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Market Outlook Journal
by James Finch - Please email your feedback to
jfinch@stockinterview.com
Editor’s Note: Please visit StockInterview’s disclaimer page for full disclosure, forward looking statements, important links and cautions.
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May 14, 2007 |
Exploiting Uranium Price Market Inefficiencies
By James Finch
Because of rapid developments in the uranium sector, over the past three years, the market place continues attempting to digest all the news and adjust accordingly.
In a June 2003 utility PowerPoint we recently reviewed, it became evident to us that U.S. utilities were later ambushed by unforeseen developments then entering the markets. According to the industry presentation made by a well-known spokesman of a nuclear utility, he explained to his audience, four years ago, “It is difficult to see how very many companies could afford to invest in new production when there is such a glut on the supply side.”
He added on one slide, “Only those with substantial market share, long-term contracts and low production costs can afford to invest in new production in such a market.” He also pointed out, during his lecture, the Russian HEU feed sales ‘will overhang the market and serve to moderate price.’
Times have changed. We bring this up not to torture this man’s faulty prescience, but to demonstrate how greatly the uranium market has undergone massive upheaval in such a short time. The market is still struggling to attain realistic efficiency and transparency. For nearly four decades the civilian nuclear fuel market had been a closed society. According to one interview we conducted a year ago, we were told you could fit all the market participants into a Starbucks®.
For more than a decade and through 2003, it was a buyer’s market. Buyers dictated prices. Uranium miners either quietly whined among themselves or took it on the chin and humbly sold their uranium for whatever cash the buyer would pay. Over the past two years, sellers have begun dictating floor prices with only a passing concept of a ceiling price. Just as buyers were relentless prior to 2006, sellers hold all the cards for the next little while. Using TradeTech’s long-term contract price of US$85/pound U3O8 equivalent, new entries to the uranium market have a comfortable spread between operating costs and the floor price for their uranium sales.
Still, there remain numerous inefficiencies in the spot uranium pricing market. Probably less than 200 people worldwide have a grasp of what is really going on within this uranium markets; some might consider this estimate quite generous. Of those, probably far less than fifty have extremely reliable information. None of these individuals write uranium mining stock newsletters.
In order to provide uranium mining stock investors, uranium futures traders and others with the tools to capitalize upon these market inefficiencies ‘for their own protection,’ we compiled a list of valuable news sources from which to draw vital industry data. We also provided some commentary about each to help protect yourself against upcoming price volatility in this marketplace.
In our January forecast, we expected some price volatility in 2007. This remains as true today as it was when we announced it four months ago, especially after we re-read those last four paragraphs we wrote in that commentary.
Five valuable news services provide a substantial amount of ‘breaking news’ information and/or decision-making insights about uranium pricing. Each have established their own niche in the uranium market and have developed a dedicated following.
The ‘trade papers’ are where many of the mainstream media visit for sound bites and new developments in order to write those articles.
At least four of these news services are widely read by the serious players in the market. These include utilities, fuel managers, fuel brokers, trading companies, governments and market traders (in either physical uranium or mining stocks or both).
With the advent of NYMEX futures trading, the uranium market is proceeding through another paradigm shift. We expect Wall Street players to stampede into this sector in increasing numbers as evidenced by reports from the recent Raymond James (NYSE: RJF) Uranium Conference in New York City.
The serious reporting services include: Platts Nuclear Fuel, Nukem Market Report, Fresh FUEL (Washington Nuclear Corporation), Nuclear Market Review (TradeTech) and Ux Weekly (Ux Consulting).
We have come across glaring inefficiencies in the price-reporting space. For example, there are only two services reporting the month-end price of uranium (more specifically the U3O8 equivalent): Nukem Market Report and TradeTech’s Nuclear Market Review.
Another question remains unanswered: Why is there a US$35/pound spread between the long-term uranium price and the weekly spot price? And for that matter, at which levels are the floor prices near-term uranium producers, such as Energy Metals (NYSE ARCA: EMU), have signed with utilities? Are these at US$85/pound? Or are the floors at higher prices? Lower prices? How high is the ceiling price?
We did discover one interesting discrepancy. For momentum traders and those hoping to exploit the market price inefficiency: TradeTech reports its uranium price indicator after market on Friday while Ux Consulting does not report its price indicator until late Monday. Rarely are these price indicators much different. After all, both talk to mostly the same nuclear buyers and brokers to arrive at their price indicators.
However, U.S. stock options traders, utilizing a company’s put and call options series, such as those offered by Cameco Corp (NYSE: CCJ) and Uranerz Energy (AMEX: URZ), could possibly benefit by knowing the uranium price indicator before trading commences Monday morning, especially after a spot uranium price spike. Certainly this inefficiency will someday be remedied, but those traders hoping to exploit this unfortunate and archaic market mechanism could potentially reap trading profits.
Summary of Uranium News Services
Each of these news services has varying degrees of ‘connection’ and credibility within the uranium space. All five have their pulse on the uranium price.
Nukem is a subsidiary of a former uranium mining company, which now specializes in nuclear engineering services, including decommissioning and nuclear waste management. Nukem publishes insightful articles about the nuclear sector in the company’s monthly Nukem Market Report. Nukem also publishes the month-end uranium price indicator. One can visit their website to find out about their services: http://www.nukeminc.com/. A more intensive reporting of the weekly price range comes from a Nukem spin off: Energy Intelligence. This service has covered the energy markets for decades and is widely respected in all sectors they cover. http://energyintel.com/
As with all Platts publications, Platts Nuclear Fuel is owned by The McGraw-Hill Companies (NYSE: MHP). The publication is published every two weeks. Platts publishes a uranium price range, provides penetrating reportage of the nuclear fuel cycle sector, and reports on the uranium price indicators issued by TradeTech and Ux Consulting. One can contact Platts by email for additional information or apply for a free trial at support@platts.com or by telephone: 212-904-3070.
