AI Can't Mine

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The information contained in this communication is provided for general information purposes only and may relate to speculative investments. It does not constitute financial product advice, and has been prepared without taking into account your personal objectives, financial situation or needs. You should consider obtaining independent financial advice before making any investment decision.

Any forward-looking statements are uncertain and not a guaranteed outcome.

This week news and social media was force feeding us:

“artificial intelligence is going to take every white collar job”.

“Look at what I built with AI, you are going to get left behind unless you do it too”

“I vibe coded this mobile app in 10 seconds and made a zillion dollars”

We also saw the newly coined “SaaSpocalypse” play out with most major global software as a service (SaaS) companies getting sold off.

Here are share prices moves over the last 7 weeks, SAP (-15%), Salesforce (-23%), ServiceNow (-28%), Workday (-35%), Monday.com (-49%) and Atlassian (-51%).

These are multi-billion dollar software companies.

The market appears to think that AI is now so good and fast at coding (creating software) that major enterprise software companies don’t have a defense...

And the predictable, long term recurring revenue investors have long enjoyed in SaaS companies could start eroding.

(whilst that's a reasonable thesis, we don't 100% agree on it and think the sell off is over done, but that is a story for another day plus the market doesn’t care what we think anyway, so we just have to roll with it)

So this week was “AI is taking over everything” heavy in the news and socials, presenting investors with another looming seismic shift in the “world we know” and on which we base our investment decisions.

(as if the rapidly shifting geopolitical world order and threats of WW3 wasn't enough to discombobulate the investment community)

So with AI now threatening to take everyone’s jobs and messing up huge companies’ share prices... Where are we looking to Invest next?

Most white collar jobs and software businesses are valuable because the level of intelligence, mental effort and the skills to do/create them are SCARCE and hence expensive = valuable.

If AI does make “knowledge” and “knowledge work” abundant and cheap, companies built on a basis of “knowledge scarcity” will likely suffer...

and capital will flow to where the scarcity (value) is.

For example, here are some things AI can do that we have seen (and used first hand) that displaced a task we would have previously asked/paid a human to do:

Hey ChatGPT - create me a table of silver company Q4 production results:

(sorry, junior stock analyst...)

Hey ChatGPT - Analyse this vendor contract and find any clauses that are too favourable to the other party, make them more neutral.

(sorry, law firm...)

Hey ChatGPT - collate all these invoices into a table, and calculate my expected capital gains for FY25.

(sorry, accounting firm...)

Hey ChatGPT - write my saturday update note so I can watch TV instead?

(not quite yet... it just can’t get the subtle, sexual double entendres 100% how I like them)

BUT...

Here’s what ChatGPT CAN’T do

(and here is where we think a wave of capital is going to look for a new home)

Hey ChatGPT - fix my clogged toilet pipe and the broken light switch in my kitchen

(winners: blue collar, physical jobs like plumbers and electricians... until the AI robots get here at least)

Hey ChatGPT - build a bridge over that river and a then build a power plant

(winners: companies that build real world, physical, tangible “stuff”)

Hey ChatGPT - build me a mine and get me a kilogram of silver, a kilogram of copper, an ounce of gold and some lithium hydroxide...

Winners - mining companies

This is the “all commodities” boom we have been predicting for a while now - that money would cycle into long unloved and underinvested in mining companies...

And like we have seen in the money cycle into the gold sector (gold run is ahead of all other commodities)...

First into the major producers.

Then the mid sized producers.

Then small companies with development projects.

And finally...

Explorers.

This week it looks like it has finally started, with the biggest mining companies BHP and RIO both at new all times highs (both are also listed on the New York stock exchange)

~$296 BN capped BHP is up ~30% in last 8 weeks:

(source)

~$238 BN capped RIO up 18.5% in last 6 weeks

(source)

We think BHP and RIO both hitting new all time highs this week is the potential starting gun for an all commodities boom.

(imagine a “Magnificent 7” like the main tech stocks on the NASDAQ, except it’s the biggest mining companies....)

Happy days for anyone with a commodity and mining heavy portfolio if this happens.

Things will especially kick off if (when?) non-mining focused stock exchanges start seeing capital move to the unloved mining sector.

(the ASX and TSX already have healthy mining capital ecosystems)

In July last year we wrote about when we think USA based general investors will start catching on to investing in commodities and mining stocks, which could be the next leg up for resource stocks (read it here)

This article was based more around the historical lack of interest in mining in the USA, and the sudden rush by the USA government to bring online domestic supply of strategically critical minerals where China controls supply.

(which is mobilising generalist investor attention and capital into mining)

The other thing that will drive a boom in many commodities is the adoption of AI itself, and the build out of the infrastructure needed for mass AI adoption.

Things like data centres and power grids.

And then there’s the robots...

We think whichever country builds “the best, and most robots, the fastest” will enjoy major economic benefits and military dominance.

These billions of robots are going to need physical metals too, for body and battery - and electricity to run.

The “everything commodity boom” is one of our most high conviction macro thematics right now.

And we think the main drivers for it will be:

1. Structural demand from a giant domestic rebuild of western supply chains
2. The AI infrastructure build out, and
3. The AI humanoid robot revolution.

