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Wednesday
Apr082009

Uranium-Stocks Tops 5000 Subscribers

uranium symbol
A huge thank you from all the team here to the 5000 subscribers who have now enrolled for our free newsletter. This newsletter is now being read in all corners of the globe from Coolangatta to Rio Verde and from Mumbai to Oakland. We are flattered not only by the volume of retail investors but also by the number of stock brokers, fund managers, financial institutions, mining companies, CEOs, VPs, financial letter writers and bankers who are also recipients.

You may have noticed the counter on the home page which says 5003 readers by Feedburner, which is slightly misleading as it refers to subscribers. The number of casual visitors to the site is around 20,000 per day on average.

The thing that pleases us most though is the quality of the comments that we received on the site via our comments section under each article. These comments help to police us and add a semblance of balance and normality to what is a small market sector which is unfashionable at the moment but we believe has a lot further to go!

Please feel free to join in if you have not already done so, we want to hear your voice whether you agree with us or not, your comments are really appreciated by the team here.

It is also encouraging to see that when we search msn for uranium stocks we come up top of the first page, again this is all due to our readership so once again many thanks indeed for your co-operation, patience and support.

Have a sparkling day.

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Many thanks for your patience in this matter.







Tuesday
Apr072009

Pennant on Uranium Participation (U.TO)

Uranium Participation, U.TO, appears to be forming a pennant therefore a breakout is due soon.

Pennant on Uranium Participation (U.TO)

However there is a fair amount of bearish technical pressure on U, making a upwards breakout unlikely.

Most notably the moving averages for U.TO are heading south, and the stock is still in a downtrend. This makes it difficult for the stock to mount any sizable rally, even if it did spike up out of the pennant formation, since the 200dma and (to a lesser extent) the 50dma are acting as resistance lines.

Also the MACD, RSI and STO are pretty much neutral in the middle of their ranges. If we were seeing oversold technical indicators, or a few bullish crossovers, then perhaps we could make an argument for the break up and out, but this is not the case. Therefore it is likely that U.TO will break down through the pennant and fall to $5.50.

It was also disappointing to see that U.TO only managed a feeble, short lived rally whilst the mainstream markets have been soaring this last month, again adding weight to the bearish argument in the short term.

The silver lining in this is that if you wanted to add to your position in this uranium stock then it might be at a discount in a few weeks.

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Monday
Apr062009

Uranium Stocks A Dead Cat Bounce?

Uranium Chart u3o8 07 apr 09
Chart courtesy of u308.biz.

When we scan the horizon in this tiny sector we can see that a number of uranium stocks have improved dramatically since their low point at the close of 2008 in what could be a dead cat bounce. Is this the beginning of a recovery, well we certainly hope so, however, we must keep these recent improvements in context. The fact of the matter is that they have been decimated with some stocks down as much 97% so an improvement since Christmas of two to three hundred percent is nothing to celebrate but it is step in the right direction. If you are a new comer to this market sector then these gains are the stuff of your wildest dreams however if you have been involved for sometime the road to recovery is a long one.

Apart from one or two mentions this sector is attracting very little in terms of air play as the mainstream continues to wrestle with the results and ramifications of G20, IMF gold sales, bailouts for the banks and just where can we hide those toxic non-performing assets? In the meantime the spot price for uranium drifts in a southerly direction and is currently trading at $42/lb as depicted by the above chart according to both TradeTech and UxC.

The longer term uranium price remains steady at $70/lb which is depicted by the chart below kindly provided by TradeTech

TradeTech chart long term uranium price 07 apr 09

Over at NYMEX the futures prices for uranium range from $42/lb for June 2009 to $52/lb for December 2009 delivery.

Apart from the occasional pop northwards by a stock, such as Denison putting on a 26.29% gain yesterday, the order of the day appears to be a fairly static one. The broader markets have put in a terrific spurt over last four weeks and may now take a breather, if they do sell off we suspect that it will put a damper on this sectors progress as the financial turmoil tends to cloud the real issue of just where we are going to get the power from in the not too distant future.




Have a good one.

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Tuesday
Mar312009

Michael Hall: Natural Gas - A Victim of Its Own Success

In the mail bag this morning we have this article about Natural Gas sent to us by The Energy Report which we hope that you find both interesting and informative:

Where's the price of oil and gas going? The volatility in the today's market is unprecedented for commodities, which Michael Hall, lead publishing analyst at Stifel Nicolaus Research Team, believes will elicit a big spike in price. In this exclusive interview with the Energy Report, Michael sifts through theories and trends in the hyper-cyclical oil and gas business and discusses future implications of declining rig counts and what that means to domestic energy.

The Energy Report: What’s your view on the oil and gas price near term and intermediate term? Something that really got our attention recently was T. Boone Pickens saying that he thought we’d see $60 or $80 oil before we’d see $40 again. We were darn close to $40 at the time.

