Energy & Commodities

Fracking, Uranium & Solar – Growth & Innovation

A more profitable outcome often requires a new way of doing things. The Energy Report profiled some of the most innovative stories in the energy space in 2013. Our experts talked about everything from developments in hydraulic fracturing techniques to new ways of finding and processing natural resources. As we look forward to exciting new opportunities in 2014, let’s revisit some stories our experts shared last year.

COMPANIES MENTIONED: BABCOCK & WILCOX CO. : CONTINENTAL RESOURCES INC. : CUB ENERGY INC.ENERGY FUELS INC. : FISSION URANIUM CORP. :MADALENA ENERGY INC. : MAGELLAN PETROLEUM CORP. : SUNPOWER CORP. : URAVAN MINERALS INC. : WAVEFRONT TECHNOLOGY SOLUTIONS INC. RELATED COMPANIES : DNI METALS INC. MIDLAND EXPLORATION INC.

 

Oil & Gas: Enhanced Recovery

 

Nothing catches the market’s attention like cushy profit margins. Technologies that enable oil producers to drill more for less money were a notable theme for the experts featured in The Energy Report in 2013.

 

As Jim Letourneau commented, “Reducing drilling time by 20–40% is an easy sell, and the enhanced oil recovery business has a huge market in the field.”

 

In an August 2013 interview titled “Smart Fracking: Jim Letourneau on Enhanced Oil Recovery with Competitive Costs,” the Big Picture Speculator editor said, “There are a lot of technological tricks for increasing well productivity with minimal costs: A producer can re-enter wells or stimulate wells or fracture older wells. It can enhance oil recovery with pulsed injection of water or chemicals by utilizing a tool installed in the wells that injects fluids in pulses—pumping like a heart pumps. Think of putting a kink in a garden hose. Pressure builds up and when the kink is released there is a strong pulse of water. This technology is efficient and companies can make money doing enhanced oil recovery with pulsed injection.

 

One such company is Wavefront Technology Solutions Inc. (WEE:TSX.V), which provides pulsing tools to operations all over the world. It has a couple new business lines with fantastic growth rates. In well stimulation, a chemical (usually acid) is injected into a formation to clean up the area around the well bore so that more oil and gas can flow. By using pulsing, the acid is placed more uniformly and better flow rates are achieved after the stimulation. This part of Wavefront’s business is growing very quickly and now accounts for roughly half of the company’s revenue.”

 

C. K. Cooper & Co. Analyst Darren Odenino was more impressed with CO2 Enhanced recovery, a method wherein CO2 is piped to oil fields, where it is injected via injection wells into the oil reservoir. [See infographic below.] The Department of Energy’s Office of Fossil Energy notes that about 114 active commercial CO2 injection projects are underway in the U.S., and together they could produce a collective additional 280,000 barrels of oil per day (280,000 bbl/d).

 

Among the higher-profile projects is Magellan Petroleum Corp.’s (MPET:NYSE) Poplar Field in Roosevelt County, Montana. In his May 2013 interview titled “How to Spot Oil and Gas Takeout Targets,” Odenino commented, “The exciting catalyst for Magellan is the opportunity to test its CO2-Enhanced Recovery project in the Poplar field’s Charles formation. If that proves successful, Magellan should be headed for a lot of growth.” Magellan has already reached several milestones for this pilot project. With funding secured for a two-year trial run and five wells drilled, Magellan is scheduled to begin CO2 injection this very month.

Click HERE of on image for larger view:

InjectionWell

Evan Smith, co-portfolio manager of U.S. Global Investors’ Global Resources Fund, sees producers moving toward a manufacturing-like process in the coming year with multi-well pad drilling. In an interview earlier this month titled “Producers that Can Pump at $60/bbl Oil,” he commented, “The rig count has declined by more than 50% over the last two years, and yet we continue to see a steadily increasing supply of natural gas. It’s a testament to the technology that has been developed by the industry to drill faster and more efficiently and to unlock and produce more reserves with less input.”

“I think in 2014, people in the field will have delineated most of their acreage and are going to turn these things into a pure manufacturing process with pad drilling. Continental Resources Inc. (CLR:NYSE) is testing 16 wells per pad in the Williston Basin in North Dakota. The company will repeat that pattern and drive costs down. We’ve seen a big shift to multi-well pad drilling in 2013, but I think it’s going to become much more standardized in 2014. The efficiencies that we’ve seen, which have led to more productivity with fewer rigs, will probably remain and perhaps even accelerate in 2014.”

North American oil and gas industry innovation is a force that is turning the global production profile upside down as companies explore new oil and gas reserves around the world that were thought all but unrecoverable. As Edison Investment Research Analyst Peter Dupont commented in his recent interview, “Has Shale Broken OPEC’s Grip?,” North American companies with shale tech know-how are poised to unlock reserves around the world, especially in South America.

