An Open Letter to Tim Cook - Solar and Silver

January 24, 2018

Tim Cook, CEO Apple Inc.
1 Infinite Loop
Cupertino, CA 95014

Hello Tim,

Please excuse the informal nature of this letter.  As you know, I am a stranger to you and we have never spoken before.  Despite the fact that we are not acquainted, I feel compelled to reach out and discuss something that I believe will be of great importance to you and your company. What I have to tell you is something that even your most trusted advisors have probably not brought to your attention. It's a little out of left field so they would have no reason to bring this up.  Your company, Apple, Inc., has reached a level of importance and influence that few organizations have achieved in the history of this planet.  I am writing this letter to give you one idea that you can use to take advantage of your current position and change the world, all the while maximizing the profit of your company and cornering the market on the most valuable natural resource on Earth.  If you listen to my advice, in 10 years your company will not only be the largest company in the world, but it will be responsible for solving many of the greatest problems that face our civilization.

I know what you are thinking.  This guy is crazy. I would be shocked if you are still reading.  If you are, please extend my gratitude to whoever told you this is worth your time. Give them a raise. They have already earned it.  

Tim, what do you think when I mention the words, "Hunt Brothers." The first thing I think of when I hear those two words is "greedy."  Followed quickly by "failure."  The Hunt brothers; Bunker, William, and Lamar, tried and failed to corner the silver market in 1979-80.  I'll leave it to Wikipedia to provide the basic outline of what happened, but the idea I'm about to give you is a way to achieve what the brothers failed to accomplish.  Where their greed blinded them and left them exposed to regulators and public backlash that eventually thwarted their plan, I will give you a roadmap to pull off the corner they tried.  You can do this in a way that also provides a monumental public good.  Now is a good time to mention that this move could also prove to be the single greatest financial windfall in the history of Apple, Inc.

I think it is important to start with this question; How do you corner a commodity? Many people will tell you that it is impossible to pull off a corner on any publicly traded commodity.  Gather a few of these people close around you and let them read this letter as we go along.  For the most part, these folks are correct.  Pulling off a corner, like the one the Hunt's tried, is impossible.  Without going into too much detail on the regulation of commodity and futures exchanges I can tell you, with confidence, that no speculator or group of speculators could pull off a true corner of the market.  They could get paper rich, like the Hunt's, for a few weeks or months, but the regulators and the commodity trading platforms can change the rules on you midway through the game and crush any chance you had at controlling price.  All you would end up doing is overextending yourself and going deeper into a hole chasing that last loose end to close up.  This is what happened to the Hunts.  It was speculators playing the system in an arrogant way to try to maximize profit for themselves.  That is a hopeless game and it is not what I am recommending.

What I am recommending, is to take control of a commodity that in the coming decades will be the most important commodity to the energy and technological infrastructure of the world.  In 10 years, this resource will be more important than oil is today.  This resource, you may be surprised to hear, is the same resource the Hunts tried to control. Silver.

At this point you may be thinking, silver?  Who cares about silver?  That kind of statement is at the very heart of why I think this is a conversation we need to have.  The total value of all silver mined is about  $18 billion per year.  Ask anyone in the world who knows anything about this precious metal if it is over or under valued.  Starbucks has annual sales of over $20 billion.  So technically, Starbucks coffee is a more valuable commodity than silver at its current valuation.  It only takes roughly 4 days for the economies of the world to consume $18 billion worth of oil.  Apple will net approximately $55 billion in profit in 2018.  Before I take the naive and obvious misstep of saying you could buy all silver mined in a calendar year using only 25% of your corporate profits, let's take a step back.

What/Who needs silver? How does that $18 billion/year commodity really break out into our world? Over 50% of silver consumption per annum is used in industrial applications; electronics, medicine, water purification, chemical catalysts, solar cells, and many others.  The rest of the silver is used in jewelry, silverware, and investment products (bars and coins.)
The fastest growing demand driver of silver is solar cells.  In 2016, solar cell demand for silver increased almost 40%.  This is, by far, the fastest growing industrial use for silver.  About 10% of all silver currently mined is going directly into silver paste used in photovoltaic solar cells.  This is where I see this all coming together for you and Apple.

Silver is already a very important resource for you and every other electronics manufacturer.  The conductivity and durability of silver are irreplaceable attributes at the price of this commodity.  Only gold offers a significant improvement in these areas, but at a price over 75x higher than silver. Roughly 25% of all silver mined goes into electronic devices.
All Apple needs to do is establish itself as a player in the solar energy market, and you will have the demand needs possible to pull off a corner of the commodity.  This demand/need portion of the equation is at the heart of the failure of the Hunts.  They were trying to pull a corner on spec.  I want you to pull one on demand.  To do this, we have to go into solar.  I mean, all in.

Now it's time to bring up the war chest.  To pull this off we are going to need a lot of money.  We are going to need that money to be spread around the world and we are going to need it to be liquid.  To do this safely and effectively, we will need to do this with cash, no debt.  Luckily, Apple has exactly that, cash spread all over the world.

Silver is mined in two major categories; primary and secondary production. Primary silver mining production comes from mines that are made primarily for silver production. Shocking, right?  Secondary mining comes from the mining of other metals where silver also is a part of the ore being mined. Primary mining accounts for only about 30% of the worlds silver supply.  The rest comes from secondary mining from copper, zinc, lead, and gold miners.  Silver recycling also accounts for another 10-15% of annual consumption on top of the mining supply.

The strategy to pull off this corner, and the revolution in the solar energy industry that will follow, will need to take place in three prongs of attack that unfold congruently:

    1. Solar company acquisitions
    2. Silver streaming domination
    3. Primary silver mining company acquisitions

Within the solar company acquisition prong we will need to acquire domestic vertically integrated providers, international module and poly manufacturers, and inverter builders.  With a target acquisition budget in this prong of $30-50billion, we could capture 25-60% of current global solar production depending on which measurements you employ.  That is a wide range, but regardless of which metric you use, Apple would be the number one solar company in the world following these acquisitions.

