Z's Profile

Very interesting. I am curious about (1) technology innovation in mining: which could significantly decrease exploration/production cost and (2) what the driver for next commodity super cycle could be.

Very interesting. I wonder what advantage Rio Tinto has enabling it open the Oyu Tolgoi mine at today’s slumping Cu and Au prices.

Markus, I found this very interesting although it is “controversial”.

I don’t see anything wrong in the copy cat structure. If there is a need, having a proven model to follow is much easier and safer than having to create a new path. When everybody can copy the same model, companies compete on market entry time, management and human resources, and operation efficiency as you described in the post. It looks lie Rocket Internet is already a leader in the field.

I am curious to know Rocket Internet’s view on its sustainable growth and innovation. Rocket Internet can do well by copying well. Is this what they just want to do for the rest of its future?

Interesting post Ben! One way I interpret why Allegiant Air can soar above the competition is that after the financial crisis, people tend to save more, cut on spending and downsize. For example, in real estate, after 2008, the small one bedroom apartment sells better than those larger two or three bedrooms apartments or houses. Consumers are willing to live on the basics and take out the unnecessary luxury. This is probably one macro trend that helped Allegiant.

I wonder what the future holds for Allegiant. Can it tap into and apply the same model to territories dominated by larger airlines?

I enjoyed reading your post Utsav. It is very interesting. Frankly I never found twitter attractive and never used it.

In the competitive environment today, if Twitter doesn’t innovate and strengthen its management team, it might just gradually fade away like Myspace. However, I still think Twitter has lots of brand value and large amount of users. If it can find the new way of growth by really focusing on delivering exceptional customer experience, it might see a turnaround quickly. I wonder whether any activists will come and impress some pressure on the management.

Z

Hey Brian,

Thank you for the question.

Yes you are right that gold mining have excessive barriers to entry. Reference 8 implied that “Barrick Oil” made some discoveries and became successful, enabling Barrick to acquire established gold mines. I think it is fair to say that it is well capitalized from its previous life as an oil & gas company.

There are mineral exploration companies and mining companies. The mineral exploration companies does mostly the exploration and pride themselves as the explorer. The mining companies usually focus on mining and spend smaller amount of budget on early-stage exploration. When a mineral exploration company finds something, usually the large mining companies will come acquire the projects from the exploration company.

Without any data support, I suspect the reason why Barrick’s finding cost is low is that Barrick 1) conducts exploration around existing mines where the possibility of discovery is high, 2) acquires late-stage exploration properties and further spending on these properties count towards finding costs.
(I will update this section if I find more data).

They still pursue acquisitions aggressively even though the finding cost is low is because
1) exploration is not its core business. If it purely does on exploration, its finding cost wouldn’t be so low.
2) it takes years to develop a exploration property into a mining property. Barrick doesn’t want to explore, spend lots of time on the project, and may be 1 out of 10 (or higher) projects can turn into a mine.
3) to generate more revenue, Barrick needs to grow as a producer. Therefore, it needs to keep acquiring resources and turn them into mines, or acquire mines. However, it is this very aggressive acquisition that got Barrick into the trouble today.

Best regards,

Z

Hey Michele,

Sorry for the late reply.

On a high level, I think the operation model of mining companies pretty straightforward. They need to find resources and develop them into mines to generate revenue. In this case, I believe it is the quality of management decision that leads to performance. According to Reference 1, the reason why Barrick is a not-so-good position today is because it made a $7.3 billion acquisition of copper miner Equinox Minerals Ltd which resulted in a $4.2 billion write-down and its Pascua-Lama that straddles Chile-Argentina border saw soaring capital cost and faced environmental charges because Barrick decided to build the mine themselves instead of relying on contractors.

Because of the capital intensive nature of the mining industry, the volatility of commodity price, and it is hard to find a true “high quality assets”, one project can often change the fate of a company. Many things could go wrong. The geological and engineering models may not truly reflect the underground condition causing extra cost. Commodity price drop may turn a positive cash flow project into a negative one. Development cost could turn out to be higher than expected. The challenge for the management is to evaluate all these factors and make the right acquisition decision.

It seems Barrick’s the management made some poor acquisition and operation decisions causing Barrick to be overly leveraged financially. Its Chairman recently said Barrick is going to just focus on Gold now. Sounds like Barrick was trying to grow aggressively by tapping into other commodities but lacked caution.

I am not sure about how much of a role the social/global pressure plays in this scenario. Definitely the environmental charges against Barrick’s Pascua-Lama project doesn’t look good. To what degree it affects Barrick’s performance in addition to the damage caused by the bad acquisition and poor operation judgement is something to explore. Generally, there is an increasing awareness of corporate responsibility, environmental standard, and sustainability in the mining industries these days.

Best regards,

Z