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Sunday
Feb282010

Uranium Market Outlook – First Quarter 2010

RBC Capital Markets Logo 01 March 2010.JPG



RBC Capital Markets recently released this forecast for the Uranium Market covering the demand, supply and price forecasts for uranium going out to 2019. The price is estimated to peak at $80/lb in three years time before dropping back to $60/lb in 2019.

Demand
• We foresee uranium demand growing by an average of 4.4% per year during the next 20 years, slightly lower than our previous forecast, but weighted to the 2018-2025 timeframe. The increase in demand is driven mostly by China as we expect it will lead the world in new reactor builds over the next two decades.
• Announcements continue to be made by governments and companies around the world regarding potential new nuclear plants. We believe this trend will continue as nuclear power is seen as a clean alternative for baseload generation. In the West, the expansion of existing reactor fleets has been much slower than anticipated due to the global recession
coupled with permitting delays and other government-related issues.


Supply
• We forecast the supply of uranium to grow by an average of 5% annually until 2015, but falling thereafter as reserves are exhausted. The uranium bull market of 2006 and 2007 stimulated the development of new supply, but we do not think it is enough. In our opinion, the prevailing uranium price is too low to stimulate sufficient supply to cover future reactor requirements.
• We have made two significant changes to our supply forecast: (1) we have reduced the forecast output of new Kazakh mines due to technical problems that we believe will persist; and, (2) we have moved the start year for Cigar Lake to 2013, one year later than we had previously forecast.


Market Balance
• We are forecasting deficits for every year from 2010, onward. Much of the demand we are forecasting has discretionary timing and, therefore, the market price will likely not directly reflect our view as purchases can be deferred (but not indefinitely).
• We believe there is not enough uranium production, either current or planned, to satisfy reactor needs, initial core requirements and inventories for new reactors. A sustainably higher price should help resolve this gap.
• Since the bull market for uranium in 2006-2007, we have seen a very strong supply response, in particular from Africa and Kazakhstan. Coincident to this, we have seen a substantial number of new reactor builds started globally. However, the uranium demand from these new reactors has not yet impacted the market which has resulted in a spot market that is oversupplied which has led to a low price.

Price Forecasts
• We have made no changes to our uranium price forecast.
2006A - $48
2007A - $99
2008A - $63
2009E - $46
2010E - $50
2011E - $60
2012E - $75
2013E - $80
2014E - $80
2015E - $80
2016E - $70
2017E - $70
2018E - $60
2019E - $60


Risks to Forecast
• Any major problem with a nuclear reactor could quickly curtail new reactor builds and reduce demand.
• Technical or regulatory problems could reduce mine supply.
• Material owned by speculators and investors could temporarily flood the market.

So there you have one groups opinion on just what the future holds.


All the best.

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Thursday
Feb252010

First Uranium Corporation Up 36.15% Today

First Uranium Chart 26 February 2010.JPG


Good news today for First Uranium boosted the stock price by 36% on volume of 11.9 million shares traded as we write, largely based on the following news release:

First Uranium Corporation (TSX:FIU, JSE:FUM) has been notified by the North West Provincial Government's Department of Agriculture, Conservation, Environment and Rural Development that they have issued a positive decision on the amendment application lodged by MWS last year pertaining to the Environmental Authorization ("EA") for a future Tailings Storage Facility ("TSF") for its Mine Waste Solutions tailings reclamation project ("MWS") near the town of Stilfontein, North West Province, South Africa. The application was lodged by MWS on 2 October 2009 to clarify any possible discrepancies which may have arisen regarding the project and property descriptions in the environmental authorization. The amended environmental authorization now correctly describes the project location, including the site of the TSF south-east of the town of Stilfontein, and allows MWS to immediately start preparing for construction of the TSF once financing is in place.

"Now that we have the environmental authorization re-instated we can concentrate on the process of securing the necessary financing for the construction of this tailings storage facility at MWS and our plans for ramping up our production at both operations," said Gordon Miller, President and CEO of First Uranium. "In the spirit of building a good relationship with the community in which we operate, we will continue engaging with the authorities and Interested and Affected Parties in the area regarding the MWS operation."

Regulatory requirements can be genuine show stoppers as we have witnessed in the mining industry, so this is a good result for First Uranium, lets hope that they can now get the financing in place to proceed with the construction of the tailings facility.



All the best.

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Tuesday
Feb232010

Iran’s president calls for unconditional uranium fuel swap

English.news .cn.JPG


Iran plods on with its nuclear development programme which it requires for future energy needs as the western world holds a skeptical view of their activities as per this article carried in the English.News.cn:


Iran's President Mahmoud Ahmadinejad Tuesday called for unconditional uranium fuel swap for Tehran's medical research reactor, rejecting claims that Iran attempts to gain access to nuclear weapons, the official IRNA news agency reported.

Addressing a crowd of people in Birjand, the capital of Iran's southern Khorasan province, Ahmadinejad said Iran has offered unconditional 20-percent enriched uranium fuel swap with the United States, Russia and France for Tehran's research reactor, implying that Tehran still sticks to it.

Under a draft deal brokered by the IAEA, most of Iran's existing low-grade enriched uranium should be shipped to Russia and France, where it would be processed into fuel rods with the purity of 20 percent. The higher-level enriched uranium will then be transported back to Iran.
Ahmadinejad rejected certain Western states' claim that they have evidences that Iran will be able to produce nuclear bomb within coming years, the report said.

"Once again, I strongly express that Iran is not after nuclear bomb," he was quoted as saying by IRNA.

Meanwhile, Iran's president insisted on the country's uranium enrichment program, saying "Iran is to powerfully make advances to acquire technology for enrichment of uranium for its nuclear sites, and the enemies will not be able to halt Iran's progress and development."

