So if you're a steel company and you want to keep your ESG
ratings in a good place, you can say, well, I'm going to build a
plant which gives me the option to switch to something great at
some point in the future. So the composition, I think what
people need to look to is what is the composition of new steel
plants being built in India? Because if they move towards
more electric arc furnace where they can take, say twiggies
directly, reduced iron pellets from the Pilbara and then just
tip it in or they go for something where they can take
net gas, crack it and then do the reduction themselves on
side, that's pretty bearish, METCO, right?
Then that growth story is not going to play out.
So that's another thing we're spending a bit of time on,
looking at what the future plant mix is going to be in India
because that will define how METCO intensive that steel
demand growth is. What what do you make of FMG?
As you mentioned their, their ambitions, they've been, you
know, pretty steadfast in wanting to be real, real zero, I
think is the terminology they use now by by 20-30 if you spend
time looking at that. Yeah, I mean the the various
pathways, there's actually a big a new project which I played a
minor role in looking at all these pathways to reduce carbon
and steel and that paper should be out in about four months.
I think it's been an absolute bear of a modelling exercise.
I think it. Yeah, it's been been quite a
journey modelling all these various pathways to how you how
you can decarbonize stuff. So do you do, do you just run,
do you just run met coal and do carbon capture?
That's an option. Do you do this stuff where you
take very finely ground? I'm fine.
Stick it in a sodium hydroxide bath at 100 C, run an
electrolytic cell through it and then scrape off the eye.
That's another option. There's a hydrogen thing.
Everyone knows about that. So there's a lot of ways up the
mountain and just working out what the mix is going to be.
I think Fortescue's got a number of bets.
They've got electrolytic cell thing they're working on.
They've obviously got this hydrogen thing which is now
going to be stopped, they said next year at Christmas Creek.
So we're going to see. But they're plenty serious and
they're putting the money down. I think it's I think part of the
problem is being, is that they have talked a very big game up
to this point and it's very hard for customers to understand
what's real and what's not. But I think people are going to
start taking delivery of material and at that point it's
going to be pretty real next year.
I mean, this is the same when for the ski started.
They were a high yield borrower when I started in in finance and
no one was ever sure whether Triggy was real.
And lots of people were very sceptical.
But Triggy's shown himself to be a bit of a talker, but he's also
a deliberate. So I think that's you got to
kind of get him further than that point.
I suppose the, the, the last kind of area I want to explore
is one that I haven't seen you write about yet, but he's, you
know, incredibly topical. And that's the current state of
the iron ore market and being, you know, being kind of having a
decent China lens. Alex, I imagine you've been
thinking about this a bit too. Yeah.
I mean, it's a, it's a lot like sort of the question is a lot
like when China had a big real estate sort of slow down 201415
and we briefly touched what was the low print like $34 on spot
or something like that. It was that was pretty
terrifying. I think the scary thing now, OK,
so basically China is about a 5050 split between imports of
iron and domestic production. And the domestic stuff is by all
accounts kind of rubbish. It's got high phosphorus, it's
in a lot of places, it's, you know, blended average cost is
maybe 7080 bucks a tonne. But as we have seen with
lithium, China will keep stuff running at a loss for their
national security or self sufficiency reasons.
So the real horror show node is for next year is no one really
taps the brakes in the pill, bro.
China keeps running their production at a big loss and
then you've got some undo coming over the top.
Depending on when you think that's going to happen or how
much, how much that will happen, that could get very scary
indeed. And the issue is, is that what's
China's flaw in terms of how much demand is going to recede?
And it's pretty clear that's going to recede a fair bit.
But then also, at what point are they going to gradually start to
turn off their domestic production, which is not
competitive? And I don't know, but there are
a lot of people who thought the pedal light would have been
turned off by now. It's still running.
Yes, apparently not everyone. Well, you can get, you can get,
we can get satellite products. And there's still what what is?
Yeah. Give us a bit of insight on
that. So it's funny, like I, I, I, I
sort of, I, I speak and read and write Mandarin.
So I sort of tried to check in on, well, you know, like in
these mining towns in Jiangxi, what people are like each and
what they've got all these people of petal light mines and
they're kind of horrible because the grade's terrible.
They produce all this, you know, mine waste.
And previously a lot of that mine waste was just basically
gypsum. So I went into fiberboard for
construction and that was fine. And now of course, the real
estate markets toast. So there's clearly big waste
piles around the place and some of the locals are expressing
firm opinions locally, but they're still running these
plants. And they're by all accounts, I
mean, they say their costs are in the high, you know, on
carbonate equivalent, like eighty, $19,000.
