The Mining Investment Boom Nobody Believes

Market Prices Suggest the Movement to a Green Grid Will Fail

Happy Friday everyone! Quick piece on some of the market’s cheapest and most unpopular stocks.

Our piece, The Role of Critical Minerals in Clean Energy Transitions, walked through the IEA’s stellar work explaining the severe shortages of sundry metals critical to shifting the grid to “green power” and battery electric vehicles (BEVs). We highlighted Toyota’s recent decision to abandon its scientifically derived and environmentally friendly policies as a notable inflection point. Despite the evidence, Toyota seems to be going from “balanced” to “all-in” on BEVs as they face withering criticism from environmental groups.

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Over the last few days there have been several articles in the Financial Times that caught our attention:

The first was an article on Glencore explaining that the firm should have $79 billion in cash available for dividends and buybacks between now and 2026. The company’s market cap is $85 billion. If that estimate is off by 50%, it would still be a remarkably cheap stock.

The second was another article on Glencore by Leslie Hook explaining that despite record profits in coal production, the company would be shutting down a dozen coal mines to meet environmental rules. Highlighting the impending copper shortage, the article quotes Glencore’s CEO: “When the price is there, when the world is screaming for the copper that it needs…that is when we will bring on new supply.”

The third was an article by Camilla Hodgson on the massive boom in renewable energy. The piece explains that “…the world will add twice as much renewable capacity from 2022 – 2027 as in the previous five years.” As the article explains, that is equivalent to China’s power capacity today.

The chart below shows the FCF yield of all U.S. mining stocks over history. The message? Nobody believes the current boom in commodity prices and associated cash flows will continue.

FCF to EV All Miners

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For further context on the extremity of pessimism around these companies we provide the chart below. This chart shows

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