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Do you remember the once-in-a-generation commodity boom that topped out in 2012?
It was one heck of a wealth explosion. The biggest in Australia since the gold rush of the 1880s. Huge fortunes were made in an incredibly small time period. And not just by the first movers in the mining industry. Share market ‘prospectors’ who saw what was happening
before the mob…and bought the right stocks early…minted money as well. It lasted 6–8 years (give or take). ‘Across the board, almost everything went up by large amounts’, says Peter Downes, director of Outlook Economics. As a geologist in the mining industry throughout that era, I can
only say the feeling was feverish on the ground.
Just like the tech boom of late (which has just seen a pretty radical sell-off), it made its fair share of millionaires AND some prominent
billionaires too. Including a guy named Andrew ‘Twiggy’ Forrest…a virtually unknown businessman in the early 2000s.
You likely know the story by now. But a quick recap… Founded in 2003, Fortescue Metals Group [ASX:FMG] went
from a 2-cent penny dreadful to the world’s ‘third force’ in iron ore in less than a decade. John Andrew Henry Forrest spotted
something on the horizon before everyone else and WENT FOR IT. He rebought his ancestral farmland and created a company with
the goal of creating a new port and rail system to feed stranded iron ore deposits to an exploding and hungry China.
By August 2004, Forrest’s big bet was already looking like a good one…
FMG signed a binding deal with China Railway Engineering Corporation, one of Asia’s biggest construction companies. The
first step in creating a direct iron ore funnel from the Pilbara to China and East Asia. Forrest’s idea was to disrupt the whole game
and leapfrog the two lazy giants, BHP and Rio Tinto. ‘Those mines basically became money-printing operations’, says
Son of Fortescue The Kingpin of the Second Aussie Mining Age By James Cooper
Paul Cleary, author of two books on the boom. Fortescue was a far-sighted early mover in a new, auspicious
boom for Australia. While the rest of the world got king-hit by a global financial crisis…and other economies crumbled with soaring
unemployment rates…our resource wealth created a force field around our economy.
We were one of the few countries that didn’t get swamped by recession. And Fortescue was a big part of that.
Creating eye-watering gains for those who saw what was happening with this company a bit quicker than most. The guy at the centre of it is now a household name in Australia. Part of the mega-rich fraternity. And a very polarising figure. Now an iconic business magnate, he, like many uber-rich Australians before him, benefited from the vast quantity of minerals that lie below YOUR feet. And by timing a new cycle with pinpoint accuracy…
Whether you love him or hate him, Forrest’s success was down to three things:
• Intricate knowledge of the industry and a certain shrewdness…
• The ability to envision a NEW trend and moving on it first…
• And having the guts to AIM BIG and DISRUPT.
You could certainly throw a bit of luck in there for good measure. But all the above combined to result in one of the boldest moves
in mining history. Fortescue’s rebellion against the only other iron ore players at the time — BHP and RIO — was a feat of impeccable
timing and skill.
Is it about to happen all over again? The 2000s boom came and went. For most Australians, it didn’t make much of a difference you
could notice. Twiggy, the billionaire, and many other ‘unnamed’ mining executives created companies, pooled investor funds, and
generated the necessary cash flow to turn minerals bound up in hard rock into cold, hard cash.
They absorbed the bulk of the country’s prosperity during this ‘once-in-a-lifetime windfall’. But you deserved it too.
Unfortunately, this is how commodity booms work. Most of the riches sitting below us fall into the golden hands of the
well-connected few who have experience in the mining game and understand how to play with investor funds.
And, whether we like it or not, so much of Australia’s wealth comes from mining.
But, as you know, a NEW boom seems to be forming…
In fact, it’s already underway. The same executives who got rich from unknowing investors in the last boom are quietly building new companies.
They understand we’re entering a new phase in this commodity cycle and are gearing up for a rinse and repeat.
There are numerous boards like this. Ever notice the same non-executive director appearing on three,
four, five, or more companies? They’re specialists in mining the stock market.
In fact, there’s only a very select number of directors and managers who are experts when it comes to adding shareholder value.
These are the people that know how to find deposits. It’s in their genes. There’s one company, in particular, that I’ve been following VERY
closely in recent months.
In several key ways, it shares the genes of Fortescue Metals Group. Now, it’s a very different company in a different field, in a slightly
different stage in its life, like Fortescue was in the early 2000s. I’m in no way saying that if you buy this stock you’ll see a repeat
of Fortescue’s 130,000%-plus rise. I think we can all realistically assume that was a one-off.
But there are certain things this explorer is doing…at this very delicate early stage of a new, scarcity-driven mining boom…that
is very reminiscent of what Andrew Forrest was strategising 20 years ago.
For this reason, it’s my highest-conviction mining stock speculation at this point in time.