Michael Hall: Near term, it’s extremely hard to say whether we’ll see $75, which is what I think T. Boone threw out there, or $40 first. The volatility in the market today is unprecedented for a number of asset classes, and commodities are no exception. I think we’re setting up for a big spike, a big run up in price. I’m not sure it happens overnight, though.

Our view is to continue to try and stay somewhat cautious throughout 2009. On the supply side, U.S. producers are laying off rigs by the dozen every week. The supply side of things is going to fix itself. Unfortunately, I think we’re going to really have to wait to see a turnaround in demand until we see a good sustained snap back in price. Then the big question for us becomes when, obviously, and that’s a tough one. I don’t think it’s overnight.

TER: Michael, you say ‘the supply side is going to fix itself,’ which sounds to me like we currently have too much inventory. We’re shutting down rigs and production, and eventually we’re going to hit that crossover in demand. Do you have any projection on when that supply is going to finally meet demand?

MH: Yes. It’s a good question. I spend most of my time with the natural gas markets, and we’ve done a lot of work trying to assess when all these rig count reductions will make their way into the market. Some of the work we’ve done suggests that we’re probably already starting to see—though we don’t get real-time data—some production decline as a result of rigs being laid down.

To give you a little background info, the rig count, which is provided on a weekly basis by a firm called Baker Hughes Inc. (NYSE:BHI), peaked out in September 2008 with the gas rig count at 1,606 rigs. As of the end of last week, it had fallen 640 rigs, give or take, so you’ve seen a pretty massive decline, 40% decline, from the peak. We think that’s already starting to have an impact on supply.

As far as demand, I’ve got some indications on some leading indicators that it’s starting to at least slow the rate of decline, which is encouraging, but not quite a turnaround yet. When it all crosses is a really difficult thing to determine, but I certainly don’t think it’s this first half of '09. We tend to think maybe we’ll see the snap back in the fourth quarter of 2009 for the gas market, keeping in mind all summer, every summer, we’re always injecting gas into storage and all winter we’re always pulling gas out of storage. It’s really once we hit the winter this year, this next winter, I think that’s when you could a sustained rally.

TER: So it's hard to tell. If we have a big mild winter, then we could still be in an oversupply situation.

MH: Next year? Yes, it’s certainly possible. The way we see inventories shaking out by the end of the summer, call it November 2009, is right around 3.7 trillion cubic feet of gas in storage at that time, which would be well above five-year average and pushing up against full. (Full is thought to be around 4 trillion cubic feet of gas.) If we come into the winter with that sort of storage environment and it’s a warm winter, yes, you might not get the big run up. That said, our math suggests supply will be on a steep decline by that point, which could help to aggravate any weather impacts.

TER: But if we’re pretty much at almost full, to me it’s sort of like the water levels in California. You have to have a fair amount of consumption to get it down to what would be a point where the massive run up of natural gas would occur.

MH: Yes, agreed. I think what’s important to keep in mind, though, is if underlying that storage is a supply and demand environment where supply is shrinking rapidly, which is what we think could be happening by, call it November 2009—and by rapidly, I mean declining around 9% year on year, which is a pretty steep decline—and if, all of a sudden, your supply and demand balance is that far out of balance, even if it’s somewhat warm, you’re going to draw down from storage very quickly. It may not happen in November, in terms of the price run up, but I think it’s still probably likely at some point during winter of 2010, assuming demand is coming back, from a macro standpoint, by that point.

TER: How quickly can these rigs come back on line?

MH: That’s a good question and hard to assess precisely, but there are some issues in the system in terms of logistically getting rigs back up and running. So it’s not overnight. I tend to think you can probably drop rigs faster than you can bring them back on. So, historically, if you look at rig counts, they tend to fall off really hard when things get oversupplied, and then they take a lot longer to add back to the recount. So it’s more of a slow, gradual build up. The reason being you’ve got to go hire all the crews that were laid off; you’ve got to find the people; you’ve got to mobilize the rigs to where you want them.

Then what I think could be an issue this cycle is capital. All these companies have pretty much gone into hunker-down mode, where they’re spending within their cash flow and acting very conservatively, as they should be. But, if all of a sudden you get a snap back in price and let’s say they want to go spend 150% of cash flow to answer that snap back, we may be still in an environment where capital is still quite risk averse, and that could just be another kink in the system in terms of getting rigs back up and running quickly.

TER: What non-geopolitical situation could possibly cause oil to go up in price? Obviously, if we have a geopolitical situation, that could have a big impact on the price of oil.

MH: Two things really. It’s supply and demand, right? And on the supply side, it’s continued cuts from OPEC and/or greater adherence by OPEC to their existing cuts. There was a bit of a consensus in the market that we’d see more cuts out of OPEC in March. We were not convinced that that would happen, and indeed it didn’t. But if you see another cut out of OPEC this year, you could get a bit of a snap back or a rally. But the sustainability of that rally, I think, is underpinned by demand. Until we see an improved demand environment—and by that, just global GDP resuming its upward trend—until you get that, I really think it’s going to be pretty difficult to have a sustained increase in price. It needs to be both supply and demand.

