Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
MMG
The Perfect Investment for an Uncertain Economy?
November 23, 2007
We've previously written about Metalline Mining's (MMG) world class, low cost zinc project at Sierra Mojada and the fact that the similar Skorpion oxide zinc project was valued at more than Metalline's current market cap when it was bought out by Anglo American upon completion of their feasibility study in 1999. Now, even though the price of zinc has dropped in half over the last year, it's still about triple what it was when GTI (Green Team International) put Skorpion into production, and we believe it is near a bottom and should be strong for years to come: http://greatinvestments.blogspot.com/2007/11/why-zinc-has-underperformed-this-year.html .
When GTI completes the feasibility study for Metalline's zinc project next year, we believe the project should be valued much higher than Metalline's current market cap, even if zinc drops much more from here, as it's one of the few projects that can make significant profits at far lower zinc prices, and it could be the largest one in the world going to production in the next few years. Given GTI's success with the similar Skorpion mine, there's relatively very little execution risk.
Metalline's project has many advantages over the Skorpion project, which was the first of its kind, built in tough conditions with no infrastructure in the remote Namibian desert. By contrast, we've seen first hand the incredible amount of infrastructure already in place at Sierra Mojada, as we reported in our site visit report in May: http://greatinvestments.blogspot.com/2007/05/real-deal.html .
Unfortunately, since our visit, the price of zinc has dropped 44%. Junior zinc miners have been devastated, with many projects now unlikely to make it to production because of their small size and/or high costs. MMG has dropped 23% in that time, which is a significant drop, but much stronger performance than most zinc juniors. Because of their project progress (one of the few sizable zinc projects well into their feasibility study) and likely profitability at much lower zinc prices, MMG has been able to far outperform other zinc juniors as well as zinc itself, and we believe this relative strength bodes well for when zinc rebounds.
While Metalline has been known as a zinc junior, few investors realize that they were a silver junior before the positive Skorpion feasibility study made them shift their attention to their world class oxide zinc deposit. Considering their 45 former producing silver mines never even had a mill to concentrate the ore, and only direct shipped the very high grade silver, we believe Metalline has an enormous amount of silver at Sierra Mojada, probably more than enough to justify the current market cap without consideration of the zinc.
On Wednesday, Metalline announced that they intersected 95 meters of 166 grams/tonne silver in a new zone that hadn't previously been drilled (http://biz.yahoo.com/prnews/071121/law018.html?.v=101 ), and await assay results from a number of other drill holes. This silver exploration work is completely separate from the zinc project, and much exploration work was done in the late 1990's. They've built a huge database of silver results from that previous work, and plan to construct a resource model and put together silver block model estimates soon.
The previous drill results included some very impressive intercepts, including one hole which "intersected mineralization with grades averaging 11 kilograms over a thickness of 9 meters" (http://sec.edgar-online.com/2005/06/15/0001031093-05-000002/Section3.asp -- top of page 4). We've never seen any other silver miner hit anywhere near as rich an intercept over that thickness. We believe the database of previous drill results will indicate that Metalline's already found many millions of ounces of silver, and we eagerly await the initial grade and tonnage estimates from their exploration.
Perhaps the most impressive part of Wednesday's news was that Metalline will have their own crews of trained local staff working 2 shifts on 4 drills on their huge historic silver district plus the rest of their enormous, highly prospective property. They also will have their own assay lab to provide quick assays for timely feedback to direct the placement of new holes. With their extremely inexpensive Mexican labor costs compared to other miners who hire expensive contractors in much more expensive labor markets, Metalline will be able to very efficiently accomplish an immense amount of drilling in coming years. This efficient exploration work should enable Metalline to quickly grow into a sizable silver miner.
Being a silver explorer, Metalline provides a hedge for investors in case of extended economic unrest. In addition to being an industrial metal useful for many applications, silver is also a precious metal that is considered money. In fact, in many languages (e.g., most Romance languages, Chinese) the word for money is the same as the word for silver. Like gold, people buy silver to save, particularly in case paper money collapses in value. That gives it extra value in case of global economic disaster. In the recent economic uncertainty, silver has been breaking out to new highs along with gold. Because silver's considered a precious metal, silver miners receive a much higher valuation than base metal miners, even if they are nowhere near production. With their stock undervalued based on their premier zinc project alone, Metalline receives no recognition in the market for their silver as of yet. We believe that will change soon when Metalline constructs their resource model and releases large volumes of results from their aggressive silver exploration program.
With the current turmoil in the stock market amid fears of recession, some people fear a weak U.S. economy will result in a global recession, while others are confident that the global economy will continue to go strong led by developing nations such as China and India along with oil-producing nations. In such an environment, savvy investors look for investments that will do well in either scenario, such as base metal miners that can still make profits at rock bottom metal prices but have enormous volumes of base metals for huge upside leverage in a strong economy, or precious metal miners that will profit if the global economy hits hard times, sending gold and silver higher, or if economic strength continues to send inflation and precious metals higher. In Metalline Mining, investors get the best of both worlds, with one of the world's largest zinc projects, likely to be make it to profitable production at rock bottom zinc prices (as the Skorpion mine did a few years ago), as well as a huge amount of silver that they are aggressively and efficiently proving up.
http://www.greatinvestments.blogspot.com/
I hope you didnt buy from a naked shorter.I am not against shorters.I think they have their uses.But selling something you dont have.....seems like fraud to me.
The other possibility is that your broker has lent your shares to a shorter.
Geologist Roberto Fainstein, whose seismic imaging work at oil-field services company Schlumberger helped Brazil to discover its massive new reserves, says the subsalt find will "lead to a rush in this kind of drilling worldwide." Brazil's discovery may quicken subsalt drilling in the Gulf of Mexico by oil majors and Mexico's state-run oil giant Pemex. A salt layer offshore West African countries including Angola, Gabon, and Equatorial Guinea is "virtually identical to Brazil's," Fainstein says, "so companies will race to begin drilling it."
Avoiding the "Oil Curse"
Subsea salt layers are present in all three of the world's biggest offshore oil areas: the Gulf of Mexico, West Africa, and Brazil. So far, subsalt oil production has been executed only in the Gulf of Mexico, near the Texas and Louisiana coast where companies including BP, Shell, ExxonMobil, Chevron, and Anadarko Petroleum (APC) have all made significant discoveries.
Thanks.Prety dern interesting.
rom The Sydney Morning Herald, the town's major newspaper on gold.
Perfect storm for gold as mines left empty
THE era of "peak gold" has arrived.
Try as they might, miners cannot find enough ore at viable costs to replace their fast-depleting reserves, even if they dig kilometres into the the Earth.
"There's not much gold out there," said Gregory Wilkins, chief executive of the producer Barrick Gold. "Global mine supply is going to decrease at a much faster rate than people generally believe. Many of the new mines that people are anticipating will never come into production," he told the RBC Capital Markets gold conference in London.
"There is a great disparity between the money spent on exploration and success. It's hard to say where the price of gold is going, because we're in uncharted waters. I would say it could easily move to $US900 ($1008), $US1000, or beyond. It could happen very quickly. .
