Why the 'Material World' was, is, and will be of concern

There is a sixth raw material in his book as well, and this is lithium. Interestingly, I have covered lithium in 3 separate blog articles toward the end of last year. In general, Conway is right to elevate lithium into the knighthood as he did with the other five – I’d just say, or add, that lithium would be representative of a larger group of minerals and metals that we could term the ‘battery metals’, i.e. a group of raw materials that is supposed to support us in our endeavor to limit the use of fossil fuels. Whether that is a good choice, as I asked above? Maybe too early to say, but we should be watchful for sure.

In a German newspaper, I have read a comment about an essay called ‘The Pencil’, written in 1958 by economist Leo Read. In this insightful piece, the pencil complains that, although it is the link between a brain full of ideas and making these ideas known to the public, well, despite that, no one knows what the pencil is made out of. It is simply considered to be there, to work, and to be useful. But in reality, its ingredients (whereas the core ingredient is graphite) are a rather complex mélange out of various raw materials, organic and inorganic, stem from all over the world (almost like a good gin).

This thought is also what I sometimes use to underline the importance of the minerals, metals and mining industry, from which I conclude that it is also a great investment destination. I try to make clear how essential the outputs of this industry are, from the time we get up (how many metals in your phone that rings the alarm), continued in your warm bathroom (how is this heat generated), to your breakfast (phosphorus fertilizer), drive to work etc.

The author aligned with his subject matter, which is a global one, and travelled the world. He did so to visit mines, processing plants, and to speak with people who are active in the various industries around these six raw materials. And, again to underline that this is not first and foremost an economics book, Conway suggests that he ‘…was less concerned with the market value of substances than with our dependence on them. But as I dug deeper and left my comfort zone of conventional economics, it became something else: a story of wonder."

And here, I am 100% with him, as I explained before. This ‘material world’ is a world of wonder. Isn’t it fantastic that metals that are millions of years old, and that we can extract, provide us with the chemical and physical properties that needed in our high-tech world? Take for instance the ability to resist even extreme heat – which makes nickel the go-to metal for airplane engine blades.

A story of sand, salt, soldiers and the foundations of progress

The author covers his story in a somewhat chronological order, starting with sand, which allowed the first advanced civilizations to go far beyond ‘the necessary’. Silicon is found in sand, and silicon is a key ingredient for glasses. Glasses are an epitome of culture, thus allowing putting energy and thought into aesthetics. This is what made human culture flourish, next to improving the efficiency of necessary processes. Interestingly enough, and this is where the first circle already closes, silicon is also a key ingredient in solar panels, which is a pillar in the so-called ‘energy transformation process’ that a number of countries try to follow. Besides those panels, silicon also happened to be the name-giver to a whole valley in California, thought to be one of the major centers of development of advanced IT-technology.

Then, Conway continues to salt. We could be tempted to now just think about sodium chloride (also known as table salt), which we are using daily to make vegetables tasty – and before, to increase the ‘shelf-life’ of meats and fish – thus giving the means to travel longer distances. That in turn included traders, scholars….and soldiers. So in demand was salt that it advanced as currency at times. Yes, pay my SALARY!. In the region where I grew up, whole districts got rich by controlling the trade of salt, and whole cities were built on it. Have you ever visited SALZBURG (literally Salt-Fortress)? While that salt was the classic ‘white-gold’ sodium chloride, mined from salt mines that were essentially extracting the salt of an ancient central-European ocean, salts are also vital ingredients for fertilizers and explosives.

The soldiers that marched longer passages without being reliant on local food supplies thanks to salted fish or meat took with them weapons of course, which, depending on the time, were forged out of iron or copper. We like to misinterpret wars as just a sequence of terrible battles, but on a more holistic long-term view, wars, at last in Europe, is what drove states to become better organized, to levy and manage taxes, to develop economically etc. They had to do so in order to not loose the next war which was surely round the corner.

As such, even though we rightly should prefer peace and make love not war, the dynamics that pushed European states into what they are since the mid-ages, would have been unthinkable without wars – and they in turn were unthinkable without iron and copper.  

I like thoughts like this because I, as I suppose the majority of people that live in advanced economies and cities, are fairly distanced from the material world that Conway is discussing. As I explained above in my ‘daily routine’ example, our reliance on ‘materials’ is as high as never before, but we still don’t deal with ‘matter’ in a conscious way. We don’t lift coal bags from the cellar into our apartment in winter anymore, we don’t have to carry clumsy tools made out of iron, and we don’t labour in factories that transform iron into steel and so on. Ours is a immaterial world, a world of thoughts, ideas, services. Even though nothing is farther from the truth. Thanks to Ed Conway for reminding us about this.

Copper and oil: Timeless giants

Copper too is, while one of the oldest metals mined, also a high-tech metal. In fact, it is one of the most used metals of all times, and today its price developments are often used at stock exchanges as a gauge for (expected) economic sentiment. While a key ingredient in modern electric vehicles (EVs), and often referred to as ‘the new oil’, it was already the material underpin of the ‘Bronze Age’…because bronze is…you guessed it correctly, an alloy of copper and tin.

