By The Energy Report, on November 16th, 2011
 From fossil fuels to fission, growing global demand for power generation offers investment opportunities. Thermal coal is heating up and the uranium junior mining sector is set for development and a wave of consolidation. Geordie Mark, mining analyst with Haywood Securities in Vancouver, shares his thoughts in this exclusive Energy Report interview.
The Energy Report: There have been recent takeovers in the coal sector, including the $1 billion (B) takeover of Grande Cache Coal by a Chinese and Japanese business combination. What should investors take away from that deal?
Geordie Mark: Investors need to be aware that metallurgical coal is intimately related to the steel market. Our expectations for growth in the steel market drive our expectations for growth in metallurgical coal. It is a positive sign that the market sees the value of such a strategic commodity. We’ve seen a lot of activity this year in the space, highlighted by the $4B takeover of Riversdale by Rio Tinto (RIO:NYSE; RIO, ASX) primarily for Riversdale’s metallurgical coal asset base in Mozambique.
TER: Chinese imports of metallurgical coal have grown along with China’s steel sector. Do you see this trend slowing in the near term?
GM: With steel demand increasing, we expect China to have an ever-increasing footprint in terms of metallurgical coal consumption. Long-term, there is still big potential for metallurgical coal, although we may see a plateau in pricing in the near term. China is also the largest producer of metallurgical coal, producing more than 500 million tons (Mt) in 2010, but we are expecting continued importation of the commodity in China, as well as Japan, India and South Korea.
TER: Which juniors with advanced coal projects are likely to see some interest from potential suitors on the heels of the Grande Cache deal?
GM: The first that comes to mind is Xinergy Ltd. (XRG:TSX), a company that produces thermal coal, but which recently acquired two metallurgical coal projects. One already produces high-voltage metallurgical coal and Xinergy aims to bring the other into production next year.
Another name is Corsa Coal Corp. (CSO:TSX), which is in production at its own metallurgical coal projects, both surface and underground, in the U.S.
TER: What about Coalspur Mines Ltd. (CPT:TSX; CPL:ASX)?
GM: To put Coalspur in context, it helps to talk about thermal coal. The company’s Vista Coal Project is a strategic asset as there is still underlying, increasing demand for seaborne thermal coal, especially in Asia.
TER: This is coal that is used primarily in power plants, is that right?
GM: Yes, its predominant use is to provide base-load for electricity generation. Coal remains the largest form of base-load power in the U.S. Almost 80% of power in China comes from thermal coal; Japan and India are also very big thermal coal consumers, and importers.
We see Coalspur being able to introduce itself into the thermal coal space through its Vista Project in Alberta, Canada. Coalspur just tied up a contract through the Ridley Terminals in Prince Rupert for up to 8.5 million tons per annum in export volume starting in 2015. Furthermore, the company also signed a memorandum of understanding with CN Rail to co-ordinate coal transport to Prince Rupert starting 2015. The project is right next to the railroad, so it is ideally positioned to add high-quality thermal coal into the seaborne market over the next few years. The large scale of this project, with such high-quality product, and advanced stage of negotiation for infrastructure support, is unparalleled in Canada. We expect Coalspur to make big inroads over the next few years. We have a 12-month target of $2.80 on Coalspur, and it is trading around $1.80.
TER: There is a lot of negative news about the pollution that coal-burning power plants produce. Are you saying that, despite the headlines, the thermal coal market isn’t going away any time soon?
GM: That is definitely what the projections tell us. The International Energy Agency predicts increases in thermal energy consumption over the next 20–25 years. I don’t see thermal coal—the largest form of base-load power across most economies—going away anytime soon as most of tomorrow’s growth is expected to emanate from the Advancing Economies.
TER: Do you have confidence in Coalspur’s management?
GM: Absolutely. The management team has built and run mines in the coal space in various jurisdictions. I am very comfortable with what they will be able to achieve.
TER: The last 12 months have not been kind to uranium companies, especially juniors. Year-over-year, the share price for Denison Mines Corp. (DML:TSX; DNN:NYSE.A), a mid-tier uranium producer, fell 36.5%; Uranium One Inc. (UUU:TSX) dropped 46.2%, and Paladin Energy Ltd. (PDN:TSX; PDN:ASX), a uranium project developer, lost 63.7%. Over the same time period, the TSX Composite Index slipped a mere 4.4%. How do you pitch uranium equities to retail and institutional investors at this point?
GM: The equities have taken a very big hit over the last year, despite the uranium spot price being around where it was a year ago. This equity market artifact is more related to sentiment, I think.
We still see uranium very much as a strategic commodity, even following the nuclear accident in Fukushima. This view is supported by the acquisition and offer activity in the sector in 2011. The sector’s growth outlook looks solid, driven by expected demand increases in China, Russia, South Korea and petroleum-producing nations such as the United Arab Emirates and Saudi Arabia.
TER: The Australian Bureau of Agriculture and Resource Economy estimates that roughly 107 thousand tons (Kt) uranium will be needed to meet demand in 2016. That is about 20 Kt more than the 86 Kt yellowcake expected to be consumed this year. Is an extra 20 Kt a year enough to drive up the share prices of uranium juniors?
GM: I think we need some other catalysts. We need to remove the negativity sentiment toward this sector. For example, we need to see new reactors being built. We need to see a timeframe for non-operating reactors, say those in Japan, to be put back online. Investors need to see more usage of existing reactors and new growth coming into play.
We’re starting to see new demand. A couple of new reactor proposals got the go-ahead in China recently, with construction for the reactors expected to start next year. Progress is starting to be made, albeit on an incremental basis.
The strategic nature of uranium is highlighted by recent interest shown by Cameco Corp. (CCO:TSX; CCJ:NYSE), the world’s largest uranium-only producer, and Rio Tinto in Hathor Exploration Ltd.’s (HAT:TSX.V) Roughrider asset. Rio Tinto’s involvement in the space is very interesting because that company deals with a range of commodities, and it allocates capital across geography and across sectors. By taking an interest in North American assets, Rio Tinto is increasing its stance in uranium.
TER: As I understand it, Cameco came in with what Hathor considered a low-ball bid. Then Rio countered. Has Cameco countered yet?
GM: Cameco has upped the ante and offered an increased bid of $4.50 per share. Cameco has more operational synergy in the region than Rio Tinto, given Cameco’s infrastructure and expertise in the Athabasca Basin. Ultimately, Cameco could provide a greater offer for Hathor than Rio and still maintain similar future margins on the operation.
TER: Does the bidding war for Hathor tell us that the major uranium producers place a premium on jurisdiction?
GM: Yes, but we also have to be cognizant of the inherent quality of the asset. For Rio and Cameco, it’s about where they see the equity markets valuing assets today versus the long-term outlook. It’s a combination of being comfortable in the jurisdiction and in the sector’s value.
TER: Do you expect takeover offers for more juniors with significant high-grade resources in safe jurisdictions, like Canada and the U.S., in the year ahead?
GM: The other situation that has investors’ attention is the potential bid for Kalahari Minerals plc (KAH:LSE; KAH:NSX) and Extract Resources Ltd.’s (EXT:TSX; EXT:ASX) Husab uranium resource in Namibia. Extract Resources is the world’s third-largest uranium company, based effectively on the valuation of the Husab uranium project, which has more than 500 million pounds (Mlb) uranium.
Right now, Kalahari Minerals, the largest shareholder in Extract, is in negotiations with state-owned China Guangdong Nuclear Power Corp. where a potential all-cash offer of £2.4355 per share is potentially on the table for Kalahari.
TER: Another significant project in Namibia is Bannerman Resources Ltd.’s (BAN:TSX; BMN:ASX) Etango uranium project. China’s Sichuan Hanlong Group made highly conditional proposal to acquire Bannerman, but Bannerman recently announced it must do further due diligence before committing to the financing. Is this an indication that Bannerman needs to continue to derisk Etango or that Hanlong simply wants Etango at a steep discount?
GM: Hanlong’s proposal was at quite a low enterprise value per pound rating, much less than $1/lb. That was already a fairly substantial discount to other acquisition metrics in the space. For instance, Hathor and Mantra Resources Ltd. (MRU:TSX) were north of $9/lb. Bannerman’s management and board were talking to many parties subsequent to Hanlong’s proposal. Bannerman’s board considered it to be a low offer for the company. Time will tell.
TER: Do you think Bannerman will find another bidder?
GM: There is a lot of interest out there in the sector for advanced projects, but I think that there needs to be a resolution with the potential take out of Kalahari, and by extension Extract Resources, before focus may move to Bannerman.
TER: Moving back to North America, are there projects here that you expect to generate takeover interest in 2012?
GM: I think people will wait and see how the dust settles for Hathor Exploration, but consolidation is probably the name of the game in the space for the time being. We’ve seen that in the in situ recovery space in North America. There is synergy between Uranium Energy Corp (UEC:NYSE.A), Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.A) and Ur-Energy Inc. (NYSE.A:URG; TSX:URE). Uranium Energy Corp is in production now. Uranerz Energy is in the construction phases, and Ur-Energy awaits a final permit prior to commencement of construction. Then there is the potential merger of Energy Fuels Inc. (EFR:TSX) and Titan Uranium Inc. (TUE:TSX), announced at the end of October.
TER: What did you make of that deal?
GM: I felt it was a positive move for Energy Fuels, in that it gives the company access to a broader resource base, particularly in the uranium mining state of Wyoming. Energy Fuels has potential access to future production through its planned Piñon Ridge uranium-vanadium mill. The Sheep Mountain uranium project in Wyoming is a moderate-sized, defined resource of more than 30 Mlb uranium, and Titan’s management team has a clear objective of progressing the project through permitting and development over the next several years.
TER: What more can you tell us about Uranerz? Do you think it is undervalued?
GM: Uranerz is fully permitted for construction for Nichols Ranch and its Hank satellite facility. Both are on time and on budget. The company has a rich history of developing similar projects—six times in the U.S. There is a lot of confidence that Uranerz can do this. Production is expected to commence in Q312. That timing would make Uranerz the world’s next uranium producer.
The company is being derisked through the construction phase; moving into next-producer status will be very positive for the company.
TER: Uranium Energy Corp is up and running in Texas, where it is working on a second in situ operation there. Given that the company is recovering significant amounts of uranium, is there a likelihood Uranium Energy could see a bid?
GM: You typically see bids coming in after significant milestones and de-risking have occurred. If a bid were to come in, I think it would be after UEC has permitted, built and started production on its second main project, Goliad. There will be a wait-and-see period in terms of external acquisitions.
TER: Why is Uranium Energy Corp a good buy?
GM: First off, UEC is in production. Second, it has a very clear plan for developing its portfolio of assets to increase its corporate production rate. Goliad is at the mature state of permitting and is expected to enter the construction in H112. The company also has the Salvo Project, which could be Uranium Energy Corp’s third project to come into production in a couple of years. The company has a clear strategy to increase production from an existing plant that is already built, permitted and operating.
TER: Until the last few years, few uranium projects have been developed into producing mines outside of Kazakhstan. Other than the price of uranium, why is that?
GM: The lack of new project development is a combination of the long lead times typically required to mature projects through permitting and construction, as well as fluctuating commodity prices and access to project financing. Lack of project development appears to be also an artifact of sector focus. In the last 10 years, a lot of money was spent on brownfields projects that were marginal in earlier periods of exploration, and less focus was placed on greenfields projects. Greenfields discoveries have the potential to add low cost output to the future production project, but discovery and resource definition can take time. I think that it is interesting to observe that despite market sentiment, acquisitions are still on the table in the sector, and these are focused on the few new discoveries (e.g., Mkuju River Project, Husab Uranium Project and Roughrider Project) made over the last several years.
TER: One new discovery is Strateco Resources Inc.’s (RSC:TSX) Matoush Deposit in Central Québec. Do you think that will ever become a mine?
GM: Matoush certainly has potential with just over 20 Mlb U3O8, at grades and close to 0.6% uranium. Because it is in Canada, the permitting process is known, although it takes time to go through and meet all the requirements. The company is in the permitting phase now.
TER: Geordie, thank you for your time and your insights.
Dr. Geordie Mark, a research analyst with Haywood Securities, focuses principally on iron ore, coal and uranium companies involved in exploration, development and production. He joined Haywood Securities from the junior exploration sector, where he served in an executive role concentrating on exploration across Canada. Immediately prior to joining the exploration industry full-time, Dr. Mark lectured in economic geology in Australia and served as an industry consultant. He completed his doctorate in geology in 1998 at James Cook University’s Economic Geology Research Unit in Australia, specializing in aqueous geochemistry and igneous petrology applied to ore-forming systems.
