Commodity Watch: Bigger Isn’t Better, Smarter Is

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/061c994a-a452-418f-bfa0-f2cf3cf5c577/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.png?language=en" alt="Ahmad Al Sati - insights" title="Ahmad Al Sati - insights" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and Portfolio Manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>Profits doubled, year-on-year revenues were up 20%, costs were lower, and the product’s price was at an all-time high. Yet, the share price of the world’s largest gold miner declined. Lower ore production (down 15%), lower ore grades, and increased future capex weighed on investors.</p><p>The issues are not, and will not be, specific to one company. Ore degradation and limited supply seem endemic across mining. Copper and iron ore have both experienced quality degradation. Copper’s average grade declined by 40% since the 1990s. And on January 2, 2026, at least two Iron Ore benchmarks (used to trade iron ore) will lower their iron ore purity content. Alumina, silica and other minerals are also experiencing decreases in purity.</p><p>The product is getting worse and harder to find. For example, despite higher prices, no new major gold discoveries have been made in the last two years. 70% of the world’s copper was discovered in the 1990s, with zero discoveries in 2022 or 2023. Discoveries are also on average 35% smaller. Despite that, exploration budgets decreased by 15% in 2023 and an additional 7% in 2024, per S&amp;P. Smaller and less frequent discoveries mean reliance on brownfield projects with increasing depth and complexity, i.e. higher costs. It also means continued reliance on highly concentrated supply chains.</p><p>At the same time, the demand for more metals and minerals will only increase from here.</p><p>The industry’s solution seems to be to super-size it. M&amp;A activity in the last two years has set a 20-year record. The oil industry also went through that in the late 1990s and early 2000s when oil behemoths were created and right before oil surged in price. Yet, those mergers neither create ore nor solve concentration risks. They may just lower the costs of already depleting assets (potentially good for shareholders).</p><p>The solution instead might be in pursuing new, albeit smaller, discoveries outside existing supplies. Per McKinsey, 62% of copper, 44% of rare earths and 36% of lithium exist in jurisdictions outside those of the top three producers. But dispersion requires capital, technology and better legal frameworks. New investment will require higher prices. Copper, nickel and lithium prices must be 19%,16% and 36% higher than 2024 prices to spur additional investments. Technologies such as direct lithium extraction and new leaching technologies should lower costs and increase supply. But streamlining the permitting process is key. It now takes 18 years to bring a mine online (or closer to 30 years in some cases) and antiquated laws don’t help. The US, for example, operates under a general mining law first enacted in - wait for it - 1872. Upgrading these laws should allow for faster, higher and cheaper production.</p><p>Our modern economy increasingly demands these materials. Producing them will require ~$5 trillion over the next 10 years. Smaller, more dispersed production could help bridge demand, but more work and capital are required.</p><p><br></p>