"We know from the US Academy of Sciences that some 26 per cent of all the copper and 19 per cent of all the zinc that ever existed in the Earth's crust has already been lost to mankind, mostly wasted in milling or smelting or buried in landfills."
Data has never been collected for gold, and the 5 billion ounces mined over history is still around. Roughly 1 billion ounces are in central bank vaults. But the same patterns of exhaustion are emerging.
South Africa's output is down to the lowest since 1932. Much of what remains elsewhere is locked up in no-go countries run by demagogues or serial expropriators.
"You don't put yourself in harm's way," Mr Wilkins said. "It's a non-starter to invest in a country that takes your mine away from you.
"The list of countries where we won't go is getting longer. There's Venezuela, and all the countries in Latin America that are influenced by [President Hugo] Chavez. In Ecuador they withdraw licences after they have been issued: you can't tolerate that kind of instability. Russia is another country where things are deteriorating."
The chief executive of Goldcorp, Kevin McArthur, said his group would not set foot outside North America. "We won't build a mine where we won't go on holiday. We're even tending to stay out of the US because that has some of the highest political risk in terms of mining investment."
The gripe is that revisions to the 1872 Mine Act will add royalty costs and allow regulators to shut down projects on a whim.
Mr McArthur said global output was on a relentless slide. "We'll see four-digit gold. It will have to reach $US2500 an ounce to equal the 1980 record in today's terms, so we have a long way to go."
Gold reached a 27-year high of $US846 an ounce early this month following rate cuts by the US Federal Reserve, although it has fallen back on profit taking.
Investors seem to be betting on a "Bernanke reflation", suspecting that the Fed will turn the liquidity tap back on to cushion the US property slump.
The chairman of RBC Capital Markets, Tony Fell, said the world money supply had been growing by 5 to 10 per cent while the stock of mined gold had been rising at 1.6 per cent, creating a mismatch that must be covered.
Mr Fell said the total debt burden in the US had exploded to 340 per cent of GDP, in stark contrast to the steady levels of about 150 per cent of the postwar era.
It almost insures further dollar debasement. "We're in the very early phases of a prolonged bull market," he said.
RBC argues that the global dollar system known as Bretton Woods II is "coming apart at the seams" as Asian, Middle Eastern, and Latin American states start to break their dollar links to avoid importing US inflation. The result is to resurrect gold, which is fast regaining its role as the world's benchmark currency.
It was the last currency bust-up - caused by the US attempt to fight the Vietnam War and fund the Great Society without adequate taxes - that lay behind the 1970s bull market in gold.
RBC said in a recent report: "The late 1960s saw first France and then Germany and Britain all start to swap their dollar reserves for gold. We may well be witnessing a similar situation today as price pressures build in the emerging world."
Anyone know if there is a ticker symbol for this company?
Israeli-Thai Company Uses Adult Stem Cells in Effort to Heal Failing Hearts
By LAURIE COPANS
Associated Press Writer
13 February 2006
JERUSALEM (AP) - After 61 years of pumping blood, Marie Carty's heart was failing her.
Months earlier she had given up her two-mile walk on the boardwalk of her New Jersey hometown along the Atlantic Ocean. She could barely make it from the parking lot to the view of the water.
Although Carty knew she needed a new heart, she was afraid hers wouldn't last during the long wait for a transplant.
Desperate for an alternative, Carty found the Israeli-Thai company Theravitae, which has begun performing an experimental procedure that multiplies stem cells taken from a patient's own blood and injects them into the ailing heart in hopes of strengthening it.
The procedure performed by Theravitae and a handful of other companies could offer new hope to hundreds of thousands of heart patients around the world.
The U.S. Food and Drug Administration has not yet approved the procedure for use in the United States, and though doctors hope it can be a substitute for heart transplants, the permanence of the repairs has yet to be ascertained.
"It's too early to know the long-term effects of these types of procedures," said Dr. Vincent Pompili, director of interventional cardiology at Case Western Reserve University in Ohio.
Several teams of doctors around the world -- including at least three in the United States -- say they are seeing promising results in similar trials using stem cells extracted from bone marrow.
Proponents of Theravitae's newer procedure say it is simpler and less painful to get stem cells from blood than extracting the cells from bone marrow.
The procedure involves no risk of rejection since the cells are the patient's own. It also does not use embryonic stem cells, an idea that has raised moral objections since they require the destruction of human embryos.
Many scientists believe stem cells could herald a new era of regenerative medicine, leading to cures for conditions from diabetes to Parkinson's disease.
After a two-week trip last fall to Thailand for the operation, Carty is once again walking two miles on the boardwalk in Little Silver, N.J. -- and her strengthened heart led doctors to remove her from the transplant list.
"The change is like night and day," said Carty, who works in property management. "I feel myself again, more energy, more stamina."
Carty is one of 70 people who have undergone Theravitae's procedure, said Valentin Fulga, chief executive of the company. All have shown improvement, he said.
The list also includes Hawaiian crooner Don Ho, who underwent the operation in early December in Thailand.
"I'm feeling much better and I'm so happy I came up here to do it," the 75-year-old entertainer said in a statement after the procedure.
Fulga said patients who get the procedure are generally heart transplant candidates or people who have undergone bypass surgery without positive results.
"We believe that these cells have the capacity of turning into blood vessels," Fulga said. "The treatment seems to be not only very safe, with no side effects, but also effective because they improve."
Fulga agrees, however, that with the procedure in trials for less than two years, there is still a lot to learn. For instance, he said, it's possible that over time the cells that repair the heart could lose their effectiveness.
Fulga said it also is not known exactly how the cells inserted into the heart improve the patient's condition. But it is believed they help reconstruct blood capillaries and vessels and the heart muscle itself, capitalizing on the body's natural healing processes, he said.
The treatment involves withdrawing blood from a patient and placing it in a centrifuge to separate out -- by weight and size -- a group of cells needed for the procedure. This batch of cells, called VesCell by the company, is composed of stem cells and other cells beneficial to the process.
Fulga and Thai entrepreneur Robert Clark founded Theravitae in 2003. Patients travel to Thailand for the extraction of the blood and wait less than a week while it is sent to Israel. There the stem cells are harvested and expanded and then shipped back to the Thai hospital where the operation to insert them is performed.
The total cost is about $35,000, including airfare and lodging, Fulga said.
Fulga said he expects to meet with FDA officials within six months and hopes to get approval to begin conducting trials in the United States.
Dr. Mark Zucker, director of heart failure and transplantation at Newark Beth Israel Medical Center in New Jersey, said therapy using adult stem cells is the way of the future. His center is considering working with Theravitae.
Zucker said that if doctors at Theravitae have discovered how to make stem cells heal heart tissue, this could be a real solution for tens of thousands of Americans, since only 2,300 hearts become available for transplant in the United States each year.
"I believe Theravitae is on the right track," Zucker said. "I think if the company has identified an efficient way to procure cells and expand them, the company's impact will be revolutionary."
The company presented its findings at a conference of the American Heart Association in Dallas in November. It has been chosen along with 35 other companies as a technology pioneer for 2006 by the World Economic Forum.
