Climate Change Investor Newsletter #3

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April 2021

EXCLUSIVE: Ivanhoe Mines CEO Pursuing Geothermal Breakthrough

I’m sharing this as an “Exclusive” because I haven’t seen it reported anywhere other than the “Macro Voices” podcast where it first appeared.

Ivanhoe Mines founder and CEO Robert Friedland revealed in a 25 March podcast that one of his other companies, I-Pulse, is developing a novel process for extracting geothermal energy by literally drilling into the mantle of the earth and generating electricity by pushing superheated steam through turbines.

This technology, which he acknowledged is likely several years from being deployable, would displace nuclear power due to its near-infinite energy generation potential. He noted that current drilling technology, such as that used by oil explorers, would not be able to drill the wider-bore hole necessary to produce the steam to power the turbines. In his own words:

“…you need sort of a robot that can get into hot rock and do the drilling for you, a Pac Man machine that has to be completely reengineered and redesigned. So the electronics in that device would have to tolerate temperatures about 250 degrees centigrade… And we’d have to use a completely different physical principle, to drill large diameter holes in hot rock, we’re quite confident that this is achievable… within a period of say, five, or a maximum of 10 years.” (emphasis mine)

He hinted that the company had unspecified sovereign support, but not from the United States (China? Australia? Japan?):

“…And we’re also seeking and are likely to receive support from one or more governments… Hopefully, the new Department of Energy in the United States, for example, will take an interest in this obvious solution. But we have another government that is taking a great deal of interest.” (emphasis mine)

Here’s how Friedland described the technology he would use to achieve this miracle of unlimited geothermal energy production:

“…[I-Pulse has] commercialized non-military applications of ultra high energy pulse electrical power, technologies that heretofore were used only for strategic weaponry, electromagnetic pulse weaponry, and other military applications.”

The process, according to Friedland, is ‘simple’:

“…So what this entails is using electromagnetic pulses to spall rock, to turn rock into a gas, and to drive a series of devices that to our mind could drive these tunnels through hot rock. And once you’ve done that, you just inject water into those tunnels make steam, and then recycle that steam when it condenses, after it generates electrical energy into an endless loop and generate free electrical energy with … basically no moving parts required, other than the steam generator.” (emphasis mine)

And despite the engineering challenge of drilling into extremely hot rock to extract the steam, Friedland says that the target depths would often be shallower than a typical oil well:

“In the United States, we have hot, dry granites that are 30, 40, 50 miles across. And some of them are not very deep at all. They’re 1000–5000 feet deep. Quite shallow compared to an oil well, and if they’re hot enough to make steam to run a generator, you can generate a limitless amount of free electrical energy with no global warming effects.“ (emphasis mine)

Needless to say, this would be a game-changer if Friedland’s company (or a competitor) can make it work. It would make the nuclear power industry obsolete (unless that industry can get its act together and commercialize thorium reactors, which are meltdown-proof).

It would eliminate the need for coal-fired electricity-generation plants, eventually drive electricity down to a trivially-inexpensive price, which would encourage the wider adoption of all sorts of electrical applications. And while geothermal energy is relatively common in the developed world, this type of novel technology has the potential to stop climate change in its tracks if applied at scale in less-developed countries.

Friedland’s company has no current plans to go public, though he noted that I-Pulse is working with a large investor (individual? pension fund?) as well as unnamed investment banks to raise additional funding to fuel the development of this technology, and he remains cagey when asked about specifics. But it’s definitely something worth watching.

What I’m Reading About

Spring Valley Acquisition Corp. (SV)

AeroFarms is working with a SPAC to go public. As far as I’m aware, this is the first time that a vertical farming company has gone public. Vertical farming is one step toward a more sustainable way to produce large quantities of fruits and vegetables with a much smaller footprint and with less water usage than conventional farms. Via FoodNavigator-usa.com:

“Sold under the ‘Dream Greens’ brand available at major retailers including Whole Foods Market and Amazon Fresh, AeroFarms has grown over 550 varieties of produce to date, and is a key player in the $3bn global vertical farming market, which is projected to reach $10.4bn in value by 2027, according to a ResearchandMarkets report.”

Li Batteries Improving Faster than Expected

A study by MIT has revealed that lithium-ion batteries are improving in terms of capacity and cost faster than most people suspect. SciTech Daily reports:

“The researchers found that the cost of these batteries has dropped by 97 percent since they were first commercially introduced in 1991. This rate of improvement is much faster than many analysts had claimed and is comparable to that of solar photovoltaic panels, which some had considered to be an exceptional case.”

This is important because electricity storage is one of the biggest challenges of the near-term future: you can produce vast amounts of electricity to replace fossil fuels, but if you can’t store it (and transport stored energy), capacity will remain limited. Greater capacity implies greater supply and lower costs to consumers.

More on that later…

Vibration as a Power Generator?

I have an “automatic” watch, which means that it winds itself using only the movement of my body to generate the power to keep it running. It’s an elegant and surprisingly old technology; the first automatic watches were produced in 1928.

Now, a company called ReVibe (private) is looking at how to use ambient vibrations that exist in industrial environments to produce energy to power wireless equipment. When you consider all the different things that vibrate in a typical manufacturing environment, it’s clear that there’s a lot of unused kinetic potential available to be harvested. ReVibe isn’t the only company in this space — British 8Power (private) is also moving ahead with powering the Internet of Things devices with vibration.

