Thursday, 2 March 2023 — Albert Park

By James Cooper Editor, The Daily Reckoning Australia

[8 min read]

Dear Reader,

Over recent months, influential tech titans have made a surprising entry into the mining industry.

According to some sources, tech will be the answer to a looming crisis in metal supplies.

So how do computer engineers plan on finding the next generation of ore bodies?

The answer…Artificial Intelligence!

As a major consumer of critical metals, tech has a lot of skin in the game when it comes to securing supply chains of raw materials.

It’s why there’s been some high-profile tech names entering the mining space of late…

‘Disrupters’ looking to flip the traditional methods of discovery.

According to them, AI and algorithms will replace boots on the ground.  

That’s what the Californian-based KoBold Metals is looking to achieve.

It has some pretty powerful backers too…billionaire tech giants Bill Gates and Jeff Bezos recently committed US$150 million.

It enabled the company to secure a prized high-grade, copper-cobalt mine in Zambia.

Known as Mingomba and grading at around 3.64% copper, the company now holds one of the highest-grade undeveloped deposits in the world.

Thanks to Gates and Bezos, this tech company has a flagship project to showcase across the mining industry.

Yet, interestingly, the mine was NOT discovered by algorithms or artificial intelligence. It was found by a team of Zambian and Australian geologists years before KoBold acquired the asset.

But looking at the board of KoBold, you can quickly recognise that there’s not a geologist or mining engineer in sight…

Instead, it’s made up of a list of young ‘start-up’ tech entrepreneurs, with mostly computer and data science backgrounds:

The world is certainly changing…‘Disruption’ has been the catchy slogan for the tech industry for the last 10 years.

Now it’s looking to stamp its authority on the future of mine discovery.

So how does the company intend to achieve this?

According to KoBold, the Californian-based explorer has built up an enormous geological database that includes geologic reports, soil samples, drilling results, satellite imagery, and academic research papers.

Apparently, they’ve even been able to feed handwritten field notes and sketches written by geologists decades ago into the AI’s brain network.  

The data is then run through the AI machine, which spits out the approximate location for the next major discovery.

So, is tech on the edge of transforming mineral exploration?

At first glance the ideas look ‘innovative’…

In reality, though, it’s just a reworking of how mineral discovery has always taken place.

For decades, geologists have trolled through all this data to find clues.

While it’s certainly time intensive, it’s an important part of the discovery process.

Spending months going through historical records, visiting geologists from other sites, finding old drill core stored away in hidden sheds for decades, all form the backstory in major breakthroughs that ultimately led to discovery.

Analytical data, from which algorithms make their predictions, is only part of the equation in mineral exploration.

Geologists venture into the field, look at the rocks on the ground, analyse previously drilled core, and seek out specialised consultants to narrow down their targets before bringing in expensive drill rigs.  

While AI might be able to spit out this information in an instant, draw the X on the map, and give computer scientists a signpost as to where they should dig, it’s missed the most important part of the discovery process…

…the human factor.

Why is that important in mineral exploration?

Ask any geologist that’s been involved with major discovery, and you’ll soon learn that a large part of the success came down to intuition.

According to Cambridge’s definition of the term:

‘An ability to understand or know something immediately based on your feelings rather than facts. Often there’s no clear evidence one way or the other and you just have to base your judgment on intuition.’

The ability to understand something instinctively, without the need for conscious reasoning, comes through years of scouting rocks in the field, attending conferences, making mistakes, and then applying all those learned experiences to the data at hand.

Importantly, too, unlike mathematics or engineering, geology is a VERY inexact science.

The geological conditions that existed over one project rarely mirror those on other sites.

Nature is far too variable to plug into an algorithmic model.

Some exploration geologists have described their work as blend between art and science…enormous imagination and an ability to think outside the box, venturing where others have never gone before, is the key to discovery.  

Thinking ‘outside the square’ is not within the realms of AI…

It’s why the human factor will always lead discovery.

Of course, technology has its place…the industry already uses advanced software to build geological models and geophysics that fire electrical impulses into the ground.

Variations in the bedrock offer clues as to what lies below.

But despite the importance of technology, geological experience will always be key.

While I may be biased, I don’t believe a well-qualified expert with a PhD in ‘machine learning’ operating exploration programs from Silicon Valley will be the answer in this coming critical metal shortage.

Correct application of the right technologies, seeking expertise, and long, hard years of field experience have given some exploration geologists the uncanny ability to intuitively find new ore deposits.

It’s why the skill of management ranks highly in my stock selection criteria.

Certain explorers have discovery in their blood, and it pays to KNOW who those people are.

You see, geology is a strange profession. Many experienced geologists can move through a 40-year career without a single discovery under their belt.

Yet others have an uncanny knack of finding not one, but multiple discoveries.

Unfortunately, though, that type of expertise is rapidly declining…the baby boomer era of geologists, responsible for much of the world’s discovery of current producing mines, are on the precipice of retirement.

A large gap was left in the industry following the mass layoff’s that occurred from 2013–19, where the next generation of geologists left the industry.

A crisis in mineral discovery is brewing…AI technology offers little in the way of a standalone solution in making new discovery.

It’s the reason I’ve taken the helm at Diggers and Drillers. Using my sought-after skills, I can help you discover the best prospects in mining.

Importantly, too, as a former exploration geologist, I’m able to draw on my previous contacts and pinpoint the companies holding the best talent, those that have proven discovery success.

But unlike other investment firms that specialise in resource stocks, where geologists only play a ‘back office’ role…at Fat Tail Investment Research, I’ve been given full reign over investment decisions.

It means I can give you unabated recommendations, devoid of financial experts pulling sway over what I think offers you the greatest opportunities for the years ahead. 

That’s the unique value you get from Diggers and Drillers.

