Fossil Fuels Are Under Siege. Is Misinformation to Blame?

Fossil Fuels Are Under Siege. Is Misinformation to Blame?

It’s becoming more and more difficult to be in the fossil fuel business. On both sides of the Atlantic, lawmakers and unelected bureaucrats are turning up the heat, so to speak, on companies over the issue of climate change.

In the U.S. House of Representatives, Democrats have launched an inquiry into whether oil companies have participated in so-called “climate disinformation.” This week, letters were sent to top executives of Exxon Mobil, BP, Chevron and Royal Dutch Shell seeking records, and hearings are scheduled for next month.

Meanwhile, the Securities and Exchange Commission (SEC) is expected to propose a series of new disclosure requirements all publicly traded companies must make, possibly as soon as year-end, to inform investors about potential climate risks associated with their business.

In Europe, the strategy appears to be to choke off any and all lending to the fossil fuel industry. Next year, the European Central Bank (ECB) is expected to look into the trading operations of major banks in what’s being called a climate “stress test,” and at least one big activist investor group, ShareAction, is pressuring lenders to cut all ties to fossil fuels.

Of course, none of this accounts for the fact that fossil fuels still supply around 80% of the world’s energy.

Or that many leading oil and gas producers are investing billions in renewable energy, including wind and solar, and energy storage technology. Chevron, in fact, just unveiled plans to triple its investment in lower carbon energies to $10 billion through 2028.

Could Climate Scientists Be Held Liable?

Climate change was top of mind at the Gold Forum Americas conference I attended and spoke at this week in Denver.

In conversations I had with some of my peers, the question was raised whether certain scientists could be held financially liable for spreading their own “climate disinformation,” which has sown fear and prompted policymakers to enact new draconian taxes and regulations.

Here’s how one colleague put it: In nearly every other profession—from physician to engineer to money manager—there are mechanisms in place to hold bad actors accountable. Why is that not the case with scientists, who may make promissory or misleading statements that materially impact individuals and businesses?

The idea sounds farfetched, but it’s not completely unheard of. In 2012, an Italian court found six seismologists guilty of manslaughter for failing to give proper warning of an earthquake that killed some 300 people. This ruling was overturned in 2014, but it had the effect of putting public facing scientists around the world on high alert.

To be clear, I don’t support charging scientists with crimes. Modern technology, as advanced as it is, still cannot successfully predict earthquakes with any degree of certainty.

Fewer, Not More, Hurricanes Making Landfall in the U.S.

Perhaps the same is true of the climate. We are led to believe that climate change is responsible for causing more hurricanes, for instance, but if you look at the Environmental Protection Agency’s (EPA) own data, you’ll find that the number of North Atlantic hurricanes that strike the U.S. every year has been trending down over the past 120 years. To date, the deadliest natural disaster in U.S. history remains the Great Galveston hurricane, which pummeled the Texas city in 1900, several years before Henry Ford even began mass producing the Model T.

Number of North Atlantic Hurricanes that Reached the U.S. 1901-2018

I’m bringing all of this up not to pick a fight. I happen to believe a majority of climate scientists do honest work and have good intentions. The problem is that they also have the ear of some agenda-driven politicians and bureaucrats who actively seek out new reasons to make it more difficult to run an energy or mining company.

U.S. on the Verge of Becoming the Least Vaccinated G7 Country

Up until this point, I haven’t said anything about the media’s role in spreading FUD, or fear, uncertainty and doubt. The cause of a lot of people’s apprehensions can be laid at the feet of not just cable news channels, which sensationalize everything, but also social media platforms, which have allowed misinformation to run wild.

Here, I’m talking specifically about misinformation related to vaccines.

This topic also came up in Denver. I’m fully vaccinated against Covid and have even received a third booster shot, but many of my colleagues haven’t gotten their first jabs. When I ask why, they invariably say it’s because they don’t trust the government.

If that’s the case, I say, do they own gold or Bitcoin?

That aside, I believe the vaccine is our best hope to get back to life as it was before the pandemic. The planes and airports were packed on my way to and from Denver, but Transportation Security Administration (TSA) data shows that commercial air traffic is still down around 25% from the same time in 2019. That’s partly due to the fact that too many Americans are choosing not to get vaccinated.

In fact, the U.S. is about to become the least vaccinated high-income G7 country. Despite the U.S. having the largest stockpile of Covid vaccines, and despite it having a dramatic head start, the country will soon have the lowest vaccination rate of any G7 nation after Japan surpasses it, probably this weekend.

