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Small Planet, Finite Resources

And at some point, that will matter again to commodity prices...

RICHARD MILLS, host of and a junior mining investor, sees trouble ahead as the world consumes ever-more natural resources.

Now, as the world prepares to house, feed and care for 9.7 billion people, he sees a tsunami of demand creeping up on healthcare worldwide, as well as continued growth in natural resources, as he says here in this interview with The Gold Report...

The Gold Report: What does the United Nations projection of a population tsunami of 9.7 billion people living on earth by 2050 mean for commodities?

Rick Mills: The statistics are mind-boggling and extremely scary. According to the UN, the world's population reached 7.3bn in the middle of 2015. That's 1bn more people sitting at the dinner table in the span of the last 12 years. Some 60% live in Asia (4.4bn people); 16% live in Africa (1.2bn people); 10% in Europe (just over 700 million); 9% in Latin America and the Caribbean (634m). The remaining 5% live in Northern America: Mexico, Canada and the US (358m). Compare those numbers to China, which has 1.4bn people, and India, which has 1.3bn. That's 19% and 18% of the world's population, respectively.

Growth has slowed from 1.24% ten years ago to 1.18% this year, but it still means we are adding 83m people to the world's population annually. Half of the global population growth between now and 2050 is going to occur in Africa. Most of the people born between now and 2050 will be in developing countries. When we look at the global demand for resources, the Western world doesn't count. We here in the West are almost a rounding error in the world population.

TGR: Can we innovate our way out of a commodity crisis?

Rick Mills: Norman Borlaug, father of the Green Revolution, said if we did everything right, we'd be able to feed and water 10bn people. We are close to the edge. The world population is projected to reach 8.5 billion in 2030, and to increase further to 9.7 billion in 2050. The UN warned us when we reached 7bn people, "The world population has now reached a stage where the amount of resources needed to sustain it exceeds what is available."

How are we going to feed, clothe and house 83m more people a year? Think of it as building a complete self-contained city for 1.5m people every week.

It's not going to stop. In 2015, the earth's overshoot day – the day every year when we've exhausted all the natural resources that can be renewed each year on our planet – occurred six days earlier than it did in 2014. Humans have exhausted a year's supply of natural resources in less than eight months, according to an analysis of the demands the world's population are placing on the planet.

This is when humanity goes into ecological debt. Right now, we are consuming the equivalent of 1.4 planets a year. By 2030, 8.5bn of us could be consuming the equivalent of two planets. The median age of the global population, that is, the age at which half the population is older and half is younger, is 29.6 years. Half of the world's population is under 30 years old.

About one-quarter (26%) of the world's people are under 15 years of age. This is a lot of future consumption from people starting with much less than we have in the West.

The ecologist Garrett Hardin introduced the idea of the "tragedy of the commons." Think about a pasture. As farmers keep putting more animals on the land, the cows get skinnier, but people continue to do it because it's advantageous right up to the point that the grazing limit is exceeded. Then all the cows die, and all of the families suffer. Fishermen behave similarly. Hardin says the private gain of the individual is thus at the shared cost of the whole group and ultimately catastrophic in nature. We are doing that on a global scale and it's going to have drastic consequences.

TGR: If we're running out of resources, why are the prices of the commodities going down instead of up?

Rick Mills: A lot of it has to do with cheap oil and gas. Saudi Arabia and Iraq are pumping oil and gas out like crazy to punish the frackers. Zero interest rates by the Federal Reserve cause investors to chase yield, mainly stocks and junk bonds. People are worried about whether China's economic growth can remain strong in the long run. Of particular importance to us is commodities are priced in the US Dollar. The US Dollar is pretty much off the charts, it's so strong, and it's causing a commodities pricing rout.

TGR: The other thing about the supply and demand picture for commodities is the danger of a lack of supply in the coming decade because of a dearth of exploration that's going on now as companies try to conserve cash. When will we start to see that price pressure?