“Some of these companies have first-mover advantage.,” says Dupont. “Madalena Energy Inc. (MVN:TSX.V) [is one of] the most obvious examples. . . Madalena has working interests ranging between 35–90% in three blocks in the Neuquén Basin comprising a sizeable 135,000 net acres. Contingent and prospective recoverable resources are estimated by Madalena at 2.9 Bboe, of which 45% are oil and NGLs. There is a mixture of conventional and unconventional plays. Small quantities of oil are presently obtained from the conventional Sierras Blancas formation in the Coiron Amargo Block, where horizontal drilling technology is being applied. Madalena’s key focus presently is to secure a joint venture partner for the appraisal and development of the Vaca Muerta and Agrio shale formations. Securing a partner or partners would be a critical catalyst for the stock.”

Canaccord Genuity Research Director Christopher Brown saw shale tech sweeping the old world, especially in Ukraine. In his November interview, “Four International O&G Juniors for a Globe-Sweeping Shale Revolution,” Brown commented, “On the Ukrainian side, Cub Energy Inc. (KUB:TSX.V)has done well at introducing new technologies to the country. Cub has received the approvals to bring in this new technology and apply it. It’s going to be a slow process, but as the company continues to unlock value, there’s no denying that its region and fiscal terms are very good and provide a lot of incentive to keep on working hard to grow the production base. Turkey hosts a more difficult unconventional basin. The Anatolia Basin is still in its earlier stages, whereas the Ukrainian assets have some proven opportunities. In the Anatolia Basin, you do have some majors that are tentatively playing around the edges, but there has not yet been anything that’s really unlocked that basin. But it didn’t cost Cub much to enter the basin and the Turkey play provides shareholders with potential future value, which they don’t pay for at Cub’s current share price.

“. . .History has proven Ukraine has access to significant volume. That’s why Cub is in this country: It believes it can unlock more value. . .through its ownership in a separate private holding company (Pelicourt Ltd.), management holds a major position in Cub Energy, and recently it decided to put in additional dollars to show confidence in the future of Cub. As of its last statement in October 2013, it owns 39.54% of the shares outstanding. That’s provided a decent amount of market support.”

As the oil and gas sector continues to transform worldwide, keep tuning in for Streetwise interviews that shed light on promising oil and gas explorers that are poised to deliver shareholder value.

Uranium: Fundamental Changes

With the Megatons to Megawatts program officially coming to a close, investors are shifting focus to North American uranium producers that can help meet U.S. needs. John Kaiser‘s October interview, “10 Strategies for Success in a Flat Commodity Price Market,” was filled with fresh approaches to mining. In light of the small number of domestic uranium producers and the high capital costs of resource delineation and mine development, an innovative new sampling method caught Kaiser’s attention.

He comments,”A junior explorer, Uravan Minerals Inc. (UVN:TSX.V), has developed an interesting geochemical sampling method it is using on projects in the Athabasca Basin. . .Uravan has spent the last five to six years developing its geochemical sampling method in collaboration with Queens University’s Kurt Keyser, which looks for the lead isotope decay products of a uranium deposit. These get absorbed by vegetation and clay particles. The company takes tree core samples at surface to find evidence of a resource that may be 1,000–1,500m deep. You still can’t tell the size of it or the grade, but at least you know you’re going to hit something once you drill down there.

“This approach opens up a much deeper portion of the basin that has been largely out of bounds because of the difficulty in finding these deposits, which almost always are right at the unconformity between the basement rocks and the overlying sandstone rocks in association with graphite. The conventional targeting tool is a geophysical survey that looks for conductors representing these graphite beds. But deeper than 450m, these conductors become fuzzy just as drill holes that need to pinpoint the target become expensive. This is problematic because most of the graphite beds at the Athabasca Basin unconformity do not host a uranium deposit. Uravan’s radiogenic isotope based sampling tool allows the junior to see evidence of a uranium deposit at substantial depth from the surface. A case study done this summer apparently demonstrated that Cameco’s 850m deep Centennial deposit shows up as a well-constrained geochemical anomaly. Theory says that in the Athabasca Basin, the thicker the sandstone cover, the bigger and richer the potential uranium deposit at the unconformity. Uravan now has a tool that enables it to stalk super-elephants in uncharted territory.”

Kaiser continued, “Uravan can also perform this research as a service to companies that have claims in the Athabasca Basin and then earn a royalty or a small interest in exchange for generating the geochemical part of the target that you need to justify raising money for a high-stakes drill program.” Earlier this month, Uruvan completed another surface geochemical study on the Centennial depositbased on the earlier survey.

