The iron ore price had its biggest single one-day price gain in history on Monday. What happened over the weekend? A sudden supply shortage? More likely irrational exuberance in response to an aspirational plan for the Chinese economy?

Gold is back above $1,250, the zinc price has gained 20 per cent and copper 15 per cent in the last 60 days.

China aims to achieve 60 per cent urbanization by 2020 rising from current levels of 54 percent. Auto sales have responded sharply in recent months. The Chinese Association of Automobile Manufacturers (CAAM) projects that the country’s total passenger and car sales will increase by another six percent. This rise will be over the record sales in 2015 to 26 million vehicles this year. Urbanisation needs infrastructure so all these trends are good for metal consumption. Just think of all that steel that needs to be galvanized to protect from rust.

Has pessimism turned to optimism? Not at Goldman Sachs apparently which persists in its negative predictions on metal prices. I read in yesterday’s Financial Times [1] that Bank of America Merrill Lynch predicts that steel is likely to remain over supplied “permanently” even with cutbacks. What kind of a daft statement is that?

Goldman recently predicted a long period of low prices in what it sees as a supply driven market. The recent surge in metal prices has caught Hedge funds short poor craters. Lansdowne has borrowed 227 million Glencore shares which it plans to buy back at lower prices. Luckily Lansdowne is a $22 million hedge fund. By Monday Glencore’s share price had rebounded 90 per cent over the previous 30 days. There is a lot of talking down of this price rally. What difference all that capital could make if it went toward something constructive. It is all seems so parasitic and busy in such a lucrative but useless pursuit. The financial system is indeed gravely interconnected.

Why do they bother to predict anyway? Then change their predictions? It is all a bit futile unless you get paid for it or you want to try and influence the actual outcome. It is as if they were dealing with the ordinary in an extraordinary world. A world where we might believe the possible to be impossible. How could Trump become president of the US? Putin locked out of the Kremlin in a coup d’état. Another Korean war? A global flu pandemic, or maybe a meteorite impact. The sudden acceleration in global warming beyond the tipping point. Maybe just a UK brexit from the EU and the bolting on of Turkey precipitating the disintegration of the EU.

Some say we have turned the corner. They see some buoyancy as the shadowy hulk starts to rise off the bottom through the murky darkness. The fear of entrapment in the ship-wreck may change fast to the fear of missing out on the booty. Pirates will not want the treasure to emerge.

So in early January the fear of a hard landing for the Chinese economy resulted in a race for the exits. Sixty days later all had changed. We know it will be a serrated edge. Fundamentals are not driving these markets. It is all based on some bipolar emotional response to the world around us. The dismal science of supply and demand is now replaced by a virtual world of fortune tellers. Where scarcity is not important only the anticipation of that scarcity. Predictions based on a conceit. A conceit because nothing is what it seems.

Ignore the pundits and analysts. Focus on the fact that a natural metallic resource or a fossil hydrocarbon is finite. Metals are quite a heterogeneous bunch and not a homogenous group with similar market fundamentals. It is among the delicate filigree that the value gaps emerge.

In an efficient market price should reflect supply and demand and not contrived supply and notional demand. But price should also provide a stimulant to explore. Without that stimulant future supply is under clear and present danger. Eventually as you exploit the best resources you will just be left with the low-grade. These resources will cost much more to develop and so demand higher prices.

Drilling around active or derelict mines is not exploration. No more than the meanderings of a polar explorer around the grounds of his demesne. It could be Ernest Shackleton walking around the grounds of Kilkea Castle. He was born nearby in Kilkea House (shown in featured image) close to Athy in County Kildare on February 15th, 1874. Kilkea Castle was the stronghold of the Fitzgeralds and earls of Kildare. In the early 19th century they moved to Carton House outside Maynooth just a stone’s throw from where I live.

