Why the Hunt for Strategic Minerals took me to Holden in Port Melbourne

Why the Hunt for Strategic Minerals took me to Holden in Port Melbourne

So what’s the big resource news today?

Iron ore climbed $6 to reach $110 / tonne.

Big news or big deal?

It’s still down 22% for the year, and 40% from the start of last year.

Even if we see this textbook technical bounce rally further, iron ore’s dynamics still look bad. I’m glad it’s been 2.5 years since we tipped an iron ore stock in Diggers and Drillers, because as I see it, there are easier ways to make money from this market.

In the endless hunt for new resource stocks with the potential for explosive gains, my role as editor of Diggers and Drillers has taken me to some interesting places…including Peru, the Dominican Republic, Morocco and Botswana.

The Botswana trip was to research copper stock Discovery Metals (ASX: DML). That was back in 2010 when it was 67 cents.

Today a Chinese takeover offer values Discovery Metals (ASX: DML) at $1.70.

Packing the suitcase, and getting boots on the ground, is essential for getting the most profitable info — and getting it early.

But yesterday I didn’t have to travel half way across the world. Instead, my travels took me to the wild plains of Port Melbourne, for a site visit of a different sort…

This was to get a look at the commercial cutting edge in electric vehicle technology.

After a skirmish with security guards, I got what I was there for — to record a short film about a huge leap forward in technology (I’ll send it to you once it has gone through production).

And more importantly, I want to tell you why this translates directly to a growing opportunity in an obscure corner of the resource market — strategic minerals.

‘Strategic minerals’ are minor metals and elements essential for energy, national defence, or aerospace that face serious supply issues.

At a time when iron ore and coal are going down in flames, this motley crew of minor metals and elements have quietly made some serious gains for investors.

A cornerstone of the Diggers and Drillers 2012 strategy has been tipping the best strategic mineral stocks I can find on the ASX. It’s also the reason the average gain for this year’s stock-tips has been over 20% so far, while the rest of the mining sector has fallen nearly as far the other way.

One strategic mineral is graphite. I tipped a graphite commodity stock earlier this year. Our graphite stock has made some very strong returns already, and I expect more to come.

Part of the reason is that the situation with graphite has already become more critical since I tipped the stock. This is shown by the Royal Geological Society (RGS).

From Important to More Important

Last year they published a ‘risk list’ that neatly summarised how badly at risk the supply is of the most economically and technologically important commodities. Back in 2011, graphite scored near the top of the list with a risk rating of 7.0 out of 10.

The RGS has recently republished this risk list for 2012. And this year moved graphite way up in the billings. The risk score has jumped in just one year to 8.1, from 7.0.

Graphite — More Important Than Ever

Source: RGS

High quality graphite is an essential component for lithium ion batteries. So the explosive increase in use of mobile phones, laptops, and other gadgets is a big factor in increasing demand.

Also driving this is use in hybrid and electric vehicles, which is what took me to the Holden factory in Port Melbourne yesterday.

Broking and research firm Citi estimates that the lithium ion battery market will triple in size in the next 8 years. And that’s one of the conservative estimates out there.

The supply of graphite is also an issue, as nearly all of it comes from China. This is what makes high quality graphite deposits elsewhere in the world highly valuable, both financially and strategically. So watch this space.

One Commodity Rising Despite the Economy Falling

The other big ingredient for lithium ion batteries is of course lithium. The lithium price has soared recently regardless of the global economy. Why? Because the commodity is also tied to this powerful trend in lithium ion battery technology.

For this reason, lithium wasn’t far behind graphite this year, with a score of 6.7.

It may have been flavour of the month in 2010, but now that the speculators are long gone certain lithium stocks are looking ready for a genuine sustained rally. To add to the excitement, a recent $728 million cash takeover in the sector has put the spotlight on lithium’s great value once again.

Also scoring as high on the RGS ‘risk list’ at 6.7 is an old favourite — Tin. In the last few months tin has quietly bounced 25%, which is roughly the same as silver. Yet this rally has had very little attention.

Tin is on the risk list for a good reason — most of it comes for just one country, Indonesia. And that supply is falling. This is a big reason why the head of the International Tin Research Institute expects the tin price to almost double from its current levels.

So, why have I mentioned these three commodities? Simply because graphite, lithium and tin have a lot in common.

For a start, they all score highly on the RGS risk list, as they are so important and at risk of supply problems.

But there’s another reason. They are all essential ingredients for the rapidly growing lithium ion battery market.

A Watershed Moment in History

When the motor car was first invented, it was a marginalised plaything of the rich. It was a curiosity. Total car numbers were negligible. And the price of oil was insignificant.

Then came a watershed moment — the San Francisco earthquake of 1906.

This proved the value of these curious contraptions in the rescue efforts when the trams were out of use, and soon afterward the mass production of the Model T Ford sealed the deal.

Immediately the price of oil started a hundred year bull market, and caused more than a few wars on the way.

In the video I’ll send you soon, I want to show why a watershed moment is close now for electric vehicles.

But more importantly, I want to show you what this could mean for the price of the strategic minerals in the batteries that will fuel them — and the investment opportunity that lies in it for you.

Dr. Alex Cowie
Editor, Diggers and Drillers

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