Lifton’s Perspective on the Passing of a Paradigm
A paradigm is a generally accepted model used to try to make sense of (i.e., understand) or see if there is any logical continuity (i.e., one thing follows from another) in a set of data that we think (or guess) are related.
The Copernican world view, for example, which replaced the then held and ancient one that the simplest explanation of the universe was that it revolved around the earth, known as the Ptolemaic world view, no longer (in his, Copernicus’ time) matched either the observations or calculated predictions made from Ptolemy’s geometric model. Copernicus proposed that the earth moved around the sun and was not as the Church of his time still held the center of the universe. This new paradigm did not immediately replace the Ptolemaic view. Indeed, it allowed of no more accurate calculations of the orbits of the planets until the naked eye astronomical observations of Tycho Brahe were used empirically by Johannes Kepler to derive three laws of planetary motion. However the postulate that the earth went around the sun became the paradigm world view only after Issac Newton discovered that there was a mathematically definable force in nature that connected masses and that there were furthermore three laws regulating the motion of not just these but of all masses. Isaac Newton also developed the mathematical tools to “prove” (by logical derivation) that Kepler’s laws governing planetary motion and placement were the outcome of the operation of the forces of nature that he had first discovered. The Copernican hypothesis thus became the paradigm world-view.
Notwithstanding the statement in the above paragraph I note that I personally do not know anyone who has made the astronomical observations himself and then applied Newton’s laws of mechanics and gravity mathematically to them to “prove” that the earth goes around the sun. We take it for granted that our credentialed and educated scientific elites have not only done this but have also checked it out repeatedly. Did I mention that Newton’s laws and mathematical analysis are both mental constructs based on observation and saying that the application of the one to the other upon “data” collected by yet others is as much philosophy and psychology as it is science? My point is that we take the word of others even for things that are “obvious.”
The much less important junior mining paradigm used by investors has been that the simple discovery of a mineral concentration, a deposit, is all that is needed “obviously” to begin the process of turning that deposit into not just a mine but into a refined and fabricated metal or material. But the recent shift in focus of the “market” onto technology metals has demonstrated that this paradigm is false. It has turned out that before being able to attempt the valuing of a mineral deposit it must first be placed into the context of the supply chain necessary to create the desired commercially useful end-products of the element(s) in that mineral. Traditionally the typical plan of a junior miner based on the existing “paradigm” has been to explore for and to find a deposit and begin the process of developing it into a mine while immediately beginning looking for the deposit, being put into the development process, to be purchased by an existing mining company that has the resources to take over the development.
At the turn of the twenty-first century a Canadian mining scam perpetrated by a group of Canadian mining companies principally controlled by Bre-X Minerals of Calgary caused this traditional paradigm to be questioned in detail. A hoax was perpetrated by a criminal group where a supposed deposit of gold in Indonesia turned out to have been “salted.” The malefactors falsified samples to show extraordinary amounts of gold in the “deposits” and billions of dollars were invested in this junior mining play by greed besotted “investors.” After the scandal broke and a murder and the billions of dollars had disappeared “into the market” the Canadian government decided to look less foolish and naïve and to, from then on, centrally regulate “public” investment in junior mining by requiring that information on the deposit and on the likelihood that it could be commercially developed be put forth, quantified, and independently verified before any such venture could legally seek development funding by public subscription to develop a deposit and build a mine. This was codified as Canadian National Instrument 43-101 and became the template required to be followed by any legal entity planning to raise money through a public offering in Canada. Other jurisdictions followed, most notably Australia, which adopted a similar regulatory agenda known as JEORC. Today most jurisdictions require one or the other agendas be followed in order to raise money “publicly” for a mining venture to be put into development. In the end of course this only means that qualified investment advisors who recommend a 43-101 compliant venture are somewhat more shielded from liability than were the fools who recommended Bre-X.
In the USA intriguingly regulations such as 43-101 are considered only as good models and are not formally required by law and therefore do not offer as good a shield ( i.e., a way out).
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As one of its requirements 43-101 requires a marketing study, but these studies are mostly poorly thought out and it is difficult to understand whether Canada’s National Instrument 43-101 that requires all parts of the documentation to be signed off upon by a “qualified person” was drafted by men who understood supply chains or end-user markets at all. They certainly had no idea how a “qualified person” should be defined with respect to the connection between a hole in the ground and producing and selling end-use products (i.e., supply chains and marketing).
The original (43-101) junior mining paradigm was most visible in its failure in the attempt between 2007 and, say, 2013 of qualified persons to trumpet that the mere existence of a deposit containing rare earths that could be recovered by known extraction and separation technologies was in and of itself valuable (could be evaluated).
