Monday, August 18, 2014

Palladium makes new high


Palladium futures climbed to a 13-year high on concern that global supplies will trail demand for the metal used in pollution-control devices in cars, exacerbating a deficit.


Production will trail demand this year by the most ever after the strike, according to London-based Johnson Matthey Plc, which makes a third of the world’s catalytic converters. This month, holdings in exchange-traded funds backed by the metal rose to an all-time high.

My favorite way to play this is via Sylvania Platinum, which operates a dump processing facility in South Africa, that has been immune from the recent labor issues. In addition the company has no mining risk as it just processes old waste dumps left over from previous mining. Palladium is in deficit with regard to supply and auto catalyst demand is robust.

Sunday, August 17, 2014

Uranium rises above $30lb


As Raymond James analyst David Sadowski states in a new Weekly Uranium Tracker, so far in August, trading volume is up 1.3 million pounds on continued interest from traders and utilities.

Part of the fuss has been brought on by Russian sanctions, which remain a catalyst for buyer interest. Indeed, as Sadowski highlights, sanctions are "contributing to the recent run-up in spot pricing, up US$1.69/lb in six trading days."

Also of note, is long-term volume, which is still at zero. However, "interest remains strong as evidenced by three utilities' request for a total of ~5.8 Mlbs."

The majority of mines cannot make a profit at these pries. We know that low prices are the cure for low prices because demand continues to grow and economics will not allow for new mines. The question is again timing which I cannot know. In the end every commodity goes through these price cycles and buying uranium at these prices will eventually lead to gains.

Wednesday, August 13, 2014

Undercover bull market in Mongolia

Recent overview of Mongolia stockmarket from BDSEC in Mongolia which is the largest brokerage in Mongolia. Regardless of all of the issues in Mongolia there has been a stealth bull market going on in Mongolia. This has not been reflected in the main MSE 20 average as it is populated with state owned enterprises which have not done well. However the economy has been growing albeit with inflation and a depreciating currency. Nimble companies are making money and this has been reflected in their stock prices. Regardless of what happens in the near term between the GOM and Rio Tinto regarding the Oyu Togoi expansion there are many other things happening there. I expect to see the Chinese President in Mongolia next week and Putin should be visiting in September. Expect to see a flurry of deals and agreements to coincide with both visits. Mongolia has issues but I believe it is slowly working out from under its recent negative perception.

Tuesday, August 12, 2014

Higher prices spur nickel mine restarts

So economics actually work?


Indonesia’s ban on nickel ore exports is resonating globally as prices climb to the highest since 2012, prompting companies from Avebury Nickel Mines Ltd. to Poseidon Nickel Ltd. to restart operations at idled mines.

Avebury, based in Perth, plans to reopen a deposit in Tasmania six years after it was mothballed. Poseidon is preparing to resume production at a mine in Western Australia, while Panoramic Resources Ltd. may restart mining at its Copernicus deposit in the same state. More producers globally may reactivate facilities as prices extend gains, according to OAO GMK Norilsk Nickel, the world’s largest supplier.

Nickel, used to make stainless steel, rallied as much as 56 percent this year to $21,625 a metric ton after Indonesia halted ore exports in January to compel investment in local processing plants. While the restarted mines such as Avebury’s will add to supplies, the additional production won’t be enough to prevent the global market from dropping into a deficit, with Goldman Sachs Group Inc. to BNP Paribas SA forecasting higher prices.

This is exactly how price signals are supposed to work. Thye price of a commodity goes well above the marginal cost and new and mothballed supply comes back online. This is one reason speculating in mining is not for the faint of heart. Anyways, the only ones truly losing out on this are the people in Indonesia. Their stupid government and its dumb policies mean less capital investment and less jobs. I am speculating on the nickel price via Sherritt Intl. which is in the process of bringing on a huge nickel project in Madagascar. They had an earnings report last week and the market did not like the news as the company broke even. The plan is to ramp up production at the nickel mine while optimizing the process to lower costs. If it works out earnings and cashflow will soar. As this is a speculation lets give it a couple of quarters to play out. Just because the nickel price is up 56% does not mean that Sherritt will make money. They have to actually perform and lots of things can go wrong in mining.

Sunday, August 10, 2014

Canaccord reports earnings

Canaccord Genuity (CF.T) reported earnings last week

  • Revenue of $245.6 million, an increase of 31% or $58.4 million from $187.2 million
  • Excluding significant items, expenses of $215.9 million, up 24% or $41.4 million from $174.5 million(1)
  • Expenses of $222.3 million, an increase of 25% or $44.2 million from $178.1 million
  • Excluding significant items, diluted earnings per common share (EPS) of $0.20 compared to diluted EPS of $0.09(1)
  • Excluding significant items, net income of $24.0 million compared to net income of $11.8 million(1)
  • Net income of $18.9 million compared to net income of $7.9 million
  • Diluted EPS of $0.15 compared to diluted EPS of $0.06

  • The company also said, during the conference call, that it is considering a special dividend. The company also continues to buy back shares. This one has had a great run and has pulled back recently. I will continue to hold as I expect more upside.

    Madalena Energy lays out development plan


    Madalena Energy (CVE:MVN) is in a much stronger position today than it was even just a few short months ago, according to chief executive Kevin Shaw, with the company amassing a large land position in a country with the fourth largest technically recoverable shale oil resource in the world, behind only Russia, the US and China.

    The company, following its acquisition of Gran Tierra's Argentinean assets in June, now has 14 concessions across Argentina over 1 million net acres of land, compared with 3 blocks over 132,000 acres previously. It also has a land base with more than 150 net sections in Western Canada, with a large inventory of horizontal development locations.

