Monday, July 6, 2015

Fuel loading to begin at Japanese Reactor

Finally! Japan is commencing with fuel loading on the Sendai 1 reactor in anticipation of restart in a couple of months.

Nuclear fuel will be loaded at Sendai 1 tomorrow, marking a significant step on its road to becoming the first Japanese reactor to restart, later this year.
The two 890 MWe pressurized water reactors at Sendai were taken offline for periodic inspections in May and September 2011, respectively, and have remained so for almost four years while Japan has rebuilt its nuclear safety framework in response to the accident at Fukushima Daiichi.

This in itself will not make the uranium price go up but it is a change in sentiment and is the first step of returning to nuclear power in Japan. still long uranium through Uranium Participation Corp.

Sunday, July 5, 2015

California Almond crop down 4% y-o-y due to drought

This is good news for Select Harvests, our Australian almond producer. Link to USDA report.

Altius Minerals increases dividend

Link:

Altius Minerals Corporation is pleased to announce that its board of directors has declared a cash dividend on its common shares of three cents per common share to all shareholders of record at the close of business on July 6, 2015. The dividend is expected to be paid on or about July 20, 2015.
John Baker, Executive Chairman of Altius, commented, “Upon successful closing of our acquisition of Callinan Royalties Corporation immediately following our year end we have re-assessed our internal estimates of net debt to EBITDA and sustainable free cash flows and determined that an increase to our dividend from $0.08 to $0.12 per year is now appropriate. The decision to increase dividends by 50% has considered a number of factors including our expected royalty revenues, taxation levels, debt service requirements and G&A expenditures. It also recognizes that resource markets are cyclically depressed and that opportunities to develop future growth are accordingly strong. Our capital allocation strategy in the current market environment therefore seeks to strike an optimal balance between opportunistic growth funding, further net debt reduction and shareholder capital returns”.
This is great news because the company is continuing pay down debt and to buy additional royalties while increasing cash dividends and buying back shares. This is all happening in the midst of a big downturn in the resource markets. I imagine this company will fly once the bull market returns in commodities. Here is a link to my original article on Altius Minerals. 


Friday, June 26, 2015

I am buying housing stocks as a medium term trade


This is a chart of ITB the iShares Dow Jones US Home Construction ETF. The news in housing has been getting better with a couple of large home builders reporting some recent good news.

Lennar Homes

Stuart Miller, Chief Executive Officer of Lennar Corporation, said, "The homebuilding market continued its steady improvement throughout our second quarter. Driven by higher wages and employment, reasonable affordability levels, supply shortages and favorable monthly payment comparisons to rentals, the homebuilding market is well positioned for multi-year growth ahead."
Mr. Miller continued, "Our core homebuilding business had gross and operating margins of 23.8% and 13.8% in the second quarter, respectively, which exceeded our previously stated guidance. Our average sales price of homes delivered increased to $348,000, the highest in the Company's history, from $326,000 in the first quarter of 2015 and $322,000 in the second quarter of 2014. Our new home deliveries and new order sales dollar value increased 21% and 28% in the second quarter, respectively, compared to the same period last year. Our sales backlog dollar value increased 23% from the second quarter of last year to approximately $2.9 billion, keeping us well positioned going forward.

KB Homes

 Our strong net order performance during the spring selling season underscores the success of our community expansion initiative and the broad appeal of our products and distinctive home-buying experience, as well as healthy demand in our served markets, said Jeffrey Mezger, president and chief executive officer of KB Home. With the positive momentum we have generated across our business, we ended the second quarter with significantly higher backlog levels in each of our four regions relative to a year ago, providing excellent visibility on our deliveries and revenues for the remainder of the year. We are confident that we have the strategic drivers in place to produce measurable year-over-year earnings growth in the second half of 2015 as we realize higher revenues from our larger operational platform and anticipate generating further sequential margin improvement from our recently opened communities and additional scale as the year progresses. 

The overall news for the housing industry continues to improve.

Groundbreakings on new homes fell by a 11.1% in May but building permits hit a new eight-year high, the U.S. Commerce Department said Tuesday. The numbers are one positive sign that the inventory shortage holding back the housing recovery could ease.

I think that the start were down in May due to weather as the spring was very wet across a lot of the country. However permits and home builder confidence is up. I think most people have a negative bias towards housing as an after effect of the 2008 housing debacle. However, as we know things do not stay down or up forever. There has been too little house building over the last few years and the inventory of housing is insufficient for the new buyers that are emerging. I am not anticipating a huge pre-2008 boom but a change at the margin which should be sufficient to move housing stocks higher. I think this trade will move to the upside as the housing numbers surprise many economistsover the upcoming quarters.

