Sunday, September 30, 2007

The Abundance of Minerals

In “Earth for Sale” I did a very rough calculation to determine the values of metals in the Earth’s crust for copper and uranium. The point of the post was that there are such enormous amounts of minerals in the ground, giving value to that which is in the ground at strong prices is imprudent, as that was the only “fundamental” behind the vertical ascent of uranium stocks.

This post will look closer at relative abundance of metals and how they are currently valued. I used the abundance values from Jefferson Lab and calculated the percent of the Earth’s crust each mineral would make up. I then calculated the volume of 1 km of the Earth’s crust taking the difference in volume of the Earth and a sphere 1km smaller. I used a density of 2.7g/cm^3 and 30% land area. For each metal I multiplied by the percent abundance and divided by either 454g for pounds or 31.1g for troy ounces and multiplied by the metal price.

Mineral Abundance % of Crust Spot Price
Aluminum 82300 ppm 8.2% $1.09/lb $8*10^19
Copper 60 ppm 0.006% $3.64/lb $2*10^17
Gold 4 ppb 0.0000004% $728/oz $4*10^16
Lead 14 ppm 0.0014% $1.60/lb $2*10^16
Molybdenum 1.2 ppm 0.00012% $32.25 /lb $3.5*10^16
Nickel 84 ppm 0.0084% $14.61 /lb $1*10^18
Palladium 15 ppb 0.0000015% $342/oz $7*10^16
Platinum5 ppb0.0000005%$1349/oz$9*10^16
Rhodium1 ppb0.0000001%$6225/oz$8*10^16
Silver75 ppb0.0000075%$12.53/oz$1.3*10^16
Zinc70 ppm0.007%$1.36/lb$9*10^16
Iridium1 ppb0.0000001%$450/oz$6*10^15
Uranium2.7 ppm0.00027%$85/lb$2*10^17

The “value” of metals in the Earth’s crust is grossly out of line with reality. The “value” of aluminum in the 1st km of the Earth’s crust is “worth” 80 quintillions (80 million trillions) – about 200,000 times the $415 trillion in derivative contracts that existed at the end of 2006. The lesson here is you are going to get in trouble with investments if you value metal equities based on what is in the ground. Not all minerals in the ground can be mined, but if you assumed only 1% of each mineral, or even 1/10th of 1% is recoverable, the numbers are still enormous. The metals of your commodity investment are only worth those prices if they make it to market and get sold at those prices.

Each mineral on the list is subject to supply and demand based on the mineral. Take a look going back 15 years at the price of Aluminum, which is the metal with the highest “value” in the Earth’s crust, and you see that the current price is about double the 15 year low.

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Aluminum has not done the same degree of outrageous price increases and spikes as other metals. I would suggest the reason is that there is so much aluminum, the market can respond far faster to under and over supply situations. At 8.2% of the earth’s crust, aluminum is a macro element. The price of aluminum temporarily spiked to about 3 times the 15-year-low. It is currently about double the price of 15 years ago. The current price is still on the strong side in comparison to historical prices, but if you think about it from just an inflation perspective, many things have doubled in the past 15 years.

Iridium, which is the least followed and known metal on the list, also has the smallest relative valuation. It has limited applications. It is the most corrosive resistant metal known. It is also tied with Rhodium in terms of how rare it is on Earth, yet Rhodium has about 14 times the price, and relative valuation in the Earth’s crust. The following graph shows that Rhodium was not always so dearly valued; it is up about 16x what it was just a few years ago.

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One has to ask if new applications and demand for rhodium really justify the increase. Rhodium tends to be mined with platinum group metals. Has world demand for rhodium increased that significantly relative to platinum? How sustainable is the demand at that price? I don’t know the answers, but I would be researching them if my investments were dependent on Rhodium price.

