Energy & Commodities

Aggressive Investors: Huge Potential 10 Juniors Set Up & Poised

Agressive investors are well aware that the big money is made in companies that are setup with a combination of a great business proposition that as yet has not become well known, and a stock price that has suffered from a Bear Market. This is not for money set aside for a rainy day but each one of these 10 companies is currently trading anywhere less than 1/2 and in some cases 1/8 of were they where one to three years ago. Moreover they all have a great business on the brink of becoming disovered by the investing public…”, thus all have the potentional to move dramatically upward. For example if International Tower Hill Mines Ltd just moves up to where it was trading in August 2011 it will have to rise from its current $1.14 to $8.45. Its potential should be significantly higher than that if its mine is developed and particlualrily if Gold were to soar! As Warren Buffet said in an article two days ago, if he could he would invest in great small-cap stocks.” “It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”

All these companies are cheap to buy. Selling between .14 cents and $3.70, most are trading below $2:00. All but one have suffered a decline from a bear market in junior mining stocks & all have valid and very exciting projects. 

These companies were all searched out by Jeb Handwerger who studied engineering and mathematics at University of Buffalo and earned a Master’s degree at Nova Southeastern University. 

Each company has a comment from Jeb, and because it is often difficult to search out critical information on a company to do your due diligence prior to buying, I have listed out and linked each companies Website, Financial Statements, and comments from experts other than Jeb. All the links lead to additional research for those inclined to get really thorough – Editor Money Talks (P.S. This was the most popular article this week)

Comstock Mining Inc.  

 
 
“LODE may be the gem of the entire mining industry.” – Jeb
 
comstock

 
 

 
 
 
 
“ITH’s Livengood project has huge leverage to the price of gold.” – Jeb
 
Internationaltowerhill
 
 
 
 
“For investors who are looking for leverage and for advanced assets, LAM is a good candidate.” – Jeb
 
Laraminde
 
 
 
 
“NUG has a top-notch management team that has found major discoveries in Nevada.’ – Jeb
 
NuLegacy Gold
 
 
 
 
“PLG hit a heavy volume when the company released results from drilling at Kinsley Mountain; this is very encouraging.” – Jeb
 
Pilot Gold Inc.2
 
 
 
 
“Potential is huge for PRB’s Borden Lake project.” – Jeb
 
Probe Mines Limited
 
 
 
 
“RNX’s Dumont Nickel project is one of the best advanced nickel projects under the control of a junior.” – Jeb
 
Royal Nickel Corp
 
 
 
 
“URZ already has offtake agreements at higher uranium prices.” – Jeb
 
Uranerz
 
 
 
 
“ZC is one of the forces behind some high-quality, early-stage junior mining companies.” – Jeb
 
Zimtu Capital
 

Enterprise Group Inc.

 

Financial Snapshot & Balance Sheet

 

Expert Comments on Enterprise Group Inc.

 

“E had a major run in 2013, and it may just be the beginning.” – Jeb

 

EnterpriseSC

 For Jeb’s latest article go to:  Jeb Handwerger: China Isn’t Slowing Down, It’s Buying Up
(Resources, that Is)

A New Resource Bull

Its game on in the resource space at long last.  There are plenty of market players that are still cautious but that is how it should be early in a bull market.  Technically, we need to be 20% off the bottom for a Bull to be official but it seems very unlikely we won’t get there now.

As this issue was finished the Crimea announced the voting result everyone expected.  It hasn’t generated a negative impact but it’s too early to sound the all clear on that.  It will be a few days before all the political players have read their lines so things could still go wrong.   I don’t expect too many surprises which means I don’t expect higher gold prices because of Ukraine but the chance of more serious repercussions is real enough.

The elevated rate of financings continues.  Most of it is still going to producers or companies drilling existing exploration successes.  More important will be fund raising for new ideas but we are not quite there yet.