The old oil, Conway's fifth substance, which is representative of all fossil fuels, whether liquid or gaseous, is by no means history. Some people don’t like this assessment, but I have worked a lot in Africa (although on the mining sector, and not on oil) and there, as in other places, one oil development project is coming after the next. In fact, Africa is one of the most prospective destinations for offshore oil and gas, and no one….really no one in any African government seeks to limit their potential revenue coming from oil. Also, airplane fuels and plastics do not simply disappear because someone decides that they should. And Conway nicely connects oil, the ‘old’ fuel, to lithium batteries, the ‘new’ fuel, by pointing out that all the plastics used in an EV are petroleum derivates too.

What future for lithium, and what future with lithium?

The sixth and most important chapter in "Material World" deals then with the ‘other white gold", i.e. lithium - another "wonder metal". Lithium, which again should be read and interpreted as representing a wider set of battery metals, is supposed to be the main engine to overcome the fossil fuel age. Wind turbines are made of steel, their magnets of rare earth elements, solar cells are made of copper and silicon – but the necessary energy storage systems for electricity from renewables, which are in the end all unreliable sources of energy, are based on lithium. No other metal for accumulators is so reactive, and is of such lightness at the same time.

I also like that this book provides a glance into the far-away realities of lithium mining, which is fascinating. First and foremost the lithium brines in South America, often situated in shallow dessert ranges. Shiny white ground, a an eye-hurting blue sky on top, and a few grey hills in the background make for a surreal scenery.

Conway has been there: he has walked on the crust on the dry lakes of sodium and potassium salts and seen the wells from which the drilled lithium salt is pumped and drained into evaporation basins: the turquoise-coloured infinity pools of the desert. When the water evaporates after a year, a quarter of the lithium chloride remains in the precipitated, solidified alkali salt. It’s a bit like harvesting fine table salt (fleur du sel) from evaporated sea water in special salt ponds. And the book brings up the environmental question as well: Is lithium mining an environmental disaster? I am not commenting on that here, but of course any type of large-scale industrial endeavor has its controversy. Chile though is well placed to become a leading lithium producer, together with Australia, and thus gain a not unimportant position in the future transport- and energy supply chains.  

Before the South American lithium brines came online, lithium normally was mined in Europe and other places, but really didn’t have much glamour about it: it was largely used for special but unsexy applications such as for plastic catalysis, glass hardening and to produce tritium, super-heavy water, for well….fusion bombs. America extracted it from rocks such as spodumene and lepidolite, as did Portugal, Australia and China. Digging has been on the rise again for twenty years, mines are being reopened, and new ones are being developed.

Lithium and other battery metals are also leading the movement to re-open and build new mines in Europe, a continent where mining activities have been declining over the last decades (because we all became immaterial, remember?) If the Union wants to achieve its energy transition goals, sourcing it abroad will not be sufficient. And indeed, it is expected that many European countries have, or could have solid mineral supplies of lithium. It is not yet well understood, as almost no one was looking for that between the 80s and 2010 or so. A huge deposit is currently being redeveloped in the German-Czech border region, where both side would operate large lithium mines – in a region that has been doing mining for centuries, albeit not for battery metals.

The future of the material world

The book also talks of some new lithium processing methods which are being studied, and the author visits lithium chemical and lithium metal refineries as well. He has his own judgement as of whether lithium supply will be able to match demand: "Even if we assume optimistic predictions about the discovery and opening of new mines, the world will not have enough lithium by 2030 (Investors pay attention here).’

Conway continues to speak about the Jevons paradox, according to which the consumption of raw materials does not decrease with higher efficiency, but actually increases. This could work through a cost/price mechanisms, whereas lower costs, caused by higher efficiency (i.e. smaller input per output) opens up the now cheaper raw material  to a whole new set of additional applications.

He discusses another theorem too, the so-called Ehrlich-Simon discussion between a biologist who saw humanity in crisis due to population growth and diminishing natural resources, and an economist, who argued that more people would mean more brain power = finding better solutions to adapt.

Accordingly, he rightly states that the …’reality of resource exploitation in the 21st century (is this): Huge quantities of rock are pulverized into grains, and what remains is chemically processed," he writes: "At this point, I have to dispel a dangerous myth: the deceptive idea that we humans are gradually becoming independent of physical materials’.

‘It is an irony of history and our times: in order to achieve our various environmental goals, we will need considerably more material in the short and medium term to build the electric cars, wind turbines and solar cells with which we want to replace fossil fuels. The bottom line is that we will extract more metals from the earth's crust in the coming years than ever before. While we, as inhabitants of the immaterial world, are reducing our consumption of fossil fuels, we have doubled our consumption of everything else. Yet we delude ourselves into believing it's the other way round."

This is something I am pointing out frequently in my writings as well: We will need more minerals and metals, both absolutely, and relatively.

We can ponder this idea, and like it, or be displeased about it. But in any case, we should profit from such realities, which won’t go away. This is why, dear investors community, it is so worthwhile to be active as an investor in this field. 

Conclusion

Conway’s own conclusion however is less investment-focused, but goes deeper. He resumes:

"I myself have spent my whole life working in the immaterial world and enjoyed the spoils of the material world without ever getting my hands dirty. The path I have travelled in this book represents a certain purification for me."

Hence, the material as well as the intellectual world will have to, and probably will,  find a way to shape the world in conjunction. But for all inhabitants of the immaterial world: spending thoughts about the ‘other reality’ will open up the spirit, the thought, and an understanding that there is a true interconnectivity between these two spheres.