Pompili, of Case Western Reserve University, said he was working through a company called Arteriocyte on a similar procedure harvesting stem cells from bone marrow. He said his company and two other teams of doctors in the United States were conducting FDA trials using stem cell therapy to heal heart tissue.
GGC.V
Genco is pleased to announce it has received final title from the Mexican Secretaria De Economia for four additional mining concessions totalling 32,457 hectares in the Temascaltepec Silver Gold Mining District, Mexico. The mining concessions were staked to cover erosional windows of metasediments, some of which are known to contain historic mines, and strike extensions of known veins beneath the post mineralization basalt cover. This addition gives Genco control of more than 397 square kilometres encompassing the entire Temascaltepec District.
Genco is also please to announce that its First Phase 50,000 meter drilling program has been completed and a second 50,000 meter drilling program is underway. At present the program is focused on infill drilling and data acquisition in and around the Guitarra and San Rafael Mine areas. The resulting data will be incorporated into the feasibility study being conducted by Kappes Cassiday & Associates.
Genco currently has nine drill rigs on site and is sourcing additional drilling equipment. One drill has recently been dedicated to district wide exploration. It is currently drilling in the Real de Arriba area near the historic Rincon Mine in the southeast part of the Temascaltepec District. The Rincon Mine operated at a rate of 1500 tonnes per day during the first half of the 1900s.
Genco's President Gregory K. Liller stated: "I am pleased with the progress that has been made in the last year. Drilling on the Creston Deposit and the Santa Ana Vein continue to deliver positive results, in line with the initial expectations." (see press releases dated July 18th and August 20th, 2007, respectively) "As data is received from the exploration drilling being conducted in other parts of the district we hope to add more drill rigs in order to rapidly evaluate the possibilities for developing additional production centers within the Temascaltepec Mining District.
"Personnel recruitment has also been successful. We have assembled a team of experienced mining professionals at a time when such people are in short supply.
"The schedule set for the completion of the feasibility study is aggressive, but one that we believe is achievable. Genco is determined to add shareholder value through the timely development of the full potential of the Temascaltepec Silver Gold Mining District."
Next product for CSMG?
// 02.03.2007 // 16:46 //
Ukrainian Worked Out Elixir of Immortality
MIGnews.com.ua
Ukrainian scientist, 70-year-old medicine professor Gennadiy Apanasenko invented elixir of immortality. He together with group of scientists will test it.
“You will see, I will look as 35-year-old! – Gennadiy Apanasenko is sure. – Grey hair to disappear, my hair will become thick, my vision will become better, wrinkles will disappear. We will overcome death!”
Experiment will start in two weeks. 30 Ukrainian scientists will test elixir of eternal life which was invented by them. They will drink a few drops of substance every morning. Substance is a secret. Also they will use electron equipment.
“I just can say we understood what the alterations are in the human cells when it dies. Now we know how to avoid these alterations”, states professor Apanasenko. – We are able to influence on human development (ontogenesis). Now we can return any person to any age. You will choose the age”.
Scientists will tell about this theory in Kyiv at the Anti-Ageing Medicine congress on March, 15 – 17. After public promulgation project “Individual immortality” will start. The whole group of inventors will take part in it. They represent different departments – physiology, biochemistry, physics, electronics. They will carry out experiment on their organisms for a year. And everybody will see whether scientists will become younger or not. They have no doubts in success, Forum reports.
Good greif!This could mean that they are ....not.....dead.
According to Investec, if every current platinum project becomes a mine, production will triple in three years. That isn’t good news for platinum prices - and all other PGMs are likely to be affected too.
According to Investec, if every current platinum project becomes a mine, production will triple in three years. That isn’t good news for platinum prices - and all other PGMs are likely to be affected too.
Call the toxic finance company,Cornell.
If they reply I will fall off my stool.
Thanks for that.So they probably have to hold them for a year.Got them for 70cents and maybe sell for $7.Mr Cornell will be grining.
The unsung jewel in the mining investor's crown
By JAMIE FREED - SMH | Wednesday, 17 October 2007
Email a Friend | Printable View | Have Your Say
Related Links
• Subscribe to Archivestuff
• Have your say
Advertisement
Advertisement
It's the hot commodity of the moment. Xstrata recently entered the market, and BHP Billiton and the Chinese are looking for an entry point.
The metal is platinum, but it has yet to register on the radar screen of many Australian investors.
The lack of familiarity with the white metal is understandable, given that it has never been mined commercially in Australia.
The platinum price hit a record high of almost NZ$1800 an ounce last week, and demand is expected to be strong over the next few years.
Given that the names of locally listed companies do not roll off the tongue of the average Australian investor, let's take a look at the sector.
If you guessed jewellery was the metal's biggest use, you are probably not alone. In fact two- thirds of the world's platinum is sold to car makers for use in catalytic converters. Jewellery accounts for one-quarter of demand.
The world's platinum production – including so-called platinum group metals such as palladium and rhodium – is centred in Bushveld, South Africa, home to three-quarters of the world's output. Production is dominated by Anglo American.
The smelters and refineries are almost all controlled by Anglo Platinum, Impala Platinum and Lonmin, making it difficult for diversified majors such as BHP to enter the sector without making a sizeable acquisition and taking on the risk of operating very deep mines.
Given the region's geology, it is not surprising that many of the Australian listed platinum stocks have projects in South Africa.
Aquarius Platinum is perhaps Australia's biggest platinum success story. But it is worth noting that it took out dual listings in London and South Africa because of the lack of familiarity with its project in the local market.
Aquarius produced 530,000 ounces of platinum group metals last year. Goldman Sachs JBWere analyst Ian Preston recently noted that Aquarius was in a strong financial position, had volume growth and was unhedged.
But on the downside, Aquarius' interest in the Mimosa mine in Zimbabwe accounts for 26 per cent of his valuation and has the clearest potential for expansion. Given that the Zimbabwe Government is threatening to make all foreign miners give up 51 per cent of their interest in Zimbabwe's mines, there are quite a few uncertainties associated with the stock till the issue is settled. Mr Preston rates Aquarius as "hold".
He did not look at Zimplats, the Australian listed Zimbabwe platinum subsidiary of the South African major Impala Platinum, but it is fair to say there is a lot of uncertainty surrounding that stock too.
Zimplats appointed a local investment bank to advise it on financing options a few months back, but the situation in Zimbabwe made the exercise too difficult for now.
Returning to South Africa, the Australian listed Platinum Australia is definitely an up-and-comer on the Bushveld scene. It could receive the mining lease for its Smokey Hills project in the Bushveld any time now, after its directors spent last week in South Africa ironing out final terms with the government.
Like Aquarius, and the Xstrata takeover target Eland Platinum, Platinum Australia is one of a new breed of platinum companies.
They picked up ground that the majors were forced to give up, after the collapse of apartheid, under a new "use it or lose it" policy.
Platinum Australia completed a feasibility study on the NZ$51.5 million Smokey Hills project last year and has already ordered long- lead time items.
The company expects the mine to start producing its 100,000 ounces a year in the middle of next year. At spot prices, its capital costs would be repaid within about three months.
