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Thursday
Aug272009

Washington Capitulates: Peak Oil Is Real

World Liquid Fuels Production 2005-2030.JPG

Just arrived a few minutes ago is this article regarding Peak Oil by Doug Hornig, Editor, Casey’s Energy Opportunities


Each year, generally in May, the Energy Information Administration publishes a less-than-eagerly-anticipated tome called the International Energy Outlook, 250+ pages of mind-numbing text, charts, graphs, and tables.

No one reads it. The mainstream media ignore it. Read More...
Thursday
Aug272009

Gissen & Berol: Investing for the New “Long Term”

Gissen.JPGBerol.JPG
Source: The Energy Report 08/27/2009
http://www.theenergyreport.com/pub/na_u/1056

Encompass Fund managers Malcolm Gissen and Marshall Berol sat down with The Energy Report to share their views on energy investing and what they believe are the strongest subsectors in the mix. While bullish on coal and natural gas, both are strong advocates of uranium, citing a "definite supply-demand imbalance." Discover new opportunities for long-term appreciation in this exclusive interview.

The Energy Report: Malcolm and Marshall, you started the Encompass Fund in June of '06 with the intent of investing in a wide array of sectors, "to minimize or avoid sharp declines in the market," as it says on your site. However, according to your stock chart, you had a fairly dramatic decline in Q4 '08 with a pretty dramatic recovery since then. Tell us a bit about what happened there.

Malcolm Gissen: What happened was that prior to and in 2008 we emphasized resource companies in our portfolio, and we believed that these companies were performing well. We had confidence in management. Many of the resource companies in the Fund’s portfolio met our expectations and continued to expand their resources, in some cases, very substantially. We were comfortable holding these positions in our portfolio and expected these stocks to outperform.

In the second half of 2008, a number of these companies experienced very sharp declines in their stock prices; we were alarmed, so we called the companies and asked if they knew what was going on. The only indication, they said, was that somebody was dumping a lot of their shares, which we, of course, could see in the market.

But it wasn't until very late in the year, when these companies spoke to and visited hedge funds, that the hedge funds would tell them that they had experienced a lot of liquidations and, as a result, were selling all of their resource company positions—and selling them as quickly as they could. In some cases, it was program trading. In other cases, they just dumped the stock. In the case of the junior mining companies, where the stock was thinly traded, it had a profound impact on stock prices when hundreds of thousands of shares or, in some cases, millions of shares, were unloaded in the marketplace, driving down the price of a number of these companies anywhere between 50% and 95%. When we saw that happen late in the year and realized the cause, as managers of the Encompass Fund, we decided we would buy more shares. We did that and that is one of the reasons the Encompass Fund has excelled this year.

Marshall Berol: There were several things we did, but when we saw what was happening with the markets in the fourth quarter of 2008 and what was happening with the companies that the Fund was invested in, we went back and reviewed each of the companies for how well we thought they could survive (i.e., a good investment going forward), and sold several of the companies we felt were weaker because of finances or the projects or the time involved in getting the projects moved along and factors of that nature. So those companies we sold at that time, and as Malcolm said, we increased our positions in some of the companies that we did own and felt were strong companies with the management, finances and projects that we felt would be worth owning going forward. Fortunately, that has worked out this year.

TER: Have you been surprised how the market has come back?

MG: I would say I have not been surprised at how well many companies in the Encompass Fund have performed this year. Marshall may not agree with this—and we don't agree on some issues—but I thought that this should happen. I felt that these companies were continuing to expand their resources. I didn't think the price of the resource was going to decline much. I felt there would continue to be demand for the resources and so I've not been surprised by the performance and, in fact, think that there's more to come. I don't think the story is over yet.

MB: Yes, we're definitely of the view that the resource investment story is not over. We're still in the early innings. There are a lot of reasons we believe that the demand for resources will continue to expand. There's the inflation aspect. A lot of aspects come into the various resources, whether it's the metals or energy that we feel have a very bright future going forward.

We're not of the camp that thinks deflation is here to stay, or that there's not going to be decent growth globally. We're in a global economy. There's just no two ways about it. While the U.S. or Europe may be slower, at this time and going forward over the next few quarters there's a lot of growth that's occurring in Asia and Latin America, and they need resources. And, to the extent that the populations are improving their quality of life, they're consumers and they want things that use resources of base metals, and they want gold. We just believe that it will continue and that there's a very bright future for resource companies.

TER: How do you decide where you're going to invest for your fund?

MB: The Encompass Fund was set up as a no load general mutual fund. It's not a hedge fund. We're an SEC-registered no-load mutual fund. It was set up to invest in companies regardless of market cap size because we don't think a fund should be limited to investing in large or small companies, or whatever. It was also set up to invest in whatever areas we believe offer good, long-term appreciation.

So, we can invest in any sectors that we think look attractive or are attractive. For the last several years—even before we started the Fund with our private client accounts—we've believed in resource companies—gold, silver, other commodities—so we were invested there. When we set up the Fund, we invested in a number of resource companies. We do have other areas we like—healthcare, particularly, and some special situations that we invest in. But when looking at it from the standpoint of the Fund, we don't want to be necessarily a resource company or a resource fund or a gold fund. We want to invest where we believe there are opportunities for long-term appreciation and that leads us to a variety of the resource sectors.

TER: Are you looking at long-term appreciation as a sector play or actually buying individual companies and holding them for long-term appreciation?

MG: I would say both. When Marshall and I got into this business, 'long term' meant 5 to 10 to 15 years. Nowadays, long term seems to mean two to four years. The definition of long term has clearly changed as investors have gotten less and less patient.

TER: Do you have real gems in the portfolio?

MB: We think they're all real gems, but some of them, from a catalyst standpoint or a near- to intermediate-term standpoint, stand out. An area that we like very much is uranium because of, again, supply and demand factors, production factors, production difficulties. There are 440 nuclear plants operating worldwide, 104 of them in the United States. There are approximately 100 or 120 that are on the drawing boards in various stages of planning or construction. Roughly 40 nuclear power plants are currently under construction worldwide. It takes uranium to operate those plants and generate the electricity that the plants are designed to generate.

Nuclear plants worldwide are currently utilizing approximately 180 million pounds of uranium; but there are only approximately 100 million pounds of new uranium being produced (mined on an annual basis). The balance over the past number of years has come from above-ground inventories or from decommissioning, primarily, of Soviet nuclear weapons. Both those sources are coming to an end. The Soviets have said that the agreements to reprocess their nuclear weapons, which are scheduled to expire in 2013, will expire then. They will not extend it. So that source of uranium is coming to an end. There's a definite supply-demand imbalance.

The United States' nuclear power expansion is slow, but it is progressing. The Obama administration is somewhat wishy-washy as to the extent to which they're going to support it or not. But the fact of the matter is the new plants or expansions are moving along in the U.S., and, more particularly, around the world in Asia, China, France, Japan and India—and it's going to require more uranium. When you talk about the recession and its effect on supply, that hasn't affected the uranium industry. Cameco Corp. (TSX:CCO), the world’s largest producer, which currently produces 20% of the uranium in the world, had a major mine that was scheduled to come into operation a couple of years ago, Cigar Lake. Cigar Lake has had major flooding problems and production from that project is now out two or three years. There are people that say it'll never come into production. So there are some production problems.