Sunday, June 14, 2015

California's Farmers Suffer More Water Cuts

Link:

California farmers who’ve held rights to siphon water from two key rivers in the state’s Central Valley for more than 100 years have been ordered to cut back as one of the most severe droughts in state history intensifies.


About 100 senior water rights holders with claims dating back to 1903 will have to stop pumping from the San Joaquin and Sacramento watersheds and surrounding delta to ensure those with even older rights have enough, the State Water Resources Control Board said Friday in a news release.

This is terrible news for California farmers and workers whose jobs depend on agriculture. However the longer the drought persists the better it will be for Australian almond grower Select Harvests. 

Saturday, June 13, 2015

Bank Of Cyprus turns profit and continues to turn corner

Link:

Profit after tax attributable to the owners of the bank compares with a loss of 337 million euros in the last quarter of 2014.

BoC said it had reduced emergency liquidity assistance (ELA) in Q1 by 500 million euros to 6.9 billion euros at March 31 2015, with a further reduction to 6.4 billion euros as of May 29.


"Depending on market conditions and investor appetite, the bank will assess the possibility of raising wholesale funding, with the proceeds of such funding used to reduce ELA," CEO John Patrick Hourican said in a statement.

The financial condition of the bank continues to improve. Another catalyst for this speculative position is the continued improvement in the Cypriot economy which returned to growth in the last quarter. In addition, the recent changes in legislation will allow for the unclogging of non performing loans on the banks books. 

Hourican said the adoption by parliament of controversial foreclosure legislation and insolvency framework is a "significant step" in enabling the bank to tackle bad loans and improve asset quality.

I still think that Bank of Cyprus is an excellent speculation. Things are beginning to turn in the economy and at the bank itself. This stock is hated by most and yet it has the backing of well heeled knowledgeable turnaround experts like Wilbur Ross. I am adding to my position at these levels and based on this recent positive news. 

Sunday, June 7, 2015

How to make money off of California's drought


The image above is from the USDA website and shows the current drought conditions in California. you will note that the almost half the state is classified as being in the D4 range. D4 is classified as extreme drought conditions. The state, which is a historically dry place, is struggling under one of its periodic droughts.People are having to cut back water consumption by up to 25% and the drought is wrecking havoc on the states agricultural industry. 

California’s agricultural economy is contracting.

Facing another severe drought year in 2015, farmers are going to be taking more losses. According to a new study from the UC Davis Center for Watershed Sciences, this year California agriculture is estimated to use 2.5 million acre-feet less in water, employ 18,600 fewer people, and contribute $2.7 billion less to the state’s economy than it would in a normal water year. 

(skip)

Crop plantings may have to evolve if the drought continues, too.

It’s all the rage to claim that California farmers just need to stop growing water-guzzling almonds, but the global specificity of California’s soil, along with high commodity prices for certain crops, suggests these are decisions that need to be made with the assistance of economic and scientific data, not emotion.

The key word for me in the above snippet is "almonds". This interesting article from the NYT highlights just how much water goes into various agricultural products. 

Which consumes the most water?
A) a 10-minute shower.
B) a handful of 10 almonds.
C) a quarter pound hamburger patty.
D) a washing machine load.
The answer? By far, it’s the hamburger patty. The shower might use 25 gallons. The almonds take up almost a gallon each, or close to 10 gallons for the handful. The washing machine uses about 35 gallons per load. And that beef patty, around 450 gallons.

The article goes on about how unsustainable our current agricultural system is and how this is an opportunity to change the way we do things, at least until it rains again. Anyway, the point I am making is that one persons tragedy is another's opportunity. If one is looking at things on a global scale one would note that although the almond growing areas in California are under extreme pressure, with yields down and farmers actually taking out almond trees by the thousands of acres, the almond growing areas in Australia are thriving.

The company I am investing in is called Select Harvests and trades in Australia under the symbol (SHV) and in the US (SHVTF). The company is the largest vertically integrated nut grower in Australia. The company is a big exporter of almonds to the EU, Asia, and the Middle East. China and the rest of Asia has been steadily increasing its demand for almonds as per capita GDP continues to increase. 

So here is the investment thesis. California is the largest grower of almonds in the world. The state is in the fifth year of a drought. This is causing lower yields and will certainly not lead to further expansion of almond growing. In fact, farmers are beginning to rip out their water guzzling almond trees. As it takes seven years for a almond tree to fully mature this will lead to supply constraints for years even if the drought lifts.The agricultural sector in California is being used as a whipping boy and scapegoat for the failed water policies that go back decades. If the drought continues the farmers in California will come under even more intense pressure to curtail their activities. 