FreshFUEL is published by Washington Nuclear Corporation. Unlike NYMEX uranium swaps, which are financial-based, this weekly publication reports on physical uranium actually traded during the week. In their May 11th issue, we reviewed a snapshot of the results for New York Nuclear’s Wednesday two-hour online trading session through the UraniumOnLine electronic trading system. FreshFUEL is published 50 times per year and subscription information can be obtained by contacting Nancy Passarelli through her email address of np@nynco.com or by telephone at 212-682-5070.
In the past, many had recognized Ux Consulting as one of the more widely followed consulting services in the uranium space. This company reports a spot price indicator to subscribers sometime on Monday afternoon and then publicly releases the same data late Tuesday or Wednesday. To our knowledge, Ux Consulting has never issued a month-end U3O8 spot price unless the weekly spot price coincided with the last day of the month. UxConsulting has been in business for about twenty years. The website address is http://www.uxc.com/
NUEXCO/TradeTech has been publishing the weekly spot uranium price continuously for nearly forty years. Through the company’s weekly magazine Nuclear Market Review, TradeTech publishes a weekly spot price indicator before midnight eastern time on Friday. The company also publishes an end-of-month spot price indicator – even on New Year’s Eve (December 31st). Subscribers receive weekly reports and monthly reports on an annual subscription. www.uranium.info
Until recently, most subscribers for these publications were comprised of utilities and mining companies. After NYMEX announced it would trade swaps, traders began purchasing annual subscriptions for several of these services. Those wishing to remain on top of the news or ahead of the news should contact each company and find out about their publication offerings. At a time when we believe price volatility could instantly enter this market, it might pay to protect oneself by relying on professionals rather than the hearsay of amateurs. We hope this helps level the playing field for many.
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May 1, 2007 |
Resourcex Reports: Another Impressive Year for Canadian Exploration Companies
Exploration Tops $100MM in Athabasca Region
In 2006, resource companies spent more on mineral exploration in British Columbia than any other year since such records have been kept. Natural Resource Canada (NRCan) reported this last week in its Overview of Trends in Canadian Mineral Exploration, an annual overview of mineral exploration published by the government of Canada.
In case after case, the analysis in this 198-page tome shows that the remarkable rebound of the exploration sector since the historical lows of 2000 was more prevalent than ever in 2006. Projections remain encouraging for 2007.
In British Columbia, mineral exploration activity continued to skyrocket with 2006 expenditures forecast to exceed 2005 spending by over 22%. Although statistics for the end of the year are still pending, the authors of the report estimated 2006 spending on exploration activity in BC to top $265 million. This achievement is less than 25% below Ontario, the leader in exploration spending in Canada. Quebec and British Columbia saw about the same expenditures for the year.
Saskatchewan’s uranium-rich Athabasca Basin and adjacent areas have benefited immensely from the ever-rising spot price of U308. An estimated $100 million was spent on exploration in this region in 2006 (up from $74.6 million in 2005). The western part of the basin has become the target of new staking and grassroots exploration programs and recent activities in the area have shifted from geophysical surveys to diamond drilling.
Overall, the statistics and trends presented in the report undeniably reflect the prominent position of junior exploration and mining companies in the Canadian mineral exploration sector. This prominence, coupled with the positive metals market outlook, offers lucrative opportunities for investors.
Over the last few years the junior mining sector has experienced an impressive comeback following the harsh downward trend of the late 1990s. For the third year in a row, junior company expenditures on exploration and deposit appraisal has surpassed that of senior companies. According to NRCan, “junior mining companies are major spenders in most commodity groups, undertake a large share of drilling activity, and continue to increase their average spending year after year.”
Over the last six years, NRCan has noted an upward trend in junior project expenditures beginning slowly in 2000 and growing exponentially since 2003 which saw gains of 44% followed by 105% in 2004 and 30% in 2005. Combined overall spending by senior and junior sectors is expected to increase 32% from over $1.3 billion in 2005 to over $1.7 billion for 2006.
The 632 junior project operators (up from 387 in 2000) are expected to increase spending by 40% to over $1.1 billion in 2006. This is the highest total ever recorded for junior company spending. In comparison, the 104 senior project operators will only increase their total spending by 19% this year.
In the past, spending intentions of more than $10 million were predominantly the forte of senior companies. In 2006, this spending category is near evenly divided between senior and junior companies. NRCan reports that “of the 30 project operators with intended spending exceeding $10 million”, 14 are junior companies expected to average $23.3 million in expenditures and 16 are senior companies expected to average $27.2 million.
Most mining provinces/territories will experience the intensity of these increases in junior spending. NRCan reports that the largest increases should occur in:
- British Columbia – up $88 million
- The Northwest Territories – up $51 million
- Québec – up $40 million
- Saskatchewan – up $36 million
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In 2006, British Columbia, Ontario ($150 million), Nunavut ($149 million), and Québec are expected to account for 62% of all junior company expenditures in Canada. The Yukon ($79 million) and Newfoundland and Labrador ($67 million) will also benefit from a substantial increase in activity by the junior mining sector.
The authors of the report attribute the massive influx of spending in Canadian mineral exploration to the phoenix-like rise in commodities prices and the evolving dominance of the junior exploration and mining sector. The authors also give emphasis to government incentive programs which it says were initiated to combat the stagnating resource industry of the 1990s. These programs are typically provided either in the form of tax benefits or cash assistance to grassroots projects.
Melissa Pistilli is a contributing writer with the Resourcex Investor, an internationally distributed newsletter specializing in identifying as-yet undiscovered resource companies representing the best in their class. For more information, visit the website www.resourcexinvestor.com.
StockInterview.com was granted permission
to post this story written by Melissa Pistilli.
