Far from icebound, Greenland is wealthy in rare earth elements, precious metals and oil. Already, says Aheadoftheherd.com owner Rick Mills, companies are beginning to outline major discoveries at just pennies a share. And that's just the tip of the iceberg. Read more in this exclusive interview with The Critical Metals Report.
The Critical Metals Report: Let's start by talking about growth in developing nations, where populations are starting to demand the good things in life that we in the developed world have long enjoyed. That means continued growth in the commodity markets, specifically in mining. What are the implications of that?
Rick Mills: Easy and cheap access to basic materials like food, fiber, energy and minerals has driven recent growth in global prosperity. Throughout history, supply shortages in these materials have led to prices high enough to support further increases in production. We have always counted on supply eventually exceeding demand and forcing prices to drop.
Now, we are seeing a paradigm shift. Scarcity, jurisdictional risk and energy costs may result in declining production. Remember, margins, not price, motivate investment. As the cost of production increases, margins might not be sustainable.
TCMR: Is this specific to metals or other materials?
RM: I am talking about everything: food, fiber, energy and minerals. As far as metals are concerned, we have already picked most of the low-hanging fruit; now we have to go to more remote locations. We have to go to countries that are a little bit sketchy: the Democratic Republic of the Congo, Zambia or South Africa, which seems to be imploding.
For 10 years now, supply has struggled to keep pace with demand. The supply of metals is finite and subject to compounding demand from developing nations. Discovery and development are increasingly challenging and expensive. Average ore grades for most minerals are in decline, yet their production has increased dramatically.
The most important metals, copper for example, are suffering from declining ore quality and rising extraction costs. Eventually, the quantity of resources used in the extraction process will be 100% of what is produced. At existing mines, costs are increasing while production rates are stagnant or in decline. And the rate of discovery is not keeping pace with the rate of depletion; we are not replacing the reserves we are using.
TCMR: That would seem to increase the value of some of the near-term production stories that have defined ounces. Do you see a general increase in mergers and acquisitions (M&A) activity in the metals industry?
RM: I think that will have to happen. When was the last time you heard of a major making a discovery? The majors' business is to produce, whereas the juniors' place on the food chain is to explore, find and develop to a given point.
As reserves get more difficult to replace, juniors with deposits will become more valuable. The only way for a major mining company to replace its reserves and grow its resources is M&A. And, because there are very few mid-tier companies left, the majors will have to dip into the junior pool.
TCMR: You pay close attention to areas of the world now being explored. Do you have any ideas for investors, particularly in terms of lesser-known jurisdictions?
RM: Greenland is one place that will be increasingly on investors' radar screens. It is vastly underexplored and yet, it has some of the best potential for mineral discoveries that I have ever seen. Greenland is the largest island in the world; it has 5,800 square kilometers (sq km) of coastline. And yes, about 84% of Greenland is icecap up to 3 km thick. But the ice-free area surrounding the icecap is up to 300 km wide; roughly 400,010 sq km. Compare that to the size of Germany, which is slightly less at 357,000 sq km. That is where the prospective mineral discovery areas are. Most companies are working on the southwest coast.
Travel by sea is possible throughout the year from Nanortalik, in the south, to Sisimiut in the northwest, where the ports have a year-round shipping season.
The Earth's "cryosphere" – its frozen places – are melting. And there's no place on Earth that's changing faster than Greenland. The World Meteorological Organization reported that December 2011 was much warmer than usual, with rainfall instead of snow recorded for the first time in Kuujjuaq. NASA recently reported that ice all across the vast glacial interior of the world's largest island was melting.
Greenland is no more rugged than Canada's north. When you consider that the southwest coast is ice-free year round, shipping by sea would be cheaper than roads or exporting out of Canada's north.