Nickel, uranium and copper are the next strongest valued metals. Nickel and uranium have had tremendous hype, hysteria, and speculation, very much like the tech boom of the late 90s. There is absolutely no shortage of these elements in the Earth’s crust, none what-so-ever.

Uranium consumption is about 150 million pounds per year. Say it increases 7-fold, to 1 billion pounds per year, and only 1/10th of 1% could be mined, well, that would mean the Earth has about a 2 thousand year supply. A price boom on uranium in the 70s resulted in about 50 years of uranium reserves being found. The current market is under 100,000 tons per year, which is very small compared to other metals. At the current rate that uranium is being used, current world resources would last 70 years. (

The shortage of uranium has nothing to do with its availability to in the ground, but rather the special licensing and controls that uranium mining is subject to do due to its inherently dangerous nature. Building uranium mines takes an extra 2-5 years longer than other mines because of the extra controls and safety concerns. Uranium spiked to about 13x its lows and as little as 2-3 years ago mining companies were bidding to supply uranium in the $10-15/lb range. Those who cash in on uranium will be those who enter long-term uranium contacts at higher prices, and those who are already in the process of building mines. The price of uranium will probably remain stronger for longer not because uranium deposits are unknown, but because the mines are not built and they take longer to build. When you consider the price was $10-15 just two to three years ago, even $40-50/lb is a very strong price.

Nickel is 1.4 times more abundant than copper and 30 times more abundant than Uranium in the Earth’s crust. The 15-year price chart for nickel shows it had a price around $3/lb, for years.

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BHP’s financial results shows they made a good profit on nickel in 2006 at price around $7/lb and they more than tripled their earnings from nickel with nickel averaging around $20/lb. Nickel price is up because there was a supply squeeze, and it is unlikely that the price drop is finished when companies were able to make good profits at $7/lb. Nickel is highly abundant, and world demand is relatively small, about 1.5 million tonnes per year. Apparently some nickel supply is now coming from ore being imported into China and producing nickel at $8/lb. This new source of supply appears to be increasing rapidly.

Copper has a high value, but it has a much higher demand, about 16-18 million tonnes per year. This is about 10-12 times the demand of nickel. Relatively speaking, nickel has about 15x the abundance when contrasted to the relative size of world demand. Nickel completely lacks scarcity yet the price spiked to 8x that 10-year average price from about 93 to 03.

Copper price has spiked, but not as much as nickel in relative terms.

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Clearly there is a price dip from 1998 to 2003. It is a time when companies were choosing to sell off valuable holding because of carrying costs and many new companies have made a fortune off what were previously cast-offs, some strictly on speculation, but quite a few by building mines. Copper price spiked to about 6x the weakest price in its history. Copper had a much stronger downward price trend that the other metals. Copper prices are strong and susceptible to downward price corrects. There are many strong “bears” about the copper market and there will be a downward price correction at some point, there always is, but the relative abundance to nickel and uranium when the size of the world market is considered makes me think that nickel and uranium are susceptible to stronger price corrections, but the uranium price corrections will lag due to the differences in building mines.

What has bigger implications for the price of copper is how many deposits like the recently discovered Noront drill results. Drill results on a press release today identify 68 meters averaging 5.9% nickel, 3.1% copper, 2.87 g/t platinum, 9.78 g/t palladium, 0.61 g/t gold and 8.5 g/t silver. In prior posts I talk about declining grade and how it is increasing costs so prices have a much higher cost support. I do not know how big this deposit will be, but if it were big, it would be profitable at very, very low copper prices. It does make me wonder if the declining grade being mined that seems apparent in report after report that I read is because mining efforts have focused on what resources that were known and real new exploration that would find high quality grades has been limited. This discovery should make investors in low quality grades very uncomfortable.

