Independent Investor Wire
Oct 06, 2009
Investment Help: How to Invest in Oil & Gas Stocks – Part I
by Keith Schaefer
Investing in oil and gas stocks is actually quite simple, even if you don’t know anything about the energy industry. (My friends in Calgary would say I am living proof of that.)
From my experience in speaking with management teams and reading research reports, I’ve put together a basic information list for retail investors doing initial research into oil & gas companies. It’s not exhaustive, but the answers should provide the basic information to decide if you want to do more due diligence.
Either call management, or go to the company’s website and look at its corporate presentation. The Top 10 bits of information I want to find out initially is:
Without analyst coverage there is no institutional money flow in the stock. And without institutional support, your stock will need A LOT of drilling success to move up, and will likely always trade at a big discount to its peer group.
There are LOTS of other questions to ask. This is just Round 1. In my next column, I will outline my Round 2 of questions I pose to management.
A couple of those questions are a little more delicate; you can tell that when management tells you – oh, all that information is in the quarterly financial statements, go look it up – that they really don’t want you talking about it.
Asking the above questions has led Oil and Gas Investments’ $200,000 portfolio to a gain of +79% over the past six months. These criteria work and as a subscriber, you can see this first hand.
About Oil & Gas Investments Bulletin
Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets - and stocks - in a simple, easy to read manner. He uses research reports and trade magazines, interviews industry experts and executives to identify trends in the oil and gas industry - and writes about them in a public blog. He then finds investments that make money based on that information. Company information is shared only with Oil & Gas Investments subscribers in the Bulletin - they see what he’s buying, when he buys it, and why.
The Oil & Gas Investments Bulletin subscription service finds, researches and profiles growing oil and gas companies. The Oil and Gas Investments Bulletin is a completely independent service, written to build subscriber loyalty. Companies do not pay in any way to be profiled. For more information about the Bulletin or to subscribe, please visit: www.oilandgas-investments.com.
Legal Disclaimer: Under no circumstances should any Oil and Gas Investments Bulletin material be construed as an offering of securities or investment advice. Readers should consult with his/her professional investment advisor regarding investments in securities referred to herein. It is our opinion that junior public oil and gas companies should be evaluated as speculative investments. The companies on which we focus are typically smaller, early stage, oil and gas producers. Such companies by nature carry a high level of risk. Keith Schaefer is not a registered investment dealer or advisor. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer to buy or sell the securities mentioned, or the giving of investment advice. Oil and Gas Investments is a commercial enterprise whose revenue is solely derived from subscription fees. It has been designed to serve as a research portal for subscribers, who must rely on themselves or their investment advisors in determining the suitability of any investment decisions they wish to make. Keith Schaefer does not receive fees directly or indirectly in connection with any comments or opinions expressed in his reports. He bases his investment decisions based on his research, and will state in each instance the shares held by him in each company. The copyright in all material on this site is held or used by permission by us. The contents of this site are provided for informational purposes only and may not, in any form or by any means, be copied or reproduced, summarized, distributed, modified, transmitted, revised or commercially exploited without our prior written permission.
© 2009, Oil & Gas Investments Bulletin
Contact Us:
Email: nichola@oilandgas-investments.com
www.oilandgas-investments.com
Investing in oil and gas stocks is actually quite simple, even if you don’t know anything about the energy industry. (My friends in Calgary would say I am living proof of that.)
From my experience in speaking with management teams and reading research reports, I’ve put together a basic information list for retail investors doing initial research into oil & gas companies. It’s not exhaustive, but the answers should provide the basic information to decide if you want to do more due diligence.
Either call management, or go to the company’s website and look at its corporate presentation. The Top 10 bits of information I want to find out initially is:
1. How many barrels of oil per day (bopd, or “boe” for natural gas – barrels of oil equivalent) is the company producing, and how quickly have they grown production in each of the last 3 quarters.
2. How much of their production is oil and how much is natural gas (gas prices are very low right now and doesn’t produce much if any cash flow for companies)
3. How much net cash or net debt do they have? This industry uses a lot of debt, so if a company actually has net cash, they could grow more quickly because they have an entire untapped line of credit waiting to go drilling, and grow the business. And of course no debt means no debt payments and flexibility in doing business.
4. Where are the properties? Investors give North American assets a slight premium, unless the company is either growing very fast or has a management team that has built and sold an oil & gas company. Political risk shows up in the stock price.
5. How many wells will the company be drilling in the coming nine months? This will give you an idea of how fast they may grow. Companies usually say in their presentation how many wells they will drill property by property, but don’t often give an overall number in one slide. Odd, but true.
6. How much will all this drilling cost, and do they have the money or cash flow to do it? Most companies have a slide in their corporate presentation that shows their estimated cash flow for this year or next along with their estimated capex, or capital expenditure, which is their drilling budget. Or do they have to raise money in the market to do the drilling they want? (This is not good—when the market smells a financing coming, it drives the stock lower.)
