3SOF

May 24, 2007, 5:26 pm
A Metal Scare to Rival the Oil Scare
Indium, gallium and hafnium are some of the least-known elements on the periodic table, but New Scientist warns that reserves of these low-profile minerals and others like them might soon be exhausted thanks to the demand for flat screens and other high-tech goods. Scientists who have tried to estimate how long the world's mineral supply can meet global demand have made some gloomy predictions.

Armin Reller, a materials chemist at the University of Augsburg in Germany, estimates that in 10 years the world will run out of indium, used for making liquid-crystal displays for flat-screen televisions and computer monitors. He also predicts that the world will run out of zinc by 2037, and hafnium, an increasingly important part of computer chips, by 2017.

Researchers worry that a supply crunch in some metals and minerals could kill off promising new technologies. René Kleijn, a chemist at Leiden University in the Netherlands, says that a new design for solar panels that would make them twice as efficient as most current panels might not get built for lack of gallium and indium. Estimates of reserves vary widely, and scientists say it is difficult in some cases to accurately forecast demand, says New Scientist's David Cohen. What's more, it is possible that demand for some metals will plateau. Tom Graedel, a professor of industrial ecology at Yale University, found that per capita consumption of iron leveled off around 1980, suggesting that at some point people in technologically advanced societies might only need so much of any one metal. But Prof. Graedel notes that this hasn't been the case with copper, a crucial component of wiring and computer chips. He predicts that by 2100, global demand for copper might outstrip mineable supplies.

If the most dire predictions are true, recycling of rare metals will be the only way to manufacture some gadgets and machines as demand grows in the developing world. Mr. Kleijn says that a lot of copper could be freed up by replacing cities' copper pipes with plastic ones. Hazel Prichard, a geologist at the University of Cardiff in the United Kingdom, also is developing ways to extract platinum, a vital component in catalytic converters and fuel cells, from the dust and grime of city streets. Apparently, urban grit contains 1.5 parts per million of platinum. — Robin Moroney

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From today's WSJ. Don't know if it is related to roy's mining operations at all,but it's more food for thought.

QuoteFrom today's WSJ. Don't know if it is related to roy's mining operations at all,but it's more food for thought.

It's very good food for thought soxguy, thanks a lot!

It explains why copper mining companies trade at much lower valuations than other mining companies, it has to do with the scarcity of the metals. The earth will be out of copper just in 2100, but much earlier for other metals.

This might be a problem for long term economic growth, but mankind was always able to overcome these problems, through innovation.

In this context, we can only expect metal prices to continue to rise. However, over the very long term, no matter how high the price is, if there's no production there are no revenues, and without revenues companies operating in the sector will lose money and close doors. I wonder if I should attach a 25 times earnings multiple to ROY in this context.

Two other issues worry me:

Nickel Rises as Voisey's Bay Mill Shuts; Lead Gains to Record

Voisey bay is where ROY's gets most of its revenues. But production wasn't affected, company official's say:

«Mining operations and shipments of nickel concentrate at Voisey's Bay haven't been affected, company spokesman Bob Carter said from St. John's, Newfoundland, yesterday.»

Another thing that worries me is:

«China, the world's largest nickel consumer, imported 20 percent less of the metal in April than a year earlier, according to the customs data released today.»

On my valuation model, if I cut my EPS multiple estimate from 25 to 15, the stock gets just barely attractive.

I'm going to fill my heart with courage, the courage needed to admit a mistake, and I'll sell ROY at a loss on Tuesday.

Well maybe now that the weak hands are out of ROY, including David, the stock can rise again. We'll see. I bought even more on the dip.

Closed at it's HOD $7.54.

As Warren Buffet wrote in his 1978 Berkshire Hathaway annual report, "The best business is a royalty on the growth of others - requiring little capital itself."

David, do you think ROY will be affected by the addition to the TSX Global Gold Index?

ROY has been range bound, not very affected by the changes in precious metals prices.