The value of gold surprised me. For something “scarce” the metal values in the ground are awfully high, $40 quadrillion dollars, or forty thousand trillions. Are there not these big market fears around the over $400 trillion in derivatives and somehow gold is supposed to prevent this by limiting the money supply? I pulled up a web page ( that states that global demand for gold reached a record $14.5 billion last quarter. That’s about 1/300 millionth of the value of the metal in the ground. If 1/10th of one percent is recoverable, then that is $40 trillion available, or the supply can be expanded about 10-fold. At the current rate of mining the out of the ground gold supply is increasing by about 1.6% per year. Current the rate of mining seems small compared to the amount of gold that can potentially be mined. Infomine shows 1880 companies in their database involved with gold. I would think that strong gold prices would increase the mining and exploration activity of these companies and eventually increase output.

In order for price to go up you need to have more people/corporations wanting to hold gold as an investment. Currently more people seem to want to own the gold stocks as opposed to the bullion and the gold stock bugs seem utterly confused that the price of gold does not go up as they expect. It seems to me that until such time as there is a shift and the so called believers in gold actually own gold and/or the gold companies stop selling their gold there will be continued restraint on gold prices. Truly, the theory that banks are weak because they lack a gold standard because they’ve sold their gold equally applies to gold stocks as they sell off their hard assets for fiat currency.

Looking further, I find that at the end of 2005 there was around 155,000 tonnes of gold being stored in either jewelery or bars, or roughly $3.6 trillion dollars worth of gold, and they mining about $60 billion worth of gold each year. The value of gold per person from that 155,000 ton stockpile is about $500 and keeping prices constant, it is increasing by about $10/year per person from new mining. Certainly if people lose faith in paper money there is not a lot of already mined gold to go around, but there are many other hard assets that people can chose as investments that can also protect wealth. Gold does not appear to have the same degree of asset price inflation as other investments. Certainly if your country’s currency is declining, or at risk of declining relative to other currencies gold is probably a good currency hedge.

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The above graph shows that if you are American and bought gold six months ago the US dollar value of your investment is up over 10%. However, if you are Canadian, the value of your investment relative to the Canadian dollar is down 4.5%.

As investors I think it is a good idea to be aware of how much actual metals exist and to use this kind of knowledge in assessing real value as opposed to apparent value in the assumption that metals in the ground today will be worth the same forever or even be stronger forever.

Looking at this makes me wonder more about iridium. It seems that the most corrosive resistant element would have market growth potential and it does not seem to have the same speculative pricing built into it.

In any event, I did quite a bit of traveling in the summer and now I am in the process of moving so I have not had the same kind of time to look at investments. So, I am still around, but not as able to be actively posting. I will probably work on shorter and less time consuming posts in the future.

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Thursday, September 20, 2007


US/Canadian... 1.0006

I am in shock...

What a joke, everyone put on their born yesterday hats. The US government reported consumer prices fell in August by 0.1%. Energy prices fell 3.2%. I guess no one noticed that crude oil is over $80 month...

End of message

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Tuesday, September 18, 2007

2% inflation in one day

In one day or so the exchange rate for a dollar US went from $1.03 to $1.01 Canadian.

Today the US had 2% inflation on imports from Canada, or Canadian exporter to the US just saw their revenue drop by 2%. Either way, it is going to be ugly.

End of post.

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Saturday, September 15, 2007

1000% in 15 trading days - It happens

Could have, would have, should have...

I could not help but notice, after the fact, that a stock that has been on my watch list since last December quite possibly made some kind of stock market record here.

Between August 20th and August 27th one could have bought Noront Resources for under 40c/share on the Canadian venture exchange. On September 13th it reached a high of $4.05 and closed at $3.94. About 80 million shares were traded during the 1st 4 days of the week -- they have about 90 million shares and another 33 million warrants and stock options. So, very close to the entire float being traded.

September 14th it was halted, and it remains halted. Rumor is that there will be news on Monday and trading will resume on Tuesday.

You can check them out at

Personally, I wouldn't touch it at this point, but it is going to be interesting to watch.