BHP Billiton Ltd. (NYSE:BHP) (ASX:BHP) (PK SHEETS:BHPLF) had a major uranium project in Australia which has been slowed down for expansion. It's to be considerably expanded and that has been slowed down for a variety of reasons, logistical and financial. One of the companies that we have in the portfolio and that we have been very positive on is a Canadian company, Uranium Energy Corp. (NYSE.A:UEC). Uranium Energy has a number of uranium projects that they acquired over the last several years in the U.S.—in Colorado, Utah, Wyoming, Texas and New Mexico. Their primary project is in Texas and it is progressing, we believe, very, very nicely toward the objective of producing uranium in Q4 '10, 12 to 15 months from now.

We have been in Uranium Energy for some period of time. We’ve added to it and it has been an outstanding performer this year, as it went from under a dollar at the end of last year to currently roughly $2.50. It has been higher. They are expected to be the next uranium-producing company in the U.S., and there's no question that there will be a market for that uranium. They may or may not sell it before they start production. They may or may not be the company that takes it into production. It is possible that somebody will come along, a uranium user, and want to buy the project and/or the company. But regardless of whether it gets bought, we feel there's a very bright future for Uranium Energy and some other companies operating in the exploration and production of uranium.

TER: Do you think there's any risk that uranium will be deemed a strategic resource by various countries inhibiting the flow of uranium into what they call the general market pricing mechanisms?

MB: I think the answer is yes, and it's not just uranium—it's a number of commodities, such as the rare earth elements in China, and China saying 'well, we're not sure we're going to continue exporting. In any event, we're not going to export as much as we have.’ We believe that's going to be the case with a number of commodities where countries that are producers are going to be restricting exports and expansion of production because they realize they have a valuable asset in the ground and they want to manage how that's monetized and for what period of time, whether it's monetized by them, their own country and their own companies, or elsewhere.

Certainly a major factor in the commodities arena these days is China and other emerging countries, but particularly the Chinese companies, many of which are state-owned and/or state-controlled, buying resources in other countries or buying portions of companies in other countries. And there's no indication that there's going to be any slowdown of that effort on China's part, or on the part of the host country to minimize the extent to which a foreign country is—whether it's China, Australia, Japan or Korea—acquiring assets. The South Koreans are interested in iron ore because they have a very, very large steel industry. The Japanese are interested in a wide variety of commodities to supply their industries. So it's a factor that's present and it's not going to go away, in our opinion.

TER: How has this potential of government intervention impacted your decision on which countries to invest in?

MB: For one thing, it's likely that prices will get higher for both the commodity and the value of the companies that are producing those commodities. A number of the companies that we talk to tell us that they've been approached by mostly Chinese and, in some cases, Japanese, both representatives of the government, as well as of companies in those countries that are interested in acquiring either the resource or the company itself. And that gets into a competitive situation, which should move prices higher.

One of the areas that we haven't talked about that we like is coal. The Chinese, as you know, are an enormous consumer of coal. They would prefer not to have to import the coal. So we looked at companies that are producing coal in China and we've invested in one just recently that we think has terrific potential, L&L International Holdings (LLFH:OB). We've invested in a coal company that's producing coal in Mongolia, about 20 miles from the Chinese border, that we also think has enormous potential. It's SouthGobi Energy Resources (TSX.V:SGQ), which is about 80% owned by Ivanhoe Mines Ltd. (TSX:IVN) (NYSE:IVN). Ivanhoe spun out SouthGobi and its coal deposits and is concentrating on copper and gold. So SouthGobi is in production, expanding production.

As Malcolm said, it operates about 20 miles from the Chinese border and they're running trucks 24/7 from the mine facility to the Chinese border, where they're loaded on rail cars to be taken into China to be utilized. We would anticipate that at some point in time there may be some business relationship activity between the 80% owner, Ivanhoe, and SouthGobi. But whether that happens or not, SouthGobi is doing extremely well, is well capitalized, well funded, is increasing their production, and we think has a very bright future as an investment.

TER: What other sectors of energy are you invested in?

MB: Well, certainly oil and gas. We invest in companies; we invest in equities. We don't do futures. We don't own the commodity itself for a variety of reasons. We're in oil companies. We, in the past, have been more heavily than we are now in the Canadian energy oil and gas trusts. There have been tax and other changes, so we have reduced our exposure to Canadian Energy Trusts, but we still have some exposure. We still think some of them are attractive. And an area that we have been investing in somewhat and will be increasing is natural gas. Natural gas prices have just been clobbered, and, again, its production has increased, and the demand has gone down.

Weather enters into it. Hurricanes enter into it. A lot of factors enter into it, but the bottom line is natural gas is selling at less than $3.25 per mcf. It's way, way off its high of $15 and way out of line with the historic relationships between natural gas pricing and oil pricing. We think because we're, at heart, value players — although value to us doesn't necessarily mean that it's some ratio of book value or some of the other metrics that you sometimes see about value players—value means it's undervalued, that there are things that are not being recognized by the market place and will result in a company stock going up in price. And we're also contrarians. There are very few people we talk to these days or that you hear on CNBC or that you read anywhere who have much good to say about natural gas. There's just a natural inclination for us to look closer at that kind of situation, which we have been doing and we have done some small investing in natural gas companies or the natural gas ETFs for the Fund. We anticipate we will be doing more of it because we think that there's a far greater likelihood that natural gas prices will go up and the stocks go up over the coming three, six, nine, twelve months than it going any lower.

TER: Are you looking just at North American natural gas or do you have a different view of international natural gas opportunities?

MG: We always look everywhere, not just necessarily North America, but we're very sensitive to the political realities of the world and prefer to be investing in safer jurisdictions. And I might be a little more cautious than Marshall in this area. We've also looked at alternative energy. We've had meetings with people who are proposing to produce energy from every agricultural resource imaginable and think that still is some distance away. It still is going to be on the edges, a small portion of energy production over the next several years. We have invested a little bit in solar and think there may be opportunities there, but we still think it's not mainstream yet. We've looked at hydro, we've looked at wind as well, but we don't think we're there yet. As Marshall has indicated, we are strong advocates of uranium and think that the American public doesn't understand the efficiencies, the improved technology, that safety improvements have been made. It's not a dangerous commodity anymore. And, also, it would provide a very considerable number of jobs in the United States and, as you know, there's substantial uranium in the United States. It would really reduce our reliance on foreign imports. So, for all these reasons, we are advocates of nuclear power.

TER: Malcolm and Marshall, this has been great. We appreciate the time you've taken with us today.

DISCLOSURE: Malcolm Gissen
I personally and/or my family own the following companies mentioned in this interview. Encompass Fund, Uranium Energy Corp., Ivanhoe Mines, SouthGobi and L&L International Holdings.
I personally and/or my family am paid by the following companies mentioned in this interview. I own a 50% interest in Brick Asset Management, the management company that the Encompass Fund pays a 1.45% management fee to manage the Fund.