The Abasca Basin is in the spotlight more than ever this year, as superstar company Fission Uranium Corp. reported countless startling results. As Kaiser noted, “A big discovery event in the past year is the Patterson Lake South discovery in the Athabasca Basin by Fission Uranium Corp. (FCU:TSX.V) and Alpha Minerals Inc. This is a classic high-grade unconformity type of uranium deposit with grades of up to 20% uranium. The size of this discovery is stimulating interest in the potential for a new Athabasca Basin area play.”

Of course, other domestic near-term uranium producers are raising eyebrows among energy analysts, especially those who expect a uranium price comeback in the coming year. Cantor Fitzgerald Canada Metals and Mining Analyst Robert Chang highlighted Energy Fuels Inc. (EFR:TSX; EFRFF:OTCQX; UUUU:NYSE.MKT) in his September interview, “Uranium Price Headed for $50 in 2014, Taking Stocks Higher.” Chang commented, “We cover Energy Fuels, which is the second largest producer of uranium in the U.S. and probably has the best story leveraged to the uranium price. It currently produces only about 1 Mlb/year, by design, with several mines that can be turned on relatively quickly. We estimate that it could quickly turn on anywhere between 2–5 Mlb more in annual production once prices get to attractive levels. On top of that, it also has the White Mesa mill that it acquired from Denison, located in Blanding, Utah, which is the only conventional mill in the U.S. Having mill access is extremely important because you effectively cannot produce your final product without it. Energy Fuels has a monopoly position with a conventional mill and it can even make money by processing material on a toll basis for other producers. We believe that this is a very attractive company for those who believe that the uranium price will head higher.”

Meanwhile, the way that we consume nuclear power could completely change over the coming decades. In his recent interview, “Why Uranium and Coal Rank high for Energy Return on Energy Invested,”Thomas Drolet commented on a coming shift to smaller units: “Standard nuclear reactors being built today are gigantic units. Over the next decade we’re going to see a shift to smaller units—small modular reactors (SMR)—for good and valid reasons of schedule and because the utilities want them. Babcock & Wilcox Co. (BWC:NYSE) and NuScale Power LLC in the United States are being funded or potentially funded by the U.S.DOE to bring on these smaller reactors.”

What’s particularly exciting about stories like these is that they are larger than a single company. They have the potential to galvanize an entire sector and make a particular energy source more viable, period. Keep tuning in next year for more investment advice about uranium producers.

Alternative Investments

Alternative energy as a sector is built on technological innovation, but in order for the market to take notice, these innovative feats need to create a compelling bottom line. Rodney Stevens took notice of an innovative solar energy business model in his July interview, “A Short-Seller’s Investment Guide to Obama’s Climate Change Initiatives.

Stevens commented, “We like SunPower Corp. (SPWR-A:NASDAQ; SPWR-B:NASDAQ) because not only does it manufacture the solar panels, but it also has a leasing program for the retail space, similar to SolarCity. SunPower has one of the best products available on the market and it should benefit from the incentives utility companies have to add renewable sources of energy to their business. SunPower could play a big role in the utility space, but also grab the retail markets. It should benefit from the growth in solar and also it has an international base, although its operations are primarily in the U.S. . .I think decent quarterly results drove the stock. Its revenues beat expectations and its losses have narrowed. Going forward, SunPower is staged for further growth and profitability. I think that’s been the main catalyst driving the share price. We expect that revenue growth to continue. “

House Mountain Partners founder

Chris Berry made a strong point in his June interview, “Transformative Energy Technologies.” As Berry notes, “With population increasing globally, becoming more interconnected, and set to live a more commodity-intensive lifestyle, sustainability and efficiency in our progress as a society will be of paramount importance. I just do not believe that you can have as much intellectual capital and financial capital all working toward next-generation technologies and not have breakthroughs that provide compelling investment opportunities and also leave our children a lasting legacy.”

From production technical advances to futuristic visions of mega-efficient energy delivery systems, the energy investment space is vast, varied and tremendously exciting. And if you’ve ever watched a company start small and grow into a major market force, you understand the power of ideas. We hope you’ll keep checking in with us for energy investment discussions from esteemed experts in the field, and let us know what you’d like to see more of from The Energy Report. Happy holidays, and many happy returns!

Related Articles

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The Majority of Analysis is Bearish in the Metals

GoldSilverKilos

The analysis is now turning excessively bearish in the metals. They still have to press lower and as one reader commented “puke their guts” ok. Only then will see a reversal of fortune. It is just not time for the metals. They had their run, now they must regroup and get ready for the next run.