Silver streaming is the process of locking up long term purchase agreements from mining companies at advantageous prices.  Streaming companies are not miners.  They help fund mining companies by guaranteeing to buy their final product at prearranged prices for a certain amount of time.  These agreements may last a few years, or they may extend up to the complete life of the mine. 

There is one dominant player in this market and I believe they would be a mandatory piece in this acquisition puzzle. The company controls contracts on roughly 4% of annual global silver mining production and optionality on another 2%.  This single purchase would likely need to be in the $12billion range depending on the premium required to execute the takeover.  The current market cap of the company is roughly $9billion.  Insider and float data available show very little defensive control could be executed by current management to prevent a takeover.  We will be able to use the company to increase our control over global supply. Specifically, we will target secondary silver production from miners who do not mine silver as a core business.  Remember this is roughly 70% of all silver mined each year.

The final prong will be the acquisition of primary silver miners.  This is the most direct route to control of the commodity.  A group of ten miners I have selected for acquisition account for over 25% of total global mining output. The current market cap of these ten combined companies is roughly $30billion.  Assuming a very rich takeover premium, the acquisition of these companies would require less than $50billion in capital.  These companies do not just mine silver.  Divestiture of non silver assets post acquisition, may very well cover any premium required to purchase the companies.  We could also use our newfound expertise in the streaming business to reverse stream all non-silver commodities produced in our portfolio back into the market.  A net out of pocket cost of less than $30billion is realistic after divestitures and reverse streaming.  This is less than 10% of the market cap of the largest energy commodity company today, Exxon Mobil.

Through this three prong acquisition strategy we will be a dominant player in silver and in solar.  The total capital required to achieve this domination is $70-100billion.  While this may seem like a large amount of capital to commit to this move, just compare it to the recent AB/InBev acquisition of SABMiller. A beer company bought a beer company for $100billion.  The world didn't become a better place.  The anti-trust regulators didn't go crazy.  The hop farmers didn't cry foul.  The craft beer industry didn't die.  In fact, the opposite of all those things happened.  If ABInBev can pull off that deal, we can pull off this corner.  This would be a huge amount of cash for any other company, but would only represent 25-40% of Apple's current cash hoard.

If we are successful, we will own 20-25% of the global annual silver mining output.  We will own the premier streaming company that currently controls another 6% of production and could easily capture another 5-10% of annual production from secondary miners in the first 2  years after acquisition.  At that point, about 40% of the supply is ours.  With a capital infusion from Apple, and a liberal pricing allowance at reduced margins for future streams, we could acquire another 20-40% of silver output from secondary miners.  At that point, we have the corner.  We just have a little work in the derivatives market to lock it in. 

The streaming deals will be a crucial piece of the long term success of this strategy.  As silver's spot price inevitably begins to move up as news of our intentions spread, the streaming contracts will secure below market silver price purchases well into the future.  We will have to enter into higher priced contracts going forward, but we will be able to stay ahead of the increasing costs of silver through these agreements.  Our competitors in solar and electronics manufacturing will be faced with margin compression from these increasing prices, while we enjoy price inflation in our mining and streaming assets.

It is hard to estimate the true value of this leverage.  It is easy to see that it will be a net positive for us in our traditional business lines.  On top of that, the use of silver in industrial manufacturing will only increase in the coming decades.  Some of the most exciting electronics innovations that are currently in their infancy require silver.  These include; OLED displays, wearable tech, smart clothing, IOT devices, circuit polymers with silver nanowires one micrometer thick, advanced water purification methods, several world changing medical innovations, etc.  Silver already has the second most industrial uses behind only petroleum, the granddaddy of all commodities.  It's just a matter of time until silver takes over the number one spot.

I know what you are thinking.  The devil's advocate needs his chance to speak. I now yield the floor.  He will undoubtedly bring up anti-trust issues, solar industry cost breakdowns, ever increasing acquisition premiums, alternative renewable energy sources, silver substitutes in solar, thin film vs thick film preferences going forward, silver loading declines/cell... Before we dive into each of those rabbit holes, let me say this, I don't have every answer.  There are many very important counterpoints to address in order to maximize the upside and limit the downside of this whole idea.  I am nowhere near arrogant enough to assume that I have all the answers.  I haven't even considered all of the questions.  No company would ever expect that I could solve all these problems on my own.  I feel at this point, I've taken this idea about as far as I can without help.

So that's what has brought us to this point.  An open published letter from a stranger to the most important CEO on the planet (IMHO of course).  I can't expect you to fully understand why I wrote this letter, but I thank you for taking the time to read it. I don't know how best to wrap this up. I feel like it's important to end strong, so here goes...

Imagine owning 50% of global oil production for the past 100 years.  What would that have been worth?  That's what I am proposing for you.  The same financial opportunity.  The biggest difference is that you will not only have that financial upside, but you will have the power to accelerate the global installation of solar energy production at a much faster rate than would happen under the current trajectory.  That will change our world.  For the better obviously.

Energy has and always will be the greatest limiting factor on our species. Energy places an upper bound on our productivity and success. If we could make energy abundant, we could drive down the cost of everything else.  Food becomes more abundant. Water can be purified and desalinized. Housing can be created and temperature controlled at unbelievably low cost. Abundant energy is the key.  Affordable abundant energy is the dream. Global control over affordable abundant energy is an awesome responsibility.  Spend $100billion the right way, my way, and that responsibility will fall to you.  I just hope I can help you.

Sincerely,

Aaron Julian

totheboss.com