So where we really are in the commodity cycle?

We spend all day everyday in this space, and mostly talk to similar minded people... so in our little echo chamber it feels like it is very much “well into the frenzy”...

After seeing a few companies share prices run it can be easy to think we are approaching the middle of a bull market.

But realistically how “mainstream” is investing in commodities and resource stocks right now?

Proper bull markets are a global phenomenon.

How many general investors around the world have not even THOUGHT about mining in 20 years?

How many have thought about it recently but not yet invested?

Booms (lots of stocks in a particular sector going up a lot) happen when large waves of capital try to quickly enter that sector.

And just because everyone we talk to is bullish commodities doesn’t mean the thematic has caught on globally or even generally yet.

We are going to attempt to use this same image to illustrate two different points... bear with us.

This is a post from some AI guy on the internet:

How far along are we in this AI boom?

each dot is 3.2 million people. 2,500 dots = 8.1 billion humans.

the grey? 6.8 billion people who have never used AI.

the green? 1.3 billion free chatbot users.

the yellow? 15-35 million who pay for it.

the red? that tiny sliver is us.

you think the AI space is crowded because you're in an echo chamber of the 0.06%.

the real world hasn't even started.

(source and credit)

Now apply this example of the level of global interest and engagement in AI to metals and mining...

How many people actually invest in space?

And how many of those people invest in the small cap/micro cap end of the market?

(if we tried to quantify it we would probably not even make up a single square)

And if we are right about “capital moving towards the scarcity of commodities as knowledge becomes abundant” theme...

What happens when a big section of the grey squares suddenly realise they want to invest in metals and mining too?

Adapting what that random internet guy said: you think the metals and mining space is crowded because you're in an echo chamber of the 0.06%.

the real world hasn't even started.

The big green Nvidia ball example: started rotating into mining?

Here's an image that has lived rent free in our heads for over a year now.

NVIDIA, one single company that makes AI chips is worth more than most of the world’s biggest mining companies in the world, COMBINED:

(Source, Mining.com October 28, 2024 all figures are in USD)

NVIDIA's market cap right now is ~US$4.5 trillion.

The top 50 mining companies in the world - basically every single company that digs up and processes every metal and mineral the modern world runs on has a combined market cap <US$2 trillion.

So one company that makes chips is worth more than three times all the companies that produce copper, gold, silver, lithium, nickel, rare earths, iron ore, coal... everything.

We think that has created the setup for one of the biggest capital rotations we will see in our lifetimes.

Out of AI disrupt-able companies and into hard assets (metals/materials/mining especially).

As per our earlier example of what AI can and CAN’T do.

(we aren’t saying money will cycle out of NVIDIA specifically here, NVIDIA is just an example to show the biggest tech market caps compared to the biggest mining market caps).

We have already seen major miners BHP and RIO reach new all time highs this week - has the great rotation started?

What about capital rotation into junior resource speccies?

Assuming that in the big green NVIDIA ball example, the capital is likely risk averse, big-company-hugging cash then it will most likely find its way into companies like BHP, RIO, Glencore, Vale, Newmont etc etc...

Eventually cash that goes into the mining behemoths will trickle down into the juniors (we have covered how this works at length in the past, we wont go over again today)

BUT the real risk capital - we think - has in recent years gone into the crypto space.

Similar capital that backs fartcoin would likely also be willing to back a high risk, $5M micro cap company exploring for copper or gold, that might become a $500M or $1BN company one day (or more likely fail)...

Could the crypto space be where the money is going to come from to help drive speculative resource exploration stocks?

Here’s an image we made to illustrate the point (it’s a few months old so total crypto market cap may have changed)

(Source: us)

Now, with bitcoin coming off its highs, and the Crypto crowd seeing the gold and silver rally/protect its gains...

Crypto is starting to look a lot less like "digital gold" and a lot more like... a leveraged tech bet.

How’s that by the way, no mention of silver until page 9 of today's note.

Silver was up 6.2% last night and up almost 45% in the last 11 days... lets go!

Anyway, when things get scary in markets, bitcoin sells off with tech stocks. It doesn't behave like a safe haven. It behaves like a risk asset.

So where does all that spooked crypto capital go?

Some will go back into crypto when it bounces (it always does).

But we think some of it COULD start cycling into the original "high risk punts" before crypto was invented: metals exploration stocks.

Especially into the junior mining space, where these investors will be willing to stomach the crypto levels of volatility (though they will have to live with markets being closed for 2/3rds of the day).

The last time something similar happened was in the early 2000s, when capital rotated out of the dot-com bubble and into commodities, kicking off a decade-long resources super cycle. (source)

(we're certainly not saying this is guaranteed to play out the same way. But the setup is eerily similar)

It could also just be our X algorithms feeding us confirmation bias - here is one we saw yesterday:

And here are some posts from a few weeks back, this one from a diehard crypto guy:

(source)

(source)

(source)

And we’ll finish off with an “AI is going to take jobs” theme we saw a lot of this week, this one nicely summarises what our feed looked like over the last 7 days:

(source)

See you next week, and have a great weekend

Next Investors