During a supply pinch in May 2006 Goldman raised its forecast for the zinc price to $1.23/lb from $1.19/lb. Goldman also took a bold leap forward over some five years to 2011 and revised its zinc price forecast up 37 per cent to $0.77/lb. By December 2006, just seven months later, speculators had driven the zinc price to $1.99/lb. By December 2008 two years later and shortly after the Global Financial Collapse the zinc price was back down to $0.50/lb. As for Goldman’s leap forward, well the zinc price averaged about $0.86/lb for 2011 – 2013. Averages are great but there is a whole world of intrigue and survival between the means. What is the error-margin around the mean? Don’t cross the river if it is four feet deep on average is a conceit of another kind from The Black Swan by Nasim Nicholas Taleb.. It is a way to explain more concretely why the worst case scenario is often the most important to know. As an investor if you can limit your downside then it is the best case scenario which provides a most compelling option to make a fortune.

[1] “Reasons to be Cautious Over Commodity Optimism – FT, March 8th, 2016

[Rockstone sourced cover picture here]



John P. Barry
Managing Director of Irus Consulting Ltd. and Professional Geologist

A widely travelled and highly experienced economic geologist, John Barry is a confidential counsellor to the likely investor contemplating a considerable investment in the intricate business of mining metals. Don’t take a “flyer” and trust altogether in luck and invest your money in an exploration or mining project on the strength of a printed prospectus or the advice of an interested friend without the preliminary investigation and site visit of a reliable geologist with a basic grasp of commerical reality.  Irus Consulting provides  strategic and practical management advice and guidance  to its clients.  Time is a precious commodity for my clients, and indeed myself, as it relentlessly ebbs away and so I  try as best I can to avoid the mediocre - those projects and their champions which do not engender enthusiastic belief and passion.

Irus Services Include:
- High-level strategic advice
- Practical guidance and assistance on project sourcing, acquisition and implementation
- Rapid identification of key project value-drivers and potential fatal flaws.
- Capacity building and coordination of  external consultants.
- Design and targeting of effective marketing campaigns

John Barry was part of very small teams which discovered and sourced several multi-million ounce gold deposits in Africa. He has worked as an economic geologist since 1988 and as a consultant and then responding to the entrepreneurial spirit he was a founder and manager of three public resource companies which raised a total of US$70million. These resource companies are currently successfully exploring and developing gold and base metal projects in Europe, and sub-Sahara Africa. John has seen a lot of rocks working for consultancies such as CSA in both Ireland and Australia and as Senior Associate Geologist with Chlumsky Armbrust & Meyer LLC which is based in Denver.  He is a specialist in zin-lead exploration and in 1992 joined the exploration team which discovered the Lisheen zinc-lead deposit in Ireland as the resource was being expanded in the first couple of years after discovery and in 2008 led the first non Polish exploration company to successfully enter and acquire a major resource-project in the Upper Silesian Mississippi-Valley-Type (MVT) zinc-lead district  in southern Poland – the world’s largest minerlised district of its kind. John (P.Geo and EurGeol) holds a Master’s Degree in Geology from Pennsylvania State University and a MBA from the Edinburgh School of Business, Heriot-Watt University, Scotland.

“I would like to think that I have shown the tenacity, patience and focus required to implement many of my better ideas over the years and that I have learned valuable lessons from some failures. I believe one of my strengths is in communicating quite complex technical ideas in a concrete way that can be easily understood. I am a team- builder and motivator by projecting my enthusiasm and vision for a project. I am committed to the development of young geologists through supportive delegation.” John is now moving more from managing public companies to freelance consultancy and a more advisory role so as to concentrate increasingly on assisting management in effective exploration and discovery. He is Managing Director of his own Exploration Management and Geological Consultancy: Irus Consulting Ltd. Please visit for more information and free newsletter registration. 

John is now moving more from managing public companies to freelance consultancy and a more advisory role so as to concentrate increasingly on assisting management in effective exploration and discovery. He is MD of his own Exploration Management and Geological Consultancy – Irus Consulting Ltd.

Click here to download John’s Statement of Qualifications as a PDF

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