On the demand side the consumption of almonds is growing at 8% per year. Using the rule of 72 this means almond consumption will double in nine years if the rate of consumption growth stays the same. This will not be possible because of the fact that it takes years for the trees to fully mature. Therefore price will rise to ration demand. This is happening just as many of Select Harvests almond trees are reaching prime production age. So we have growing demand, no or low supply growth, higher then historical pricing, and a company that is positioned to take advantage of  the situation. 

Eventually the drought in California will end as these things cycle (see recent weather in Texas). The higher prices will draw in capital and the supply/demand situation in almonds will resolve. In the meantime this is an opportunity to take advantage of a situation that will last for several years. I am adding Select Harvests to the investment portfolio. 




Mongolian Tugrik has appreciated against US dollar for the past 28 days

The Mongolian currency, the Tugrik, has appreciated against the US dollar for the past 28 days. This appreciation in the currency is the direct result of the recent deal between Rio Tinto and GOM on the Oyu Tolgoi copper mine expansion. A currency can be looked at as the stock of a country and as the news in Mongolia gets better and foreign direct investment begins to increase people will have to purchase Tugriks in order to do business in Mongolia. This will lead to more appreciation of the Tugrik. This is good for any investors that hold assets in Mongolia denominated in Tugrik like real estate and stocks. We should continue to see appreciation of the Mongolian currency as the OT phase 2 ramps up. several years ago the MNT rate was less than 1300 MNT to 1 dollar. the current rate is 1877 MNT to 1 dollar.



Saturday, May 23, 2015

Mongolia is again open for business

Or so says the Prime Minister:

Rio Tinto has reached agreement with the government of Mongolia to press ahead with the $5bn (£3.2bn) expansion of the Oyu Tolgoi copper and gold mine.

“Mongolia is back to business. Oyu Tolgoi is a world-class copper-gold asset and its further development is of great economic significance for Mongolia," said Chimediin Saikhanbileg, the Mongolian prime minister.


Rio Tinto has already invested $6bn into the project but the agreement will allow work to begin on the main part of the mine’s development underground. This will entail excavating 200 kilometres of caverns under a vast area of Mongolia on the edge of the Gobi desert.

Regular readers will note that I have written extensively about Mongolia and the potential the country holds. In fact I traveled there myself to check things out and wrote about it on my blog. In summary the country has a population of around 3 million and a annual GDP of around $12 billion. By comparison the GDP of Fargo, ND is about the same size as the entire country of Mongolia. The country is sitting on around $2 trillion in identified mineral resources (there is quite a bit more but it will take time to identify them). The Oyu Tolgoi mine is a large open pit copper mine in the Gobi desert that cost around $5 billion to build. During the construction of the mine the Mongolian economy grew in the 12-17% range for a couple of years. It was deemed as the fastest growing economy in the world and it was nothing but blue skies as far as could be seen. 

The OT open pit mine has been up and running for close to two years and is profitable. However the real value in the mine is in the underground expansion that was to be undertaken by Rio Tinto. This expansion got derailed when the government went batshit crazy a couple of years ago and passed a bunch of nationalistic laws to block the the takeover of a coal mining company by the Chinese Aluminum Company. This coupled with some other poor decisions put the expansion on hiatus and foreign direct investment along with  interest in Mongolia died on the vine as investors moved onto Myanmar and other hot stories. 

Thankfully the government has seemingly learned its lesson as the currency depreciated significantly and the economy has slowed to a crawl. A new Prime Minister made it his mission to get the parties together and get the outstanding issues between the parties resolved. This has apparently now happened as both the GOM and Rio Tinto made announcements that a deal had been reached in the last week. 

I have written before that the disposition of the Oyu Tolgoi situation would be the litmus test for interest in Mongolia returning.I think that the corner has now been turned and it makes sense for prudent speculators to start looking for bargains in Mongolian real estate and stocks. I am still a big fan of Mongolia Growth Group which has continued to execute during the whole downturn and is now poised to reap the benefit of a return of cash to the Mongolia market. Here is an interview that was recently done with the CEO of Mongolia Growth Group, Harris Kupperman regarding the conditions in Mongolia and what the deal on OT will mean for Mongolia going forward. 

I have added to my positions in MGG and the stock has had a nice bounce the last week or so. It is trading well below net asset value and is a real bargain. I would encourage readers to take a look at the recent MGG investor presentation on the company website. 

This whole situation was another example of exercising  patience and knowing that eventually the GOM was going to realize that their prosperous future is tied to cooperating with foreigners who bring capital and expertise. I am sure there will be additional ups and downs as news plays out but I think the worst is over and we will see a gradual improvement in sentiment towards Mongolia. This is excellent time to buy low and catch the next wave of Mongolian development.