Objective Capital Rare Earth and Minor Metals Investment Summit: The Strategic Importance of Minor Metals as a Diversified Investment - Chris Eibl


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Objective Capital Rare Earths, Speciality and Minor Metals Investment Summit
The Strategic Importance of Minor Metals as a Diversified Investment
18 March 2010
by Chris Eibl, Tiberius Asset Management

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Objective Capital Rare Earth and Minor Metals Investment Summit: The Strategic Importance of Minor Metals as a Diversified Investment - Chris Eibl

  1. 1. Investment Conferences RARE EARTHS, SPECIALITY & MINOR METALS INVESTMENT SUMMIT 9.30 – 9.55 The Strategic Importance of Minor Metals as a Diversified Investment Chris Eibl – Managing Partner, Tiberius Asset Management THE LONDON CHAMBER OF COMMERCE AND INDUSTRY ● THURSDAY, 18 MARCH 2010 www.ObjectiveCapitalConferences.com
  2. 2. Tiberius Group Tiberius Asset Management AG Strategic Metals March 2010
  3. 3. Agenda I. Tiberius Group II. Executive Summary III. Investment Case IV. Investment Universe V. Challenge and Solutions
  4. 4. I. Tiberius Group Introduction Tiberius Group  A Swiss firm specialized in commodity management, with its headquarters in Zug as well as offices in Geneva and Germany  Expertise in physical metals trading through subsidiaries  30 employees with wide-ranging experience in commodity trading, portfolio management and research.  A model-supported, quantitative investment philosophy with a structured and transparent investment process.  The firm’s core competence lies in the active management of long- only and long/short portfolios.  Total assets currently under management by the Tiberius Group: 2 billion USD, of which 1.5 billion is invested in commodity futures.  Tiberius is regulated by FINMA, the Swiss Banking Commission 4
  5. 5. Agenda I. Tiberius Group II. Executive Summary III. Investment Case IV. Investment Universe V. Challenge and Solutions
  6. 6. II. Tiberius Group Executive Summary Executive Summary Strategic Metals is a collective term for raw materials that already have or will have an important impact in various fields of high technology development. This will include communications technology, IT hardware technology, battery technology, defense technology and various others. Strategic Metals include minor metals, rare earth, platinum group metals and other raw materials. These metals all share similar characteristics: 1. Deposits are found in geopolitical instable countries and access to them is difficult 2. None of these materials are being mined through primary sources 3. Importance in the end product is more important than price 4. Scarcity and low stock levels globally 6
  7. 7. II. Tiberius Group Core Message Core Message to our Investors The race for strategic metals has begun – China, the US and Europe are trying to secure access to these strategic raw materials through physical stock pile purchases or securing deposits. The goal of an innovative commodity investment manager should be to find suitable solutions for investors within the financial industry. 7
  8. 8. Agenda I. Tiberius Group II. Executive Summary III. Investment Case IV. Investment Universe V. Challenge and Solutions
  9. 9. III. Tiberius Group Investment Case Geopolitical Aspect  Civil warfare and internal instability has hindered infrastructure development, limiting material extraction in deposit rich countries.  As finite supply markets, strategic metal prices have been skewed to upside because of lack of investment input and resource accessibility in areas of high politically instability.  Geological studies suggest that the exponential population growth may still outpace new supply as underdeveloped nations become more sophisticated.  China has already gained a competitive advantage through its Chinese Africa Development (CAD) fund; the CAD mandate invests in African infrastructure in exchange for resource supply chain control. 9