Ed Note: Article link above worth reading, and also scan Martin’s Blog HERE

Leading Indicators from the Superstars of Resource Investing

Knowledge is money in resource investing. That is why The Gold Report reaches out to the top experts in the sector all year long to bring you their best investing ideas. For this special year-end feature, we asked some of your favorite thought leaders about the tools they use to spot trends and make those important buy-sell decisions. What are the early indicators that gold will rise, plummet or coast sideways? Is it Federal Reserve bond buying? China’s growth rate? Lipstick sales? You may be surprised by the answers.

COMPANIES MENTIONED: BHP BILLITON LTD. : FREEPORT-MCMORAN COPPER & GOLD INC.

Watch the Dollar: John Williams

The best way to predict gold is to follow its inverse indicator, the dollar. That is why ShadowStats Editor John Williams is closely watching central banks. “There has been an effort to discourage people from owning gold because a rally in the price of gold is generally taken as an indication of poor performance by the central banks,” he explains. The challenge with using central banks as an indicator, he warns, is that buying and selling by central banks is usually covert; it’s done through third parties. That can lead to a confused and dysfunctional market that ignores fundamentals and reacts with extremes to headlines.

One example is all the controversy over tapering or not tapering. When asked about the Federal Reserve’s announcement to begin tapering, Williams says, “I did not expect the Fed to back off in any meaningful way, and it did not. The minimal tapering likely was more politics in advance of the change in Fed chairmanship than anything else. The banking system remains in deep trouble, favoring ongoing quantative easing (QE3), and the economy remains weak enough to continue the needed political cover. Going forward, the Federal Open Market Committee (FOMC) allowed for expansion as well as further pull back in QE3, dependent on underlying conditions. Those conditions still favor expanded easing.”

Williams cautions that quantitative easing is bad news for the dollar relative to the rest of the currencies. “That will become very inflationary because weakness in the dollar tends to spike oil and gas prices. And that’s the number one area of cost-push inflation we’ve seen in the last couple of years. The long-term result can only be higher inflation, a much weaker U.S. dollar and, eventually, higher gold prices.”

He continues, “The dollar is the basic indicator here and I am looking for heavy selling. In fact we’ve been seeing some recent weakness in the dollar particularly against the Swiss franc.”

Williams does not see official unemployment numbers as a reliable indicator. “The employment rate today is down 0.8% from last year. Normally the drop in the unemployment rate would be good news because it means that the number of people unemployed would be declining, people are going back to work and employment is rising. But in reality, the only reason the headline number has gone down is that some of the unemployed people are no longer being counted because they’ve become discouraged. They want a job, they want to work, but nothing is available.”

When it comes to the all-important consumer confidence indicator, Williams was also careful about what statistics he uses. “The consumer tends to drive the economy so you need to look at things that drive consumer liquidity. One of the best indicators is median household income adjusted for inflation. It never recovered from the recession. In fact, as the recession supposedly ended and the economy bounced back, household income continued to plunge and is holding at its cycle low. And that cycle low is lower than median household income—adjusted for the consumer price index—was back in 1967–1970. The consumer is in terrible trouble here.”

Consumer credit, despite some public statistics, is also not recovering in a meaningful way, according to Williams. “All the growth has been in student loans, not in loans that buy dishwashers and automobiles. If that should start to pick up that would be a positive sign. As long as it stays as it is, it’s a negative sign.”

Consumer confidence, which Williams considers a coincident indicator, has been volatile and not any more positive. “The level of confidence still is at levels that are traditionally seen deep in recessions, not in economic recoveries. We are not having an economic recovery.”

He explains further, “The only reason that you see growth in the gross domestic product (GDP) is that the rate of inflation is understated. The implication there is a big negative for the dollar. Relative economic activity is always an important factor in the dollar’s strength.”

Williams is concerned that people will be shocked with downside surprises as the country enters what will be formally recognized as a new recession. “It’s bad news for the budget deficit because all the happy forecasts are based on solid 3–4% economic growth in the GDP instead of continued stagnation and contraction, which will result in lower tax revenues. Government spending in the support programs will be higher and the deficit will widen. That is what the markets are deadly misreading and that will be a big negative for the dollar.”

Williams also counsels watching presidential approval ratings, which are at a low right now. “Usually a president’s approval rating is a pretty good indicator of where the dollar is going because it indicates how the rest of the world views the U.S. government. All these factors are leading to significant downside pressure on the dollar. I think we are going to see a tremendous dollar selloff in the not-too-distant future and the biggest gainers should be gold and silver and the precious metals.

Ride the Cycles: Gary Savage

Like Williams, Gary Savage, publisher of Smart Money Tracker, watches the dollar very closely. “We will have a currency crisis,” he says. “Gold prices can’t stay where they are. They will go much higher. It often starts slowly, but it will happen.”