By Christopher Briem, on October 10th, 2011
Some have asked whether I agree with the story earlier in the week on the size of the energy industry in the region. I have not read it in detail, but without getting into any specific numbers sure I do. Energy has long been a huge part of the regional economy. One can argue energy is what we really always were good at. Without the coal, there would have been no steel and so forth and so on. But it goes far beyond that if you connect the dots as I wrote years ago in Energy Burgh.
The funny thing is that when I wrote that I really had folks Downtown laugh at me. It was the past was the message, not the future. For much a decade, other than some interest in ‘clean coal’, energy was not a focus of development. It was all talk of ‘high tech’ (pick your definition), biotech in particular, ‘advanced’ manufacturing (I’m not sure there is anything other than ‘advanced’ manufacturing still surviving these days) and until the bankruptcies of USAirways, air transportation. Remember when air transportation was going to ‘replace steel’ which was as stilly a concept then as it is now. Talk of energy was ‘quaint’ as literally put to me. That general apathy was the main reason I felt compelled to write that piece.
The irony is that if you go back and look at the date of the oped.. 2005. That must have been awfully close to the time some meeting somewhere was going on starting with “you know, we can get natural gas out of the shale in Pennsylvania”. Funny how disruptive things work. Just wait until the ‘greater’ Pittsburgh geothermal industry kicks in which will likely all center on fracking as well and found with Google’s help. Nothing happens on it’s own. It’s all interconnected.
One thing I mentioned in that article which didn’t plan out was the whole fuel cell project that did not pan out. At the time it was the biggest thing on the horizon. The fuel cells Siemens was working on were to be powered by natural gas for the most part. Even in failure, the fuel cell story is a lot more important than it may ever seem. Pittsburgh beat out intense competition for the fuel cell investment from locations in Florida, but more intense competition from Ross Perot who was pushing for the site to go to Texas and clearly put more money on the table at the time. Yet sheer money didn’t win in that decision which says a lot. In the end the market could not quite support what they were trying to do and they could not quite get their manufacturing costs low enough to make the product, mostly intermediate sized stationary fuel cells, viable. In some counterfactual world, if the decline in natural gas prices had come a bit earlier, maybe we could have added a growing fuel cell industry to the region as well. Think what the regional ‘energy story’ would have been. Alas.
The site that was to be the fuel cell manufacuting operation? Taken over by US Steel for research. Again, the more things change……
So is the local energy industry all or even mostly shale gas. Clearly no. Is the increase in jobs or output reported in the story all shale related. Probably not either. Check out the story on the gubenatorial election in WV decided this week. In it is this quote:
But the rising price of coal has boosted the state’s economy, giving it a lower unemployment rate than the nation at large and allowing Mr. Tomblin to boast of a state budget surplus in contrast to the fiscal straits of some of its neighbors.
So when you really push out beyond the MSA, and certainly into the 32 counties some focus on these days, coal is still the presence defining the economy, especially when you are talking sheer number of jobs.
By The Gold Report, on September 15th, 2011
 Dr. Paul Zweng, a portfolio manager with Resource Venture Advisors in Beverly Hills, Calif., has managed to make some big things happen with small companies. By investing in the tiniest of resource companies, he has grown the fund exponentially. In this exclusive interview with The Gold Report, Zweng tells why his biggest asset is his cast-iron stomach.
The Gold Report: Paul, the fund you manage for Resource Venture Advisors focuses on nano caps. What are the advantages of investing in the smallest of the small players?
Paul Zweng: We invest in companies with market caps from less than $10M up to $75M for two principal reasons: These companies have the greatest potential for outsize performance. You can literally generate 10x returns with these tiny companies. Second, it is a niche where we can be competitive.
I am not bold enough to say that I can see things in Newmont Mining Corp. (NEM:NYSE) or Barrick Gold Corp. (ABX:TSX; ABX:NYSE) that the other 35 sell-side analysts out there haven’t already evaluated. We can be competitive with these underfollowed companies that have little to no research because we understand geology and exploration. That’s what my background is in.
I’ve been in exploration for a long time. And I’ve actually run/co-founded Canadian juniors with successful outcomes (e.g., QGX and Antares). We wanted to follow the companies that the multiple-discriminant analysts, the certified financial analysts and the sell-side analysts are largely ignoring because if we can find a good one, two or three here—we typically have about 10 companies in our portfolio at any one time—and if they execute on the so-called promise, then there’s the chance for outsize performance.
TGR: Are the companies in this space more risky than small caps?
PZ: Yes. Most people would consider a small cap to have above $1 billion (B) in market cap. In the Canadian juniors sector, by the time a company is at $1B, it has an NI 43-101 and proven ounces or pounds in the ground. It is producing metal, generating revenues, profits, etc.
Even once a company gets above a $100M market cap, it generally has an NI 43-101. That takes a whole lot of risk out of the investment. But does that mean that you are home free? There is a lot to be said regarding the so-called quality of those ounces of gold or silver, or those pounds of copper, lead and zinc, or those tons of coal or iron ore. Those are different considerations than when you are investing in a little $10M or $20M market-cap company that literally has nothing but a good management team and some good prospects.
There is a considerable amount of risk and that is why you really need to understand the geology, the prospectivity and the management team. Are these people who can husband their money and their resources carefully? If they can’t, you’re probably going to be in for a bad investment.
TGR: Your master’s thesis focused on porphyry-copper deposits in Peru. Do you have a greater comfort level investing in micro caps with porphyry copper and porphyry copper-gold deposits?
PZ: By studying the Toquepala deposit as well as working in the industry at both a mine and in exploration of porphyry copper, I feel very comfortable there. That is the theme of our fund. We try to invest in those types of deposits and those commodities in which we have actual, direct experience. We have direct industry experience working with gold, silver, porphyry-copper and sediment-hosted copper.
For example, Hana Mining Ltd. (HMG:TSX.V) was one of our early investments. When I was at BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK), I used to run new business development for the copper belt, which contains these sediment-hosted copper deposits like what Hana Mining has.
TGR: You were also the chief operating officer of QGX Ltd. (QGX:TSX) and eventually became the president and chief executive officer. You were also involved with Antares Minerals Inc. (ANM:TSX.V). QGX’s biggest project was a coal deposit in Mongolia and that was taken over. Antares—you sold at the absolute right time there—was bought by First Quantum Minerals Ltd. (FM:TSX).
You certainly have had experience on both sides—exploring for these deposits and then turning around and selling them. What are you looking for when you research a project based on that experience?
PZ: We are looking for juniors that can take a piece of ground, drill it and develop it—and then continue to derisk the project by doing metallurgical studies and preliminary economic assessments. We want to focus on those companies that can develop large deposits and be taken over.
We are less interested in vein deposits. If you look at most gold majors, I do not think they are mining vein deposits. We are looking for large-scale, open-pit, low-grade deposits. That is also what large-cap copper producers like Freeport-McMoRan Copper & Gold Inc. (FCX:NYSE) and Antofagasta PLC (ANTO:LSE) want.
In coal, we are also looking for large, open-pit and, preferably, metallurgical coal deposits. That is where you have the potential to make that 10x return.
TGR: There has been a lot of volatility in the markets recently and the U.S. economy looks like it could be headed back into another recession. How are you managing your fund differently compared to the beginning of the year?
PZ: Probably 90% of your audience will disagree with what I am about to say, but this is really a tenet of our fund: We just ignore the macro picture. What is special about our fund is that we focus on the nano caps. These are companies that I jokingly say have two mules, a rock hammer and a pair of worn-out boots for assets. If a company drills a hole that delivers 200 meters of one-gram gold, I don’t care if the price of gold drops $25/ounce (oz.) the day it comes out with that press release, this company’s stock is likely to go up 10%, if not 20%. Where we invest, we are able to literally ignore the macro picture and that is a great comfort. If the price of gold goes down, but a company continues to build ounces, we are going to do just fine.
TGR: You’re on the board of two of your fund’s holdings: Goldgroup Mining Inc. (GGA:TSX) and Bellhaven Copper and Gold Inc. (BHV:TSX.V:). In fact, you are the interim CEO of Bellhaven.
PZ: I’m going to give you the real crux: Goldgroup has 121M shares issued and outstanding and is currently trading for $1.64. That is a market cap of about $190M, but we bought in when it had about a $75M market cap. At that time, it was the largest company we bought for our portfolio. It has a wonderful management team that is driven by Keith Piggott and Gregg Sedun—experienced people, highly motivated, and smart. It has three principal projects, but I zeroed in on one in my research even though the other two are wonderful deposits. I focused on Caballo Blanco, which I think could be producing 100,000 ounces of gold annually in a little over a year at $200/oz. It will be able to do that because it is an outcropping ore body. It is all oxide. It will be a low-cost, heap-leach, run-of-mine operation.
But let’s say I am wrong and it produces at $500/oz. That creates a margin of $1,300/oz. if gold is getting $1,800/oz. Multiply that by 100,000 ounces then that creates $130M of EBITDA. Just that one project would support a $1.3B market cap. Also, what is great about this story is that the company actually has $40M in the bank. The capital expenditure number is probably going to be somewhere in the range of at least $40M, but less than $65M. It has two-thirds of the money it needs to build the mines. Maybe there will be a small financing to get the other part, but then it is going to be in position to support a market cap of $1.3B based on just that one project. I love this story.
TGR: Are there any byproduct credits in the ore?
PZ: No, it is really only gold. It is the right kind of deposit. The company will be coming out with a new NI 43-101 in November. It has an NI 43-101 now, but it will be growing to a level that will support 100,000 oz. or more. There is little to no geologic risk here. There is no exploration risk. This is just a known miner and mine builder in a good place to be doing mining. The deposit is in a part of Mexico, Vera Cruz, that doesn’t have drug violence. It is a good place to be operating with infrastructure and trained labor. I see this as very low risk and high reward.
TGR: And what about Bellhaven, where you are serving as interim CEO?
PZ: Bellhaven is a completely different story. It is a much earlier-stage company that we got into when it had about a $10M market cap. The short and skinny is that it has 84.4M shares issued and outstanding, is trading at about $0.58 per share, has about a $41M market cap and about $3.2M in cash.
The prospect is called La Mina, located in Colombia. It is porphyry gold. Bellhaven’s principal prospect at La Mina is called La Cantera, and Bellhaven will soon be announcing an NI 43-101 resource there. We are hoping it is going to be about 1 million ounces (Moz.) of gold. The enterprise value—Bellhaven has no debt—is essentially its market cap. So, if it has 1 Moz., its $40M market cap is undervalued. According to Canaccord’s “Junior Mining Weekly” report, a company with 1 Moz of gold equivalent would be worth $117M on average. And that is zeroing out all the other prospects at La Mina, and all the other prospects it has in Colombia and Panama. I think Bellhaven should go from $40M up to $117M. That is a multiple of three, with everything else in the company thrown in for free. We love that story.
I am the interim CEO at Bellhaven, and it is one of the largest positions in the fund. Everybody should be aware that I’m “speaking my book,” as I am with Goldgroup.
TGR: In 2006, AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) and Bema Gold Corp. (acquired by Kinross Gold Corp. (K:TSX; KGC:NYSE) in 2007) drilled Bellhaven and found some gold on the property that they just left alone. Why would they just walk away from a project like that?
PZ: They drilled six holes at La Cantera, but one in three were complete misses. I have had a number of discussions with AngloGold geologists and this is what I’ve learned: Anglo had phenomenal success in Colombia. It came in when everybody was still afraid of narco-terrorism and ended up with an enormous land position. It found the La Colosa project, which is in the same belt as the La Mina. La Colosa has been a fabulous deposit. It publicly announced something like 10 Moz. Word on the street is it’s going to be up to maybe 20 Moz. or more.
But for whatever reason—this was back when gold was at a much lower level than where it is today—the board said, “Look, we have to cut back. We’re not going to give you more and more money.” The exploration staff was stuck in this quandary where it could not stop at La Colosa, but it didn’t know how to fund all these other prospects. The solution was to bring in Bema Gold on a joint venture.
What you will find is that most of the projects that the small Canadian juniors have, and this would include Bellhaven, Batero Gold Corp. (BAT:TSX.V) and Seafield Resources Ltd. (SFF:TSX.V:), used to be held by Anglo. Anglo dropped the property so it could focus on the few assets it had. That gave the opportunity for others to come in.
I would argue that this is the exact same thing that happened with Antares. It had a project that was then held by Phelps Dodge, which is now Freeport. It drilled 80 holes and said, “You know, guys, the times are tough and we can’t do everything that we want to do. The board is giving us less and less money. This is one we are going to have to stop working on, so that we can focus on other projects.”
