There are lots of reasons why a small company share can go up in price quickly. Usually it’s an innovative new product, a new market, or, in some cases, a sudden change in the market value of a good, product, or service.

Take bananas a few years ago. One day you could walk into a store and buy them cheap. A few cyclones in Queensland later, and banana prices were through the roof. For most share investors, this wasn’t an opportunity. It just made bananas and banana bread more expensive.

But in other markets - especially resource and energy markets - a sudden change in the availability of basic resources can change everything. A commodity can go from abundant to scarce relatively quickly. Its price can go from cheap to expensive quickly as well. Naturally, the share prices of companies that produce volatile commodities can change quickly too. We’re counting on that this month.

The Leading Edge of the Energy Storm

The high cost of energy - especially coal and oil - is directly impacting resource production in two countries: South Africa and China. As energy prices grind higher - or even hold where they are - this will force the production of certain base metals to lower-cost countries. It will also change the supply-demand dynamic for these base metals, creating new investment opportunities in the process. A good example is South Africa.

You have no doubt read about the power crisis in South Africa. South Africa has a booming resource economy like Australia’s. It’s driven by gold, palladium, platinum, coal, diamonds and other resources.

The trouble is, South Africa’s economy is growing faster than its electrical industry. Contrary to all the gloomy reports, we found the place pretty positive when we visited in late February (mostly Johannesburg). Like any fast growing country starting from widespread poverty, you’re going to have a lot of chaos, crime and uncertainty.

But one of the few things you want to be able to count on is the power. You flick a light switch, the lights go on. That’s so basic that you and I take it for granted. Not so in South Africa. The folks who run South Africa’s only large power company told the government years ago that it would have to invest more in power to keep up with the economy’s growth. The government didn’t listen.

The result is what you have today: rolling blackouts and “load shedding” by the power provider. Demand for power has grown much faster than the available supply. This is not make-believe land. When demand exceeds supply something has to give, and in South Africa, that means power must be cut to someone.

Energy-Intensive Industrial Users on the Chopping Block

The government’s first response to the power crisis was to cut supply to the places that used the most of it, namely the suburban business parks where most of Johannesburg’s business community has relocated in the last yen years. That makes sense. You can only cut power to people who are using it. But cutting power during the middle of the business day unexpectedly is not exactly good for business, or for people’s state of mind.

The government decided to look at industrial users of power. And once it did that, it wasn’t going to be long before South Africa realised - like China is now realising - that there is one particular industrial process that uses much more energy than any other: aluminium.

You make aluminium in several steps. First, you have to refine bauxite ore into alumina. Then, you turn alumina into aluminium by adding generous amounts of electricity in an established process. I won’t go into the details. But the basic ingredients are what we want to focus on: bauxite and energy.

Bauxite is plentiful. You can find it all over the world. Australia happens to have plenty of the stuff. But it is not alone.

Australia is the Saudi Arabia of Bauxite

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