Saturday, April 12, 2014

Palladium trading at highest level since 2011

Palladium continues to move higher as the miner strike in SA continues. The metal is looking more and more bullish and appears to have broken out on the weekly chart. From everything I am reading regarding the strike, it appears that even when a settlement is reached the mining companies are going to use the excuse of higher labor costs as a reason to begin shutting down high cost operations and money losing shafts. This will further constrain the supply of pgms and should help to further increase the price. For some reason I could not get the chart to load. You can see the breakout over at my SA instablog here if interested.

Friday, April 11, 2014

Japan reverses policy on nuclear power

Bangkok Post:
The government of Prime Minister Shinzo Abe decided on a national energy policy Friday that supports the use of nuclear power now and in the future, retracting a nuclear phase-out goal introduced by its predecessor after the 2011 Fukushima Daiichi disaster.
The Basic Energy Plan sets the stage for the government to move ahead to restart nuclear reactors, all of which are now offline amid safety concerns, while reaffirming the continuity of the country's spent fuel recycling projects that have not made headway.
The move has been expected since the pro-nuclear Liberal Democratic Party returned to power in December 2012, but the government spent several more months than initially expected before deciding on the plan as draft documents stirred controversy among lawmakers who saw them as too strongly pro-nuclear in tone.
As for the policy direction over the next 20 years or so, the government said it will "proceed with the reactivation of nuclear power plants" that have satisfied what the government calls the world's toughest regulatory standards, and at the same time pledged to "reduce nuclear dependence as much as possible."
It also left open the possibility of allowing the construction of new reactors, saying in the plan that the government will "assess the amount of nuclear power that should be secured" to ensure a stable energy supply in a resource-scarce country.
This was inevitable as I had been saying for some time. The simple fact is that the Japanese economy was having to spend huge amounts of money importing LNG and coal to make up for the offline nuke plants. A responsible restart of some of the reactors was always going to happen or the lights were going to go out in Japan. It does not appear that all the reactors will be restarted but this should be the catalyst for a rising uranium price later in 2014.
Disclosure: I am long URA, CCJ, URPTF.

Sunday, April 6, 2014

Myanmar to be one of the fastest growing countries in SE Asia in 2014

Irrawaddy Times:
The ADB on Tuesday released its annual Asian Development Outlook report, estimating that Burma's gross domestic product grew by 7.5 percent in 2013-14 and predicting higher growth of 7.8 percent both this year and next. 
"Growth [in 2013] was supported by rising investment propelled by improved business confidence, commodity exports, buoyant tourism, and credit growth, complemented by the government's ambitious, structural reform program," the Bank said. It noted that, with new offshore natural gas fields now online, gas now makes up 40 percent of the value of Burma's exports, or US$3.6 billion a year.
The economy is benefiting from the recent oil and gas tenders that were issued recently and the wireless licenses that were granted last year. It would appear that electricity availability and build out of affordable housing and office space are going to be a concern for a while. However these are opportunities long term not liabilities. Still waiting for news on when the Myanmar stockmarket will be up and running. Singapore based Yoma Strategic Holding is a pure play on Myanmar but it has been in a trading range after it had its runup a couple of years ago.

Takers vs. Makers

No editorial comments needed as this video speaks for itself.

Rick Rule updates view on Platnium and Palladium

In South Africa, Rick believes labor disputes will plague the industry until big miners are simply forced to shut down. These strikes and violence are symptoms of how harsh conditions have become in platinum and palladium mines as they go ever deeper to produce ore. These companies still generate insufficient cash flow to pay their workers well.
The strike itself is a result of the fact that the industry does not earn enough at current platinum and palladium prices. So the miners can't earn a living wage. Both sides are stuck between a rock and a hard place.
There are two competing unions vying for the affections of workers. Neither of these can change the underlying economics of platinum production. In fact, both probably view the workers as tools to a political end, rather than a constituency to be served.
The strikes are really an illustration of the industry itself. If platinum and palladium prices do not rise, mines will close down and workers will be unemployed. There is no way to maintain production rates without sustaining capital investments, but you can't make those investments without being profitable. Thus, the price has to go up to maintain current production.
The bottom line is that most of the mines in SA are simply too high cost to continue producing at current pgm prices. The unions in SA do not realize this as they have their judgment clouded by political concerns. If the mining companies agree to the doubling of entry level wages they will have to shutdown shafts. If they do not agree they will have to shutdown shafts. Regardless, the high cost production will have to be put out to grass and that will cause a price rise which will eventually stimulate investment in mines. I continue to like Sylvania Platinum as they have no mining risk due to the company being a processor of old mining dumps. As the pgm prices rise they will benefit as their production is relatively low cost, they have completed the majority of their capital spending, and they are optimizing operations and lowering costs. Yes the company is in SA but it has not been affected by much of this labor unrest.

