Maria’s Note: Maria Bonaventura here, senior managing editor of Inside Wall Street. For today’s edition, we’re sharing a special conversation between Nomi and her good friend Rick Rule.
Rick is a legend in the natural resources industry. He made a fortune in the last uranium bull market. And every year, Rick hosts the Rule Symposium on Natural Resources Investing.
The Symposium is happening on July 23-27 in Boca Raton, Florida. And Nomi has been invited as a keynote speaker. To learn more about the Rule Symposium, follow this link.
But before the week-long event, Nomi sat down with Rick for a virtual chat. Below, they talk about the world’s growing demand for energy, the commodities needed to produce electricity, and the realignment in global energy powers…
Nomi Prins, Editor, Inside Wall Street with Nomi Prins: Rick, these are very exciting times, and you’ve been through a lot of them. In particular, for New Industrial/Green materials.
There’s a lot of focus on the lithium space and battery tech metals. But it’s just starting to get into the general view. So, where do you see that market going?
Rick Rule, Natural Resources Investing Expert: Nomi, for the first time in my life, I seem to be in concurrence with a popular trend. Usually, when I see something in extractive markets, I think that the businesses are so cyclical that I’m required to be a contrarian.
In this particular circumstance, there’s a trend underway. I would call it the electrification of humankind that is inescapable and also popular. That’s never occurred to me before. Maybe in geothermal, in a very, very, very small market.
But I think the trend is important. I think it’s real, and I think it’s early. Here’s why.
Let’s talk about electrification in two senses.
You and I lead very energy-dense lives. And the nature of what we’re going to do, both in terms of the way our material standard of living increases, but also because of Western society’s concern around carbonization and fossil fuels… Your life and my life are going to become increasingly electrically dense. We’re going to use more. That’s just the way it’s going to be.
But the bigger story is in emerging and frontier markets. Just as the urbanization of China proved to be the hallmark of the natural resources bull market that we enjoyed in 2000 to 2010, the electrification of emerging markets and the modernization of emerging markets mean that the Chinese miracle extends to Indonesia, India, Malawi, Bolivia. Wonderful circumstance.
And I’m sorry for this long-winded answer, but it’s necessary. We don’t recognize the success that our species has had, raising the material living standards of the poorest of the poor over the last 40 years. It’s been a great, unsung success, and it’s picking up speed.
One billion people on Earth have no access to primary electricity down from 3 billion 30 years ago. These people want to live like you and I, Nomi. And the big thinkers of the world, the lefties, the goofy Greenies probably can’t find it within themselves to say with a straight face, “These people deserve to continue to be poor.”
So, there’s an economic thesis around a billion people on Earth wanting to raise their material standard of living. And there’s an ethical point of view even shared by the big thinkers, which is rare, that we can’t deny them that. Another 2 billion people on Earth don’t have access to either reliable or affordable electricity.
So, the electrification of the rest of humankind, which doesn’t have access to the energy-dense life that you and I live, is the right thing to do. And it’s inevitable.
A second question becomes storage, which is to say, batteries. The new technologies that you’re going to enjoy and that poor people are going to enjoy are going to require distributed storage, which is to say batteries.
Everything remotely involved in electrification is going to have 20 good years. It might be interrupted by a global recession or depression. That might happen.
But the ascent of humankind is an ongoing bull market that’s got, I don’t know, 12,000 or 15,000 years of history and is unbroken. So, it’s important that people understand that the materials necessary to generate electricity – uranium, natural gas, wind, and solar – those will do well.
The ability to transmit that power (which is mostly copper)… and the ability to store, use, and distribute that power (which is the whole range of energy and battery materials)… are going to experience, as they have been in the last three or four years, a true renaissance in demand at the same time over five years that supply shortages emerge as a consequence of 30 years of underinvestment.
I don’t need to tell Nomi Prins what happens when increasing demand collides with decreasing supply. It does an interesting thing to price. Across the landscape, some materials will benefit more than others. Some have become mainstream investment themes or threatened to become mainstream investment themes.
But if you look at the catalog of materials around this theme, there are plenty that the market hasn’t paid attention to at all, that the market doesn’t care about, and that the market is going to become fascinated in.
Nomi: Rick, on that, let’s talk about rare earths. Some of them we know better than others, like zinc or cobalt. But then you get to things like palladium and different types of smaller minerals. They’re just off the chemistry table that many of us remember from school…
So, Rick, in your opinion, where could we be in 10, 20, or 30 years? From the standpoint of the technology of battery storage relative to the need for a supply of the metals and materials to do that.