Ahmadinejad announced earlier this month that Iran had produced first batch of 20 percent enriched uranium under the watch of the IAEA.

The United States and its Western allies have been accusing Iran of secretly developing nuclear weapons under the disguise of a civilian program. Iran has denied the accusation and stressed its nuclear program is only for peaceful purposes.

We would all sleep a little easier if the powers that be could nut out a resolution on this matter, lets hope that we get there soon.


All the best.

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Sunday
Feb212010

France’s Areva gets Jordan uranium mining rights

Jordan.JPG

Areva continues to make progress with the signing of this agreement with Jordanian government to advance their nuclear energy programme.

AMMAN — Energy-poor Jordan on Sunday signed an agreement with France's nuclear giant Areva giving it exclusive uranium mining rights, during a visit by French Prime Minister Francois Fillon.

Fillon and his Jordanian counterpart Samir Rifai attended the signing of the agreement which will grant Areva the exclusive right to extract and mine uranium in the central parts of Jordan.

Jordan, which is poor in energy and water resources, is seeking to develop nuclear energy to generate power and desalinate water.

Fillon said he spoke with Rifai, about prospects of building nuclear plants by French firms in the Gulf of Aqaba on the Red Sea.

"Our goal is to create a full partnership with Jordan on training and obtaining nuclear technology... or with any other country in the region that seeks civilian nuclear technology," he told reporters.

"We discussed offers to build nuclear plants in Aqaba, and we will work on providing the best offers."

Jordanian officials have said that Areva, which started mining in central Jordan in 2008, could extract around 130,000 tonnes of uranium from the kingdom's 1.2 billion tonnes of phosphate reserves and build a nuclear reactor.

The country, which imports around 95 percent of its energy needs, aims to bring its first nuclear plant on line by 2015. Officials have said they hope nuclear power will supply 30 percent of energy production by 2030.

It is the latest Sunni Arab country, including Egypt and pro-Western Gulf states, to announce plans for nuclear power programmes in the face of Shiite Iran's controversial atomic drive.

Fillon, who arrived late Saturday in Jordan at the head of a large delegation, also attended an economic forum and said that Paris wanted to forge an "ambitious global partnership" with Jordan and boost economic ties.






All the best.

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Thursday
Feb182010

Lawrence Roulston: An Answer Is Blowin’ in the Wind

Lawrence Roulston.JPG

Source: Interviewed by Karen Roche, Publisher, The Energy Report 2/18/2010
http://www.theenergyreport.com/pub/na/5655

In this exclusive Energy Report interview, GreenTech Opportunities editor and publisher Lawrence Roulston talks about how private enterprise has stepped up to the plate, managed to tweak technology and bring the costs of wind-powered energy production down 80% since 1980. It's to the point where wind is on the brink of being able to compete directly with conventional energy. Solar isn't as close, Lawrence says, but the virtuous circle of alternative energy is in motion and gaining momentum. Reduced costs lead to further research and development, improvements in technology, industry expansion and greater economies of scale, which lead again to lower costs, more innovation, more industry growth and cheaper energy, and round and round it goes.

The Energy Report: The Copenhagen Conference disappointed a lot of people because no binding or meaningful agreements came out of it. In your view, Lawrence, how do multinational conferences such as Copenhagen or Kyoto help or hinder real change?

Lawrence Roulston: We have to look at the big picture. While a particular event such as Copenhagen was a bit of a disappointment, the net effect over a period of years has been that governments following up with initiatives based on some of those discussions have led to very substantial change.

We have an alternative energy industry now because governments have been having these dialogs for the past couple of decades. We don't see the effect in North America as much, but in earlier years a lot of action by Europe governments produced very substantial results. Europe has a very significant alternative energy industry and a significant portion of the energy is produced by green technologies because governments there have taken action.

On one level, we can't possibly rely on governments to actually institute the changes that are required. But the fact that the governments make it a topic of discussion puts pressure on private enterprise to get involved.

TER: Help us refresh our memories with some examples.

LR: For one thing, since Germany and Denmark provided feed-in tariffs for wind energy, Denmark now fills 20% of its total electricity needs from wind and Germany overall 8% or 9%. More to the point, they've developed a world-leading industry that's now exporting that expertise around the globe.

Another very important consideration is that back in 1980, the cost of producing electricity from wind ran about 30 cents a kilowatt hour after factoring in capital and operating costs. The cost is now down to about 6 cents a kilowatt hour, which is very close to being competitive with conventional energy forms. That has come about because the governments have put pressure on utilities to begin to generate power from alternative means. The industry has stepped up and, over a period of years, tweaked the technology and brought the costs down to the point where wind is now almost directly competitive with conventional energy.

TER: Is Europe ahead in this regard because the governments are really motivated or put pressure on the utilities while the U.S. just gives it lip service? Or is something else responsible for Europe advancing much further and faster toward cleaner energy?

LR: It's a combination of things. I think Europeans generally are more amenable to making sacrifices that lead to longer-term benefits. The most effective means in Europe has been those feed-in tariffs, whereby consumers end up paying a little bit more in their total electricity bills in return for the utilities using alternative energy to provide a percentage of the power. The additional revenue enables the utilities to pay a higher amount—with the feed-in tariff—to buy wind and solar and other alternative forms of energy.

TER: How much more do consumers pay?

LR: In Germany, the typical German utility customer only pays about 30 Euros a year more on the utility bill. Clearly, that's not been a huge sacrifice, but equally clearly, it's resulting in a meaningful change and the development of a very important industry that now employs more than 100,000 people in Germany alone.