7. Are these wells higher risk exploration wells or lower risk development stage wells? Development wells are just filling in an already discovered oil field. It means these wells will almost certainly repeat the success of the discovery well; the oil or gas formation is large and drilling success is “repeatable”. The market loves certainty, and most companies go out of their way to crow about their “undeveloped land acreage” and “X year drilling inventory”; the number of wells they could drill on this development stage land.1. As an example, the new, big shale formations in North America are very “repeatable”. The Bakken oil field in Saskatchewan is “repeatable” in large scale, i.e. it could support many wells.8. If the company is doing exploration drilling, what has been the company’s success rate in each of the last two years? HINT: if it’s not on the powerpoint, guess what… There is new technology called 3D seismic that allows companies to see the producing oil/gas formations much better – and now means a much higher success rate for exploration. Anything under 70% success in raw exploration I get nervous. (I don’t buy the longshots.)
9. What has management done in the past – have they ever built and sold a producing energy company?
10. How many research analysts follow the story? If the answer is 3 or less, why hasn’t management been able to secure more coverage–there is a reason. It might be because your target investment is small. It might be it is just not a compelling growth story as you think. Or it might be just because management doesn’t raise money much, i.e. rarely if ever issues equity. Analysts get partly compensated on the business they can bring into the firm. If they cover a producer who will never raise money, they’ll never get paid, so who cares?
Without analyst coverage there is no institutional money flow in the stock. And without institutional support, your stock will need A LOT of drilling success to move up, and will likely always trade at a big discount to its peer group.
There are LOTS of other questions to ask. This is just Round 1. In my next column, I will outline my Round 2 of questions I pose to management.
A couple of those questions are a little more delicate; you can tell that when management tells you – oh, all that information is in the quarterly financial statements, go look it up – that they really don’t want you talking about it.
Asking the above questions has led Oil and Gas Investments’ $200,000 portfolio to a gain of +79% over the past six months. These criteria work and as a subscriber, you can see this first hand.
About Oil & Gas Investments Bulletin
Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets - and stocks - in a simple, easy to read manner. He uses research reports and trade magazines, interviews industry experts and executives to identify trends in the oil and gas industry - and writes about them in a public blog. He then finds investments that make money based on that information. Company information is shared only with Oil & Gas Investments subscribers in the Bulletin - they see what he’s buying, when he buys it, and why.
The Oil & Gas Investments Bulletin subscription service finds, researches and profiles growing oil and gas companies. The Oil and Gas Investments Bulletin is a completely independent service, written to build subscriber loyalty. Companies do not pay in any way to be profiled. For more information about the Bulletin or to subscribe, please visit: www.oilandgas-investments.com.
Legal Disclaimer: Under no circumstances should any Oil and Gas Investments Bulletin material be construed as an offering of securities or investment advice. Readers should consult with his/her professional investment advisor regarding investments in securities referred to herein. It is our opinion that junior public oil and gas companies should be evaluated as speculative investments. The companies on which we focus are typically smaller, early stage, oil and gas producers. Such companies by nature carry a high level of risk. Keith Schaefer is not a registered investment dealer or advisor. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer to buy or sell the securities mentioned, or the giving of investment advice. Oil and Gas Investments is a commercial enterprise whose revenue is solely derived from subscription fees. It has been designed to serve as a research portal for subscribers, who must rely on themselves or their investment advisors in determining the suitability of any investment decisions they wish to make. Keith Schaefer does not receive fees directly or indirectly in connection with any comments or opinions expressed in his reports. He bases his investment decisions based on his research, and will state in each instance the shares held by him in each company. The copyright in all material on this site is held or used by permission by us. The contents of this site are provided for informational purposes only and may not, in any form or by any means, be copied or reproduced, summarized, distributed, modified, transmitted, revised or commercially exploited without our prior written permission.
© 2009, Oil & Gas Investments Bulletin
Contact Us:
Email: nichola@oilandgas-investments.com
www.oilandgas-investments.com
Oct 05, 2009
Investment Newsletters: Silver as Money? Give Me a Break!
By David Morgan
Tom Jeffries of HoweStreet.com Interviews David Morgan of Silver-Investor.com.
Tom Jeffries: David Morgan is editor and publisher of The Morgan Report. Full disclosure: it is my favorite publication. David is one of the leading experts on silver in the world. The Web site is silver-investor.com. You get all the details about The Morgan Report.
Mr. Jeffries: Everybody’s talking about gold’s place in the “new world order.” Woo! Let’s not get spooky, folks. How would you expect silver to act in the event of a world oligopoly, David?
David Morgan: I think that, as I wrote so many years ago in Silver Investing Rules, no one likes to be a prophet of doom, but silver is the money of last resort, and I still believe that. However, gold certainly has a higher monetary aspect to it as basically a store of wealth, a store of value, and a safe haven. Silver has those qualities because it’s an industrial metal as well.
But from a practical perspective, silver is the one that you’d be actually using in times of crisis. Not that you wouldn’t use gold, but if something happened and you needed to get a loaf of bread, a gallon of gas, pay rent, or keep your landlord off your back, and you had some silver coins, that would be a lot more advantageous to you than a gold bar, which would be pretty hard to divide up and pay your landlord or whatever.