Savage uses cycle analysis and his charts show “a major low is coming. It happens every three years. This one will be similar to what happened in 2008. Money printing spikes inflation. It will have a severe impact on commodities,” he says. “It is too late to stop inflation after years of quantitative easing unless the government were to sell massive amounts of bonds. Tapering might have a slight impact but inflation can’t be stopped at this point.”

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“Market seasons are like emotions,” he explains. “We overdo the excitement and then get depressed. We tend to go to extremes. The first phase of inflation is already in place. We just don’t call it that because it is stored in the stock market. When that busts because it is overvalued, money will leak into commodities. Gold and silver will be the biggest beneficiaries because they were hit the hardest.”

Capitalize on Greed/Fear Indicators: James Dines

James Dines, editor of The Dines Letter, watches the psychological state of the market and likes what he sees. “Our longtime optimism has been based largely on leading market Averages in solid Uptrends. Mass Psychology is one of our key tools, and Mass Fear all the way up has confirmed the bullish outlook, according to the Dines Theory of Positive Negativism (DITPON),” he shares. Descriptions of these two measurements are included in his battery of over 200 Indicators, called the Dines Greed/Fear Oscillator (DIGFOI).

On a short-term basis, the October Dines Letter looked for some selling to enter markets in November, followed by a December rally. “In November the Advance/Decline Index indeed turned down, on schedule, and we’re now waiting for the December rally, which is late,” he acknowledges. “Whether this changes our big Annual Forecast Issue for 2014 is now being decided, but we are staying with serious winners such as Boeing, 3D Systems, Amazon, Priceline. If they begin to break their Uptrend lines, it might be a factor in calling for an admittedly overdue market ‘Sell’ signal.” Meanwhile, he observes, technology and biotechnology have been producing “killings,” and Uptrends are generally intact as of today.

In the raw materials sector, Dines sees a continuation of “a devastating crash” that includes everything from soft commodities to metals (including rare earths, uranium and even precious metals). “We appear to be the only member of the world’s press inquiring how there could be an economic upturn without using raw materials, a topic that will be covered in depth in our upcoming Annual Forecast Issue, as it is a key to unlocking the puzzle of what is really happening to the economy and how to adjust portfolios for 2014.” For the moment, he recommends “let your profits run until Uptrend lines are broken.”

Follow the Bureaucrat: Frank Holmes

U.S. Global Investors CEO Frank Holmes sees government policies as a precursor to change. “One of the big picture things we look at is a comparison of the G7 countries (the U.S., U.K., France, Germany, Italy, Canada and Japan ) and the E7 countries (the seven most populated countries in the world, China, Russia, India, Indonesia, Mexico, Brazil and Turkey),” he says. “We look at money supply and money supply growth. As money supply rises it’s usually a reflection of lending/borrowing and economic activity. The E7 countries represent 50% of the world’s population, but 25% of GDP, whereas the G7 are 50% of GDP and less than 1% of the population.

“After the 2008 crash, the Chinese increased money supply growth to 30% to jumpstart their economy and that led to a huge boom in 2009. Fiscal policies, such as deregulation, trade agreements and tax-free zone designations are very important for stock performance.” Holmes uses the example of Spain, which eased policies for Russian and Chinese tourist visas, leading to a jump of 38% in luxury goods sales. England did the same slightly later in the year and its luxury goods sales jumped 25%. The French did not and they realized a 2% drop in sales. “More regulations result in slowdowns in economic activity, and streamlining of regulations unleashes economic activity,” he says.

Holmes also follows PMIs, the Purchasing Manufactures Index. “That is one of the best indicators for commodity demand because you need commodities to manufacture things. When Bernanke was going to pull away the punch bowl for the U.S. economy, it had a huge rippling effect in emerging countries as things went into a tailspin. At the same time, the PMIs of Germany turned positive. We were long on Mercedes cars. France’s PMI turned positive, then China followed,” he observes. He compares one month to three month global PMIs because they are historically a leading indicator to the demand for commodities. “You can do regression studies going back 20 years and they are a healthy leading indicator. The world has turned positive and has been positive now for many months. This is important as a backdrop because eventually all this mineral inventory surplus will just be consumed. Then we will start seeing commodity prices start to rise.”

Not all commodities move together, however. “Domestic energy stocks are laggers,” Holmes says. He sees natural gas at $4 per thousand cubic feet as a positive sign. “Once you start seeing steel pick up and nickel pick up, that indicates activity in the automobile sector, which means demand for zinc, iron ore and met coal. It is a chain effect and copper will follow.”

Holmes doesn’t just rely on numbers. “I am a believer in the dual-knowledge model—explicit knowledge and passive knowledge.” That is why he and his team are constantly traveling and getting a sense of how people feel at ground level. Something he has seen recently is the role of private equity rather than the equity markets in driving capital formation. “Money is going from pension funds, sovereign funds and endowments into private equity with strict requirements. Several private equity firms are looking at the mining space. They are looking for up to 18% returns on their money,” he said.