And look at what happened: Antares ended up finding 11.9 billion pounds of copper at that Phelps Dodge project. The fact that a major has been there and has left is a very common story in our industry. It is funny, but we did studies when I was at BHP and learned that it is typically the fourth or fifth company that arrives at a project that actually turns it into a mine. The fact that AngloGold has been at La Mina and walked does not deter us at all.
TGR: Does it have a back-end right on La Cantera?
PZ: It has no percentage at all. Instead, we have a Colombian national who owns the ground. We are doing an earn-in whereby we can earn up to 100% control of the project with no back-end right.
TGR: What are some other interesting micro-cap stories that your fund has positions in?
PZ: Gold Canyon Resources Inc. (GCU:TSX.V) is a wonderful story. It is in between a very early-stage company like a Bellhaven and a more advanced explorer like a Goldgroup. Gold Canyon has 90M shares issued and outstanding and is trading at about $3.00. We got in earlier, but even at today’s level, I think this is a very interesting company.
Gold Canyon has the Springpole deposit in Red Lake, Ontario, a wonderful jurisdiction in Canada in an area with a long history of mining.
But Springpole is a little different. It is the closest analogy to what Osisko Mining Corp. (OSK:TSX) has just developed and put into commercial production in the Canadian Malartic deposit to the east. Osisko found that what used to be an underground, narrow-vein mine also contained significantly wide widths of about one gram gold that allowed for a large number of ounces to be mined by an open pit. That is exactly the same situation that is happening now at the Springpole deposit.
I think Springpole is going to have 6–8 Moz. of gold. There are a lot of holes and very little exploration risk. I think it could easily be a double or triple just based on an ounces-in-the-ground analysis.
The management is more of a geologic team. I don’t think they are actually going to try to put it in production. I think Gold Canyon Resources is going to be taken out within two years. I think it will put out its NI 43-101 and that will give the majors the comfort that the project has been sufficiently derisked. Given its large size and its Canadian location, particularly in Red Lake, this thing is going to be gone.
TGR: You use your industry knowledge to make your investment decisions. What are some off-the-radar resources that everyday investors could use to help them better understand resource companies coming into the market?
PZ: I use a lot of the same resources as everyone else. I start my day by going to kitco.com. But one resource that a lot of your readers don’t know about is a blog by this guy who goes by the alias “Otto” at www.incakolanews.blogspot.com. I find it is a very useful blog. Inca Kola is on a jihad of exposing the bad hats in our sector. It is wonderful insight. He’s not a geologist, but he’s very good at vetting management teams. He has a good eye for these really early-stage companies. That’s something that I look at on a daily basis. And a lot of it is a free service.
TGR: What investment advice do you have for our readers before we go?
PZ: Investors need to make sure that they take the time to understand what they are buying. Do some math—calculate how many cents or dollars per-share this thing is actually worth. Then compare that to what it is trading at and hopefully there is a big delta.
Next, find a good management team with a good project that has a number of catalysts that will serve for promotion. Try to understand the catalysts. Understand what a management team is going to do in the next six months to a year. And follow that company to see if it is delivering on those catalysts. Without catalysts, share price appreciation is not going to happen.
Ignore the macro picture. All it is going to do is make investors get overly confident, buy at the highs, get overly depressed at the lows and sell at precisely the wrong times. Investors need to develop a cast-iron stomach so they can handle the absolute extreme volatility that this sector offers. Investors literally want to be buying when they are throwing up, when they can no longer look at their portfolio. When they are at a cocktail party bragging to all their friends about how smart they are for buying this stock at $0.10 and now it’s at $3.00, that is when investors should want to sell. It is so counterintuitive, but that is what they have to do. It is about discipline. Investing is not about being smart, although obviously having smarts helps.
TGR: That’s really good. Thanks, Paul. It’s been a pleasure.
Dr. Zweng is currently interim COE of Bellhaven Copper & Gold Inc. and a managing member of Resource Venture Advisors, LLC, the general partner to Resource Venture Partners LP, an investment partnership designed to invest in early-stage exploration companies. He was the COO and later President/CEO of QGX Ltd., a TSX-listed company with mineral projects in Mongolia. Dr. Zweng received two B.S. degrees with distinction in geology and applied earth sciences (Mineral Economics) from Stanford University in 1980, an M.S. degree in geology from Queen’s University, Ontario in 1984, and a Ph.D. in applied earth sciences (Ore Deposits) from Stanford University in 1993. Dr. Zweng has published several articles and abstracts on geology and ore deposits in two languages in scientific journals. Dr. Zweng was a director and a founder of Antares Minerals Inc. (TSX-V: ANM) before Antares was purchased last December by First Quantum Minerals (TSX: FM).
By The Energy Report, on July 20th, 2011
 Marshall Berol and Craig Valdes are concentrating their focus on resource stocks in their Encompass Fund portfolio. In this exclusive interview with The Energy Report, they share their current thinking regarding the energy sector and give us the names of some stocks that are attractively priced now and that could do well as global energy demand grows. They remain very positive on the prospects for nuclear and see oil demand growing.
The Energy Report: Your Encompass Fund has had some pretty spectacular returns over the past three years. How have you been able to do this and what are your selection criteria?
Marshall Berol: Malcolm Gissen and I started Encompass Fund five years ago. We’ve been very ably assisted by Craig Valdes and Kevin Puil. Our concept was to invest globally in any market cap size company, utilizing both a top-down and bottom-up approach. That results in us looking at sectors we find to be attractive going forward, and then selecting companies within that segment that could experience long-term capital appreciation, which is the objective of the Encompass Fund. We also look at individual companies regardless of industry, where we like the company’s fundamentals.
We have liked resource companies for the past decade. When we started Encompass Fund in 2006, we had already been invested on behalf of individual private client accounts in various sectors of the resources industries, including energy, primarily oil and gas. We have continued to be invested in those industries because they have had some excellent growth and we expect that to continue in the future. So, that’s what led to the Encompass Fund performing very well in the last several years.
The end of 2008 is very painful to recall, as I’m sure it is for all of your readers. But, in late 2008 and the beginning of 2009, we eliminated some companies in the portfolio that we didn’t feel were as strong as some of the others and added to the companies that we thought were particularly strong, but suffering from the general stock market problems. That led to a 137% gain for Encompass Fund in 2009 and a further 60% gain in 2010. For the trailing one-year and three-year periods, Encompass Fund ranks as the top International Mutual Fund, according to Morningstar.
TER: In reviewing your portfolio, nine of the 10 largest holdings are resource companies. Is that the approach you’ll likely be following in the future?
MB: At this point, the outlook is bright for resource companies, including precious and base metals as well as oil, natural gas, coal and uranium. At some point in the future, one or more of these sectors will be less attractive for investment opportunities and we’ll adjust accordingly.
TER: What is your current thinking on where the various energy areas are headed now, in light of the changes since our last interview here in May 2010?
Craig Valdes: We like natural gas as a commodity and as an energy supply. But, because of advanced technologies such as “fracking” and horizontal drilling, you’ve seen an abundance of supply. And so, we might not be as positive on the direction of the price, meaning that it’s probably going to stay in the $4 to $5 Mcf. (thousand cubic feet) range in the near-term. But, as an energy component, we strongly believe that over the longer-term our energy policies will lean more toward natural gas.
Oil has backed off from its recent highs, but the oil price is really a function of how well the global economy is doing. As long as we have an environment with even slow to expanded growth in emerging economies, there’s going to be a continued demand for energy. So, we like oil for the near and long term.
TER: Do you expect any sort of a stabilized price range for oil, or are we going to see big moves up and down?
CV: I think that has a lot to do with energy policy. It also has to do with global growth and the emerging growth economies. We believe that prices on the low end may trade somewhere in the $70-$80/barrel (bbl.) range and at the high end it could be as much as $100-$120/bbl. I think oil stays in a reasonable trading range over the near-term and the next couple of years. The only thing that could easily change that are the Saudis and the Middle East geopolitics, which could affect pricing and supply. We believe that pricing is not going to change that much over the next couple of years.
MB: Certainly, geopolitical issues will have a large bearing in the short-term. We take a nine- to 12-month view in any of these industries. Short-term you get a lot more volatility. For example, when it was announced they were going to release 60 Mbbl. of oil from strategic reserves around the world, including 30 Mbbl. from the U.S. strategic reserve, the WTI oil price went down about 10% from around $100-$90/bbl. Now it’s back up to near $100/bbl. So, in the short-term it had some affect. In the long term it doesn’t. Overall demand continues and overall supplies are basically tight. Some particular situations could lead to a larger decline or, more likely, a larger spike.
TER: Can you tell us about some oil and gas situations you particularly like at this time?
MB: One company that is a major holding in Encompass Fund and has been for some time, is a smaller low-priced stock, GeoPetro Resources Company (NYSE.A:GPR). GeoPetro has five different projects, any one of which could be a real company maker. We have participated in private placements with the company, as well as buying the stock in the open market. The company has an operating natural gas plant and some natural gas wells in Texas. It has a very interesting project in the San Joaquin Basin area in south-central California. It sold a couple of large land positions it held in Alaska to Linc Energy Ltd. (ASX: LNC; OTCQX: LNCGY) of Australia and retained an attractive royalty interest. It is also one-third partner in a project in Canada with PetroBakken Energy Ltd. (TSX:PBN). That is less likely to be acted upon in the near future, but it’s got some very good promise.
GeoPetro has a minority interest in a project in Indonesia with the majority interest held by Chinese companies. The Chinese are actively doing seismic work and plan on drilling later this year. Any one of those projects with drilling success could be extremely beneficial for the company’s stock. GeoPetro has contracted to sell some excess equipment this September that will bring in more than $9M. That would be used to increase production from the Madisonville, Texas, wells and improve the natural gas processing. Those improvements should take the company to at least a positive cash-flow situation, which would be very attractive also. It’s a low-priced stock and there aren’t hundreds of millions of shares outstanding, as you sometimes see.
TER: What else do you like?
CV: We’re very bullish on the San Joaquin Basin in south-central California. NiMin Energy Corp. (TSX:NNN) is in the San Joaquin Basin. There are some big players down there like Occidental Petroleum Corp. (NYSE:OXY) with its huge find in 2009. NiMin is just a stone’s-throw away from some of that production. It’s heavy oil and NiMin has an enhanced oil recovery process called CMD, (Combustion Miscible Drive) on which they have applied for a patent. The company creates steam using a kind of soapy oxygen and injects this into the well reservoir. That heats up the heavy oil and it comes to the surface at a faster rate. The first well they demonstrated this on was producing about 30 bpd (barrels per day) of oil. Now it’s up to about 250 bpd. NiMin has identified a number of heavy oil opportunities in old existing wells in the U.S., which they can pursue. The company has a nice land package in the San Joaquin Basin (Santa Margarita Reservoir) and it is going to drill two additional wells in the second half of this year. Secondly, it may joint venture this enhanced oil recovery process with some larger oil companies. We think that’s a great opportunity, which only enhances the company’s other primary exploration and production focus in Wyoming.
Another company we like that has a large land package in the San Joaquin area is called Zodiac Exploration Inc. (TSX.V:ZEX). It is actually targeting light oil in the Kings County region, and drilling very deep wells. It just started drilling a horizontal well and we look for some updates on that in the next few weeks. When the company finished its first vertical test well to 14,000 feet a few months ago, it found between 500 and 1,000 feet of actual pay in about four different zones. We think Zodiac has a great opportunity long term in the Southern California oil sector.
MB: One of the things we look at in junior companies is the management, because it’s extremely important that management has been in the industry for a number of years and has achieved past successes. That’s the case with Zodiac, NiMin and GeoPetro. These smaller companies will often seek out a larger joint venture industry partner or partners with technical expertise, knowledge and the ability to handle financials. Then the junior will have an ongoing interest in any of the production that comes out of that well and any succeeding wells.
TER: A lot of oil and gas exploration is going on in South America these days. We don’t hear that much about it, but there have been some big finds down there. Can you bring us up to date on what’s going on?
CV: Obviously the interest has been spurred by the big find by Petrobras in Brazil (NYSE:PBR) in the last year or two. There’s oil and gas all over South America but we’ve focused on companies in Colombia because of the way it is regulated, much like the way the U.S. and Canadian governments operate. So, many of your Canadian and U.S. operators have gone to Colombia. We presently own three oil and gas companies in Colombia. One is actually a mid-tier company, Gran Tierra Energy Inc. (NYSE:GTE; TSX:GTE). It’s a larger company with current production of approximately 18,000 barrels of oil equivalent per day. One of the smaller exploration companies in our portfolio is PetroDorado Energy Ltd. (TSX.V:PDQ). PetroDorado, has working interests in a number of different blocks in Columbia and Peru. It has a 30% working interest in one block called CPO-5 that it would like to increase, but its partners are reluctant to sell any additional interest based on the recent seismic work completed. The company is going to be drilling that later this year. We’re looking for excellent results from this exploration region.