I did add a new company this issue and I plan to add a few more between now and autumn.  Traders are starting to bid up the stronger exploration stories and that is the time to be adding names to the list.  It looks like we finally have a bull market to work with after three years of market pain.  Better late than never and it did feel like never for a while there.

***

Another PDAC has come and gone.   I spent several days in Toronto attending the PDAC and, of course, the Toronto Subscriber Investment Summit the day before the PDAC began.

I want to thank my subscribers who made the effort to attend.  Attendance was good again this year and everyone seemed pleased with the companies that presented.  I also want to be sure I thank Nichola Vermiere and Katy Severs.  As always with the SIS, they did the heavy lifting required to make sure the event went smoothly and was a big success.  Keith, Lawrence and I show up and get the kudos but its Nichola and Katy that get it done.

The attendance was a bit lighter at the PDAC this year with an official attendance figure just over 25,000 against 30,000+ figures in 2012 and 2013.   I don’t read as much into PDAC attendance as many others do.   It’s important to remember that the largest contingent there is a fairly static one.  Very large mining houses and countries send large contingents and there are always a few thousand attendees from the supplier side as well.

It looked like several countries tried a charm offensive to increase mining related FDI.  Peru seemed to have a particularly large contingent. Guys with red Peru scarves were everywhere. I take it as positive that several favored exploration destinations decided they had to sell themselves hard.  If that marketing is backed up with better access to good geology it could be a win-win.

Booths in the Investor Exchange portion of the show looked as full as last year.  Some might read this as a sign the sector needs more pain but the list of attending companies did change quite a bit.  This is significant. For years the PDAC had a long waiting list of companies wanting booths and those that had them rarely gave them up.  Booths at the PDAC are cheaper than those at any investor conference.  If you run a company based in the GTA attending is a bit of a no-brainer.

hra 1 2

The high booth turnover is unusual and speaks to some long overdue attrition of weaker names.   A lot of the companies replacing them were plenty weak themselves though.  Quite a few of the companies I looked at have no hope of doing any real exploration until a major financing is completed.

A large number of the exhibiting companies were really there trying to find a JV partner.  Many major companies send representatives to PDAC to look for new projects. Some deals will come out of it but most companies left in as poor shape as when they arrived.

While there were quite a few companies that were new exhibitors there were not many that I hadn’t seen before. I’m still waiting for the turnover of stories and new projects that mark the start of many cycles.  I did make the decision to add a new name to the HRA list based on discussions there but this was a company I’ve been tracking for a while.  The decision was based as much as anything on the fact that other people have started to notice it.

The good thing about light news flow ahead of the conference is the reduced danger of a “PDAC Curse” this year.  Yes, the junior space has had a pretty nice bounce so far but that is thanks to higher gold prices and seller exhaustion.  There were only a handful of news releases that seemed to have market impact prior to the big confab.   Not enough one-off spikes to generate a succeeding letdown.

If the Venture pulls back meaningfully in the next few weeks it will be due to falling gold prices or major markets reacting to some black swan event like things going really wrong in the Ukraine. The chart above still looks fairly strong to me.  The past few sessions have featured rising gold prices and weaker major markets.  That combination meant Venture Index traded better than most of its larger cousins.  A fall could still happen of course but I’m impressed with the way it’s holding up so far.  Similar conditions six months or two years ago would have surely led to a pullback.

There was a lot of evidence of money looking for a way back into the sector both at the PDAC and at the Subscriber Summit.   There were a number of private equity and European fund representatives at both events.

I’ve been cynical on the subject of private money.   It’s real enough and I’ve had approaches from a couple of groups looking for ideas.  Initially these groups were very much vultures looking cheap carcasses to pick over.  I haven’t seen a lot of deals announced. There seems to be a shift to stronger deals starting now and talk about taking control blocks in deals that remain public. I’m not sold yet on private equity being a savior but it should be a bigger force at least.