Holmes also tracks gold prices as he travels. At the open market gold jewelry stores in India, 24 karat gold jewelry was trading at $1,600/ounce ($1,600/oz) when he was there in November. “That is important. Physical gold is more expensive now in places like India. Expensive luxury goods stores are packed and they’re selling, as are $100-million homes. India produces some 400,000 Ph.D.’s a year, about four times what America produces. More than 600 million people in India are under the age of 25. That is two Americas. They are all wired and looking for the American dream. That’s not going away.”

Those observations are part of the reason Holmes is still positive about the resource space despite the disappointment in the gold sector in 2013. He also thinks investors and mining companies had learned something in the last year that could make a difference in 2014. “Gold mining companies have to clean up their act and become more focused, not on growing for the sake of growth, but on margins, streamlining operations. I think you’re going to see gold production slow down. All these brownfields aren’t going to come onstream. And they have to learn how to communicate with shareholders and the public if they are going to get shelf space in portfolios. I think that’s positive longer-term for gold.”

Holmes has some favorites. “I like copper gold stocks, like Freeport-McMoRan Copper & Gold Inc. (FCX:NYSE), I think they’re important in your portfolio and I’d rather own Freeport over Newmont Mining Corp. (NEM:NYSE) in the big-cap space. Energy is going to continue to remain strong. Master limited partnerships (MLPs) are a huge competitive advantage for the formation of capital to build out the infrastructure from pipelines, ports, and facilities that take wet gas and convert it into oil. It’s going to continue to be an attractive asset class.”

And rain or shine, Holmes advocates a diversified portfolio that includes 10% weighting max in gold, rebalanced each year. “Even with the stock market at all-time highs, that 90/10 rule will ensure you don’t get caught in the fear trade. You should be long 25% including resources, energy and MLPs. You could have a very attractive portfolio in the resource sector and make dividend yields that are much greater than 5- or 10-year government bonds and get good growth opportunities. You might even look at BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) and Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), which pays a monthly dividend. There are still a lot of opportunities in resources,” he concludes.

Focus on Silver-to-Gold Ratio: Bob Hoye

Bob Hoye, chief financial strategist of Institutional Advisors, says the most important indicator is the silver:gold ratio. “We have found over the decade that when you’re in a bull market for gold and silver, silver will outperform gold. It always does.”

Hoye uses a Relative Strength Index (RSI), which measures momentum. “When that gets into the 70s, speculation is getting pretty irresistible. Anything above 80 is a sign of mania,” he warns. He pointed to 2011, when the RSI was 92 for the first time since 1980. That was also when a huge bubble of $850/oz gold and $60/oz silver blew out. That was when the Hunt brothers attempted to corner silver and the silver:gold ratio was pushed to 16:1. By September of 2012, the RSI on the silver:gold ratio was 84. That was dangerous territory and warned of a substantial correction. “We have been trading intermediate swings until May of this year when things got very oversold. The damage that has been done is immense,” he laments.

But Hoye forecasts some upside in 2014. “Since September 2012, the gold market has come down while the stock market has gone up. We have seen RSIs down into 33–30 and wild action in stocks and bonds. Somewhere in the next few weeks, it should reverse. The stock market is very extended.”

Hoye doesn’t think the recovery will be across the board. “Crude oil got a bit oversold over the summer and did a nice bounce from $92 to $97/barrel. That’s over and done now. We’re looking for a bottoming process in base metals and commodities. We could be past the bottom and in the new year further move up in these, which would then help out the precious metals. The opportunity in precious metals, once the turn is made, will probably last longer than the bounce in the base metals.”

Of course that will bode well for the juniors, Hoye further predicts. “When you’re at a low, it is hard to buy, but the successful juniors have terrific leverage on the gold price. The whole sector will move once it does turn.”

Dig Deeper: Jeff Clark

Jeff Clark, senior precious metals analyst at Casey Research, is a headline watcher. “The trick is to dig deeper and put statistics in a historic and global perspective,” he warns. When the headline was that central banks were buying record amounts of gold over a three-year period, he looked at the historic gold holding levels and found they were actually at all-time lows because banks had been selling for decades. When Goldman Sacks put out a “sell gold” order in Q2/13, he looked at the report released the following quarter and figured out they were actually the largest holder in SPDR Gold Shares (GLD) because they had been doing so much buying previous to the order. When rosy economic numbers are released, he asks more questions to see if the jobs are part time or if the unemployment rate shrunk because people became discouraged and dropped out of the job market. When investing demand is shown as low compared to jewelry fabrication demand, he puts that in perspective with what he knows about the culture in India where gold jewelry is not a decorative item, it is a store of wealth.