TER: That's a great point about governments keeping pressure on industries to make some changes and keeping environmental issues in the forefront of people's thinking, but why don't these conferences limit the focus to alternative energy? Doesn't the broader umbrella of climate change raise the whole specter of cap and trade and muddy the waters?

LR: It's so incredibly complex and the idea of 150 or so countries sitting down and arriving at any kind of an agreement is mind-boggling. There are so many different ways to approach it, such a multitude of different mechanisms. The challenge of agreeing on one mechanism is insurmountable, but the idea that they have to do something is really important. The best thing in the world is for the governments to encourage private enterprise to just get on with the job. Whatever means they use to accomplish that is secondary, whether it's feed-in tariffs or mandates on utilities to deliver a certain percentage of the power sold from renewable sources.

TER: Are there conferences where governments get together or even private industry gets together and says here's what's working in this space?

LR: Meetings at the G-20 level probably would be far more effective than bringing most of the countries of the world together. The G-20 nations are the biggest contributors to the problem and, therefore, should be the ones focusing on solutions. Part of the difficulty is that every government sees up-front costs but benefits that may not materialize until the next administration has been elected. It's therefore very, very hard for incumbent politicians to take strong action to mandate. Everybody's hoping that all the other players are going to be the ones to fix the problem.

Even for governments to simply mandate producing a certain percentage of power from renewable sources is a bit dangerous politically, because the cost differential is pretty significant. Still, some states are doing that, and the ongoing process of pushing the industry in that direction, even though it may not be as strong and sustained and widespread as we'd like, is leading to improvements to the technology and greater economies of scale as the industry expands. It all contributes to further innovation, more research and development, and bringing the costs down.

As a result, wind and solar energy are certainly within reach of becoming directly competitive with conventional energy. It's not going to happen in one or two years, but we're close enough that it's well worth the effort to keep moving the industry in that direction.

TER: As I understand it, though, wind and solar can't compete without being subsidized.

LR: That's right. Focusing on wind for a moment, a typical wind location right now would need a subsidy. Most of the U.S. wind energy produced in the last couple of years has relied on the production tax credit, which amounts to about 1.5 cents per kilowatt hour. That's been enough that the wind industry in the United States grew at a phenomenal pace last year and it's still growing rapidly.

TER: But we wouldn't have seen that kind of growth without subsidies.

LR: No, no. Certainly not. But that small tax credit has been enough to make it economically viable. It becomes kind of a circular thing that as the pace of construction increases and economies of scale improve, the costs come down further. That's why I'm optimistic that within a couple of years, wind probably will be able to stand on its own in the locations that are most favorable. Overall many other locations will continue to need some form of subsidy for some time yet until the technology evolves.

TER: So this won't be a long-term viable solution without further technological advances.

LR: That's right, but the process is underway and the end point is in sight.

TER: Do you worry about the government pulling subsidies as budgets are cut?

LR: Yes. We look at that very carefully, but just to clarify, our biggest focus in GreenTech Opportunities is on the companies in the space of contributing to the technological advances and making the technological enhancements. From that perspective, the fact that the subsidies are likely to be reduced and ultimately eliminated is actually good news because that puts more pressure on the industry to continue to evolve and to improve the technology. If the subsidies were fixed for a long time, industry wouldn't have the incentive.

TER: Are we far enough down the subsidy timeline that there's enough solar and wind out there that we can begin to see economies of scale?

LR: Wind is much further along than solar. It is much closer to having the appropriate technology and the appropriate efficiencies to stand on its own. Solar technology needs a lot more development to get to the point where it would be directly competitive without subsidies. But really exciting work on improving the technologies is taking place in both fields. Who knows if particular technologies ultimately work out, but if some of the developments that have been demonstrated at a laboratory level or on a prototype scale work their way into commercial production, it could have a very, very substantial impact on the cost structure of wind and solar.

TER: I can't tell you how many residences are putting up solar panels here in California, but we aren't really seeing businesses do this. Is it a matter of the technology hasn't evolved enough? Or motivation tax breaks for homeowners that aren't significant enough for commercial installations?

LR: Without a very substantial tax credit or other form of assistance, I don't think those residential solar installations would be economically viable. I think the government may have targeted the residential sector with fairly significant subsidies. The other element, of course, is that it's cool to have a solar-powered home.

But at least at the small end of utility scale, there is solar-generating capacity in California and a significant amount in Europe. Those commercial applications use photovoltaic cells that convert sunlight directly to electricity. There is also another approach, a solar-thermal process, used by utilities to produce electricity. In this technology, mirrors basically concentrate the sunlight to boil water, which then goes into conventional steam turbines. California has at least one of those solar thermal applications right now and Spain has several.

TER: And is one more viable for a commercial application versus residential?

LR: The solar thermal works only on a very large scale.

TER: Going back to the photovoltaic, one of the companies you told us about when we interviewed you last summer Natcore Technology Inc. (TSX.V:NXT). Could give us an update on Natcore?

LR: On a laboratory scale, Natcore has demonstrated a technology known as tandem cells, which effectively convert twice as much of the sunlight to electricity as conventional commercial photovoltaic cells. They are still some ways from commercializing that. Research and development toward commercializing the tandem cell is under way. This technology relies on a completely new approach to creating the silicon thin films that are the basis of most solar cells and they're right now very close to a deal that will see a commercial application of their Liquid Phase Deposition process in kind of a subsidiary application to the solar cells.

That's going to be a very exciting development because it will see their basic process being commercialized and at the same time they're continuing with the research and development on the tandem cells. It's likely to be a couple of years before the tandem cell work gets into the commercial development stage. But by then their Liquid Phase Deposition process will have been tested in a commercial application and they should be in a good position to move forward fairly quickly. At this stage it's a research and development project, but if it works—and I have a fair level of confidence that it will work—it could have a huge impact on solar photovoltaics.

