The Big Dig Returns

History certainly offers clues to the future…

Have you ever wondered what laid the groundwork for the surge in commodities in the early 2000s?

Most would link it exclusively to China.

Back then, the Middle Kingdom required a significant amount of iron ore to construct new cities, roads, and bridges, accelerating its economic development.

But I would argue that another factor was laying the groundwork for higher prices in the early 2000s.

You see, not many investors link long-term underinvestment in the resource sector as a key feature in setting up what followed throughout the 2000s.

However, our business did.

More than 20 years ago, Fat Tail launched the first inception of what’s today known as ‘Diggers & Drillers’.

A service that I now run for my paid readership group that targets direct investment opportunities across the resource sector.

But 20 years ago, our business recognised that we were in the early stages of a major upswing in commodities…

Back then, it was christened ‘The Big Dig’.

And as a business, we were right on point.

In the years that followed, Aussie investors embarked on one of the most profitable periods in our country’s history….

Large-cap miner Rio Tinto’s stock price jumped 155% between 2003 and 2013… BHP’s stock rose 274% over the same ten-year period…

And then there was the tiny ‘upstart’ that came out of nowhere – Fortescue Metals Group. Its share price increased by 96,900% during that remarkable 10-year period.

I look back on that period with nostalgia… As a geologist, I was graduating into a purple patch for the industry.

But was this a one-time event? Or are there other examples in Australia’s past?

To find out, let’s step back 50 years:

The 1970s ‘Big Dig’

This era witnessed record prices across various commodities, including copper, nickel, oil and gas, coal, and uranium.

In fact, commodity prices in the 1970s often exceeded the levels reached during the early 2000s boom, when adjusted for inflation.

But back then, it wasn’t China driving demand, rather a perfect storm of events all culminating into an ideal melt-up…

One of those was the 1973 oil crisis.

In response to US support for Israel during the Yom Kippur War, OPEC (Organisation of Arab Petroleum Exporting Countries) cut oil production and halted exports to targeted countries, including the US.

That led to a quadrupling of oil prices and a global economic recession.

But this was happening alongside the Vietnam War, where demand for materials like copper, nickel, and aluminium surged in response to America’s monumental war effort and Cold War arms race.

Meanwhile, the ‘Nixon Shock’ of 1971 suspended the convertibility of the US dollar into gold, thereby ending the Bretton Woods system and igniting a surge in precious metal markets.

But underlying all of these events was one key threat:

INFLATION.

As the value of cash eroded, investors sought refuge in real asset investments, like commodities and mining stocks.

The critical point is this: the commodity surge over the 1970s proved that the early 2000s boom was NOT an isolated event.

So, could we be approaching another Big Dig?

In my mind, the groundwork has been laid.

As you may be aware, we’ve experienced prolonged underinvestment in the supply of raw materials.

I would narrow down the period from 2012 to 2022 as the decade of underinvestment.

A period that mirrors the 1990s.

Like today, investors were obsessed with US tech.

And like every cycle before it, lack of investment in old industries like mining and exploration will have consequences… Chiefly, higher commodity prices!

The equation is simple. The set-up is in place.

But what will drive prices higher?

That’s what we’ll detail in our latest presentation, drawing on historical examples and explaining why we believe Australia’s next ‘big dig’ has arrived.

To understand why the timing is so crucial right now, you should check out our latest presentation here.

Until next time.