 

Ancillary Fees Helped Keep Airlines Afloat in 2020

I’ll end with some positive financial news from 2020. In a year when air traffic was clobbered by the pandemic, airlines managed to keep the lights on thanks in large part to ancillary fees. Like sales in general, ancillary fees fell in absolute terms, but they represented a bigger piece of airlines’ total revenue last year.

Nearly Half of Americans Believe 9/11 Changed the U.S. for the  Worse

Low-budget carriers appeared to benefit the most. Non-ticket sales were nearly 56% of Hungary-based Wizz Air’s total sales, the highest of any other company. Spirit Airlines was a close second, followed by Allegiant Air, Frontier Airlines and Ryanair.

More good news came out of Ryanair this week. The Irish low-cost carrier announced that it was lifting its growth target to 50% over the next five years, up from a previous target of 33%. This would mean Ryanair would carry more than 225 million passengers a year by 2026, after expanding into markets such as Italy, Scandinavia and Morocco. By this winter, the carrier hopes to operate about 90% of its pre-Covid capacity. Wheels up!

Curious to know the world’s top 10 airlines of 2021? Click here to see the countdown!

 

Index Summary

  • The major market indices finished mixed this week. The Dow Jones Industrial Average lost 0.07%. The S&P 500 Stock Index fell 0.58%, while the Nasdaq Composite fell 0.47%. The Russell 2000 small capitalization index gained 0.42% this week.
  • The Hang Seng Composite lost 4.93% this week; while Taiwan was down 1.13% and the KOSPI rose 0.47%.
  • The 10-year Treasury bond yield rose 2 basis points to 1.368%.

Energy and Natural Resources Market

Strengths

  • The best performing commodity for the week was uranium, up 12.62%. According to Bloomberg, top uranium miner Kazatomprom said it may supply the metal to Sprott Inc., the investment firm whose aggressive bets on the market have helped drive a surge in prices. Coal prices continue to move higher. The price of metallurgical coal continues to rise sharply due to a decrease in supply in China because of a coal mine accident in Shanxi and environmental regulations. 
  • Lumber pricing continued to make gains while mills extended order files. Lumber ended the week up 8% at $460, down 62% relative to the second quarter of 2021, down 52% year-over-year and up 73% this year. Trading was up once again although sales activity slowed as some mills remained off market due to the aftermath of Hurricane Ida. Pricing for North Central 7/16” ended the week up 1% at $440, down 42% relative to the second quarter of 2021, down 34% year-over-year and up 111% this year.
  • Natural gas markets continue to spike higher. So far in 2021, producer discipline has left supply relatively stagnant while rising exports (liquefied natural gas and the pipeline to Mexico) have led to higher demand. This has driven Henry Hub over $5, the highest seasonal price since 2008.

Natural Gas Prices Continue to Skyrocket Prices Are Up 40% In The Past Month

Weaknesses

  • The worst performing commodity for the week was iron ore, falling 11.89%. Iron ore prices fell again this week, as low buying activity weighed on prices. S&P Global Platts notes that Chinese steel production cuts have picked up in September and should increase further as cumulative production moves toward the production cap. Chinese blast furnace utilization fell 0.6% to 73.6%. On the supply side, weekly exports of iron ore from major producers fell 10% this week despite no notable disruptions, although the decline may in part be due to the Typhoon Chanthu, which is impacting freight rates according to Platts. Using previous downturns as a guide, $70 to $85 per ton is the level where the iron ore market should start to re-balance, as higher-cost producers are squeezed, according to T. Rowe Price’s investment analyst Tom Shelmerdine.
  • Trade sources indicate that polyethylene production that remains shut down is still at 9% of U.S. capacity, unchanged from the prior week. Last week, PVC prices and margins continued to remain high at $1,400 per ton on supply crunch concerns amid persisting U.S. plant shutdowns. According to Platts news last Friday, around 40% of PVC capacity in the U.S. had been shut after Hurricane Ida.
  • The Chilean Copper Commission Cochilco has revised its average copper price projection to $4.20 per pound for 2021, according to a presentation on Tuesday, September 14. This is lower than its previous prediction in May when it put the average at $4.30 per pound. The forecast for 2022 remains at $3.95 per pound. Cohilco said the slowdown in the Chinese economy and growing expectations that the United States Federal Reserve will soon withdraw stimulus measures were negative price factors behind the revision.