TER: So then, you’re saying the recession needs to be resolved and bottomed, and then it will start to build.

MH: I believe so, yes. At the end of the day, I’ve always kind of thought that for crude markets, and really most commodity markets, marginal demand is what sets the price. As long as demand is falling, in theory, marginal demand is a lower price than the current price. Until we get the snap back in demand—and I don’t think it has to be dramatic to firm things or at least get things moving up on a sustainable basis—but until you get that return of demand, I think it’s going to be pretty tough to maintain an upward slope in crude prices.

I think we could still have a decline in demand worldwide in 2009; but by 2010, I think it’ll be back. Long term, I certainly see a very robust environment for crude demand growth.

A stat I like to throw out: if you look at the average consumption per capita in China and India and average those two countries, it currently runs around 8% of the average per-capita consumption in South Korea and Japan. If you increase that to just 30% of the South Korean and Japanese average by 2020, that increase alone from China and India is enough to provide 2% annual growth in global demand through 2020 in the crude markets, holding everyone else flat. There’s just an immense amount of potential in those markets. But if everyone else is failing from a GDP standpoint, I don’t think emerging markets have much hope. I think the myth of uncorrelated global growth was kind of busted in the last year—after we had busted it in the past—so we learned our lesson again. It’s there and the BRIC countries (Brazil, Russia, India, and China) are huge. They’re very important, but I don’t think they’re going to be able to do it if we’re still struggling in the U.S.

TER: When I think of low gasoline prices, that’s like a tax give-back to consumers, which they’re enjoying. How do you measure the offset of that to a higher oil price and how many benefits do you get for that vs. the lower one where individuals have a little more money to spend? Is there a correlation there?

MH: There has been work done on that. You can almost think of it as a stimulus package of its own into the economy. Some teams in our Research Department have done the math on that. It’s an extremely significant stimulus on the economy.

And there are actually signs that people are driving again. If you look at vehicle miles traveled in the U.S., they had been on decline starting last year on a year-on-year basis—the first decline we’d seen since I believe the ‘80s, but perhaps the early ‘90s. Those are starting to turn back over, and the trend is starting to look a little more friendly on that stat. So there’s evidence that people are taking note of cheap gasoline right now.

TER: Sure, especially those who do it for a living and do the cost comparison.

MH: That’s a good pitch for natural gas. High oil prices, assuming they come back, will result, I think, eventually in higher gasoline prices. But there’s a big call, a big lobby anyhow, trying to push for additional use of natural gas as a vehicle fuel. Long term, I think it’s an interesting market from a demand standpoint for natural gas. I don’t think it fixes or snaps anything in the near term, but it’s something to watch.

TER: What are some companies that you’re currently giving a buy rating to that would obviously benefit from that?

MH: Well, they’d all probably benefit ultimately. One that’s been active in pushing and lobbying for natural gas being used as a vehicle fuel—for domestic security and clean air reasons and just energy diversity—is Chesapeake Energy (NYSE:CHK). I’ve got a buy rating on that and that’s one that, like many in the oil and gas patch, has seen a dramatic decline from its highs of last summer. It’s currently trading just under $20 a share after peaking out over $60 a share last June-July timeframe.

They’ve got the largest inventory of leasehold in the country and I think provide more optionality to gas, probably, than any other stock out there—particularly on a large cap front. At this point, you’re getting a lot of that optionality for free. I think the market’s trying to test what you would call a ‘proved value,’ so just what their proved reserves are worth in the ground. And, you know, you could end up lingering here until we get that snap back in price. But if you can have any sort of long view, I think you have dramatic potential upside with Chesapeake shares at this point.

TER: What’s your price target?

MH: Our targets are based on a number of different price scenarios and just to give the base case of what we assume is $7 gas and $70 oil by 2012 and beyond. Between now and then, we start with $4.60 in 2009 and then ramp it up to $7.50. We also run a number of different cases. But our current target on it is $27, which provides meaningful upside and, like I said, is well below the 52-week high of well over $60.

TER: Can you give our readers some of the ideas and ways you think they can position themselves in your sector with stocks that you like?

MH: Sure. Chesapeake’s one I’ve always liked a lot. Unfortunately, I’ve ridden it all the way up and down, but I do see a lot of potential, particularly long-term, with Chesapeake. Another on the large-cap side is XTO Energy Inc. (NYSE:XTO). XTO is what we call the highest quality of all the large cap gas names that we look at. They’ve done a tremendous job of hedging over the last year. They ended up monetizing over $2 billion in hedge gains over the last couple of months, paying down debt, and fixing up a balance sheet that had some leveraging on it after roughly $11 billion in acquisitions during 2008. The push back is, let’s say, people say they bought at the top. My rebuttal and theirs would be, well, they hedged very well and they locked in their returns when they did those acquisitions. What it really did was just recharge the inventory position at the company. They think they have a good solid five-year inventory to continue growing the company at a peer-busting clip. I think probably over 15% a year in terms of production growth on their current inventory. So in theory you could have significant appreciated growth over the next five years. Our target on XTO is $39. Both of these companies are extremely well hedged looking out this year and next.

