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Kaiser Media Watch Blog - September 1, 2015 to September 30, 2015
Kaiser Media Watch Blog enables John Kaiser to share online content from other media he deems interesting or relevant to Kaiser Research Online audiences. He collects links to such content and writes a brief explanation. The KMW Blog gets updated during the evening KRO update. After a week or so the current KMW Blog gets archived and a new one is started. Tweets are sent with a link to the item in the KMW Blog when it is of particular interest. Right clicking the JK header allows one to share or copy a link directly to that specific blog post.
September started off with a bang but then I ran off course getting the Sheahan Diamond Literature Service set up and completing the Outcome Visualization project. Lots of media articles relevant to the 4 core narratives were flagged, but these will be caught up in the Kaiser media Watch Blog for October.
IIROC also known as the Investment Industry Regulatory Organization of Canada, has emerged as a pseudo regulator that operates in parallel to the stock exchanges and Canada's securities commissions. It is the author of the Client Relationship Model which is being used to chill the purchase of individual securities by clients of Canada's investment dealers who do not have 100% responsibility accounts, ie a discount brokerage account. IIROC believes its investor protection mandate is to prevent investors from suffering losses regardless of an investor's willingness to accept risk. The suitability test imposed by CRM functions as litigation bait to which the bigger investment dealers are responding by prohibiting client purchases of individual stocks, especially those of a high risk, high reward nature such as ventures listings on the TSXV. The largely bank controlled bigger firms do not mind the CRM because their goal is to steer clients into risk-profile based portfolios stuffed with structured products on which a variation of the 2 and 20 management fee is charged. This business model is doomed, as I suggest in my August 27, 2015 KMW Blog Post, World's Biggest Asset Manager sees the Future. Much more relevant to the juniors is the compliance burden on the smaller independent firms who have historically specialized in juniors and who are rapidly disappearing.
I addressed the implications in a January 16, 2014 Blog Post, Canadian Retail Investors: A Rocking Chair Nation or Venture Capital Rockers? Since then investor interest in Canadian publicly listed securities, in particular the high risk high reward venture listings on the TSXV, has declined further. Part of the problem is the resource sector bear market, whose cyclical downturn appears destined to have a very long duration, perhaps too long to allow the survival of the exploration junior as a viable Canadian institution. But there are always survivors during a cyclical downturn through which astute investors willing to buck the prevailing risk averse sentiment profit handsomely. But the ability of a minority of juniors to flourish during a cyclical downturn is being compromised by the structural changes in the securities sector. Not only is IIROC waging a successful war on speculative investing, but it has also assumed a role as a "regulator" of disclosures by publicly listed companies supposedly to enforce "market integrity". The resulting threat to the venture listings and their non-financial support industry has finally started a groundswell of criticism to which IIROC has responded with a Request for Comments on Strategic Issues. IIROC released public submissions on September 1, 2015. The submission by Thomas Caldwell of Caldwell Securities Ltd, a small investment advisory firm , is a must read for everybody because he is so succinct in putting his finger on all the issues that are wrong with IIROC: self-regulation, attitude, inputs, burden, conflicts, disclosure, "shoe-horning", and arrogance. Caldwell's implicit message is that IIROC is killing Canada's capital market. A second must read is the submission by Fair, an NGO that calls itself the Canadian Foundation for Investor Rights and which is funded by donations from government regulators. The FAIR submission is a must read because it argues for a continuation of the policies that are suffocating Canada's venture capital market. After reading the FAIR submission, re-read Caldwell's submission, and ask yourself if it is outlandish to suggest that FAIR has a genocidal mission with regard to public venture listings?.