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April 17, 2007 |
How Resource Companies Reduce Political Risk in Volatile Areas of the World – An Interview With Stephen Bailey
With resources in so-called ‘safe’ countries becoming increasingly scarce, and pressure from growing economies increasing the demand for commodities, resource companies, including juniors, are forced to look further afield for the next big thing. In the current economy, situations and environments that may have seemed too risky in the past have to be considered. Katherine Young of the Resourcex Investor spoke to Stephen Bailey, Senior Vice President of Frontier Strategy Group, a global research and advisory firm that specializes in analyzing above-ground risks in natural resources industries, about what juniors can do to reduce political risk to their projects.
Resourcex Investor:
What are the key factors a junior resource company should consider in assessing the political risk to their project?
Stephen Bailey:
The first issue that should be considered is macro stability in terms of the safety of its workers both on the exploration side as well as the operations side. Is this the type of country where we feel safe, where we feel confident our workers could be safe?
Once that threshold is crossed then junior companies should consider other issues such as can we do business here while also maintaining sound legal and moral practices with respect to issues such as corruption, as well as issues such as the use of security forces to maintain the safety of assets and workers.
In a lot of environments it’s important for companies, and in particular junior companies, to think, given my size, what type of leverage can I bring to bear to ensure that I can be successful here even if conditions in the country deteriorate from a political perspective? Are there partnerships I can develop with NGOs and important government actors or international institutions that would help me to continue to operate if things were to deteriorate?
Resourcex Investor:
You mentioned some key strategies like partnering with NGOs and developing relationships in governments, what would you outline as the other main strategies for reducing political risk?
Stephen Bailey:
Before you can do anything, an essential prerequisite is to have a very firm understanding of where the environment you are operating in is likely to head… So what I mean by that is: if you’re in a country where there’s been significant civil conflict, like for example the Democratic Republic of the Congo, developing signposts such as: What is the percentage of members of the military that have been demobilized that continue to be armed? …How have the elections played out and what have those elections meant for the positions of the key opposition leaders? By tracking those types of variables and signposts you are able to get a sense of where the environment is likely to head over time so that you can be on the proactive side rather than the reactionary side.
Resourcex Investor:
What do you think junior companies can do to maximize leverage that they may have?
Stephen Bailey:
The most important thing you can do to maximize leverage is, first from a governmental relations perspective, identify the key actors within the government who are likely to maintain their influence over time, those actors being technocrats or individuals within the government who are very well-respected [and are] unlikely to ever lose influence within the country.... Because if one administration is toppled by another or one administration is ushered out, you don’t want to be in a position where the administration that’s coming into power ushers you out in an attempt to remove any vestige of influence that the previous administration might have had.
The other thing is, in the communities where you operate it’s very important for junior mining companies to create very strong partnerships with NGOs both at the local and national levels or I should say international levels to make sure that their presence is sustainable by the people who are most affected by it. Through those partnerships, [junior companies are] able to extend and expand on a limited amount of resources [they] have to devote to these social issues. It’s really outsourcing some of the responsibility that you have in a way that allows your presence to be sustainable and politically popular.
Resourcex Investor:
If a company was going to join with a joint venture partner as a strategy to reduce political risk, what are some of the downsides of that strategy?
Stephen Bailey:
Joint venture partnerships comprise different types: partnerships with western companies that largely share your values, your operational practices and your interests; partnerships with other actors that are likely to have influence in a particular country or geography….
The main challenge comes with respect to the latter group, where those companies might not necessarily share the same legal obligations that western companies have and also might have different interests than western companies have, and in those cases it’s very important to recognize the reputational challenges that exist. If those companies do engage in corruption, or if their labour practices or environmental practices are not sound, part of that responsibility is ultimately going to be transferred to you as a joint venture partner.
It’s also important to recognize that the security of your assets is something that has to be protected. If you partner with a Russian or a Chinese company in an area where you don’t have influence it’s important to understand how you can maintain a long term alignment of incentives between the joint venture partner and yourself. It’s not enough just to bring money or technical skills to the table, because once that money and technical skill has been transferred to the joint venture partner you no longer have any use to them. So coming up with ways to maintain your leverage throughout the joint venture partnership [is important] and if you can’t do that, don’t enter the partnership.
Resourcex Investor:
You suggested earlier that having another project in another country where the partner doesn’t have close ties, and you do, might be a good way to create incentive for the partner.
Stephen Bailey:
Exactly. I think it’s very important for western companies to think outside of the box in terms of the joint venture projects of the future. When you’re operating in an area where you partner with [for example] a Chinese or a Russian company, the rules that apply to traditional partnerships with western companies may not apply. You have to be very creative in terms of creating an alignment of incentives, and one way to do that is by entering a more grand strategic partnership in which you give access in a country where you have significant influence in exchange for access in a country where they have significant influence. The benefit of that is that the country you partner with is less likely to expropriate or impair your asset because they recognize that would have ramifications for them in the country where they have less leverage.
Resourcex Investor:
A balance of power.
Stephen Bailey:
Exactly.
Resourcex Investor:
How effective is political risk insurance?
Stephen Bailey:
It’s really difficult to talk about it in broad terms. It really needs to be done on a case by case basis. In some countries it probably would be something that’s essential, in other countries it’s probably in the range of optional, and a lot of it depends on what type of risk an individual company is willing to bear.
If a company wants to have a greater upside it might forgo political risk insurance because the premiums are going to decrease their annual return rate. It’s also important to remember that there are other tool kits that companies have to limit their exposure, such as non-recourse debt financing that provides the company with capital foreign investment but does not leave them on the hook for those loans if the political situation deteriorates.
So, political risk insurance, non-recourse debt-financing, and joint-venture partnerships that spread risk across the partners are options you can use that limit your exposure. But it’s hard to talk about which ones should be used without talking about a particular environment.
Resourcex Investor:
Are there any downsides to partnering with the World Bank?