TER: What about a smaller cap company?

MH: One down the cap structure that I have been highlighting a lot is Petrohawk Energy Corp. (NYSE:HK). This is more of a mid-cap producer that’s had extreme volatility in last 12 months and the big reason being is that they, along with Chesapeake, really, helped expose what’s now thought of as one of the industry’s leading shale plays, which is the Haynesville Shale. The Haynesville Shale is in Northern Louisiana and East Texas, although the Northern Louisiana part is kind of leading the economics at this point. Petrohawk’s put up, frankly, the best wells, as their legacy acreage happened to be right smack in the heart of this Haynesville Shale in their Elm Grove field. So they’ve put up wells that have initial production rates in excess of 20 million cubic feet a day.

These wells come off hard, come off fast, 80% in the first year or more, so you’re setting up a steep treadmill as soon as you stop drilling because it’s going to be hard to get back on for all these companies, and for the industry as a whole, with all these shale plays. But I think Petrohawk, for a mid cap, has one of the brightest outlooks out there. They did just do a follow-on stock offering to help shore up the balance sheet for some acquisition opportunities they see in the core of the Haynesville Shale, and then they also did a significant amount of high yield back earlier this year in the January timeframe. So they’re well capitalized at this point and they’re actually still planning to grow their production 40% in 2009 despite the current environment. My most recent target is $25 per share.

The 52-week high on it is well over $40, so you’re well within that range and still have meaningful upside potential from here. Frankly, long term, and while I have no knowledge of any M&A activity, I believe it could be a take out. I think eventually it’ll get acquired just given the quality of the asset they have in the Haynesville. It’ll probably end up in the hands of a larger company with greater capitalization.

A small cap favorite I’ve been pushing is Bill Barrett Corp. (NYSE:BBG). Bill Barrett’s predecessor company, Barrett Resources, was the Rockies gas explorer that was sold to Williams several years ago and Bill Barrett Corp. is the follow-on company. Fred Barrett is the CEO, the son of Bill Barrett. Bill Barrett’s still on the board. The company remains an active explorer and developer in the Rockies region. Historically, the Rockies have kind of been thought of as a long supply/short demand environment, so you end up with export constraints and issues getting the gas to market. So, you’ve had big price discounts on Rockies gas for the last few years. You had a big pipeline come around in 2008, the Rockies Express pipeline, which opened up a lot of opportunities for Rockies producers. Again, in 2008, we’ve already almost filled it up. But here we are, as everyone is laying off rigs, the Rockies has laid off rigs at a faster clip.

There are indications that Rockies production as a whole, industry-wide, is actually starting to decline. I think that could help the pricing issue, particularly from a relative standpoint. The company currently trades at almost $24 a share. I’ve got a $36 target on it. It trades at significant discounts to everyone I cover. It’s at 2.9 times cash flow, 3.7 times EV/EBITDA. You’re paying just $1.48 for proved reserves in the ground. My peer averages on all those are 4.9 times cash flow, 6.1 times EV/EBITDA, and $2.14 for proved reserved.

It’s a small company; it’s somewhat under-loved, under-appreciated in my opinion. I think as prices eventually recover, the Rockies could well lead that recovery because of this additional capacity that was brought on line in 2008 that we’ll have to fill back up again. They’ve done a good job of delivering with the drill bit on the exploration front. In 2008, they discovered a play called the Gothic Shale. It’s in the Paradox Basin in Colorado and it’s a shale gas play like any of the others. It’s just in the Rockies and it looks like they’ve got a significant multi-year development project on their hands that they’ll be continuing to prove up in 2009.

TER: Are they going to need funding? How do they get their capital?

MH: They are currently drilling and spending within cash flow, which is the mantra of the industry at this point. Historically, they’ve been conservative with the balance sheet, and they tend to keep things that way. They’ve done a really good job of hedging as well, so they’ve locked in their significant cash flows for this year and next. I don’t show them in an immediate need of any funds. And, if things get back off to the races, then if they want to try to accelerate development in this Gothic Shale or some other play, it’s an option out there.

TER: What about in the limited partnerships?

MH: The one I would probably choose to highlight would be Atlas Energy Resources (NYSE:ATN). A big part of what they do is offer what are called ‘drilling program partnerships’ to the public. So you can be a general partner in their drilling program and they’ll flow through tax write offs, basically, so you can shelter a lot of income.