So silver really has been money in more places for longer periods of time than gold has, and whenever I make that statement it seems to get some people upset, but it’s a fact, it can’t be disputed. Through all of recorded history it (silver) has far more functionality as money than gold does.
Mr. Jeffries: Okay. I’m playing devil’s advocate for a second here with you, David. I guess that begs the question, and maybe you can explain, what central banks and those wily governments out there are going to do to resist the allure of silver for the average investor? As a money alternative?
Mr. Morgan: Well, that’s a great question, Tom, and it’s a tough one. To really get an in-depth answer to that question you should go to our Web site, silver-investor.com, and go in the archives section and read everything Charles Savoie has written for the last decade.
Mr. Jeffries: Yes, okay; I have read his work he has provided a massive amount through the years.
Mr. Morgan: Readers get an eye-opener on how important silver is as money, what the central banks really think of it through history, and why they basically demonized and demonetized silver as their main concern so many years ago, hundreds of years ago, really. You’re looking back to, say, the Crime of 1873, 120-130 years or so ago.
And once that was accomplished, you went to the gold-only path. And then you had a monetary metal that was much easier to control because the banks had most of the gold anyway. So if the banking community and financiers got rid of silver, you didn’t have a problem with the people (or the peons and underlings, as the bankers view us), and you just had gold, and they owned it, so they could make the rules.
And as you know Tom, and very few do, The Wizard of Oz was basically a metaphor for going to the gold-only standard. There’s a gentleman, whose name I can’t recall, who wrote an article that’s on the Gold-Eagle Web site about how the gold-only standard eventually leads to the fiat system, but when you have bi-metalism, which is where you have both gold and silver circulating freely, not necessarily a fixed ratio by government but what the market could decide, you have a much freer and safer system.
You have a lot more stability in the system than you have on a gold-only standard, but very few people know that, very few people believe it, very few people study it. And if this is the government of the United States, supposedly of the people, for the people, and by the people, you should look at what the people use as money and why they use it.
Of course I take that perspective and because of that, I’m very, very biased toward silver being not only a monetary metal but also probably the most high-tech industrial metal required for today’s world.
Mr. Jeffries: I was shocked, and I don’t know why this was so obvious, standing right in front of my face, when I found out that Dorothy’s shoes were originally silver in The Wizard of Oz and then I realized what Oz is short for ounce . . . I don’t know where I was with that one! The Wizard of Oz, not time for that right now, but do some digging. Web of Debt, a book by Ellen Hodgson Brown, explains it very well.
David’s written about this, it’s just fascinating. Holy Williams Jennings Bryan, Batman! The old Latin phrase comes to mind, talking about these ETFs and banks and central banks and that stuff, Cui Bono. “Who benefits?” in Latin. So, is this Goldman Sachs or is this one of the big guys behind the curtain (as in The Wizard of Oz) playing these ETFs or what’s going on?
Mr. Morgan: It’s the banks. From my perspective, if you look at the Barclay’s Silver Trust, it’s in London. When Buffett bought 129.7 million ounces of fine silver off the COMEX, once he received the silver it ended up in London.
Then Buffett sells his silver and then the silver ETF arises in London, so now Barclay’s bank has some control of a great quantity of silver. Just look at the two best studies on the silver market, depending on which one you choose. I’m going to choose the CPM Group (even though I’m very close to the Silver Institute). In any event, you’re looking at maybe 500-600 million ounces of fine silver in 1,000-ounce bar form. So, the iShares has almost 300 million, which means they have three-fifths, or 60 percent, of the world’s silver supply sitting in their bank more or less. Which is a pretty healthy amount, and then if you subtract the COMEX out of that, they’ve got most of it. In fact, they do have most of it, not counting COMEX, obviously, but the point is that the banks now—or a bank, Barclay’s—has silver in their bank again, which is something that they haven’t had up until the creation of the ETF.
Mr. Jeffries: Tell me something about the Silver Summit in Spokane.
Mr. Morgan: I did a Webinar with Hugo Salinas Price in Mexico and he actually asked that I would be the interviewer, which I consider to be an honor. I met him in person many years ago.
Most people don’t know that Hugo Salinas Price has started a foundation (I don’t know if it’s technically a foundation, but a group) that is looking into using silver side-by-side with the Mexican peso, and this story has been out there for a very long time. It recently got shot down by, guess who, the central banks in Mexico. But the idea to put money into circulation just in one nation-state alone has huge significance, and as Hugo himself said (I’m paraphrasing), even if it doesn’t happen the idea of it happening has a lot of power, because people will realize honest money works!
In the United States, some people are two paychecks or three paychecks away from bankruptcy, thus gold is the last thing on their mind as far as what they can afford. But they certainly could afford some silver, so I think you’re going to see silver really, really take off once we get near the end of this great credit debacle that we’re now experiencing. Again, though, I want to caution everybody: I don’t see that happening in 2009. I’m looking for the final wrap-up in this thing to happen somewhere around the 2012 timeframe.
