Doug Casey: Watch for ‘Super Bubble’ in Mining Stocks

- July 29th, 2015

Doug Casey believes mining is a “dying, stupid, 19th century” business. However, he believes there are still ways for investors to profit.

Conferences in the resource space are generally filled with positivity — even during bear markets. 
Case in point: this week’s Sprott-Stansberry Vancouver Natural Resource Symposium has already seen industry mainstay Rick Rule discuss why resources remain a good investment. It’s also seen Ivanhoe Mines’ (TSX:IVNRobert Friedland talk about why the recent Chinese stock market crash isn’t as bad as it seems.
It was thus a little jarring to hear Doug Casey, founder and chairman of Casey Research, give a talk on why mining is a “dying, stupid, 19th-century” business. Even more jarring was his commitment to the topic — he listed six reasons why mining is currently in dire straits and four more catalysts that will make things even more difficult for the industry moving forward.
Here’s a brief overview of what he had to say, as well as a look at where in the mining space Casey still sees some potential for profit.

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6 reasons mining is tough

As mentioned, Casey started out his talk by listing six reasons that the mining industry is struggling. They are as follows:

  1. Few good deposits left to find: Casey began by pointing out that people have been searching for mineral deposits for thousands of years, with the result being that today almost all easily mineable deposits have been found.
  2. Mining is expensive: Again looking back to the past, Casey reminded the audience that while miners used to be able to make a profit with just picks and shovels, bringing a mine into production now requires a vast array of expensive work.
  3. Time is ticking: In addition to being costly, taking a mine to production requires time. A decade is not an unusual amount of time for the process to take, and often much of that time is spent simply waiting on permits and the like.
  4. Social license: Miners are increasingly having to deal with NGOs and NIMBYism, said Casey. He cited Barrick Gold’s (TSX:ABX,NYSE:ABX) Pascua Lama project and the Pebble project, owned by Northern Dynasty Minerals (TSX:NDM,NYSEMKT:NAK), as projects that will likely be forever stymied for those reasons.
  5. Government intervention: Despite those barriers, some companies are of course able to bring mines into production. However, the problem then, according to Casey, is that companies must pay taxes and royalties to the government — another expense.
  6. Volatility: The final issue Casey mentioned was volatility. He believes the current price volatility for many metals (such as uranium, coal, iron and oil), is making it very difficult for companies to plan successfully.

4 reasons mining will get harder

Casey also took the time to outline four catalysts that may make the mining space even less hospitable in the future. Essentially, he believes that while the world will continue to need metals, the circumstances outlined above will make it increasingly difficult to get them in traditional ways. As a result, he sees new technologies entering the market and taking over for traditional mining.
Without further ado, here they are:

  1. Space mining: Space mining — or more specifically, asteroid mining — might sound like a far-out concept, but according to Casey “we’re actually there.” Indeed, companies like Planetary Resources are making progress in the space, and if they are ultimately successful in figuring out how to mine asteroids, the world will gain access to “more metal than we can imagine.”
  2. Seawater mining: If space mining sounds unlikely, what about sea mining? While currently it’s not economic to recover metals from seawater, Casey believes that breakthroughs there may also be coming.
  3. Fusion: The promise of fusion technology is infinite energy, said Casey, and like asteroid and seawater mining he “think[s] it’s going to happen.” If it does, demand for energy metals will no doubt decline.
  4. Nanotech: Finally, Casey identified nanotech as a field that could disrupt the mining industry. “It’s pixie dust,” he said.

Hope in bubbles?

That’s a lot of negativity, but Casey did leave his audience with a little bit of hope. He believes that with governments continuing to print money and keep interest rates at zero, bubbles are beginning to build — and if resource investors are lucky, there may eventually be a “super bubble” in mining stocks. Casey sees that potentially happening in the next few years in the event that increased investor fear sparks a rise in the gold price.
Casey didn’t give any specific stock recommendations, but in a Q&A session after his talk, he did comment that junior mining stocks are currently very cheap. He also stated that it’s currently possible for investors to gain five-year detachable warrants via financings with good companies — that’s “as close to a gift as you can get.”
Furthermore, Casey pointed to the agriculture sector as worth looking at, noting that he likes the idea of “buying far-out calls on … grains” like soybeans, wheat and corn. He also sees potential in coffee and sugar, which are currently cheap.
And of course, investors can always look to the four catalysts Casey mentioned as potential areas for investment. While he didn’t give directly identify any opportunities in those spaces, if they are truly set to gain momentum there are bound to be possibilities for savvy investors.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
Related reading: 
Rick Rule: ‘Get Ready — It’s Going to be a Good Few Years’
Robert Friedland on Why the Chinese Stock Market Fall Isn’t as Bad as You Think

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2 responses to “Doug Casey: Watch for ‘Super Bubble’ in Mining Stocks

  1. Casey I think you are so wrong when the bubble in stocks and bonds and not least the currency where is the capital flight of billions going to go into real money gold and silver, and mines produce it, so wake up.

  2. Casey I think you are so wrong when the bubble in stocks and bonds and not least the currency where is the capital flight of billions going to go into real money gold and silver, and mines produce it, so wake up.

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