The news that got so much attention... drill results of 36 meters averaging 1.84% nickel and 1.53% copper, and not that deep, starting at 56 meters down. Certainly, if this proves to be a large deposit it would be very profitable, but it would take 5-10 years to actually build a mine, so there has been way too much speculation here.

But it will be interesting to watch.

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Thursday, September 13, 2007

Heros - Give Something Back

One of the most important and significant organizations I've ever known is the Non-Smokers' Rights Association/Smoking and Health Action Foundation. The first is their advocacy part of the organization and the latter is their tax deductible charitable part. I came across a request for a donation that I had put aside and it prompted me to do something about it today.

I did anti-tobacco work for years and I believe I very much followed the type of model the leader of NSRA, Gar Mahood, follows. The tobacco epidemic is unlike a health epidemic caused by pestilence, the tobacco epidemic is caused by corporations that have no consideration or conscious as to the degree of violence they inflict on smokers dying from cancer that rages through their body, and the implications to those who lose their loved ones this way. Truly when I look at what cancer is, I can't think of a more violent way to die than the slow torture of your body slowly being eaten up. The tobacco industry wipes out on average 17 years of life from each smoker, with 1 in 4 dying 25 or more years prematurely. And non-smokers get killed from it too.

When you apply a disease model of epidemiology to tobacco it becomes clear that the infectious agent is the tobacco industry. Cancer treatment programs and smoking cessation programs are methods of treating the disease, but they do not prevent the spread of the disease in the first place. Attacking the business model of the tobacco industry is the most effect use of cancer prevention dollars.

It is very much like how when cholera is in drinking water turning off the water source prevents further spread of the disease, but you still need to treat those who are sick, the cessation and cancer treatment programs. If you don't turn off the water, you don't stop the spread of the disease. Actually smoking causes more heart disease than cancer.

So, tobacco is a business and restricting where tobacco can be sold, whom it can be sold to, where it can be consumed, price, advertising, corporate accountability and justice for the carnage and victim, etc. cuts off the supply of new smokers. Unfortunately, this disease has gotten into a lot of pipes and it just takes longer to flush them and some fools keep turning the taps back on.

If you come visit where I live, here in British Columbia, we have the strongest work place legislation in the world, controlled by our Workers' Compensation Board, which has strong ability to enforce compared to by-laws. So, you can go any where and there is no smoking in any indoor public place, even bars. We have a high price and a legal age of 19. We used to have the strongest advertising restrictions, but there was some fool that was supposed to be on the health side that opened that tap despite numerous warnings that it was a very bad idea.

I did this work locally, Garfield Mahood does this work globally and endlessly. His research foundation was so important to give out the latest information on how the disease was spreading (what the tobacco industry was up to) and showing the model that works, well, here's a quote:

"You are, almost single-handedly, responsible for saving more lives from the chains of lethal addiction (and so death itself) than most physicians could even aspire to.

Dr. Ron Stewart, professor of medicine and former Nova Scotia health minister

This was in response to Gar being awarded Canada's highest honor by investing as him an Officer of the Order of Canada. Belated congratulations Gar, I can't think of anyone more deserving.

My latest mail from NSRA has a book, "What Do The Smoke Folk Have In Common With Organized Crime?" The book is designed for senior high school and university students who want to be informed about how the tobacco industry works to they can make a difference in their community and it is impressive. The dedication reads:

This report is dedicated to the more than one million Canadian mothers, fathers, aunts, uncles, brothers and sisters whose premature deaths were contributed to or caused by tobacco industry deception and to the activist young people who are committed to holding the tobacco industry to account for these deaths.

We applaud this special group of young Canadians who are determined to change the industry's behaviour and who are prepared to dive into and absorb this lengthy report because they want to understand Big Tobacco's predatory marketing and shut off the industry's supply of new recruits."

Seriously, this is the type of resource that you want to see a few copies in your local high schools and even libraries.

