The use of AI to discover medicine appears to be paying off. MIT scientists have revealed that their AI discovered an antibiotic compound, halicin (named after 2001‘s HAL 9000), that can not only kill many forms of resistant bacteria but do so in a novel way. Where many antibiotics are slight spins on existing medicine, halicin wipes out bacteria by wrecking their ability to maintain the electrochemical gradient necessary to produce energy-storing molecules. That’s difficult for bacteria to withstand — E. coli didn’t develop any resistance in 30 days where it fought off the more conventional antibiotic cipofloxacin within three days.
The team succeeded by developing a system that can find molecular
structures with desired traits (say, killing bacteria) more effectively
than past systems. Unlike previous methods, the neural networks learn
representations of molecules automatically, mapping them into continuous
vectors that help predict their behavior. Once ready, the researchers
trained their AI on 2,500 molecules that included both 1,700 established
drugs and 800 natural products. When tasked with looking at a library
of 6,000 compounds, the AI found that halicin would be highly effective.
Don’t expect a prescription for halicin any time soon. MIT successfully used the medicine to eradicate A. baumanii (a common infection for US soldiers in Afghanistan and Iraq) in mice, but hasn’t used it in human trials. This could be just the start of a much larger trend, mind you. The scientists have already used their model to screen over 100 million molecules in another database, finding 23 candidates. They also hope to design antibiotics from scratch and modify existing drugs to increase their effectiveness or reduce their unintended side effects. This is far from guaranteed to finish off “superbugs.” If it takes out even some of them, though, it could save many lives.
As gold prices rise, miners have been
boosting shareholder payouts in the face of a decline in global output.
That’s worrying some investors concerned about the long-term growth
prospects of an industry built on a depleting resource.
The value of gold, a haven commodity, is driven more by global economics than supply and demand. Any unexpected event — from a surprising cure for coronavirus to a positive trade deal — could drop the value significantly. High prices put more gold scrap on the market, low ones increase hoarding and, if miners’ output remains static, so should profits.
Increasingly, investors are split between their wish for higher
dividends in the short run and the need to assure company stability over
the long term. Finding the “best of both worlds” in allocating the
rising cash pile is key for the future of the industry, according to Josh Wolfson, an analyst at RBC Capital Markets.
“Miners in general are exposed to significant external factors that are out of their control,” said Simon Jaeger, a portfolio manager at Flossbach von Storch, a top-10 investor in both Newmont Corp and Barrick Gold Corp. “It’s certainly a reason for not paying too much in dividends,” he said. “You want to have the cash buffer on your balance sheet in order to be financially flexible when prices get worse.”
Gold prices are currently at a seven-year high as concerns mount that
the coronavirus outbreak in Asia will derail global growth. In a sign
that the virus is already starting to dent the world’s largest economy,
business activity in the US shrank in February for the first time since
2013. The metal jumped as much as 2% on Friday as the S&P 500 Index
was posting its first weekly loss since January.
Gold producers are “gushing cash,” said John Hathaway,
senior portfolio manager at Sprott Asset Management, in support of the
higher dividends. “They are in a position to raise their dividend,” he
said. “And there will be boardroom pressure and shareholder pressure to
The industry has been blasted in the past for underspending on
production, overspending on acquisitions and piling up debt. Now,
though, after years of fat-trimming, miners and their investors are
well-positioned to gain from the higher prices. That’s allowed companies
including Barrick and Newmont to boost free-cash flow and, to varying
degrees, reward shareholders.
Earlier this month, though, Mark Bristow, Barrick’s
chief executive officer, sent a warning shot across the bow of the
industry. Even if all current projects work out, he said, gold supply
will still fall 30% by 2029. While sinking supply would be bullish for
bullion prices, margins and revenues could be hit if companies are
forced to mine lower-grade or hard-to-access deposits.
The divide between whether to push profits or new production has become more focused this year.
Agnico Eagle Mines Ltd. offers a case in point of how closely
investors are watching the issue. Despite boosting its dividend 14% and
forecasting rising production through 2022, Agnico’s shares were
punished after it cut its 2020 output guidance earlier this month. In an
interview after the results, CEO Sean Boyd argued that dividend
increases are important not just as a way of sharing the benefits of
higher gold prices, but also because it demonstrates a company’s ability
to maintain capital discipline.
Success in the changing shareholder landscape is “going to be from
the better gold-mining businesses being able to attract new generalist
money,” Boyd said by telephone.
