Making Money in Outer Space
Apr 30th 2012 10:20AM
Updated Apr 30th 2012 10:22AM
In the 1981 film Outland, Sean Connery stars as an old-school lawman who keeps order in a mining colony on one of Jupiter's moons, armed only with his wits and a trusty Browning 2000 shotgun. Outland is set in a future that has commercial space travel and off-planet mining, and the latter took a giant leap forward into reality last week when the private company Planetary Resources announced its plan to start mining asteroids in just more than 10 years' time.
While the space industry isn't easily accessible to private investors, its prospects mean that one day the sector will become the toast of the stock market. So it's something I keep an eye on, as I believe it will present some great opportunities in the future.
Money from satellites
A few public companies have major interests in space, and the one that immediately springs to mind is the satellite communications specialist Inmarsat. Britain's largest pay-television operator, British Sky Broadcasting (ISE: BSY.L) , is another company that relies heavily upon space; without its satellites, it would lose most of its business.
Many defense contractors, such as Boeing (NYS: BA) and Raytheon (NYS: RTN) , also have substantial satellite operations, though much of this business is military and therefore under pressure as national budgets are squeezed. Then there are the firms that provide commercial images from satellites, such as DigitalGlobe and RapidEye.
But so far the space industry is pretty much limited to satellites and getting them into orbit. I believe the real excitement will be found in the new industries that are starting to spring up -- in particular mining, space tourism, and zero-gravity manufacturing.
Back to the mining
Planetary Resources has a star-filled shareholders' register, which contains names like Larry Page and Eric Schmidt of Google (NAS: GOOG) and the film director James Cameron. While its asteroid-mining plan seems to be the stuff of science-fiction, and there are many technological obstacles to be overcome before it is practical, it makes good business sense, because those metals that are rare on Earth are generally much more plentiful in space.
While the vast majority of asteroids are to be found in the asteroid belt that lies between Mars and Jupiter, we know of at least 9,000 near-Earth asteroids that sometimes come close to our planet. These are Planetary Resources' main targets, and at the top of the list are those that were produced by collisions between "planetesimals" -- the bodies that combined to form planets in the early history of the solar system.
The reason for preferring these asteroids over the other main type of asteroid -- those formed from the accretion of small bits of material -- is that they contain vastly more metal. They also will not have undergone the same geological processes that occurred on Earth over billions of years, so their rare metals -- including gold, platinum and iridium -- will be more uniformly distributed.
In contrast, metals in the earth are disproportionately located within the mantle and core -- well below the crust where we mine -- because of the planetary formation process that stratified the earth into three distinct regions: core, mantle, and crust.
The economics of space mining
Planetary Resources plans to launch several space telescopes in 2014 that will search for suitable near-Earth asteroids. These may be mined where they are or hauled back to Earth or lunar orbit for later dissection, but in any case the mining will likely be done by robots.
Of course, this is very expensive, and the Keck Institute for Space Studies has estimated that it would cost around 1.6 billion pounds just to bring a single 500-tonne asteroid back to the moon for mining. That's before the cost of setting up the venture in the first place, which will probably run to more than 50 billion pounds.
Another problem is that rare metals go for high prices because they are, well, rare. So if these robot miners start to extract large quantities of them from asteroids, this would drive down their price.
Fly me to the moon
Commercial space travel is much closer than you may think. Leading the pack is Richard Branson's Virgin Galactic, which has already sold more than 500 tickets for rides in SpaceShipTwo, on course to make its first commercial suborbital flight next year. If you fancy a ride, a ticket will set you back a cool $200,000.
Branson doesn't have the field to himself, as there are several other companies also planning to take fee-paying passengers into space, such as Blue Origin (founded in 2000 by Jeff Bezos of Amazon.com (NAS: AMZN) fame), Space Adventures, and SpaceX.
The new manufacturing frontier
Outer space offers two environments that are not easy to create on Earth: low gravity and hard vacuum. This holds great promise for manufacturing special objects such as perfect spheres and certain types of alloy.
Another field that will benefit is medical research, because purer protein crystals can be grown in space, as the distorting effects of gravity will have been removed.
Numerous experiments have already been performed on the International Space Station and space shuttles, so we know that the technology works and is available. As with most things, it all boils down to cost.
Space to invest?
My gut feeling when looking at businesses that depend upon high technology is to steer well clear. That's because the technology industry is notorious for seeing a dominant market leader overtaken by a rival with a better product.
Remember when Friends Reunited and MySpace were the big social networks? Nowadays they're also-rans when compared to Facebook, which in turn has become yet another giant with the competition nipping at its heels.
That said, the space industry has tremendous barriers to entry. Launching stuff into space isn't cheap, and first-mover advantage will count for a lot in this sector. After all, if a company already has a multibillion-pound manufacturing facility in orbit, then this will put off some of the competition. Sooner or later, big money is going to be made in outer space. It just may take some time.
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