MINING versus TECH.
If you’re a long term reader you’ll know I’ve framed tech in a rather sceptical light.
Perhaps unfairly.
But when it comes to liquidity in the financial system… There’s only so much that can go around, especially within the riskiest part of the market.
At the junior end, capital tends to flow into the hottest and most exciting trends.
Unfortunately, drilling a mineral sands deposit doesn’t generate the same level of excitement as sticking a microchip into a patient’s brain.
That was one of the latest headline grabbing tech innovations from Elon Musk’s Neuralink, last month.
In the battle for speculative capital, junior mining stocks have lagged.
But explorers are now competing with a tech sector on steroids… AI.
The AI ‘revolution’ promises plenty more headline grabbing attention for the tech sector, that means more speculative capital.
In fact…
I can tell you now, we have our own ‘Fat Tail’ take on this subject in the works. It’s called Lock. Build. Explode. And I believe it’s being released around this time next week.
So if you’re looking for an outside-the-mainstream approach to speculative AI investing, make sure you read all of next week’s Fat Tail Dailies.
But back to junior mining stocks, and the AI disruption that’s brewing there…
Most people believe higher prices will drive the junior mining sector higher.
That’s a fair assumption. Metal prices tend to rise as a function of demand.
With rising demand, we’d expect capital to flow back to the explorers in a need to boost future supply.
Yet, higher commodity prices doesn’t always result in more liquidity for small mining stocks.
Take gold.
Despite the metal trading just shy of its all-time highs over the last several months, junior gold stocks remain depressed.
That’s especially so amongst the explorers.
So, if higher metal prices can’t drive explorers higher, what will?
Discovery… The Spark for Speculation
Just like the old gold rushes from the past, a rush back to junior mining stocks often begins with a major discovery.
I’m not sure why that’s the case, but it seems to capture the imagination of investors looking to ride the next major find.
Just take the Poseidon nickel boom of 1969.
This was amongst the most prolific junior mining booms of all time.
In the late 1960s the market was ripe for speculation… Nickel and copper prices were trading at elevated levels and that was driven by demand coming from the Vietnam War.
The junior mining sector finally erupted when explorer Poseidon NL made a major nickel discovery at Mount Windarra, 22 kilometres northwest of Laverton, Western Australia.
The rush was on.
Poseidon’s shares surged from around $0.80 to well over $12 and beyond!
But the impact of Poseidon’s discovery was far reaching…
According to some sources the ‘ASX All Mining index’ rose 44% from October to December 1969.
Numerous explorers and mining juniors experienced triple digit gains against the backdrop of the Poseidon frenzy.
Which brings us to today’s market…
What will drive speculation back into the junior miners?
Importantly, the stage is set.
You wouldn’t know it from the reading the bearish news, but today’s commodity prices are high, well above levels from the 2016 cyclical low.
Today’s market is ripe for speculation.
But the next mad rush could have a ‘modern’ twist.
And, we’re already starting to see what this might look like…
Mining’s AI Disruption
Last week, Legacy Minerals [ASX:LGM] announced the discovery of a nickel-copper-iron sulphide deposit at its Fontenoy project in New South Wales, Australia.
According to the company, the discovery couldn’t have happened without deploying artificial intelligence.
The company had been sharing its data with San Francisco based, Earth AI.
Using AI technology, Earth AI generated drill targets from the company’s database, data that included drilling logs, aerial imagery, geophysics, historic assays and scientific geological reports.
Data that would take geologists years to digest and understand.
This latest discovery could be one of the first among many which involve artificial intelligence.
According to Earth AI, it can analyse and process data up to 100 times faster than traditional methods.
Now, this AI start-up isn’t mincing its words in declaring itself a major disruptor for the industry…
‘The discovery in Fontenoy, the second for us after the recent discovery of a greenfield molybdenum deposit, confirms that the future of mining lies in our technology.’
No doubt, the landscape is changing in mining and exploration.
If the probability of discovery begins to levitate higher on the back of AI-driven software just think about the opportunities available for companies holding prospective land?
Small explorers holding a land tenure across a key mineralised belt and nearby mines.
AI could see a very sudden re-rating among those explorers holding land in geological hot spots.
That could lead to a land grab, speculators piling into companies with the best geological turf.
If AI lives up to hefty expectations, expect capital to swarm the junior mining sector.
Perhaps on a scale rivalling the Poseidon nickel boom of the late ‘60s.
This could be the spark that finally ignites the industry back to life.
When that happens you may want to consider owning AI tech stocks serving exploration clients.
But you’ll probably want to dust off the old geological maps and try to figure out where the most prospective land is.
The easiest way to do that is simply buy companies holding tenements abutting active mines.
From competitor to partner, AI has joined forces with the junior mining sector.
This could be the ultimate speculative frenzy!
Next week, in our company’s take on AI investing, we delve into that.
In fact, there’s a direct AI/Mining small cap play we’re going to lift the lid on.
Again, if this interests you, stay glued to Fat Tail Daily from this Saturday onwards.
You’re going to have your eyes opened…
Until next time.
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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