Fuel Cells that Clean the Air?

New vehicles being manufactured by Toyota (TM) and Hyundai (HYMTF) are not only zero emissions, studies show they’re actually negative emissions. That means not only do they not pollute the atmosphere, they actually clean the air! A study by Hyundai claims that in the course of a month of normal driving, one of their NEXO fuel cell cars actually cleaned 900kg of air, or approximately the amount a normal adult breathes in the course of 60 days.

Banking on Chaos

Is it any surprise that the biggest banks in the world are letting ESG goals fall by the wayside in search of greater profits? An alliance of NGOs published a report in March naming and shaming the biggest offenders. Top of the list was JPM Chase, followed by Citi and Barclays. In Asia, the ten worst offenders for supporting coal-generated power and coal mining were all Chinese banks.

Really Big Batteries

Really Big Batteries are going to be the Next Big Thing™ in terms of “greening the grid” because we are more limited in terms of our ability to store electricity than we are of our ability to produce electricity. So I started looking into what companies produce Really Big Batteries, and — of those — which ones are public.

Here is a non-exhaustive list of what I found: NextEra Energy (NEE), Toshiba (TOSYY), Tesla (TSLA), General Electric (GE), Siemens (SIEGY), Panasonic (PCRFY), ABB Ltd (ABB), Johnson Controls (JCI), Fluence (EMFGF), and Eversource (ES). Many of them, of course, are more diversified than just making batteries (e.g. TSLA), so exposure to that aspect of their business is diluted by other lines. I remain in the early stages of exploring possible investments in these companies. As always, do your own research.

What I Bought in March

ESM Acquisition Corp (ESMU)

This is yet another SPAC that I became interested in due to its connection with future tech. One of the main backers is Sir Michael Davis, formerly CEO of Xstrata, one of the largest diversified mining and metals extraction companies in the world. What really piqued my interest was this excerpt from their press release announcement about what type of company they’re looking to merge with:

“The Company intends to focus on a target business that is positioned to benefit from the global transition towards a low carbon economy, including but not limited to the shift away from fossil fuels, the light-weighting and electrification of vehicles and the reduction of carbon emissions from key industrial processes.” (emphasis mine)

This is a very speculative (and relatively small) investment on my part; caveat emptor. They may or may not succeed in finding an appropriate acquisition target, but I feel like the executive team is experienced enough that they have a sense of how to make it work.

Cameco Corp (CCJ)

Cameco is one of the largest producers of uranium for use in energy-producing nuclear reactors. Following the Fukushima disaster, uranium prices have been depressed for an extended period of time, and all the major producers have pulled back in terms of production, so there is a shortage of uranium for nuclear fuel in the event that there is a significant uptick in the use of it for non-fossil fuel energy. CCJ is poised to take advantage of the fact that nuclear power is an essential part of eliminating fossil fuels from the energy production cycle.

Setting aside Robert Friedland’s idea (above) of drilling into the mantle (which is still unproven), nuclear energy is the most scalable and — contrary to popular belief — safe way to produce clean energy. The Biden Administration has also embraced nuclear power as one of the ways to mitigate climate change:

“Biden’s energy platform mentions advanced nuclear as part of ‘critical clean energy technologies’ and lists ‘reclaiming’ domestic uranium mining as a goal. The Biden presidency will ‘leverage the carbon-pollution free energy provided by existing sources like nuclear and hydropower, while ensuring those facilities meet robust and rigorous standards for worker, public, environmental safety and environmental justice.’” (Source: Popular Mechanics)

Denison Mines Corp (DNN)

Whereas CCJ is arguably the most established player in the uranium production space, Denison is a much smaller and more speculative play. It was recently added to the S&P/TSX Composite Index, which will cause some funds to buy it reflexively to maintain appropriate weighting in certain ETFs, for example.

However, DNN is still a “junior” uranium miner, which means it doesn’t have any functional mines at the moment. It believes that its 2024 project at the Wheeler Mines (of which it owns a 90% stake) will begin producing uranium at a low cost precisely when the supply shortage strikes and the price goes up (the mine will not come online until 2023). So as noted, this is a longer-term speculative play, but one with a good risk-reward profile (in my opinion).

I am/We are Long

CWEN, SEDG, TELL, MP, TPGY, TTCF, ABXXF, SLV, GLD, FCX, AEM, ESMU, CCJ, DNN.

Conclusion

Hope you enjoyed the third edition of the newsletter. I think Friedland’s idea has a lot of merit, and that he has a lot of credibility in mining circles, even if it might be several years from being deployed. For the May issue, I plan to look at some unusual types of sustainable investments and/or investments that don’t appear at first glance to be plays on sustainability.

Please forward this to friends who might be interested!

About

The Climate Change Investor is published by Marc Johnson, an investor with over 25 years of experience investing in public and private markets. An avid consumer of financial research and new technologies, he believes that remediating climate change is both a moral imperative and an incredible business opportunity.

Disclaimer

Marc Johnson and the Climate Change Investor Newsletter are not registered investment, legal, or tax advisors, nor are they broker/dealers. No content contained herein should be considered financial advice. All opinions are based on research by the publisher of the newsletter and are intended as educational and entertainment material only. Although best efforts are made to ensure the information is accurate and current, occasional unintended errors and misprints may occur. Conflicts may be hidden or obscured. Do your own research. Consult a financial professional on all investment decisions. © 2021 Marc Johnson