Realist, not conformist analysis of the latest financial, business and political news

The usual miner’s problem is all the other miners

Mining is not the easiest of business occupations. It’s rather more than just finding a pile of something interesting and sticking a shovel into it. For a start there’s all the folks around the mine who have to be assuaged with some share of the proceeds. That includes local governments of course – no one’s going to allow you to dig up a hill of gold without wanting their share of it. And rather the point of mines is that you can’t pick them up and move them somewhere more pleasant – that’s actually what you’re doing with the ore when you mine it, isn’t it?

Then there’s all that fuss about raising the finance and proving that you can actually mine it and so on. Then, obviously, the shovel wielding.

But there’s a final risk as well when it comes to the minor metals. Many of these come from some small number of mines. So, what happens when someone else also opens another one? That’s something you’ve no control over, obviously, but it can and will have a shell of an effect.

Back when China limited rare earth exports in 2010 two western world mines then leapt into action. Lynas and Molycorp. But the fact that both leapt into action – when either one could supply outside China demand – meant that both went bust. Well, Lynas just needed a recapitalisation but similar effect.

Which might be the problem that Tirupati Graphite could face:

That’s the big uncertainty here about Tirupati. How many other people are prospecting for, financing, opening graphite mines? Note that this one mine is 5 to 7% of global demand. Tirupati’s profitability is going to depend upon how many other people also add 5 or 7% of global demand to global production. We don’t know which way it’s going to go for Tirupati Graphite but it’s something we always have to consider concerning minor metals and mining. Not just how good our target company is or isn’t, but what’s everyone else doing at the same time?

Graphite’s one of the big new things for the EV revolution. But how many other folks are going to be following that idea?