TER: Because a lot of this is new technology that's bubbling up, how does one know if any competitors are doing something similar to Natcore?

LR: That's a very important point. A lot of work is being done in developing photovoltaics and a number of different approaches being taken. Other companies besides Natcore are absolutely working on tandem cells, but as far as we can tell, it's in the application of nanotechnology where Natcore has a lead at this time, via the Liquid Phase Deposition process.

TER: An option to alternative energy that you've written about in your GreenTech Opportunities newsletters is conservation. I recall you saying that few people seem to realize that reducing energy consumption is vastly cheaper than producing more of it. There must be an unbelievable number of opportunities to invest in companies that focus on conservation technologies that we don't really hear about because we're concentrating so hard on alternative energy production.

LR: Sure. A very, very significant point is that at one level, the cost of conservation is zero if you think about just turning off light switches. The next level involves reducing consumption by retrofitting systems with various products that reduce consumption. That's where you'll find some investment potential on the conservation side.

For example, Smartcool Systems Inc. (TSX.V:SSC) has a device that goes into the circuit of an air conditioning or refrigeration unit and it can save 10% or more of the electricity cost without having any measurable impact on the performance of the unit. They talk about a payback period of one to two years on the cost of buying and installing this device.

Smartcool spent a couple of years in development and beta testing, and another year or so setting up a worldwide marketing effort, a distribution channel. It's not the sort of thing you put on the shelves and people buy it. It needs a professional installer, so they're working with electrical contractors and electrical parts distribution organizations. What's happening is that a big chain will install it in a few locations to see if it really works. Recently, those big chains have been coming back to roll it out through the whole organization. So they're just on the beginning of a big ramp-up in revenues.

TER: So is Smartcool meant for commercial rather than residential use?

LR: Yes. It's designed for commercial, industrial, retail and cold storage warehouses, for example. When I learned about this and I was chatting with the president of the company, I asked him if I could buy one and put it on my refrigerator at home, but he pointed out that it probably wouldn't be cost effective. But in a commercial application, especially one with a number of air conditioning and/or refrigeration units, it becomes very cost effective.

Over time add-on products such as Smartcool's will be integrated into the design and manufacture of the host units, but in the meantime, it's an exciting area for us to focus on.

It's exciting to see a Natcore kind of company that could revolutionize solar power generation, or Catch the Wind that can have a big impact on production. But these little companies that are just grinding away with products that can bring down the costs aren't getting anywhere near the attention. I think that's going to change. With companies such as Wal-Mart trumpeting their energy savings, there's pressure on the industry to search out products that can actually help companies achieve their energy reduction targets.

TER: You mentioned Catch the Wind, Ltd. (TSX.V:CTW.S). What's the story there?

LR: Catch the Wind has a remote laser-based sensing device that can measure wind speed and direction about 300 meters out in front of the sensor. Installed on a wind turbine, it allows the turbine to reorient itself and adjust the pitch of the blades in anticipation of changes in wind speed and direction. Field tests indicate 12% to 15% improvements in output from wind turbines using those devices.

TER: Wow! That's an amazing increase in efficiency, and with the turbines already up and running, I can't imagine a big cost to install these devices. How big is this?

LR: It's huge and as you say, it can have a major impact if you can get another 10% or 15% revenue out of the capital you've already invested, especially with the industry within reach of commercial viability on a standalone basis. To put this in perspective, there are 220,000 wind turbines operating at this time and it's the fastest-growing alternative energy form out there, so the market potential is enormous.

TER: What will this remote sensing device cost? Hundreds of dollars, thousands of dollars, tens of thousands?

LR: Catch the Wind hasn't announced its marketing plans yet, but they're anticipating the payback period would be less than two years, including the installation costs.

TER: That's great.

LR: Yeah. It makes it almost a no-brainer.

TER: If the cost is amortized in a year or thereabouts, it's like, oh, man, how fast can you make them?

LR: That's it. They're working toward commercial designs and contracts with manufacturers right now.

TER: Thinking about conservation versus alternative production as an investor, something like a Smartcool retrofit seems to me to be less risky than developing a new technology. Do you have any perspectives on how an investor should look at conservation versus production?

LR: You bring up a very important point and that is there's a lot less risk in a Smartcool kind of application, which is tried and true and now they're just into the marketing phase. But then the flip side of that is there's a lot more upside potential in Natcore. If its technology does ultimately work, the payoff for investors could be enormous. So it's certainly a trade-off. It's not a universal truth, but generally speaking, companies focused on commercializing technologies for energy conservation are less risky, but may offer less upside potential than those that have breakthrough technologies that would apply to energy production.

TER: Getting back to the discussion about government mandates and such, I believe Japan is requiring businesses there to prove some amount of reduction in energy usage each year.

LR: I think every nation around the world is delivering such message in one form or another. Some use really big sticks and some use carrots. But absolutely around the world governments are leaning on industries to do whatever they can to improve their energy efficiency.

LR: Alternative energy production in China is going to become a massive industry. China has mandated 15% of its energy to come from alternative sources by 2020. When you consider that the economy is going to more than double in that period of time, you realize what a really, really huge investment will be required. Because of that, one of the areas we're focusing on is companies that are participating in the exponential growth of alternative energy in China.

TER: As I understand it, access to inexpensive energy is a fundamental need for a growing economy. Since alternative energies aren't yet as cost effective as fossil fuel sources, how can China's huge population live with that?

LR: China's economy is growing so fast and is becoming so wealthy that it doesn't have to be inexpensive energy as long as there's enough energy to supply their growth. China's economy is growing at 10% right now. Internal consumption is kicking off in a big way and that has a huge multiplier effect. I'm very confident from first-hand observations and from everything I read and see and hear from other people I talk to that this is a long-term process that will require more and more energy.

