Out of the West

There was hail today and this morning it was three degrees Celsius. It is almost the end of April. Even though days get longer as the sun rises higher above the horizon I am now convinced that Ireland does not have a climate. This little island, adrift on the north Atlantic edge of Europe, has just weather. Weather that  is as moody and fickle as the direction of the wind that blows. This April day could go unnoticed in December.  A realisation I must confess has come late in life.  A long time to delude yourself that there was such a thing as a summer to come.

Charles Darwin was greatly influenced by Scottish geologist Charles Lyell’s Principles of Geology. which was published in three volumes in 1830 – 1833. Lyell was a close friend of Darwin. Lyell’s most famous principle is that “The Present is the key to the Past”. It was an assumption on a grand scale. It held that the same natural laws and processes that operate in the universe now have always operated and apply everywhere.

In geology it convinced him that an ancient sandstone formed exactly as a beach forms today. For an exploration geologist it meant that you might be able to observe ore formation. A Cretaceous-age metal sulphide deposit embedded in sedimentary rocks may have formed from ablack smoker. Black smokers which you can observe now billowing forth in a toxic plume of sulphur and metals from deep fissures on the sea floor. Lyell’s principle is one of the guiding rules for understanding rocks and landforms. A guide to retracing their history and formation, and estimating the time it took for them to form. To try and grasp the limitless duration of time before history one has to study geology; to consider the frightening idea of  limitless space it must be astronomy.

That past does not just consist of very long periods of softly sinking particles of sand. Sand floating in warped spirals downwards to land on the murky bottom as light as a goose bump. The formation of rocks is not just small incremental constant accumulations over long ages. There are tempests and storms and eruptions and great floods and earthquakes in that past present. Just as war for a soldier is one of long days of unrelenting routine and boredom interrupted by manic action to survive on the battlefield.

I read recently an article by Kalyan Venkat and his surprise at how little the airport in Los Angeles had changed over the last decade. The contrast between it and other world-class international airports was very noticeable. In July last year the US Congress once again failed to pass a long-term highway bill. The bill was to make much needed improvements to the nation’s transport system. Once upon a time in Washington multi-year plans were funded to meet national infrastructure needs. The latest band-aid was funding for a whole three months and it was the 34th time a short-term budget has been approved since 2009.

Europe is also not responding. In January 2005 I wrote in my blog about a metal bridge across the Rhine that was cracking from fatigue. Germany today has a lower level of investment than it had in the late 1940’s. How could investment in the heart of the European economy be at its lowest level in post-war history. This is at a time when interest rates are negative? Italy has had a quite healthy current account surplus and a primary surplus in its State budget. Yet its debt to GDP ratio is rising and rising. Investment in Italy like the rest of the European Union is at very low levels. Something is not right at the core. Inaction and gentle imperceptible spiralling downwards. The storm maybe coming.

The global infrastructure in the west we are so proud of is wheezing and needs attention. Maybe the storm demand for metals will come out of the west while we are looking to the east.

Zinc prices hit a nine month high last week. In new world China plays a decisive role in the demand for these metals to build new infrastructure. Over the last week there has been manic speculation in the Chinese commodity markets. This market is lightly regulated and such unbridled speculation will cause price spikes. But keep an eye on metal stockpiles and simple supply-demand. The East needs to build but the West must maintain.

Last year China consumed almost the same amount of copper as the entire western world. That is a big change from 1990 when China’s appetite for metals was only seven percent of the western world.

Metal demand in China is still robust in tonnes if not percentage growth off of an expanding base. To put this is simple terms the compound growth in copper consumption between 2000 and 2015 was 12 percent. It dropped to 1.8 percent last year which seems alarming if you let statistics shape your view. If you start from a base of 100 in 2012 and apply 12 percent compound growth you reach 538 in 2014 and 547 in 2015. That means that the growth in Chinese annual demand in tonnes of copper between 2014 and 2015 still represents about 40% of the staggering 23 percent growth in demand recorded in 2000. Percentage growth can be very misleading if you do not keep an eye on the base. Remember that it was during the first decade of this millenium that the escalating rise in Chinese demand for metals started to get investors in the West excited and talking about super cycles.

Demand in China continues to rise and is important even if the pace of growth continues to slow. It is this rise in demand which is important when you consider the limits of mine supply. The tempests on the demand side will give way to tempests on the supply side as soon as night follows day and season follows season.

Fret over China’s slowing growth and fading appetite for metals? All organic things grow to maturity and then decay. It is the law of entropy. The natural scheme of things is order becoming disorder unless we consider evolution where we see to greater order and complexity in organisms in response to the need to survive and thrive. Animals and plants, civilisations, viruses and fires all eventually consume themselves. Yet we expect economies to continue to grow and grow and grow and somehow not reach some finite limit. Maybe we have reached this limit and we are only trying to cheat ourselves with new financial contrivances and economic myths. Architecture evolves and sometimes fashion reverts to the minimalist. Whatever we build starts to slowly crumble from the day it is finished just as our bodies age from the day we are born and slow down, wheeze and then stop.

I have been invited to a round-table in Dublin next month on the strategic implementation plan of the European Innovation Partnership (EIP) on raw materials.  The challenge is how can a sustainable mining sector contribute to Irish economic and industrial growth – we were once the 10th largest miner of zinc in the world before the Lisheen and Galmoy mines closed.  The event is hosted by the European Economic and Social Committee (EESC).

A friend of mine recently attended a similar gathering in Brussels organised by the European Institute of Innovation and Technology (EIP) which is trying to promote exploration and mining in Europe. There is also a Europe 20:20 strategy for growth in a decade which is already into its second half.

It would be helpful if the EU could provide an overview of all the various study groups which now focus on mining and exploration in Europe before the sector’s wheezing leads to life support.  There is an important message here somewhere if we can see the wood for the trees.

From my own limited perspective in the zinc space I see an alarming lack of quality (grade) advanced zinc development projects in Europe and beyond. The only exception that I can see through the woods is Arizona Mining’s Taylor Deposit* with 40 million tonnes averaging 11% zinc equivalent. The longer we do not have the funds to explore and make new discoveries the longer the storm clouds will gather.

  • I do not own shares in Arizona Mining

2 responses to “Out of the West”

  1. Alan Mooney says:

    Thank you John I very much enjoyed reading your blog. You have a great thought process and your reports are most insightful and informative and always a pleasure to read.

    Best wishes,

    Alan Mooney

    • john says:

      Thank you for your very kind comment Alan, my thought process seems to be stuck in a zinc rut for some time now but as long as it pleases somebody.

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