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š The size of mining's decarbonisation opportunity | Thought Starters
A collection of our favourite articles from the past week
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Money is stressful. And the more time you spend on your finances, the more questions that arise. Am I doing enough? Am I saving enough? Investing enough? Will I have enough?
Even after building Equity Mates for the past six years and interviewing hundreds of experts on the podcast, we still ask ourselves these questions all the time.
So we set out to write a book and answer these questions. What we ended up with was an outline of the absolute simplest way to invest and importantly, why we are confident that it was enough.
In Donāt Stress, Just Invest we step through the practical ways you can figure out how much you need to invest, set up an automated investment portfolio, and decide what assets you should invest in.
The size of miningās decarbonisation opportunity
Global decarbonization to address climate change will require enormous amounts of graphite and manganese, nickel and cobalt. Above all, it will require copper. Without copper, we cannot build solar panels, wind turbines, or electric cars and their battery chargers. S&P Global, the market research firm, expects copper demand to double by 2035 and climb thereafter, dramatically outstripping supply. āIn the 21st century, copper scarcity may emerge as a key destabilizing threat to international security,ā its 2022 report found.
Mining is having a moment. The 2010ās were a tough decade for the industry, with metal prices taking a dive in the mid-2010ās and mass layoffs across the industry. The prices of gold, silver and copper all bottomed out in 2014 and 2015. Coal has also had a tough decade as the world woke up to climate change and started the transition away.
But the push towards decarbonisation has seen a revival in the mining industryās fortunes. Put simply, it will become the most important industry in the worldās efforts to achieve net zero.
Lithium is the first battery mineral that comes to mind in this context. The Biden White House has put out estimates that demand for lithium and other battery minerals could swell by 4,000% in the coming decades. And the International Energy Agency has estimated that the world will only have half the lithium and cobalt it needs to hit 2030 climate goals. This article shared an even more stark estimate:
A May report by the Carnegie Endowment for International Peace laid out still more dire projections: in 2030, lithium, cobalt, and graphite demand may outpace production for the U.S. and its allies tenfold, thirtyfold, and eightyfold, respectively.
As a result, the mining industry is having a moment. Ken Hoffman, the head of the battery minerals team at McKinsey, estimates that decarbonising the modern world is going to make the mining industry a lot of money - $15 to 20 trillion by his estimates.
This article is the best weāve come across that outlines the absolute scale of the challenge and the size of the opportunity in the energy transition. Australia stands to be one of the great beneficiaries of this transition. It is a story worth paying attention to.
The economics of selling on the internet
Online retail is no longer the hot, new thing. We are almost 30 years into the eCommerce revolution and much of the promise of online retail has not come to fruition. As this article argues, āThe fact is that even today in 2023 it remains extremely challenging to find a consistently profitable, large-scale internet retailer that generates a satisfactory economic returns on capital employed.ā
So the question is, who is benefiting from the eCommerce revolution?
Unsurprisingly, the biggest winners have been Google, Facebook and their big tech peers. As online retailers have scaled, they have not enjoyed the economies-of-scale that were expected. Instead, retailers have found themselves paying more and more of their revenue towards online ads. Operating leverage decreased rather than increased with scale.
This article illustrates this point by looking at a number of Australian eCommerce players - Redbubble, Kogan, Adore Beauty and Temple & Webster.
How are we to understand this as investors? These eCommerce players are always looking for the next customer through their online ads with Facebook and Google. And with so much competition on these online ads marketplaces, each additional customer is a little more expensive than the last. Meaning until these eCommerce platforms can generate their own demand (i.e. have customers go directly to their website like Amazon) theyāll have to keep paying more and more of their revenue to Google and Facebook in order to keep growing.
That in itself isnāt a problem. Plenty of eCommerce sites have built large and very profitable businesses by paying more and more to Facebook and Google. But it should temper our expectations around the profit margins these websites will deliver. It seems retail in all its forms - online and bricks and mortar - will remain a very low-margin game.
The workers at the frontlines of the AI revolution
Itās hard to open a news website or jump on social media without coming across some AI-related content. And a lot of it discusses what the future of work looks like with new generative AI tools like ChatGPT, Dall-E and Midjourney. And while journalists, lawyers and a number of other white collar professions appear to be first in line to be disrupted by AI, there is one labour force that is being disrupted today: offshore, outsourced workers.
These workers often work as contractors for western companies or find work through platforms like Freelancer, Fiverr or 99Designs. This article from Rest of World spoke to outsourced workers from Manila to Lahore to Cairo and catalogued the way that these outsourced workers are seeing generative AI compete with them for work.
āIf generative AI represents a tectonic shift in the way we work, offshore outsourced workers are at the fault lines.ā
As much as these AI tools represent a disruption to offshore, outsourced workers, they also represent an opportunity. In many ways, they will become a great equaliser. When workers across the world have access to the same AI tools and can achieve the same AI-enhanced levels of productivity, the relatively lower salaries of workers in India, the Philippines and the rest of the Global South will become attractive to multinational companies.
To illustrate these changes, Rest of World commissioned four outsourced workers to do the same piece of work with AI and without AI and then compared the time and cost difference. For example, this fashion shoot:
The cost and time difference offer an insight into how much the world is starting to change.
The first US pro cricket league is just an Indian league in thin disguise
You may have missed it, but professional cricket has started in the United States. Introducing: Major League Cricket. But there is a fascinating business story behind the arrival of the professional cricket on American shores - this is the Indian Premier League expanding around the world.
The first game was held last week between the Texas Super Kings and the Los Angeles Knight Riders. Those names might ring a bell for keen IPL watchers - the Chennai Super Kings and the Kolkata Knight Riders are two IPL teams. Those Indian franchises own their American counterparts. Two of the other teams - the Seattle Orcas and the Mumbai Indians New York - are also owned by IPL franchises.
The Indian Premier League is the most lucrative sports championship after the National Football League. And with the number of ex-pats from Commonwealth and former-Commonwealth countries now calling America home, it makes sense that there is enough support for an American professional cricket league.
But it isnāt just America where IPL owners are expanding. All six teams in South Africaās Twenty20 league are owned by IPL teams. Three of the six teams in the UAEās league are as well. These IPL franchises are becoming some of the most valuable in world sport. And their owners are becoming key power bases in world cricket. For cricket lovers (especially lovers of the red ball version) this expansion of club-level Twenty20 cricket is one to watch.