Right now China produces most of its electricity by burning coal, and anyone who's been there can attest to the fact that the costs of burning coal go way beyond monetary. Between the global pressure to reduce CO2 emissions and the very real near-term local problems of emissions from coal plants, China has made it an essential component of their growth strategy to have 15% of their total energy coming from alternative energy forms by 2020.

TER: Thank you, Lawrence. You always offer such interesting information and good insights.

Lawrence Roulston's passion for the environment and strong affinity for emerging companies led to initiating GreenTech Opportunities, in part to help make a better world for his three children. Lawrence understands that the world is embarking on a period of massive change. The coming transition will impact every aspect of our lives— and present investment opportunities greater than any that have ever come before. After studies in science, engineering and business at the University of British Columbia, Lawrence worked for nearly 20 years as an analyst and manager in the resource industry. In 1998, he founded Resource Opportunities, an investment newsletter focused on the mining industry. He has established an impressive track record, with a particular knack for picking emerging companies that delivered ten-fold or better returns. He is supported by a group of professionals based in Vancouver, Canada.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Karen Roche of The Energy Report conducted this interview. She personally and/or her family own none of the companies mentioned in this interview.
2) None of the companies mentioned in the interview are sponsors of The Energy Report or The Gold Report.
3) Lawrence Roulston —I personally and/or my family own shares of the following companies mentioned in this interview: Smartcool, Natcore. Neither I personally nor my family nor any business associates are paid by any companies mentioned in this interview.
Streetwise - The Energy Report is Copyright © 2010 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.
The Energy Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.
From time to time, Streetwise Inc. and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, 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.
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Streetwise Inc. receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.
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All the best.

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Tuesday
Feb162010

Two New Plants for Georgia

BBC 17 Feb 2010.JPG

President Barack Obama has announced more than $8bn (£5bn) of federal loan guarantees to help build the first US nuclear power stations for 30 years. Two new plants are to be constructed in the state of Georgia by US electricity firm Southern Company. President Obama said the plants would be "safe and clean" and were needed to meet the country's future energy needs.

There have been no new nuclear power plants built in the US since the 1979 accident at Three Mile Island.

The president said the project would create "thousands of construction jobs over eight years and then hundreds of well-paid jobs" when the facilities become operational.

He added that it was "only the beginning" of efforts to develop a new generation of safe and clean energy-efficient technologies, which would help fight climate change.

There are currently 104 operating nuclear reactors across 31 states in the US, which provide about a fifth of the country's electricity.

Meanwhile, there are currently 56 new nuclear reactors being built around the world.

This one plant will cut carbon pollution by 16 million tons each year when compared with a similar coal plant - it won't persuade all the environmentalists, but it is an argument that does weigh heavily with some of them
- Mark Mardell

A tad more progress then.







All the best.

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Friday
Feb122010

Chris Potter Eyes Opportunities in Appetites for Energy and Food

Chris Potter.JPG


Source: Interviewed by Karen Roche, Publisher, The Energy Report 2/11/2010
http://www.theenergyreport.com/pub/na/5615

For environmental, financial and political reasons—not to mention to satisfy an energy-hungry world—Northern Border Capital Management founder Chris Potter sees some interesting opportunities for investors in alternative fuels on the horizon. One of his picks is a company using plasma gasification technology to produce clean-burning fuels. In this exclusive Energy Report interview, Chris also explains why he's bullish on natural gas. Politically incorrect though natural gas may be, he isn't overly worried about North America's abundant supply finding a home. Agribusiness is yet another arena that appeals to Chris, from the potential for domestic potash production for Brazil's huge agricultural sector to the extraction of protein from canola seeds to help feed the planet's growing population.

The Energy Report: You focus on small-cap resource companies based in Canada. How did you come to specialize in that?

Chris Potter: I focus on Canada because the market there is less efficient. In general, I like to find companies that have small share structures, where there is a world-class product or asset, where management owns a lot of the stock and where there's a compelling valuation. In my experience there are more opportunities in Canada that possess all of those characteristics. In the resource sector I like the exploration companies and early-stage producers because if you pick the right ones, you get a lot more leverage to rising commodity prices than you do with the larger companies.

TER: As I understand it, you consider the Canadian market somewhat less efficient than the U.S. market, thus making it easier to uncover attractively valued companies. What do you think accounts for the discrepancy, and is it specific to small caps or also true of large caps?

CP: It's really true of both large caps and small but it's not a permanent discrepancy. It's more of a lag. What I mean is that U.S. investors take a lot longer to recognize and buy high-quality Canadian companies than U.S.-listed ones. I used to be concerned that this lag would somehow be arbitraged away, but I've been doing this now for 12 or 13 years, and it has not.

There are a lot of reasons behind that. For one thing, there seems to be an apathy or ignorance on the part of U.S. investors about almost everything Canadian. There's also a perception that the Canadian securities laws are lax, that its investment community is run by mining promoters, and that U.S. investors won't get a fair shake up there. While there are certainly landmines to look out for when investing in Canada, they are no more dangerous than those in the U.S.

To characterize the entire Canadian investment scene as corrupt because of parts of the Vancouver mining community and the Bre-X Scandal in the late '90s is just silly and ignores the fact that the U.S. has had plenty of its own investment scandals such as Enron and a banking system that perpetrated the greatest financial fraud in history this past decade.

But I can't tell you all of the reasons for the valuation lag that I continue to see between U.S. and Canadian companies.

TER: You just know it's there.