Platinum Australia managing director John Lewins said his company wanted to expand its resource base in the area through an acquisition or a joint-venture deal with other parties. His neighbours include Anglo Platinum and Impala, the two largest producers.
Beyond Smokey Hills, Platinum Australia is earning a 49 per cent share of the NZ$113 million Kalahari Platinum project, which is in South Africa but outside the Bushveld. The Kalplats project is undergoing a bankable feasibility study and could produce 300,000 ounces a year from an open pit.
Platinum mining has not yet occurred in Australia, but it is a distinct possibility in the future. Platinum Australia owns one of the most promising projects, the Panton find in Western Australia. Panton was uneconomic when the platinum price was lower a few years back, but could produce up to 40,000 ounces a year if the numbers now stack up.
Another Australian explorer is Niplats, which is hunting around the Kimberley in Western Australia. It owns ground with a geological intrusion that has the potential to contain platinum. It has yet to make any big strikes, but the area has the right signatures.
If Cornell have restricted shares,how do we find out when they become unrestricted?They have dumped on us before havent they?
China e-bikes silently drive lead demand
Reuters | Thursday, 11 October 2007
Email a Friend | Printable View | Have Your Say
Reuters
BIKE BOYS: Chinese commuters are increasingly shifting away from cars and scooters to electric bicycles.
Related Links
• Subscribe to Archivestuff
• Have your say
As the red light changes, Han Zhang turns the handlebar of his battery-driven bike, pushes off with his foot, and whirrs silently along a Beijing boulevard.
His yellow bike looks like something between a bicycle and a scooter, but to the lead industry, he's driving a car.
Every year, millions of Chinese are hitting the streets on e-bikes - battery-powered contraptions that are increasingly popular as soaring fuel prices make traditional motorbikes and scooters expensive to drive.
The bikes are getting bigger, faster and more glamorous - and the growing size of their batteries is soaking up increasing amounts of lead.
"Everyone looks at the e-bike as a replacement for a motorbike. But for the lead industry it's an astonishing change. In terms of lead demand, one e-bike is one car," said Mark Stevenson, technical manager for lead at Nyrstar in Australia.
"If someone says there is growth of a million bikes a year, the lead industry thinks 'who cares'. But if you say a growth of a million cars per year, that changes the whole picture."
Yet a 48-volt bike battery uses just under 10 kilograms of lead, similar to that used by a medium-sized car like a Toyota Camry. They last for about a year, compared with over three years for a typical car battery.
"There's a huge amount of lead being carried around on bikes in China," said Huw Roberts of CHR Metals Ltd. He estimates the bikes produced through the end of last year have absorbed about 400,000 tons of lead.
That new source of demand could help drive up lead prices, which hit a record high of $3,835 a ton on October 9.
Lead has been the star performer on the London Metal Exchange and is up by 130 per cent this year.
SILENT FORCE
China produced 19 million battery driven bikes in 2006, and that figure could rise by 30 per cent this year, said Zhang Changhai, lead analyst with metals consultancy Antaike in Beijing.
"The explosive growth is already over, and we expect new standards being developed for the larger bikes to slow growth in 2008," Zhang said.
The standards for newer, 48-volt bikes could be along the lines of those for the more common 36-volt bikes, limiting speed and size and setting guidelines for which companies can produce them to weed out cut throat competition.
Estimates for how many companies produce e-bikes vary from 100 to 300 firms, but all agree that their low design and start-up costs have driven margins to the bare minimum, eroding profits for more established firms like Shanghai Forever Co.
Meanwhile, 72-volt bikes that are as big and powerful as motorcycles are alarming city governments. They have been banned in the southern boom cities of Guangzhou, Shenzhen and Zhuhai.
"When you have these things whizzing along in the bike lanes at 60 kilometers an hour it's getting a little dangerous," Roberts said.
"They are known as the 'silent killer' because you can't hear them coming."
Other cities are trying to limit the bikes' speed and size, and may soon require licenses to use them.
Other innovations include bikes that use lithium-ion batteries which generally last longer and give more power for their weight.
With prices above 3,000 yuan ($400), they have found an export niche. But in the domestic market, they are unlikely to replace bikes using lead-acid batteries which cost between 1,000 yuan and 2,000 yuan.
At a bicycle shop in central Beijing, salesman Zhang Guangyi pointed to his best selling model, a long black bike with flames painted along its body. It only costs about 1 yuan to charge the bike enough for 240 kilometers of use, he noted.
"Who drives motorbikes anymore? Fuel is too expensive and these have no emissions so they are better for the environment - its popular to think about that these days."
ukon-Nevada Hopes to Fix Jerritt Canyon
By Jon A. Nones
24 Sep 2007 at 08:11 PM GMT-04:00
DENVER (ResourceInvestor.com) -- Shareholders of the newly formed combination of YGC Resources and Queenstake Resources received a nice up-tick today on drill results from the Mahala target in Nevada. Investors pushed shares up 7% in hopes that resources can be replenished at the ailing Jerritt Canyon property in Nevada.
Graham C. Dickson, President and CEO of Yukon-Nevada Gold Corp. [TSX:YNG], told listeners at the Denver Gold Forum that “everything at Jerritt Canyon can be fixed.”
In July 2003, Meridian Gold [NYSE:MDG; TSX:MNG] and AngloGold [NYSE:AU] sold their combined 100% interest in the Jerritt Canyon Joint Venture to Queenstake Resources Ltd. because the mine's high production costs no longer fit with Meridian's low-cost strategy.
Annual production from Jerritt Canyon has historically averaged between 300,000 and 350,000 ounces of gold, at historical cash costs of around $190 to $250 per ounce. Queenstake produced only 153,581 ounces last year at a cost of $533/oz. This year, Yukon-Nevada forecasts production of just 120,000 ounces from its Smith Mine and SSX Mine.
However, with a cash position of US$67 million and no debt, the company plans to turn Jerritt Canyon into a winner by increasing tonnage through the processing plant, reducing manpower, improving gold sales techniques and investing in mine development and exploration.
Dickson said the company has large untested targets: one such being Mahala, where exploration drills were mobilized in late July 2007. Today’s results highlight intersections of 12.72 g/t Au for 10.7 metres from 259.1 to 269.8 metres and 11.52 g/t Au for 18.3 metres from 237.8 to 256.1 metres.
On 18 January 2007, Queenstake first reported the new mineralized zone at Mahala with intercepts of 12.2 metres of 28 g/t Au in the Mahala Dike Trend in Zone 4 and 7.6 metres of 25 g/t Au in the Mahala extension in Zone 8.
Yukon-Nevada said follow up drilling will continue to explore this trend as drilling to date west of the Mahala resource is very widely spaced. The company also plans to advance the Starvation Mine in the south zone of Jerritt Canyon, scheduled for 2010 production.
The exploration budget for remainder of 2007 at Jerritt will be C$4 million, with C$12 million slated for 2008, according to Dickson. He noted that historic costs of finding gold in the region are $18/oz, which shows an impressive return with 8.5 million ounces of production since 1981.
Jerritt Canyon currently hosts 485,700 ounces of proven and probable gold reserves, along with 1.98 million ounces of measured and indicated resources plus 545,200 ounces inferred.