On the more traditional brokerage side activity has continued with a number of companies announcing financings in the $10 million plus range, most of them bought deals.  That indicates new institutional interest though it’s still focused on the top of the food chain.  Trading has begun to improve for companies with discoveries but no resources yet and others with good targets and money to spend.  This has helped the junior sector keep rising as the small producers flattened out and awaited another leg up in metals prices.

The charts below show a contradictory picture.   While NY markets are hovering near all-time highs there hasn’t been a lot of strength in either bond yields or the $US.  Both are much weaker than expected, especially the latter.  Bond traders might be more skeptical about weak economic readings being all weather related and the situation in the Ukraine undoubtedly has some traders buying safety nets.

hra 2 2

 

hra 3 2

 

hra 4 1

Dollar weakness is more a function of its trade against the Euro than anything else from what I can see.  While the US was generating negative surprises the EU was chalking up positive ones.  Growth is a bit stronger than expected and more traders are deciding the EU crisis is “over”.  The ECB has been taking a more hawkish tone lately as well.  I think it’s too early for that but it’s put a bid under the Euro.

Most of the move off the bottom by gold was physical market demand but current trading is dominated by the situation in the Ukraine.  As I noted in a recent SD I hate geopolitical gold price moves.  They are unpredictable and can reverse themselves several times as events unfold.  Nonetheless the market is what it is so they can’t be ignored.

I think the Ukraine situation is likely to go Russia’s way.  Possession is nine tenths of the law and pretty much the entire Crimean peninsula is a Russian military base.  That has been the case for a couple of hundred years.  The only reason it’s officially part of Ukraine is that Khrushchev thought it made administrative sense to join it up 60 years ago.

Back then no one was seriously contemplating the breakup of the Soviet Union.

I’m not commenting on the equity or ethics of the situation, just the geopolitical realities.   I don’t see the US and its allies starting a war with Russia over the Crimean peninsula and I am highly skeptical that the EU will enforce sanctions with any real teeth against the country that supplies the bulk of its natural gas.  Perhaps I’m being too cynical but that is the way I see it.

We’ll have to see how Ukrainians react to Russia effectively annexing the Crimea even if its done “democratically”.  Obviously, they wouldn’t stand a chance against Russia in a real shooting war.  Even so, there could be enough partisans calling for western help as they blow up bridges and rail yards to keep a bid under the gold price.  Not a great scenario but not one to hurt the gold market.

No one who hasn’t lived under a rock since Putin became the leader of Russia is surprised how the vote in the Crimea went. We’ll see how the arm waving and sabre rattling unfolds after that vote but I wouldn’t be short gold with all this going on.

The picture is rather different on the base metal side, particularly in copper, iron ore and coal.   What those markets have in common is the dominance of China as a buyer.  China’s growth has been slowing and traders are getting increasingly concerned about the shadow banking sector. That’s weighing heavily on base metal markets.  Charts for iron ore, copper and the Reuters CRB commodity index appear on the previous page. Interestingly, the CRB looks like its broken a 3 year downtrend.  That significant but the big gainers are energy (natgas) all “softs” – coffee and sugar—all weather related price moves.

I’ve noted before that while LME warehouse inventories have dropped rapidly I’m not comfortable I know where it’s all going.  Some is being consumed but I’m concerned a good portion of the drawdown is going to non LME bonded warehouses. The buyers might be planning to consume or resell it but its not out of the market yet.

In the past couple of sessions iron ore and copper in particular have gotten slapped down hard.  Some of this selling followed on the first major corporate bond default in China on March 6th. Traders are worried the “there’s never just one cockroach” theory will apply to corporate China.  I agree.  There will definitely be more bankruptcies.  There should be if the system is functioning properly.

The question is how traders react to events.  There wasn’t much panic as the default was well telegraphed.  Very weak stats on China’s February trade balance looked scarier.  It’s hard to tell because the Lunar New Year skews things so much.  Also important is that there was fake overbilling by exporters last year and perhaps fake under-billing this year.

