"I've seen bullish environments related to virtually every commodity"
Jayant Bhandari is constantly travelling the world to look for investment opportunities, particularly in the natural resource sector. He advises institutional investors about his finds, and has written on political, economic and cultural issues for a number of publications.
As we get closer to Mines and Money Asia 2019, we’ve started to catch up with some of our speakers to hear more about market outlook and their corporate growth plans.
Here, Jayant Bhandari,Senior Analyst - Mining & Minerals and Institutional Investor Consultant, provides insight into the current commodity trends and where he sees the commodities market heading.
What do you think are the hottest commodities right now?
Over the last 13 years of my career in the mining sector, I have seen bullish environments at different times related to virtually every commodity: REEs, cobalt, lithium, zinc, graphite, nickel, niobium, gold, uranium, silver, oil, etc. Not only did none of the bullishness came to fruition, except for those who were lucky as a rare one is in the casino, commodity speculators lost money.
In contrast to speculators, traders make money by adding value through trading, by being middlemen, and by finding buyers and sellers for commodities and concentrates. Through hedging they protect themselves from unpredictable commodity prices—even commodity traders avoid speculating in commodities.
Commodity speculation is to commodity trading what astrology is to astronomy. I have no opinion on which commodity will do better.
Which commodities should people be avoiding right now?
I would certainly avoid cobalt and lithium, for there have been too many speculative “investments” in them. When these “investments” unwind, you should expect downward pressure on their prices as this supply comes to the market. But isn’t their demand going to go up? Of course it will, but there is no way to know if that excess demand is not already built into the expected future supply and prices.
Given strong backwardation in certain commodities—zinc, palladium, etc.—if I had them in physical form, I would be at least be converting them into futures.
Most people today conflate commodities with the mining sector. From that perspective, uranium mining is by far the worst sector to invest in. These companies are getting valued as if uranium were 100% or more than what it is currently. Investing in such companies is a recipe for taking disproportionately high risk for minimal gain. What happened to uranium and uranium mining in the past is of no value in the future. There will always be bubbles, but it is hard to know where the next bubble will be. As uranium has already seen the bubble, it is unlikely to go up crazily again, if it will go up at all.
Which juniors have projects that excite you?
I am looking forward to the results of drilling from Irving Resources (IRV), the results of metallurgical studies from FPX Nickel (FPX), the results of the field work being done from Novo Resources (NVO), and the expansion of the resources of Maritime Resources (MAE) and possible synergies with projects nearby. Be aware that share prices of these companies—except of NVO and MAE—have gone up quite significantly in recent days. So, if I had to buy, I would look for a period of weakness.
What is your outlook for the mining sector in the next 12 months?
I am very excited about what is happening with the merger scene among the gold majors: Barrick, Newmont and Goldcorp. The gold mining sector needs to focus on profitability. A shuffling at the top might start a cleaning process in the gold mining sector. Any positive change at the big-mining level will quickly affect the smaller companies and reorient their operations to increased profit focus.
What is your approach to supply/demand projections and how does this shape the way you invest?
I do not worry about the supply/demand issues to do with commodities. The complexities associated with predicting the future are far too many to be of any practical value.
When investing in mining, I want to look for value in the ground of a mining company, a value that the market has not yet recognized. If the value is higher than the price I pay, I am happy to invest. When valuing these companies, I use the lower of the spot price and the future prices of the underlying commodity.
You’ve written quite a bit about emerging markets and the Third World. What is your opinion of current growth trajectories and what is your outlook for the region as it relates to commodities and mining industry?
There is only one emerging market: China. The rest of the Third World countries, contrary to the expectation of the international institutions, are imploding. You should expect massive social and political upheaval and massive rise of tribalism in the Third World, particularly if the US continues to reduce its interference. Now, people who only see faults in the US would think that reduction of US influence would lead to world peace. Quite to the contrary, one should be reminded that India and Pakistan were recently stopped by the US from going into a full-scale war, which could have very easily turned nuclear. The good that the US does often goes unseen or unappreciated. With the US interference waning, the Third World will implode very fast.
I still invest in mining companies in the Third World, if after discounting for the risks, I get an upside in owning them.
Jayant Bhandari, Senior Analyst – Mining & Minerals & Institutional Investor Consultant at Anarcho Capital, will join Mines and Money Asia 2019 on the Analysts Panel Debate: Supply and demand outlook over the next 12 months looking at who will be the winners and losers.