Stephen Bailey:
I think the World Bank is an excellent organization to partner with. One place where things can go wrong is if a company thinks that a partnership with the World Bank can solve all its problems. It’s important to have a broad array of partners on the national political level, the local level and the international level that minimize geopolitical risk exposure no matter what direction the country takes. If you put all your eggs in the World Bank basket, and the country decides they are going to take money from the Chinese [for example], then kicks the World Bank out, suddenly you’re left without a significant partner with influence in the country. So while it’s important to use the World Bank as a resource and a very important point of leverage in a lot of countries, it’s also essential that you diversify your partnership base to allow you to succeed no matter how the environment changes.
Resourcex Investor:
One last question: if there’s a mine operating in a given country and they’ve run into problems either on the government level or the community level, and then another company wants to open a similar mine in that country, how can that second company protect itself from the problems the first company encountered and perhaps created?
Stephen Bailey:
That’s a very good question and once again, it’s difficult to talk about that in generalities. Sometimes it’s because it’s not possible to operate there. For example a company could end up getting kicked out because the government has a new policy of nationalizing all assets and in that case it doesn’t really matter which company you are, it’s going to be difficult to come in…I think cases where there has been a company that has been essentially kicked out because the government has decided it wants to nationalize the asset, or is unhappy with western investors, the best thing you can do, or really the only chance you have of success, is to provide the government or the community or both with a new and long-term economic incentive to accommodate your presence. And that can be through partnering with the national company of the government such that they have a vested interest in having you operate there if they don’t have the technical skills to do it themselves, or one very innovative method that’s been used by some companies is to provide the community or the government, oftentimes the regional government or sometimes the national government, with an equity stake in the project and then to publicly float an entity as the subsidiary of the main company such that if the government does anything to impair the asset then it’s also going to be impairing the value of the equity that you’ve given to the government so it creates a clear long term alignment of incentives.
Resourcex Investor:
Does that work on the small scale as well for junior companies?
Stephen Bailey:
Absolutely. Let’s say you’re a company that only has one asset, if you’re open, and this is obviously on a case-by-case basis, but if you’re open to making the junior entity public and you give the government some stake in that public entity the same principle applies—to the extent that they do anything to impair your asset, the market value of whatever stake they have is going to be impaired as well.
Katherine Young writes for Resourcex Investor, an internationally distributed newsletter specializing in identifying as-yet-undiscovered resource companies representing the best in their class. For more information, visit the website www.resourcexinvestor.com.
StockInterview.com was granted permission
to post this story written by Katherine Young.
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April 14, 2007 |
Ultra Uranium Addresses Environmental Concerns
As government and corporate leaders look to uranium as a cleaner alternative to fossil fuel energy sources some environmental groups are demanding that resource companies act responsibly. Recently, I spoke with the president of Ultra Uranium Corp. [TSX: V.ULU], Ray Roland about Ultra’s stance on this issue.
In 2005, the corporation secured 100% ownership of the Kalnica-Selec Uranium Project in Slovakia’s western Povazsky Inovec Mountains. The property was originally explored by Uranovy Prieskum State Enterprise (UP) operated by the former Czechoslovak government. Throughout the 1970’s and 1980s, UP conducted extensive exploration and development of the 28.91 square kilometre region. This work was halted in the early 1990’s due to the global drop in uranium prices.
In February of this year, Ultra Uranium received a NI 43-101 compliant Technical Report on the Kalnica-Selec Project by respected geologist Dr. Boris Molak, PhD., P.Geo (BC). The report details the promising results of Uranovy Prieskum’s historical findings from radiometric surveys, geological mapping, extensive pitting and trenching vertical and horizontal drilling and tunneling. Dr. Molak, a Slovakian native, believes this region has promising potential for discovering additional mineralization deposits.
In recent months another resource company exploring for uranium in Slovakia, Tournigan Gold Corp., has received a strong backlash from Greenpeace and SOSNA (a local environmental group). The groups drafted a petition supported by at least 32,000 protesting Tournigan’s Jahodna project located about 5 miles from the 250,000 residents of Kosice. Protestors are mainly concerned with the mining operations effects on a nearby protected bird sanctuary, water reservoir, and the city’s recreational park.
Although Ultra Uranium has yet to experience such remonstrations and couldn’t comment on the Tournigan situation Mr. Roland did say, “We realize that there are going to be environmental issues that we have to address before we do anything in the way of extraction. We are going to take the initiative to preclude problems of an environmental nature that might come up. We are not anticipating huge problems, but before we go in and do a drill program, for example, we would go in and talk to the local people. And we have an agent in Slovakia who is well-versed in doing that kind of thing.”
There are two villages each with populations around 2,000 in Kalnica and Selec; however, they are not located in the areas where exploration work will resume. I also spoke with Dr. Molak who said that during his next trip to Slovakia he plans to organize a presentation and talk to the local communities. This presentation will explain the company’s plans and intentions in the area and help to alleviate local inhabitants’ misconceptions or environmental concerns.
Because many people associate uranium with nuclear waste and cancer-causing radiation many misconceptions of the white hot metal exist. However, the operational processes and environmental aspects associated with uranium mining are common to all metalliferous mining.
In Situ Leach (ISL) extracting techniques are safe, environmentally friendly, and cost advantageous. The method involves pumping liquids through the ore while still in the ground in order to recover the desired minerals. This process causes negligible disturbance and does not generate tailings. Most of the radioactivity remains well underground. There is minimal increase in radon release and no ore dust produced from this process. Whether ISL methods are feasible or not depends on site geology and ground water location. Uranium ore suitable for ISL occurs in permeable sand or sandstone located below the water table.
Ultra Uranium’s property in Slovakia is comprised of permeable sandstone and some areas might possess the right conditions for ISL mining. The detected mineralization sites in the Krajna region, by far the largest resources on the property, are located below the water table about 300-500 metres from the surface. But, the deposits in the Selec region are set above the water table in a 240 metre hill making ISL unfeasible and will most likely be extracted by conventional means.