This isn’t done to fake the trade figures. Companies were overbilling so that inflated invoices could be “paid”, allowing money to flow into China and avoid currency controls. On top of the trade numbers there were indications that the Bank of China is starting to succeed in squeezing credit demand.   I suspect some copper and iron ore are being used as loan collateral in leveraged trades.  When the loan gets called the metal must be sold.  We have to wait to see how this plays out but until the market calms assume there is more downside in copper and iron ore and hold off accumulating in those subsectors. You may get better deals later.

On the gold side I think we’ve got the “all clear”.  Pick weak days but if you have been waiting to accumulate producers and those with viable resources and good exploration targets I wouldn’t wait longer.  As long as Ukraine doesn’t blow up I see the rally continuing through spring.

Ω

 

The HRA–Journal and HRA-Special Delivery are independent publications produced and distributed by Stockwork Consulting Ltd, which is committed to providing timely and factual analysis of junior mining, resource, and other venture capital companies. Companies are chosen on the basis of a speculative potential for significant upside gains resulting from asset-based expansion. These are generally high-risk securities, and opinions contained herein are time and market sensitive. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer, solicitation or recommendation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable we in no way represent or guarantee the accuracy thereof, nor of the statements made herein. We do not receive or request compensation in any form in order to feature companies in these publications. We may, or may not, own securities and/or options to acquire securities of the companies mentioned herein. This document is protected by the copyright laws of Canada and the U.S. and may not be reproduced in any form for other than for personal use without the prior written consent of the publisher. This document may be quoted, in context, provided proper credit is given.

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Coal: “Internationally, the demand is tremendous”

101510820-Coal Spring creek mine.530x298King Coal, it seems, is coming back. Scott Cohn reports on the projected increase in demand for coal. Even the U.S. Energy Information Administration projects that “40 percent of America’s electricity in the future, in 2030, is going to come from coal.”

This article offers a thorough analysis of a commodity that over the years has become hated by the Environmental movement and the Politicians who have catered to them. If as Baron Rothschild, British nobleman & member of the Rothschild banking family said “The time to buy is when there’s blood in the streets,” one would have to say that Coal is a bloody mess. Thus if the Baron is right its time buy Coal. At the very least quality companies are available at significantly discounted prices, so an investor could never be accused of making the rookie mistake of buying something wildly popular & at an overheated top. 

This article HERE lays out the opportunity pretty thoroughly – Editor Money Talks

Putin’s Hot War – The Profit Angle

Putin’s Nickel-Plated Gun

Russia has essentially annexed Crimea and is amassing troops at the border of Ukraine. The relationship between the United States and Russia has regressed back to the Cuban Crisis days. While we may not be on the verge of trading nukes, it does seem we are headed for a new Cold War.

Every time Obama draws lines in the sand, Putin steps across them, whistling. Last week, Obama struck back in a surprise move by releasing five million barrels of crude oil from the Strategic Petroleum Reserve. This drove down the cost of West Texas Crude (WTI) from $105 to $98 a barrel.

Russia gets half of its revenue from exporting oil and gas. Obviously the cheaper oil is, the less money Russia makes from its sales. The SPR release was a message to Putin that the financial side of this coming war has begun. Commodity markets will be used as a weapon against the Putin regime starting… now.

But two can play it this way, and Putin has already stated that there will be reprisals for any type of sanctions.

Norilsk Nickel (OTC: NILSY), a Siberian company, is the largest nickel producer in the world, which makes Russia the largest producer of nickel in the world. The metal is primarily used to make stainless steel.

The Big Bear of Nickel

In 2013, Russia exported 238,300 tons of nickel, 8.8% more than in 2012. The exported nickel was worth $3.6 billion, 2.5% less than in 2012, due to a fall in prices. Practically all the nickel was exported to countries outside the Commonwealth of Independent States.