If you’re willing to risk capital on one swing-for-thefences play on the coming ‘Age of Scarcity’, you should
make it this one…
Introducing the Son of Fortescue:
Arafura Resources [ASX:ARU]
Fortescue Metals Group had one clear initial objective. This objective was the first in a series of stepping stones towards
hyper-dominance of the iron supply chain. That initial objective was to ‘release’ previously trapped and vast iron ore deposits in the Pilbara region of Western Australia. It would do this by single-handedly building infrastructure and creating new supply routes to steel-hungry China.
Arafura Resources also has an ambitious long-term game plan, with one initial clear-eyed objective.
And that is to develop and ‘free up’ minerals from its flagship, Nolans deposit, in the Northern Territory. And to do so as rapidly as possible.
Why?
What has Arafura seen forming on the horizon? Well, the answer is a global boom in certain RARE EARTH
metals that could eclipse the iron ore boom of the 2000s. Both in terms of magnitude and duration.
Fortescue was a front-runner of the biggest Australian investment story of an entire decade. Arafura is also onto the ‘big story’ that
will be centre stage in this next boom. That story being the heightening scarcity of Rare Earth Elements
(REEs) with China’s dominance of supply…and the need to find MUCH more in order to supply demand from the green energy/ tech transition.
Investors currently have a sniff of what’s to come (in terms of REEs). But no one’s REALLY seen the big picture. No one is putting big money on it yet. The same was true for the China boom in the very early 2000s. There were early signs of strong growth when Twiggy was making his war plans on a kitchen table…but very few were investing big in this growth story (other than Fortescue). Fast-forward to 2023, and we have Arafura Resources. This company is sitting on one of the LARGEST underdeveloped RARE EARTH deposits in the world.
This is one reason I’ve pegged Arafura as my number one recommendation.
But it’s not the only reason…
It’s rare to find a company that holds such a large chunk of the world’s reserves within a single deposit.
You see, Arafura’s Nolans Project is immensely rich in REEs. This is a group of 17 metals used throughout the industry, from defence
to the manufacturing of electric vehicles (EVs), solar panels, and wind turbines.
These elements provide the critical building blocks to make all kinds of devices from smartphones to tablets to laptops.
But it’s a concentration of TWO of these metals within the REE package that makes Arafura so valuable:
NEODYMIUM and PRASEODYMIUM
Try to remember those two words as they’re set to play a critical role in our tech-dominated future.
I will abbreviate it to ‘NdPr’ to make the reading easier. The Nolans deposit is uniquely enriched in these two vital
critical metals.
According to the company’s latest resource update, the deposit has a PROVEN resource of five million tonnes of ore, including an
enviable 26% enrichment of NdPr. But recent drilling has increased the company’s PROBABLE
reserves to almost 25 million tonnes, which also includes the windfall 26% NdPr component.
And here’s another similarity to the Fortescue genesis story… Both early-stage projects were located near major mining towns.
And that’s a really big deal in the early stages of a new resources cycle.
Arafura is situated near Alice Springs. And Fortescue was near Port Hedland.
What this does is make staffing easier when good mining staff are hard to come by. Workers can bring their families along and live in a town rather than doing FIFO (fly-in-fly-out). It potentially gives them access to more experienced staff, i.e: the
ones with families, which leads to better staff retention. This is what I noticed when we lived in Kalgoorlie. It tended to attract families, which meant people with more experience, rather than having to rely on new grads. It also meant people stuck around a
lot longer.
Finding and retaining staff is going to be a big issue in the coming
years as this boom ramps up. Labour shortages are already biting in the mining industry.
So this is another factor I believe is going to give Arafura a firstmover advantage in bringing a huge NdPr supply online.
But why is NdPr so important to the future global economy?
Why could it be like the ‘iron ore’ of this next mining phase? NdPr is used by ‘green energy manufacturers’ to make the world’s
strongest magnets. It’s a critical component for improving the efficiency of renewable energy technologies.
It’s said that every new EV built will require 2kg of NdPr, while each wind turbine will require a staggering 600kg!
In addition, these two metals are used in smartphones, jet aircraft engines, and specialised heat-resistant glass to a host of new
emerging technologies.
It’s what makes ‘Nolans’ a truly unique world-class deposit.
However, the green energy transition is only part of the story when it comes to Arafura’s potential.
As you’re no doubt aware, geopolitical tensions between China and the US has deteriorated over the last two years. We’ve been
on the receiving end of this in Australia too. China saw tension coming years ago and quietly positioned itself as a dominating force in the world’s supply of rare earths. China already held much of the global reserves for these critical
metals. However, the last mining downturn offered the country an opportunity to capitalise on its dominance even further.
As operations shut down and ran out of money on the back of falling commodity prices, State-backed Chinese companies set
about purchasing new rare earth projects run in developing countries for pennies on the dollar. As part of its purchase agreements with these emerging economies, Chinese companies ensured ore was shipped back home where processing could occur safely within its borders. Western governments were completely blindsided. China not only dominates the extraction of REE metals, but it now also dominates processing. The country now accounts for no less than a staggering 87% of the world’s SUPPLY! See for yourself....
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