DISCLOSURE: Marshall Berol
I personally and/or my family own the following companies mentioned in this interview. Encompass Fund, Uranium Energy Corp., and L&L International Holdings.
I personally and/or my family am paid by the following companies mentioned in this interview. I own a 50% interest in Brick Asset Management, the management company that the Encompass Fund pays a 1.45% management fee to manage the Fund.

Malcolm Gissen founded Malcolm H. Gissen & Associates Inc., an investment advisory services firm, in San Francisco, California in 1985. He has been a financial advisor since 1982 and he became a Certified Financial Planner in 1985. He converted his firm to a money management firm managing separate accounts in 1999. Mr. Gissen’s management experience has focused primarily on investments in publicly traded companies, especially in the resource and real estate sectors. Mr. Gissen received a B.S. degree from Case Western Reserve University in Cleveland, Ohio and a J.D. degree from the University of Wisconsin.

Marshall Berol has been engaged since 1982 as an investment manager in San Francisco, CA. Since 2000, he has been the Chief Investment Officer of Malcolm H. Gissen & Associates, Inc. In addition, for more than 15 years, Mr. Berol has owned his own investment firm, BL/SH Financial. Mr. Berol’s investment management experience has focused primarily on investments in publicly traded companies. Mr. Berol did his undergraduate work at the University of California (Berkeley) and received a J.D. degree from the University of San Francisco School of Law.

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Have a good one.

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Wednesday
Aug262009

Green Shoots or Greater Depression?



In this mornings mail bag we have this take on the current state of the economy by Bud Conrad/David Galland, Editors, The Casey Report which we hope that you enjoy.

While we aren’t contrarian for the sake of being contrary, more often than not that is the position in which we find ourselves. Today, with the media falling all over itself to paint a rosy outlook for the economy while simultaneously voicing encouragement to the new administration in its remake of the nation in previously unimaginable ways, it’s hard not to question our conviction that the worst is yet to come (read more…)


Thursday
Aug202009

Carmel Daniele: This Fantastic Crisis

Carmel Daniele.JPG

Source: The Energy Report 08/20/2009
http://www.theenergyreport.com/pub/na_u/1043

In 2007, she claimed the current commodities super-cycle would last another 20 years. But given the economic implosion since that time, could it still be true? "Absolutely," says Carmel Daniele, founder, CEO and CIO of CD Capital. "The crisis that occurred last year after Lehman's collapse just interrupted the cycle," she explains, adding that it "is actually going to seal the next stage of the super-cycle. . .it will make it stronger and last even longer." In this exclusive interview with The Energy Report, Carmel forecasts significant supply shortages resulting from both the current lack of money flowing into exploration and planned infrastructure spend by emerging countries'. She also shares which companies she's investing in and why she believes long-term investors are "very lucky" to experience this fantastic crisis.

The Energy Report: Carmel, in 2006 you started your fund, the CD Private Equity Natural Resources Fund, specifically to take advantage of the commodity super-cycle. In 2007, you stated you thought this super-cycle could last at least another 20 years. Since 2007, several key commodities are trading at substantially higher levels—even with the market adjustment of 2008. Have the market fluctuations since 2007 affirmed or challenged your view that this commodity super-cycle has another two decades to run?

Carmel Daniele: Absolutely affirmed it! The crisis that occurred last year after Lehman's collapse just interrupted the cycle, and I believe the cycle is still alive and well. And I also believe that what's happening with this crisis is actually going to seal the next stage of the super-cycle, and it will make it stronger and last even longer.

If you look at history, on average, the past cycles have lasted an average of about 20 or 30 years. In the 1880s, the U.S. industrialization super-cycle lasted 40 years, and that involved the industrialization and urbanization of only 100 million people. In the 1960s, after World War II the Japanese industrialization super-cycle lasted 20 years—and that involved 30 million people. And the one we have now with China and India, which is only nine years in, involves the urbanization and industrialization of 3 billion people. So, I wouldn't be surprised if it lasted longer than 20 years.

But historically, these super-cycles have a lot of violent swings up and down, but the trend is up. So, you have to be a long-term investor in order to be able to survive the dips. They also provide a lot of opportunities when there are dips.

TER: In the industrializations you pointed out in the U.S. and Japan, and now China/India, are all commodities going to rise universally or will some rise before others?

CD: No, they don't always rise at the same time. It all depends on what is driving it at the time; for example, it may be energy and coal demand for infrastructure spending. It all depends on the demand and supply balance of the particular commodity; and they go through different cycles. So, they won't all happen at the same time. It just depends on which country is demanding what and where the supply is coming from. Also I think what you will find over time is some countries will build barriers around a strategic resource, and we're starting to see that already, where some countries are starting to put duties on exports so they can consume the raw materials themselves and secure their own supply.

TER: There's been a lot of press related to China, not so much about barriers, but the fact that they're starting to stockpile base metals and raw commodities. What's your feeling in terms of China and the influence they will have with potential barriers and duties on commodities, and what will that mean to the commodity prices?

CD: That's a very interesting question. Basically, they have a list of strategic resources and it's actually illegal for foreigners to own certain metals. You've got to actually watch and see what China is doing rather than listening to what they're saying. What they've been doing is taking advantage of the low copper prices and stockpiling. Iron ore is one that is really interesting when it comes to China, because they actually import almost all of the iron ore that they need. They don't have very high-grade iron ore in China and they've been trying to control the price as the world's largest importer at 60%.

The government of China sees iron ore as a very much-needed resource for their infrastructure that they're going to be building. I think they're going to be spending over half a billion U.S. dollars on roads, railways and power. They've been trying to take control of the pricing, through the China Iron Ore and Steel Association, as they can't do that with 100 steel mills all negotiating their own price. So, they've threatened to reduce the number of import licenses of iron ore to under 10 so the government can get better control over the pricing. All this has collapsed the annual negotiations over iron ore pricing.

The world has got limited resources; you've got all these emerging countries growing at a phenomenal rate. You've got this population explosion, and they're all waking up to the fact that maybe they're not going to have enough resources to continue building out their empires.

TER: As the demand from India, China, and other developing countries increases, what investment opportunities do you see?

CD: There are two drivers. First, the population explosion—the world's growing by more than 17 million people per year. In 2008, the world population was 6.5 billion with 3 billion in cities; by 2030, there will be over 8 billion people on the earth, and 5 billion will be in cities. So, there will be an extra 2 billion people living in cities, needing things like housing, cars, and of course to be fed. Because of that, I like potash and phosphate, which goes into fertilizer, which is used for agriculture to feed the growing population.

The other big driver is all the emerging countries' infrastructure spending. In the next five years, Asia, excluding Japan, will spend over $2.5 trillion in infrastructure and that's going to need a phenomenal amount of iron ore and coal.

TER: Do you see the possibility that the limitation of these natural resources will limit the ability for these countries to expand?

CD: Yes, that is why China is strategically building up its resources; it's very shrewd. I think that China is positioning itself perfectly; it's the iron ore and a few other minerals that they're actively looking for. Yes, I think it could probably slow down if they don't have the metals they need. Or they could start using substitutes.