This is sheer nonsense, and yet I think that this model, which is nothing more than a “natural resources share price appreciation paradigm” still persists and is even getting ongoing application in lithium, graphite, and the other technology metals used in alternate energy production and storage sectors right now.
Markets have long recognized that vertical integration in manufacturing has limits due to the sheer complexity of the task.
Yet markets do not seem to notice that the steel sheet rolling out of a steel manufacturing plant is at the end of a long and complex, in and of itself, process that begins either with the discovery of a mineable iron ore deposit or with the collection of scrap metal. In fact, American steel making was “revolutionized” just in the last generation by the substitution of scrap and electric arc furnaces for ore and blast furnaces for the production of steels, so that even staid steel making was and still is caught up in applying new and newly applied production and manufacturing technologies. The processes and multiple supply chains necessary to then take that steel and turn it into a complex product such as a car are themselves constantly evolving and (they, the processes) are simply beyond the understanding of the nation’s financial journalists and sadly of even its self-styled resource economists who talk about the lubricant (capital) or the advances (innovations) in technology but never the complex the supply chains necessary for the product they describe to come into existence.
We have an $18 trillion economy,” explains Robert Gordon of Northwestern University, whose book The Rise and Fall of American Growth came out earlier this year. “Most of it is operating by the same business methods and procedures that have been in place for at least 10 years.”
With all respect to Professor Gordon it is sometimes 100 years during which a natural resource production technology has been running essentially unchanged.
As a good example of blinkered financial analyst thinkinglet’s take the demand for “lithium” being calculated as a function of the quantity of its use in electrified vehicles (EVs) as the active material in secondary (rechargeable) lithium-ion storage batteries.
The number of OEM motor vehicles produced each year globally is today at least 85 million. The number of those produced using electrified powertrains wholly or partially (hybrids) is less than 1% of this.
In order for this percentage (less than 1) to increase the very first thing needed will be an increase in the production at the mine of lithium, cobalt, and graphite the three technology materials from which most of the lithium ion batteries now committed to production are manufactured.
There is probably enough lithium capacity in the legacy large scale miners today to satisfy any “planned” increase in long term demand, but the mining and refining of lithium is a long process with the defining process for brine “mines” being a long slow “solar” evaporation period. Hard rock lithium requires, instead of evaporation, the roasting, extraction, separation, refining, and the chemical fabrication of forms used by the battery industry.
The extraction of lithium from its “ores” today is thus energy and/or time extensive. Note that brines that cannot be dried in the sun are useless since the energy imparted to the evaporation process over the 18 month drying time is ENORMOUS and would be totally uneconomic to replace by manmade energy.
The question I have for the current flood of lithium juniors is the sameone I had for the rare earth juniors (for which they never had an answer): What are you going to do with your “concentrates” once you produce them? The answer from the lithium juniors is, of course, the same as it was from the rare earth juniors, “We will produce the concentrates and “they” will buy them.” “They” being the market.
In fact, the lithium juniors for the most part do not know who “they” are. Therefore, they do not know exactly what they should do to make their output as valuable as a mining operation can. They are reduced to dueling announcements of progress towards a 43-101 status based on an airy-fairy marketing plan for marketing not end-use products but rather supply chain intermediates.
In short: I think that the legacy producer base load of lithium supply is sufficient for current demand and excess production capacity exists sufficient for slow but steady growth exists among these same legacy lithium producers. Additional new supply only makes sense if there is growth exceeding present rates or if new extraction or downstream technologies can increase the turnaround time of the entire supply chain that terminates in battery grade lithium chemicals.
I note that the Chinese government has come to the conclusion that the reduced carbon generation by what the Chinese call “new” energy (powered) vehicles is a necessity. Therefore the government is creating a financing system for the production of electrified vehicles that takes into account the entire supply chain from the discovery and development of new resources of lithium, cobalt, nickel, and manganese to the recycling of the vehicles fuel storage devices (lithium-ion batteries).
There is no technology with more potential to be the cheapest and most efficient way to extract lithium and cobalt from their ores, tailings, and relevant industrial and consumer scrap than Molecular Recognition Technology (MRT). The commercialization of this technology originated with and continues with IBC Advanced Technologies, Inc. (IBC) of American Fork, Utah. IBC is a private company, but keep an eye on it, and if it becomes public…
Jack Lifton is the CEO for Jack Lifton, LLC and is a consultant, author, and lecturer on the market fundamentals of technology metals. Technology metals ... <Read more about Jack Lifton>