Given the incestuous relationship between Canada's banks, the securities commissions, the "self-regulatory" IIROC, and shills like FAIR, and their apparent monopoly on moral rightness, it does appear hopeless for the Canadian junior resource sector as well as investors willing to take 100% responsibility for their decisions but discouraged by the failure of the junior equity markets to function as a price discovery mechanism and the choking of capital gateways into corporate treasuries. The Canadian junior equity market has become the funding engine for a regulatory infrastructure whose effect is genocidal for junior listings. The regulatory burden not only sucks up venture capital through fees, but it also sucks up the attention of company executives forced to deal with mindless paperwork that serves no productive disclosure purpose (like the Black-Scholes calculations for stock options). With little money and time left to generate and explore projects, the resource juniors will not deliver the successes that justify the existence of the Canadian junior resource ecosystem. The successes are rare, but that is the nature of resource exploration where it is the collective action of a large pool of determined juniors focused on achieving fundamental success that allows the few but individually unpredictable successes to emerge that justify the ecosystem. Canadian resource juniors and investors, however, need not resign themselves to the extinction of the Canadian resource junior. There is an alternative that bypasses the regulatory deathtrap and which will allow Canada to continue as a fountain of world class geologists, mine engineers and executives who set up in Canada headquartered juniors.
Another nation similar to Canada called Australia also has an ecosystem of resource juniors that trades on the Australian Stock Exchange. Not all the ASX listings are based in Australia, just as not all listings on the TSX/TSXV are based in Canada. Australia's disclosure and reporting system, in particular with regard to filing of 43-101 style technical reports, is woefully under-developed. But the advantage for the ASX and its JORC system is that they can cherry-pick from NI 43-101 so as to eliminate the need for ASX listings to interlist on the TSX in order to be forced to file 43-101 technical reports that an international audience accesses via SEDAR. Undoing regulatory and disclosure overkill is much harder than improving an inadequate system. The ASX regulatory system has resisted the move to multiple order execution platforms that violate the "first come first serve" principle behind a market order book and require elimination of the uptick short sale rule. The ASX can still function as a price discovery mechanism, though it suffers from a small audience largely restricted to Australian investors. Furthermore, Australia regards its resource exploration culture as a national asset, not a pestilence that must be eradicated. How long before Canadian based juniors explore listing on the ASX, and Canadian investors, tired of the dysfunctional Canadian equity market, open 100% responsibility accounts with firms that facilitate online trading of ASX listings? American investors, discouraged by the demise of the Canadian equity market and disgusted by their own Bulletin Board market, will soon enough discover the Australian Stock Exchange, which is poised to take away Canada's crown as the resource venture capital of the world. With the possibility that the NDP party could win Canada's federal election this fall, it is time to think hard about an exodus to Australia.
Lucy Hornby of the Financial Times provides an excellent overview of China's efforts to deal with its serious soil contamination problem. Water and air pollution have received the most publicity because it is so visible and experienced. Soil contamination is more insidious because it invisibly works its way into the food chain and manifests itself as disease down the road. China conducted a $150 million national soil pollution survey in 2006-2011 that quickly became a state secret due to its alarming conclusion that one-fifth of arable land was contaminated It was only published in 2014, but what remained a state secret is where and how bad the soil contamination is. The contamination cycle is complex. One source is the many industrial plants built inland during the fifties far away from major urban centers which spewed particulates into the air that wind and rain dropped onto surrounding farmland. They also dumped wastewater into both rivers, from where it was pumped onto fields for irrigation, or directly onto fields like giant settling ponds. From the fields the contaminants were leached out, ending up back in the rivers for pumping back onshore downstream. As urban centers expanded around industrial hubs polluting plants relocated farther afield in rural areas, leaving behind polluted city land and creating new pollution spreading centers in agricultural areas. Rice is very effective at absorbing heavy metals, which is why rice has been adopted as a remediation tool for contaminated areas. But it is also a food staple whose origin can be difficult to discern. While the United States has numerous polluted sites, typically from past mines, the pollution tends to be localized and away from farmland. China's pollution sits in agricultural areas and thus is not as easily avoided and simply earmarked for future remediation. Hornby quotes Lan Hong, a professor, as giving a $1 trillion estimate to clean up the contamination. Of the heavy metals mentioned in the article, cadmium tops the list in terms of area affected, followed by nickel, arsenic, copper, mercury, lead, chromium and zinc. The article also provides statistics regarding how much of zoned areas have been designated polluted: 34.9% of abandoned industrial land, 33.4% of mining areas, 29.4% of industrial parks, 26.4% of irrigation areas using wastewater, 23.6% oil producing regions, 21.3% of solid waste treatment plants, and 20.3% of highway sides. What is interesting about these statistics is that the majority area of these zones is not contaminated, which suggestis that worst practice is not the Chinese way. Roadside pollution, caused by transport vehicle load loss, is especially vexing because the pollution seeps into surrounding areas over great distances. Hornby does not leave us with the feeling that China has a strategy for cleaning up the existing mess. It might still be better off regulating the emissions from operating sites, stopping pollutants from entering the atmosphere and water, both of which are self-cleansing over time. To what extent China's environmental awakening translates into action that has an impact on China's cost structure, both with regard to manufacturing and raw material extraction, is hard to predict. The manufacturing slowdown will give Chinese authorities extra incentive to shut down the worst polluters, which could result in production cutbacks in certain metals faster than expected.