Rick Mills: It's hard to say. If you had asked me a few years ago, I would have thought that we'd have seen it by now, but we seem to be careening from one economic crisis to another and attention is elsewhere. Brent is right in focusing on the supply side rather than demand. But there's more to it than just the dearth of exploration.

We're actually shutting down mines and high grading the rest. The world's largest mines – the ones that supply most of our production – are running out of reserves. New mines are harder to find. They're more remote and infrastructure-challenged. They come with more complicated mineralogy, meaning more expensive metallurgy. Also, we have a bit of a glut of experienced people. But when things turn around, we're going to have a shortage of trained people, especially the midlevel managers and professional geoscientists.

TGR: You have written that the coming scarcity of resources could be a security issue for countries that are not being proactive. You say that China is going out securing future supply. What are some examples of that?

Rick Mills: China is trying to revive the old land and maritime Silk Roads. The new initiative is called One Belt, One Road (OBOR). This is a massive build-out of infrastructure, including tens of thousands of kilometers of roads, rail and ports. We're talking almost 100,000 kilometers (100,000km) of rail networks just in Eurasia. We're talking about close to 70% or more of the world's population, 30% of the world's economy, 25% of the world's good and services.

China has invested $30bn in a $100bn Asian Infrastructure Investment Bank to lend money to the countries along the planned route. China also has $4 trillion in foreign reserve that it is going to lend to countries along the routes. It will build ports, railroads, highways, airports, schools and dig wells. All these countries have to do is sign an offtake agreement for natural resources. That is happening right now.

All of that overcapacity that people think China screwed up on, all the megafactories, all the ghost cities, wasn't a mistake. This was planned. China wants to become the manufacturing center for 70% of the world. That's how it's going to do it, by the largest resource grab in history and the continuing urbanization (30m per annum) of its population.

TGR: Once the rest of the world understands they need to secure their piece of the shrinking pie, what are the specific commodities and companies that could benefit from this?

Rick Mills: Commodities have the benefit of being real things you can hold in your hands, whether it's nickel or precious metals or copper or ownership of uranium companies. These aren't paper promises like fiat currencies. These are things that have value and are going to become increasingly scarce and valuable going forward.

TGR: What is the supply-demand picture for nickel?

Rick Mills: I have long thought that nickel and copper have some of the better supply-demand fundamentals going forward. Asia is now by far the largest regional market for nickel representing 65% of total world demand. China alone now accounts for close to 44% of world nickel demand. Investors need to be looking down the road.

TGR: Marin Katusa has talked about the security of supply concern, particularly when it comes to the fact that when we moved away from Russian uranium, we switched to more Kazakhstan uranium. Do you see that as a catalyst for uranium prices and domestic producers?

Rick Mills: The US consumes 55 million pounds of uranium each year and imports over 90% of the uranium it uses. What could be more important to a country than security of energy supply in the form of nuclear fuel in the United States?

TGR: A growing aging population also needs healthcare. You've written about a mining company that's turning itself into a life science company. How does that work? Are there crossover skills? What does that mean for the investor?

Rick Mills: White light is the standard convention and it's what is commercially available in all endoscope devices manufactured today. White light has visualization limitations for all cancer types because white light cannot pass through tissue or blood and cannot illuminate tumors beneath the skin surface. White light is also not effective in visualizing the borders or margins of the tumor to determine where it starts and ends, especially after the initial removal of the main mass.

TGR: What is the one piece of advice you have for investors bracing themselves for 2016?

Rick Mills: We live on a small planet with finite resources. Much of the world's undeveloped resources lie within China's One Road One Belt initiative – what this author believes is a massive resource grab. Resources – real things – are going to become a dominate investment theme and should be on everyone's radar screens. It is an exciting time for the healthcare sector, patients, and, yes, investors, with many disruptive innovations on the near horizon.

Picking the companies offering the most for the least with good management teams is the way to prosperity.

TGR: Thanks for your time. It's always a pleasure.

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