Another company that we like in the area is a service company called Estrella International Energy Services (TSX.V:EEN) working in Colombia, Peru and Argentina. Management was working for Schlumberger Ltd. (NYSE:SLB) and left a few years ago and formed Estrella. It’s a full-service oil and gas service company consolidating a fragmented industry in South America. Obviously the exploration companies and producing companies are looking for teams that have expertise and these guys have a great reputation. We think there’s a great opportunity just on the service side for Estrella. The company has demonstrated over the last couple of years that it is able to bid and win good contracts with top-tier companies, including some of the large ones such as Pacific Rubiales Energy Corp. (TSX:PRE; BVC:PREC), Petrobras (NYSE:PBR) and Canacol Energy Ltd. (TSX:CNE). That’s another company that we like on a long-term basis.
MB: Colombia has come a long way in the past decade. There is a lot of growth there and a lot of industry. A number of mining projects and energy-consuming industries are located there. With increased stability in the region, there has been far more activity. We think it has led to some significant oil and gas discoveries and a bright future for some companies.
TER: Moving on to uranium; it’s seen some turbulence since Fukushima. What are your thoughts on that market?
MB: There has been a lot of turbulence. But, long term we’re very bullish on uranium and the companies that are exploring for and producing uranium. Approximately 440 nuclear energy plants operate today around the world. Maybe half a dozen will be taken out of operation in Japan and another half dozen in Germany in the near future. The overwhelming majority of the 440 plants are continuing to operate.
As many as 50 new nuclear energy plants are still being built around the world. South Korea, France, Slovakia and even the United States, have said they intend to continue on the road to increased nuclear energy. There will be increased safety precautions. New designs have been developed for reactors over the last several decades and put in place subsequent to the reactors that were built at Fukushima. Nuclear energy provides 15% to 20% of the world’s growing electricity needs.
While 180 million pounds (Mlb.) of uranium is currently being used around the world to fuel nuclear energy plants, only about 110 Mlb. to 120 Mlb. is currently being produced. The balances come from inventories above ground and from the deactivation of the Soviet Nuclear Arms Agreement. This agreement ends in 2013 and Russia has stated it does not intend to renew it. So, somewhere between 25 Mlb. and 30 Mlb./year will need to be replaced. We think it’s going to cause an increase in the price of uranium in the years to come. The companies that are either producing it or exploring for it and will be producing it are very attractive and we remain very bullish.
Solar and wind are fine, but it’s a minuscule output now and probably for many years to come. Geothermal and hydro are also fine, but they’re extremely limited in production and location. Other difficulties emerge with increasing electricity generation from oil or gas or coal. So, nuclear energy plants have a definite long-term positive outlook.
It’s strange, but in the investment business, people don’t want to buy things that are on sale. The uranium companies are currently on sale. We were in uranium companies prior to Fukushima. We have increased some of those holdings and added new ones. People should pay attention to the uranium industry and what’s actually going on in the nuclear energy industry, rather than merely drawing conclusions from headlines.
TER: Can you tell us about some of the ones you like that are in your portfolio?
MB: One of the top holdings for some time has been Uranium Energy Corp (NYSE.A:UEC). The company’s primary projects are in South Texas. It started production in November 2010 using in-situ recovery (ISR). It’s a far less costly and far more environmentally friendly method than either open pit mining or underground mining. Uranium Energy Corp also has other projects they are bringing into production in South Texas. The company recently made an acquisition of a very large land package in Paraguay. It also owns additional exploration properties in Arizona, Colorado, Utah and Wyoming. It just recently signed its first long-term contract to sell some production.
Another current producer we find attractive is an Australian company, Paladin Energy Ltd. (TSX:PDN; ASX:PDN) with projects in Australia, Malawi and Namibia. It also acquired a project in Labrador and Newfoundland that looks very attractive.
A company that is near production is Ur-Energy Inc. (NYSE.A:URG; TSX:URE), which has some advanced projects in Wyoming and should be in production within the next year.
Tournigan Energy Ltd. (TSX.V:TVC, FSE:TGP), which is in Slovakia, is an interesting situation. More than 50% of Slovakia’s energy is generated from the four nuclear energy reactors currently operating in that country. The country is currently building two additional reactors. Tournigan is in advanced stages of exploration and prefeasibility on its Kuriskova project in Slovakia, which will be able to provide uranium for all the European Union countries.
A company we think is attractive and is earlier stage, is Crosshair Exploration & Mining Corp. (TSX:CXX). It has uranium projects in Wyoming, Labrador and Newfoundland along with some other commodities. Currently, the major uranium producer in the world is Cameco Corp. (TSX:CCO; NYSE:CCJ). BHP Billiton Ltd. (NYSE:BHP; OTCPK:BHPLF) and Rio Tinto (NYSE:RIO; ASX:RIO) are major multi-metal and multi-commodity miners that are also involved in uranium production.
TER: Do you have any thoughts on coal?
MB: We think coal is also attractive. While it has some environmental and safety problems depending on where the coal is being mined, 50% of the electricity in the United States comes from coal. It’s a higher percentage in China. That’s not going to change dramatically for quite some time. We are invested in several coal companies, one of which is operating in Mongolia, 20 miles from the Chinese border. Every bit of coal that is being produced by SouthGobi Energy Resources Ltd. (TSX:SGQ) in Mongolia is being purchased and used in China. SouthGobi has been in production for several years and is increasing production every year. We think it’s a very attractive company and very attractively priced because the price is down, for whatever reasons.
A large quality coal company is Peabody Energy Corp. (NYSE:BTU). We have holdings in Forbes Coal (TSX:FMC), which is in production in South Africa, and in L&L Energy Inc. (NASDAQ:LLEN). L&L is a U.S. company that has acquired several coal mines and coal washing projects in China and is producing and selling coal in China. We think coal is a very attractive industry now and going forward.
TER: Do you follow the potash industry? What are your thoughts there?
MB: We do and we like it because the growth of the population and economies in the emerging markets means that more people have more money and can afford, and want, better food. There’s a tremendous ongoing need for potash and the other types of fertilizers.
Over the years we’ve been in and out of PotashCorp (TSX:POT; NYSE:POT). While we are not traders, sometimes the price of a company gets bid up and we believe it’s time to either sell some or all of a position depending on valuation. That has been the case with PotashCorp.
The Mosaic Company (NYSE:MOS) is another very attractive large fertilizer company. A smaller one that we have invested in is Verde Potash (TSX.V:NPK), which is developing a large potash project in Brazil. There is enough demand from Brazilian agricultural industries that the company will probably sell the majority of its production in Brazil.
Passport Potash Inc. (TSX.V:PPI, OTCQX:PPRTF) is an early stage company with a very large land package in Arizona that likely will be brought into production. Another smaller company is Western Potash Corp. (TSX.V:WPX), which is using the ISR process in Canada’s Athabasca region.
TER: Can you to summarize your overall view of where the energy industry is going?
MB: As should be apparent, we are positive on the energy industry and the various components of it. Oil, coal and uranium are very attractive and there are a number of companies in those industries that we believe will do well. The Encompass Fund is focused on the long term and not day-to-day trading. When you look at the long-term factors involved in supply and demand for the various segments of the energy industry, they are very positive. Natural gas is in a somewhat different situation, but as evidenced by BHP’s proposed $12.1B acquisition of Petrohawk, natural gas is also valuable.
TER: We greatly appreciate your time today.
MB: We appreciate it. We’ve enjoyed it. And, if your readers are interested in more information about the Encompass Fund, we would refer them to the website, www.encompassfund.com. The ticker is ENCPX.
CV: Thank you.
Marshall Berol has been involved since 1982 as an investment manager in San Francisco, CA. He and Malcolm Gissen co-founded and co-manage the Encompass Fund, a no-load mutual fund. Also since 2000, he has been the chief investment officer of Malcolm H. Gissen & Associates, Inc. Mr. Berol did his undergraduate work at the University of California (Berkeley) and received a JD degree from the University of San Francisco School of Law.
Craig Valdes has been an investment manager in the San Francisco Bay Area since 1982. Since 2006, he has been the director of research and trading at Malcolm H. Gissen & Associates Inc. He previously was a partner and portfolio manager at Genesis Capital Management and Hutchinson Richardson Investment Management in San Francisco, CA.
By The Gold Report, on July 19th, 2011
 As a geologist by training, it’s no surprise that S&A Resource Report Editor Matt Badiali takes a data-driven approach to investing. In this exclusive Gold Report interview, he shares calculations for trailing stops and strategies to take profits with prospect generators and points to the signs of gold price manipulation.
The Gold Report: Matt, in the June edition of S&A Resource Report, you wrote that resource stocks could see some pullback once quantitative easing (QE) was no longer injecting money into the system. QE2 ended last week. Is your thesis proving correct and what are your strategies to mitigate post-QE2 portfolio risk?
Matt Badiali: A lot of the resources—silver, oil and even gold—pulled back at the end of April. We felt there was enough commodity risk that we wanted to be careful investing in a lot of those companies. However, we jumped back into several silver companies because they just got too cheap not to take action. It looked like they had been oversold.
I still feel oil is inflated. I think gold is still in a bull market, but no bull market goes straight up. With the end of QE2 we could see gold reverse a little bit. My recommendation this month was coal. With European countries jumping out of nuclear power, coal is a fairly bulletproof market; it has less commodity risk than the rest of the group.
TGR: The headline on that article was “Ignore the Noise and Focus on the Big Trend.” What is the big trend?
MB: For one, gold is still a fantastic long-term investment. That won’t change until the U.S. and Europe get their financial houses in order. That’s when I’ll start looking bearish on gold and silver. We’ve seen a spectacular run in the silver price, then a big correction. Eric Sprott, for one, makes the case that silver will appreciate more than gold over the next year or two.
TGR: But for silver to return to its long-held ratio of 16:1, it would have to accelerate at a rate more than double that of gold. That’s a steep climb.
MB: I think inflation is still one of the best arguments; silver remains a good store of value. But silver also has one foot in industry, where demand is rising.
TGR: You’ve also written about the manipulation of the gold price. You made your case by looking at single day jumps in the price of gold and other commodities over the last 10 years. Over that span, gold had gone up more than 5% in 1 day only 3 times, oil went up more than 5% on 53 days and silver on 32 days. More to the point, gold never went up more than 10% in a single day over the previous 10 years. That would suggest the gold market is being controlled. Are you concerned about placing so much faith in a market that is being controlled by non-market-related events?
MB: Well, let me preface this by saying I went into this as a skeptic. I’m a geologist, a scientist. I looked at the gold price at Eric Sprott’s suggestion; he gave me an idea that I could test with data from Datastream. When we did the math, I was shocked. So, now I do believe that the gold price is being manipulated somehow.
As to my concern about investing in a manipulated market, I do my absolute best to hedge commodity risk by finding companies that are undervalued. You can’t argue with the long-term trend: the price of gold has gone up every year for the last decade. Either the manipulators are doing a terrible job or the trend is so inevitable that all they’ve managed to do is dampen it a little bit. The implication is that if the manipulators lose their ability to manipulate, gold prices could soar.
TGR: Let’s move on to your specialties. You recommend using trailing stops to lock in profits on equities. A trailing stop is triggered when an equity goes below a certain percentage of the previous day’s closing price. Given resource stocks’ inherent volatility, how do you determine trailing stops for junior resource equities?
MB: My colleague Steve Sjuggerud helped design a computer model we use to determine the most effective trailing-stop price. Trailing stops work off the high price. So, we base our percentage on the highest price that the equity achieved at the close of the day’s trade. For example, an investment in ExxonMobil would use a 25% trailing stop.
TGR: Because that’s not a volatile stock.
MB: Exactly. For juniors, we use 50%. Really, it’s about protecting yourself against major losses. We believe 50% is as much of a loss as we want to take on any position. To me, the trailing stop is a great way to take profits. If you start with a 50% trailing stop on your volatile stocks, you can tighten it to 25, then to 15 and 10 as you make money.
TGR: How do you determine how much to tighten?
MB: This is when the strategy has to go beyond the company. So, say we bought a junior miner operating in the Yukon. We made a big gain during the field season and in September we’re sitting on 60% or 70%. This is a great time to ratchet down your trailing stop because news flow is the life blood of junior miners. You can take a profit and plan to get back in the next summer.
TGR: Let’s talk names. Stansberry & Associates Investment Research developed a list of the Top 10 Prospect Generators. What are some prospect generators you’re following that might be considered undervalued at this point?
