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Kaiser Watch October 14, 2022: IMF keen about India's Growth Potential

Posted: Oct 14, 2022JK: Kaiser Watch October 14, 2022 with Jim Goddard and John Kaiser
Published: Oct 14, 2022KRO: Kaiser Watch October 14, 2022: IMF keen on India's Growth Potential
Kaiser Watch is a weekly 15-30 minute audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.

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Kaiser Watch October 14, 2022: IMF keen on India's Growth Potential
Jim (0:00:00): The IMF published its semi-annual world economic outlook this week. Did anything catch your attention?
The semi-annual World Economic Outlook was published by the IMF on October 11, 2022. I like to look at the GDP data set in the form of current USD GDP for each year, which means that each year's data is based on the GDP converted from the national currency into USD at the exchange rate the IMF has chosen for that year. This is not a "constant" dollar data set where figures get adjusted for inflation. What interests me are the IMF forecasts for 2022-2027 which, given the projection that global GDP will grow 29% from $104 trillion in 2022 to $134 trillion in 2027, gives me pause to wonder how that is supposed to happen if inflation battling monetary policy crashes the global economy into a recession. Not only does the IMF have to guess what domestic GDP will be, but it needs to guess each nation's inflation rate and what the corresponding USD exchange rate will need to be. So one has to take a common sense approach with regard to these forecasts. What I find implausible is that China's growth rate will remain at 6.8% while the United States' will drop below 4%, which would allow the relative share of global GDP to converge to almost even with 22.7% for the United States and 21.1% for China in 2027. Given that Xi Jinping is about to be confirmed for a third term as China's president, has struck a "best buds" axis with Russia's megalomanical thug Vladimir Putin, and is keen on folding Taiwan's 20 million people into the hyper-surveillance slave cage he has erected for China's people on the pretence of protecting them from Covid, creating challenges for growth in exports and domestic consumption, it is hard to imagine ongoing growth of 6.8% per year. Especially given that in 2022 growth has dropped below 4% and China has not even started to face the external consequences of pumping autocracy as a superior alternative to democracy. China has a serious demographic problem and the policies it has adopted will make it worse, not better. What I did find interesting was the IMF's forecast of 8%-10% annual growth for India over the next 5 years which would grow the world's fith largest economy 54% to $5.4 trillion by 2027. That will still only be 4% of projected global GDP of $134 trillion, but that is what China's GDP represented in 2001 when it hit a tipping point that kicked off the China super cycle that was so good to the resource sector, especially the juniors that focused on demonstrating the new feasibility of marginal deposits found decades earlier. If India can overcome its self-limiting bureaucracy and corruption, it could be the driving force behind a new macro-economic growth based raw material super cycle that will be underway by 2030. While India has a young population base, and is still a fairly open society despite Modi's desire to create a Hindu theocracy, it is not a major producer of raw materials, unlike China. Furthermore, India does have nuclear weapons capacity and a distinct ethnicity that guarantees India will never let itself feel the heel of China's boot.

