Question From Value (Chain) Seeker

The Calandra Report / By
Where Are Those (PubCo) Donkeys In The Middle?

At the two econ-wellness workshops I staged these past two weeks — Decoding Money — the range of questions was as wide as the lead the Miami Heat built in their NBA semi-final match vs. the Boston Celtics last evening.

Real estate, credit unions, “wash” sales, selling gold and jewelry and silverware without getting ripped off. [By the way, I was surprised how many folks did not realize that in the United States, pre-1964 quarter-dollars, because of their approx. 90% silver content, are worth almost 20 times their face value. Dimes, too. Before numismatics value.]

But the one that got me thinking was this: there is a certain amount of profit throughout a supply chain. Some participants in the supply chain capture more profit or higher margins.

As metals investors in precious metals miners know, the most value created is “upstream” — exploration — in terms of profit margin. The championship ring for everyone involved, and the highest risk.

What about the middle: the processors, refiners, smelters?

As we know, outside of precious metals, the value gap is case by case. For one, metals such as zinc (and other industrial metals), where smelters steal much of the value …  and “even more with rare earths, where the concentrate has to be turned into oxides and then oxides turned into metals and then the metals turned into alloys and then the alloys usually turned into magnets, etc, etc.”
That is Matt Geiger of MJG Capital giving me the short answer there.
What Matt and the original question poser, a longtime subscriber, Mehrad Z. from Marin County, triggered for me as an investor was the donkey in the middle.

Finding pub-cos that process or use industrial metals for products, alloys and so on is a challenge — real operators with material to source and big, messy 24×7 plants.

If we invest in miners or explorers, somewhere in the portfolio is probably one with its own mill; or in some cases, the big ones, with smelters on site. Freeport McMoRan FCX , which owns smelters in Arizona and seven copper mines in the U.S., is a good example. See article.

A “purer” idea?
Matt says two names to look at are Neo Performance Materials, trading in Canada, and Jervois Global, on Australia’s ASX.
Both have some exposure to primary mines but are predominantly midstream focused, Neo on (rare earth elements) REEs and Jervois on cobalt. 

“NEO offers much more compelling value at the moment and has a stronger balance sheet. (For full disclosure, MJG Capital owns a small NEO position.)

Neo this spring bought a European magnet maker. Neo, bsed in Toronto with facilities worldwide, even uses “going up the value chain” in its headline. And of course, the current EV buzzwords: Rapidly Growing Magnet Demand from Electric Vehicles, Electronics and Clean Energy. 
Jervois, HQ’d in Victoria, Australia, is mining cobalt (and nickel) and — buzzword warning — developing a fully-integrated cobalt value chain.
Jervois has the only cobalt mine in the U.S. and also makes cobalt chemicals in Finland. It also has ownbs a refinery in Brazil. See release.
Both of these trade in their respective markets and in the U.S. JRVMF NOPMF
— Thom Calandra

 

 
tcr gif paypal.gif
tcr gif paypal.gif
 

Thom Calandra ​is a ​writer and an investor. Research and material are meant as editorial opinion.​ He is not a professional investment adviser. Please do not consider his reporting as a recommendation to buy or sell securities.