The new budget being proposed by the Obama administration is proposing a repeal of what are called ‘intangible drilling costs’ and the expensing of intangible drilling costs (IDCs). That could affect that part of their business. I don’t know if it would eliminate it. From my talks with the company and after thinking things through, I think there are some opportunities to restructure how the partnerships would be offered. There still would be some deductions it seems like from the IDC standpoint. It just wouldn’t be overnight; you wouldn’t get to expense it all up front. But, that said, even if that part of the business goes, there still is a stream of cash flow that would basically deplete over time like a well that is still flowing to Atlas. If I just take what I’d call a normalized cash flow assumption for 2009 and back off the part that’s at risk because of the proposals in the new budget, I still get a $2.68 per unit normalized cash flow. If I slap a five times multiple on that, which is a pretty normalized mid-cycle multiple for an E&P company, you still get about $13.40 per unit.

I’ve got a $34 target out there on the company. I think there’s a significant opportunity here, frankly. You’ve got around a 20% yield. But even taking the much more conservative approach as just a walk-through with that somewhat normalized cash flow, you still get over $13 per unit in potential here. I think it’s a very interesting entry point, as I think the market’s somewhat overreacted to some proposed legislation. There’s still headline risk out there, maybe you wait to see what actually ends up happening with the budget. But I believe for those that can take a bit of a longer view, it could be a big opportunity.

TER: You say if they lose this part of the business, they still have almost a royalty, in a sense, operation. What would be the value? Let’s say that business totally goes away, now we’re left with what we have. Is your $52 target still intact?

MH: That’s where the other interesting part of the story lies—they’re sitting on over 240,000 net acres in the heart of what’s called the Marcellus Shale. The Marcellus Shale is in Pennsylvania, all throughout, really, New York, West Virginia, thought to be potentially the largest gas find in the world at this point. They’ve got a big core position right in the heart of what’s going on in southwest Pennsylvania.

At this point, I don’t think you’re paying anything for that in the stock and that’s where the majority of what’s called the ‘upside’ in my target price comes from; over time, I think they’re going to prove this asset up. They’ve already drilled several wells, proven it up. They’re one of the leading producers out of the Marcellus Shale and they’re kicking off a horizontal drilling campaign in 2009 that’s going to, I think, prove this asset to be worth multiple billion dollars to unit holders. So it’s almost, I call it, a special situation because I think you probably end up having a restructuring of the company. It’s currently an LLC; they pay out a significant distribution, currently 61 cents a quarter. I see that distribution as safe so long as they continue to have the structure they're in. But, again, if you think about the asset they’re holding in the Marcellus, it’s basically a growth asset, or it should be; so I believe you ought to be plowing 100%-plus of the cash flow that that asset generates back into the asset to continue growing it.

If you’re paying out significant distributions, you can’t grow that asset as quickly as you should, in theory. So from my talks with them and from my own personal view, I think a restructuring of the company is possible and some sort of carve-out or another sale of the asset. It’ll be complicated if it happens, but I think ultimately a lot of value will be unlocked here and I think it’s an extremely compelling opportunity.

TER: Is this an industry wherein the price of gas falls victim to what the storage is at any given point? Now we’re taking rigs off, so the storage is eventually going to go down. Gas will go up; but once it goes up, you fill up the storage. So is it always this never-ending fluctuation?

MH: It’s a hyper-cyclical business and it’s extremely volatile. It’s very seasonal on top of very cyclical. Natural gas, stepping way back from a macro perspective, it’s really a heating fuel in the winter, and it’s a power-generating or cooling (air conditioning) fuel in the summer. You add not only cyclical pressures from industrial demand, but then also seasonality to it. Yes, it’s very, very volatile; it’s very, very seasonal and those who are faint of heart should be wary.

It’s a risky sector; it’s very, very volatile, but there’s more to it than just storage. There are some long-term secular themes that are important. The industry is kind of a victim of its own success. When storage runs out, it’ll do its best to fill it back up—but it kills its own cycle every time. That’s what’s happened over the last five to seven years. The industry had been thought of by consumer, and maybe by regulatory, groups as an industry that couldn’t grow. What’s really been proven over the last few years is that it can grow if it gets the right pricing to do it. The resource is out there.

From a long-term perspective, from a consumer standpoint, you don’t want to rely on an industry that can’t grow, right? But if it can grow, then it’s a much more viable fuel for power generation, and possibly transportation, and it becomes that much more interesting from a regulatory, as well as a consumer standpoint. It’s a changing industry; it’s an interesting industry in that sense, but I think it’s highly investable still because of what’s being exposed this year.

TER: How long are these business cycles? You say it’s hyper-cyclical. You mentioned we’ve been building up for seven years and this is a seven to ten-year cycle. Can it really change within two years?

MH: That’s a good question. By the cyclical side of things, I mean the broad economy. Industrial demand is 18 billion cubic feet a day of demand on 64 billion cubic feet a day. So it’s nearly a third of total demand. So if industry is shrinking, you’re going to have demand headwinds, and that’s more what I mean on the cyclical side of things. So that’s more dependent on how long it’s going to take the U.S. and world economies to start back up again. In terms of a six, seven, or ten-year cycle–it’s hard to say. I think it’s different every cycle.