Conventional mining consists of removing rock from the earth, breaking it up and treating it to remove the desired minerals. The tailings or waste products contain most of the radioactive material from the original ore. After the project is complete these tailing dams are covered with two metres of clay and topsoil to reduce radiation to naturally occurring regional levels and vegetation cover is established. Despite the fears of some, uranium ore actually possesses a very low level of radioactivity. In fact, a lump of pure uranium gives of less gamma rays than a lump of granite.
Today, modern uranium exploration and mining techniques are performed under well-established environmental constraints set in place to control off-site pollution including strict standards for limiting gamma radiation. Dr. Molak informed me that as a member of the European Union Slovakia has very strict environmental regulations. “We must comply with European Union regulations which are pretty similar to Canadian [laws].” This also extends to the Non-Proliferation Treaty meaning that any uranium mined in Slovakia cannot be used for weapons.
The environmental policies of Slovakia are organized around principles of prevention, pre-caution and polluter responsibility. The central authority responsible for administering and regulating these policies is The Ministry of the Environment which requires licenses and environmental impact assessments for exploration and mining operations. These regulations are quite comprehensive.
During exploration work Ultra Uranium is required to comply with several Slovakian environmental laws that protect water reservoirs, and agricultural and forest soil. Exploration activities are also prohibited from encroaching upon the vegetation of the Selecky Potok Natural Memorabilia and the game protection area at the south western margin of the licensed property. Ultra Uranium is also required to adhere to established codes for integrating environmental pollution controls during the course of exploration.
When asked about the Slovakian government’s attitude towards nuclear energy and uranium mining Mr. Roland offered, “They are very open. If not the best country in the world, they’re right at the top in terms of being amiable to mining opportunities. I think if you pay attention to the environmental side . . . . you’re going to be welcome with open arms.”
Melissa Pistilli is a contributing writer with the Resourcex Investor, an internationally distributed newsletter specializing in identifying as-yet-undiscovered resource companies representing the best in their class. For more information, visit the website www.resourcexinvestor.com.
StockInterview.com was granted permission
to post this story written by Doug Hadfield.
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April 8, 2007 |
Resourcex Reports:
Interview with the (Incoming) President of the TSX Venture Exchange, Kevan Cowan
Resourcex Investor had a chat with the incoming president of the TSX Venture Exchange, Kevan Cowan. Cowan set the record straight on how the TSXV kicks AIM’s butt, where the Venture is headed this year, and even how to get listed on the TSX Venture 50 list.
RI: Hi, Kevan. Congratulations on your appointment. How are things going at the Venture Exchange?
KC: We’ve just come off a fabulous year on both markets but the venture has been through the roof by any measure – volume, value, trading financing and our issuers are up. And now we’re here in January getting ready to push forward to the next step.
RI: What’s the next step?
KC: We have obviously a very strong base on the exchange in the west and in resources. Our opportunity over the last few years has been to move the exchange east and we’ve focused a lot of effort in addition to maintaining our stakeholders in the west and expanding it into Quebec, which has gone quite well. We had a bit of a slow start because we started that in the dot com bust, but the last few years have been great.
We’re starting to see some international interest in the exchange and we’re starting to pursue that. I think it’s a combination of maintaining what we’ve done to date and looking for more aggressive growth options.
RI: What measure do you use to rate the success of the Venture Exchange?
KC: I think the first thing is on the listing side of the business, when we measure the success of the market overall, its’ overall financing levels. With December 31st, we’ve come off a run of several record years in a row. In fact, every year since 2002 we’ve had financing levels increase and sometimes astronomically, and this year is no exception.
Back in 2001, the venture exchange had overall financing levels of roughly 1.5 billion dollars. This year we’re up to 7.8 billion dollars. Another way we look at success is overall trading activities and those numbers have continued to increase at huge rates over the last couple years as more and more people utilize the Venture market.
Also, the number of what we call graduates that we produce is a way we measure success. We had a big year this year, we had 67 graduates, graduate from Venture up to Toronto and we were really thrilled about that.
RI: Is the London Stock Market’s (LSE) Alternative Investment Market (AIM) Exchange a concern to you as president of the TSX Venture?
KC: We’ll I’ve got several things to say on that point but first I’ll give you a bit of context to let you know how aware of and how connected we are to this issue. Just myself personally over the last several months, I’ve been on panels with people from AIM and supporters of AIM discussing the merits of our respective markets in New York, London, Perth Australia and Toronto. So, this has been a very big issue for us.
AIM has been a media darling over the last 1 to 2 years. There’s a big part of the story that the Canadian media are missing, and that is that although there’s been lots of Canadian companies that have listed on AIM, what the press misses is that they’re all inter-listed back in Canada except for three. The big story is inter-listing. And what’s more significant when you look at the interlisting statistics the aftermarket is much, much stronger in Canada, which we measure by average number of analysts per company, financing, follow on financing undertaken by those listed companies after they’re listed and trading volumes. And for all of those inter-listed companies, which are about 40 in number, the vast majority of those follow on indications that are in Canada.
The other thing that the press misses is that Venture is a really unique exchange in the world of exchanges. It’s very much a small and microcap exchange. In terms of AIM’s positioning, it really goes head to head more with the Toronto stock exchange. A quick statistic to give you some indication of this: Roughly half of the market cap is in issuers between 50 and 250 million on both AIM and the Toronto stock exchange. And of the 40 inter-listed issuers between TSX Group exchanges and AIM, only 5 are inter-listed on Venture. The rest are inter-listed on the Toronto Stock Exchange, well over 30. That just gives you an idea, so when the press compares numbers on AIM versus Venture, it’s really an “apples and oranges” comparison. We have to look at the TSX group as a whole, or Toronto Stock Exchange in particular.
RI: How would you describe the relationship between the Venture Exchange and AIM?
