This week’s column: DeBeers goes all natural, cheese helps metal recoveries, and illegal share manipulations.
Let’s get after it!
“Digging for Value, One Story At A Time.”
A Diamond Is Forever Six Years, Tops
De Beers is a 137-year-old diamond company that does everything from mining to refining to selling fancy diamond rings and jewelry. The company convinced the world that “A Diamond is Forever.” Nothing beat a real, authentic diamond.
And that lasted about 130 years.
Until 2018 when De Beers did the unthinkable: they produced and sold lab-grown diamonds. Which is hilarious because they spent the prior 130 years telling you how horrible of a lover you were if you dared buy your significant other a lab-grown diamond.
So if a diamond is forever, what’s the shelf life for lab-grown diamonds? Apparently around six years.
Yes, the world’s most famous diamond miner is shutting down its lab-grown diamond business, Lightbox, in a move that is part strategic retreat, part existential crisis, and part, well, “what did you expect would happen when you tried to sell diamonds that are both forever and also $500 a carat?” From MiningMx.com:
“The diamond miner announced last year that it would cease selling its own man-made gems, but was unsure what it would do with the Lightbox business that made them, said Bloomberg News. It’s discussing the sale of some assets — including inventory — with potential buyers, the newswire added.
Lightbox was introduced to sell synthetic diamonds at a steep discount to rival producers in an attempt to drag prices lower and create a clear divide in consumers’ minds between traditional and lab-grown products.”
I imagine the De Beers lab-grown debate looked a lot like Tyler Durdin corralling new members to join Fight Club:
“Gentlemen, welcome to Lab Grown. The first rule of Lab Grown is: you do not talk about Lab Grown. The second rule of Lab Grown is: you DO NOT talk about Lab Grown! Third rule of Fight Club: someone yells “China is flooding the market!”, goes limp, taps out, the fight is over.”
The idea was simple: protect the “real” diamond business by flooding the market with cheap synthetics, creating a bright line between the two products.
There’s just one problem; if you sell a product that is physically and chemically identical to your main product, but at a fraction of the price, people might start to wonder why they should pay more for the “real” thing. Or, more likely, they’ll just buy the cheaper one. Especially when the only difference is a certificate and a marketing campaign.
And then the price war really started. Lab-grown diamond prices collapsed. Wholesale prices for lab-grown stones fell below even Lightbox’s already-low prices, thanks in large part to a flood of new supply from China and other producers. Suddenly, the whole point of Lightbox-being the cheapest lab-grown game in town-disappeared.
It’s the worst of both worlds. Lab-grown diamonds became so cheap that they a) shifted demand away from real diamonds and b) sold at prices lower than De Beers manufacturing cost.
De Beers tried to have it both ways: protect the mystique of natural diamonds while also cashing in on the lab-grown boom. In the end, the market called their bluff.
The Delusional Fantasist
Suppose you are the CEO of a mining company who’s stock is down 97% since it IPO’d. There are probably a lot of excuses you can use to explain away that horrendous share price performance, like:
- “Oh, it’s just a bad part of the commodity cycle.”
- “We’re recovering from some prior mistakes the last management team made.”
- “The commodity price just isn’t cooperating with us.”
- “Inflation is high so our costs are higher than we initially expected for this project.”
But another (and arguably way more fun) excuse would be:
- “There’s a shadowy cabal led by our former CFO manipulating our share price down so we can’t buy a platinum mine.”
Mantengu Mining (MTU.JSE) chose Option 5:
“MANTENGU Mining, a R171m chrome miner, today published incendiary allegations its share price had been manipulated and that the Johannesburg Stock Exchange (JSE) had turned a blind eye to its complaints as it was protecting an illegal trading syndicate.
The JSE denies the allegation contained in a detailed affidavit which forms the basis of a formal criminal complaint, signed off by Mantengu CEO Mike Miller. In the document, Miller alleges his former CFO Ulrich Bester was the key perpetrator behind the share price manipulation.”
Here’s the setup. Mantengu wants to buy Sibanye-Stillwater’s (SBSW) Blue Ridge platinum mine. Part of that deal, from a regulatory standpoint, is that the Blue Ridge mine cannot exceed 30% of MTU’s market capitalization.
If Mantengu’s share price is low, then the Blue Ridge deal looks big relative to Mantengu’s value (i.e., >30%), which means more paperwork, more regulatory scrutiny, and maybe Sibanye-Stillwater just throws up its hands and walks away.
And who might benefit from that? Well, Liberty Coal, which once wanted Blue Ridge for itself, but, after being rejected by Sibanye-Stillwater for “reputational issues,” apparently decided it wasn’t worth the trouble.
It must’ve been a nasty break-up between Bester and MTU, because the entire story is giving “high school drama.” If Bester can’t have the mine, then nobody can.
Which is hilarious because maybe MTU:
- Knew Bester owned enough stock to potentially manipulate the price lower.
- Decided they didn’t care and fired him anyways.
- Realized this would be a great way to spin a -97% return since IPO.
- Blame all their troubles on Bester even if none of it was true.
Besides, these excuses way more fun than “the commodity price is lower than we thought.”
No Freakin’ Whey
I like cheese and mining stocks. I never thought I’d find a way to combine these two interests. But then I read this Mugglehead article and realized anything is possible:
“Researchers from public research university, ETH Zurich, have found a novel way to use cheese byproducts to aid with mineral recycling.
Cheese makers separate curds from whey, producing nearly nine pounds of watery by-product for every pound of cheddar. This leftover whey contains proteins that, when heated in acid, twist into ultra-thin amyloid fibrils.
Researchers in Zurich discovered they could use these fibrils to create a feather-light sponge that attracts gold more than other metals found in shredded electronics. They mixed the fibrils into a gel and dried it into an aerogel—an airy material similar to Styrofoam, but on a much smaller scale.
This aerogel contains microscopic pores that weave through it, creating vast surface area within a cube no bigger than a crumb.
When dipped into a beaker of dissolved circuit boards, the sponge quickly attracts gold ions, which stick to its proteins. In early tests, the aerogel captured more gold than the plastic resins recyclers usually use.”
Can Sargento start a “mineral recovery” spin-off business using its whey by-product? Does Wisconsin become the next mining technology capital of the world? Who will launch the inaugural cheese-recovery SPAC “Yes Whey Minerals Acquisition Corp I”?
Here’s the other thing. You’ll never look at cheese the same way again. You’ll walk by the cheese section at Whole Foods and think, “Imagine all of the gold they could recover with these blocks of Gouda, Swiss, and Cheddar.”
We truly live in the greatest timeline.