  10. 10. III. Tiberius Group Investment Case Geopolitical Aspect DRC While the Congo is known for a plethora of deposits and natural resources, the two strategic metals of particular interest shown by China through its loan and investment mechanisms have been Copper and Coltan. Civil war and unrest make it difficult to sustain stable supply. ZIMBABWE As another country that has been the recipient of financial assistance from China, Zimbabwe is also rich in natural resources such as, but not limited to, chromium ore , nickel, copper, iron ore, vanadium, lithium and tin. The government of Mugabe however makes it difficult for European investors to get active there. TURKMENISTAN Although the country is slowly moving towards democracy , its authoritarian government, post Soviet Union collapse, has limited any foreign direct investments and, thus for, overall trade. As a country rich with natural and energy resources, the lack of political transparency and conformity to international standards have limited the accessibility to Turkmenistan’s deposits. 10
  11. 11. III. Tiberius Group Investment Case Geopolitical Aspect • Export rates are already expensive as a deterrent from producers to sell their Duties & Taxes - Chinese export tariffs 2009 raw materials abroad Commodity Export tariff • As the major global producer of many minor metals, China itself has become Aluminum ores and concentrates 15.00% the biggest consumer of their own Chrome ores and concentrates 15.00% material Cobalt ores and concentrates 15.00% • There is further speculation that China Ferro-Alloys 20.00% will increase tarriffs even higher as Magnesium scraps 10.00% materials are becoming more scarce Manganese ores and concentrates 15.00% Molybdenum 15.00% • If this comes into realization, the International consumer market will have Silico-chrome 20.00% to rely more on supplies outside China. Silico-manganese 20.00% Silico-tungsten 20.00% • China‘s conformity to WTO and Tantalum scrap 10.00% international trade standards is heavily Titanium ores and concentrates 10.00% dependent on its future relations with Tungsten 5.00% the US 11
  12. 12. III. Tiberius Group Investment Case Supply and Demand The below grid shows global demand measured through economic output relative to global production. If economic output continues to increase at 3.8% annually, as in the past 20 years, then this ratio will substantially increase for certain materials. Source: Rohstoffe fuer Zukunftstechnolgien, 2009 12
  13. 13. III. Tiberius Group Investment Case Price Performance - RoR Since 2000 13
  14. 14. III. Tiberius Group Investment Case 650% • Tiberius MM Index Tiberius MM Performance Index vs GSCI/DJUBS (MoM) Components: 550%  Bismuth  Cadmium 450%  Chromium  Cobalt  Indium 350%  Iridium Tiberius MM  Magnesium 250% S&P GSCI INDEX  Molybdenum  Ruthenium DJUBS INDEX  Titanium 150% • Equally weighted 50% • No Rebalancing -50% Tiberius MM Index is simply a performance tracker relative to major commodity future indexes; it has clearly outperformed the others. However, this index is for indicative purposes only as it does not take into consideration liquidity factors for sourcing material along with rebalancing methodologies of the futures indexes. 14
  15. 15. III. Tiberius Group CASE STUDY Cadmium is a market which has much smaller capacity output from the supply side than most metals. Therefore it is subject to extreme price movements to the upside and downside 2400% COPPER 1900% CADMIUM 1400% When compared to Copper, the best performing base metal, it’s 900% easily seen how Cadmium has outperformed copper since 2000. 400% -100% 15
  16. 16. III. Tiberius Group CASE STUDY • The Rhodium market will be fairly balanced in the next 2 to 3 years. • Any pick up in auto demand can quickly put the market back into deficit and, thus for, higher prices. • As of November 2009, China surpassed all other countries to become the world’s largest auto producer • As a huge producer of gasoline vehicles, China will need more Rhodium to make catalytic converters 16
  17. 17. III. Tiberius Group CASE STUDY Cobalt Consumption Applications: Metallurgical Magnetics Chemicals Ceramics Super Alloys • Alnico • Batteries • Glass Colors Water Resistant • Rare Earths • Catalysts • Enamels Coatings • Soft Magnetic • Adhesive • Pottery Materials • Pigments, Colors • Chinaware High Speed Steels • Medicine Prostethics • U.S. imports up to 78% of domestic Production Sources • Struggle for available Cobalt between Cobalt as environmental efforts have U.S. and China has caused supply curbed domestic production squeeze in the past • Nickel Industry 48% • Leading global producer, Democratic • Copper supply scarcity can diminish Republic of Congo (DRC) at around 40%, • Copper Industry newly refined Cobalt introduced into the has been unable to meet market market expectations because of infrastructure 37% & Others underinvestment • Cobalt consumption is mainly generated • Primary/Direct from aerospace, rechargeable battery, • Political tension within DRC and 15% Operations hybrid-electric and gas-to-liquids frequent labor strikes result in less industries Cobalt exports 17