Opportunities

  • China’s leading copper producer, Jiangxi Copper, will develop the Mes Aynak copper mine in Afghanistan with Metallurgical Corp of China when conditions allow, the company said. Due to the unstable situation in Afghanistan, there has not yet been any substantial construction at the mine, but the two companies are monitoring the situation and will push forward with the project when they can, reports Jiangxi Copper.  
  • Bank of America held a conference call with Melih Keyman, CEO of Keytrade, a global fertilizer trader. Mr. Keyman remains constructive on all three primary nutrients due largely to robust grain-driven demand, tight global inventories, high freight rates ($60USD/ton now versus $20USD/ton one year ago), and greater than normal trade disruption from government actions. Phosphate prices have gone from 10-year lows to 10-year highs in the last 20 months, and Mr. Keyman expects prices to be sustained over the next several months or more. Even with currently high prices, demand destruction has yet to occur in most major regions and inventories remain low.
  • Chilean copper miner Codelco’s management and the Sindicato de Unión Plantas (Suplant) trade union reached a new collective wage agreement on Friday, September 10. The Suplant union, which represents employees at the company’s Andina concentrator plant, rejected the last offer that came within the standard negotiation period and started its strike on August 17, a few days after two other unions at Andina had started their own separate strikes. The other unions, SIIL and SUT, reached agreement with Codelco on Thursday, September 2. Counted together, the three unions represent more than 1,300 of the 1,437 workers at Andina.

Threats

  • The Baltic Dry Index, which tracks the cost to ship major raw materials including coal and iron ore by sea, has climbed to its highest level since late-2009. The index has been rising since bottoming out in mid-2020 due to strong demand on increased consumer spending, as well as supply constraints related to COVID-19 and a lack of investment in new capacity following the last down cycle, states The Economist. While the strong demand is a positive signal for metals end-use, rising shipping prices and constraints could signal that further logistical challenges and cost inflation are on the horizon. Spot rates for container ships to move finished products have surged for the last 20-weeks and now stand 731% over their seasonal average of the last five years, according to Drewry Shipping.
  • Russia’s Finance Ministry is focusing on extraction taxes again to raise money from mining and metals companies, according to the three people who took part in the discussions. The ministry’s latest proposal includes an increase in the base rate for the mineral extraction tax and a link to raw material prices starting from 2022, the people said.
  • Europe’s energy crises are now spreading to the fertilizer industry which has ramifications to produce meat, vegetables and grains, which likely means higher prices for these essential staples. Yara International noted that record high prices for natural gas are consuming their margins to produce ammonia, curtailing their production to about 40%. C.F. Industries Holdings Inc. said it’s halting two U.K. production plants due to skyrocketing costs. Yara trades roughly one-third of the world’s ammonia which is not only used to produce fertilizer, but other industries such as the automobiles, textiles, health care and cosmetics. The U.N. measure of global food prices is already near the highest in a decade.

Blockchain and Digital Currencies

Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Xenon Pay, gaining over 278,000,000%.
  • Seeking fresh ways to bet on digital assets, Cathie Wood’s Ark Investment Management is allowing one of its funds to invest in Canadian Bitcoin ETFs, reports Bloomberg. In a late-Friday filing for the $5.7 billion ARK Next Generation Internet Fund, the firm adjusted its prospectus to include reference to holding exposure to cryptocurrencies. In addition, Wood commented this week at the SALT conference in New York that she believes Bitcoin’s price could rise tenfold to top $500,000 in the next five years, reports Bloomberg.

ARK Invests Cathie Wood Believes Bitcoin Could Hit $500k in five years time

  • Bitcoin has now traded above $10,000 an entire year, reports CoinTelegraph. On September 9, 2020, Bitcoin had slowly edged into the $10k zone and hasn’t returned since in over a year. In fact, by the fourth quarter of 2020, Bitcoin was trading at $28,000 – a 180% increase in value. Many cryptocurrency enthusiasts expect Bitcoin to repeat itself again this year with a 180% increase to $135,000 by the start of 2022.

