Today’s column: We live in a CoD simulation, California has resources it won’t extract, and why mining companies really sell freedom, not rocks.
“Digging for Value, One Story At A Time.”
We Live In A Call of Duty Simulation
I played a lot of video games when I was younger: Madden, FIFA, NHL, and of course Call of Duty.
My mom would complain that videos games “were a waste of time” and that “I wouldn’t learn anything useful about the world from those things.”
Ha! How wrong she was.
Here’s a Mugglehead Magazine article on China’s newest Rare Earth Element (REE) restrictions:
“China placed severe export restrictions on rare earth elements on the United States as part of its tit-for-tat response on U.S. President Donald Trump’s tariff squeeze.
The United States access to these minerals has been effectively curtailed, which has a direct effect on their ability to make weapons, electronics and a host of consumer goods.
Beijing had been threatening this for awhile. Its final implementation effectively amplifies trade tensions between the world’s two largest economies, and sends Americans manufacturers in pursuit of alternative supplies of the critical minerals required for their products.”
Now here’s the plot of Call of Duty: Black Ops II.
“Black Ops II begins in the year 2025, where China and the United State are in a cold war after China stops exporting rare earth elements. In this future setting, militaries use robotic weaponry, cyberwarfare, unmanned vehicles and futuristic technology.”
Lol.
We are living in a Call of Duty Black Ops II simulation. This begs the question – how does it end? And how should we position ourselves for those outcomes?
I guess we ask the game? There are three potential endings in the CoD campaign:
- Good Ending (Canon): If all Strike Force missions are completed, the United States and China form an alliance, effectively ending the Cold War. This collaboration prevents further escalation and resolves the rare earth mineral crisis peacefully.
- Bad Ending: If Menendez is killed by David Mason (Section), his followers in Cordis Die launch a global insurrection, leading to widespread chaos, including the destruction of the White House. This outcome does not resolve the Cold War tensions.
- Neutral Outcomes: If Menendez is captured but Chloe Lynch (a key character) is not rescued, Menendez’s cyberattack succeeds, leading to further instability. However, if Lynch survives and Menendez is imprisoned, she neutralizes his cyber threat, maintaining global stability.
The obvious question as natural resource investors is “how can I trade each of these potential realities?” Here are my ideas.
- Good Ending: A China/US resolution is very bullish for industrial metals. Everyone will get along, we’ll all build shiny new buildings reaching new heights as we sing Kumbaya around newly minted free trade agreements and supply chains. EV metals would also work here as the two largest economies “come together” to usher a new energy paradigm.
- Bad Ending: Just buy precious metals and ammunition (physical and defense companies) because things will get ugly. You know what, maybe stock markets don’t even exist in a bad ending because we’ve moved from cold to hot war? But gold will still work (Everything is Bullish Metals!).
- Neutral Ending: Buy cybersecurity stocks as the US and China play tit-for-tat cyber warfare.
There are two important points here:
- Video games serve a much greater purpose than my teenager-brain could ever imagine. Who knew that playing the Black Ops II campaign would prepare me for life as a natural resource investor.
- Resource export bans are just another form of tariff retaliations. It doesn’t have to be, “you give me a 34% tariff, so I will give you a 50% tariff.” It can (and probably will) look more like, “you give me a 34% tariff and I stop sending you all the magnets you need to build your F-35s.”
The moral of the story? Play more video games.
California Can’t Have Nice Things
Every month there’s some news release touting “the largest deposit of {insert commodity} we’ve ever seen!”
I usually ignore them. But this lithium one in California looks interesting:
“American scientists have discovered a lithium brine deposit underneath California’s Salton Sea that could provide enough of the battery metal for 382 million electric vehicles.
“This is one of the largest lithium brine deposits in the world,” University of California geochemistry professor, Michael McKibben, said in an article on Jan. 5. “It could make the United States completely self-sufficient in lithium and stop importing it through China.”
This trove of “white gold” as it has been called is estimated to be valued at a whopping US$540 billion. The resource is said to contain 18 million tons of the commodity.”
Isn’t it convenient how these discoveries that “enable complete self-sufficiency” appear during the heat of a Resource Cold War?
“California Governor Gavin Newsom already referred to the Salton Sea as the “Saudi Arabia of lithium” before the immense scale of this deposit was verified.”
There’s just one problem with Newsom’s comparison. Saudi Arabia actually wants to extract its resources. California is one of the most restrictive mining states in the US. In fact, it’s taking them forever to approve the Sable Offshore (SOC) oil well.
If California can’t approve the restart of a former producing oil well, what makes you think they can approve lithium extraction from a toxic lake?
“As highlighted by The Daily Galaxy, geothermal production well extraction is a highly water-intensive process that could be detrimental to the environment. The Salton Sea is also highly toxic due to agricultural runoff and a lack of water inflow, which poses health concerns. In 2019 a University of Southern California study found that 21 per cent of children residing near it had asthma-like symptoms — more than triple the national average.”
California already has a water problem. And I don’t think they’d trade more lithium for more sick kids. Mines have shut-down over endangered plants.
The Blueprint for Ethical Mining Investment
I’ve written a lot about how today’s Defense Industry will be tomorrow’s Mining Industry.
The basic idea is that Defense stocks used to be “bad” and “unethical” so European (and other ESG-mandated) funds wouldn’t invest in the space. Morals over profits or something like that.
Then Russia invaded Ukraine and the US told Europe, “We’re not going to give you free military aid and weapons anymore.” Those two events were very good for defense stocks, particularly European defense stocks.
Suddenly, investing in defense stocks was the most ethical thing to do … for the health of the country! It was the 21st century version of buying War Bonds to support “the good fight!”
It was the perfect Brand Reimagination. Defense companies don’t make Killing Machines, they make Peace Defense Machines. David Ogilvy is probably looking down smiling.
Anyways, here’s Rutherford Hall describing the blueprint for ethical defense investing (from the FT):
“From the comms perspective we now have a chance to reframe the debate around the importance of the work we do and to make the point that defending our liberty from aggression or extremism is in fact the height of virtue. As part of this we are working up a plan to pressure the EU to re-examine its sustainable investment rules that make it hard for ESG funds to invest in the defence sector. After all there’s nothing very environmental about Russian T-90s rolling along your autobahns.”
Remember those points, “We now have a chance to reframe the debate around the importance of the work we do and to make the point that defending our liberty from aggression or extremism is in fact the height of virtue.”
This is how mining stocks win. This is how billions of dollars flow into the extractive industry. Mining isn’t anti-environmental, it’s pro Liberty, pro National Defense, and pro jobs.
Rutherford continues:
“Key to this argument however is a shift in the way we think about what we are selling. We need to switch the focus from outputs to outcomes.
You are no longer selling advanced weapons systems, you are selling security. You do not manufacture assault drones, you are saving western Europe from Putin. You do not sell armour-piercing shells; you are delivering homeland security systems. You do not manufacture weapons, you manufacture peace through security. In the ethical arms industry, we don’t sell weapons, we sell freedom.”
Mining companies don’t sell rocks, they sell resource security. They don’t extract toxic minerals, they save the homeland from reliance on evil counterparties,
Mining companies don’t sell concentrate, they sell freedom.
And you can’t put a price tag on freedom (but if you could, it would probably be 30-40x EBITDA, right?).