From a macro perspective, you’ve got a lot of ultimately inflationary actions coming out of the government, and it could take some time for the multiplier to kick back into effect and dollars start changing hands again. But, when they do, I think a lot of these commodities plays will have real businesses, will throw off real cash flows and are worth a lot more than what they’re trading for today. If you can take a longer view on things, it’s a sector that’s worthy of looking at, I think, but it's also high risk. I would emphasize that.

TER: Michael, thanks so much for your time.

Michael A. Hall, CFA, joined the Stifel Nicolaus Research Team in August 2007. He has been covering the energy sector for roughly six years. Most recently, Michael worked as a Senior Associate covering domestic Exploration & Production at Wachovia Capital Markets. Prior to that, Mr. Hall was a lead associate on the same team at Jefferies & Company and initially at First Albany Capital. He previously worked at Stifel Nicolaus from 2003–2004 and started his coverage of the Energy sector following the Oilfield Services industry. Mr. Hall's return to Stifel Nicolaus marks his initial effort as a lead publishing analyst and he intends to continue to focus his coverage on the domestic Oil & Gas Exploration & Production industry.

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Disclosure: Additional disclosures are available upon request. View here. Additional disclosures include our risks to target prices, which are:

Chesapeake Energy (CHK): In our view, there are a number of risks to our target price on CHK shares. Those risks include, but are not limited to, the failure of management to adhere to its financial plan, the inability to bring F&D costs more in line with industry peers, the failure of emerging resource plays to materialize or at least the potential of those plays to emerge as much less economic than the company's current set of projects, the inability to lock up leases through production, and a sustained downturn in commodity prices in general.

XTO Energy (XTO): In our view, there are a number of risks to our target price on XTO shares. Those risks include, but are not limited to, the failure of management to integrate recent acquisitions, the inability to execute on substantial growth plans, the failure of emerging resource plays to materialize or at least the potential of those plays to emerge as much less economic than the company's current set of projects, and a sustained downturn in commodity prices in general.

Petrohawk Energy (HK): In our view, there are a number of risks to our target price on shares of Petrohawk Energy. Those risks include, but are not limited to, an overly aggressive assessment of resource potential in the company's various plays - particularly the Haynesville Shale, a blowout of the basis differential at the Henry/Perryville/Carthage Hub, a dramatic tightening in the supply of rigs, completion services, and pipeline capacity, as well as a sustained downturn in commodity prices in general.

Bill Barrett Corp. (BBG): In our view, there are a number of risks to our target price on shares of Bill Barrett Corp. Those risks include, but are not limited to: a sustained downturn in commodity prices in general, expansion of the discount of Rockies gas prices to NYMEX due to a tightening of pipeline takeaway capacity (specifically as it pertains to capacity on the Rockies Express pipeline), a negative record of decision from the BLM on the West Tavaputs EIS, as well as a failure of the market to recognize the company's vast resource potential and to price shares as such.

Atlas Energy Resources (ATN): In our view, there are a number of risks to our target price and distribution estimates for Atlas Energy Resources. Those risks include, but are not limited to, a rising corporate decline curve, the suitability of the prospective Marcellus Shale for the MLP structure, and a tightening of the service market in the Appalachian Basin. In addition, given the importance of the tax treatment on MLPs to their consideration as an investment opportunity, any negative changes in tax treatment could likely result in significant underperformance in ATN units.

The Energy Report - http://www.theenergyreport.com - a unique, free site, featuring summaries of articles from major publications, specific recommendations from newsletter writers, analysts and portfolio managers covering the fossil, nuclear ,renewable, and alternative energy sectors. To subscribe, please complete our online form (http://app.streamsend.com/public/ORh0/y92/subscribe)


The Energy Report is Copyright © 2009 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The Energy Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise. Streetwise Inc. does not guarantee the accuracy or thoroughness of the information reported.



Got a comment, then fire it in.

Stay tuned folks..

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Sunday
Mar292009

Move Your Money Out of the Country… and Soon

US Dollar with sun glasses






In the post bag this morning there is this article sent to us by 'Without Borders', of the Casey Research group, which we hope that you find both interesting and informative as it is all about moving your money out of the country.



Things are getting uncomfortable for individuals and corporations looking to deposit their money in tax havens around the world. Just recently, Congress introduced the so-called “Stop Tax Haven Abuse Act,” which is designed to do away with the privacy afforded by doing business or investing outside the U.S. and to eliminate or reduce tax benefits available offshore. Simon Black and Fitzroy McLean, ex-CIA operatives, investment pros, and globe-trotting editors of Casey Research’s Without Borders, weigh in with their no-holds-barred opinion on the topic…

Read More
Tuesday
Mar242009

When Bernanke Says All Is Well, It’s Time to Duck and Cover

Duck


In the post bag this morning there is this article sent to us by Casey Research, which we hope that you find both interesting and informative.