Queenstake and YGC Resources merged in May 2007, bringing YGC’s Yukon properties to the table. The Ketza River Mine is the most developed with past production of 103,000 ounces of gold from 1987 to 1990.
The short term goals are to have a pre-feasibility study completed; to make a positive mill decision; and to have a mine and mill in operation producing up to 140,000 ounces of gold per year by 2009.
The company invested C$7 million dollars in 2006 in an ongoing diamond drilling program and will focus on the highly potential Shamrock Zone and Silver Valley moving forward. Drill highlights at Ketza River include 20.5 metres of 42.4 g/t gold.
Yukon-Nevada announced on Tuesday results from its drilling program at the Hoodoo, Penguin, Lab and Nose Zones, which are all parts of the Ketza River Mine. The Hoodoo zone represents a new discovery, showing 16.30 metres of 5.97 g/t Au, which included 1.70 metres of 23.30 g/t.
Shares of Yukon-Nevada jumped 11 cents today to trade at C$1.65 on the Toronto Stock Exchange. The company has a market cap of about C$280 with 169.6 million shares outstanding. Management owns about 10%.
Oil Sand Opportunities
By Kathryn Jones
Friday, 28 September 2007
Established in December 2006, Patch International has quickly become the most aggressive emerging junior oil sands company in Alberta, Canada, it says, thanks to its asset base of 60 gross sections of land within the Athabasca oil sands near Fort McMurray, Alberta.
“A couple of years ago, I don’t think anyone would have acknowledged the term ‘junior oil sands company,’” COO and Vice President of Operations Jason Dagenais says. “The reason being is that oil sands are, candidly, a very expensive business with literally hundreds of millions of dollars in investments.
“But, in the last couple of years as technology and infrastructure has improved, we’ve seen a huge emergence of junior oil sands companies in Canada.”
Location has a lot to do with that, Dagenais adds, because the Athabasca oil sands are the second-largest oil resource in the world. “That represents 14 percent of recoverage of world oil reserves, which is about 175 billion barrels,” he calculates. “We see the oil sands of Alberta as a world-class, politically stable environment and an attractive environment to partake business in.
“The asset itself is a predictable resource base. Geologically, there is a lot lower risk in doing your explorations locally than other asset basses in the world. [Plus,] these resources have an exceptional reserve life index. Because we’re flanked to the U.S. border, which is one of the strongest consumers of oil, we have a strong and predictable market demand from the states.”
Projects in the Works
Patch currently has lease holdings in two areas of the Athabasca oil sands: Ells River (formerly referred to as Dover) and Muskwa. Dagenais says the company is very excited about the Ells River project and has 80 percent working interest in it. “We’ve got two discoveries with multiple potential to add,” he says.
“With these two discoveries, we can economically verify that our assets have the requirements to become a commercial steam assisted gravity drainage (SAGD) project. An expandable 10,000-barrel-a-day project is a very capital-intensive program to undertake. The assets must demonstrate both the quality and the quantity in order to bear the economic burden to bring the resources to production. We have an independent third-party engineer who has confirmed that it is economically viable.”
Patch’s Muskwa asset includes 10 sections with an average 95 percent working interest. “We are intrigued with the Muskwa land because it may have cold flow potential,” Dagenais asserts. “Although it is considered an oil sands asset, we might be able to produce it without thermal recovery.
“This is substantial because it translates to less operating costs and less capital requirements, allowing producers to accelerate development time dramatically.
“There is no engineering value applied to it so far, so this winter we’ll be conducting some in-flow tests to determine its flow ability, as well as the oil viscosity test required to ascertain whether these resources will cold flow or flow on its own without thermal enhancement. Once we see positive results, we will proceed aggressively to get production started as early as 2008.”
Who Will Win?
“It’s important to note that when you’re looking at regulatory approval, we’ve established ourselves ahead of the other junior oil sands companies because we have already demonstrated in nine months that we’re ahead of the competition by getting production on stream in one to two years,” Dagenais asserts. “With our Ells River project, we have an aggressive plan to be on production as early as 2010.”
In Canada, the bulk of the oil sands are referred to as crown leases. The government provides 15-year leases that companies competitively bid on. “These leases have been taken up for the most part,” Dagenais says. “With the closing of the market, pretty much all the oil sands will be taken up by the fall of this year. What we’re starting to see now is the setting stage of the true development of oil sands.”
The future is not without questions, however, such as “Who’s going to be the one to build, explore, exploit and add value? Who are the ones who are going to merge with another company?” he says.
That said, “We are very excited to be part of this [industry], and we look forward to participating in that arena,” he adds.
Looks like the new gas well did diddly for TYEG>eom
If I come over there can you do me a cheap nose job?
I dont know about Mr Marshall.Seems to me,this company went down the tubes when they took toxic finance.
If they call you back I will fall off my stool.
we look good...our bullish harami was confirmed yesterday..a nice jump looks to be in order.
i posted this on the AOS board yesterday...i like the way patch stacks up...if anyone has anything else to add..feel free.
Shares (fully diluted, mil) / Market Capitalization (mil)
STP 75.4 / 181
NPE 46.7 / 80
AOS 58 / 68
PTCH 48 / 49
STP has the most land (111000acres) but the drilling has been spotty (16wells) and under canadian standards has 198mmbbls poss&probable resources...best estimate recoverable is 670mmbbls...it has potential but sp still has room to drop before drilling season. They've got 8mil in working capital and a big season of drilling ahead of them.
Npe has 86000net and 9wells...basically virgin...they're making noise about having a small-scale operation (400/day?)in 2009 but peace river isn't really in-situ heartland and now the natives are restless (Cree) with Shell in the area. Npe has 1-1.6 billion discovered resource, but again, this is only a step up from in-place volumes. They really shouldn't be worth much more than the purchase price of their land..roughly 40-60mil i think. I'm not sure of their working capital.
AOS has around 68000net acres, but again, virgin. In place volumes of 1.4-2.5 billion bbls. Looks like they've got an aggressive drilling season this winter and it will be interesting to see what they can come up with. Working capital of 14.5million.
Ptch has 3 potential areas (20000net) situated in the Ells area (north, central, south) plus a possible cold flow in Muskwa. Els north has been the focus of their drilling (15holes), central has 4holes and south is virgin. They've got a pool in the works (i'm assuming SE corner of north) and 2 more promising pools. The land is 50m gross pay with net pay saturation of 65-90%. SAGD application in the works for a 10000/day and management believes a 40000/day could be supported...we'll see....as of now...P10 of 203mmbbls contingent resources with 1.4billion in place volumes (management estimate). Looks like a nice compact site. Patch got the crap kicked out of it from firebag (region which was scrapped due to poor conditions) and consequently a less than expected resource count. Their inablity to complete most things on time doesn't help either...but i like the pools and the surrounding infrastructure so i'm sticking with it.
Well that should pretty well finish them off.IMO they havent got half a mil in anyones money.
About time we had some good news on this one.
6 to 23 grams per ton!Thats pretty good isnt it?
Good grades at Jerrit too.