TER: But in the situation like lithium or copper, there really aren't any substitutes; so could that limit the expansion we're going to see here in the next five years?

CD: Given that there's no money flowing for the exploration for these metals, it has a double whammy effect. Yes, I'd say in the next five years, probably, you'll start seeing a chronic shortage of some of these metals, if there's no substitute. But really, you can't go on a plane with a laptop and have fuel in your computer so there are few viable substitutes for lithium. And lithium is related to electric cars, as well. The people in China are going to start buying more and more cars, because there are tax subsidies in China for people to buy cars and apparently only 5 out of 100 people in China own a car today. Imagine when they get to the U.S. ratio of 70 out of 100 how much metal those new cars will consume.

TER: So, with these shortages, how are you positioning your Fund to take advantage of those investment opportunities?

CD: Well, basically, what I'm trying to do is invest in anything that these emerging countries need to continue their industrial revolution, and remember, they are the ones with the deep pockets. So, what I look for is investing in companies that have a world-class resource that is attractive to the emerging markets either through an off-take or through actually buying it outright.

And the interesting thing is this crisis is different than other crises we've seen because the emerging markets are the ones with excess foreign exchange reserves. China has $2 trillion U.S. dollars in foreign exchange reserves. India's got a quarter of a trillion. Russia's got half a trillion. So, they've got the deep pockets. And they're actively looking to convert their U.S. dollars into hard assets. And it's not just these three emerging countries that I've mentioned that have surplus cash; there's Korea and Japan, as well.

TER: What are some of the investment plays that you're doing right now with the Fund?

CD: I invest predominantly in private companies because I am trying to look for tomorrow's stories today at low prices. One interesting private one is a high-grade iron ore company with 4.5 billion tons in Brazil; it's the third largest in Brazil. It's the lowest quartile of producers, and it's the best positioned to consolidate iron ore producers in Brazil. China is also now increasing its imports of iron ore from Brazil and has reduced its imports slightly from Australia.

Other private companies are coal in Canada, and coal in Indonesia. As I mentioned, India is hungry for thermal coal, especially from Indonesia because it lowers transport costs and light sulfur coal suitable for their existing and new coal-fired power stations. So, if you're bullish on iron ore, you've got to be bullish on coal as well. And Canada's got lots of untapped resources and high-grade met coal and a long market history in the Asian steel industry. There's a lot of infrastructure already in place there to deliver to export markets.

Another one that I am looking at is potash in Brazil. It's amazing, but Brazil imports 90% of its potash needs, and it's got a growing agricultural market. So that's only just growing. I am just amazed that Brazil got itself into this position.

TER: You're mentioning a lot of private companies. How can our readers who are individual investors take advantage of some of these tomorrow stories today?

CD: The best way to take advantage of these private companies is to invest in a Fund like the CD Private Equity Natural Resources Fund that invests predominantly in privates.

However, a public company that I quite like is Americas Petrogas Inc. (TSX.V:BOE). It's got oil and gas in Argentina but not many people know that it's got a hidden gem, a potash deposit in Peru. Research Capital has valued their potash deposit at over $2 Canadian per share, but the price of both the potash and the oil and gas in Argentina is roughly 28 cents a share and they're looking at spinning out the potash in Peru out at some stage.

Another one I like is Greenland Minerals Ltd. (ASX:GGG); it has a very large rare earth deposit in Greenland. It's the largest outside of China; potentially it could be the largest in the world because there is still potential upside in their resource. The other thing—and not many people know this—is that they have over 200 million pounds of uranium as a by-product.

TER: Wow!

CD: Yes, and this company could be a threat to the monopoly that China holds over supply, and this could help attract interest from Japanese and North Korean groups to secure their own supply outside of China.

TER: Another thing you mentioned earlier, when you were talking about base metals, is lithium and the need for lithium ion batteries. Are you looking at any lithium companies?

CD: Yes, we're watching Western Lithium Corp. (TSX.V:WLC) and looking at Latin American Minerals Inc. (TSX.V:LAT), which is going to be spinning out a Latin American lithium project called Lithium Americas on the TSX-V.

TER: Are there any other companies that you can share with us at this time?

CD: Yes, there's Bannerman Resources Ltd. (TSX:BAN) (ASX:BMN), with uranium properties in Namibia. The reason I like it is because it's really close to Extract Resources Ltd. (TSX:EXT) (ASX:EXT), and when you compare the valuations of those two, you realize how undervalued Bannerman is. And the reason that Extract is valued a lot more than Bannerman is because Rio Tinto is interested in it.

TER: Yes. Is there a possibility that Rio Tinto would also be interested in Bannerman?

CD: I wouldn't be surprised. Yes, if they want to consolidate the region, but to date nothing's been announced.

TER: And is Bannerman currently producing or exploring?

CD: Not producing yet but it's the next significant large-scale uranium project due on line. It is targeting annual production of around 5 to 7 million pounds of uranium by 2011. And it's in a country where they're used to uranium mining; it's got low-cost production.

But if you want something that's producing, I like Continental Coal Ltd. (ASX:CCC) with coal operations in South Africa. They just recently raised capital to acquire and commence production by next quarter on two of its projects. The company is targeting production of around 100,000 tons per month from the redevelopment of these brownfield open-cast coal mines in South Africa. They recently bought another 100-million ton project. They've got the ability to ramp up production from 1.5Mtpa to 3Mtpa; and effectively double production in two years.

TER: Do you have any specific companies you're looking at for platinum or palladium?

CD: There's one that's called Nkwe Platinum Ltd. (ASX:NKP). They have a portfolio of platinum deposits located in one of the largest and richest platinum regions in the world. They expect upgrades to their already-large resources, as well as the completion of the feasibility study by late this year.

TER: Carmel, any last thoughts you would like to give to our readers?

CD: I think we are very lucky to be experiencing what's happening with the whole commodities super-cycle. The stars are all aligned, and it's just very exciting. It's going to last a very long time, and this is something you see only once in every couple of generations. What we're witnessing now is something that will be written up in history books some day, with the emergence of China as a super-power and India close behind. And I think that this crisis, though some people see it as a negative, is fantastic because basically there are so many opportunities around that you could buy at distressed prices, and you can throw valuations out the window. For a long-term investor, if you buy now, you can make great fortunes when the super-cycle comes back again, and it will come back, longer and stronger.

DISCLOSURE: Carmel Daniele
I personally and/or my family own the following companies mentioned in this interview: None
I personally and/or my family am paid by the following companies mentioned in this interview: None

Carmel Daniele is the founder of CD Capital (see a chart of her Fund's Performance) and CIO of the CD Private Equity Natural Resources Fund. The Fund's investment objective is to achieve capital growth through pre-IPO and pre-trade sale companies in the natural resources sector, targeting opportunities that deliver substantial returns on exit.