By donating to the NSRA not only do you help to prevent kids from starting, but each child that doesn't start will over their lifetime have an extra $100,000 to spend on other things that smokers end up spending on cigarettes. That's a lot of money freed up for other businesses. There is no free market competition with smoking, if they smoke they will buy cigarette over food even if they are starving, or their children are starving.

The other thing is that tobacco control always needs strong advocates fighting to ensure tobacco control programs are funded. What I read in my mail is that tobacco control funding has been cut in half, from about $3 per person to about $1.50 per person. Seriously, $3/person is already a serious pittance and to cut that in half is outrageous, and it looks like it is being cut even further.

So, I've sent a $500 cheque and I dedicate it to my mom who died at 32, my dad who died at 63, my uncle Danny who died at 48, my cousin Joseph who died in a house fire at age 10, my dear friend Fred who died of a blood cancer (the most common cancer from second-hand smoke), my grandpa who died at 62. The research on every single type of death they collectively died from says they are smoking related. Happy belated birthday mom who would have been 64 yesterday and to Fred, I came across your picture today and I miss you so bad, so much like a father to me.

You to can send a donation to this worthy organization at the Non-Smokers Rights Association, 720 Spadina Avenue, #221, Toronto, Ontario, M5S 2T9,

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Wednesday, September 12, 2007

Canadian/US at Par?

I couldn't help but notice I'm getting US coins back in my change. That was not happening even 3 months ago... US, $1.0375 Canadian. Wow, the US dollar has come down fast and hard.

US importers are going to be hurting badly, as will Canadian exporter. I wouldn't want to be owning those kinds of investments through their next earnings reports, or even now...

All of a sudden US exports got a whole lot cheaper and more competitive, so Canadian importers should be looking good.

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Saturday, September 08, 2007

Jones Soda - Lawsuit Joke

Lawyers have launched a lawsuit against Jones Soda for an "allegation contained in the Seattle Post-Intelligencer that certain officers and directors of Jones Soda disposed of 'nearly all their shares of the company stock' in what was called 'a highly unusual move" by securities experts "during a wave of positive publicity that kept the stock high.'"

So now dumb is following stupid...

I first looked at Jones Soda in December when it was trading at about $12 and with a quick look I concluded it was an extremely over priced $4 stock. I rated it as under perform in CAPS at Motley Fool.

I watched in amazement at the ascent of this stock and I sometimes use what I see in the stock market as an example of the negligent math skills of adults when I am trying to open student's eyes up as to the importance of math skills. Jones Soda is a company I have mentioned to students, indeed, I have used it as an exemplary example of bad investing with students playing a stock market game.

By April my bewilderment that the stock price had actually doubled lead to me studying the stock to see if I had missed something. So I looked closer and I wrote about my assessment of the stock in "Jones Soda, Breaking down the growth."

The only thing that is unusual about the officers and directors selling shares where they did is that they did not sell them earlier. I saw hype and speculation from investors, not the company.

This is incredibly frivolous and the US really needs to start assigning costs to garbage lawsuits like this. Investors ought to have done their homework on the stock, which would have shown absolutely no fundamental reason to buy, even at today's price.

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Wednesday, September 05, 2007

Bottled Water

The bottled water industry simply put is one of the most amazing the marketing geniuses. In North America we have the highest water standards in the world yet it has developed into a $15 billion dollar industry. And there is no evidence that bottled water is somehow safer, indeed, some have been found to contain harmful things.

Something that I had not thought about was the environmental impact of all those extra plastic bottles, which was pointed out in "Should You Drink Bottled Water."

Indeed, plastic is made from monomers, some of which are very harmful and there are many additives in plastic to give it required properties, all of which can seep into your food and water. Container you use over and over have less because that which can seep out seeps out much faster when the container is new.

Truly amazing, a $15 billion dollar industry that was practically non-existent 20 years ago.

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Sunday, September 02, 2007

Jones Soda Co - Are We Keeping Up?