MB: Mirasol Resources Ltd. (TSX.V:MRZ) has been one of my favorites for years. It’s a silver explorer working in the Deseado Massif in Argentina. Marisol has smart, experienced folks who explore using cutting-edge technology. For example, Marisol has used satellite imagery and high-altitude aerial photography to explore. This allowed them to make two discoveries.
They just put out a resource on the first property, Joaquin, which is a joint venture with Coeur d’Alene Mines Corp. (NYSE:CDE; TSX:CDM). I suspect that Joaquin is going to become a mine.
I should add that one of the ways that I value prospect generators is the quality of their partners. Some companies will look for discoveries just to sell the project to someone else. Coeur d’Alene, on the other hand, has a vested interest in building a mine at Joaquin. They are serious, committed partners.
The other discovery is called Virginia, 100% owned by Marisol right now. That’s progressing very well; it has high grades. This year, the share price has been as high US$8; now it’s below US$5. If this discovery begins to grow in size, I could see Coeur d’Alene buying the entire company.
TGR: Given that Marisol was at US$8, would you consider it undervalued at US$5?
MB: Yes, and it’s because they’re in between field seasons.
TGR: What are some other prospect generators?
MB: One that’s been a rock star for me is ATAC Resources Ltd. (TSX.V:ATC). ATAC is a junior miner exploring gold projects in the Yukon. In 2008, the company made a big discovery in the Rau Gold Project, Rau is part of the Rackla region. In early July, ATAC put out game-changing results: 82 meters at 4 g/t gold within an interval of 115 meters at 3.1 g/t. That really proves continuity on this project.
TGR: So, that’s a 100m step-out hole from the original discovery hole that was found at Rackla in November 2010. Are there plans for infill drilling in the meantime?
MB: I’m heading up to Vancouver the end of this month to get the entire story. They have a lot of rigs on site, but I just don’t know what their plans are. It’s important for them to get a feel for the size of it.
Right now, I believe it’s time to sit back and see which mining company or companies decide they need to own this project. I think ATAC will be the story that we go back to over the next 5 or 10 years and say, “Wow, what an amazing discovery all the way through its buy up.”
TGR: With a market cap of over US$800M, it will have to be a pretty major player to buy out ATAC. Any idea who some suitors might be?
MB: I’m not sure who the suitor will be. I don’t think you’ll see somebody like Kinross Gold Corp. (TSX:K; NYSE:KGC) sneak in and buy ATAC for its current market value. I think you’re going to see competition. And I’m hoping that it is north of US$2B. That would be pretty nice.
TGR: Do you have one more prospect generator before we move on?
MB: There’s a new company called Renaissance Gold Inc. (TSX.V:REN). This is another company where the people are the most important thing. The CEO is Richard Bedell and AuEx’s former CEO, Ron Parratt, is on the management team as well.
Renaissance has an exciting copper-gold project in Spain called Baza. It’s a partnership with Concordia Resource Corp (TSX.V:CCN) (previously Western Uranium Corp. TSX.V:WUC). The company is drilling there now. It also has several grassroots projects in Nevada that are comparable to Long Canyon. Lastly, it has an exploration agreement with Agnico-Eagle Mines Ltd. (TSX:AEM; NYSE:AEM) on four projects in Patagonia, Argentina.
TGR: Are there some juniors that may be underperforming right now, but could see a bump by the end of the year based on drill results?
MB: I’m expecting great things from Kaminak Gold Corporation (TSX.V:KAM). The company has a real discovery in Coffee; it’s a company-maker. Kaminak made a series of discoveries in the Yukon and named each one after a different kind of coffee drink. Kaminak really needs to find out if the discoveries are connected. I was up there last year and was very impressed with the size. I think that this is going to be their field season.
The CEO is Rob Carpenter. He’s a Ph.D. geologist, a very, very, very smart guy. Up in the camp, where everyone lives in tents, the company used a satellite dish with an XRF fluoroscope to do rough assays on site. It was really exciting to see him applying this new technology in the field on an active discovery.
Another junior that I like and own is Miranda Gold Corp. (TSX.V:MAD). It has a project called Pavo Real in Colombia and it is drilling in Nevada right now. I think that a little success will go a long way in improving their share price.
TGR: Could you comment on Kiska Metals Corp. (TSX.V:KSK)?
MB: I’ve known the management group at Kiska since 2006 when they were Rimfire. I have a lot of respect for them. They got away from the prospect generator model when they merged with Globex in 2008. Their Whistler project in Alaska is a series of gold sniffs. It’s copper-gold porphyry, which tends to be large and low-grade.
Comparable projects might be Northern Dynasty Minerals Ltd.’s (TSX:NDM; NYSE.A:NAK) Pebble project and Seabridge Gold Inc.’s (TSX:SEA;NYSE.A:SA) Kerr-Sulphurets-Mitchell deposit. These are all low-grade, but really, really big projects.
The Whistler project is relatively underexplored, so it has a lot of potential. If they get a couple of good drill holes, the share price could rise quickly. The company has a resource on it now.
TGR: Whistler has about 5.5 Moz., indicated and inferred combined.
MB: I think it has the potential to double. This could be one of those long, slow explorations. The average grade there is half a gram, so they need to string a lot of holes together. That’s what we saw with Seabridge. It took several field seasons, but they wound up with more than 30 Moz. just from drilling and delineating the deposit. That’s what Kiska will have to do.
Kiska does have a new technique for drilling that they think might speed things up, and a new target area. The company is going to do more than 30,000m of drilling this year. Kiska is worth speculation at this point. Their high was US$1.74 last fall and their 52-week low was US$0.65. Now, it’s around US$0.77. Unless they have some sort of calamitous accident, this is pretty close to a likely bottom. It looks like this is a company that you can speculate on.
TGR: What would the trailing stop be?
MB: I would use a 50% trailing stop.
TGR: Let’s close by going back to a more strategic topic: management groups. What’s your approach to evaluating a management group?
MB: Doing your homework really pays off in this industry and not doing your homework will ruin you. There’s an old saw that says the best way to make a million investing in junior miners is to start with two million. That’s true.
I do the homework—and the legwork—for Stansberry. I make the phone calls. I go to Vancouver and attend the conferences. Meeting management is crucial; I go to their offices. I go out to the projects and kick the rocks. I keep a contact list of industry experts from geologists to brokers to successful speculators to retired geologists that aren’t in the field anymore. I vet projects and companies as thoroughly as I can before we ever invest in them.
TGR: Matt, thanks for helping our readers get a start on their homework.
Matt Badiali is the editor of the S&A Resource Report, a monthly investment advisory that focuses on natural resources—from small exploration outfits, to equipment companies, to the biggest commodity companies in the world. As a geologist, Matt focuses on all natural resources including silver, uranium, copper, natural gas, oil, water and gold. He’s also a regular contributor to Growth Stock Wire, a free pre-market briefing on the day’s most profitable trading opportunities. Matt has real-world experience as a hydrologist, geologist, and a consultant to the oil industry and he holds a master’s in geology from Florida Atlantic University.
By The Energy Report, on May 27th, 2011
 Siddharth “Sid” Rajeev isn’t a miner. But in his search for value, Sid, head of research for Fundamental Research Corp. in Vancouver, digs deep into the world of small- and micro-cap stocks to find undiscovered gems. In this exclusive interview with The Energy Report, Sid drills down on some relatively unknown resource stocks he has uncovered.
The Energy Report: Sid, you’re an electrical engineer by training. How did you end up the head of research at your boutique investment bank?
Sid Rajeev: I initially worked for an engineering firm for a few years. I developed a strong interest in finance and investment analysis in those years, so I decided to pursue an MBA degree. Soon after I got my degree, I joined Fundamental Research and it’s my sixth year here. At Fundamental, we have a team of analysts, including financial analysts and geologists. We cover about 150 companies, three-quarters of which are in the natural resource sector. The rest are from agriculture, technology, aerospace and other industries.
TER: Instead of putting target prices on stocks, your firm uses a fair-value metric. Does that imply perfect pricing, a theoretical point at which there’s no upside or downside?
SR: Fair value, basically, is the intrinsic value of a stock on a particular day, which is calculated based on the stock’s fundamentals. And you’re right, essentially, it’s the point at which there’s no upside or downside.
TER: When shares reach fair value, do you recommend them as momentum plays?
SR: No, our valuation methodology is always based on fundamentals—we will not give a buy recommendation on a stock if its share price is higher than its intrinsic value. We tend to evaluate or review our valuations on a particular company every three to four months—sooner if some significant news develops.
TER: With a fundamental theory, you recommend taking money off the table when a company achieves fair value and seeking fair value in another company’s shares.
SR: Exactly.
TER: What are you trying to achieve for your clientele through your general investment theory?
SR: Our main goal at Fundamental is to bring out those underexposed small- to mid-cap companies that no one really follows—those are the companies most likely to be undervalued. Our geologists look at the technical aspects. They work in conjunction with our financial analysts to come up with the intrinsic value and a recommendation.
TER: Are you generally bullish on commodities right now and, if so, which ones?
SR: Our favorite now is uranium. We’ve been bullish on uranium for the past couple of years. Yes, the incident in Japan caused uranium to take a huge hit, along with the companies that follow or track uranium, but we believe the fundamentals of uranium are still intact. It’s still one of the cheapest and cleanest sources of power out there. Particularly when fossil fuels are at extremely high prices, we need sources like uranium going forward. Having said that, I don’t think we are going to see any spike but rather a slow and gradual recovery in uranium prices and, therefore, we believe uranium is very attractive for investors with a longer time horizon (at least 12 months).
TER: Where should investors be deploying capital?
SR: Our three top picks are Western Potash Corp. (TSX.V:WPX), Compliance Energy Corp. (TSX.V:CEC), a coal company, and Strathmore Minerals Corp. (TSX:STM; OTCQX:STHJF), a uranium company.
Western Potash is an advanced-stage exploration company with potash in Saskatchewan. We think it’s a good acquisition target.
We picked up Strathmore Minerals when it was at $0.57. It traded as high as $1.60 but, after the disaster in Japan, the stock dropped significantly and now is sitting at about $0.62. We believe uranium companies with quality assets, like Strathmore, should do well going forward.
Compliance Energy recently announced a positive feasibility study, and it should go into production in the next 24–36 months. It has a quality management team, strong cash and investments—especially its significant position in Copper Mountain Mining Corp. (TSX:CUM).
TER: Great. Any others?
SR: Rock Tech Lithium Inc. (TSX.V:RCK; OTCPK:RCKTF; Fkft:RJIA) is a very interesting company under our coverage. Its main focus is on the Georgia Lake lithium project in the Thunder Bay Mining District in Ontario. That project has a historic resource of 9.8 million tons (Mt.) at 1.18% lithium oxide. We like this company particularly because it is expected to complete several milestones in the next 6–12 months. Number one, Rock Tech is expecting to convert its historic resource to an NI 43-101-compliant resource in the next month or so. Second, the company is awaiting metallurgical test results on a 1-ton bulk sample, which will determine the recovery rates for different separation methods and also evaluate the potential to produce battery-quality lithium carbonate. Third, in addition to Georgia Lake, the company also plans to advance its recently acquired projects in Quebec, which are located close to some well-known lithium projects.
The Kapiwak project (James Bay area in Northern Quebec) is located close to a new discovery and the Lacorne project (Val d’Or) is close to a near-term producer (18–24 months). We expect this stock to move closer to our fair value estimate of $0.55 per share if these developments turn out to be positive. The current share price is $0.25.
TER: The main driver here is the growing popularity of electric cars?
SR: Exactly. We think lithium is attractive for use in electronic devices and vehicle batteries because lithium is the lightest metal in the periodic table. Lithium has the highest specific heat of any solid element. Lithium batteries also hold a charge for a long time and could be utilized to store energy from alternate sources, such as wind and solar, as the electricity production from these sources is variable.
TER: What else can we look forward to from Fundamental Research?
SR: Another company that is worth tracking is Mesa Exploration (TSX.V:MSA). It’s exploring for lithium, potash and uranium in Utah and Arizona. All the projects are in proven mining districts with accessibility and infrastructure. The company recently released an NI 43-101 technical report for its flagship Green Energy Lithium Project in Utah, where drilling is expected to begin this spring once the permits are received. Mesa also has a joint venture (JV) partnership with Passport Potash Inc. (TSX.V:PPI, OTCQX:PPRTF) on its Holbrook Basin Potash Project.
We recently picked Plains Creek Phosphate Corp. (TSX.V:PCP) and will be initiating coverage on the company shortly. It has an advanced-stage phosphate project in Guinea-Bissau in West Africa. A bankable feasibility study is expected in Q411. The company has already received a production license, and production is expected to commence in 2013. Our recommendation and rating on the company should follow in the next few weeks.
TER: Do you believe a phosphate company can grow due to the success in potash, and that it might be time for phosphate to catch up?