The bottom line? “The XAU:dollar ratio is at the lowest level in history right now so it is a great buying opportunity for equities, regardless of what the headlines are saying. I need to be buying gold,” he said.

Looking Forward: Rick Rule

Finally, industry veteran Sprott Global Resource Investments Founder Rick Rule takes a long-term view. He is closely monitoring all-in commodity pricing, costs and availability of development finance. He wanted to know commodity utility to users at current pricing. The indicators are whispering in his ear: “Prepare for a soft 2014 followed by a very strong 2015.”

You heard it first in The Gold Report.

Walter J. “John” Williams has been a private consulting economist and a specialist in government economic reporting for more than 30 years. His economic consultancy is called Shadow Government Statistics (shadowstats.com). His early work in economic reporting led to front-page stories in The New York Times and Investor’s Business Daily. He received a bachelor’s degree in economics, cum laude, from Dartmouth College in 1971, and was awarded a master’s degree in business administration from Dartmouth’s Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar.

Gary Savage is the author and publisher of the Smart Money Tracker since 2007. He lives in Las Vegas and is a retired entrepreneur. Savage is also a national Judo champion and multitime national weightlifting champion, as well as the 1996 World Masters Weightlifting champion.

James Dines is legendary for having made correct forecasts that were in complete contradiction to the rest of the financial community. He is the author of five highly regarded books, including “Goldbug!,” in addition to his popular newsletter, The Dines Letter, and videotaped educational series. Dines’ highly successful investment strategies have been praised by Barron’s, Financial Times, Forbes, Moneyline andThe New York Times, among others.

Frank Holmes is CEO and chief investment officer at U.S. Global Investors Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. The company’s funds have earned many awards and honors during Holmes’ tenure, including more than two dozen Lipper Fund Awards and certificates. He is also an adviser to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Holmes co-authored “The Goldwatcher: Demystifying Gold Investing” (2008). Holmes is a former president and chairman of the Toronto Society of the Investment Dealers Association, and he served on the Toronto Stock Exchange’s Listing Committee. A regular contributor to investor-education websites and a much-sought-after keynote speaker at national and international investment conferences, he is also a regular commentator on the financial television networks and has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Bob Hoye is chief financial strategist of Institutional Advisors and writes Pivotal Events, a weekly market overview. His articles have been published by Barron’s, Financial Post, Financial Times and National Post.

Jeff Clark, senior precious metals analyst, Casey Research. The son of an award winning gold panner, Clark helps work his family’s placer claims in California, Nevada, and Arizona. Gold is never far from his mind or his heart. While working as a psychological counselor, Jeff invested in the IPO of Snapple, made a bundle, and discovered how very profitable speculating can be.

Rick Rule, founder and chairman of Sprott Global Resource Investments Ltd., began his career in the securities business in 1974. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. His company has built a national reputation on taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry and water industries.

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

DISCLOSURE:
1) JT Long conducted this interview for The Gold Report and provides services to The Gold Report as an employee. She or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: None. Franco-Nevada Corp. is not affiliated with The Gold Report. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer
4) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

 

Innovation Behind Drilling Efficiency & Well Productivity Fueling America’s Energy Boom

Fewer rigs but more wells per rig proving powerful combination, among other new tricks of the trade.

In the world of fracking, the last few months have been significant on a number of counts. Two, in particular, were indicative of just how important fracking really has become in the U.S.

First, at the end of October, the U.S. government’s Energy Information Administration commenced publication of its new “Drilling Productivity Report” (DPR). Initially covering six production basins (which, in 2011-2012, accounted for nearly all production growth of domestic natural gas and 90 percent of the domestic production growth of oil)—Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara and Permian—the monthly DPR will analyze, on a regional basis, drilling rig efficiency, well productivity and decline rates, together with consolidated production trends.

Key Tight Oil and Shale Gas Regions

US Fracking Regions

 

The first DPR came up with some interesting findings. First, vis-a-vis natural gas, while production increased in four out of the six regions over the past year, the Marcellus region accounted for some 75 percent of growth across all six regions. Second, vis-a-vis oil, the Bakken and Eagle Ford regions accounted for around 75 percent of monthly oil production growth. Third, and perhaps most interestingly, it appears that, rather than an increase in the active rig count, the “main drivers of the increases in domestic natural gas and oil production have been improvements in drilling efficiency and new well productivity.”

The effect of these improvements was no more obvious than it was in the figures for oil production alone in the U.S. in October. During the month, for the first time since February 1995, the country produced more crude oil (7.7 million bpd) than it imported (7.6 million bpd). And in fact, according to Businessweek, “[i]mports have been falling dramatically,” with the “biggest declines … from countries that have traditionally been among America’s biggest crude oil suppliers. Monthly imports from Nigeria, for example, have fallen almost 90 percent since 2007.”