I think that's an underestimate. But you know, obviously people
have different, different opinions.
But by all accounts, they are losing like -30% gross margins.
Like that's the full case on these guys right now.
Is that the full and this is fully integrated cost?
No, this is cash. I'm the integrator.
I don't know 25. So I mean, these guys are just
losing money hand over fixed. And if they if they like that's
that's one of the numbers I really watch and lithium is that
if they start to turn off that supply, then the market will
normalise pretty quickly. But to the extent that China
wants to dump and wants to produce stuff at a massive loss
for other reasons, you know, security or whatever the
internal narrative is, it's very hard for that market to behave
itself normally. So also some headlines that in
in Zijin's latest reporting, you could kind of infer that that
they, you know, throttled some some some lipidilite production.
There's some, but there's still a lot running and the amount
that they threw on last year was crazy.
Yeah, I was. I was at Fast Markets in May
last year and a guy from one of the domestic producers in China,
this is when Spider Man carbonate was still like 35
grand or something on the basis of we're going to crush this.
You know, we get where our costs are like high teens.
I was like, OK, so we're going to high teens.
It's good shorting down to there.
But then they haven't turned anything off.
So it's just it's just kept on getting getting smoked.
So we'll see. I think we're kind of waiting to
see what what they do because that would be the that would be
in a normal market where companies try to make money.
That would be how things would normal.
But China is not just about making money.
In fact, it's something that's very not about making money.
They're done. Well, If you kept that short
position open, that'd have been pretty fruitful.
What? What?
What do you kind of. Yeah.
Yeah, it's been, it's been OK. But then the problem is
everything gets kicked out of the index and you can't get the
stock borrow and you know it's like.
That could be worse problems. What do you think of Chinese
government stimulus more more broadly?
There's been a lot made of it. Obviously.
You mentioned that the property market in a real, you know,
point of pain. Do you think there's more
stimulus to come through or do you think that's kind of run its
course and the, the property sector and the, the portion of,
you know, economic output that makes up of China is going to
normalise over time? I, I think what they're trying
to do now is they're basically stopped property because it was,
it was very crazy for a long time.
There were, you know, very the guys, Hugh Andrews sort of
called this out before he went really went literally very
tropo. It was clearly a little bit nuts
even a decade ago. He's.
Pretty good he's. Great.
I think he's he's I love that guy, but you know, he went there
and he was like, this is bananas.
And it was right. And eventually they decided to
stop that. So what they're doing now is
they're trying to export their way out of this malaise through
EVs, through solar, through batteries.
But now it seems like they're you know that even that all that
output is struggling to get absorbed now.
So yeah. So I'm not sure what's what's
really next for them. The usual answer is in most
countries is you actually try to not have all these stead in
enterprises for all this cash and you just distribute
dividends to effectively people in them, which is the
government. And then the government can, you
know, encourage a more stimulus for locals, but but that's not
happening. So I think they're kind of
running out of Rd. I'm not sure what their next
category categories are. They're going to try to take
some crazy global sharing as quickly as they can.
And obviously there's real pushback now on trade with
these. The Europeans are getting very
pointed. The Americans have slammed the
door shut. So ultimately, how many EVs and
solar panels can you dump into places like Pakistan and Nepal?
It's a good number, but it's not.
It's not even AUS state in terms of demand terms.
I was reading somewhere that Chinese policy setters haven't
have a better appreciation than than the ones in the West in
relation to kind of moral hazard and fragility in the, you know,
the financial system, etcetera. And and maybe, you know, maybe
maybe there's a some of the, you know, some of the stimulatory or
lack thereof kind of stuff to come from now we'll have that in
mind. Is that a valid perspective do
you think or is it? I, I think it's, I think there
are some people who sort of have this, let's try to turn this
into sort of more of a moral exercise.
The ultimate point is China is able to not go into a massive
recession right now because they are able to export a lot and
absorb demand elsewhere. So also someone's going to buy
all this stuff. And the issue is that a people
in Europe or the US in particular, take the view that
they don't want the auto sector to be annihilated by Chinese
exports, then what's China going to do then, right?
This is this whole thing works so long as they can export
unimpeded. And as in the case, and lithium
can export, you know, basically run losses.