You can find out more here.

Until next time,

James Cooper,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

‘We count on the AmericanTailwind and, though it has been becalmed from time to time, its force has always returned. I have been investing for 80 years – more than one-third of our country’s lifetime. Despite our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.’

Warren Buffett

Buffett has been right for a very long time. Or has he been merely lucky?

And hasn’t the baby boomer generation been exceptionally lucky, too…growing up when the US was on the top of its game…accumulating wealth as the economy grew and the Fed pushed up prices?

But lo! Has their luck finally run out?

Stay tuned…

Meanwhile, back on the ranch…

On the weekend, we set to work…reviewing the local situation:

All was good. The alfalfa was in bloom. The onions were fat. The water was running strong. And the people seemed in good spirits.

When we began, 15 years ago, we knew nothing about farming in Argentina. Nothing about raising cattle. Nothing about the people or the land. A prudent person would have said:

‘You don’t know what you’re doing; you’re going to lose money.’

That person would’ve been right. We’ve lost money every year. But we’ve gradually learned the old farmers’ secret to making a small fortune: start with a large one.

Our guess is that no one really makes money in the Calchaqui Valley. Everything is too remote…too expensive…too dry…too windy…the ground is too salty. And the river is too unpredictable.

But our losses are narrowing. We make thousands of rolls of hay each year. Now, the cattle have something to eat in the dry winter months. Then, if we manage them correctly, feed them well, and the price of beef holds up…we come close to breakeven.

One thing we’ve learned about farming in general — it’s a low-margin business. The successful farmer is like the successful tennis player. He wins by not losing. He doesn’t have to invent a new baler or plough backwards to try to fool the crows; he just doesn’t make mistakes. He doesn’t waste fuel. He doesn’t procrastinate; he plants and harvests at the right time. And he watches his costs carefully; no unnecessary labour…no unnecessary machinery repairs.

A tenuous connection

‘El ojo de dueño engorda la vaca.’ (The eye of the owner fattens the cattle.)

As an absentee owner — as well as an agricultural ignoramus — it is almost impossible for us to keep any margin at all. Our ojos are on other things…such as the Fed’s interest rate policies.

Our ranch has the additional inconvenience of straddling the Rio Calchaqui.

‘We would have already cut the alfalfa’, said Antonio, the foreman, when asked how come there was so much of it still in the field, ‘but we couldn’t get the baler across the river. We have to wait for the water to go down’.

The high water is a delight to us; it makes us feel isolated…romantic…protected from the world — like the only inhabitants of a desert island. We can still come and go…but only via the footbridge:

…or on horseback.  

But that’s what is so charming about this…we mean, this whole adventure here in Argentina. For all its challenges and absurdities…

…it is real.  

Yesterday, we described to our daughter and son-in-law how we had improved the cattle operation. 

‘They get more food. So, the fertility rate is higher…which gives us more young animals (terneros) to sell.’

This morning, they came back from a walk up into the hills.

‘Dad…there are a dozen dead cows up there…’

No matter what you say…or what you think…you’re never far from the reality of the situation.

Returning to Warren’s world…

Berkshire versus Gold

We were wow-ed by a chart sent to us on Sunday by our sidekick, and investment director, Tom Dyson. We’ve been exploring how the numbers used by the feds are mostly lies and misinformation. The statistics are monsters, with arms sewn on where there should be legs…and ghastly heads made of pig iron. The money itself — the post-1971 dollar — is phony and unreliable. The theories and formulas used by the feds are faulty, clumsy, and fraudulent. And now we see that the whole boom — from 1999–2022, which took the Dow from 10,000 to more than 36,000 — was an imposter.

Let’s say, you were a smart investor. In 1999, you wisely decided to invest your money alongside the richest, smartest investor the world has ever produced — Warren Buffett.

It was very easy to do. In effect, Buffett operates a kind of mutual fund. He puts the best companies he can find in it. And he charges no fees or commissions for taking part. You just buy his ‘fund’ — Berkshire Hathaway.

Then, in the following 22 years — which, thanks to stunning tech breakthroughs and huge new capital inputs, as well as the enlightened guidance of the Fed, should have been the most productive and profitable years in human history — you keep your money in Berkshire.

Mr Buffett realised long ago that the secret to long-term capital growth is to reinvest the profits in more capital growth. Rather than paying dividends, which are taxed, the money is used to buy more good companies, thus increasing the capital value — the price of Berkshire stock.

So…you have the best investor in history, at the best time in history, with the best strategy ever devised. And no need to bother with the confusion wrought by dividends; there weren’t any.

What happened? Over the next 22 years, your investment went up, and up, and up. Buffett avoided the obvious pitfalls — the dotcoms…the mortgage finance dizzies…the crypto delusionals…and the tech dreams. No WeWork or Lyft for him. He stuck with good companies producing good profits, by providing good products and services to good customers.

Did his investors make money? Yes, they did.

But wait. The chart sent over by Tom Dyson shows that if you quote the price of Berkshire shares in terms of real money — gold — rather than dollars, you find that you have made no money at all. An ounce of gold buys you the same number of Berkshire shares now as it did 23 years ago.

In other words, there was no American Tailwind…not in the 21^st century. Not yet. It was all ‘misinformation’. Buffett’s bet on American businesses didn’t really pay off. The investor would have done just as well to buy gold at the end of the 20th century and sit tight. 

And what of the coming years? Will a stiff Yankee doodle breeze begin to blow again? Will the qualities that made the US such a success — balanced budgets, limited government, and a dollar you could trust — re-emerge? Or will a combination of debt, inflation, corruption, fiscal fantasy, fraud, and imperial overstretch doom the US to decades of misery?

Tune in tomorrow!

Regards,

Bill Bonner,
For The Daily Reckoning Australia