Investing thoughts for 2021
WHEN you hear economists, who want to sound sophisticated use the phrase ….”Due to Covid-19 attack”…. to describe the reason for the poor performance of the economy, what they really are saying is that the direct costs of the pandemic are of course, deaths and sickness that prevent people from working normally.
In our case the economy has suffered because these sick and dead people worldwide stop buying the things or gadgets that use our copper.
The demand for our copper which is our major export commodity accounting for 70-80 percent of our foreign exchange revenue has until very recently been rising. Without copper revenue, our economy is in trouble. This calls for our urgent attention.
I hope you have not forgotten several news items from last year needing our urgent attention. The first began with the news out of South Korea. One of their corporate stars – LG Chem – has been riding high despite the Covid-19 pandemic, lockdowns, and general supply chain gloom.
How so? I hear you ask….is this not the same pandemic and social distancing that has caused untold economic misery that led to our debt default?
The answer is Yes, but South Korean LG Chem is in the right sector, that is why. It makes batteries that go into electric cars, including solar.
In fact, we wrote about this sector last year. Then we said the Industrial Development Corporation (IDC) can use their big balance sheet and the power of government to attract partnerships in the exploration, mining and supplying EV and Solar battery raw materials directly to battery manufacturers worldwide or start manufacturing these batteries under licence. But of course, the folks at IDC must be busy with Mopani.
But you wonder how IDC missed the Financial Times news item last year July 20, when it reported that, LG Chem has US$125 billion in EV battery orders. Is this order not a possible lifeline for the Zambian economy?
This order alone can pay for the Zambian external debt 12 times and we can stop using Covid-19 as an excuse. It is also equivalent to selling last year’s entire world fresh copper production of 15 million tonnes at US$8, 000 per tonne.
And it will keep LG Chem busy for five years and no wonder it has surged to become number one battery maker in the world.
LG Chem may be able to add the US to the “high growth” category too. That is because Mr. Joe Biden won the election. President Biden has come out with a huge US$2 trillion and more “climate plan.” The Biden cash will push demand for battery raw materials to new records.
We should not wait for LG Chem to come to Zambia or let third parties buy from us to supply LG Chem. We must not miss out on this renewable industry growth opportunity to directly benefit in the EV battery evolution market share.
And every day there is another story showing the march of renewable technology and its associated themes.
What does this mean for us? Again, we covered this in the Sunday Nation on November 29, 2020, “There’s life beyond crying over this spilt milk.” We said: “The EV industry is projected to be the fastest growing end use industry segment in the neodymium magnet market. And that means the demand for raw neodymium is expected to soar.” We said there is recoverable neodymium in Central, Eastern and Southern provinces.
This is in addition to other battery raw materials. We already have Cobalt, Graphite, Nickel, Vanadium, Zinc, Cadmium, Manganese, and of course Copper. We have discussed the occurrence of these chemical raw materials and the huge potential they hold for a thriving Zambian economy.
But here is another one: over in the Middle East, despite their cheap oil and gas, their electricity costs could fall a further 75 percent during the day as rooftop solar goes up everywhere.
This presents huge opportunities for our abundant Rare Earth elements at Nkombwa Hills in Isoka that nobody seems to talk about, also occurring in Mumbwa and two other places.
The chief executive of a small company looking to pinch market share from the big players is quoted as saying…“Substantial savings would be available for customers who were able to shift their usage into the middle of the day, or who could add a battery to soak up and save cheap power during the solar pick.”
But the thing is, how long before every house in the world has their own battery pack – or one sitting in the driveway? I cannot tell you right now, but that day is marching ever closer.
Everyone can see clearly where the tailwinds are. And also, the headwinds. But we keep hearing ZCCM-IH are going ahead to spend money exploring for oil in Gwembe Valley as if ignorant of tailwinds behind renewables is not fact?
Where was ZCCM-IH when Tullow Oil suddenly disappeared from exploring for oil in Northern Province only to reappear with an announcement that they were a takeover target? The company projected a net debt at the end of 2019 to be around US$2.8 billion versus US$3.1 billion at the start of the year. The growing threat of Covid-19 despite vaccinations means greater market volatility will still push crude prices to new lows. In fact, Tullow Oil announced it will not survive. It already sold its Ugandan assets to Total Plc.
The thing is, ZCCM-IH know there is this US$2 trillion Biden clean energy plan on the table against no money into the fossil fuels sector. Top oil investors are also aware of Tullow Oil problems in Africa.
If ZCCM-IH have spare cash, let them use it to explore for more stable-highly sought after-high-priced neodymium. This US$2 trillion Biden climate deal will attract top world exploration companies in neodymium for profit. The timing for oil in this Covid-19 era is not right.
ZCCM-IH must trust our advice. Already, Libya resumed exports after being shut out of the market.
The civil war has settled down there, but they have come back to the market at an inopportune time relative to the supply and demand dynamic.
And that is not all when it comes to oil. Many traditional exporters – Iraq, Iran, Venezuela, Libya, Nigeria, Angola – rely to an extraordinary degree on energy exports for their government revenue. No oil sales almost equate to no money at all.
That has incentivised them to pump as much oil out as possible to get whatever cash they can. It will also cause any fresh investor in oil to sink.
We will see on that. For now, let us focus on established sectors with brighter outlooks like investing in our traditional Copper. For years we have known that the renewable transition demands extraordinary amounts of fresh copper. And for years little investment has been made in new supply.
For years ZCCM-IH has struggled to go beyond one million metric tonnes production target. ZCCM-IH must make sure Mopani resumes production as soon as possible – ASAP.
Perhaps the time is now. The copper price has been rising even if world economic demand is weak and the outlook bleak. Big electrical infrastructure plans and numerous EV charging stations to replace petrol stations worldwide are on the table too.
With Glencore and Vedanta out of the picture, now is the time for ZCCM-IH to start planning how they can position our abundant EV battery raw material supply chain with the respective projects. EV vehicles and charging stations will require huge quantities of freshly mined copper and not recycled copper.
In the meantime, gold still glitters.
The price as at March 1, 2021 remains around US$1, 760. That has been good cash flows for a long time now for the local producers and excellent prospective margins to incentivise exploration and any Bank of Zambia deals beyond 2021. The Bank of Zambia should look at trading in a local paper Gold Bond.
We must watch these critical sectors in 2021 like an Eagle ready to pounce at the slightest opportunity.
Just a thought,
Mwiine Lubemba Prof.