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December 19, 2023 | Geopolitical Risk and the Case For Physical ETFs

John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What to Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website in 2004, sold it in 2022, and now publishes John Rubino’s Substack newsletter.

In November, Panama’s government caved to growing protests and shut down a large copper mine. This was serious but survivable for one of our portfolio’s royalty companies (see Just How Bad Was Franco-Nevada’s Bad News), but it’s an existential threat for First Quantum Minerals, which owns and runs the Cobre Panama mine.

The new normal?

Until recently, an event like Cobre Panama would be dismissed as one of those lightning strikes that happen randomly without changing the broader environment. But these days, it’s a sign of an evolving new normal. Political and operating crises of various kinds are erupting worldwide, changing the risk/reward calculus for the mining industry in significant ways. Some recent examples:

Niger coup raises questions about uranium dependence

(France 24, Jan 08 2023) – The military coup in Niger last week raises the question of Europe’s dependency on uranium mined in the West African nation for its nuclear power plants.

France’s nuclear fuel firm Orano, formerly part of Areva, operates a uranium mine in the north of the country, employing some 900 mostly Nigeran staff.

In 2022, Niger was the second largest supplier of natural uranium to the EU, with a share of 25.38 percent.

Anglo American Plunges as It Slashes Production to Cut Costs

(Bloomberg) — Anglo American Plc suffered its biggest daily drop since the global financial crisis, after unveiling plans to drastically cut production in a bid to reduce costs amid logistical and operational snarls.

While Anglo has had well-publicized issues with its platinum and iron ore operations in South Africa, the biggest and most surprising cuts came at its copper business in South America. Its mines there are the company’s crown jewels, producing a commodity that many in the industry expect to face growing shortages later this decade.

Chile’s Nationalization Of Lithium : “Green Protectionism” Endangering Energy Transition

(Forbes) – At the end of April 2023, Chile’s leftist President Gabriel Boric announced the nationalization of its lithium reserves. Boric’s speech justifying his actions highlighted the economic and social reasons often behind nationalization and contained considerable appeals to environmental consciousness. Chile’s nationalization of lithium foretells a forthcoming international wave of greenwashed protectionist policies revolving around Rare Earth Elements (REEs).

Peru’s deadly gold mine attack highlights growing security risk, costs

(Reuters) – A dramatic and deadly attack on a gold mine in Peru on Saturday has thrown a spotlight on illegal miners and criminal gangs targeting mines, which in recent years has left scores dead and cost billions of dollars in losses, according to industry and government officials.

Nine workers were killed and 10 others gravely injured in the latest attack where men armed with explosives raided and took hostages at a mine belonging to Poderosa , one of Peru’s top gold producers. The government blamed illegal miners and criminal groups.

The attack has highlighted a growing risk for miners in the Andean nation, the world’s no. 2 copper producer and an important source of gold and silver.

“Security is now one of the main costs,” Poderosa corporate affairs manager Pablo de la Flor told Reuters after the attack. “Illegal miners and criminal groups represent a terrible alliance for the sector.”

One solution: physical commodities ETFs

Events that disrupt the supply of a commodity tend to create scarcity fears, frequently raising the commodity’s price. During the Cobre Panama crisis, for instance, copper hit a ten-week high:

The takeaway: For those who own accessible commodity stockpiles, political turmoil that affects ongoing supplies is actually (sort of) a good thing because it makes those stockpiles more valuable. So in today’s world, the core of an intelligent portfolio might be the physical ETFs that buy up commodities and take them off the market in anticipation of higher prices.

An article explaining how physical ETFs work and listing some of the big ones is here.

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December 19th, 2023

Posted In: John Rubino Substack

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