Many commodity companies that traditionally earn their money from mining are expanding their portfolio. What’s the new revenue driver? Commodity recycling. Companies are recycling metals to improve their eco-balance and serve another business segment. One example is Rio Tinto’s (NYSE:RIO) partnership with the Slovakian battery company InoBat, which aims to cover the entire life cycle of the raw materials used. There are many others.
In Jadar, Serbia, Rio will produce around 55,000 tons of lithium and build a recycling plant. So far, there is only a letter of intent for the project. However, Rio Tinto has already invested $200 million in the project’s final phase before the investment decision. Provided a positive decision is made after that, construction will take about four years.
A Commodity Boom and Green New Deal
Since the start of the Corona pandemic, many raw material prices have risen sharply. These include gold and silver, which suffered a temporary setback, and copper, aluminum, zinc, nickel, iron ore, and lithium. With the new thrust towards renewable and green energy, the demand for commodities and commodity recycling will increase extremely.
Not only the EU has paved the way with the Green New Deal. U.S. President Joe Biden has also announced that a lot of money is to flow into the development of green energies. This will be possible through major redistribution and subsidies, some of which by government loans.
Suppose more e-cars are built in the future. In that case, many raw materials will inevitably be needed to construct rechargeable batteries. The internal combustion engine did not require this or only to a lesser extent.
Copper will gain in importance as a conductor material. Therefore, an excellent way to participate in price developments of various raw materials is to invest in large raw material companies with a broad product portfolio. These include BHP, Rio Tinto, and Vale.
Gold Producers Profit Despite Short-Term Setbacks
Among the crisis winners are Barrick Gold (NYSE:GOLD) and Newmont Corporation (NYSE:NEM). Both companies benefited in the first quarter and were able to increase their sales despite lower sales volumes in some cases due to the higher gold price. Indeed, the gold price has temporarily weakened somewhat, also due to rising real interest rates.
Nevertheless, it has risen again in recent months. The expansion of the money supply and the low-interest rate policy is giving the gold price a tailwind. In addition, many investors see the yellow metal as a haven and regard it as a hedge against inflation. I’ll be back to discuss this issue more in the weeks ahead.