Oil will hit $100 but probably not in 2007: Pickens
Wednesday September 19, 3:52 pm ET
By Matthew Robinson
NEW YORK (Reuters) - Oil will continue to trend higher after hitting fresh highs over $82 a barrel but is unlikely to puncture the $100 level this year, Texas oilman and investor T. Boone Pickens said on Wednesday.
ADVERTISEMENT
"You'll hit $100 -- I don't think you'll hit $100 this year unless you have some kind of geopolitical event that causes that to happen, but you're going to get to $100 at some point," Pickens told Reuters in New York.
Concerns that supplies will struggle to keep up with demand as the Northern Hemisphere gears up for winter pushed U.S. crude oil futures to a record $82.51 a barrel on Wednesday before they settled at $81.93, prompting forecasts prices could rise to $100.
"The trend is up, and if your supplies are 85 million barrels per day (bpd) globally, and you look at what demand is predicted to be for the fourth quarter, it is 88 million bpd," Pickens said.
"It means probably demand is greater than supply and the price goes up further."
Pickens said that while oil will eventually reach triple-digit levels, it was unlikely to spike to $100 this year unless an unforeseen event upsets fundamentals.
Pickens, who heads the BP Capital hedge fund, which was valued at $4 billion earlier this year, said prices could be pressured if demand shows signs of wavering.
"We haven't been at this level, so I don't have a feel for when we start killing demand with price," he said, adding oil could fall back to $78 a barrel before rising further.
In April when prices were around $65 a barrel, the legendary oilman forecast oil prices could tip $80 in late 2007 due to supply constraints.
A small zoo in Oklahoma acquired a very rare species of gorilla.
Within a few weeks the gorilla, a female, became very difficult to handle.
Upon examination, the veterinarian determined the problem. The gorilla
was in heat and to make matters worse, there was no male gorilla available.
Thinking about their problem, the Zoo Keeper thought of Bobby Lee Walton,
a redneck part-time worker at the zoo. Bobby Lee, like most rednecks,
had little sense but possessed ample ability to satisfy a female of any species.
The Zoo Keeper thought they might have a solution. Bobby Lee was approached with a proposition. Would he be willing to mate with the gorilla for $500.00?
Bo by Lee showed some interest but said he would have to think the matter
over carefully. The following day, he announced that he would accept their
offer but only under four conditions:
>
>
>
> 1. "First", Bobby Lee said, "I ain't gonna kiss her on the lips."
> The Keeper quickly agreed to this condition.
>
> 2. "Second", he said, "You can't never tell no one about this."
> The Keeper again readily agreed to this condition.
>
> 3. "Third," Bobby Lee said, "I want all the chil'drun raised as Baptist."
> After a little chuckle, once again it was agreed.
>
> 4. "And last of all", Bobby Lee stated,
> "You gotta give me another week to come up with the $500.00"
Gartman On Commodities
Oil hit a record high on Wednesday trading over $80 and the dollar hit record lows versus the euro. Also, wheat hit a record high and gold continued to trend higher trading well over $700. What is the trade now in the hot commodities sectors? Dennis Gartman, author of The Gartman Letter joined the crew to discuss his thoughts on the recent action in commodities. Gartman says that global demand for oil continues to push the commodity higher and he feels the trend will continue up. Gartman says he remains long oil and specifically long Athabasca Minerals Inc. (ABM) and Suncor Energy Inc. (SU). Moving on to the dollar, Gartman thinks the poor price action in the greenback is saying that the Fed is going to cut rates. He feels the dollar will continue to be weak in an environment where many Persian Gulf states say they want to price oil in other currencies. With this in mind, Gartman remains bullish on gold and he thinks anyone short gold is going to get hurt
Gartman writes
It is clearly gold, however, that has the world's attention,
and as long standing bulls of gold, we are relieved to see
it finally break out to the upside. Since the "legacy"
central banks of Europe seem unwilling in the past several
weeks to aggressively sell the gold from their reserves
that they can under the soon-to-be-expired Washington
Agreement there has been little pressure to stem the
bullish rush to the upside.
What was the catalyst to take gold up so dramatically
yesterday? Unlike others who wish to "blame" gold's
strength on the Fed for being too accommodative, or upon
a flight to quality, we shall blame it instead upon news that
China is selling its holdings of US Treasury securities and
is moving rather more rapidly than expected to diversify its
reserve positions. Data from the New York Federal
Reserve shows that foreign central banks cut their
holdings of US Treasuries by $48 billion since late July,
with $32 billion having gone away in the past two weeks.
We cannot know for certain if this was the Chinese, but
they've hinted strongly in recent weeks of their wish to
diversify their holdings. Further, China is clearly angry with
the likes of Senators Schumer and Graham, and with the
likes of Pat Buchanan and others who've been pushing for
Washington to become "tougher" with China on trade.
Beijing has said that it may have no choice but to retaliate,
and moving out of US dollar denominated treasuries and
into other "reservable" assets would be a very effective
way to accomplish that task.
We note then that gold has broken out to the upside not
only in US dollar terms, but in EUR terms, and in Aussie
dollar terms, and in terms of the Canadian dollar, and the
British pound sterling... and we could go on, but our point
is made. This is a very real bull market in gold's favour;
weakness is to be bought rather than strength sold.
Yep,pretty durn interesting.
From the Gartman letter:
Finally, and obviously quite bearish of the US dollar, we
note that Nippon Oil, Japan’s largest refiner, agreed to
buy oil from Iran and to pay Iran in Yen for crude loaded
this month... not dollars, yen! Tehran has been hinting
that it might soon chose to bill its oil clients in currencies
other than the dollar. Nippon Oil is the first large customer
to agree to do so. We note that Nippon Oil buys
approximately 25% of total Japanese oil imports from
Iran.
We note two things of interest in this regard then. Firstly,
we note that one or two analysts who noted this
transaction said that Nippon Oil had "acquiesced" to this
new Yen pricing. We suspect that Nippon Oil was more
than happy to be billed in Yen rather than US dollars, for
certainly it makes accounting far simpler. Secondly, we
were rather surprised how little notice this was given by
the forex market yesterday. We think this is
"Watershed"-like in its importance.
*** Ag/Au/Cu/Zn/Pb related post (ECU.TO ~ ECUXF) ***
The following ECU related comments were taken from yezzer's 'edition' of GATA Bill Murphy's 'LeMetropole Cafe' market letter.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Murphy comment:
By far my largest gold/silver share position is mega GATA supporter ECU Silver. That, and that so many Café members own it, is the reason for more extensive coverage than is normally given. So the following two coverages are only for those interested…
Hi Bill
ECU came out with another stellar press release yesterday after the close to announce another material discovery. Since July 18th, the company has made 3 new discoveries at the Chicago, Terneras and Roca Negra mines.
What I am most impressed with, is not only with the significant grades and extensions of these new findings, but the fact they are completely new discoveries in addition to the companies "flag ship" mine, the Santa Juana. The reason I point that out is these new vein structures are at such a close proximity to the Santa Juana mine, thus, once the bigger mill is built, feeding the mill will not only be easier but also less expensive in terms of transportation.