CP: Let me tell you about the greatest example of that in my experience—and the reason I started investing in Canada. Back in 1997, Sprott Securities (now Cormark Securities) introduced me to Research In Motion Limited (TSX:RIM; NASDAQ:RIMM). No one other than Sprott and a few others understood what these guys had— I'm just glad I was in the right place at the right time to take the meeting. Here was this little Canadian company trading at $4 a share. Split-adjusted that would probably be $1 today. It had $2 a share in cash and $2 a share in backlog. But it had a technology that revolutionized the way people communicate.

TER: Right.

CP: They gave us the Blackberry—and no one was paying attention. Here was this little company in Waterloo, Ontario, developing this unbelievable technology. Its market capitalization was miniscule. Had Research In Motion been in Silicon Valley, its valuation would have changed very, very rapidly, but we had six months to do our homework on it before anyone really cared.

TER: Wow! That's really a great story, like finding a Rembrandt in your garage.

CP: Exactly.

TER: You've been very positive on gold and precious metals. What other sectors do you think will do well for investors over the next couple of years?

CP: I think that many areas of alternative energy will do well. That does not mean that all the alternative energy companies whose stocks go up will be developing worthwhile, commercial products or resources. On the contrary, I suspect that many of them will end up being duds. It's just that coal, oil and even natural gas have become so politically incorrect that the amount of money that will get thrown at the alternative energy sector will make most of those stocks go up, for a while at least.

I expect to see opportunities in the natural gas sector, too. Even though it's not a politically correct fuel, I don't see how it won't take a greater share of the North American energy market going forward. What other fuel combines abundant availability and low production costs with an emissions profile that is palatable to even hard core environmentalists? As coal and oil get squeezed out on the margin I'm guessing natural gas will fill much of that gap. There is a lot of bearishness surrounding the massive increase in North America's natural gas supply coming from shale plays. While I agree that shale gas supply will make it difficult for us to see sustainable double-digit gas prices for many years to come, the positive developments on the demand side that I just described can keep gas prices in the $5 to $7 range and there are a lot of gas explorers and producers that will do very well in that kind of price environment.

I also think we'll continue to see lots of opportunity is the agricultural sector. This is for the reasons that we all know about—emerging market population migration, improvements in diet, a greater focus on investing in fertilizers and other crop inputs.

TER: Are you following any small-cap companies that represent some interesting investment options in these sectors—alternative energy, natural gas and agribusiness?

CP: In agriculture, I have an investment in Amazon Mining (TSX-V:AMZ). For anyone concerned about the rainforest, Amazon's property is nowhere near the Amazon jungle. They are developing a potash fertilizer resource in Brazil, one of the world's leading producers of all kinds of crops—soybeans, corn, wheat, coffee, oranges, sugar cane. Despite its reliance on agriculture, Brazil imports more than 90% of its domestic fertilizer needs from places such as Russia and Canada. This means high transportations costs, which is the reason Brazil pays more for potash than anywhere else in the world. This hurts farmers, increases food costs and is bad for the country. It's not difficult to see why all of the players in the Brazilian agricultural space are intensely focused on securing a domestic source of production.

So along comes this little Canadian-listed company that stumbles across a very large potash resource in the heart of the Brazil's growing area. Not only does is address the transportation cost issue but the particular kind of potash they found is much better suited to Brazil's soil than the kind they have been importing. It has a slow release feature which means it stays in the soil longer than traditional potash. This is particularly important given Brazil's heavy rains and its nutrient deficient ground. Finally, because the resource is at surface, the company believes it can develop a mine for one tenth of the $1 to $2 billion it would cost to build a mine in Canada.

TER: Wow!

CP: Yup, it's pretty unusual. You have this tiny company, $60 million market cap, that has the opportunity to significantly improve the economics of one of the world's major agricultural regions. It'll take a couple of years to get into production and there will be many of the issues associated with building a new mine but they have a very talented, driven management team that is focused on making this project work. Equally important they have the support and backing of domestic industry, politicians and farmers. Management has kept the share structure small and they have kept a tight lid on costs which saved them during last year's financial crisis. They also have bought a significant amount of stock for themselves in the open market which I like to see.

TER: Do you see any other companies that represent promising plays like Amazon's?

CP: I have an investment in BioExx Specialty Proteins Ltd. (TSX-V:BXI), which has developed a unique technology for extracting protein from canola seeds. Canola has twice the protein profile as soy and is almost on par with beef and egg whites. BioExx is the first company to figure out how to efficiently unlock the protein from the seed without damaging the protein in the process. Their first plant is up and running and they have a pretty aggressive growth plan, with five plants running within a few years, each successive plant doubling capacity from the previous one.

TER: Would this protein be for human consumption? Animal consumption? What?

CP: The whole focus of the company is upon extracting protein from canola for human foods and their ability to do that is what distinguishes what they are doing from everyone else in the field. They still need to scale their processes and get their final regulatory clearances but the analysts are suggesting they will have human quality food production sometime this year. This is another company with a tiny market cap relative to its opportunity. It is a $300 million company that will be diving into a $16 billion market with highly proprietary technology that is way ahead of its competitors.

TER: Fascinating. Any nuggets to share in terms of alternative energy or natural gas?

CP: Alter NRG Corp. (TSX:NRG; OTCQX:ANRGF) is another company I own. They have a proven plasma gasification technology, developed by Westinghouse, that can turn all kinds of readily available and environmentally unfriendly substances like garbage, biomass and old tires into clean burning fuel. All of their competitors are either in the R&D stage or are working on giant projects that cannot handle the variety of feedstocks that Alter NRG can. I don't fully understand the technology but I understand that a business that can turn household garbage into clean-burning fuel is a pretty good bet today, especially given the fact that they have a couple of plants already in commercial production and the whole company trades for about $130 million with over $30 million in cash. This is another example of a Canadian-listed company with a game- changing technology that has yet to attract investor attention.