IMF WEO Data Current USD GDP 1980-2027

IMF WEO Data Current USD GDP Share 2022

Relative Global GDP Share Trends for USA, China & India

China GDP Growth History

India GDP Growth History

India's Share of Raw Material Production
Jim (0:08:24): Nice to see India getting its act together but will the junior resource sector still be around by then?
The market had another bad week when the September CPI figures showed that year over year inflation was still at 8.2%, down from 8.3%. Evidence that the overall inflation rate is no longer rising should be good news, but the bad news lay within the Core CPI which strips out the Food and Energy sub-groups whose price changes are volatile. The decision by Saudi Arabia and Russia, both autocracies, to curtail oil production in order to reverse the summer decline in oil prices raises the prospect that CPI will soon enough be trending higher. Core CPI is 6.63% year over year but on month over month basis it remains stuck between 0.4%-0.8% which the market interprets as interest rate hikes not yet having an impact on consumer demand. This means the Federeal Reserve has no choice but to jam rates higher and further risk a collapse in asset prices and ensuing recession. None of this is good news for gold. There is speculation that the Opec-Plus decision to force oil prices higher is designed to push the US mid-term elections into the hands of the Putin Poodle Party which will do its best to prevent Biden from steering America out of a Powell recession, as the Tea Party so effectively did after 2010 when its control of the House enabled it to block Obama's fiscal policy efforts to grow the economy out of the 2008 Crash engineered by Wall Street. Gold doesn't do well in a high interest rate environment, and it also floundered in the past decade's ultra low interest rate environment. So it is hard to see gold do well in the face of interest rate hikes that are still a fraction of what Paul Volcker inflicted on the market over 3 deacdes ago. For this reason I am only interested in gold exploration plays which deliver a discovery with the grade and scale to remain interesting even if gold slips back into the $1,200-$1,400 range. In my personal view gold should be soaring past $2,000 to reflect the extreme uncertainty afflicting so much of the world. But these days there is the new distraction of Bitcoin whose miners are happy to use cheap natural gas Putin is no longer delivering to Europe. It's already clear that the "libertarian" song of Bitcoin lovers has nothing to do with freedom but rather the freedom of individuals to raid the freedom of others because of an inherent superiority. But how long before individuals who own Bitcoin simply out of greed realize that they are unwitting Putin Poodles? The two themes that interest me with regard to resource juniors are the security of supply issues created when the global economy splits into autocracy and democracy defined trading zones, and where the lithium is supposed to come from to make the EV replacement of ICE cars by 2035 a reality. The China-Russia axis poses a major problem for democracies. Russia is now doomed to be a pariah nation for a very long time. Its economy is 2.1% of global GDP and ranks in ninth place just behind Canada. The IMF projects Russia's GDP to hardly grow at all over the next five years, which would shrink its share of global GDP to 1.6%. Russia is the world's fifth largest military spender at $66 billion for 2021, which is just 3.2% of the $2.1 trillion the world spent on defence in 2021. Compare that to $801 billion for the United States at 38.5% and China at $293 billion for 14.1%. If Russia did not have a legacy arsenal of nuclear weapons it would be a nothing burger in military terms. China itself is headed toward becoming a pariah nation, so it makes sense for Russia to carry on its tradition of enriching its oligarch elite through resource extraction for the benefit of China while letting its domestic economy stagnate as Russians who abhor the idea of being a Putin Poodle flee the country. Going forward we can expect European nations as well as Japan and South Korea to ramp up military spending which is below 2% of GDP compared to Russia's 3.7% as they contemplate a possible election turnover in the United States to a party increasingly dominated by people who admire Putin and autocracy. These are not people who fear the heel of a boot but who imagine they will be one with the boot heel that crushes the freedom of others. But if this spell ends up broken, Russia cannot prevail on its own and will become a future colony of China which will be very interested in the vast riches of Siberia. Unless this growing geopolitical conflict resolves itself in a manner that allows globalized trade to resume, there will be a scramble to develop new raw material supply in demcoracy run jurisdictions that are secure, and the resource juniors will play a major role in that effort.

Comparison of DJIA in 1920-35 with 2010-2025

US Consumer Price Index 2000-Present

US Consumer Price Index Core (minus Food and Energy)

Tracking how much CPI Sub-Groups have increased since 1980

Long Term Price Chart for Gold

Long Term Price Chart for Oil

Potential Gold Price Limits based on Uncertainty

China and Russia combined share of Raw Material Production

Russia GDP Growth since 1991

Global Military Spending in 2021

Top Military Spenders in 2021 and the share of domestic GDP
Jim (0:16:21): Why are you so keen about Lithium Mania 2.0?
Lithium Mania 2.0 is based on the idea that by 2035-2040 the world will need to produce 10 times more lithium than in 2021 if the goal of replacing ICE car sales with EV sales is to become reality. Depending on the lithium carbonate price that represents a future market worth $100 billion annually at $10/lb lithium carbonate ranging to $300 billion at $30/lb. Half of that future demand will likely be supplied by current producers led by Australia, the Lithium Triangle in South America and perhaps China. The rest will have to come from low grade claystone style deposits such as those in Nevada, direct lithium extraction from brines associated with oil fields, and LCT enriched pegmatites. The first requires a high lithium price that may prove an obstacle to large scale adoption of affordable EVs. The second is an emerging process technology that still needs to be commercialized. The third is the simplest solution because there is an abundance of 5 million tonne pegmatites grading 1% Li2O or better that are open-pittable and yield a spodumene concentrate whose conversion into battery grade lithium hydroxide or carbonate is established process technology. The pegmatites occur in Archean shields such as those in eastern Canada, Scandinavia, Brazil and parts of Africa. Their presence has been documented as part of exploration for other metals, but never seriously explored because global lithium demand until recently was readily met by a few giant pegmatite mines like Greenbushes and Bernic Lake and the salar brines in Chile. While this additional supply is not needed until 2030 when we can expect EV adoption to go exponential, the 5-8 year exploration, permitting and development cycle means the time to recognize this supply problem and deal with it is right now. Lithium Mania 2.0 is based on the idea that resource juniors will scour these pegmatite trends over the next two years and very rapidly delineate open-pittable deposits with sufficient size and grade to move into feasibility demonstration. The huge potential value of the future lithium market will attract major mining companies such as Rio Tinto. Because it is unlikely that the supply will come from a view monster deposits such as is the case for niobium with the Araxa carbonatite deposit in Brazil, this is a game which will have many winners as multiple deposits are developed to feed centralized refineries. It will be something like the uranium boom in 2004-2008 whose institutional capital inflow supported aggregation of uranium deposits through mergers and acquisitions that flooded the uranium juniors with liquidity. When you consider that uranium supply in 2021 was worth only $4.4 billion compared to lithium worth $18 billion, and at least double that in 2022 thanks to a persistent lithium carbonate price double the 2021 average, and that the car companies have gone past the point of no return with their EV rollout plans, Lithium Mania 2.0 will be an absolute necessity. The KW August 25, 2022 Episode provides additional commentary.

