It’s Not About Discovering A Mine, It’s About Discovering A Technology [Molycorp Inc, Newmont Mining Corp]

investMichael and Chris Berry are back for The Mining Report’s second annual father-son interview in honor of Father’s Day. While they don’t agree on everything, they are aligned on the importance of disruptive discoveries to help companies succeed even in a sideways market. Flexibility and selectivity are their long-term strategies in any sector, from precious metals to commodities to rare earths.

The Mining Report: Do you think investing is a skill that is learned or inherited?

Chris Berry: I suppose there’s some sort of a gene for analytical ability, but there’s no substitute for real-world experience. While my father taught at the Darden School at the University of Virginia, I received a good grounding in theory-based finance and investing. Being out in the investing world for the last 15 years, I’ve seen what works and what doesn’t compared to what you read in a textbook. If the last few years have taught us anything, it’s that markets aren’t as efficient as academic theory would have us believe.

TMR: Mike, when did you first know that Chris had the knack for investing?

Mike Berry: When I realized that Chris was interested in what I was doing, I sent him to see a good friend to talk to him. I wanted to stand back. Chris came back and said this is what he wanted to do. We have all heard Chris say he loves what he does now. If you love what you’re doing, you’re going to put a lot of effort into it and you will be successful.

Arianne Phosphate Inc. has shown the ability to deliver extremely attractive economics.

I think it’s more environmental than genetic. If you’re in a family where everybody’s reading The Wall Street Journalall the time, it probably comes more naturally.

In 2000, I came up with the idea of discovery as a different kind of investing discipline. Chris and I have worked together now for four years and he’s adapted that into the idea of one of disruptive discovery. This is more defining and in the current market a lot more powerful. We reinforce each other’s work. It’s a really good relationship in that we’re in sync and yet we cover different interests in the destructive or disruptive discovery space.

TMR: You recently changed the name of the publication you co-edit to Disruptive Discoveries Journal. Which industries are being disrupted by macro forces, and how can investors profit?

CB: A number of macro forces have combined to deliver compelling challenges to the global economy. Globalization has increased trade among countries and benefited many people through higher living standards. The globalization of technology gives a farmer in an emerging market access to the same amount of information that, say, the president of the United States would have had 15 years ago. These two forces are leveling the playing field between East and West. As a result, both challenges and opportunities are presented. This means that as many more people live what I call “commodity-intensive” lifestyles, we’re starting to see living standards converge. This has been one of the main factors in stagnant real wage growth in the West in the past decade.

However, the confluence of globalization and technology has begun to raise a number of issues for us in the West. One challenge is an excess of labor. Hundreds of millions of people globally are joining the middle class, which is flattening wage growth. China’s middle class is forecast to grow by 200 million in the coming decades. Other countries like India, Indonesia and Mexico are experiencing similar phenomena. Greater access to technology, for example free online education through Coursera or edX, has exacerbated this issue by allowing anyone with an Internet connection to learn what a better life can be. This will continue to have far-reaching consequences for us in the West as the global labor pool expands and can grow at a relatively lower cost of living. Technology, specifically disruptive technology like online education, is simultaneously our best friend and worst enemy. A number of industries are set to be upended and herein lies the opportunity.

We broadened our reach because to thrive in the commodities markets of the future, investors will have to be much more selective about the sectors, the companies and the commodities they look at.

I look for companies anywhere along the value chain that have a disruptive technology or unfair competitive advantage. Maybe it’s a deposit, maybe it’s a technology. These companies offer the opportunities in a global economy awash in labor and capacity.

TMR: Mike, which commodities could benefit from today’s disruptive technologies?

MB: Oil and natural gas come to mind first. Fertilizers and potable water also will benefit. Mineral exploration and recovery will also be revolutionized with new technology. There will be a revolution in energy use, food production, clean mineral production and, therefore, quality of life here and around the world.

It took a decade for hydraulic fracking to take hold, but now it has almost completely restructured the global geopolitics. In the second quarter of 2014 the U.S. produced 8.4 million barrels (8.4 MMbbl) of oil equivalent, the highest in 26 years. By 2016 the U.S. will produce 12 MMbbl of oil a day and will become an exporter of natural gas; it’s just a matter of time. That’s the best, most recent example of a global disruptive discovery.

Pershing Gold Corp. is a company that I like a lot.

It’s not about discovering a mine; it’s about discovering a technology. I talked recently with someone about plasma torch technology for processing minerals. That technology is still very early in its development, and many in the mining industry don’t believe in it, but it has the same potential as fracking has had to oil and gas production to change the economics of the mining industry and impact the geopolitics of the world.

TMR: Many of these technologies are costly. You’ve said that society needs access to cheap commodities to sustain a high quality of life. Many commodities are now being sold at below the price it takes to produce them. That can’t be sustainable. With these new technologies, will prices catch up with the cost of production?

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