Carmel was previously focused on selecting and negotiating natural resource investments for the Special Situations Fund at RAB Capital. Prior to this she was a Group Executive in Corporate Advisory at Newmont Mining, negotiating and structuring mergers and acquisitions around the world for the Newmont Capital group which included the US$24 billion three-way merger between Franco-Nevada, Newmont and Normandy to create the largest gold company in the world.

CD Capital was also the winner of the prestigious Fund Manager of the Year Award by Mines & Money.

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Streetwise - 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 (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.
Streetwise Inc. does not guarantee the accuracy or thoroughness of the information reported.
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.
Participating companies provide the logos used in The Energy Report. These logos are trademarks and are the property of the individual companies.
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Thursday
Aug062009

Barbara Thomae: Uranium Will Rebound with Economy

u3o8 chart 07 aug 09.JPG
chart supplied by u3o8.biz


Source: The Energy Report 08/06/2009

http://www.theenergyreport.com/pub/na_u/1022

The Energy Report checked in with Barbara Thomae, Senior Mining Analyst with the MineralFields Group, who says that they believe the economic recovery will spur re-investment into the uranium sector, especially once uranium prices strengthen in line with other commodities. She says her firm's prudent portfolio picks (overweight in uranium and heavily overweight in gold juniors) have enabled them to have the best performance track record among all flow-through limited partnership groups for the past four years. Read on.

The Energy Report: There's a lot of "news" swirling around uranium (i.e. Russia has a moratorium, China is building dozens of nuclear facilities, recession is pausing development of nuclear facilities and more.) What's the truth regarding uranium? What should investors in this sector be watching?

Barbara Thomae: All this news does seem to be confusing investors and part of the problem is that there is no formal physical exchange for uranium as with other commodities like precious metals or oil. Indications for the price of uranium appear to have been trending lower (now at US$48.50 per pound) at a time when other commodities are trending higher in anticipation of an end to the recession. We believe that since uranium prices are negotiated through contracts between producers and consumers, investors need to look at the long-term supply and demand equation when it comes to uranium. They should consider the positive impact that the global acceptance of nuclear energy will have on the demand side over the next 10 years. Countries are definitely getting more politically motivated toward utilizing nuclear energy as a viable non-greenhouse gas-generating alternative to oil or coal.

TER: Is there a current or pending shortage? How large (in size or duration) is the shortage?

BT: We understand that mined production of uranium fell short of consumption by 60 million pounds last year, and the shortfall was made up by using recycled nuclear material from weapons from Russia. But this agreement is set to end in 2013 and if it is not renewed, primary uranium production will need to be stepped up significantly. With some 436 new reactors being planned worldwide, uranium demand is expected to rise at least 30% over the next decade.

While many assume that the supply from primary uranium sources (mines) will be there to meet demand, we believe that this is wishful thinking considering that new uranium deposits are very hard and expensive to find and then equally as complicated to permit and develop, creating a huge time gap between discovery and mining phases. The Europeans and Asians are not taking any chances and are busy locking into uranium supply deals now when prices are low. There are reports out that the Japanese government is encouraging domestic companies to invest in Australian uranium mining ventures to secure its nuclear fuel requirements down the road. Cameco, which controls some 15% of global supply, is in talks with the Chinese about a possible supply agreement.

TER: To what extent is any pending gap between supply and demand reliant on increased demand from new facilities being constructed versus ongoing operations of existing nuclear facilities?

BT: Since about three times as much uranium is required during the start-up phase when compared to reactors that are operational, we believe these new facilities will be responsible for a significant increase in future demand. In addition, the new reactors will be higher capacity than those operating, thereby adding to the demand.

TER: Do you see the fundamentals of investing in uranium changing much before the end of the year?

BT: We believe that the economic recovery will spur re-investment into the uranium sector, especially once uranium prices strengthen in line with other commodities. More foreign supply agreements are bound to put upward pressure on prices before the end of this year.

TER: Is the value of uranium and uranium stocks dependent on an economic recovery? So if the economic recovery stalls, will this be reflected in uranium stock prices?

BT: I believe that the value of uranium and uranium stocks depend at least in part on an economic recovery. The recovery should spur development and hence increase energy needs and drive prices for fossil fuels and uranium higher. This should result in getting nuclear energy projects approved and result in higher demand for uranium. An economic recovery will also serve to bring in the capital investments required for uranium projects at both the exploration and the development stages, and go a long way toward easing investors' fears that projects will not get financing.

TER: Do you see certain geographical areas for uranium exploration being better for investors, like Canada's Athabasca Basin?

BT: In terms of economic potential, the Athabasca Basin can't be beat for high uranium grades; however, there are many other issues that need to be considered beyond the exploration stage. Proximity to infrastructure, permitting, First Nation and environmental and safety issues, as well as ground conditions can significantly impact the economics of a project. We have seen key players, like Cameco Corp. (TSX:CCO), having to delay the start of production yet again at its Cigar Lake property owing to flooding.

Areas in Canada that look interesting in terms of future production include the Thelon Basin in Nunavut. Kivalliq Energy Corp. (TSX.V:KIV) is taking a proactive approach towards exploring and developing its Lac Cinquant uranium deposit in Nunavut. It struck a deal with the Inuit that includes a working interest in the project that was discovered in the 1980s. While the deposit has moderate uranium grades compared to the Athabasca, they are still fairly high and located closer to surface. We also believe that companies exploring in the Central Mineral Belt in Labrador could regain their foothold once the moratorium on exploration is lifted in two years time if not sooner.

TER: There seems to be some American properties that are getting attention. . .are you as interested in the companies with assets in Texas, Wyoming, Utah and New Mexico? What about other global areas?

BT: Since MineralFields Group and Pathway Asset Management currently are primarily focused on flow-through financing, we support the junior uranium exploration sector throughout Canada (with the exception of British Columbia, which placed a ban on exploring and mining uranium in the province last year).

Each U.S. state must be judged on its own merits. Wyoming, which is very rich in uranium resources, ranks as the most mining-friendly jurisdiction in the U.S. by the Fraser Institute. But I am hearing about companies like Denison losing money on some of their in situ leach operations in the U.S. and it doesn't help that the government just designated nearly one million acres of Arizona land near the Grand Canyon off limits to new uranium mining claims for two years.

On a global scale, parts of Australia are very prospective for uranium and considered low risk. There seem to be some very worthwhile projects in places like Kazakhstan, Mongolia, as well as Niger; however, the geopolitical risk there is much too high for most juniors.

TER: From an individual investor's point of view, provide your perspectives on investing in juniors compared to seniors.

BT: MineralFields Group looks for undervalued juniors that are trying to expand their resource base, those that are approaching development and those that have compelling geologic targets for new discoveries, all with credible and experienced management. We believe that the investment rewards are definitely highest during the discovery phase of the mining cycle. But this can be fairly challenging for a junior in terms of expenses and time constraints so we prefer to back those with senior levels of professional or academic expertise on board.

Seniors do offer more security, but they tend to be more secretive about their new finds—leaving investors out of the action when discoveries are made.

Actually, MineralFields and Pathway have been overweight in uranium, and heavily overweight in gold, juniors for the last several years, and our prudent portfolio picks have enabled us to have the best performance track record among all flow-through limited partnership groups for four years in a row (from 2005 to 2008 inclusive), with details on our website (see below).