KC: Certainly in terms of Canadian-based issuers, there’s no question that the TSX Group exchanges still have the majority of value propositions for those companies. This is evidenced by the fact that less than a handful have only listed on AIM, most of them inter-list back in Canada and that’s in recognition of all the aftermarket benefits that I mentioned. AIM is a very different model of exchange. They have outsourced their profit center to the investment dealers that work in the market, and outsourced the regulation. We certainly believe that the long-term viability of the exchange is very much based on integrity, and we do maintain internal capability to do due diligence around our exchange.
Our approach is a standards-based approach where we do due diligence internally ourselves on companies coming onto the exchange in the belief that ultimately we will have a sustainable integrity in our market. We set financial listing standards, and our own staff reviews those standards of the applicant company as opposed to that being outsourced to investment dealers completely the way it is on AIM. It’s just a very different approach.
The other place where there’s a big misconception is around the cost. And people do talk about AIM as being a lighter regulatory touch and people generally conclude from that that it’s a cheaper market. You have to be careful when you refer to AIM as an inexpensive market because it’s not. For companies to list on AIM it’s very expensive in terms of the fees, the advisory fees, the Nomad (nominated advisor) fees. So for the typical company going public on AIM, there’s no question that the costs associated with going public are higher than the typical company going public on the Venture Exchange.
RI: The Venture 50 was launched last year to raise the profile of the Venture Exchange, and yet it’s a little late this year. What’s up with that?
KC: As you may or may not know, when we ran that as a pilot project, we went off the August 31st numbers for the ranking of the companies. That was Aug 31 of 2005. The program was so successful and generated so much interest that we are continuing the program. But we decided to change the date of the assessment to December 31, which coincides with a lot of companies’ year ends. That’s why there’s been more than a 12-month delay from the first to the second Venture 50.
RI: What does it take to be listed on the Venture 50 list of promising juniors?
KC: We very careful as an exchange operator. We’re not in the business of recommending certain stocks to buy. What we’re trying to do is objectively raise profile. We have over 2000 companies on our stock list. There are some filters that narrow the list. The company has to have been listed on the Venture more than 12 months, those kinds of things. Once we get the filters out of the way, we apply a four-part formula. The formula we used the first time, very clearly published, four components: Return on investment, which was 12 months share price appreciation; market capitalization growth, which was 12 months growth in market capitalization; one year absolute trading volume; and your absolute revenue.
RI: Richard Nesbitt, the CEO of the TSX Group, has said of Linda Hohol, the retiring president of the Venture, that she “helped to build the market in to a world-class exchange for emerging issuers.” Those sound like big boots to fill.
KC: As Linda keeps saying, it’s not that her boots are big, it’s just that they’re expensive.
RI: Did you make a New Year’s resolution?
KC: (Laughs) Yeah, of course. You know, triple digit growth. I wouldn’t say I boiled it down to any specific resolution. I’m just very excited about continuing to grow the platform that we’ve built.
Doug Hadfield is the Chief Editor of the Resourcex Investor, an internationally distributed newsletter specializing in identifying as-yet-undiscovered resource companies representing the best in their class. For more information, visit the website www.resourcexinvestor.com.
StockInterview.com was granted permission
to post this story written by Doug Hadfield.
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February 23, 2007 |
Resourcex Reports: Journey to the Heart of the 43-101 Technical Report
Highlights: Journey Resources
It may raise eyebrows to say it, but picking successful junior resource stocks is a highly tangible business. Typically, where investors make mistakes is at the point where the heart takes over from the head. The business of stock promotion is marketing and little else. A good stock promotion program is a lot like a successful television commercial: When Jack White of the White Stripes rocks out to a hallucinogenic Coke commercial, people don't just listen, they buy. The heart takes over. The same thing applies to a suave stock promotion campaign.
The Canadian Securities Administrators (CSA) created National Instrument 43-101 after the biggest stock scandal in Canadian history, now commonly called "Bre-X." The point of 43-101 was twofold: First, to create "standards of disclosure for mineral projects" so that investors could rely on something more than geological fish stories. And, second, to hold technical report authors and company directors accountable for their disclosure in press releases, websites, technical reports, and so on. A 43-101 technical report takes a bite out of the guesswork of investing in a junior; is one of the most valuable tools for analysts and investors; and is usually my first port of call when investigating a new investment prospect.
Journey Resources (TSX: V.JNY) is an excellent example of a company that has embraced NI 43-101, and will in turn benefit from it as well as the hard work and experience of its team. I'm going to focus on Journey's most recent addition to its growing list of technical reports available at www.SEDAR.com, which is titled Empire Mine Project.
Something many investors are unaware of is that, although 43-101 technical reports are written by a Qualified Person (QP) with a minimum of five years experience in the field they are writing about, they are written for investors and analysts. Which is to say that you don't need to be an expert to read and understand a 43-101. That said: you may want a mining dictionary on hand when reading one. Here's one online at InfoMine.
On Friday last week, Vancouver's Mineral Exploration Roundup conference kicked off with a discussion of National Instrument 43-101, attended primarily by industry folk. The presenters included the Chief Mining Advisor of the BC Securities Commission Robert Holland, who pointed out that "as much as possible technical reports should be written in plain language and be easily read by the investing public."
Most of what you need to know about mineral claim is covered in a few sections of a 43-101 technical report. Journey Resources' report on the Empire Mine, for example, is 33 pages long, which is a haiku compared to many of the epics on SEDAR.
By reading the summary and conclusion sections, I can usually extrapolate the merit of a prospective investment. Since the BC Securities Commission regulates the 43-101 technical report, companies are obliged to be forthright about their disclosure. This is significant because it affects the language of the report; there is no room for braggadocio and fish stories in a 43-101 compliant technical report. The consequence of crossing this line could well be a Cease Trade Order (CTO), which is more than a mere nuisance to a public company.