Lithium Supply Growth since 1930

2021 Global Lithium Supply

Long Term Lithium Carbonate Price Chart

Rio Tinto's Vision of the Looming Lithium Supply Gap

Relative Value of Metal Production in 2021
Jim (0:23:43): How does one get up to speed on juniors that benefit from Lithium Manis 2.0?
KRO is a research platform that covers all resource focus companies listed on the Canadian and Australian exchanges. For the past few months we have made an effort to identify companies involved in lithium exploration and updated their profiles. This is an ongoing process. The KRO search engine allows one to filter for lithium juniors and do one's own research. Many of these companies are cheap and liquid. Some are leftovers from Lithium Mania 1.0 while others like Brunswick Exploration are newcomers who made the pleasant discovery that past juniors tended to focus on postage stamp sized claims covering known showings rather than exploring from a district perspective. KRO is a membership fee based service that costs USD $450 per year. Lithium Mania 2.0 will be a bubble like none before. Brunswick, which is still bottom-fish spec value rated because we are awaiting confirmtation that some of their land packages do indeed host LCT enriched pegmatites, was a member of my June Toronto MIF session so it is no secret that KRO members have been accumulating this lithium junior. The one I allude to in this episode trades below a nickel and is supposed to be involved in precious and base metals exploration in the James Bay region of Quebec where Patriot Battery Metals has made waves with its Corvette discovery. It is Bottom-Fish Spec Value rated but I don't mention its name because at this point paying KRO members are waiting to accumulate some more at cheap prices. The junior may have gold-copper discovery assays in a a month or so, but what we are really waiting for is news that field work revisiting a pegmatite trend owned and dropped years ago as part of a gold exploration play does indeed host LCT enriched pegmatites that have never been explored. The only evidence that this might be the case is a regional lake bottom-sediment rubidium anomaly. Rubidium is one of the elements that shows up in these LCT pegmatites so it is a promising indicator. In that sense Lithium Mania 2.0 also reminds me of the diamond boom Chuck Fipke launched in 1991 when Dia Met announced initial results for a diamondiferous kimberlite at Ekati. Gold may be a bear slog for the next couple years, Putin and XI might get booted out, and the plague of Putin Poodles may go back underground where it belongs, making the search for alternative raw material supplies unnecessary. But the need for substantially more lithium supply will not go away. There are many alternative EV battery technologies under development, but none will be ready for commercialization until the end of the decade, with the risk that none will be ready period. The car makers are committed to lithium ion based configurations and are going to tool up for producing lithium ion based cars, and they will want to be sure there is enough lithium supply to make that possible. Furthermore, just as much R&D is being put into developing a solid state electrolyte for the lithium ion battery which would allow lithium metal to substitute for graphite in the anode without a risk of thermal runaway (aka explosions) due to dendrite growth. This would yield a superior battery and greatly expand the future demand for lithium which currently assumes this breakthrough will never happen. We are organizing everything needed for KRO members to think intelligently about lithium juniors. It's going be a lot of fun while the overall sector and nearly everything else wallows in the gloom of Powell's coming recession.
Brunswick Exploration Inc (BRW-V)

Bottom-Fish Spec Value
North Shore Canada - Quebec 1-Grassroots Li
Disclosure: JK owns shares of Brunswick Exploration; Brunswick is Bottom-Fish Spec Value rated

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