TER: Do you have any favorite uranium companies, seniors or juniors?

BT: Our MineralFields and Pathway funds are holders of Northern Continental Resources Inc. (TSX.V:NCR) due to the outstanding discovery potential at its Russell Lake property in the Athabasca Basin. A superior takeover bid by Hathor Exploration Ltd. (TSX.V:HAT) last month over rival Denison's initial bid for Northern Continental will likely be approved in the coming weeks. We really like Hathor's aggressive yet scientific approach to exploration and feel it will lead to a discovery at Russell Lake before too long.

We also invested in Fission Energy Corp. (TSX.V:FIS) recently as part of a $3.9 million raise as the company plans to drill test a similar structure as that which hosts the adjacent high-grade Roughrider uranium deposit that Hathor is successfully defining. Fission was spun out from Strathmore Minerals Corp. (STM.V) in 2007 to separate out its Canadian properties. The company has plans to drill its Dieter Lake property in Quebec this summer using flow through dollars.

We are investors in Vancouver-based Anglo-Canadian Uranium Corp. (TSX.V:URA) who has two early stage uranium properties in Quebec's Otish Mountain area. We like the diversity this company brings as it also has three uranium properties in the central U.S. and is expanding its portfolio through recent acquisitions in gold and copper prospects in the Yukon, British Columbia and Quebec.

As mentioned, we financed Kivalliq Energy's (KIV.V) in its efforts to confirm historical uranium resources and test the extent of this mineralization along an anomalous trend at its Lac Cinquant property in Nunavut. We believe they should be successful because surface showings along the trend have returned encouragingly high grades of uranium in association with silver and copper.

Our most recent investment is in CanAlaska Ventures Ltd. (TSX.V:CVV) to support its drilling program that will test for basement-hosted feeder systems at the Fond du Lac property that it can earn up to 49% in from the First Nation reserve lands. We were encouraged by the company's uranium expert, Dr. Karl Schimann, who has identified the type of alteration/mineralization that signals uranium mineralization potential nearby and the fact that the property is situated on the northern portion of the Athabasca basin where the unconformity target is within 100 metres of the surface. CanAlaska is also active on several other fronts within the Basin this year.

DISCLOSURE: 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 and 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.

With over 25 years of experience as a geologist in the resource sector, Barbara Thomae's (P.Geo.) work history includes consulting work for junior and senior mining companies since the early 1980s. Barbara is currently a Senior Mining Analyst with the MineralFields Group. She joined MineralFields Group as its Senior Mining Analyst in October 2005 and heads its Vancouver office to focus on coverage of Western Canadian based junior mining companies and financing opportunities. Barbara also holds a graduate level Diploma in Environmental Science and is a professional geoscientist (1992) registered in the province of British Columbia and a member of the CIM and the Geological Association of Canada. She graduated from the University of British Columbia's Geological Sciences program in 1983.

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.
Streetwise - The Gold 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 (i) only in whole (and always including this disclaimer), but (ii) never in part.
The GOLD 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.
Streetwise Inc. does not guarantee the accuracy or thoroughness of the information reported.
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.
Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.
Streetwise Inc.
P.O. Box 1099
Kenwood, CA 95452
Tel.: (707) 282-5594
Fax: (707) 282-5592
Email: jmallin@streetwisereports.com


Have a good one.
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Sunday
Aug022009

Extract Resources Limited Potentially World Class

EXT Logo 26 May 09.JPG


Extract Resources Limited (ASX/TSX: EXT) issued the following media release today stating that preliminary cost estimates study confirms Rossing South’s potential to be one of world’s largest uranium mines.

Study highlights are as follows:

• Production rate 15.0 M tpa
• Estimated head grade 487 ppm U3O8
• Mill Recovery 92%
• U3O8 production 14.8 M lbs / year (6.7 K tpa)
• Project capital estimate US $704M
• Production cost estimate US $23.60 /lb U3O8


The report goes on to say that preliminary cost estimates on the granite hosted, uranium mineralisation at Rossing South in Namibia indicates that the project can support a viable open pit mining operation developed to feed a 15M tpa agitated tank sulphuric acid leach processing plant. Annual production has been estimated at 14.8M lbs U3O8 with capital costs estimated at US$704M and operating costs of US$23.60 per lb U3O8.

Mr McIntyre added this comment “the availability of infrastructure combined with the confirmed resource and the outstanding exploration potential still to be tested on the Husab project, should ensure a long and successful mining operation centred on Rossing South.”

All of this is terrific news for the shareholders.

Power is expected to be sourced from Nampower with an expected demand of about 35 MW. Nampower is currently completing an Environmental and Socio Economic Impact Assessment to construct a new coal fired power station in the Walvis Bay area with three capacity scenarios being considered to provide 200, 400 or 800 MW of electricity.

Water for the operation is expected to be sourced from a proposed seawater desalination plant located between Swakopmund and Henties Bay. There have been discussions with several parties regarding the prospect of a collaborative desalination project to meet the needs of multiple industrial customers in the region. Namwater are expected to be the main supplier of this service.

However we should note that there is a long time span between having completed a study to actually commissioning a coal fired power station and the same goes for the Approval, Design, Construction and Commissioning of a desalination plant.

Have a good one.

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Sunday
Jul262009

Extract Resources Limited: 300 M lbs by the end of the year

Extract chart 26 July 2009.JPG



Chart courtesy of StockCharts.com


As we can see from the above chart Extract Resources Limited (EXT) just continues to climb higher with rate of climb accelerating recently on the back of terrific news releases such as the one below which came out on 25th July 2009 by the CNW group with the this headline:


102 M.tonnes @ 543 ppm for 122 M.lbs U(3)O(8)


Other Highlights:

- Combined Husab Inferred Resource = 268 M.lbs, plus
Indicated Resource = 24 M.lbs U3O8

- Combined Zone 1 & 2 Inferred Resource = 243 M.lbs, plus
Indicated Resource = 24 M.lbs U3O8

- 84% increase on Rossing South global Resource

- Rossing South ranked in top 10 of global uranium deposits

- Zone 1 and Zone 2 mineralisation still open along-strike and down-dip
Extract's Managing Director, Peter McIntyre said that Rossing South continues to deliver on the upside, and has well exceeded the original targets established. The project has grown rapidly from the original discovery announcement in January 2008.

"That we now have combined resources for Rossing South of 267 M.lbs or
121,000 tonnes of U(3)O(8) at such good grade is a measure of the world-class quality of the deposit," Mr. McIntyre said. He added that Zones 1 and 2 would
continue to grow as they remain open in multiple directions. "The fact that we
have delivered this after only 18 months of resource drilling gives us
confidence that 300 M.lbs by the end of the year is now within our sights."


If you have the time it well worth a few minutes to read this article in full, just click this link.

Below are a few excerpts from an excellent presentation on Extracts web site which depicts where they are and what they discovered so far which puts this find into perspective.




