Ross Beaty’s outlook on metal demand

Over the last twenty-five years Vancouver-based mining entrepreneur Ross Beaty has started twelve public companies and sold eight of them, converting about $1 billion of investment capital into shareholder wealth of more than $5 billion. Mr. Beaty spoke with Trish Saywell about his outlook for metals during a recent trip to see Lumina Copper‘s (LCC-V) Taca Taca copper-molybdenum-gold project in Argentina, a project in which he holds a 25% stake.

Q: What is your view on where metal demand is going from here?

Beaty: I’m a very firm believer in the super cycle that we’re in right now. I had a real epiphany when I went to China in 2002.  I was president of the World Silver Institute at the time and led a delegation there to try to convince them to stop dumping silver on world markets. Silver had hit an all-time low in the previous November of $4.03, which in real money was an all-time low, and part of the reason was that the Chinese were dumping silver and I was trying to convince them that that was a bad idea for everybody.

Q: What were your impressions of China?

Beaty: I was just blown away by the development of China and the attitude. I met with a number of very high level officials and I got the common line that they were really going to develop the country into a real market economy and you could see all around this incredible development. Well that translates into commodity consumption, be it oil, or copper. About the same time I read a technical report that a friend of mine, an ex-BHP mineral economist had written, in which he had gone back fifty years and looked at metals and discovery trends and whether we were finding enough to replace what we were consuming. His bottom line was we weren’t. Capital costs were going up, operating costs were going up, meaning you had to have better deposits, and we just simply weren’t finding enough to replace what we were consuming. And with those three things in early 2002: 1) the reality that discovery rates were going down; 2) China was emerging as a enormous consumer of commodities and 3) metal prices were at all time lows,  it didn’t take a rocket scientist to think that metal prices were likely to go up. I looked at the price chart of copper going back to 1945 and it was a beautiful sine curve with increasing amplitude over time. There seemed to be a shift in sentiment every four years from bear to bull, bull to bear. Some cycles were longer and some were shorter. In 2002 we were at the bottom of the latest cycle. I knew copper wasn’t going to stay at 70 cents for long. Of course I didn’t know how long the cycle was going to last or what price it was going to get to. This cycle is longer and stronger. It’s now in its eighth year and that is more akin to the cycle that began after the Second World War, where the U.S. was developing rapidly, Europe was developing, there was this long-term demand for metals that caused prices to stay high for longer and then there was the cycle before the First World War, which was about a thirty year bull cycle, so I think we’re in one of those. Of course, none of these cycles go straight up, there are always going to be bumps in the road. We had a huge bump in 2008, we’ve had another bump this summer, and that includes the contagion that is spreading through Europe today, but I feel we’re still in a bullish cycle for most metals and so I think prices are going to stay strong for quite a while.

Q: Could it be different this time around?

Beaty: More people are born every day and if you forget about Europe and America there are very strongly growing economies in most of the world: India, China, Malaysia, Indonesia, all of South America, all of Africa, and there are an awful lot of people in those countries that all want more junk, bigger houses, more cars, and all of that drives commodity demand. So despite all the nervousness in the U.S. and in Europe, I see the rest of the world as actually being more important for commodity growth than those mature markets. And on the supply side, we’re just not discovering as much as we need to discover to keep prices low. So I’m optimistic that we are going to continue in a strong metal market for many, many years. Having said that, at the end of the day it’s very unsustainable to be consuming as much as we are consuming and high prices will ultimately tend to reduce consumption and increase supply and that’s probably a good thing, especially the consumption side because long-term the only sustainable way for seven billion people to live on earth is if we all consume less and make what we produce today go farther.

Q: What is your view on the precious metals?

Beaty: I’m very confident that we’ll see higher gold prices over the long term. Gold has this beautiful synchronicity of strong demand led by Asia and the investing world as a monetary metal and a real issue with supply. Gold supply is flat, South Africa is declining, the rest of the world can’t really keep up with demand and the result will be higher prices. And I’m also of the view that the trend today with very high national debt levels and debasing of many national currencies makes gold more in demand. I think a lot of people believe that and that will sustain demand for gold for a long time. I love gold and I like silver too. Of course silver has the best of both worlds. It’s both an industrial metal and a precious metal. As long as people buy gold for investment or monetary reasons, they’ll also buy silver. And as long as we have a strong global economy, that’s very, very good for silver because more than half of silver demand comes from thousands of industrial uses.

Q: Was it a mistake for the U.S. to go off the gold standard?

Beaty: No I don’t think it’s possible for any country to be on the gold standard. There’s not enough gold in the world. The way governments have printed money over the last thirty years has been so vast that it’s just not a sensible economic proposition to have any country be on the gold standard although it certainly would create discipline. But most politicians don’t care about discipline, they just want to create a world where they can be re-elected. They have a very short-term view.