  18. 18. Agenda I. Tiberius Group II. Executive Summary III. Investment Case IV. Investment Universe V. Challenge and Solutions
  19. 19. IV. Investment Universe Investment Universe Characteristics and Categorization • Strategic Metals are the elemental cousins of Base and Precious Metals, but with a usage level equal to or greater than the latter within the industrial process. • Minimal Global Production, usually less than 150,000 Metric Tons per annum • Central in the production of many industrial goods because of their chemical properties (ex: Cellular Phones, LED TV‘s, Cars) • No primary production sources as Minor Metals are largely produced as by-products of other minerals • No exchange traded or listed products; trades via physical market only with no forward curve - this can change as the LME is looking to introduce futures contracts on selected metals. It has already launched Cobalt and Molybdenum contracts. • Commonly applied as alloys, chemical mixtures to lower purity, influence color and/or add durablitiy 19
  20. 20. IV. Investment Universe Investment Universe Investment Universe Minor Metals Rare Earth Elements Platinum Group Metals Other Antimony Lanthanum Ruthenium Lithium Bismuth Cerium Rhodium Niobium Cadmium Praseodymium Palladium Uranium Chrome Neodymium Platinum Zirconium Cobalt Promethium Osmium Tantalum Gallium Samarium Iridium Germanium Europium Indium Gadolinium Magnesium Terbium Manganese Dysprosium Mercury Holmium Bold: strategic metals that are Molybdenum Erbium Considered core investments Rhenium Thulium Selenium Ytterbium Silicon Lutetium Titanium Tungsten Vanadium 20
  21. 21. IV. Investment Universe Investment Universe Investment Universe – investment limitations • Portfolio holdings will include accessible material with a forecasted short supply bias or signficant demand increase • Prospective investments will be on radar until liquidity allows for market entry/exit • Dynamic market conditions can change a metal from investable to non-investable or vice versa • Liquidity and counterparty trading risk is essential for an investment decision, therefore adjustments of portfolio construction will be based upon these 21
  22. 22. Agenda I. Tiberius Group II. Executive Summary III. Investment Case IV. Investment Universe V. Challenge and Solutions
  23. 23. V. Challenge and Solutions Challenge and Solutions • Strategic Metals have an investment case which should be made accesible to strategic long term investors • It is the role of the investment managers to act with respect to the market characteristics • Investment solutions need to be hybrid between physical and paper structures • Investment strategies shall be determined for long term market participants • Tiberius has found an investment solution via hybrid fund structure 23
  24. 24. Disclaimer © Copyright This publication is copyright-protected. All rights appertaining thereto, even in case of only partial use, shall remain reserved, particularly with regard to the following: translation, reprinting, recital, use of images and graphics, broadcasting, duplication via microfiche or other means, and/or storage in data processing equipment. Any duplication of this publication or portions thereof, even in isolated cases, shall be subject to the limitations set forth by the legal provisions of the Copyright Act of the Federal Republic of Germany of September 9, 1965 (in its most current version). Any breaches may be subject to the penalties provided for under law. Liability exclusion The information in this publication was compiled from data assumed to be accurate. Nonetheless, we assume no liability or guarantee for said information. This publication is not to be seen as a sales offer, nor as a solicitation for an order to purchase securities. The representations made in this publication may be changed at any time without prior notice.