    Over the next 17 months, the company is planning to invest its cash flow and financial resources on a combination of lower risk, conventional development drilling and on unconventional shale and tight sand delineation in the Vaca Muerta and Lower Agrio shales of Argentina's well-known Nequen Basin. It will also continue to seek potential partners on its multiple blocks to deliver on its farm-out strategy.

    Madalena Energy's share price took a hit recently due to the recent "default" that Argentina experienced. It was not really a default it was a group of hedge funds that would not accept less than 100% of the value for Argentine bonds that they had bought in the past. A US court blocked Argentina from making a payment and Argentina was declared technically in default. Anyway the share price of Madalena got hit but I look at this as a buying opportunity. The upside here is massive and the company has a plan to develop, with its own cash flow, their huge holdings. A bluesky upside is that  a big oil company wanting exposure to the Vaca Muerta shale comes in and farms into Madalena's acreage. Nevertheless this continues to be a great speculation as this is a multi billion barrel potential play.

    A hedge fund has been critical of Madalena and their strategy of having both Canadian and Argentina assets and not focusing on one of the other.

    another New York based fund has sent a warning to Madalena Energy’s management this morning.
    In a powerful yet to the point press release this morning, Joshua Silverman of Iroquois Capital Management, LLC stated, “As a shareholder of Madalena we are very concerned with management’s failure to generate shareholder value. We expect to hear some concrete steps the Company is taking to better manage their assets for maximum value creation during their investor conference call tomorrow.”

    Robots to take peoples jobs?



    “There was obviously no clear consensus at all among the folks surveyed,” said Aaron Smith, a senior researcher at the Pew Research Center’s Internet Project and lead author of the report.

    Nearly all the experts said things like driverless cars, robotic doctors and nurses and intelligent digital agents would be a part of daily life by 2025.

    But they were evenly divided over whether this would be a boon or a curse for human beings.
    52 percent of respondents said that historically technology has ultimately created more jobs than it has displaced. They said people will find other forms of work that only human beings can perform; that the technological advances will give us all more time and energy to do more meaningful work.

    This will be interesting to watch as it develops. I do think that productivity will soar and the world's wealth will become greater. However I believe it will also become more concentrated. What will people with low skills, IQ, or no creativity do? We cannot all be part of the "creative class". I suspect we will see even more bifurcation of the haves and have nots. Living in democracies what will that mean? Will people vote to keep robots out of certain jobs? What if another country uses robots and we do not how will we compete? Historically technology creates more jobs than it destroys yet when you are the one being displaced that is small comfort. This is why I encourage people to acquire some wealth and invest smartly. Getting a piece of the wealth being created is going to work out a whole lot better than marching in the street demanding human rights over robot rights.

    Tuesday, August 5, 2014

    Greece upgraded by Moodys


    Moody's ratings agency late Friday upgraded Greece's government bond rating, predicting a gradual decline of its massive national debt.

    The agency is also citing a continued commitment by the bailed out country's conservative-led government to improve public finances.

    In Friday's announcement, the agency said it had raised the Greek rating by two notches from Caa3 to Caa1 — still below investment grade.

    When I wrote my original article about buying the Greek banks part of my thesis was that the news in Greece would go from bad to less bad. That is what we are seeing and it should continue. They are not out of the woods completely but all we need to see for the position to work out is continued positive change at the margin which should cause a revaluation of Greek banks upward.

    Monday, August 4, 2014

    Selling the stock of the Year Cub Energy (KUB.V)

    Stupid government strikes again. The Ukrainian government passed legislation last week to raise the royalty on natural gas produced in the country to 55% from the current 28%. This is beyond stupid and shows a lack of economic common sense. The country is on the verge of a natural gas crisis this winter because it has not paid its outstanding gas debts to Russia. Ukraine has an enormous endowment of natural gas. You would think they would go out of their way to incentivize the development of this resource by lowering taxes and royalty rates. Instead they raise them which lowers the incentive to take risk and will lead to less gas production. Notably Cub Energy in a press release said as much.

    Mikhail Afendikov, Chairman and CEO of Cub said: "We understand the economic difficulties that Ukraine is facing and, while we are disappointed with the temporary royalty increase, we will comply. However, given that this will reduce our netbacks and resulting cash flow for the next five months, we will be re-evaluating our work programs for the remainder of 2014 to preserve our capital options."

    This is too much for the stock to handle coupled with the continued fighting in the eastern part of Ukraine. Time to bail out with a loss and move on to other opportunities.

    Sunday, August 3, 2014

    Indian economy continues to expand


    India's merchandise exports expanded by more than 10% for the second month in a row in June, the latest sign that India's economy may be rebounding.

    June exports rose 10.2% from the year-earlier month, to $26.48 billion, after climbing 12.4% in May and 5.3% in April, the trade ministry said on Wednesday.

    Imports rose 8.3% to $38.24 billion, following an 11.4% decline in May.

    The trade deficit stood at $11.76 billion in June, compared with $11.23 billion in May and $11.28 billion in June 2013.

    "The whole gamut of data announced lately points to one thing, which is that an economic recovery is already under way and the pace will strengthen going forward," said Sujit Kumar, an economist at Union Bank of India. "What has mainly anchored India's exports is a recovery in India's main trading partner nations such as the U.S., some African and even South Asian economies." Data over the past week showed India's industrial output jumped to a 19-month high while consumer inflation dropped to its lowest level in more than two years.

    Hopefully the new government will use the momentum from the recent elections to put in place the necessary economic reforms to ensure the long term viability of India's economy. I am investing in India via the Matthews India Fund (MINDX).

    Matthews India Fund recent results and commentary on India economy and markets.