By using the vein dimensions and grades given in the press releases for Chicago, Terneras and Roca Negra, I have calculated that the company has just added approximately another 4.26 million tonnes of rich ore (approx 60-65 million ounces of silver equivalent not including the base metals) in total to its inventory.
I have a model that contains about 14 other silver companies that are comparable to ECU to obtain a reasonable sense on how the mkt is valuing the company. Simply stated, given current mkt values, the average price for "in ground silver’ for these 14 companies is about $2.55 USD$/ounce (that price was closer $3.50 a few weeks back before silver was mauled). If one is to apply US$2.55/ounce for valuing in ground silver, ECU over the last 8 weeks has added anywhere between USD$153 million to USD$165 million (60 mill/ounces *$2.55/ounce or 65*2.55/) worth of value to its inventory. That is impressive!!!
But given the brutal carnage we witnessed in August across the markets, the company lost a significant chunk of its mkt cap despite these great results. Thankfully, we have had a nice rally over the last few days. But with the strong belief that Gold and Silver will eventually breakout from their long consolidations, ECU is poised to reap the benefits when this long awaited event finally happens as these discoveries are only the tip of the iceberg in terms of the potential targets ECU has still to explore at depth, such as the skarns and massive sulfides.
Sami
Hello Bill!
It sure is nice to be sending a note to you on a day when ECU is up sharply, since we have not had too many days where our confidence has been rewarded in the market lately. I just wanted to touch base with a few comments regarding the latest NRs from the company. After the close yesterday ECU announced a new discovery zone at the Roca Negra Vein.
Earlier in the week we were told of the discovery of a vein extension of the Teneras Vein. These are significant additions to the mine because all of the mines that ECU has established production at the present time were once in operation by historic producers, yet each of these new zones represent vein systems that are almost untouched from past mining activity. The mineralization has been encountered at the higher elevations with extremely high grade ore reported, and they represent large additions to the mineral inventory at Velardena.
Add in the discovery zone reported earlier in the summer from the Chicago Property, and the San Diego JV Project, and it is clear that ECU is adding silver ounces at an impressive rate.
Keep in mind that all of the discoveries at Velardena have similar traits in that they are narrow vein, high grade deposits near surface, and they all extend with remarkable continuity to depths of more than 600m. So these new veins which have been outlined from surface will amount to the addition of large resources. But what has me even more excited is that we know as exploration has continued to depth, the veins have tended to expand into wider intervals, and have converged into larger zones of mineralization. The mineralized corridor of stockwork ore, and the large intervals of skarn are just two examples of what has been outlined to depth.
As ECU continues to outline entirely new deposit areas at the mine, and definition work will follow that can be used to increase the compliant resources of the project, it is only a matter of time until the market acknowledges the magnitude of the discovery and bids in a higher market value for the company. As a long-suffering ECU shareholder, I can only say that once the stock runs past the $5 mark, it will not be that people will feel like they did not have the chance to load up cheaply during this extended consolidation period. The company has presented notice of one new discovery area after another throughout the last 15 months, and the stock is still cheaper now that it was when there was far less on the table in terms of asset value. The story for the company has never been better, and today we finally got some form of confirmation in a higher share price, but I do think we have a lot more to look forward to in the months ahead.
cheers!
Mexico Mike
Comparison to NPE (taken from their presentation)
Market Cap of NPE is 107mil CAD
Market Cap of PTCH is 69mil CAD
RESULTS TO DATE
• Nine wells were drilled and cored during NPE’s winter 2006/7
drilling program
• Internal resource characterization study completed
• Block B (South) identifi ed as area of greatest prospectivity
• 28,800 acres
• Estimated discovered resource (1)(2) of 1.0 to 1.6 billion barrels in place
• Reservoir characteristics:
• Bluesky formation
• Reservoir depth relatively shallow at 400 metres
• 8 to 16 metres bitumen thickness
• Oil gravity averages 9.8º API
• Porosity averages 31%
• Oil saturation averages 60%
• Marine depositional environment
A Wall Street Trader Draws Some Subprime Lessons: Michael Lewis is one of our best financial writers. Here's his latest piece.
Sept. 5 (Bloomberg) -- So right after the Bear Stearns funds blew up, I had a thought: This is what happens when you lend money to poor people.
Don't get me wrong: I have nothing personally against the poor. To my knowledge, I have nothing personally to do with the poor at all. It's not personal when a guy cuts your grass: that's business. He does what you say, you pay him. But you don't pay him in advance: That would be finance. And finance is one thing you should never engage in with the poor. (By poor, I mean anyone who the SEC wouldn't allow to invest in my hedge fund.)
That's the biggest lesson I've learned from the subprime crisis. Along the way, as these people have torpedoed my portfolio, I had some other thoughts about the poor. I'll share them with you.
1) They're masters of public relations.
I had no idea how my open-handedness could be made to look, after the fact. At the time I bought the subprime portfolio I thought: This is sort of like my way of giving something back. I didn't expect a profile in Philanthropy Today or anything like that. I mean, I bought at a discount. But I thought people would admire the Wall Street big shot who found a way to help the little guy. Sort of like a money doctor helping a sick person. Then the little guy wheels around and gives me this financial enema. And I'm the one who gets crap in the papers! Everyone feels sorry for the poor, and no one feels sorry for me. Even though it's my money! No good deed goes unpunished.
2) Poor people don't respect other people's money in the way money deserves to be respected.
Call me a romantic: I want everyone to have a shot at the American dream. Even people who haven't earned it. I did everything I could so that these schlubs could at least own their own place. The media is now making my generosity out to be some kind of scandal. Teaser rates weren't a scandal. Teaser rates were a sign of misplaced trust: I trusted these people to get their teams of lawyers to vet anything before they signed it. Turns out, if you're poor, you don't need to pay lawyers. You don't like the deal you just wave your hands in the air and moan about how poor you are. Then you default.
3) I've grown out of touch with "poor culture.''
Hard to say when this happened; it might have been when I stopped flying commercial. Or maybe it was when I gave up the bleacher seats and got the suite. But the first rule in this business is to know the people you're in business with, and I broke it. People complain about the rich getting richer and the poor being left behind. Is it any wonder? Look at them! Did it ever occur to even one of them that they might pay me back by WORKING HARDER? I don't think so.
But as I say, it was my fault, for not studying the poor more closely before I lent them the money. When the only time you've ever seen a lion is in his cage in the zoo, you start thinking of him as a pet cat. You forget that he wants to eat you.
4) Our society is really, really hostile to success. At the same time it's shockingly indulgent of poor people.
A Republican president now wants to bail them out! I have a different solution. Debtors' prison is obviously a little too retro, and besides that it would just use more taxpayers' money. But the poor could work off their debts. All over Greenwich I see lawns to be mowed, houses to be painted, sports cars to be tuned up. Some of these poor people must have skills. The ones that don't could be trained to do some of the less skilled labor -- say, working as clowns at rich kids' birthday parties. They could even have an act: put them in clown suits and see how many can be stuffed into a Maybach. It'd be like the circus, only better.
Transporting entire neighborhoods of poor people to upper Manhattan and lower Connecticut might seem impractical. It's not: Mexico does this sort of thing routinely. And in the long run it might be for the good of poor people. If the consequences were more serious, maybe they wouldn't stay poor.