If Putin were to cut nickel exports to Europe and the U.S., nickel prices would jump. Prices have already gone up from $6.50/lb to $7.40/lb over the last 30 days.

lme-nickelAs you can tell by this chart, nickel has been a loser for more than three years now. But the down trend has been broken. The price has bottomed out with almost no volume. And as we know from the great rebound of 2009, when the nickel price starts to move, it can come roaring back.

Supply Problems

Even without the new cold war threat, nickel production is forecast to trail consumption in 2015 as the supply shrinks for the first time in years. You see, after the boom in commodities in the mid-2000s, China switched to using nickel pig iron (NPI) and invested in low-cost rotary kiln electric furnaces. This destroyed pricing power for the nickel producers and sent the price below cost. This, in turn, drove many producers out of business.

Such is the classic business cycle. Lower costs lead to lower production, which leads to supply shortages, which leads to higher costs and more production. Rinse and repeat.

Furthermore, in a cross association with our other investment theories, nickel is used heavily in the liquid natural gas industry. The Japanese use 7% nickel steel as the new standard for cryogenic LNG storage tanks, since this maximizes fracture toughness in a low-temperature environment.

This offers a new source of demand for nickel, especially since there is a good chance the U.S. will start exporting LNG to Europe as it moves away from Russian natural gas.

One way to trade nickel is to buy the iPath DJ-UBS Nickel TR Sub-Idx ETN (NYSE: JJN) like I recommended to my most valued readers of Crisis & Opportunity. We are up marginally since our buy last Friday.

It should be noted that nickel is the only industrial metal up today, a day when copper is looking like the proverbial falling knife.

Keep Your Stick on the Ice,

Christian DeHaemer Signature

Christian DeHaemer

@TheDailyHammer on Twitter

Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunityand Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor’s page.

Chris DeHaemer

This Is The Van Gogh of Oil Plays

Van Gogh’s case is tragic. But this malady is actually one of my favorite things about the investment business. Specifically, that when a company does something truly great and ground-breaking, investors usually don’t get it—at first.

The Van Gogh syndrome is happening right now in the oil business. Where advances in drilling tech are creating outsized investment returns—which are being completely ignored by investors and project developers. Entire article below:

also This week in Pierce Points:
 
Barrick stockpiled unique uranium. The major miner is building a significant supply source as by-product from copper production in Zambia.

China turned its coal into plastic. Reports suggest that 80 to 100 Chinese coal-to-olefins plants may be under construction, potentially tying up coal supply.

Australian oil production hit a 44-year low. The nation’s flagging output has sent the supply-demand gap soaring to over 200 million barrels yearly.

Myanmar officially became a player in tin. With a potential shortagelooming for the little-discussed metal, a less-discussed Asian nation may be a development target.

Another Gulf Shelf producer disappeared. Energy XXI’s bid for EPL Oil & Gas marks the passing of the last independent acreage package in this surprisingly hot play.  

 

This Is The Van Gogh of Oil Plays

Regarding the last item above, an artist friend reminded me this week of an evergreen quote from Walt Whitman:

“To have great poets, there must be great audiences.”

So true. How many master creators have gone unappreciated in front of uncomprehending masses? Even a virtuoso like Van Gogh was largely disregarded in his time—simply because audiences weren’t yet able to digest his boldness and brilliance.

Van Gogh’s case is tragic. But this malady is actually one of my favorite things about the investment business. Specifically, that when a company does something truly great and ground-breaking, investors usually don’t get it—at first.

The Van Gogh syndrome is happening right now in the oil business. Where advances in drilling tech are creating outsized investment returns—which are being completely ignored by investors and project developers.

It’s happening in the shallow-water Gulf of Mexico. Where companies are quietly creating some of the best returns on capital in the oil business.

This month we got updated reserves reports from U.S.-listed E&Ps—verifying the Gulf’s trend in motion.