Mr. Jeffries: Just an amazing time we live in. By the way, I know David’s a very busy guy but he’s kind enough to say he will answer questions. If you’ve got a reasonable question send it along to info@howestreet.com, select David Morgan, and we’ll send it along to David.
If he has the time he’ll respond to it on his weekly podcast on HoweStreet.com. And if you’re wondering about the Silver Summit in Idaho, just Google it; you’ll see David is joined by a lot of top people, including the eminent Hugo Salinas Price.
Comments made on goldradio.fm are an expression of opinion only and should not be construed in any matter whatsoever as recommendations to buy or sell any financial instrument at any time. Available online at www.goldradio.fm, goldradio.fm is a production of Howe Street Media, Inc.
Sincerely,
David Morgan
Mr. Morgan has followed the silver market for more than 30 years. He wrote the book Get the Skinny on Silver Investing. Much of his Web site, Silver-Investor.com, is devoted to education about the precious metals; it is both a free site and does have a members-only section. Mr. Morgan has just written a free report titled, Silver Fundamentals, Fundamentally Flawed, which can be accessed here: Free Silver Report. To receive full access to The Morgan Report, click the hyperlink.
Subscribe To The Silver Investor Today
Disclaimer: Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Because individual investment objectives vary, this Summary should not be construed as advice to meet the particular needs of the reader. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice. Any action taken as a result of reading this independent market research is solely the responsibility of the reader. Stone Investment Group is not and does not profess to be a professional investment advisor, and strongly encourages all readers to consult with their own personal financial advisors, attorneys, and accountants before making any investment decision. Stone Investment Group and/or independent consultants or members of their families may have a position in the securities mentioned. Investing and speculation are inherently risky and should not be undertaken without professional advice. By your act of reading this independent market research letter, you fully and explicitly agree that Stone Investment Group will not be held liable or responsible for any decisions you make regarding any information discussed herein
Tom Jeffries of HoweStreet.com Interviews David Morgan of Silver-Investor.com.
Tom Jeffries: David Morgan is editor and publisher of The Morgan Report. Full disclosure: it is my favorite publication. David is one of the leading experts on silver in the world. The Web site is silver-investor.com. You get all the details about The Morgan Report.
Mr. Jeffries: Everybody’s talking about gold’s place in the “new world order.” Woo! Let’s not get spooky, folks. How would you expect silver to act in the event of a world oligopoly, David?
David Morgan: I think that, as I wrote so many years ago in Silver Investing Rules, no one likes to be a prophet of doom, but silver is the money of last resort, and I still believe that. However, gold certainly has a higher monetary aspect to it as basically a store of wealth, a store of value, and a safe haven. Silver has those qualities because it’s an industrial metal as well.
But from a practical perspective, silver is the one that you’d be actually using in times of crisis. Not that you wouldn’t use gold, but if something happened and you needed to get a loaf of bread, a gallon of gas, pay rent, or keep your landlord off your back, and you had some silver coins, that would be a lot more advantageous to you than a gold bar, which would be pretty hard to divide up and pay your landlord or whatever.
So silver really has been money in more places for longer periods of time than gold has, and whenever I make that statement it seems to get some people upset, but it’s a fact, it can’t be disputed. Through all of recorded history it (silver) has far more functionality as money than gold does.
Mr. Jeffries: Okay. I’m playing devil’s advocate for a second here with you, David. I guess that begs the question, and maybe you can explain, what central banks and those wily governments out there are going to do to resist the allure of silver for the average investor? As a money alternative?
Mr. Morgan: Well, that’s a great question, Tom, and it’s a tough one. To really get an in-depth answer to that question you should go to our Web site, silver-investor.com, and go in the archives section and read everything Charles Savoie has written for the last decade.
Mr. Jeffries: Yes, okay; I have read his work he has provided a massive amount through the years.
Mr. Morgan: Readers get an eye-opener on how important silver is as money, what the central banks really think of it through history, and why they basically demonized and demonetized silver as their main concern so many years ago, hundreds of years ago, really. You’re looking back to, say, the Crime of 1873, 120-130 years or so ago.
And once that was accomplished, you went to the gold-only path. And then you had a monetary metal that was much easier to control because the banks had most of the gold anyway. So if the banking community and financiers got rid of silver, you didn’t have a problem with the people (or the peons and underlings, as the bankers view us), and you just had gold, and they owned it, so they could make the rules.
And as you know Tom, and very few do, The Wizard of Oz was basically a metaphor for going to the gold-only standard. There’s a gentleman, whose name I can’t recall, who wrote an article that’s on the Gold-Eagle Web site about how the gold-only standard eventually leads to the fiat system, but when you have bi-metalism, which is where you have both gold and silver circulating freely, not necessarily a fixed ratio by government but what the market could decide, you have a much freer and safer system.