The summary and conclusion sections of Journey Resources' 43-101 technical report on the Empire Mine, therefore, speaks volumes, not simply because it's positive, but because it suggests investor value. First a few salient points from the summary:
- The purpose of the Empire Mine 43-101 report is to review the technical merits of the project for the benefit of 50/50 JV partners Journey Resources and Trio Gold Corp (TSX: V.TGK)
- In order to earn a 50% interest, Journey must pay US$50,000 upfront and CDN$200,000 upon closing, incur costs of US$1.5 million prior to August 31, 2007, and issue 700,000 JNY shares to Trio (at 30 cents per share)
- The Empire Mine produced 765,000 tons grading 3.64% copper, 0.048 oz/t gold and 1.57 oz/t silver from underground workings in the period 1901 to 1942
- The mine is located in Custer County, Idaho
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And then a kicker:
| "In 1997, Cambior Exploration USA Inc. reported a drill-indicated, near-surface, oxide copper resource of 18,230,000 tons grading 0.49% Cu, 0.19% Zn, 0.44 oz/t Ag (13.5 gm/t) and 0.015 oz/t Au (0.48 gm/t), with an additional 9,650,000 tons of material grading 0.29% Cu and 0.31% Zn." |
Although this isn't a 43-101 compliant resource estimate, it was completed by a distinguished company, Cambior Exploration (recently acquired by IAMGOLD (TSX: T.IMG), and is recent. Moreover, the report was later (2001) corroborated by Sierra Mining and Engineering LLC. In other words, it gets a cautious green light from me.
A little rough mathematics gives this junior more luster: At US$5,500 per ton, the gross value of just the in-situ copper is roughly US$645 million. Add to that significant zinc, silver and gold mineralization. At this point, however, all is pure speculation, and takes into account none of the costs associated with building and bringing a mine to production.
On page 12 of the technical report, the QP (qualified person) concludes with what I would consider glowing remarks. He states, "The author concludes that potential exists on the property to improve the current near-surface historical resource, and to discover additional base and precious metal mineralization."
The QP goes on to say that only 76 of the 208 existing drill holes were assayed for gold and silver, in spite of the fact that "precious metal content is of sufficient grade and continuity to potentially significantly impact the economics of the project." The QP couldn't be more on the money here: ongoing drilling at Empire has yielded the following headlines: "Journey, Trio drill 24.38 m of 45.13 g/t Ag at Empire," "Journey, Trio drill 75.6 m of 25.3 g/t Ag at Empire," and most recently, "Journey, Trio drill 9.1 m of 126.6 g/t Ag at Empire."
I have had several years of experience reading these very dry and often overwrought 43-101 reports. This one is not only the most clear and concise; it is also about the most promising one I have read. A quick overview of the company makes clearer why. To begin with, Len DeMelt is on the board. I wrote about DeMelt briefly last week in an editorial I wrote about the importance of people in this sometimes dubious industry.
Journey has a market cap of only $9,000,000, and is trading at 36 cents, which translates into a lot of upside potential. As well, at the rate Journey is progressing, the company could announce a feasibility study on the Empire Mine sometime this year, which indicates more upside, based on the existing 43-101 data.
Best of all? Empire is only one of three 43-101 technical reports the company has available at SEDAR. The others cover the Musgrove Creek Gold Project and the Vianey Mine Silver Project, both of which are certainly worth a read.
Doug Hadfield is the Chief Editor of the Resourcex Investor, an internationally distributed newsletter specializing in identifying as-yet-undiscovered resource companies representing the best in their class. For more information, visit the website www.resourcexinvestor.com.
StockInterview.com was granted permission
to post this story written by Doug Hadfield.
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February 5, 2007 |
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FN Arena supplies
financial and economic news stories, analysis and commentary
in the Australian and global financial markets. FN Arena
- Passionate about Financial News
FN Arena is building the future of financial news reporting
at www.fnarena.com.
Our daily news reports can be trialed at no cost and
no obligation. Simply sign up and get a feel for what
we are trying to achieve. |
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Greg Peel
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News broke on Friday in the Northern Hemisphere that metal specialist hedge fund Red Kite had suffered 20% losses in January in the metal price pullback. Red Kite holds US$1bn in funds. This has apparently led to the fund attempting to plug the money flow out of its coffers.
While nothing is at all clear at this stage, the news was enough to send metal speculators fleeing to the sidelines. The resultant freefall set off stop losses in London and ultimately saw zinc close down 10% on the day in New York. Copper closed down 6%.
It was the biggest one day fall in zinc since July 1997.
Gold also suffered a hit, with observers suggesting the metal was rife for some profit taking. A strong US dollar rally on readjusted non-farm payrolls was enough of a trigger, along with a further statement from the US government that they had no intention of going to war with Iran. Gold closed down US$11.30 to US$645.70/oz. In so doing, it defied a rally of 3% in the oil price.
Resources stocks may be lining up for a bit of carnage on the local bourse today, with Rio Tinto (RIO) trading down 2% in London on Friday. Zinifex (ZFX) could be in for one of its trademark volatile days.
There was little lead from US stock markets. The Dow closed down 20 points on Friday.
See last week's Weekly Analysis, Commodities 2007: Year of the Bears?, for more insights into the subject of professional investors and commodity markets.
StockInterview.com was granted permission
to post this story written by Greg Peel.
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January 15, 2007 |
Nuclear Renaissance Plagued by High Costs, Waste Issues
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Exelon Corp Chief Executive John Rowe. He won’t build any more U.S. nuclear power plants until the government gets its act straight on nuclear fuel disposition. |
Depending upon which side of the fence you are sitting, the nuclear renaissance is either in full blossom or an arid landscape. The new uranium miners – Paladin Resources, UrAsia and SXR Uranium One – celebrate the record spot and long-term uranium price. Exelon Corp Chief Executive John Rowe is less sanguine, based upon comments he made this past Friday, “The government may have fooled me on 17 reactors that I currently run, but I’m the one who’s being foolish if I build a new plant without knowing what they’re going to do with the spent fuel.” Exelon is the largest owner of nuclear power plants in the United States .