The banking system just underwrites the losses of the
pedal like guys, so they can export.
And that's that's essentially like, do you want to give people
a stimulus so they can monitor working services or do anything
else? What do you want to underwrite
losses at a corporations that keep people employed with?
The whole endpoint is kind of like maintaining jobs, but it's
just this very elaborate way which you have to kind of crush
businesses elsewhere. I don't know how long term
sustainable that is. You know, the places where they
are dumping. And I think that's that's going
to be a challenge. So we'll say, I mean, the US
obviously has become increasingly sceptical on free
trade with them. I think a lot of that's quite
well reasoned. Europe's kind of getting there
in places. So I'm not sure how much longer
they'll be able to keep this up. It's really a political question
in Europe and the US more than anything else.
Fascinating. Beautiful mate, I've got I've
got nothing else but I've really appreciated this conversation.
Sensational. I was zoned in the whole time.
That was freaking awesome mate. Yeah, I'm a I'm a fan of the
the, the global view. So yeah, appreciate you making
the time coming on the show, Alex.
It's, it's actually our first, first yarn in the weeds about
data centres really like of actually going into detail
because it's a, it's a buzzword at the moment, but.
Other than antimony. Antimony.
Surprised the antimony but but it's like that's the first
thought in detail one we've had. So I look forward to plenty more
of that. I mean, a lot of these weird
like off the run metal, like gallium for example, like that
was like 3 bucks a kilo. Like because China just decided,
hey, we produce a bunch of bauxite, you know, we might as
well aluminium, we might as well just produce a byproduct.
And The funny thing is now we've got a China's basically banned
exports. The price is now 455 bucks a
kilo. And at the same time, I saw
actually an article in the West, there were people getting all
stroppy about the wagger up and all the like refineries of all
that red mud waste in WA. And I'm like, wait up, we've got
a gallium shortage outside China, OK.
And we've got a red mud disposal problem in WA.
Interesting. Why don't we just process all
the red mud, do exactly what they do in China and solve this
problem? And it's like there's no
discussion of that anywhere. It's it's pretty funny.
So there's a lot of these, there's a lot of these kinds of
missing markets where I think there's room for the government
to say, all right, guys, you need to reprocess that waste.
But here's the thing. I'm gonna give you, you know,
300 bucks for the 300 bucks kilo for the for the gallium and that
would work. I'm going, I'm going to find a
red mud producer and we'll talk after the show, mate.
There's, there's, there's a lot of it in WA.
The alumina guy sounded like a former guest of our our, our
party. Todd Milan.
You might even know him, but he was.
I think he used to head up there was.
He's a nickel guy, right? Yeah.
But he used to be like Rio Tinto aluminium division.
Some, some, some. Senior role there and he, he
advocated for, you know, these gallium circuits on some of the
downstream stuff. But but you know, never quite
like that that you know, small CapEx and like you know, it was,
it was just kind of irrelevant and never, never, never kind of
justified anything. Any, any, this is The funny
thing with all these like critical, like particularly the
stuff in semiconductors, like everyone kind of assumes it's
going to be there. If you're a real tenter, you're
like, OK, so I'm going to put in 150 bucks, so I could have maybe
make 20 bucks a day, but they're a year.
Like this is sort of pizza money at Rio Tinto.
But the problem is when we don't have it, we will absolutely
know. That cannot be not fun.
So I think that in those situations, there's definitely a
role for government for sure. Ah, bloody beautiful mate.
I apologise in advance everything you said about data
centres and that or you're gonna be hear those words resonating
out of my mouth in the future as my own idea.
So just letting you know, hope they're not copyright.
Yeah. So I appreciate the insight
mate. That was sensational.
Cheers, Alex. Thanks.
Good to chat, have a good one. Bye.
You too mate. How?
Good. Was that?
That was awesome. That was that was as yeah, that
was really fascinating. I love, I love asking any
question and having someone answer it.
So what? They just know heaps of shit.
That, that global view is very much up my alley.
So I was, I was a big fan of that chat and you know, a lot of
different talking points and like you said, Maddie data
centres, these sorts of things, things we haven't touched on,
which I'm sure we will do a whole lot more of in the future.
But if he had like, in terms of the like investment experience
and said he can read and write Mandarin, like, that'd be like
the most appealing Tinder profile he could put up.
Like far out like what a bloke. Like I said, anything he can't
do? Unbelievable.
Speaking of Speaking of unbelievable, Maddie.
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