Wednesday, April 2, 2014

Cub Energy reports 2013 yearend results and updates operations

Cub Energy:

Production averaged 1,542 boe/d (95% natural gas) for the year ended December 31, 2013 for
an increase of 27% over 1,210 boe/d in 2012;

Exit rate of 2,070 boe/d for the year ended December 31, 2013 for an increase of 35% over
1,531 boe/d in 2012;

Current production of approximately 1,800 boe/d;

Achieved average natural gas prices of $11.26/Mcf and condensate price of $87.90/bbl for the
year ended December 31, 2013;

A shallow pool gas discovery was made on the RK licence with the RK-22 well in western
Ukraine which was tied-in and brought on production in late 2013;

A new pool gas discovery was made on the Makeevskoye licence in eastern Ukraine in the
Serpukhovian Zone with the M-16 well and was tied-in and on production in 2013;

Tested gas on a new reservoir on the Olgovskoye licence in eastern Ukraine with the O-15 well,
which was also tied in and brought on production in 2013. This deeper pool discovery has the
potential for offset development;

Krutogorovskoye licence in eastern Ukraine was successfully converted to 20-year production
licence; and

The expansion of the Makeevskoye and Olgovskoye production and processing facility was
completed in 2013. Gas began flowing on March 6, 2014 resulting in increased capacity to 68
MMcf/d from the previous 30 MMcf/d and it’s expected to take 30 to 60 days to become fully

Things are progressing well at the company as the management expects to exit 2014 with a production rate of approximately 2,800 boe/d. Elections in Ukraine are next month and the whole Crimea thing is already receding from the news and will end up being a non-event. I expect no further Russian incursions into Ukraine anytime in the near future. Once the market realizes this I would expect an upward revaluation of Cub Energy.

Ukraine Energy Markets And Prospects

Article on prospects for Ukraine energy sector by Robert Bensh. Mr. Bensh is an advisor for my 2014 stock of the year pick Cub Energy.

There is only one certainty in Ukraine: The energy sector must and will be transformed, and how long this takes will depend on who ends up in the driver's seat and how serious they are about becoming a part of Europe and reducing dependence on Russia. But by then, investors will have missed the boat.

The driving factor for any energy investor in Ukraine is the pricing environment. There is nowhere else in Europe--or some would even argue in the world--where you are going to get significant access to resources and potential resources for the price. Gas is selling at $13.66/Mcf, while it costs $4-$5 to produce and operate. That means producers are netting anywhere between $8 and $9/Mcf.
Whether it likes it or not, kicking and screaming, Ukraine will have to transform its energy sector, if it hopes to see promised IMF money. Kiev will have to start selling off assets and making the industry much more transparent. Greater transparency coupled with an already-favorable gas price environment, will make Ukraine one of the best places to be over the next 5-7 years.

This is probably good for Cub Energy long term as they already are operating in Ukraine and have relationships with the decision makers in Kiev. In the interim the discounted gas from Russia has run out and gas prices have reverted to there previous higher levels. This of course benefits Cub Energy as they continue to increase production inside Ukraine.

Sunday, March 30, 2014

New CEO of Mongolia Growth Group addresses shareholders

Link to letter:

I have spent some more time thinking about the appointment of Paul Byrne as the new CEO. After reading the letter to shareholders I have a couple of thoughts. First of all the guy leaves a plumb job to come to UB as he sees the opportunity and compares it to other places that enjoyed huge increases in building and real estate. I also think he has quite a few contacts and he knows people with money and I would expect that he will be able to bring deal flow to MGG. From the sound of the letter he is talking about MGG leading the complete development/re-development of the Central Business District in UB. I also like the fact that he bought $250k worth of stock with his own money. It appears thee will be some time for him to get his sea legs and than I expect a lot of news flow and deals. Hopefully the OT saga gets resolved and FDI begins to pick up later this year. The market has liked the news as the stock has popped nicely. I have been accumulating shares over the last year or so and I will continue as I believe this is one of the best opportunities in the entire world.

Thursday, April 26, 2012

How to Buy a Dollar for Sixty Five Cents

Readers know very well that I am a big fan of the frontier market economies of SE Asia. I am talking about Cambodia, Laos, and Myanmar. At this point there is really not very many ways average investors in the west can invest in these places. As these countries develop I am confident that ETF’s, private equity funds, and other investment vehicles will become available that will allow us to participate in the growth of these “tiger cubs”. While researching the above mentioned countries I kept reading about Vietnam. Although Vietnam is not a frontier market it has still not, in my view, graduated to emerging market status yet. Before the 2008 economic crisis Vietnam was the darling of the financial press and was the quintessential frontier market. After the 2008 crisis the bloom came off the rose so to speak and the Vietnamese economy was thrown into a bit of chaos as foreign capital flow either stopped or was repatriated. In addition the government pursued some poor decisions with regards to monetary policy and the currency, known as the dong, was devalued leading to high inflation.