You have a lot more stability in the system than you have on a gold-only standard, but very few people know that, very few people believe it, very few people study it. And if this is the government of the United States, supposedly of the people, for the people, and by the people, you should look at what the people use as money and why they use it.
Of course I take that perspective and because of that, I’m very, very biased toward silver being not only a monetary metal but also probably the most high-tech industrial metal required for today’s world.
Mr. Jeffries: I was shocked, and I don’t know why this was so obvious, standing right in front of my face, when I found out that Dorothy’s shoes were originally silver in The Wizard of Oz and then I realized what Oz is short for ounce . . . I don’t know where I was with that one! The Wizard of Oz, not time for that right now, but do some digging. Web of Debt, a book by Ellen Hodgson Brown, explains it very well.
David’s written about this, it’s just fascinating. Holy Williams Jennings Bryan, Batman! The old Latin phrase comes to mind, talking about these ETFs and banks and central banks and that stuff, Cui Bono. “Who benefits?” in Latin. So, is this Goldman Sachs or is this one of the big guys behind the curtain (as in The Wizard of Oz) playing these ETFs or what’s going on?
Mr. Morgan: It’s the banks. From my perspective, if you look at the Barclay’s Silver Trust, it’s in London. When Buffett bought 129.7 million ounces of fine silver off the COMEX, once he received the silver it ended up in London.
Then Buffett sells his silver and then the silver ETF arises in London, so now Barclay’s bank has some control of a great quantity of silver. Just look at the two best studies on the silver market, depending on which one you choose. I’m going to choose the CPM Group (even though I’m very close to the Silver Institute). In any event, you’re looking at maybe 500-600 million ounces of fine silver in 1,000-ounce bar form. So, the iShares has almost 300 million, which means they have three-fifths, or 60 percent, of the world’s silver supply sitting in their bank more or less. Which is a pretty healthy amount, and then if you subtract the COMEX out of that, they’ve got most of it. In fact, they do have most of it, not counting COMEX, obviously, but the point is that the banks now—or a bank, Barclay’s—has silver in their bank again, which is something that they haven’t had up until the creation of the ETF.
Mr. Jeffries: Tell me something about the Silver Summit in Spokane.
Mr. Morgan: I did a Webinar with Hugo Salinas Price in Mexico and he actually asked that I would be the interviewer, which I consider to be an honor. I met him in person many years ago.
Most people don’t know that Hugo Salinas Price has started a foundation (I don’t know if it’s technically a foundation, but a group) that is looking into using silver side-by-side with the Mexican peso, and this story has been out there for a very long time. It recently got shot down by, guess who, the central banks in Mexico. But the idea to put money into circulation just in one nation-state alone has huge significance, and as Hugo himself said (I’m paraphrasing), even if it doesn’t happen the idea of it happening has a lot of power, because people will realize honest money works!
In the United States, some people are two paychecks or three paychecks away from bankruptcy, thus gold is the last thing on their mind as far as what they can afford. But they certainly could afford some silver, so I think you’re going to see silver really, really take off once we get near the end of this great credit debacle that we’re now experiencing. Again, though, I want to caution everybody: I don’t see that happening in 2009. I’m looking for the final wrap-up in this thing to happen somewhere around the 2012 timeframe.
Mr. Jeffries: Just an amazing time we live in. By the way, I know David’s a very busy guy but he’s kind enough to say he will answer questions. If you’ve got a reasonable question send it along to info@howestreet.com, select David Morgan, and we’ll send it along to David.
If he has the time he’ll respond to it on his weekly podcast on HoweStreet.com. And if you’re wondering about the Silver Summit in Idaho, just Google it; you’ll see David is joined by a lot of top people, including the eminent Hugo Salinas Price.
Comments made on goldradio.fm are an expression of opinion only and should not be construed in any matter whatsoever as recommendations to buy or sell any financial instrument at any time. Available online at www.goldradio.fm, goldradio.fm is a production of Howe Street Media, Inc.
Sincerely,
David Morgan
Mr. Morgan has followed the silver market for more than 30 years. He wrote the book Get the Skinny on Silver Investing. Much of his Web site, Silver-Investor.com, is devoted to education about the precious metals; it is both a free site and does have a members-only section. Mr. Morgan has just written a free report titled, Silver Fundamentals, Fundamentally Flawed, which can be accessed here: Free Silver Report. To receive full access to The Morgan Report, click the hyperlink.
Subscribe To The Silver Investor Today
Disclaimer: Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Because individual investment objectives vary, this Summary should not be construed as advice to meet the particular needs of the reader. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice. Any action taken as a result of reading this independent market research is solely the responsibility of the reader. Stone Investment Group is not and does not profess to be a professional investment advisor, and strongly encourages all readers to consult with their own personal financial advisors, attorneys, and accountants before making any investment decision. Stone Investment Group and/or independent consultants or members of their families may have a position in the securities mentioned. Investing and speculation are inherently risky and should not be undertaken without professional advice. By your act of reading this independent market research letter, you fully and explicitly agree that Stone Investment Group will not be held liable or responsible for any decisions you make regarding any information discussed herein
Oct 02, 2009
Investing in Lithium: Top Lithium Producer Draws Line in the Sand
By Andrew Mickey, Q1 Publishing
There’s nothing like a strong dose of excitement returning to stocks.
