As a general rule, the most successful man in life is the man who has the best information

PricewaterhouseCooper’s annual look at the state of the top 100 on the Toronto Stock Exchange Venture (TSX.V) paints a dismal picture:

• Cash generated from financing activities fell 52% in 2012 from 2011 levels and then another 34% in 2013. The top 100 raised $795 million in equity financing, down by half from $1.6 billion in 2012, with only four of 15 producers raising more than $1 million
• Assets held dropped 36% because of a draw-down of cash and short-term investments
• In 2011 the top 100’s Market Capitalization was $20.6 billion, as of June 30th 2013 it was $6.5 billion
• Explorers cut 28%, or $133 million from their budgets in 2013

Below is the year to date statistics from the TSX Venture exchange.

“The price-driven, seemingly indiscriminate support that speculative juniors received from retail equity investors prior to the financial crisis is not on hand today.” E&Y’s Global Mining and Metals Center in the report, Business risks facing mining and metals 2013-2014

Consider:

• Canadian, United States and Australia have, over the last 20 years, cut  exploration expenditures by half.
• The average time between discovery and production has climbed to roughly 11 years.
• The mining industry is threatened by looming labor and skills shortages caused by the recent downturn making the entire industry not as attractive a place to seek employment.
• A great number of long time industry workers are now entering retirement and taking with them the very experience, skills and knowledge needed to explore for and develop deposits into mines.
• The drought in junior financing is three years long. It’s very likely going to continue and in fact might get worse.
• Resource nationalism and native activism is picking up in many countries putting potential investment at risk.

“Contracting risk appetites have weighed heavily on junior miners’ access to funding. A high risk-reward ratio is the industry’s “sweet spot,” notes PwC. But it is apparent that market participants currently prefer less volatility, more security and higher rewards.” Michelle Smith, Resource Investing News

It’s a fact in the mining world that most discoveries are made by junior exploration companies – juniors are the most adept at finding our future mines. They already own, and find more of, what the world’s larger mining companies need to replace reserves and grow their asset base.

Who might a couple of these juniors be?

What we’re looking for is a quality management, cash in the treasury, ability to raise more if needed, pretty much a ‘no-brainer going mining’ situation and the holy grail of success for juniors – upcoming cash flow – and all of this has to be not only in a politically stable country but one that is also free from resource nationalism and native activism.

Hudson Resources Inc.  HUD:TSX.V. Hudson has the White Mountain anorthosite project in the southwest coastal region of Greenland. Anorthosite is calcium feldspar, which is basically sand containing aluminum, calcium, low levels of soda and 1% iron. It could serve as an alternative material in many industrial applications:

• Replace kaolin, a major component of glass fiber manufacturing.
• A replacement for bauxite. Hudson has produced alumina from its anorthosite, which is aluminum oxide, and is well on its way to producing a marketable smelter-grade alumina.

The company is close to the point where it can load its anorthosite onto a deep-sea cargo ship and transport it anywhere in the world, year-round.

Uranerz Energy Corp., TSX and NYSE MKT – URZ (Frankfurt Stock Exchange – U9E). The companycurrently controls a large strategic land position in the Pumpkin Buttes Uranium Mining District of the central Powder River Basin of Wyoming and has almost completed construction of its first in-situ recovery (ISR) uranium mine.

URZ is approximately one month from mine completion and starting a three month inventory stockpiling program. After shipment of its first inventory it will be 30 days before Uranerz receives payment – let’s call for the cash flow to start in the second quarter of 2014. URZ recently announced receipt of a $20,000,000.00 Wyoming State Industrial Bond.

VMS Ventures Ltd. VMS:TSX.V, is the discoverer of Reed Copper deposit – likely the next copper mine to enter production in Canada. In 2010 the VMS Ventures team signed a Joint Venture Agreement with Hudbay Minerals Inc. for the Reed Copper project. The JV agreement established that Hudbay would hold a 70 per cent and VMS a 30 per cent interest in the property and act as the operator.

VMS Ventures’ portion of the mine construction costs is to be financed by Hudbay and is to be paid back out of the proceeds from production. Full production remains on schedule to commence by the second quarter of 2014.

Global Cobalt Corp. GCO:TSX.V, is focused on developing it’s Karakul Cobalt Project in the Republic of Altai, Russia. Currently there is a $3 million drill program utilizing 3 drill rigs underway as well as a feasibility study which will include latest results as well as historical Soviet results.

The company has signed an off-take agreement for up to 100% of the property’s production with Beijing Easpring Material Technology, which counts Beijing General Research Institute of Mining & Metallurgy among its major shareholders.

Conclusion

If junior exploration companies aren’t exploring and making discoveries because of a lack of funding then those juniors already with discoveries, the ones that are well along the development path to being a mine, are definitely considered to be in an investor’s sweet spot.

They are also worth that much more – because of the upcoming reserve replacement squeeze – to a major mining company and investors looking for a potential takeover candidate. Beginning cash flow also enables management to grow the company by taking advantage of the poor situations so many others find themselves in.

A lack of exploration means a lack of discoveries, add in the fact it takes 11 years to get into production and we can see the enormous mineral supply deficit gaping wider, and for far longer than in a normal mining cycle downturn.

Juniors with quality deposits heading to cash flow should be on every investors radar screen. I’ve given you four, are they on your radar screen?

If not, they should be.

Richard (Rick) Mills

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites, including:

WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes, Ninemsn, Ibtimes, Businessweek, HongKongHerald, Moneytalks and the Association of Mining Analysts.

If you’re interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us atwww.aheadoftheherd.com

If you are interested in advertising on Richard’s site please contact him for more information,rick@aheadoftheherd.com

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.

Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard does not own shares in any of the companies mentioned in this report. Hudson Resources, Uranerz Energy Corp., VMS Ventures and Global Cobalt Corp. are sponsors of Richard’s site aheadoftheherd.com

• Moore’s Law disrupts the digital … the biomedical … and now, the energy sector.
• Better energy detection, better energy production
• Making controversy obsolete… with oil-and-gas… human health… and more!

When people think of computer and IT companies, names like Intel, Microsoft, IBM and Apple are usually the first that spring to mind. Companies, in other words, that specialize in computers, software and consumer electronics. 

The reach of computer tech, however, is far greater and more transformational. It has come to touch everything we do. Rapid improvements in computer processing capacity, thanks to the ongoing fulfillment of Moore’s law, mean the things we are doing keep getting better.

We’ve seen this sort of transformation of the U.S. economy before. Waves of new general-purpose technologies have historically grown the U.S. economy and improved the standard of living for its citizens.

Take rail transportation as an example. In 1850, before this tech was widespread, U.S. gross domestic product was smaller than that of Italy. Then came the railroads, connecting the vast continent and making it possible for the U.S. to become an industrial, urban nation. This disruptive technological change made the U.S. the world’s top manufacturer and largest economy by 1900. The adoption of electrification and automobiles would continue the trend into the new century.

These technologies gave the U.S. economy muscles. Now, with the computer and information tech revolution, it is growing brains. Furthermore, this revolution still has a long way to run. While the physical economy still dwarfs the digital one, that will change over the next 20 years.

As I often like to point out, one of the much overlooked areas where this is happening is biomedical research. This year’s Nobel Prize in chemistry was awarded to three researchers, Martin Karplus, Michael Levitt and Arieh Warshel, “for the development of multiscale models for complex chemical systems.” Instead of using balls and sticks to model molecules, chemists are now able to do so using fast computer models.

And of course, no chemical system is more complex than human biology. This sort of modeling, made possible by computer tech, means that software is replacing wetware. We can now create computer models as silicon-based stand-ins for biology. Using these algorithms for cells and tissues, we are discovering new ways to treat disease. High-performance computers are making possible higher rates of drug discovery that haven’t been possible in the past.

Health care, of course, is a huge chunk of the U.S. economy, accounting for some one-sixth of the nation’s GDP, but it isn’t the only area that is being disrupted in this way. Energy also makes up a large share, and it too is being transformed by computational tech.

We are in the midst of an energy revolution, although it has been a long time in the making. 

New computer tech, along with sensors and networks, has made it possible to extract oil and gas where it wasn’t possible before. Back in 1979, exploratory drilling turned up a productive well only once in every seven tries. By the 1980s, however, new computing tech made it possible to perform seismic surveys and model what things look like underground. The number of unproductive holes drilled into the ground fell sharply.

But things really got going in the 2000s in the U.S., where for decades, oil and gas production had been in decline. 

As you know, new tech called fracking began to be used to make previously unproductive deposits viable, as well as bring old tapped-out fields back into production. 

Also known as hydrofracking, this method of oil extraction uses high-pressure fluid to fracture oil-bearing formations underground, releasing their valuable hydrocarbon content. But fracking depends on the latest in sensing and computing technology.

Since 2008, U.S. production has enjoyed a sharp upswing. In fact, the International Energy Agency is now projecting that the U.S. could become the world’s largest oil producer in the next two years, surpassing Russia and even Saudi Arabia.

All of this is being driven by tech. There’s plenty of money to be made in oil itself, of course, but there is also the tech making it possible. 

Seismic Change in Sensing Technology

Computer-assisted oil and gas production relies on sound propagated underground in order to learn about the subterranean environment. Seismic sensors, also called geophones, are used to detect vibrations in the ground generated by special ground-vibrating equipment. The data are then used to build an underground 3-D map.

The seismic maps are critical for tapping previously unavailable resources. In many shale formations, for example, the oil- and gas-bearing layer might be only 200 feet thick but reside a mile underground. When the vertical well is drilled, it must be precisely located in order for horizontal shafts to branch out. Enhanced recovery techniques, which allow for greater production from aging fields, also require the use of sensing tech.

The sensors aren’t only helpful for finding oil in the ground; they are also used to draw a map while a well is hydrofracked. In hydrofracking, fluids are pumped into the well at high pressure, fracturing the rock. Particulate matter, such as sand, is injected along with the fluid to hold the fractures open. The fracturing itself is like a seismic event, and is detectable using seismic equipment, which can be used to determine the location and extent of the fractures.

There are also environmental reasons for good detection tech. Aquifers can be located near oil- and gas-bearing formations, and improper fracturing can cause leaks into the groundwater. Good sensing technology can be used to monitor and control the process, protecting this natural resource.

In short, the energy industry will have to make a major shift in seismic technology.

Conventional seismic sensing equipment uses cables run deep underground to the sensors. This is expensive, and cabling can cost millions for a single location. Deploying cabled systems is also a time-consuming and high-maintenance proposition. The rough environment of drilling sites isn’t friendly to equipment.

That’s why what the world needs now is new seismic sensing equipment. Stay tuned as we cover specific companies in this space in future issues! 

Ad lucrum per scientia (toward wealth through science),

Ray Blanco

Ed. Note: There’s no doubt that we need to be careful about the aquifers near oil-and-gas bearing formations, so our groundwater isn’t contaminated… 

Better to innovate toward good sensing tech than backtrack on our energy production.

But you can bet people will continue to make a fuss if they don’t know about new innovation. 

The same goes for the biotech field. People used to vehemently oppose stem cell research, since the research used to rely on using unborn fetuses. But innovation is changing all of that. One company in particular is riding on the back of Moore’s law in order to disrupt what makes up one-sixth of the economy: healthcare. 

Click here for the full story behind one of our favorite biotech companies.

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