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Channels, down 99.74%.
  • According to a central bank official, the Republic of Uzbekistan will never adopt cryptocurrencies like Bitcoin as a payment method, writes CoinTelegraph, alleging that Bitcoin is backed by nothing. Behzod Khamraev, deputy chairman of the Central Bank of Uzbekistan, pointed out that there are about 28 trillion Uzbekistani soms in circulation, and all of those are backed by the central bank’s assets. Uzbekistan officially banned its residents from making payments in cryptocurrencies in late 2019.
  • Authorities in the Chinese province of Hebei have reportedly launched a campaign against cryptocurrency mining and trading. According to a quoted announcement by the region’s cyberspace administration, several government agencies are working together to prevent the use of the region’s computing power in the crypto activities which the government considers illegal, reports Bitcoin.com on Thursday. Government agencies and state-run companies in the province which surrounds Beijing have been asked to inspect their information systems and put an end to any use of their computing power to mint digital coins by the end of September, as stated in the South China Morning Post (SCMP).

Opportunities

  • Coinbase Global Inc. sought to raise $1.5 billion in its first junk-bond offering at the start of the week, reports Bloomberg, a deal that provides another stamp of approval for cryptocurrency and a sign that the nine-year-old firm is gaining mainstream acceptance (even as regulators ramp up scrutiny). The firm saw such high demand it boosted the original deal size to $2 billion. On Thursday, Bloomberg reported that the junk bonds declined, as new bonds fell for the second day since pricing at par on Tuesday.
  • Interactive Brokers Group reported that it launched low-fee cryptocurrency trading on its platform, adding to the growing online retail brokerages to add digital assets to its offerings, reports Yahoo! Finance this past Monday. “As financial markets evolve, sophisticated individual and institutional investors are increasingly seeking out allocations to digital currencies as a means of achieving their financial objectives,” said CEO Milan Galik. Interactive Brokers is partnering with Paxos Trust Company to enable the new service.
  • In a private meeting with the U.S. SEC, Fidelity Investments urged the regulatory body to approve its Bitcoin exchange-traded fund (ETF), reports Bloomberg, listing the virtues of an idea that the regulator has been slow to embrace. Filings show that executives from Fidelity laid out reasons why the regulator should approve the product, including increased investor appetite for virtual currencies, the growth of Bitcoin holders and the existence of similar funds in other countries.

Threats

  • Litecoin gave up a 20% gain and tumbled back following a fake press release sent out by GlobeNewswire at the start of the week, referencing a partnership with Walmart, reports CNBC. GlobeNewswire said that a fraudulent user account was used to issue the release, and then a social media coordinator from Litecoin mistakenly tweeted it from the company’s official account.
  • Protests in El Salvador happened this Wednesday over the adoption of Bitcoin as legal tender and recent moves by El Salvadorian President Nayib Bukele to consolidate power, reports Bloomberg. Although the demonstrations were largely peaceful, one group of protesters smashed windows and set fire to a Bitcoin ATM kiosk installed last month ahead of the cryptocurrency’s rollout as legal tender. Along with Bitcoin’s adoption last week, the government has proposed more than 200 changes to the constitution including eliminating a ban on presidential re-election.
  • In a statement spoken at the SALT Conference on Wednesday, billionaire Ray Dalio said regulators will try to ‘kill’ Bitcoin if it gains mainstream success. In an article by Yahoo! Finance, Hollerith reports that Dalio believes Bitcoin is a “viable asset class” and “interesting” for diversifying a portfolio. However, if Bitcoin becomes too successful, then regulators will likely ban it.

How to Explain Bitcoin to your Grandma

Gold Market

This week spot gold closed at $1,754.34, down $33.24 per ounce, or 1.86%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 3.15%. The S&P/TSX Venture Index came in off 1.83%. The U.S. Trade-Weighted Dollar rose 0.71%.

Date Event Survey Actual Prior
Sep-14 CPI YoY 5.3% 5.3% 5.4%
Sep-14 China Retail Sales YoY 7.0% 2.5% 8.5%
Sep-16 Initial Jobless Cliams 322k 332k 312k
Sep-17 Eurozone CPI Core YoY 1.6% 1.6% 1.6%
Sep-21 Housing Starts 1,550k 1,534k
Sep-22 FOMC Rate Decision (Upper Bound) 0.25% 0.25%
Sep-23 Initial Jobless Claims 320k 332k
Sep-24 New Homes Sales 709k 708k

 