SR: Exactly, phosphate has the same drivers as potash. The main idea behind phosphate and potash is increasing demand for food, increasing population and diet improvement in developing economies. Also, meat consumption in developing countries is expected to significantly increase in the future, which would drive up demand for grains to be used as livestock feed. All this requires fertilizers, and that’s where potash and phosphate come in.
TER: Got it. I’ve enjoyed meeting you very much Sid. Thank you for your time today.
At Fundamental Research Corp., Sid Rajeev heads the research department, which covers over 150 small- and micro-cap companies and 15 exempt market/private issues from a broad array of industries including energy, mining, real estate and technology. He also manages the FRC list of Top Picks, which are the stocks under coverage that he has the highest conviction level about. These picks have historically helped the firm finish strong in various third party analyst performance rankings.
Sid holds a bachelor of technology degree in electronics engineering from Cochin University of Science & Technology and an MBA in finance from the University of British Columbia. He is a CFA Charterholder and has completed studies in exploration and prospecting at the British Columbia Institute of Technology.
By The Energy Report, on April 29th, 2011
Worldwide hysteria and the fear factor notwithstanding, Casey Research Chairman Doug Casey still considers nuclear power “by far the safest, cheapest and cleanest form of mass power generation.” Sharing his views in this Energy Report exclusive on the eve of a sold-out Casey Research Summit in Boca Raton, Florida, Doug says power generated from wind, sun, the tides and other alternative sources are “very nice special applications but don’t work economically unless they’re subsidized.”
The Energy Report: You have traveled the world extensively, studying the geopolitical forces that shape the economy on a day-to-day basis. In the past, you’ve been quite enthusiastic about uranium because of the need for nuclear power. Has the situation in Japan altered your view?
Doug Casey: No. What’s happened in Japan is most unfortunate, but it hasn’t altered my view at all. People are referring to it as a Class 7 Chernobyl disaster. Perhaps 20,000 people, or more, have died because of the earthquake and subsequent tsunami in Japan. Not one death, so far, has been attributed to that nuclear power plant.
What happened at that plant was not anticipated, and the reactor shouldn’t have melted down. Still, I have long said that nuclear power is by far the safest, cheapest and cleanest form of mass power generation. That is absolutely as true now as it was before the Fukushima disaster.
Around the world, coal is the source of the vast majority of power, and it kills directly, through air pollution and fly ash, thousands of people per year and many thousands more per year through coal mine disasters. Most of the mining deaths in the world—many thousands each year—occur in coal mines. No one ever talks about that. Nor do people seem to recall that when a large hydroelectric dam gives way it kills thousands of people. The debate on nuclear is intellectually dishonest.
TER: But mass psychology includes a nuclear fear factor.
DC: That’s true, because the average person is absolutely ignorant of science. Ask a kid in the city where milk comes from, and he says it comes from a carton out of Safeway. He doesn’t know it comes from cows and what’s involved in raising cattle. It’s the same with power. They think it’s like magic. But if you want to turn the lights on, if you want your refrigerators to run, you’ve got to generate the power, and you’re not going to do it from wind and solar. Those are very nice applications, but they don’t work economically unless they’re subsidized.
I have high hopes that these things will get better in the future, along with tidal and geothermal power. But now, and for the next generation, only coal and nuclear make any sense for mass power generation. Of course, if the government hadn’t been involved in nuclear for all these many years, we might be using thorium—which appears to have many advantages—instead of uranium. We’d certainly be far more advanced with uranium reactors using different technologies. The Fukushima plant design was almost 50 years old and the plant itself was 40 years old; that’s the equivalent of driving a 1957 Chevy today for your primary transportation. This is what happens when you have heavy regulation that makes capital costs so high that you can’t put in new technologies. Is nuclear power potentially dangerous? Of course. Everything is. But it’s a question of alternatives. I’m afraid hysteria has overwhelmed reason here.
TER: But how can we get over that? Can uranium really increase in value if the entire world is reassessing nuclear facilities?
DC: Reassessing in favor of what? Sure, they’re going to build more coal plants because India and China and the whole world needs more power. But aside from coal, what are they going to do?
TER: How about liquefied natural gas (LNG)? Some suggest that LNG will be a viable alternative in Japan, at least temporarily.
DC: LNG is fine except that it suffers from the NIMBY (not in my back yard) syndrome too. First, you have to get the gas; there’s plenty of gas, but nobody wants it recovered using current fracking techniques. Then you have to compress it and deliver it in a highly compressed form. Nobody wants an LNG tanker around, because if it explodes, it’ll literally blow up a city. That happened in Cleveland in the 1940s. Hundreds of people died and it took out half a square mile of Cleveland. So it’s not without risk.
A new hysteria is developing since we found shale gas, with absolutely vast quantities available using new technologies of horizontal drilling and fracking. But there are dangers of damaging the water table, so everybody will say, “You can’t go for shale gas here because it can potentially ruin our water”—and maybe they’re right, at least in some instances. Everybody wants power but nobody wants to do what it takes to generate the power. I don’t know how all of this is going to end, but probably badly because the world is so politicized.
TER: Shifting focus a bit, Doug, earlier this month, in a piece entitled “Keeping Capital in a Depression,” you wrote about agriculture as a viable option, and your summit agenda includes an “Investing in Agriculture” presentation by Steve Yuzpe, CFO at Sprott Resource Corp. Could you tell us a bit about your views on agriculture going forward?
DC: The prices of most grains, especially wheat, corn and soybeans, have doubled in the last year. You can make a good case that agriculture is a good place to be for the long term. I’m quite involved in the cattle business in Argentina and I think cattle actually will go much higher for a lot of fundamental reasons. Agricultural land all over the world has gone up hugely in the last few years. But that’s the problem, because if you want to make money, you have to buy cheap. Almost no assets are actually cheap anymore because so many trillions of dollars are floating around. I try to look at all the markets, everywhere. There are very few bargains.
TER: A recent article you wrote suggested that you’re not crazy about commodity foods such as wheat, soy or corn because they’re so subject to political interference and—as you put it—”they’re not as important as foods for wealthy people, which is the profitable sector in the market.” What do you mean by subject to political interference? And what are foods for wealthy people?
DC: Two different questions and they’re both good. As for political interference, Argentina is an excellent example because Americans are only a few years behind the Argentineans in learning how to destroy an economy. In agriculture, a government can use export controls—subsidizing some things and taxing others—to manipulate the market. Wheat, soy, corn and other grains are common targets. These are commodities for feeding masses of people, grown by the millions of tons. I find boutique areas of the market much more interesting—and less regulated.
TER: For example?
DC: Apples, peaches, blueberries, or, for that matter, cattle. The rich people in the world are getting richer, mostly because of politically-caused distortions. But the middle classes are growing by tens of millions of people per year in China. They don’t want to just eat bread and cheap soybean-based foods. Rich people like to eat meat, so it makes sense to me that it’s a better place to be. Plus, ranchers haven’t made money raising cattle for decades—most do it just because they’re ranchers, and can’t break a bad habit. Cattle herds worldwide have been in liquidation for a long time. I believe that’s going to change, and cattle prices are going way up.
Another problem mass commodity producers face is that every year farmers can plant huge new crops, adding volatility to the market. But cattle take years to mature. So the supply is more predictable, and constrained.
TER: In the world of the Greater Depression that you foresee, to what extent is the production of foods for wealthy people—the fruits and the meat—sustainable? Wouldn’t these markets also crash?
DC: In a depression the standard of living goes down. That’s the definition of a depression. But it will go down less for rich people than for poor people. So in relative terms, I think rich people’s foods will be higher-priced. I don’t think they’re going to go down as much and they’re likely to go up more. Think about caviar. The number of sturgeon will go down and the number of people who want to eat fish eggs will go up. In fact, if I could buy long-term contracts on caviar and good eating fish, I’d do it.
Regardless of what happens in the U.S. and Europe, both of which are in a lot of trouble, the Indians and the Chinese are coming up rapidly in the world. Scores of millions of people a year in both of those countries are joining the middle class. After they have money, nobody wants to eat high-fructose-based corn products. They want to eat rich people’s food too.
TER: In terms of the mass commodities, you pointed out that at any point farmers can simply plant more grain. But aren’t there issues in terms of the amount of arable land available, appropriate water sources and machinery and so forth that inhibit or limit that ability to just plant more? If we have this ability to just plant everywhere, why are potash and fertilizers going up so much? Doesn’t that indicate we’re trying to get more out of the same places?
DC: That’s absolutely true. There are counterarguments to everything I’ve said and I’m well aware of them. For instance, when it comes to these grains, they’re all gigantic monocultures. Whenever you have a gigantic monoculture that goes for many, many miles in every direction, like in the grain-growing areas of the world, you’re looking at a potential disaster because a bug—whether it be a microbe or an insect—could devastate all of it at once. When plantings were much more variegated, you couldn’t have a wholesale disaster wipe out the whole crop.
Another thing to consider is that while the fertilizers increase yields on the one hand, on the other hand, fertilizers as well as the various biocides are very destructive of soils. They kill good microbes and earthworms and things like that. And, of course, in many growing areas they pump water up from the water table. That’s generally a non-renewable resource because it takes thousands of years to recharge those water tables. That’s another potential disaster.
At some point you could find the grains going through the roof for those various reasons. But in the meantime, as people plant grains, for instance, here in Argentina cattle are being kicked off good land because it’s being planted with grains. The cattle have to go on junkier and junkier lands that are less productive. All of these things are pushing against each other in the markets. So, having said all that, I prefer the ends of the market that are generally looked upon as being rich people’s foods.
TER: Aside from holding precious metals and finding agricultural niches such as you’ve described, how does someone with any wealth preserve it during this tumultuous period you anticipate?
DC: You must be geographically and politically diversified. That’s critical. It’s hard to find a politically stable place, but at least you can find a politically isolated place that’s unlikely to be overrun in a war, or become a police state. The average person lives his whole life in the country where he was born, and whatever happens in that country happens to him. He’s planted there and stays there, acting like a vegetable, which isn’t a very intelligent approach to survival. So I recommend, first of all, political and geographical diversification.
TER: When it comes to geographically allocating your capital, you’ve founded a development in Argentina called La Estancia de Cafayate, a remote “lifestyle community” near the Andes—apparently now home to more than 150 people from a couple of dozen countries. But you know a lot of other places, too. How do you view Argentina now in comparison to other countries that are thriving? Thailand’s economy is healthy, expanding more than 7.5% last year. And of course everybody talks about China’s economic growth. Do you consider those politically stable places? Or would you focus more on South America?
DC: I’m a huge fan of the Orient. I’ve lived in Thailand, and thought seriously about going back for the years to come. But as much as I love it, it’s the antithesis of Argentina—not just geographically, but culturally it’s exactly opposite as well. If you’re of Caucasian background, it’s fine to live in the Orient, which I’ve done for years, but you’re never going to really be part of society there, and you probably won’t learn the language either. Tonal languages are tough. All things considered, I’d say South America is the best place to be. It’s experiencing a boom right now because of agricultural prices.
There are a lot of places you can go in South America—15 countries. Argentina is just the one that culturally suits me. Of course, the government has been idiotic almost all the time since Perón, but it bothers you less than most governments in the world do. As far as Estancia is concerned, it’s without question the best community in the world to live in, at any price—even 10 times the price. It has far more in the way of amenities and facilities and climate. And most important, the people buying there are the kind of people I want to hang around. So it’s a good place to be.
TER: Another good place to be, this weekend at any rate, is your summit in Boca Raton. Participants can look forward to hearing from some remarkable people, with something on the order of 35 of them on your agenda. What do you expect to be the major takeaway from this summit?
DC: What we’re facing now is something of absolutely historic importance, the biggest thing that’s gone on in the world since the industrial revolution. Many things will be completely overturned in the years to come. What’s happening now in the Arab world with all of these corrupt kleptocracies being challenged and overthrown is just beginning. We haven’t heard the end of this in any of these countries—Egypt, Tunisia, Syria, Algeria. Saudi Arabia will be the big one, of course. Everything’s going to be overturned. And all these stooges that the U.S. government has been supporting for years could very well lose their heads.
So this is a very big deal that we’re facing here in the next 10 years. It’s going to be the most tumultuous decade for hundreds of years, bigger than what happened in the 1930s and 1940s. Hold on to your hats. You’re in for a wild ride.
