Mining the Final Frontier

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Last month Congress passed the U.S. Commercial Space Launch Competitiveness Act, a bill that allows private citizens to own resources in outer space.  The headlines and quotes from different private sector space ventures hailed this as a major breakthrough, a chance for companies to travel to distant asteroids and bring back precious metals for sale on the world’s commodities markets.  You may have read that this landmark legislation has instantly created a multi-trillion dollar market.

There is no doubt that investing in space is sexy, and there seems to be no shortage of investors in Silicon Valley startups whose business plans are tapping into the final frontier.  Research firm CB Insights reports that investors have invested $1.17 billion in a total of 21 space startups.  However, many of them are in the the already-proven earth imaging industry, launching satellites to take pictures of earth.  The would-be miners include Moon Express, which plans to send landers to the Moon by 2016 or 2017 to mine the satellite’s surface for rare and precious earth metals.  A rival company called Deep Space industries has plans to mine asteroids for rare and precious metals.  SpaceX plans to supplement its tourism business with mining activities.

Before you invest, however, it might help to look at the economics of mining the Moon or the Asteroid belt.  According to another would-be player in the space race, Planetary Resources, the types of ores that can be found in asteroids include iron, nickel, cobalt and platinum.  Of these, iron ore sells for less than a penny per ounce, while you can buy an ounce of nickel on the open market for 24 cents.  Cobalt costs 67 cents per ounce, while platinum is currently selling for $850 an ounce.

Despite its high cost, platinum is widely used in the economy—by one estimate, it is used to manufacture one out of every four goods consumers use every day—including catalytic converters, electronics, jewelry, glass and turbine blades.  The high cost is due to scarcity; in all of human history, people have managed to mine just 16 tons of the stuff—enough to form a single cube 25 feet in each side.  Yet reports say that platinum is relatively plentiful in certain neighborhoods in space.  A single 500-meter platinum-rich asteroid can contain more platinum group metals than have ever been mined in human history—worth an estimated $435 million on the open market.

So should you reach for your checkbook?  Not yet—for two reasons.  First, because we need to consider the potential cost of mining the precious metal and bringing it back to Earth-bound markets.  Currently, the best feasibility studies on space mining suggests that the total cost involved in getting an asteroid-mining venture off the ground would be $120 billion—meaning that mining the platinum-rich asteroid would result in a loss of $119.5 billion.  Perhaps the recent legislation was designed to help create impressive tax writeoffs.

The second problem?  Most of us are precluded from sinking money into space ventures.  Space X, perhaps the most promising of the space-related firms, is a private company that recently obtained $1 billion worth of funding from Google.  Other Silicon Valley startups are quite far from their initial public offering.  If you’re hoping to lose nearly 100% of your money in the riskiest possible investment venture on or off the planet, you’re going to have to wait a few years.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Sources:

The Economics of Mining in Space

Last month Congress passed the U.S. Commercial Space Launch Competitiveness Act, a bill that grants U.S. citizens the legal rights to own resources in outer space. According to asteroid mining company Planetary Resources, mining in space can potentially open up a trillion dollar market as it is the last remaining so-called “elephant field of unexplored, highly valuable natural resources.”

Silicon Valley Startups Fly into Space (DGI)

Until recently, space exploration has been an expensive adventure restricted to government agencies with massive budgets. It was difficult for private players and startups to enter the business because of the costs and regulations associated with the space industry. Now, a group of Silicon Valley startups have change the business dynamics of this industry.

2 Stocks to Bet on the Future of Space Exploration (BA,LMT)

Space as the final frontier continues to grip the imaginations and minds of many, including investors seeking profitable opportunities. One of the most exciting companies in the space sector is Space X founded by noted entrepreneur Elon Musk. Space X is a commercial space exploration company.

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