Over the past couple of months one of the most exciting sectors has been in the emerging lithium sector. Shares in small lithium companies like Western Lithium and Canada Lithium (just to name a couple) have been leading the way.
All of the excitement surrounding lithium has brought the world’s largest lithium producer, Sociedad Quimica y Minera de Chile S.A. (SQM), back into favor too.
As you might expect, SQM isn’t going to sit idly while new entrants crowd into the lithium market. SQM is taking action to shore up its leadership position in lithium.
SQM says it’s going to be cutting lithium prices:
Consistent with its business strategy of world leadership based on low costs and abundant high-quality natural resources, SQM has decided to implement a significant reduction of its lithium price levels with the purpose of accelerating demand recovery, creating incentives for research of new lithium uses, and contributing to the sustainable long-term development of the lithium market.
Consequently, SQM announced that prices for lithium carbonate and lithium hydroxide will be reduced by approximately 20% from current levels for the renewal of all its supply contracts.
The world’s largest lithium producer is cutting prices?
If you’ve been watching lithium stocks lately, you’d think a lithium supply shortage was imminent.
Well, this is where the lithium market is a bit different than the market for most other commodities. You see, the lithium market is still small. It’s not like copper or oil, it’s more like potash or a specialty chemical. It’s a market dominated by a few small producers.
That’s why SQM cutting prices is big news. This action, although under the guise of “accelerating a demand recovery” and finding “new lithium uses,” is actually a signal SQM intends to maintain its dominance. If that means sacrificing profits to do it, that means sacrificing short-term gains for long-term market share to do it.
More importantly, this is why we continue to cover lithium investing in the Prosperity Dispatch investment newsletter. The lithium boom is coming. When the largest lithium producer is cutting prices to maintain market share and stifle emerging competition, it clearly sees the value in ensuring it has a big piece of the lithium prize in the years ahead.
When a company is willing to go to great lengths (cutting lithium prices will not be popular in the near-term with SQM shareholders) it’s a clear tipping of the hand there is a potentially big opportunity here.
Oct 02, 2009
Investing in Gold: Gold Price and its fundamentals, and the future of Money
By Julian D.W. Phillips
www.GoldForecaster.com
This is a snippet from a recent issue of the Gold Forecaster with
Subscriber-only parts excluded.
The Gold Price….
The gold price is now holding just below $1,000 and consolidating. Why is it at a high point having fought to get there over the last 18 months or so? Since it first broke through the 30 year high of $850 it has held its ground. It has steadily built a base over $850 and is moving if it has not already moved to a clear Point of Resolution, where it will show itself as either having had its day or is at the beginning of a new day. Which way will it go? As many believe that it move the opposite way to the $, it is telling us that the $ is also at a Point of Resolution. The atmosphere surrounding the $ at the moment is telling us that it is about to descend possible to the lowest level ever seen against the €. The objections to the U.S. $’s behavior are not only coming from China but now from Europe. The U.S. keeps saying they have a ‘strong $ policy’, but few now believe this. Overall the ‘official consensus’ is that the $ should descend another 20+%, but this will hurt the recovery badly. Consequently, the gold price is waiting for action on this front. Will central banks try to ‘manage’ the $ exchange rate up or will they let it fall, or is that just too simple a pair of conclusions?
Central Bank Buyers and Sellers….
Gold since the dawn of man has been money, but in our lifetime [if you are younger than 40] gold has ceased to be money, but it has held an important place in the reserves of the developed nations, in particular. And now we are watching European signatories of the Central Bank Gold Agreement, which has bee on the go since the turn of the century, slowing their gold sales to barely a trickle. Why are they not selling more?
Yes, the I.M.F. has now agreed it will sell 403 tonnes and opened its way to sell either in the ‘open market’, which will affect the gold market, if only to do so slowly, or to sell direct to another buying central bank in large amounts at market related prices. If a major central bank like China or Russia buys direct, they will want the lot at a market related price, we would imagine. But don’t think for one minute that European central banks are making way for the I.M.F. in this new Agreement. Look at the Table of sales in this latest issue and you will see that in essence they have completed their sales!
So we must ask ourselves, why have central banks on balance become net buyers?
Again, the darkening of the monetary skies is telling us that they are regaining their respect for the shiny metal. This implies a dropping confidence in paper money.
Supply….
With the “accelerated supply” of gold, produced in the eighties and nineties of last century having eaten up most of the known, large gold deposits, it is increasingly difficult to source new and viable deposits. Yes, it is different in China, where the government is favoring gold production, and gold individual gold ownership [as a hedge against uncertain paper currency values] and is now beginning to issue the Yuan internationally, to assist in holding down its exchange rate.