Global League Table 26 July 2009.JPG
Global League Table




Politics: President Pohamba took over from independence fighter Sam Nujoma, who led the ruling SWAPO party until 2007. The opposition has only minor representation in parliament. In terms of the economy the Main trading partner is South Africa. Source BBC.

Extract Location 26 July 2009.JPG
Global Political and Economical Risk Map

















Have a good one.

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Wednesday
Jul222009

Is Natural Gas Cheap?

Estimated Recoverable NG For Select Shale Basins (TCF).JPG

Major shale areas or formations in the U.S



A good question analyzed by David Galland, of Casey Research

At the height of its late 2005 rally, natural gas in the U.S. was selling for just over $16/MMBtu, 350% higher than today’s price of $3.56. The oil/gas ratio, now over 18, is an all-time high… suggesting that natural gas is dirt cheap. So, it’s a buy, right?

In a phrase, not exactly.

According to a recent report by Natural Gas Intelligence, U.S. natural gas available for production “has jumped 58% in the past four years, driven by improved drilling techniques and the discovery of huge shale fields in Texas, Louisiana, Arkansas and Pennsylvania, according to a report issued Thursday by the nonprofit Potential Gas Committee (PGC).”

According to the report, the increase in gas discoveries and production improvements means that North America shouldn’t have to be concerned about gas supplies for up to 100 years!

Dr. Marc Bustin provided an overview of the situation in the May edition of Casey Energy Opportunities.

In the United States, the tremendous growth in natural gas resources and estimated recoverable natural gas, particularly from gas shales, just in the last two years (Figure 1) is sending tremors through the entire industry. These tremors include the risk of making obsolete the proposed $26 billion Alaskan and $16 billion northern Canadian pipelines to tap northern gas resources and a slue of proposed LNG terminals... unless they are for export!  

The numbers currently kicked around are that something around 2,000 trillion cubic feet of gas are technically recoverable in the United States. At current production rates, this supply would last about 90 years. 

Some analysts are predicting that even if the U.S. economy recovers in the next year, the amount of gas discovered to date in gas shales will severely dampen any increase in gas price for some time. According to a new study by energy consulting firm CERA (Cambridge Energy Research Associates), new technologies for unconventional gas fields are being applied so successfully that supply is essentially no longer a driver in either production or price in the North American gas market – whatever the market wants, North American gas fields can supply. CERA reports that natural gas production in the Lower 48 states has risen a startling 14% from 2007 to 2008, for example. 



Figure 1. The chart above depicts the Major shale areas or formations in the U.S. and the estimated recoverable natural gas in 2006 and 2008. Modified from Daily Oil Bulletin (May 4, 2009).

Given the increase in production and the small slide in demand, the price of natural gas has fallen to around $3.50-$4.00 per MMBtu (down from $13 per MMBtu last summer). At these prices, many gas prospects are uneconomic, and thus there has been a marked decline in the number of wells being drilled. Rig activity (how many rigs are operating) is down about 50% in North America. 

But here is where an interesting feedback mechanism kicks in. One of the characteristics of unconventional shale gas wells, and to a lesser extent natural gas wells in general, is that the production rate declines through time. Most shale wells’ production rates decline 60 to 90% in the first year. If you were a gas company trying to survive amidst today's low prices, the rate of return on your capital investment would also be painfully low for a significant amount of gas if this were your initial year of production. 

Another complementary fact is that over 50% of natural gas consumed in the United States today is from wells drilled less than three years ago, and 25-30% of the gas produced today comes from wells drilled last year (Figure 2).

Hence it follows that if there are 50% fewer wells drilled this year (from the drop in rig activity), new production will decline about 35-40% by the end of the year, so there will be gas shortages. Those will in turn lead to higher North American prices, which in turn should lead to additional drilling.  



Figure 2. Historical gas production in the U.S. showing the percentage of production from vintage of well (modified from Chesapeake April 2009 Investor presentation from original data of HIS Energy)

Historical Natural Gas Production.JPG

Everything else being equal (which it's not, this being the real, not the mathematical world), gas prices and drilling will see-saw until an equilibrium is reached. In detail, of course, things are more complicated, but it is pretty clear that gas prices will have to rise within the year, and the big losers will remain the more expensive plays that require higher gas prices to be economic.  

Where will the gas price end up in the short term? A poll of analysts by Reuters suggests $6 MMBtu in 2010 (Daily Oil Bulletin, May 4, 2009), but I don’t think I would bet on a gas price based on a vote by analysts. At the same time, it's an interesting coincidence (or not – coincidence, that is) that many prospects become economic at around the $6 MMBtu range. Among them are the Haynesville and Marcellus shales – and it's no large leap from there to see their tremendous gas production potential acting as a buffer to gas prices going much higher in the near term.

Thus, while there may be some seasonal and relatively short-term trading opportunities in natural gas, the overhang of ready supply places a fairly firm cap on the price. Which begs the question, which big-trend energy opportunities should be getting our attention today?

Marin Katusa, who heads the Casey Research energy team, answers the question by, correctly, cataloging the opportunities according to geography.

In North America
1. Geothermal -- the most interesting of the alternative energy sources, by a wide margin.
2. Nuclear.
3. Oil.

In Europe
1. Unconventional gas has, by far, the most upside.
2. Unconventional oil.
3. Small hydro (such as run of river).

In Africa
First and foremost, you want to avoid infrastructure plays (pipelines, refineries, etc). Then you want to look for areas with huge oil potential, which have been held off the market by concerns over political risk. I like what Lukas Lundin is doing in Ethiopia, Somalia, and Kenya, hunting for “elephants” with the idea of eventually selling the discoveries off to the Chinese.

In Asia,

1. Liquid Natural Gas (LNG)
2. Coal Bed Methane (CBM)

Lessons to Learn

There are a couple of useful lessons to be derived by investors looking to tap into the virtually unlimited opportunities in energy.

First, just because something is “cheap” doesn’t mean it can’t stay cheap, regardless of historical ratios -- if there has been a fundamental shift in the supply/demand equation. Which is very much the case with North American natural gas.

Secondly, geological and transport considerations make much of the energy complex a “local” market.

For example, while North America enjoys an abundance of natural gas, Europe is forced to rely on the heavy-handed Russians for the bulk of supplies. As you read this, there are companies looking to break the Russian grip by applying the same unconventional gas technologies that have so successfully built gas supplies in the U.S. -- technologies that are only just now being applied in Europe. Early investors could reap huge profits.

In short, the real opportunities are not found by simply “investing in energy” but rather by taking the time to understand the structural differences within the energy complex and cherry picking the special situations that invariably exist in a sector this large.

David Galland is the managing director of Casey Research, LLC., a private research firm providing independent analysis and investment recommendations to individual and institutional investors in North America and over 100 other countries around the globe. To learn more about the monthly Casey Energy Opportunities advisory, including a special three-month, fully guaranteed trial subscription, click here now.



Have a good one.

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Wednesday
Jul152009

The Carbon Cap: The Newest Form of Taxation

The Carbon Cap.JPG


In this mornings mail bag we have this article by Doug Hornig, Editor, Casey Research which we hope you find interesting and informative.