Christopher K. Potter is the principal of Northern Border Capital Management, Inc., a Canadian-focused firm that he founded in 2002. A 1987 graduate of Hamilton College in Clinton, NY—which earned a place on U.S. News & World Report's "Best Colleges 2010" list of Tier 1 liberal arts institutions— in 1988 he went to work for Preferred Utilities Manufacturing Corp., a leading combustion equipment design firm. By the time he left to study for his MBA at Columbia University, Chris was managing Preferred Utilities' New York office. After being awarded his master's degree, he joined Ten Squared L.P., a hedge fund focused on North American publicly traded securities. He was an investment analyst with the fund from 1996 until 1999 and the co-portfolio manager from 1999 until 2001. It was his last three years at Ten Squared, when he developed and managed the fund's Canadian investment business, that led Chris to found Northern Border Capital Management, Inc.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Karen Roche of The Energy Report conducted this interview. She personally and/or her family own none of the companies mentioned in this interview.
2) The following companies mentioned in the interview are sponsors of The Gold Report or The Energy Report: Amazon Mining Holding Plc.
3) Chris Potter—I personally and/or my family own shares of the following companies mentioned in this interview: Amazon Mining Holding Plc, BioExx Specialty Proteins Ltd., Alter NRG Corp. I personally and/or my family am paid by the following companies mentioned in this interview: None
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All the best.

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Thursday
Feb112010

Will Obama Destroy Any Hope of U.S. Energy Independence?

US Oil Production vs Consumption 12 Feb 2010.JPG

By Charles S. Brant, Energy Correspondent, Casey Research

The U.S. consumes nearly three times the amount of oil that it produces domestically on a daily basis. How can this statistic get any worse, you might ask?

Imagine in 2010 the Obama administration persuades Congress to pass a budget that results in a reduction of domestic oil production by 10% - 20%, making the supply/demand imbalance even more lopsided. Foreign oil companies will gain a distinct advantage over American domestic operators as an unintended consequence of these proposals.

Sound farfetched? It’s closer to reality than you may think… If it comes to pass, it will likely be the biggest structural change in the U.S. domestic oil and gas industry in decades and have far-reaching implications for investors and for the entire country.



In early 2009, the Obama administration proposed to eliminate significant tax incentives for the oil and gas industry. These tax benefits were put in place decades ago to incentivize oil and gas producers to develop domestic sources of energy, while recognizing that oil and gas exploration entailed special risks. Two of the proposed repeals with the most potential impact relate to what the industry refers to as “percentage depletion” as well as “intangible drilling costs” (IDC).

Tax incentives explained

The first proposal involves eliminating the deduction for percentage depletion. Currently, the tax code allows small oil and gas producers to choose between two different tax deductions, percentage depletion or cost depletion (Big Oil’s ability to use percentage depletion was severely limited years ago).

Percentage depletion allows a tax deduction of 15% of the annual gross revenue of a well, continuing as long as the well produces and even after 100% of the costs have been recovered. On the other hand, cost depletion is calculated as the amount of oil or gas produced annually as a percentage of the total reserves of the reservoir. This deduction ceases when 100% of costs have been recovered (after which the producer may switch to percentage depletion).

From a practical standpoint, this means many small stakeholders, including investors and lessors who are not directly involved in the operations of the wells, will lose their ability to deduct depletion altogether, putting them at a significant disadvantage to their larger competitors.

And cost depletion is pretty much out of the question for most small stakeholders, as it’s extremely difficult for them to calculate. Small stakeholders in wells often aren’t entitled to the proprietary reservoir data developed by the operator of the well, which is necessary to calculate cost depletion. While the operators do disclose reservoir data in their annual reports, they rarely contain enough detail for a small stakeholder to locate information relating to a small field or well in which the stakeholder has an interest. Oil and gas stakeholders – such as individual royalty owners, royalty trust investors, and landowners, who all benefit from leasing land to oil and gas explorers – will immediately see the value of their investment decrease while simultaneously paying more in taxes every year.

The other proposal relates to drilling costs. Under current rules, oil and gas producers can elect to deduct certain intangible costs related to the drilling and workover of wells, including labor, drilling fluids, and drilling rig time. By electing to deduct instead of capitalizing and amortizing expenses, explorers recoup their costs faster. If the Obama administration does away with intangible drilling costs, oil and gas producers will no longer be incentivized to reinvest in new drilling projects, and new exploration will decline.

Small oil and gas producers will also rethink their decisions to pursue riskier prospects if drilling incentives are reduced. The only projects that will be worthwhile to undertake will be the “sure win deals.” And if they do decide to drill, they won’t recoup their costs as quickly, which means they’ll be slower to start new projects. Without the tax incentives, marginal producing wells, which might otherwise be reworked and continue to produce for years, will be more likely to be plugged and abandoned.

So what if marginal wells are no longer subsidized? Taxpayers shouldn’t be supporting bad assets and small oil and gas companies that operate them.

That’s a fair point. But it’s significant to note that 85% of the total oil wells in the U.S. are marginal producers, and these wells account for approximately 10% of total oil production from the lower 48 states. For natural gas, marginal wells produce nearly 9% of the total. And it’s not just small companies operating these wells. These subsidies are deeply embedded in the economics of the U.S. independent oil and gas industry. Cutting the tax incentives will drastically change the industry. The chairman of the Independent Petroleum Association of America thinks these proposals will cost independent oil and gas producers over $30 billion.

Back in May 2009, when it came time to include the president’s proposals limiting oil and gas tax incentives in the FY2010 budget, cooler heads prevailed in Congress and the proposals were not enacted. However, you can bet that similar policies affecting the industry will be enacted sooner rather than later.