“We’ve averted” the risk of a depression, Federal Reserve Chairman Ben Bernanke said this week. “Now the problem is to get the thing working properly again (
read more…)



Friday
Mar202009

Denison Mines (DNN): Continues to Underperform

Denison Mines (DNN): Continues to Underperform


Denison Mines continues to suffer, regardless of jump in oil prices and a rally in the mainstream market and in other uranium stocks.

The stock fell dramatically further in the last two days as the company announced it was suspending some of its uranium mining operations as they were no longer profitable at current prices.

DNN will temporarily suspend production at its Sunday and Rim mines in the western United States, and will likely shut its White Mesa mill in May, once it produces the 500,000 pounds of uranium the company is under contract to produce in 2009.

Denison also announced a big $56.8 million loss, which is 30 cents a share, due to non-cash write-downs of $59 million brought on by falling commodity prices and weakness in the company's shares.

The management at DNN is doing the best they can in a bad situation though. There is no point in operation unprofitable mines, and the best thing to do is hold on for higher prices that would make the mines economical again.

The supply and demand factors haven’t changed for uranium, there is still a shortage over the coming years, however it may take some time for this to be reflected in the uranium spot price, uranium stocks and Denison.

Uranium was at $42.50 a pound this week, after trading as high as $136 a pound in 2007.

If you are new to this web site and wish to receive our FREE newsletter regarding investment in uranium stocks and updates regarding uranium, then please click here to subscribe.

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Monday
Mar162009

Mega Uranium Limited: Holding Gains!

MEGA Chart 17mar09
Chart courtesy of Stockcharts


As we can see from the above chart Mega Uranium Limited is managing to hold on to its gains despite it being a roller coaster ride for this uranium stock. Having traded as low as $0.40 in December 2008, galloped up to $1.40 in January 2009 and back down to $0.70 in February 2009, it is pleasing to see the stock close today at $1.25. The technical indicators are high so expect Mega to take a bit of a breather shortly. We expect to see the volatility to continue as the worlds financial markets are still in turmoil and the fall out can and will land anywhere, including this tiny sector
.

Mega Uranium Limited remains on our buy list along with Laramide, we do get tempted from time to add other uranium stocks however for now we will stick with just these two uranium stocks as buys. Many of you are fans and indeed investors of other uranium stocks that you will favour over these two stocks, which is fine, but if you can find the time do write and tell us which is your favorite stock and why you think that it will do well in the future.

It is important that any company keeps its investors up to date with the progress that they are making and Mega's news flow is fairly constant and usually very interesting such as their active involvement with Aura Energy whereby Mega Uraniumhas approved and will fund a proposed 24 hole aircore drill program of approximately 2000 metres in the Gunbarrel Basin Joint Venture in Western Australia with Aura Energy. The program will be managed and operated by Aura Energy.”



There is also the news from Cameroondrill intersections include 3.4 meters @ 0.10% U3O8, 3 meters @ 0.13% U3O8 and 41.9 meters @ 468 ppm U3O8 - Grab sample results of 324 - 8293 ppm U3O8 at Salaki.

Please click on the links to read the articles in full.


For now our strategy remains unchanged as we continue to hold on to what we have and watch this market in the hope that we can spot a significant upturn in the spot price, as it is the spot price which still occupies center stage in terms of influencing investor sentiment. The rate of decline in this price has slowed considerably which suggests that the worst is now behind us, so keeping calm and patient is the order of the day for us. However if these price levels are attractive to you then by all means don't be put off by us, pick up a few of your favorites.

Mega Uranium Limited trades on the Toronto Stock Exchange under the symbol of MGA, has a market capitalization of $233.63 million with yesterdays turnover of 981,220.00 shares tredaed.

If you are new to this web site and wish to receive our FREE newsletter regarding investment in uranium stocks and updates regarding uranium, then please click here to subscribe.

These are fast changing times and its essential that you stay up to date with what is going on in the market. For our latest commentary and trading signals on gold, click here to subscribe to The FREE Gold Prices Newsletter and click here for The FREE Silver Prices Newsletter.


Thursday
Mar122009

Uranium-Stocks: Portfolio Update 13 March 2009

Uranium Chart 13mar09

Chart courtesy of u3o8.biz.

The uranium spot price stands at $44/lb according to TradeTech with the long-term price of uranium trading at $70/lb as reported by TradeTech.

On the 6 January 2009 we decided to put a toe in the water and purchased shares in Denison Mines Corporation at $1.66 and Crosshair Exploration and Mining Corporation at $0.25, other than that we have made no further purchases or sales.

Our intention remains to hold on to what we have as the damage has already been done to our uranium holdings, and we are holding our positions at heavy losses until such time that the uranium industry turns around, although we acknowledge this could be some time away. In the mean time we do intend to make the occasional acquisition as and when the opportunities present themselves
.