Strengths

  • The best performing precious metal for the week was gold, but still off 1.86%. Sibanye Stillwater, which has transformed itself from a South African gold miner to a platinum-group metals giant, branched out its reach this week to enter into a joint venture to develop the Rhyolite Ridge lithium-boron project in Nevada and have additional exposure to battery metals. Earlier this year, Sibanye bought a stake in a nickel hydrometallurgical processing facility in France.
  • Franco-Nevada CEO Paul Brink reiterated that the company expects to grow production from 600,000 gold equivalent ounces (GEO) in 2021 to 650,000 GEO in 2025, with the biggest driver being Cobre Panama, expanding to 100 million tonnes per year in 2023. The company is currently growing its cash balance $1 billion each year.
  • Endeavour Mining CEO Sebastien de Montessus said the company is on track to achieve the top end of 2021 guidance (1,365-1,495 thousand ounces), with production benefiting from higher grades at Hounde (Kari Pump) and a late start to the rainy season.

Weaknesses  

  • The worst performing precious metal for the week was silver, down by 5.72%. Silver fell to its lowest level since December as stronger than expected retail sales across almost all categories more than offset the weaker automobile sales. Last week, ETFs reduced their silver holdings by 1.4 million troy ounces, platinum holdings by 35,666 troy ounces and palladium holdings by 15,297 troy ounces.

The Gold Price Has Been Falling Over the Past Week

  • Platinum and its sister metals palladium and rhodium — used in pollution-cutting catalytic converters — have all suffered sharp drops in recent weeks as carmakers shutter plants and trim output guidance. The price slump is a big contrast with the booming performance earlier in the pandemic, which was driven by supply shortages and hopes of a stimulus-led economic recovery. Rhodium, the most expensive precious metal, has suffered the most as its demand comes almost entirely from the auto sector. Palladium isn’t far behind, having this week dropped through $2,000 an ounce for the first time since July 2020.
  • New Gold provided an update at its Rainy River mine in Ontario, Canada. Gold production at Rainy River is now expected to be between 235,000 and 250,000 ounces, reflecting the impact of prior disclosed negative grade reconciliation. National Bank Financial lowered its price target form C$2.50 to C$2.00 on the update.

Opportunities

  • OceanaGold’s Didipio restart is progressing ahead of plan, with inventory sales of approximately 40% for $25 million and 65% of the workforce expected to be rehired by end of the third quarter. The company expects the asset to be fully ramped within 10 months.
  • AngloGold announced that it has entered a definitive agreement to acquire Corvus Gold following the proposal announced on July 13. Under the agreement, AngloGold will pay C$4.10 per share in cash for the 80.5% of the shares it does not already own in a deal worth $370 million. The offer price is at a 59% premium to the share price on 5 May 2021, the day before AngloGold entered a $20 million unsecured loan facility and a 90-day exclusivity period.
  • Americas Gold and Silver announced work had restarted at the Cosalá operation in Mexico, and the company expects to start shipping concentrate before the end of October after the 20-month blockade was lifted. Cosalá is a significant component of its valuation, so if the company can deliver on the plan, the market would likely rerate the stock higher.

Threats

  • Centerra CEO Scott Perry reiterated the company’s revised 2021 guidance of 290,000 ounces, following derecognition of Kumtor. The company remains open to discussions with the Kyrgyz government (potentially taking back the government’s stake in Centerra and subsequently canceling those shares) but is also considering all legal options.
  • Newmont CEO Tom Palmer noted that the Yanacocha Sulfides full funds decision has been deferred to late 2022 from late 2021 due to ongoing COVID-19 related issues in Peru (including low vaccination rates). In a Bloomberg interview this week, the CEO noted that labor tightness, higher energy prices and higher materials prices are pushing the company’s overall costs up by 5%.
  • Gold fell, pressured by rising Treasury yields as lower-than-expected U.S. inflation data eased concerns over the Federal Reserve starting to reduce stimulus. The yield on the 10-year Treasury rebounded after dipping to a three-week low, reducing demand for bullion that generates no interest. The U.S. consumer price index (CPI) rose 0.3% in August from July, the smallest gain in seven months, data released Tuesday showed. The inflation print Tuesday offered some validation of the view held by Fed Chair Jerome Powell that high inflation caused by the economy reopening was transitory, alleviating worries that the central bank will be forced to soon tighten policy.

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You can read the full article at https://www.usfunds.com/investor-library/investor-alert/fossil-fuels-are-under-siege-is-misinformation-to-blame/

 

September 17, 2021

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors