Self-help manuals tell us that what we focus on, we manifest. This is certainly true for rare earth elements enthusiast Chris Berry. Where some see a spiraling global economy and stagnation, Berry sees an emerging world with four billion people hungry for new technologies in which graphite and rare earth elements play a big part. In this interview with The Metals Report, Berry describes what he calls the changing complexion of the commodity super cycle and names a few companies to start focusing on.
The Metals Report: You just gave a speech at the Prospectors and Developers Association of Canada (PDAC) convention. What was your message for natural resource investors?
Chris Berry: My speech was called "Four Billion Consumers Can't Be Wrong, Can They?" and its message was that while global economic trends are uncertain at best, with the Eurozone in a recession, North America exhibiting below-trend growth and much of Asia slowing, there is still a great deal of economic growth in countries throughout the world and this bodes well for the industrial and energy metals going forward.
According to Goldman Sachs, in 2011 China added $1.3 trillion to global growth. This is the equivalent of adding an economy the size of Greece to the global economy every 12.5 weeks or an economy the size of Australia over the course of the year. In 2012, if you look at all four BRIC (Brazil, Russia, India and China) economies combined, they added $2.2 trillion to global growth. This is the equivalent of one economy the size of Italy — the eighth-largest economy in the world — over the course of the year. I looked at broad economic data in the U.S., the Eurozone and China, such as industrial production, consumer spending and debt-to-GDP ratios, to present a vision of where we are in the economic cycle.
One of the key takeaways was to remember that the natural resources business is a cyclical one and even though many economic trends are contracting rather than expanding, now is the time to be evaluating demographics and other growth trends to position portfolios. Despite much of the pervasive doom and gloom I experienced at PDAC, I'm optimistic over the longer term when I look at the rise of the consumer class in Asia.
TMR: Were people nodding their heads? Were they skeptical?
CB: I think it was a breath of fresh air. When there's such a lack of optimism, it's a contrarian indicator to me. The overall sour tone is one of the reasons I'm so optimistic about the industrial metals space right now. Many of the junior mining companies involved in energy metals are very cheap on both a relative and absolute basis.
TMR: You're an optimistic guy, because 2012 was a pretty tough year, particularly for rare earth element (REE) investors. What are the macro trends behind that optimism?
CB: The number-one trend is a diffusion of technology. For example, there are almost as many cellular connections as people on the globe. If my research is correct, the global population is 7.1 billion (7.1B), and there are approximately 6.9B cellular connections. This is growing not just in Asia, but all over the world. How many wireless devices do you have in your home? I have six. Many people are gaining access to these technologies for the first time and for this diffusion of technology to continue, access to energy metals such as REEs is imperative. Of course, recycling and substitution must also be taken into account, but broadly speaking, attaining a higher quality of life necessitates a secure supply of energy metals like REEs.
Urbanization is another macro trend. People are transitioning from an agrarian lifestyle to an urbanized one that is more commodity intensive. Life expectancy, already high here in the West, is increasing in countries like China and India. In 1960, the average life expectancy in China was 47. Today that life expectancy is 73. This is 26 years of additional consumption spread across tens of millions of people. In India, in 1960, life expectancy was 42. Today it is 64. With people living longer, healthier lives, you can really begin to get a sense of how consumer purchasing power is set to multiply in coming years. This has profound implications for energy metals.