Look at the numbers. Below, I’ve put together “capital efficiency ratios” for leading oil producers across a number of U.S. plays (I’m working on a more comprehensive report covering these numbers, which I plan to make available in the coming weeks). This is a simple metric—showing how many dollars in asset value a company created for each dollar spent on exploration, development and acquisitions. The higher the number, the more value a firm is creating.

Screen Shot 2014 03 15 at 12.00.53 AM

One name stands out from this analysis: Energy XXI (Nasdaq: EXXI). Because the company is achieving some of the best returns in the business—and not in a hot play like the Bakken or the Eagle Ford. But rather, in the out-of-the-way locale of the Gulf Shelf.

This region was traditionally worked by majors like Apache and Exxon. But those big players have been pulling out of late. With the play being seen as fully-explored and lacking in discovery upside.

That may be true. But there are still massive amounts of oil remaining here within known fields. Identified oil in place across the Shelf’s ten largest fields totals more than 3.6 billion barrels.

This is where firms like Energy XXI come in. The company has been picking off old oil fields from the majors—and using new drilling technology to go after all of the crude left behind.

The engineering behind this is of course advanced. But one of the major tacks is using horizontal drilling technology to go after by-passed pay.

Here’s how it works. The Gulf of Mexico reservoirs are largely a “deltaic” system. A setting where you get lots of sandstone layers piled on top of each other.

These sand reservoirs can be quite thin. Sometimes only several feet thick. Historically that was usually too small to be worth completing. Operators would simply pick the thick sands on a well log, and leave the skinny ones behind pipe.

But technology has changed that. With the main improvement being the accuracy of horizontal drilling.

Over the last few years, the oil services industry has made big advances in Measurement While Drilling (MWD) technology. Systems that tell drillers precisely where the drillbit is located in the subsurface. Using such advances it’s today possible to guide a horizontal well hundreds or even thousands of meters through a thin sandstone without veering too much up or down, out of the reservoir. Below is a schematic from a recent Energy XXI presentation.

Screen Shot 2014 03 15 at 12.11.54 AM

That new technology means bypassed zones in Gulf Shelf reservoirs can now be recompleted. Better technology also means faster drilling, which creates lower well costs when you’re paying a per-day rate to keep a rig on site.

This is easy money, relatively speaking. There’s little exploration risk. As long you get the engineering right, you can add production and new reserves efficiently from old oil pools.

That’s why Energy XXI has been turning a dollar spent on development into an industry-leading $2.07 in assets.

Investors however, don’t understand this ground-breaking performance yet. Rather than commanding a premium for its growth potential (the way many onshore shale E&Ps are), Energy XXI today trades at a 25%discount to the value of its proved reserves. The company is simply seen as a boring, shallow-water play.

The overlooked opportunity here is interesting from a pure investment angle—and even more so from a projects perspective. Because no one has yet taken the value-creating drilling advances proven in the Shelf and put them to work in other oil plays.

Now is the time to do so. Because we’re at a pivotal period in the development of drilling services. My analysis over the last few weeks (thanks to those of you who provided input) reveals that a number of new, game-changing technologies are now available to oil developers. Tech that makes the U.S. horizontal drilling revolution ready for export.

This is driven by “bolt on” tools that can be attached to existing rigs anywhere in the world. Greatly improving accuracy. And allowing us to target millions of barrels in bypassed pay zones at mature fields.

Such strategy is creating some of the best returns in the business, as we speak. And it’s not going to remain a secret for long. For those of you working in clastic reservoirs globally, I’m starting up a new project immediately to unite new technology with the right oil fields. If you’ve got a fit, drop me a line at dforest@piercepoints.com. It’s going to be a story for the ages—and an unparalleled opportunity for early movers.

Like Van Gogh’s paintings, this seismic shift in the industry is taking observers some time to understand. But once they grasp the emerging numbers, it will be a work of art.

Here’s to the revolution not being televised,
   
Dave Forest
 
dforest@piercepoints.com / @piercepoints / Facebook