I first reported on what a disaster Jones Soda (JSDA) was going to be for investors back in April, where I showed where the growth in earnings had come and I concluded those items would "murder" earnings in the future.

Jones Soda has since had two quarterly earnings reports so it is time to take another look, in particular, the last earnings release.

I can hardly get past the highlights:

  • 1,722,795 total cases compared to 961,000 cases one year ago
  • Revenue increased 29.8% to $13.0 million compared to $10.0 million a year ago.
  • Gross margin decreased to 34.2% versus 38.0% last year
  • Diluted earnings per share were $0.00 compared to $0.10 a year ago.

The first two points ought to send anyone still vested utterly running from this stock. They have a 79% increase in the number of case equivalents sold but only a 30% increase in revenue. That is an utter implosion of earning potential. To their credit, the third point shows that they managed to only lose 3.8% of their gross margin and on the surface this appears very good as this kind of implosion of earnings could put them into irrecoverable loss position.

As an investor you'd expect a 79% increase in sales to result in a 79% increase in earnings, but the 4th point shows that earning are now non-existent and not the 18c per share as a back of the napkin calculation would lead you to expect. Jones Soda has growth here, but so far entirely at the expense of profitability.

So, looking a little deeper... They had earnings of $40.7 thousand compared to earnings of $2.3 million, or another way of expressing that was that earnings were about 5600% higher a year earlier, or alternatively, this quarter's earnings are 1.8% of the earnings one year ago, 98.2% of the "earnings" disappeared... That is known as an implosion of earnings...

But, that's just on the surface. Above I mentioned how a 79% increase in output with only a 30% increase in revenue could put them in an irrecoverable loss position. One has to ask whether they are in fact in an irrecoverable loss position. Over a year earlier the operating expenses increased to 38.4% of the revenue, from 31.1%, and that is enormous, an increase from $3.1 million to $5.0 million, or an increase of $1.9 million, fully 14.5% of the revenue. The cost of goods increase by $2.3 million, for total increase in costs of $4.2 million, yet the revenue was only up by $3 million. In addition, the licensing revenue was also down by $0.1 million, so "total revenue" was actually only up by $2.9 million.

Having an extra $4.2 million in costs and only an extra $2.9 million in total revenue is very bad. And looking at page 5 of the financial reports what has happened leaps off the page. Looking at the operations only, the earnings before taxes for the three months ending June 30, 2006 were $836 thousand, or about 3.5c per share. After paying taxes as investors ought to expect them to be paid, without that monkey business accounting that grossly overstates earnings and allows executives to have cash-out-the-options liquidity events, the eps ought to have been around 2c, not the misleading-about-operations 10c.

For the quarter ending June 30th of this year they have a $504k loss on operations, or about 2c/share. It wasn't much better the March 31st quarter as that one shows a $428k loss, so the loss on their operations has increased by 18% between quarters, yet at the end of the magic of accounting both quarters actually showed positive earnings, $40.7k and $58.3k. Make no mistake here, Jones Soda's operations are currently being run in a loss position. What is giving the appearance of making ends meet is interest income and deferred taxes.

Interest income was $441k in the March 31 quarter and $416k in the June 30th quarter. This interest income is the largest contributor to giving the appearance of making ends meet and will decline as the capital is spent on expanding the operation and covering the deficit in earnings. The other item that enables the company to look like it isn't in a loss position on operations is income tax benefits. For the March 31 quarter $45k of the "earnings" is positive taxes. For the June 30th quarter there is $128k of positive taxes. So, $416k in interest and $128k in positive taxes enables Jones Soda to show $40k of earnings instead of $504k of losses in the most recent quarter.

So, they have these enormous "growth" plans, a network of 15,000 retail outlet to market their soda through, but where do the earnings come from? Growth at the expense of a profit margin isn't a good thing and the financial reports do not explain how this will be turned around.

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