Doug Casey, chairman of Casey Research, LLC, is the international investor personified. He’s spent substantial time in over 175 different countries so far in his lifetime, residing in 12 of them. And Doug’s the one who literally wrote the book on crisis investing. In fact, he’s done it twice. After The International Man: The Complete Guidebook to the World’s Last Frontiers in 1976, he came out with Crisis Investing: Opportunities and Profits in the Coming Great Depression in 1979. His sequel to this groundbreaking book, which anticipated the collapse of the savings-and-loan industry and rewarded readers who followed his recommendations with spectacular returns, came in 1993, with Crisis Investing for the Rest of the Nineties. In between, his Strategic Investing: How to Profit from the Coming Inflationary Depression broke records for the largest advance ever paid for a financial book. Doug has appeared on NBC News, CNN and National Public Radio. He’s been a guest of David Letterman, Larry King, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin and Maury Povich. He’s been the topic of numerous features in periodicals such as Time, Forbes, People, US, Barron’s and the Washington Post—not to mention countless articles he’s written for his own various websites, publications and subscribers.
By The Energy Report, on March 23rd, 2011
 The earthquake, tsunami and resulting problems at the Fukushima nuclear power plant in Japan could impact some coal plays as global demand shifts to fossil fuel. In this exclusive interview with The Energy Report, UBS Securities Analyst Shneur Gershuni argues a bullish case for coal demand and shares some select coal stocks poised to benefit significantly.
The Energy Report: How has the tragedy in Japan at the Fukushima nuclear power plant impacted the outlook for coal globally?
Shneur Gershuni: There are actually two different types of coal. One we refer to as “thermal,” or steam coal, which is used in a boiler to generate heat. It creates steam to hit the turbine space, and that’s how you create your power. The other type of coal is called “metallurgical,” or met coal. Some people incorrectly refer to it as coking coal. This coal is mixed with iron ore, and you put it into a blast furnace to create the pig iron for the steel-making process. So, when you think about where and how you want to be positioned, it’s the steel fundamentals that will drive metallurgical coal demand, and energy needs will drive thermal coal demand.
Given the challenges with the Japanese nuclear facilities, we expect fossil-fuel generation will be used to partially offset the near-term generation losses related to the nuclear fleet to the tune of 5–10 million tons (Mt.). We wouldn’t be surprised to see unscheduled shutdowns of nuclear facilities around the globe as regulatory bodies seek to review nuclear safety procedures in the wake of the Japanese crisis. The incremental demand will add more pressure to the global supply/demand balance for thermal coal, which has been tightening of late (as evidenced by the recent move in API 2—delivered price into Europe, which has surged in the last six months and will likely move higher on increased Japanese demand.
TER: Is that on top of the 10 billion short tons of global consumption by 2030 forecast by U.S. Energy Information Administration (EIA)? Even that would be a 48% increase over 2006’s reported 6.7 billion short tons of coal.
SG: Yes. Incremental demand will add pressure to the global supply/demand balance that has been tightening of late anyway based on the international delivered price into Europe API. API surged in the last couple of months and will likely increase more in the next few months due to events in Japan.
TER: Tell me a bit about the growth drivers in both the thermal and metallurgical markets.
SG: Sure. Thermal coal is used primarily for power generation. In the United States right now, things are changing due to the way commodity prices are moving with the fuel switch to natural gas and so forth, but roughly 48% of power in the U.S. is generated using coal currently. That number could increase at least in the short term if there are cutbacks in nuclear power generation. Internationally, as economies grow, the demand for power increases and that tends to put pressure on power-generation sources to deliver. Obviously, coal has been a big part of that, especially in Asia, over the last couple of years and could be an even bigger part going forward.
TER: Does the use of thermal coal far exceed that of metallurgical?
SG: Yes, on an absolute basis, it’s a much larger market. But what’s interesting is that demand for steel, particularly with respect to the infrastructure build going on in Asia, has really put pressure on the metallurgical coal market. In fact, the price of met coal touched $125/ton a couple of years ago. That was a phenomenal price at the time; but then, in 2008, the settlement reached roughly $300/ton. Even during the depth of the financial crisis the annual settlement was $129/ton, which tells you demand was effectively outstripping supply, which is kind of where we sit now with a tenuous supply/demand balance.
So, while on an absolute basis, the thermal coal market is a much larger market in scale, the fact is that we have seen some tremendous pricing pressure and margin improvement on the metallurgical coal side driven by steel demand. Go back to 2005, for example, when we were consuming 1.1 billion tons (Bt.) of steel on a global basis. In 2007, over 1.326 Bt. steel was used. We forecast that will continue to increase in 2011, 2012 and 2013 and are looking at 1.4 Bt. steel in 2011. So, steel has been a big driver, and the pricing environment on the metallurgical coal side has actually been quite strong over the past couple of years even in the face of the global financial crisis.
TER: Is metallurgical coal still an opportunity for growth?
SG: Yes. Margins in the thermal coal business could be $6, $7, $8 or $9 a ton. But then, if you look at a met coal environment wherein you’re getting potentially +$300/ton, your margins could be north of $100/ton. So, the margin expansion has become very different between the two markets due to the tight demand/supply balance in the met coal market.
TER: Tell me how fast the met coal market is growing.
SG: Well, here’s where it gets kind of interesting. Growth of late is driven largely by China where steel production has been tremendous. If you look back to the earlier part of the last decade, China was using 300 million tons of steel. We don’t yet have final numbers for 2010, but we’re looking at potentially 590 Mt. of steel for China. What’s interesting is that China’s been somewhat self sufficient in producing its own metallurgical coal and really hasn’t been a major participant in the seaborne market until recently. In fact, in 2009, due to safety issues and also to increase capacity utilization of some of the mines, the country actually shut down some mines, but its infrastructure build continued.
Suddenly, China, which had not been much of a market participant, became a major importer of met coal. In 2009, for example, the country took roughly 34 Mt. met coal, and we estimate that it likely took 45 Mt. in 2010. That’s a significant percentage of the total marketplace given that the seaborne-traded market for met coal was 268 Mt. in 2010. That would be about 16% of the seaborne-traded market. Because the U.S., Europe and Western nations haven’t necessarily recovered on the demand side for steel, China has come in and taken the demand the West would’ve put on this marketplace.
So, we’re struggling now and looking to grow supply from a lot of nontraditional sources. Mongolia has become a source of supply, and Australia is looking to expand as much as it can. The U.S. is also looking to bring new met coal supply online and put it into this marketplace. And some of the lower qualities of coal are crossing over from the steam market into the met market to satisfy all this demand.
Consequently, as Western-civilization demand starts to come back online over the next couple of years, we’re hoping this new supply kind of offsets that. Because China is in the marketplace now and taking that kind of tonnage when previously it wasn’t even a major participant, it adds a lot of pressure. That’s kind of why we’re in an environment now in which we have an elevated pricing environment above what we believe should be a traditionalized, more long-term, normalized price because of this pressure on supply/demand right now.
TER: Is it becoming more difficult to get coal out of the ground because we’ve taken so much already?
SG: The answer is definitely yes—and this goes for both met and thermal. What it comes down to is you always want to mine the easiest coal that you can deliver first. About 100 years ago, they were mining easier seams than those we are mining today. In fact, in Appalachia, the seams continue to get thinner and thinner and that continues to hinder productivity. If you think about it from a fixed-cost-absorption perspective, it increases your costs over time. Because met coal is relatively scarce right now, people are going to areas they might not have chosen to mine 20 years ago. But at current prices, it suddenly makes sense to mine those reserves.
TER: It sounds like the price increase far offsets any margin pressure caused by greater difficulty.
SG: Right. To put a couple of things in perspective, when we set our long-term, normalized pricing assumption, we think that everything tends to normalize over the longer term. Obviously, if you’ve got great prices it’s going to incentivize people to bring on more supply, which will then force your margin back down to something more normalized, right? So, you do have this elevated margin opportunity over time; but over the next three years, we are expecting it to move down gradually.
TER: Shneur, I’ve created an unweighted portfolio of a group of coal stocks and I’m looking at 51% price appreciation over the last six months. Was that seasonal? Was it due to the floods in Queensland, Australia? What has caused this?
SG: A lot of it has to do with the economic recovery, frankly. Certainly, the most recent move had much more to do with Queensland and, clearly, that affected some of the more metallurgical coal-sensitive names like Walter Energy, Inc. (NYSE:WLT). There also has been some M&A in the sector, but it’s largely met coal pricing that has improved margins. Companies that were able to move production out of the thermal coal market into the met coal market and achieve that margin expansion have really enjoyed the benefit.
At the same time, in the U.S. thermal coal market, we hit peak inventories of 203.4 Mt. in November 2009—that was a record inventory build. Going back as early as April 2009, companies attempted to cut production in an effort to get it in line with demand. We don’t have the final 2010 data yet, but what happened is that in one year the U.S. went from 203 Mt. down into the 170s in what we like to refer to as an “inventory cleanse” between 2009 and 2010. It also had these production cuts, which limited the supply side a little and did have a good hot summer, which also helps power generation burn. So, all of these together have resulted in an improving inventory outlook.
TER: How might Japan’s nuclear problems impact the price of thermal coal going forward?
SG: Thermal coal will be a beneficiary of the nuclear challenges. CONSOL Energy Inc. (NYSE:CNX), Peabody Energy Corp. (NYSE:BTU) and International Coal Group, Inc. (NYSE:ICO) are fairly well positioned to be thermal coal exporters. Peabody exports both met and thermal coal out of its Australian operations, so it’s right in the heart of Asian demand.
TER: Are there any other companies that you’d like to mention?
SG: I think it’s worth mentioning that Peabody is not as volatile, but earnings growth has been a bit more stable. It’s very well respected and, on a longer-term basis, is well positioned globally. On the value side, we prefer CONSOL and believe its natural gas assets aren’t fairly valued due, in part, to the weak gas environment. When we put the coal and gas businesses together, we see the stock at a deep discount. But the catalyst for CONSOL will be continuing strength in both the global thermal and gas markets.
TER: Ok, so any other companies you’d like to mention?
SG: You know, another company that we think is interesting is Arch Coal Inc. (NYSE:ACI). It has a lot of exposure to the Powder River Basin on a production basis, so the company is well positioned. But its eastern coal business has metallurgical coal exposure, and that’s a material part of its earnings play. So, you can almost say that a stealthy piece of its earnings does come from the met coal side. The company completed the Jacobs Ranch acquisition successfully and things seem to be going well. Cash flow is all right, and we believe its earning-guidance range will likely continue to move up through 2011. We think there’s an opportunity for positive earnings revisions.
TER: Can met stocks appreciate from these levels dramatically?
SG: Yes, we think they can appreciate further from current levels.
TER: What are the plays? What should growth investors be looking for?
SG: On the metallurgical coal side, the Asian market is definitely important. Two names are Walter Energy, which I mentioned briefly, and Patriot Coal Corporation (NYSE:PCX). Walter is just about the closest thing to a pure met play. Patriot has exposure to both.
TER: You’ve mentioned Walter a few times and I know you like it, but it’s up 73% over the past six months. Should an investor be long on Walter now?
SG: It’s actually seen an even bigger move than that over the last two years. The stock is at $116 right now but, based on our discounted cash-flow analysis, we believe it should trade closer to $150—clearly, that’s material upside from where we are right now. The company is in the process of closing a transaction—a USD$3.3 billion merger with Canadian met coal producer Western Coal Corp. (TSX:WTN), and that will help to diversify its operations. Walter produces the highest-quality coal in the U.S.
TER: Is Walter your favorite play?
SG: For met coal, it depends on your risk tolerance. Patriot has lower-grade metallurgical coal but ends up with wider earnings expansion as a result; however, it tends to be a lot more volatile than does Walter. So, if our thesis plays itself out and things do well or even better than what we’re anticipating, then Patriot is likely to outperform Walter. Walter is a little lower down on the risk profile, so it’s really about your risk tolerance. The beta for Patriot is just higher, but part of that has to do with the fact that the earnings expansion, in theory, is greater.
TER: Patriot’s market cap is almost exactly one-third that of Walter’s. That has to contribute to its volatility, does it not?
SG: I think that might be a fair conclusion. Obviously, larger versus smaller cap is part of it. Walter hopes to close the Western transaction. If it does, the company’s market cap and enterprise value also will increase, so it will widen that, too. Patriot is definitely a smaller market-cap company relative to Walter.
TER: It’s been so nice talking with you, and I hope to speak with you again sometime in the future. Best wishes.
SG: Ok, that sounds great. Thank you.
Shneur Gershuni is an executive director in the Energy Group at UBS. An analyst since 2004, Shneur covers the coal sector and, until recently, also was second lead for the natural gas sector with Ronald Barone. Before UBS, Shneur was a U.S. equity analyst for Bissett Funds at Franklin Templeton Investments in Toronto. Prior to that, he was a credit analyst in the Canadian Private Placement Group and a portfolio management assistant in the U.S. Bond Portfolio Group at Canada Life Assurance Company. He began his career at Primerica Financial Services, a member of Citigroup, as a mutual fund and high-liability specialist. Shneur holds an MBA in finance from Degroote School of Business, McMaster University and a BA in economics from York University in Ontario. He is also a CFA charter holder.