Recently however the government has realized the error of its ways and has moved to privatize some state industries (which account for 60% of GDP), notably Vietnam Airlines. One of the most important changes has been the appointment of a new head of the central bank and tasking the bank with getting inflation in the country under control. Credit growth has gone from 28 percent per annum last year to a recent 12 percent. At the same time inflation fell to 14 percent last year and will fall further this year. Regarding the currency, there has been no devaluation of the dong since February 2011. Because of these policies the currency was the most stable currency in the region last year. Readers will recall that I look for economic or political catalysts, those small changes at the margin that in a small economy like Vietnam’s can lead to big economic gains. With the currency and financial reforms this appears to be the case. The other major catalyst is that Vietnam is now becoming one of if not the cheapest place to manufacture in Asia. This has led to Intel, for example, building it largest chip plant in Vietnam.

So that is the quick and dirty on where Vietnam has been and where it appears it is going. How to play it? Over the last five years the Vietnamese stock market is off 70% from its highs. The market has begun to recover this year and is up around 12%. There are two ETF’s but they are not the best way to participate in my view. These two ETF’s are for the lazy and are populated by institutions that just want Vietnam exposure and do not want to do any hard work. The way I am playing Vietnam is via the VinaCapital Vietnam Opportunity Fund (VOF). The VinaCapital Vietnam Opportunity Fund trades on the AIM board of the London Stock Exchange. If you have a broker that can buy foreign stocks it should be easy to purchase. The more typical and more difficult way is to buy shares on the pink sheets here in the US. The shares trade via the symbol VCVOF. I will state emphatically that if you choose to go this route you will have to use limit orders and be very patient.  It will take some time to build a position but this should be a looked at as a long term investment and not a trade. The reason I like VOF is because the people that run the fund are in Vietnam and invest in both listed securities and private equity deals. Having a team on site means relationships and access to people who know what is going on and who are able to facilitate deals that the ETF will never be involved with. This should lead, over time to better returns, as the fund is able to arbitrage their information advantage. This in itself should be reason enough to buy the fund. However the VOF is a closed end fund and is currently selling at approximately a 35% discount to net asset value. What this means is that you are literally buying a dollar for sixty five cents. If one looks at the historical relationship between the share price and the net asset value of VOF one would note that before the financial crisis in 2008 they tracked pretty closely. In fact there were some periods of time when the share price traded at a premium to net asset value. The management of VOF recognizes the substantial undervaluation and has been buying back shares on a regular basis. So the thesis is we have a growing emerging market that is getting its act together economically. We have identified an investment vehicle that is trading substantially below net asset value and that is run by people who have boots on the ground and know what is going on in the country. I think that if you have an investment time frame of three to five years and can be patient you could do very well buying shares of (VOF). This is not investment advice so please do your own due diligence as you are responsible for your own investment decisions. A link to the funds website is provided here.

Saturday, March 24, 2012

Strum Ruger is out of guns

From the Strum Ruger website:

Sturm, Ruger & Company, Inc. (NYSE: RGR), announced today that for the first quarter 2012, the Company has received orders for more than one million units. Therefore, the Company has temporarily suspended the acceptance of new orders.
Chief Executive Officer Michael O. Fifer made the following comments:

  • The Company's Retailer Programs that were offered from January 1, 2012 through February 29, 2012 were very successful and generated significant orders from retailers to independent wholesale distributors for Ruger firearms.
  • Year-to-date, the independent wholesale distributors placed orders with the Company for more than one million Ruger firearms.
  • Despite the Company's continuing successful efforts to increase production rates, the incoming order rate exceeds our capacity to rapidly fulfill these orders. Consequently, the Company has temporarily suspended the acceptance of new orders.
  • The Company expects to resume the normal acceptance of orders by the end of May 2012.

Who is ordering all of these and guns and why? I think Americans eyes are beginning to open and they are realizing that eventually the chickens are going to come home to roost for this country. When we have our Greek debt moment and can no longer borrow $1.5 trillion per year to fund all the government stupidity, along with all the gibs me dat, there are going to be quite a few people who are going to begin acting out in bad ways and this scares people. My only advice is stock up on ammo for all those guns because the government has a bad habit of suspending ammunition sales when the SHTF.