What could be created to harness the electrification and all of the storage that we need to power humanity?
Rick: That’s a great question, Nomi. First of all, people need to understand that rare earths aren’t rare. They’re fairly common on the earth’s surface. But we haven’t been looking for them because the Chinese have produced them so cheaply. In terms of the unit cost of rare earths relative to the value that they create in a computer or a cell phone, they’re insanely cheap.
The Chinese would appear to be beginning to weaponize their control of rare earth production and rare earth refining. At present, what they’re saying is, “We don’t want to supply the feedstock to you for your technology industries. We want to provide value and finished products to you.”
Obviously, if you’re a Western producer of finished products, this isn’t very much fun. It also isn’t very much fun to strategic places like the Pentagon.
So, I think one of the things that you’re going to see is an inevitable increase in the price of these materials, both as their utility becomes apparent, but also as the Chinese become less tolerant of the incredible environmental damage done by their rare earth industry. As their costs increase, you’ll see the price of their products increase.
But what you’ll see is a rare earth exploration boom taking place worldwide. And we will find it. There will be exploration successes. And if you have an exploration success in a commodity that you get to sell for $400 or $500 a kilo, those exploration successes will generate really, truly spectacular wealth.
Nomi: It seems like the new globalization, if we can call it that, is not about currencies or even economics from the standpoint of trade relationships – although that’s a part of it. But it is about where you can find these specific metals and minerals to power the world.
Rick: Well, the good thing about rare earths in particular is that they occur in fairly well-known geological horizons. Australia, very perspective for them. Brazil, very perspective for them. Congo, a bit problematic, very perspective for them. Canada, very perspective for them. We haven’t looked for them because the Chinese have been so damned efficient at producing them.
But now, trade is becoming fragmented and weaponized. You would describe it as globalization. I might describe it as anti-globalization. The fragmentation and the weaponization of trade. Either way, we’re going to have to find rare earths.
And maybe for the first time in my life, governments are going to tell me we’re going to move mountains – figuratively, in terms of permitting – for you to be able to do this. It’s very likely that if I were to discover or finance the discovery of a rare earth deposit in the United States, I would encounter less of a permitting delay than I might if I was trying to put in a copper mine or a coal mine. And that would be useful to me.
Nomi: That’s right. That brings me to one of the things that we are seeing more of. And that is that acquiescence to less regulations on some of the mines or projects for rare earths. Both in the United States and also with the U.S. allies.
We have to think about who the big friend superpowers are and who are the more adversarial superpowers. And this is as much coming from the Department of Defense, as well as the Pentagon, Congress, and the White House through both parties.
There is a geopolitical need coming into the same space. That seems like another reason to be really, really bullish about the whole sector.
Rick: I’m always cautious as to who I select as friends and allies. And I have to say that accepting best wishes of the senior bureaucracy in Congress always makes me feel a bit uncomfortable. But I guess I have to be mature enough to say that I would rather have them, at least in this instance, on my side rather than as an implacable foe.
As you know, Nomi, I don’t believe in subsidies in any way, shape, or form, even grudgingly when they’re preparing to give them to me. Although, I guess I object less strenuously when they give them to me than when they take them from me and give them to other people.
But there’s an increasing realization that our living standards and our geopolitical security rely on access to materials. And the last time that the United States focused on access to materials was in the 1970s. That means that increasingly, the political winds will be blowing in my favor after 50 years of blowing in my face.
Nomi: So that’s a positive, the Rick whirlwind direction. We’ll leave it there for now, Rick. And thanks for having some time to talk about everything that’s going on in this space. It’s more dynamic than it’s ever been.
Rick: Thank you, Nomi.
Nomi’s Note: As I mentioned in my chat with Rick, the energy and materials space is arguably more dynamic today than it’s ever been.
That’s why I’ve spoken to at least a dozen government insiders. I’ve been on Zoom calls with lawmakers. Based on these conversations, I came across the next major discovery in the energy sector.
In fact, I’ve identified a tiny $2 firm that has been granted a virtual monopoly over a $1 trillion energy subsector.
Right now, it’s still flying under the radar. But on August 1, that’s all about to change…
So if you want to get in beforehand, make sure you watch this video presentation I put together.
And if you want to learn more about the Rule Symposium happening from July 23-27 next week, follow this link.