There has been a fair bit of buzz about the look and feel of Apple's new iPhone 6s that goes on sale on September 18, with speculation about whether Apple will continue to use 6000 series aluminum for the phone case shell or switch to the 7000 series aluminum alloy already used by the Apple Watch. I'm talking about the case of the phone itself, whose vulnerability to bending, denting and scratching has become the cult focus of online video makers, not those expensive third party cases people buy to keep their phone from breaking and which make it bulkier. Another hot topic is the potential colors and textures of the iPhone which is as much a fashion statement as a functional tool. How well a phone case surface will take and hold colors and textures is apparently not a simple technical problem. On September 2, 2015 Mark Gurman of 9To5Mac published the winner of the debate in a blog post, Apple Event: New Apple Watch Bands, 16 GB iPhones confirmed with 7000 series aluminum. For a detailed discussion of the issues surrounding different phone case materials check out the June 18, 2015 DailyTech Blog by Jason Mick who argues the 6000 series will prevail. An August 19, 2015 MacRumors Blog presents an analysis of the phone case material which points out that it includes a 10 micron thick layer of anodized aluminum oxide to protect against corrosion. The main alloying input for series 7000 is 4%-6% zinc, a very cheap input.
The obsession with aluminum alloy as a phone case material is fascinating, but it has finally dawned on me why Clean TeQ's latest corporate presentation includes an Apple phone case photo among others for aluminum-scandium alloy applications. Each series of aluminum alloys has certain properties in turn tweaked by numerous sub-series variations, which is why the series get described as 5XXX, 7XXX and so on. Apple has apparently created its own special 7XXX series. But what strikes me as really obvious is that a simple aluminum-scandium alloy would be a much better phone case solution because it can be thinner and is naturally corrosion resistant. Of course, adding 0.1%-0.5% scandium would cost more than adding cheap zinc, and with cost of paramount concern, one might conclude that $2,000/kg scandium oxide will never make it into an Apple phone case. One has to wonder, however, what it costs to turn a bunch of cheap ingredients into an extruded bar of 7XXX series aluminum. And we should also consider the fabrication cost associated with the new iPhone 6 case which has to be machined from the raw material, and then have the anti-corrosion layer created on the final shape. What would that cost in comparison to fabricating the case from an aluminum-scandium alloy series which is already resistant to corrosion and need not suffer the waste loss from machining? I do not know, but I suspect aluminum-scandium alloy might end up equal or cheaper in total cost, and if it bestows greater functionality on how the phone case looks, feels and protects, it is a no-brainer to become the basis for a future smart phone model.
Why does Apple not already use an Al-Sc alloy? Well, current global scandium supply from a variety of unreliable and non-scalable by-product sources is only 10-15 tonnes annually that is already sopped up by applications that can handle prices above $2,000 per kg. But if Scandium International Mining Corp starts producing 36 tonnes per year in 2017 from Nyngan, and Clean TeQ Holdings Ltd starts producing 42 tonnes in 2018, the situation changes. Apple and the other smart phone makers do not need to put Al-Sc alloy based components through a certification process as the aircraft industry will have to do. They could become an instant source of demand, layering Al-Sc alloy into premium models according to available supply. Would they do an offtake agreement in advance? Probably not, but we should keep in mind that with regard to consumer products, there is a lot of discretion in the choice of materials, and if proof is on the table that scandium is available from a primary, scalable supply, there will be a lineup of end-users eager to do take or pay offtake agreements..