It’s possible that no concept in history has ever come so far, so fast, and with so little substance behind it, as “global warming.” Or, to be precise, anthropogenic global warming (AGW) – the kind caused by us puny humans rather than by that fireball that keeps the planet habitable.

We’re extraordinarily lucky. If present thinking is correct, the first single-celled living organisms may have appeared as much as 3½ billion years ago, and it would appear that once life arrived, it never went away. That’s a very long time for conditions to have remained favorable enough to keep the chain from breaking.

As the eons unspooled, Earth’s climate varied, sometimes wildly. It has been much hotter than it is today, and much colder. (One current theory holds that the average surface temperature has regularly oscillated between 120° and -50°F.) Nearly all of the changes have been due to variations, some of them cyclical, in the amount of solar radiation reaching the surface of the planet. Through it all, life endured, because of the existence of carbon.

Now, rather suddenly, carbon is the designated boogey man. Individually and collectively, we are told, we must work on reducing our “carbon footprint,” or else something awful is going to happen. The headlines are terrifying: we’ll have hellacious droughts, monster hurricanes, and entire cities disappearing beneath the waves.

Well, perhaps. In a climatic feedback system as complex as Earth’s, anything is possible. More likely, though, is that we’ll see none of the above. Or at least not because of anything humans do or fail to do.

The simple (yes, inconvenient) truth is that scientists don’t even know whether the planet is warming at all, let alone if AGW has any role in causing it. The data are inconclusive at best. Most of those dire predictions you’ve read are based upon computer modeling, and anyone who watches the nightly weather forecast knows how infallible that tends to be.

Yet the truth has not prevented the AGW theory from being presented to the public as fact. Its proponents have so captured the media that Al Gore’s Nobel Prize is a huge story, while the Manhattan Declaration of 2008 gets nary a mention in the press. The latter, endorsed by hundreds of prominent citizens, including two hundred climate scientists, concluded that “current plans to restrict anthropogenic CO2 emissions are a dangerous misallocation of intellectual capital and resources that should be dedicated to solving humanity’s real and serious problems.”

Sadly, that misallocation is about to get a whole lot bigger. If the Obama administration has its way – and it is expected to, since there’s no meaningful opposition – carbon caps will soon be coming to every American town.

If you’re unfamiliar with the concept of a carbon cap, it’s simple. It’s a tax. The president wants to reduce per-capita U.S. carbon emissions to 14% below 2005 levels by 2020, and 83% by 2050. And he’s promoting this as a good idea by suggesting that it will pour $646 billion into federal coffers between 2012 and 2019, through government auctions of the rights to emit greenhouse gases. Those rights would be sold to energy companies, manufacturers, utilities, or anyone else who “pollutes” the air with carbon dioxide. And they could be traded.

Leave aside the question of whether reducing human carbon emissions is truly a valid goal; and whether we need another huge tax; and whether the government will do anything constructive with an infusion of our money, to the tune of nearly two-thirds of a trillion dollars. Instead, just consider the consequences.

The cost of everything will go up, as the affected businesses compensate for their lost revenue. If carbon credits are auctioned at the lower end of the projected range (between $13 and $20 a ton), estimates are that the average price of gasoline will jump by 12 cents a gallon and the average electricity bill by 7%.

Worse, though, is that the pain will be unevenly distributed. As the Detroit News editorialized, the cap-and-trade plan “is a giant dagger aimed at the nation’s heartland -- particularly Michigan. It is a multi-billion-dollar tax hike on everything that Michigan does.”

That is, it penalizes states and regions with large manufacturing bases and coal dependence for electricity, and rewards places with larger populations but light industry and cleaner power plants. As Michael Morris, CEO of coal-heavy American Electric Power, put it: “It is a clear transfer of the middle part of the country’s wealth to the two coasts.” Small wonder that politicians from California and New England are such enthusiastic supporters.

For what to expect here, we can look to Europe, where cap-and-trade is firmly established. While it has worked, in the sense of lowering carbon emissions (though not by as much as anticipated), its effects have been stifling. For example, the Washington Post cited “the Dutch silicon carbide maker that calls itself the greenest such plant in the world, but now can't afford to run full-time; the French cement workers who fear they're going to lose jobs to Morocco, which doesn't have to meet the European guidelines; and the German homeowners who pay 25 percent more for electricity than they did before – even as their utility companies earn record profits.”

This is what’s coming to your town, if Congress capitulates to the White House. The bill that will bring us cap-and-trade recently squeaked through the House with just a single vote to spare. It faces an uncertain future in the Senate, where opposition is stiff. Modifications surely will be made. But with Al Franken having cemented the Democratic super-majority, it’s a lock to pass in some form or other.

Ever-savvy, the market isn’t waiting. Although no cap is yet in place, carbon credits have already arrived. There’s even a place to trade them, the Chicago Climate Exchange (CCX), founded in 2003. And companies are busily buying and selling in anticipation.

How does it work? CCX’s website explains: “CCX emitting Members make a voluntary but legally binding commitment to meet annual GHG [greenhouse gas] emission reduction targets. Those who reduce below the targets have surplus allowances to sell or bank; those who emit above the targets comply by purchasing CCX Carbon Financial Instrument® (CFI®) contracts.”  

In other words, some outfits are stocking up on purchased credits, against the day when they’ll be required by law. Others are speculating that the value of those credits will go up once the federal cap is in place. And some are making a lot of money simply by selling carbon reductions they’ve already made.

Among the players are expected names from the heavy industry and utilities sectors: DuPont, Ford, Reliant, American Electric Power, Potash Corp., Waste Management, and so on. But it’s a very long list, and on it are tech companies like IBM and Intel; retailers like Safeway; Miami-Dade County, Florida and Sacramento County, California; the University of Idaho and half a dozen other schools; even the Embassy of Denmark.

There’s no secret key to why so many want a piece of this action. It’s going to be a very, very big business. If European standards are applied to the U.S., we’re talking about a quarter-trillion dollars of credit trading a year.

Investors – if they’re well heeled enough and willing to assume a lot of risk -- can participate directly in carbon credit trading. Or they can buy stock in the parent of CCX, which is publicly traded in London.

But there are other ways to profit from this unstoppable force.

For example, by investing in select junior exploration companies focused on alternative energies, oil, or uranium. But in these volatile times, it is vital to not only invest in the right companies but to use the right investment strategies. Like the 20-60-20 rule or the Casey Free Ride Formula described in our new, FREE special report Profiting in a New Era. Applying these tactics can make the difference between losing your shirt or winning big -- click here to learn more.


Have a good one.

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Wednesday
Jul152009

Randgold Resources Limited Options Up 100% in one Month

Randgold chart 15 July 2009.JPG

Chart courtesy of Stockcharts

We are pleased to report that we have sold our PUT Contracts on Randgold Resources Limited for $10.00 on Monday 13th July 2009 generating a profit of 100% in one Month. We acquired these contracts on the 11th June 2009 when we purchased the September $65.00 PUT contracts, GUDUM in Randgold Resources Limited for $5.00 per contract in anticipation of a pullback. (Read more)