By The Energy Report, on March 11th, 2011
 As an investment option, uranium glows brightly for Siddharth Rajeev, vice president and head of research at Fundamental Research Corp. He also favors coal and explains why size matters when it comes to potash in this exclusive interview with The Energy Report.
The Energy Report: When you last talked with The Energy Report, you were more bullish on the uranium price than any other commodity. Since then, the price of yellowcake has gone from about $50/lb. to just under $70/lb. Is there much upward momentum left in uranium?
Siddharth Rajeev: Yes, we continue to believe in the uranium story. You’re right, uranium prices have gone up significantly in the last six to eight months. But we still think there’s upside potential, mainly because the fundamentals remain very strong.
There are four reasons we believe in the uranium story: 1) Nuclear energy is a dependable and clean power source; 2) There is no direct substitute for uranium in nuclear power plants; 3) On the supply side, the primary production of uranium must increase significantly from current levels to keep up with long-term demand because the current supply deficit is met by stockpiles; and 4) Most of the new projects that we see out there are of much lower grade than the majority mines operating currently. Lower grades imply higher operating costs.
Our research indicates that the operating cost of new projects in development stages could be about $55–$60/lb. This implies that uranium prices must be significantly higher than those levels in order for the new projects to be feasible.
TER: Do you think we could see another 2007 when prices reached the $130/lb. area?
SR: We believe the market overreacted in 2007. We don’t expect prices to go that high, but we definitely see significant upside from the current price.
TER: Can you put that into more specific terms?
SR: We use a long-term price of US$80/lb. in our valuation models.
TER: What is the investment thesis for uranium juniors in light of that price environment?
SR: When uranium prices hit record highs a few years ago, most junior exploration companies raised a significant amount of capital. A lot of them cut down their spending to preserve cash when uranium prices collapsed. So, when uranium prices recovered, we started seeing many juniors with quality assets in a strong cash position. Those are the kind of companies we like.
TER: Can you give us a handful of uranium juniors with upside that you’re currently covering?
SR: Our top three favorites in the uranium sector are Strathmore Minerals Corp. (TSX:STM; OTCQX:STHJF), Mawson Resources Ltd. (TSX:MAW; OTCPK:MWSNF; Fkft:MRY) and Fission Energy Corp. (TSX.V:FIS).
Let’s start with Strathmore. The company’s advanced-stage Roca Honda project in New Mexico has a measured and indicated (M&I) and inferred resource of 33–34 million pounds (Mlb.) of uranium. And STM has a strong partner—Roca Honda is held 60% by Strathmore and 40% by Sumitomo Corp. (TKY:8053; OTCPK:SSUMF) of Japan. Management expects to put the project into production in the next two to three years. The company recently completed an internal Phase 1 feasibility study on Roca Honda. This project is considered one of the largest planned underground mines in the U.S. in 30 years. We definitely think Strathmore has a lot of upside potential from this project.
The company also has several other projects with NI 43-101-compliant and historic resource estimates. It’s in a strong cash position, with more than $20 million in working capital and has a solid management team. We have a BUY rating on STM with a fair value estimate of $2.26/share.
TER: You mentioned an internal feasibility study. Does that mean we won’t be able to see it?
SR: We might not get to see it. Feasibility is typically done by a third party. Companies generally start with an internal study and depending on those results, hire a third-party consultant to do a formal feasibility study that can be disclosed to the public.
TER: Strathmore also has the Gas Hills project in Wyoming. What is its status?
SR: STM commenced a development-drilling program at its Gas Hills project in central Wyoming with the objective to complete an NI 43-101-compliant resource, confirm and expand known areas of mineralization and advance its permit application, which is expected to be submitted in Q211.
TER: Do you think Strathmore may thin out some of those other projects?
SR: Yes, that’s highly likely. Last year, the company sold its Pine Tree-Reno Creek properties in Wyoming to Bayswater Uranium (TSX.V:BYU) for US$17.5 million (cash) and US$2.5 million (shares). In November 2010, Strathmore announced plans to sell its Juniper Ridge property in Wyoming to Crosshair Exploration & Mining Corp. (TSX:CXX). And STM has definite plans to spin out its non-core projects. We think that’s the best strategy because it gives the company more time to focus on and monetize its core projects.
TER: What do you think of the combination of STM CEO David Miller and President Steven Khan, in terms of uranium juniors?
SR: We’ve been following the STM team for several years and the management team has a great track record.
TER: You also mentioned Fission Energy, which has projects in Saskatchewan, Quebec and Peru. What’s the next step for Fission?
SR: So far, results from the Waterbury Lake project in Saskatchewan have been extremely impressive. The stock has tripled since last May, and Fission recently completed a $7.5M financing.
TER: Some of the drill results at Waterbury have hit 5%–6% uranium, which is really quite high.
SR: They are exceptionally impressive. Drilling on the J-Zone uranium discovery has continued to turn up significant intersections of high-grade uranium. The main thing we see in this project is that high-grade uranium mineralization continues to be intersected at the unconformity. That’s encouraging because mineralization at many of the major deposits in the Athabasca Basin, like Cigar Lake and McArthur River, occurs at the unconformity.
TER: The last of your top-three was Mawson Resources, which has projects in Finland, Peru and Sweden.
SR: Mawson’s main project is the Rompas Gold-Uranium project in Finland. The preliminary exploration program completed by Mawson returned extremely positive results on the grab and channel samples. Just to give you an idea, channel samples collected on the property during last year’s field exploration program gave grades of 1,424 g/t gold and 1.3% uranium over 0.95 meters, and 191 g/t gold and 0.44% of uranium over 2.05 meters. These are tremendously high numbers. From initial results, we believe Rompas has some of the highest upside potential of any early stage project under our coverage.
TER: Mawson is trading at about $1.75 right now, a bit off some price spikes as a result of those bonanza-grade samples. What’s the next step for the company? Will it be drilling soon?
SR: Mawson recently applied for a winter ground-access permit for a shallow grid-diamond drilling program.
TER: Coal is another commodity that interests you. Despite growing concerns about pollution, prices continue to climb, mostly due to increasing demand from steel plants in places like China and Korea. We’ve even seen some recent takeovers, including Walter Energy, Inc.’s (NYSE:WLT) proposed acquisition of Western Coal Corp. (TSX:WTN). What should our readers expect from the coal market through the rest of 2011?
SR: We’ve always been bullish on coal because it remains the cheapest and most-abundant fossil fuel out there, accounting for 40% of global electricity supply. Despite the move toward cleaner energy, we believe it is tough to replace coal; consequently, we do not think coal will lose its significance in the energy sector at least for the next decade or so.
TER: What’s your coal price range per ton?
SR: We use $140/ton for long-term metallurgical coal—well below the current price of $175–$180/ton.
TER: What are some small-cap, under-the-radar names in coal?
SR: One of our favorite stories is Compliance Energy Corporation (TSX.V:CEC), which is developing the Raven Coal Deposit 80 km. northwest of Nanaimo, BC. It has more than 130 million tons (Mt.) of M&I and inferred semisoft met coal. Its focus is on metallurgical coal, which has a higher value than thermal coal.
The company has very strong partners in LG and ITOCHU, which indicates that it has solid access to capital. Compliance issued a very positive prefeasibility study (PFS) in October 2010. Our valuation on the stock is $2/share; the current price is $0.35. The main reason we like this stock as an investment is because cash and marketable securities alone account for $0.25–$0.30/share. This indicates that the market value of the company’s project is just $0.05–$0.10/share, which is extremely low for an advanced-stage project like Raven.
TER: Do you mean $0.05 per ton?
SR: No. The current share price is $0.35. Cash and marketable securities alone account for $0.25–$0.30/share, which means the remaining share price of $0.05–$0.10 is the value that the market assigns to the project.
TER: Could some of that low valuation be due to development risk?
SR: Generally, projects in BC have high permitting risk. Despite the risks associated with the project, we believe a market value of $0.05–$0.10/share is extremely low for a project with positive PFS results and an expected mine life of at least 16 years.
TER: What about some other coal names?
SR: The next one I want to talk about is 49 North Resources Inc. (TSX.V:FNR). It’s Saskatchewan’s first publicly traded resource investment company, with close to $65 million in assets under management. FNR invests in early stage resource projects, including minerals, oil and gas, and its portfolio also has coal projects.
One of its top-five holdings is a coal company called Westcore Energy Ltd. (TSX.V:WTR), which is a junior explorer focused on coal in Saskatchewan and Manitoba, where it has interest in over 95,000 hectares of land. Westcore’s Black Diamond property has had four discoveries recently. FNR owns 30% of WTR’s outstanding shares. The winter drilling program that commenced in January has thus far shown encouraging results.
TER: Another major commodity in Saskatchewan is potash, which is mostly used in fertilizer and prices show no signs of retreating any time soon. Why is potash so hot right now?
SR: Obviously, with high demand for food comes high demand for fertilizers. In addition to demand, the supply side of potash is very important to look at when forecasting potash prices. Most potash deposits are highly capital intensive and need billions of dollars to be put into production. As a result, new potash supply is hard to come by. Increasing demand and the bottleneck on the supply side are the primary reasons why we like potash.
TER: Last year, BHP Billiton Ltd. (NYSE:BHP; OTCPK:BHPLF) made a bid for PotashCorp (TSX:POT; NYSE:POT) in an effort to get a stable potash supply in an increasing price environment. Potash One Inc. (TSX:KCL) was acquired by the German company, K+S Aktiengesellschaft (Fkft:SDFG.F). In the last year, some potash juniors shot up as a result of this renewed interest. What are some names you cover?
SR: Our favorite potash story is a company called Western Potash Corp. (TSX.V:WPX), based here in Vancouver. Its main project is the Milestone Project in Saskatchewan, 30 km. from Regina. The company’s exploring the potential of hosting a solution potash mine. Solution mines are significantly cheaper to develop and have lower operating costs than underground potash mines. Western Potash has a pretty advanced-stage project that turned up a positive scoping study in the second half of 2010 that suggested WPX can produce potash for at least 40 years at a rate of 2.5 Mt./year. That’s a good source of supply for any major company or country looking for a stable source of potash.
As potash projects are capital intensive, the exit strategy of most potash juniors is either to joint venture (JV) or get acquired by a major (with access to capital). The acquisitions you mentioned, made in the last year, were mainly companies with producing or advanced-stage projects. Potash juniors typically tend to be acquired when they reach the point that the economics of their projects are known. We think Western Potash is an ideal acquisition target, particularly because it is Canada’s most advanced-stage junior that has yet to be acquired.
TER: Do you have some parting thoughts on the energy markets or on the markets for energy-related commodities?
SR: We continue to have a positive outlook on uranium. We believe there are lots of opportunities in the sector—companies with quality assets and a good cash position. We are also bullish on potash. However, investors should be extra cautious when it comes to investing in very early stage potash juniors as companies have to delineate large resource estimates to cover the huge capital cost and make their projects economically feasible. Companies with advanced-stage projects and known economics have significantly lower risk.
TER: Does that wisdom stand for uranium and coal projects alike?
SR: It is more relevant for potash projects. Uranium projects are capital intensive but not nearly as much as potash projects. Coal projects are less capital intensive compared to both uranium and potash.
TER: That’s good to know, Sid. Thank you for your time.
Siddharth Rajeev joined Fundamental Research Corp. in April 2006. At FRC, he oversees the research department and also covers a broad array of companies, primarily in the energy, mining and technology sectors. Prior to FRC, Siddarth had a mix of engineering and finance experience, including corporate finance experience, at a leading investment bank in Kuwait. Sid has ranked as a four-star analyst in the energy and mining sectors by Deutsche Asset Management, a division of Deutsche Bank. Sid holds a bachelor of technology degree in electronics engineering from Cochin University of Science & Technology and an MBA in finance from The University of British Columbia. He is a CFA Charterholder and has completed studies in exploration and prospecting at the British Columbia Institute of Technology. Sid is sought by the media for commentary on the valuation of small-cap stocks and industries he covers and is a speaker at various investment conferences.
By Christopher Briem, on February 21st, 2011
Maybe it will be coal? Yeah, coal.
You would be surprised what my regular reading list includes, but PilotOnline has a story today: Coal ships create a traffic jam on Hampton Roads waters.Where is all the coal being loaded in Hampton Roads coming from? I once had to inspect a coal ship loading down there… in a white uniform no less. Not the greatest idea in the world.
and you thought this was going to be about shale. How’s Marcel doing?
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