Here follows our portfolio update as of 13 March 2009:

Denison Mines Corporation – Watch
Bought on 6th January 2009 for $1.66, a uranium stock that we had watched for some time but for various reasons we had never managed to purchase. We are happy to own some of this stock and believe it to be a good quality acquisition, however it has fallen back to recently and closed at $1.03 yesterday

Crosshair Exploration and Mining Corporation – Watch
We never expected to see Crosshair trade as low as it is today so we acquired some on 6th January 2009 at a cost of $0.25, again we are pleased to own this uranium stock despite the price falling back over the last few months. CXX closed at $0.145 yesterday.

Cameco Corporation – Watch
This uranium heavyweight closed down at $15.61 on yesterday, having traded at $13.00 recently. We currently have no position and are not buyers at this point.

RPT Uranium Corporation – Hold.
We bought RPT on the 19th February 2007 for $0.42 and sold it for $0.62 on the 13th June 2007 for a profit of 47.6% in 4 months. We then bought it back at around 50 cents, however RPT closed yesterday at $0.060, which is just below its 50dma.

Uranium Participation Limited – Hold
Not much change in this stock since our last portfolio update, now trading a little lower at $6.35 . We bought at $11.97 on 21 November 2006 so still in the red with this trade with a long climb ahead.

Strateco Resources Incorporated – Hold
We made a small investment in RSC at $2.30 but it crashed to $0.48 a few months ago, before recovering slightly to close at $1.21 yesterday. The recovery has been fairly steady and consistent so its fingers crossed for this one.

Laramide Resources Limited – Buy
We bought at $5.78 on the 28 July 2006 so again we are still in the red with this one, it was trading at 97 cents recently however has started to recover and closed yesterday at $1.59 having experienced some extreme volatility . When we were sitting on a paper profit of around 80% we sold half of our position in order to buy other uranium stocks, as we needed a bigger spread of stocks at the time.

Mega Uranium Limited – Buy
We bought MEGA at around $4.0 on 27 July 2006. MGA was trading at $0.72 recently and closed yesterday $1.18, again a very volatile uranium stock.

Khan Resources Ltd - Hold
We bought Khan on the 5th March at $3.63 and it has since dropped to lower levels due to licensing issues with the Mongolian regulators. So, in anticipation of Khans management team finding a resolution to this problem we decided to buy again. (See Khan Resources: A speculative buy) the stock rallied and we took a profit of 15% in a matter of days before the stock fell back again. Khan is still having a torrid time and was trading at $0.165 recently but it closed yesterday at $0.38 yesterday

Aurora Energy Resources - Hold
We bought Aurora on the 5th March 2007 at $14.17 and it has traded as low as $1.21, however it closed yesterday at $2.25 a slight improvement but still a real battering for our position. This is due the sell off in the sector, as well as licensing issues in the central mineral belt.

Strathmore Mineral Corporation - Hold
We bought STM on the 14th April 2007 at $4.96 and it traded as low as $0.24, however, it closed yesterday at $0.30 still a very disappointing performance indeed and extremely volatile.

Ur-Energy - Hold
We bought Ur-Energy on the 23rd April 2007 at $4.75 and we also bought again on the 24th August 2007 when we acquired more stock at $3.03, it closed yesterday at $0.66, having traded for sub 40 cents recently.

Other than sit tight through these torrid times, there is little we can do right now. This situation may remain with us for some time, so we will just have to hold on until the argument for nuclear power begins to take center stage again and gives the uranium price a boost. However we do believe that the worst is behind us now, so now is the time to be looking to acquire a few more of your favorite uranium stocks as this tiny sector begins a slow course of recovery.

Have a good one.

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Tuesday
Mar032009

Uranium Price Update

Uranium Chart 04 March 2009.JPG


Chart courtesy of u308.biz.

A quick look at uranium prices across the board reveals a fairly steady situation as we can see with the spot price, the long term price and the futures price.

We start with the spot price which is depicted by the above chart and has slipped slightly to $47/lb according to TradeTech and to $45/lb according to UxC.

The longer term uranium price remains steady at $70/lb which is depicted by the chart below kindly provided by TradeTech

Long term uranium price chart 04 March 2009.JPG

Over at NYMEX the futures prices for uranium range from $45/lb for March 2009 to $56/lb for December 2009 delivery.

The difficulty as we see it is that the broader markets are still taking a pounding as demonstrated by the DOW which has halved from 14000 to sub 7000 as the sell off continues and the market expresses its displeasure at the myriad of bailouts and stimulus packages that are seen as having little effect on the economy. This situation and negativity could exist for some time rendering any progress in the price of uranium subdued with uranium stocks going sideways in a consolidation pattern. Apart from the occasional pop northwards by a stock that genuinely has some good news or has been highly recommended the order of the day will be a fairly static one.


Have a good one.

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