Steve Land, portfolio manager for the Franklin Gold and Precious Metals
Fund, believes the next step for miners is to show the sector is “not
just this endless pit of having to pour more and more money in all the
time.” The trend toward higher dividends is a way of rebuilding trust
and confidence, according to Land. These companies can also take the
time to assess future projects, he said, but should be “in no rush to
push things forward.”
Newmont, meanwhile, seems to be seeking to meet a “best of both worlds” scenario.
In January, Newmont said it planned to hike its dividend by 79% to $1
per share annually, effective in April, while maintaining production
for the next five years. On Thursday, CFO Nancy Buese said the US-based miner was considering “other shareholder friendly actions” it might take.
One key consideration “will be to determine our appropriate level of dividend on a go-forward and sustainable basis,” she said.
Barrick, meanwhile, announced a 40% dividend hike to 7 cents a share
earlier this month. As it sells assets and tackles its debt, the
Canada-based miner is hoping to attract generalist investors to its
stock. But it also lowered its five-year production guidance and is
reevaluating its portfolio mix.
Generally, it appears the high-dividend strategy is helping lift gold
equities. A Bloomberg Intelligence index of senior gold producers
lagged the performance of gold futures for most of the past decade. But
in the past 12 months, the gold group is killing it, rising 57% compared
with 24% for gold.
“If a company has genuine productive opportunities to invest capital in their business at high return, that is always going to be preferable versus paying a dividend,” said RBC’s Wolfson by phone. “But companies which can demonstrate overall discipline by allocating capital effectively — plus paying out cash flow to shareholders — I think will ultimately accomplish the best of both worlds.”
Allianz chief economic advisor Mohamed El-Erian recently spoke with Bloomberg Markets about the increasingly worrying economic impacts of the Coronavirus outbreak. Mr. El-Erian notes that the outbreak is causing companies to reconsider the prudence of highly streamlined single-source supply chains centered in China, exacerbating a de-globalization trend that has already been gaining momentum for a raft of reasons. He also predicts that a “massive” coordinated wave of fiscal and monetary stimulus is coming in Asia and perhaps the entire world as the longer term supply and demand disruptions of Coronavirus come into focus.
Some excerpts from Mohamed El-Erian:
“The market has treated this as a containable, temporary, and recoverable shock, just like the US attack on an Iranian general, just like the attack on Saudi oil production. That’s how the market sees it and it’s supported in that view by nice comments about fiscal and monetary expansion. However, when you look at it on the ground…, it’s completely different. You are getting sudden stops to various parts of the economy… I worry that the economic effects are not going to be a ‘V.’ The hope is that they’re a ‘U,’ but it’s possible it worse than that… The (Chinese) government is going to have to step in and save some of the more highly indebted companies… It’s not as if… the global economy was in a great place to begin with… For the economy it has been a bigger deal than it has been for markets…”
“If you are a company, you’ve realized what most of us know: you’re strength can become your weakness. Global supply chains are wonderful. Just-in-time, cheapest production, etc…, but when they get disrupted, they are really really problematic. I think increasingly companies are going to realize that efficiency versus predictability and that trade off, in the past, has gone way to far in terms of efficiency. So, I think you are going to see a revisiting of this whole globalization narrative…”
“…I have no doubt that we are going to see one of the biggest correlated… fiscal expansion in Asia that we have ever seen. Put on top of that monetary stimulus. So, we are going to have massive fiscal and monetary stimulus. But if you and I don’t want to be in the same room together; if I can’t source my products from you, it’s not clear whether that’s going to help…”
Indeed, the question of whether the Coronavirus will remain an enduring public health issue seems obvious: it will be. Yet despite the public health implications of nearly 80,000 confirmed cases over the past two months, US markets were pushing to new all-time highs until just a few days ago. Presumably, they were seeing through the ‘temporary’ economic impacts of the outbreak and anticipating the massive monetary and fiscal stimulus that Mr. El-Erian is mentioning. In other words, yet again, bad news is good news for risk assets.
While confidence in that cynical calculation is apparently wavering and market are now tumbling more meaningfully (as they should have been the whole time), don’t forget: this expansion has seen virtually no statistical correlation between economic growth and equity market valuations. Markets are more likely concerned that the pace of monetary and fiscal response will be inadequate than they are concerned about the actual economic fallout.
Electric vehicle sales are soaring, with factories working full-pelt to churn out as many batteries as possible. And that’s creating some bottlenecks.
Global production of electric vehicles is predicted to top four million cars globally this year, rising to 12 million in 2025. In Europe alone, 540,000 electric cars will be sold this year, an increase from 319,000 last year. For that to happen, we don’t just need gigafactories to build the batteries but also need to get hold of the key materials, notably lithium and cobalt — and the gold rush on both has already begun.
