Amidst the US midterms and Medibank hack, one development this week has been gravely overlooked.
The Canadian government made a rather interesting ruling on Monday. They have ordered two Hong Kong-based companies and one Chinese firm to divest from three local lithium miners.
None of these miners are big producers, either. The largest stock of the three — Lithium Chile Inc [CVE:LITH] — has a market cap of just CA$121.9 million. The other two — Power Metals Corp [CVE:PWM] and Ultra Lithium Inc [CVE:ULT] — carry market caps below CA$40 million.
In other words, these are junior miners being stripped of money at their most vulnerable stage.
However, I am not surprised by the Canadian government’s decision. While I’m unaware of the finer details, contention over Chinese ownership (especially via Hong Kong proxy) is just as much an issue in Australia.
But I’m not here to weigh into the political motivations and consequences of this decision.
What you should care about instead is what kind of message this sends to the mining industry. Because just like in Australia, if overseas investment dries up, particularly from China, already underfunded miners may struggle even more.
And that will have flow-on effects for all of us…
Lithium boom continues, but so do supply concerns
Lithium, in particular, is quickly shaping up to be a key battleground for mining supremacy.
Every nation with access to this crucial mineral is quickly realising just how pivotal it will be to retain control over any deposits they may have. After all, amidst a backdrop of ongoing fears of global recession, lithium prices have not stopped rising.
As the Australian Financial Review (AFR) reports:
‘However, lithium prices continue to trend higher as original equipment manufacturers (OEMs) look past near-term headwinds to secure supply for their 2024-25 electric vehicle sales targets, according to UBS.
‘“Lithium prices so far [have been] immune to macro weakness,” said Levi Spry, mining analyst at UBS. This is “despite the obvious headwinds of China, European electric vehicle sales disappointing, and inflationary and monetary policy factors”.’
Of course, you should take everything that comes from ‘analysts’ with a grain of salt. You may recall that back in May, Goldman Sachs came out with a huge report suggesting the lithium hype was over.
You can read more about that little fiasco right here, if you’d like a trip down memory lane.
My point is Goldman couldn’t have been more wrong. So while I agree with the bullish outlook from analysts now, there is the possibility they may be wrong too.
However, the main reason why we should be confident about lithium and commodity prices in general, for that matter, is because of one key detail…
Again, from the AFR:
‘While lithium companies have tried to ramp up supply to capitalise on high prices, analysts highlighted that output in the September quarter was mixed, with misses in production and delays in project commissioning.’
This, dear reader, is the big issue — an issue that will only be exacerbated if policies like Chinese divestment in Canada spread across the mining sector.
Because if no one is willing to fund these projects, then supply — not demand — will be the real problem.
Prepare for ‘The Age of Scarcity’
As we’ve been highlighting all week, this issue of scarcity and underinvestment is quickly shaping up to be the biggest catalyst for a new commodity boom. You simply can’t afford to ignore this supply-side issue as an investor in any capacity.
After all, commodity prices and miners have already held up well compared to most in 2022 — a prelude to what we believe could be a far bigger event to come.
But don’t take my word for it…
Our newest team member, James Cooper, is all over this topic.
With a background in exploration geology and a keen investment mindset, James knows mining stocks better than most. That’s why, when he delves into the details of this current issue of scarcity, it paints a pretty stark picture.
As grim as it all may sound, though, there is an upside to all this.
Because of our mining-intensive economy and share market, you can find ways to profit from this looming supply crunch. In fact, James is outlining precisely how to do just that in his ‘Age of Scarcity Attack Plan’.
This comprehensive introduction to James and his work will show you exactly how to navigate the mining sector and commodities in the months and years ahead. And as of today, we are opening this opportunity to readers like yourself.
To get started and ensure you don’t miss anything James has to offer, click here.
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.