…..read page 2 HERE

Market Buzz – Northern Gateway Gets Green Light

GN131219GILLNEW 640x360 97155651711The Northern Gateway Pipeline Gets Green Light from Review Panel 

Without a doubt the Western Canadian energy patch has faced its challenges over the past few years. With no access to international markets and severely constrained transportation infrastructure into the United States, Canadian crude oil and natural gas trades at a substantial discount to international prices.

On Thursday, a key milestone was passed with respect to connecting Canada’s Oil Sands with buyers in Asian. The Joint Panel responsible for reviewing the Northern Gateway Project proposal issued their final report and recommended to the federal government that the pipeline be approved, subject to 209 specific conditions, which include the pipeline developer having $950 million in liability coverage and “unfettered access” to $100 million within 10 business days of a large spill. The ultimate fate of the project is now in the hands of the federal government which has 180 days to make their (yay or nay) decision. 

At this point, it seems almost certain that the federal government will approve the Northern Gateway project with the allowed time frame. The economic argument is virtually undebatable. 98% of Canadian crude exports are sent to the United States who may not be a reliable customer over the next decade. Technological advancement has allowed our only energy customer to access unconventional oil and gas reserves which were previously uneconomic and the International Energy Agency expects the U.S. to be energy independent by 2020. Canadian companies have also had serious difficulties building the much needed infrastructure which is required to access U.S. markets. KeyStone XL, which would connect Canadian oil reserves to refineries in Texas, has faced unending regulatory delay and we feel little reason to be confident that a decision will be made in the near term. The federal government claims to understand the importance of diversifying Canada’s energy exports and have been supporters of Northern Gateway since the project was first proposed.

Even with final approval from the federal government almost a certainty, we don’t anticipate that the contentious battles over the project with end…rather they will likely intensify. The environmental movement will continue to fight against the Northern Gateway and any Oil Sands development at all costs. But another potential battle could be against British Columbia’s provincial government who have vowed to support the project only if five specific conditions are met. These conditions include an environmental review, world-leading response and prevention systems, appropriation liabilities and responsibilities in the event of a spill, and addressing Aboriginal and First Nations rights. However, these four conditions, at least on paper, are unlikely to be sticking points. It is the fifth condition, that British Columbia share in the economic benefits of the pipeline, which may cause a little more political entanglement. BC Premier Christy Clark has vowed to stop the pipeline if all five of these conditions are not met, but it is uncertain if she has the power as approval of the project appears, at least technically, to be a federal decision.

Regardless of the battles that ensue, it is highly likely that most of the players will eventually reach their consensus and the project will proceed largely as planned. The importance and potential benefits of the pipeline seem too important to ignore and both the federal and BC provincial governments have expressed their commitment to resource development. Accessing international markets would be a monumental step for the Canadian energy sector and would undoubtable open up a wide range of investment opportunities for Canadian investors.  

 


KeyStone’s Latest Reports Section

11/28/2013
EXTRUSION & AUTOMOTIVE MANUFACTURER REPORTS SOLID Q4 2013, LONG-TERM OUTLOOK REMAINS POSITIVE, STRONG BALANCE SHEET LEADS TO POTENTIAL ACQUISITION – BUY RATING MAINTAINED

11/27/2013
RETAIL – WIRELESS DEVICES COMPANY RELEASES THIRD QUARTER RESULTS – 3 YEAR INVESTMENT OUTLOOK REMAINS POSITIVE BUT RATING SHIFTED TO HOLD AS WE LOOK FOR NEAR TERM TURNAROUND

11/21/2013
UNDERFOLLOWED INTERNATIONAL/CANADIAN ENERGY SERVICE STOCK POSTS SOLID Q3, STRONG 5.4% DIVIDEND WITH SOLID BALANCE SHEET ($0.44 PER SHARE NET CASH), NEAR-TERM MODERATE, LONG-TERM POSITIVE – BUY RATING MAINTAINED

11/20/2013
JUNIOR LIGHT OIL PRODUCER TRADING AT 2.5X CURRENT CASH FLOW, POSTS STRONG Q3 CASH FLOW, VALUATION REMAINS ATTRACTIVE – MAINTAIN RATING

11/19/2013
ENERGY & INFRASTRUCTURE SERVICE STOCK POSTS STRONG Q3 GROWTH AS ACCRETION FROM RECENT ACQUISITIONS BEGINS TO KICK IN – POSITIONED FOR NEAR-TERM GROWTH – MAINTAIN BUY RATING


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Regards,

Jenny McConnell,

Administrative Assistant/Office Manager