The only source of quick gold supply comes from a rapidly rising gold price persuading gold holders to sell their gold [because they think the price has peaked]. This happened in India earlier this year where 900 tonnes of gold was sold as scrap gold. However, with India being a nation who sees gold as money and as security, they will sell because they think the gold price will fall only. Once it has formed a new ‘floor’, back in they go, as they have started to do now. So expect scrap sales to decline quickly around current gold prices. After all, to Indians, gold is the ultimate money! They will always continue to favor it over paper money, as financial security.
Demand….
Investment demand….
By this we refer to non-central bank demand. With the advent of the gold Exchange Traded Funds, institutions across the world, who had not previously been allowed to own gold [in the form of bullion and coins] were now able to directly impact the gold price by buying the shares of these funds. In turn, these funds went into the gold market and bought gold itself, with this money. We believe that up to 1,500 tonnes of gold is held in these funds, so far, and the demand has hardly been tapped yet. That is only in three years, showing how much even institutions want a safe-haven against the uncertainties building up in the future. Expect this demand to continue to burgeon!
Private demand….
Traditional bullion demand itself, is strong from China westwards to the U.K. Just look at the London Fixings each day and you will see the five Bullion Banks buying and selling twice a day and setting a fixed price for all transactions between themselves. This can involve from small to huge tonnages [this tonnage is not disclosed]. Central Banks, Bullion Banks and high wealth individuals buy and sell at these fixings through the ‘fixing’ process. The demand is a far more international and an overall gold market reflection than COMEX or the gold E.T.F.’s. With the gold market a 24 hour market, opening with Asian demand, prices quoted before London opens tends to reflect Asian demand, London reflects European demand and when the States opens, COMEX reflects U.S. demand.
This demand and investment demand have proved to be the most remarkable and heavy form of new and old demand over the last three years and looks set to continue to grow and perhaps substantially, from now on. It will want to see clear evidence of economic or currency breakdown, before it jumps rapidly though.
But why will Demand overshadow Supply?
Here we are at $1,000 and demand is still strong overall. What is this telling us?
• It tells us that a glance into the future of the global economy, of global currencies has and is still making major global, institutional central banking and high wealth individuals trepidatious.
• They look at the global currency world and see it heading into uncharted waters, where the U.S. $ may fall into the hole it dug itself into.
• They look at the recovery itself and see that little has been done to avert the causes of the ‘credit-crunch’ except to repair the damage it did.
• They see a major shift in economic power away from the States and Europe to the East. This upending of the present balance of economic power is bound to deeply disturb the financial world.
They see that a combination of all of this is a dubious place for the prudent investor! Prudence is found in a place where such risks do not rule. Alternative investments such as gold and silver have proven to be the place to be since the beginning of this century.
The Impact on the Gold Price?....
For Subscribers only!
Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.
www.GoldForecaster.com
This is a snippet from a recent issue of the Gold Forecaster with
Subscriber-only parts excluded.
The Gold Price….
The gold price is now holding just below $1,000 and consolidating. Why is it at a high point having fought to get there over the last 18 months or so? Since it first broke through the 30 year high of $850 it has held its ground. It has steadily built a base over $850 and is moving if it has not already moved to a clear Point of Resolution, where it will show itself as either having had its day or is at the beginning of a new day. Which way will it go? As many believe that it move the opposite way to the $, it is telling us that the $ is also at a Point of Resolution. The atmosphere surrounding the $ at the moment is telling us that it is about to descend possible to the lowest level ever seen against the €. The objections to the U.S. $’s behavior are not only coming from China but now from Europe. The U.S. keeps saying they have a ‘strong $ policy’, but few now believe this. Overall the ‘official consensus’ is that the $ should descend another 20+%, but this will hurt the recovery badly. Consequently, the gold price is waiting for action on this front. Will central banks try to ‘manage’ the $ exchange rate up or will they let it fall, or is that just too simple a pair of conclusions?
Central Bank Buyers and Sellers….
Gold since the dawn of man has been money, but in our lifetime [if you are younger than 40] gold has ceased to be money, but it has held an important place in the reserves of the developed nations, in particular. And now we are watching European signatories of the Central Bank Gold Agreement, which has bee on the go since the turn of the century, slowing their gold sales to barely a trickle. Why are they not selling more?
Yes, the I.M.F. has now agreed it will sell 403 tonnes and opened its way to sell either in the ‘open market’, which will affect the gold market, if only to do so slowly, or to sell direct to another buying central bank in large amounts at market related prices. If a major central bank like China or Russia buys direct, they will want the lot at a market related price, we would imagine. But don’t think for one minute that European central banks are making way for the I.M.F. in this new Agreement. Look at the Table of sales in this latest issue and you will see that in essence they have completed their sales!
So we must ask ourselves, why have central banks on balance become net buyers?
Again, the darkening of the monetary skies is telling us that they are regaining their respect for the shiny metal. This implies a dropping confidence in paper money.
Supply….