Profiting from the mayhem

All independent, non-integrated U.S. explorers and producers will be affected if these proposals become a reality. At first, profits of oil and gas producers across the board will decline precipitously, impacting companies’ bottom lines and hammering investor returns. Producers that primarily operate marginal wells will be forced to plug and abandon newly uneconomical wells as a result of the policy changes. Without cash flow to support high fixed costs and precarious balances sheets, these companies will quickly become distressed.

Next, oil services companies will suffer as their small and medium-sized customer bases shrivel up. Regardless of size, all exploration and production companies with significant exposure to U.S. oil and gas assets will get hurt.

It’s also almost guaranteed the market will overreact and punish any U.S. company that has anything to do with oil and gas, whether or not it’s fundamentally justified. However, once the initial panic subsides, expect to find some screaming bargains among the surviving companies.

Oil and gas companies with conservative balance sheets, diversified assets outside of the U.S., spare cash, and opportunistic management will have a heyday picking up quality assets at fire sale prices. The trick is to identify the companies that will survive the turmoil and be able to capitalize on their competitors’ misfortune. Initially these strong companies will suffer stock declines along with every other oil and gas company. But they will recover quickly, and as they acquire new assets at attractive prices, their growth and profitability will be better than before. The window of opportunity to get into these stocks at bargain prices will be brief, as the market will quickly correct and the value will disappear.

Big Oil identified the United States as a hostile political environment years ago and has moved most of its production overseas, so they’re less likely to be negatively affected by these changes. However, bargain prices will be too tempting for these giants to stay on the sidelines. They’ll wade into the fray in a big way, picking up great assets even though it means they’ll be subjected to the stifling regulatory environment that comes with doing business in America.

Energy prices across the board will explode upwards and stay high until the production void left by oil and gas can be replaced by renewable energies, nuclear, or coal. The coming energy crisis will present you with plenty of opportunities to profit if your portfolio is correctly positioned.

Picking the best of the best oil and gas explorers is the forte of Marin Katusa and his team at Casey’s Energy Report. Thanks to due diligence, a secret mathematical formula, and a vast network of industry insiders, every single one of Marin’s most recent 19 stock picks was a winner… and number 20 is in the making. Click here to learn more.



All the best.

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Wednesday
Feb102010

Extract Resources Limited: Heading towards a Buy

Extract Resources Chart 11 Feb 2010.JPG


After a rocket like climb Extract Resources Limited (EXT) have settled back to trade at $6.65. The technical indicators are in the oversold zone and suggest that this uranium stock might just be a buy at these levels.

From the last news release in January the company said the following:

Extract Resources Ltd a uranium exploration and development company with projects in Namibia, announced updated exploration results from the massive Rossing South mineralised system, part of Extract’s world-class Husab Uranium Project.

Highlights:

Infill resource definition drilling continues to return high grade intercepts

All zones of uranium mineralisation still open at depth and along strike, in at least one direction.

13 drill rigs operating on site, with additional rigs due on site in the next 4 to 6 weeks to accelerate exploration and resource definition efforts.

Encouraging results from the RadonX survey programme

The Company's primary business focus is in the African nation of Namibia, in which it has a large land position of 2653km2 over several licenses. While the projects have various mineral occurrences, Extract's main objective is based around the potential of the uranium (U3O8) rich provinces in Namibia, particularly within the alaskite belt that hosts the world class Rossing Mine.

The trend at the moment is down and this trend may continue for the near term, however it is a long way down from its all time high so it can viewed as a buying opportunity. As the uranium space is currently out of favour our preference is to wait awhile in the hope of getting a bargain later on.

Extract Resources Limited trades on both the Canadian and Australian Stock Exchanges under the symbol of EXT is based in Perth, Western Australia.


All the best.

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Monday
Feb082010

Uranium Prices Update 09 February 2010

Longer term price for Uranium.JPG

The chart above shows the current price of uranium standing at $60.00/lb according to TradeTech having come down steadily from around the $95/lb level. In a news release on January 1, 2010, TradeTech had this to say:

A declining trend in uranium prices that began in 2008 continued into 2009, as TradeTech’s uranium spot price fell 15 percent from US$52.00 per pound uranium oxide (U3O8) at year-end 2008 to $44.50 on December 31, 2009.

The uranium market attempted to recover from the effects of a global financial crisis that began in late 2008, and the spot price strengthened by mid-year. However, this trend was short-lived as several sellers competed aggressively to conclude sales and the spot price fell again in the second half of the year.

In early October, the spot price climbed briefly as BHP Billiton reported damage to the main shaft of its Olympic Dam that would take months to repair. The company declared force majeure on certain uranium deliveries, which brought a number of buyers, primarily traders and financial entities, to the market and the price rose to $50.00 per pound U3O8. By December, however, the spot price retreated as the US Department of Energy’s sale of uranium to fund cleanup of the Portsmouth uranium enrichment facility overshadowed the market.

“Buyers are expected to return to the market during the first quarter of 2010 as a number of utilities have indicated they can justify discretionary purchases for inventory at current price levels,” Klingbiel added. In addition, buying from Asia is expected to remain strong as India and China, in particular, forge ahead with plans for expanded nuclear energy programs to meet rising energy demand.

Well it would appear that we can take one or two positives out of their statement, however, uranium could take some time in convincing us that it is becoming everyones favourite play. We are half way through the first quarter and the spot price for uranium stands at $42.25/lb as the chart from U308.com shows. We will observe uraniums progress and look for positive signs of activity before going on the acquisition trail.

Uranium Chart 09 Feb 2010.JPG

All the best.






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