Last week, The Times reported that Jaguar Land Rover would pause production on the I-Pace, pinning the blame on shortages at battery maker LG Chem. “Currently EV uptake is arguably being constrained more by lack of manufacturing capacity than anything else,” says Paul Anderson, co-director of the Birmingham Centre for Strategic Elements and Critical Materials. “Lack of battery manufacturing capacity is a key part of this, which is why there is the rush to build gigafactories.”
A lack of gigantic factories is a problem that can be relatively easily solved. “In June 2019, there were 91 factories in the pipeline for producing lithium ion cells around the world, of which around half were already in production the previous year,” says Gavin Harper, research fellow at the Faraday Institution, a battery research group.
What isn’t so easily solved is the issue of getting enough raw materials out of the ground. “It’s been predicted that as demand for electric vehicles surges, there could be constraints around the key strategic elements and critical materials needed for EV battery manufacture in the future,” says Harper.
Aside from the usual hurdles of sourcing and extracting deposits and processing material for use, the key ingredients for EV batteries face geopolitical upheaval including trade wars, local protests, and raise human rights and environmental concerns. That will cause “structural undersupply,” says Andrew Leyland, head of strategic advisory at Benchmark Mineral Intelligence, and could wreak havoc on EV supply chains just as the industry is hoping to go mainstream.
Look at lithium. At the moment, we have enough – too much, in fact. While soaring prices of the core material in lithium-ion batteries sparked a mining rush in Australia, Argentina and Chile and – which between them provided 91 per cent of supply in 2017, says Harper – a slump in demand caused by a weak automotive market and a reduction in grants for buying such cars in China has slowed the pace of mining and processing plant construction.
Leyland says back in 2015, there were maybe 15 such lithium mines. “Now you’re closer to 30, 35,” he says. Most of those are in Australia, which is now the world’s biggest producer of lithium with China its biggest customer; back in the 1990s, the US was the main lithium supplier to the world, but now it has just one major producer. But just because the lithium isn’t on your land doesn’t mean you can’t get at it. The US does still have small lithium deposits – in particular, around the Salton Sea in California – but deposits in Australia and South America are vast by comparison. But America, Leyland points out, owns two of the largest chemical companies.
China is globally the biggest player in lithium, no surprise as it’s also making and buying the most EVs. “This is starting to worry a lot of OEMs,” says Leyland, pointing to the trade war spurred on by a tweet from US President Donald Trump. “People don’t want a single point of failure in their supply chain – you can’t really invest billions of dollars and then overnight, one tweet means an export tariff makes your business unsustainable.”
Asian and European stock markets tumbled sharply on Monday after the number of confirmed coronavirus cases beyond China, including in South Korea and Italy, jumped over the weekend.
South Korea’s benchmark Kospi fell almost 3.9 percent and hit the lowest point since early December, closing at 2,079.04 points, while the Kosdaq index, which mainly includes small-cap technology stocks, ended the first trading day of the week down 4.3 percent.
Other Asian key indices such as Hong Kong’s Hang Seng and China’s Shanghai Composite also were down on Monday, losing 1.75 percent and 0.28 percent respectively.
European markets were also down at the start of the trading week, with both Germany’s DAX and France’s CAC 40 dropping more than 3.5 percent. Stocks listed on the London Stock Exchange were down three percent. The FTSE 100 Index reached a two-month low, driven by losses among oil and mining companies.
The Korean won hit the lowest point since August after sliding more than one percent against the US currency. The Bank of Korea (BOK) is now expected to take measures to stimulate the economy and could announce some steps after an emergency meeting later in the day.
The government is also closely watching the situation in the market and bracing to boost support for the economy. On Monday, Vice Finance Minister Kim Yong-beom pledged to take the “necessary steps” in case the won becomes extremely volatile due to the coronavirus outbreak.
“The government will do its utmost to minimize the fallout on our economy and maintain the momentum for its recovery by preparing for the worst possible scenario,” he said as cited by Yonhap News Agency.
Worries that the further spread of the deadly virus may result in a pandemic and take a toll on global economic growth could lead to a selloff on US markets when they open later on Monday. Dow Jones Industrial Average futures fell more than 1.8 percent to 28,450, while S&P 500 futures were down nearly 1.9 percent.
On Sunday, South Korea raised its virus alert to the highest level for the first time since 2009 as part of a government effort to contain the outbreak. The country reported seven deaths of the new pneumonia-like virus and a total of 763 people were infected as of Monday. Meanwhile, the death toll from the novel coronavirus has surged past 2,600 worldwide, including 27 deaths outside mainland China, and the number of confirmed cases is nearing 80,000.