With the “accelerated supply” of gold, produced in the eighties and nineties of last century having eaten up most of the known, large gold deposits, it is increasingly difficult to source new and viable deposits. Yes, it is different in China, where the government is favoring gold production, and gold individual gold ownership [as a hedge against uncertain paper currency values] and is now beginning to issue the Yuan internationally, to assist in holding down its exchange rate.
The only source of quick gold supply comes from a rapidly rising gold price persuading gold holders to sell their gold [because they think the price has peaked]. This happened in India earlier this year where 900 tonnes of gold was sold as scrap gold. However, with India being a nation who sees gold as money and as security, they will sell because they think the gold price will fall only. Once it has formed a new ‘floor’, back in they go, as they have started to do now. So expect scrap sales to decline quickly around current gold prices. After all, to Indians, gold is the ultimate money! They will always continue to favor it over paper money, as financial security.
Demand….
Investment demand….
By this we refer to non-central bank demand. With the advent of the gold Exchange Traded Funds, institutions across the world, who had not previously been allowed to own gold [in the form of bullion and coins] were now able to directly impact the gold price by buying the shares of these funds. In turn, these funds went into the gold market and bought gold itself, with this money. We believe that up to 1,500 tonnes of gold is held in these funds, so far, and the demand has hardly been tapped yet. That is only in three years, showing how much even institutions want a safe-haven against the uncertainties building up in the future. Expect this demand to continue to burgeon!
Private demand….
Traditional bullion demand itself, is strong from China westwards to the U.K. Just look at the London Fixings each day and you will see the five Bullion Banks buying and selling twice a day and setting a fixed price for all transactions between themselves. This can involve from small to huge tonnages [this tonnage is not disclosed]. Central Banks, Bullion Banks and high wealth individuals buy and sell at these fixings through the ‘fixing’ process. The demand is a far more international and an overall gold market reflection than COMEX or the gold E.T.F.’s. With the gold market a 24 hour market, opening with Asian demand, prices quoted before London opens tends to reflect Asian demand, London reflects European demand and when the States opens, COMEX reflects U.S. demand.
This demand and investment demand have proved to be the most remarkable and heavy form of new and old demand over the last three years and looks set to continue to grow and perhaps substantially, from now on. It will want to see clear evidence of economic or currency breakdown, before it jumps rapidly though.
But why will Demand overshadow Supply?
Here we are at $1,000 and demand is still strong overall. What is this telling us?
• It tells us that a glance into the future of the global economy, of global currencies has and is still making major global, institutional central banking and high wealth individuals trepidatious.
• They look at the global currency world and see it heading into uncharted waters, where the U.S. $ may fall into the hole it dug itself into.
• They look at the recovery itself and see that little has been done to avert the causes of the ‘credit-crunch’ except to repair the damage it did.
• They see a major shift in economic power away from the States and Europe to the East. This upending of the present balance of economic power is bound to deeply disturb the financial world.
They see that a combination of all of this is a dubious place for the prudent investor! Prudence is found in a place where such risks do not rule. Alternative investments such as gold and silver have proven to be the place to be since the beginning of this century.
The Impact on the Gold Price?....
For Subscribers only!
Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.
Oct 01, 2009
Clean Energy Investing: Big Money Bets on Small Green Projects
By Andrew Mickey, Q1 Publishing
As we routinely say in the Prosperity Dispatch investment newsletter, the key to finding successful investments comes from finding opportunities where the reward far outweighs the risk.
The low risk/high reward investment opportunities aren’t always easy to find or readily available for most investors, but one group of investors who are always placing small bets in hopes of reaping big rewards is in venture capital.
Venture capital investing is high risk/high reward. It’s potentially more lucrative than any other type of investing. And, since it takes anywhere from five to 10 years for most investments to pay off, venture capital investors are true long-term thinkers.
That’s why it’s no surprise venture capital investors are betting big on the green energy/clean technology trend.
Reuters reports Clean technology top US venture investment:
Clean technology has for the first time become the top category in U.S. venture capital investment, eclipsing biotech and software, as private money follows the government's lead, the Cleantech group reported.
"Governments are having an effect -- emboldening private capital to get back in the game," said Dallas Kachan, managing director of Cleantech Group, a research and advisory firm which issued its third quarter report on Wednesday.
Solar was the leading category in $1.59 billion invested worldwide in 134 companies that make items such as electric cars, advanced batteries, green buildings, energy efficient building materials and renewable fuels and chemicals.
In the United States, clean tech won 27 percent of venture capital investment in the third quarter, ahead of biotechnology (24 percent), software (18 percent) and medical devices (17 percent).
Clean technology continues to attract more and more capital. And when you consider the length of time venture capital investors must assume will be between initial investment and the big payday (if any), there is a true long-term opportunity here.
As we featured the other day, the IPO of lithium-ion battery manufacturer A123 Systems (NASDAQ:AONE) is just a sign of things to come. There will be big opportunities in such clean technology investment areas as solar, wind, and geothermal energy.
Our investment research at Q1 Publishing points to investing in lithium-ion hybrid car batteries as being the biggest investment opportunity in the clean-tech space and we’ll continue to cover it in the months and years ahead.