In a September 19th article, we interviewed Steven Kraft, Nuclear Energy Institute Director for Used Fuel Management. Mr. Kraft hinted the stalls around the nuclear renaissance in the United States would revolve around the spent fuel depository issue. What happens with the 40,000 metric tons of used nuclear reactor fuel? Right now, they are chilling out in 141 concrete cooling ponds scattered around the country.
For the past quarter century, the nuclear industry expected the reactor fuel would end up in a centralized depository, as has been proposed at Yucca Mountain , Nevada . Thanks to U.S. Senator Reid, and his efforts to squash this site, the Department of Energy has been paralyzed in moving forward. Alternatives are now being proposed, and the U.S. part of the nuclear renaissance remains stalled.
Then the other shoe drops. Because of the vociferous environmental lobbyists, pre-construction costs dissuade nuclear utilities from accelerating their plans to build new nuclear reactors in the United States . Utilities do what is convenient – they pass on these licensing costs to their utility consumers. Because of the environmental lobby, Georgia electricity consumers are paying the freight to license the new nuclear reactors proposed by Atlanta-based Southern Co. Charlotte-based Duke Energy hopes to get the same deal in North Carolina .
How much does it cost to license a nuclear power plant? Standard & Poors analyst Dimitri Nikas estimated the permits to construct a nuclear plant would cost between $1.5 billion and $2 billion. This means roughly one-half the cost of constructing a nuclear plant in the United States goes to pay for a permit to build and operate the reactor. New reactors are supposed to cost between $3 and $5 billion each to build (plus financing costs). If 30 new reactors are planned in the U.S., about $45 to $60 billion will be spent on permitting costs (A special thanks to 'Friend of the Earth' for that penalty!).
Because of this expensive proposition, nuclear energy costs more to produce electricity in the United States than it would in places like China, Korea, Japan or just about anywhere else. For a nuclear plant costing $2 million per megawatt to build, the power plant’s electricity would cost $55 per megawatt hour. By comparison, a coal-fired power plant costs consumers $53 per megawatt hour for their electricity. A combined cycle integrated gasification plant fueled by coal produces electricity for $50 per megawatt hour.
On the bright side, the S&P analyst believes that after the first wave of nuclear power plant construction, overall costs could plunge to $1.5 million per megawatt hour for electricity, or roughly $44 per megawatt hour. Because of this drop Mr. Niklas concluded nuclear energy “is by far the most competitive cost from any resource, except perhaps hydroelectricity generation.” This is more good news for uranium miners now supplying the nuclear industry and those who hope to do so over the next decade.
The question facing most Americans – and we would guess 99 percent haven’t the slightest clue about this problem – is whether or not they would prefer losing the nuclear option as part of their electricity generation. The environmental lobby would cheer the loss but the utility consumer would lose up to 20 percent of their baseload electricity generation. And on a darker note, the alternative would be more coal-fired power plants – not wind or solar power, which are still more than one decade away from offering any sort of hope for baseload electricity generation.
To put this into perspective, coal now generates 54 percent of America ’s electricity. One pound of coal produces 1.25 kilowatt hours of electricity, enough to power one 100-watt light bulb for 10 hours. The average internet user consumes more than his body weight in coal just to surf the net: 12 hours weekly over the course of one year consumes 300 pounds of coal. (For example, the electricity consumed to order StockInterview’s “ Investing in the Great Uranium Bull Market,” would burn up one lump of coal.) Total demand for electricity by personal computers now amounts to 8 percent of the U.S. electrical supply. In the future, over one billion people will be accessing the Internet. This amount of computer time would be equal to the total ‘current’ capacity of U.S. electrical production.
If the U.S. nuclear renaissance doesn’t get launched, we will either be accessing the Internet by polluting our environment with several hundred additional millions of tons of CO2 emissions, or the Internet users will suffer. Wind and solar won’t power the Internet, but coal, gas and especially nuclear will.
And at this stage of the uranium renaissance, U.S. utilities have contracted with three non-U.S. uranium mining companies – Paladin, SXR Uranium One and UrAsia – to purchase uranium mined in Namibia , South Africa and Kazakhstan . Where is the energy independence in that observation? Next we’ll be buying our electricity from the Russians, Chinese, and quite possibly the Iranians, if this nonsense continues. Please bring this to the attention of your local environmental lobbying office.
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December 12, 2006 |
Merrill Lynch Revises Oil Price Forecasts
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FN Arena supplies
financial and economic news stories, analysis and commentary
in the Australian and global financial markets. FN Arena
- Passionate about Financial News
FN Arena is building the future of financial news reporting
at www.fnarena.com.
Our daily news reports can be trialed at no cost and
no obligation. Simply sign up and get a feel for what
we are trying to achieve. |
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Greg Peel
Senior Writer, FN Arena |
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Merrill Lynch now expects softer oil prices in 2007 and as such has dropped its average price from US$65/bbl to US$60/bbl.
Reasons for the drop include the expansion of supply from non-OPEC producers, a deceleration of global demand, the building of inventories which have already become quite full, and the rapid increase in biofuel production. In this climate, says Merrills, it's hard to see a spike up in the crude price for a while.
However, the analysts expect the 2008 picture to be different.
They have raised their 2008 price average from US$50/bbl to US$62/bbl. Reasons given are that the global economy is expected to pick up again in 2008 as the slowing US housing sector begins to turnaround, and the aforementioned non-OPEC production expansion will slow down.
Merrills has set a long term oil price of US$47.50/bbl, reflecting the commercial value of Canadian oil sands as the alternative source of choice.
Nevertheless, OPEC remains the wildcard, the analysts suggest. OPEC has struggled recently to keep up with demand but it is planning to increase production capacity. Then it just becomes a matter of what OPEC does with that capacity, as it can always cut quotas to keep the price up. However, they are an ill-disciplined bunch who can shoot themselves in the foot and cause a glut if they try to cheat on quotas.
In the meantime, the US would dearly love to take its oil supply requirements out of OPEC control.
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StockInterview.com was granted permission
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