Real Time Support for Metals Supply Shortage Lasting Longer Than Expected by Jim Rogers in Hot Commodities

I shared this with some of our patrons via email but thought I would share it with the blog as well.

Ben


....attended two big mining conferences in Asia …the Asia Mining Congress
and GEMMS (Global Executive Mining Maintenance Summit). These conferences
were well attended by the major mining companies and also the mine
equipment manufacturers. Two major themes could be identified as common
issues:-


1) The critical shortage of large, off-road tires in the mining industry
will get worse before it gets better. Consensus has been that 2008 will see
some alleviation, but with new capacity from Michelin and Bridgestone not
coming on stream until mid to late 2008, this will not happen according to
Otraco (a leading tire management company). Even large mining companies
with long-term supply contracts with major tire manufacturers are unlikely
to get their desired allocations. A quote from the General Manager of
Komatsu's American business is very revealing "The biggest issue affecting
orders is tires. There are just not enough of them. We meet with tire
manufacturers on a regular basis because it's hard to sell trucks without
them!"


2) Attendees were resigned to the fact that new mining projects will
generally take longer to come on stream than hoped. Besides equipment
shortages, the main problem seems to be lengthy negotiations with
governments, regulators and local communities. A Komatsu executive
estimated that 70% of projects are still on time or subject to minor delay
while 30% are significantly delayed.


The attendees also had concerns about getting qualified workers and staff.
The 25 bear market in base and precious metals has resulted in the industry
laying off thousand of skilled workers and professionals who have now found
work elsewhere. The lack of opportunities and growth in the sector
dissuaded students from seeking to study geology, or mining in Universities
such that there is now a dearth of professionals who are badly needed to
advance new projects.


The view of the mining companies, suppliers of mining equipment and other
industry participants at the conferences was uniformly upbeat. One
executive summed it up with the quote: "We are so bullish, it's almost
worrying". That is clearly the sign of good times coming back to an
industry that has suffered miserable fortunes for so long. The obvious
reasons for optimism were cited, namely the growth of China and other
emerging economies, especially India. Trying to find someone with something
negative to say apart from the shortages of various items of equipment and
personnel was impossible!


The clear conclusion is that despite major increases in prices of metals
the mining industry is unable to ramp up production due to shortage of
equipment, shortage of personnel and delays in government permitting,
approvals, and production sharing negotiations.


As demand for base metals and precious metals increases it is very likely
that mine output will continue to decline. You can't have a more
explosively bullish scenario than that!