5) I think it's time we all become more realistic about letting the poor anywhere near Wall Street.
Lending money to poor countries was a bad idea: Does it make any more sense to lend money to poor people? They don't even have mineral rights!
There's a reason the rich aren't getting richer as fast as they should: they keep getting tangled up with the poor. It's unrealistic to say that Wall Street should cut itself off entirely from poor -- or, if you will, ``mainstream'' -- culture. As I say, I'll still do business with the masses. But I'll only engage in their finances if they can clump themselves together into a semblance of a rich person. I'll still accept pension fund money, for example. (Nothing under $50 million, please.) And I'm willing to finance the purchase of entire companies staffed basically with poor people. I did deals with Milken, before they broke him. I own some Blackstone. (Hang tough, Steve!)
But never again will I go one-on-one again with poor people. They're sharks.
Friday, August 24th, 2007
Tar Sands' Profitability Questionable
By Chris Nelder
For this week's article, I collaborated with energy journalist Roel Mayer, a freelance writer on earth, energy and economy, based in Canada. Roel is a keen observer on energy, and the Canadian tar sands in particular, so he was a natural research partner for this short study on the state of oil production from tar sands.
He was also the one who coined "The Law of Receding Horizons." For those who missed my previous articles on receding horizons, it is a simple concept: as the cost of energy rises, the cost of everything else made with energy (like building materials) also rises. So an energy project which was expected to be profitable when energy costs were x amount higher than today, turns out to still be uneconomical when you get there.
And the tar sands of Alberta are shaping up to be the oil industry's poster child of this phenomenon. With oil well over $60 today, the low-grade sludge called kerogen that we recover from tar sand--actually more like a putty, at room temperature, which is why I refuse to use the whitewashing term "oil sands--should be highly profitable.
But paradoxically, the impending decline of global crude oil production, which is now coming clearly into view, has led to a mad rush to produce the tar sands. And this, in turn, has led to skyrocketing costs...such that now, the real "profit" in producing the tar sands seems to be in government tax breaks, not in actual profit on the resource itself.
In fact, the Canadian tar sands operations are facing a whole host of challenges, beyond economic--so much so, that one wonders why we try to harvest them at all.
But trying we are: according to the respected energy analytics firm Wood Mackenzie (WoodMac), about $117 billion is going to be spent on the tar sands by 2015.
Let's look at some of the challenges.
Cost Inflation
In a fine demonstration of the receding horizons paradox, WoodMac issued a report in March entitled "The Cost of Playing in the Oil Sands," which showed a 55% cost increase since 2005 for a peak flowing barrel of oil derived from the tar sands.
They further noted that in 2006 alone, many of the large tar sands developers announced cost increases and project delays, as they experienced an average 32% cost increase for integrated mining projects, and a 26% increase for in situ projects.
For example, last year Shell Canada shook investors when it revealed that its Athabascan tar sands operation would cost $11 billion Canadian to expand its operation by only 100,000 barrels per day-six times the original cost estimate, which was made only about eight years earlier.
Around the same time, a research report by Merrill Lynch said the cost increase would mean that the Athabasca project would only make about a 10% return on its investment if oil were to remain at least $50 per barrel!
WoodMac analyst Conor Bint issued a clear warning about the tar sands' receding profitability horizon, saying, "Companies in the oil sands will have to control capital expenditures going forward to ensure that project breakeven prices do not exceed current levels in order to remain profitable."
And what are the cost-inflating culprits, according to Bint?
The usual litany: labor shortages and skyrocketing material costs. "With the sheer number of oil sands projects together with the future arctic pipelines and conventional oil and gas developments in Alberta, labour demands in Canada will be pushed to their limits."
Which sort of calls bulls hit on their helpful tip that good project management and contractor scheduling will help keep costs in line. No doubt, you must carefully watch your labor hours when your typical field hand is pulling down "combat pay" in the six figures. But that isn't going to help you a bit when tires, steel, machines, and basic metals are all going through the roof under the crush of increasing global demand, primarily driven by Asia, and primarily due to high oil costs. For example, the price of steel is up 70% in just the last five years.
In a recent essay on the cost inflation of conventional oil projects ("Upstream Economics and the Future Oil Supply"), oil analyst Dave Cohen made the shrewd observation that "the situation presents a classic Catch-22," where "the cure for industry inflation is a slowdown in upstream activity, whereas the initial goal was to accelerate upstream development to meet growing global oil demand."
Cohen notes that the cost of finding and producing oil has outpaced the growth in the price of oil. While oil has risen about 32% since 2005, costs have increased about 79%.
Given that the cost of finding and producing conventional oil is in the neighborhood of one-fifth that of producing tar sands, this is not an investment-friendly scenario.
Finance
Naturally, the aforementioned factors are leading to questions about the long-term viability of the tar sands industry, and slowing the pace of financing for its projects.
For not only are costs rising, they're rising faster every year, across the board: for labor, materials, and energy. And in all likelihood, taxes and pollution-related costs will soon join the list.
For example, Canadian Natural Resources Ltd. said in March it wouldn't move forward with its plans to build an upgrader plant due to runaway costs, and Synenco Energy Inc. shelved its upgrader in May. Likewise, last year France's Total SA announced that it was pushing its tar sands project back by three years, again due to soaring costs for labor and materials.
"I don't think it's an anomaly," says Mark Friesen, a Calgary-based analyst at FirstEnergy Capital Corp. "I think it's an indication of how difficult the environment is. If we're not careful, more projects may end up being delayed or cancelled."
Delays are now becoming endemic to tar sands operations. Major equipment such as cokers and metallurgical towers now have waiting times of two years or more, more than double the wait of three years ago. (Now there's an obvious investment opportunity.)
A shifting landscape of taxation also dogs tar sands ambitions. The removal this year of a significant tax advantage for Canada's income trusts, which have been among the largest backers of tar sands projects, caused Canadian Oil Sands, one of the largest trusts, to post its first net loss in its 10-year history.
An accelerated capital cost allowance that was initially offered to drive investment in the sands has also been removed this year, which should net the federal government an additional $1.4 billion or so.
But perhaps the biggest financial threat is a change in the royalty rates. For over a decade, Alberta sought to attract financing by offering a mere 1% royalty rate until the initial costs of the projects are paid off, at which point the rate reverts to 25%.
It's no surprise then that tar sands developers appear to be gaming the system by extending their "initial" investment in phases over a period of years, effectively stretching out the time they can take advantage of the 1% rate.
That rate typically translates to less than 50 cents on a $70 barrel for Alberta's coffers. On the roughly $15 billion in tar sand revenue in 2004, Alberta took home only $700 million. And the $905 million that Alberta took in last year was actually less than it garnered from lotteries.
Consequently, Alberta is eyeing some additional changes to its tax structure for tar sands. It doesn't want to be accused of bait-and-switch tactics, but it's also facing the aforementioned increasing costs for all public services. At the same time, it is looking at an overall decline in income, due to the winding down of its conventional oil and gas operations, which pay up to 40% in royalty rates.
And let's face it: given the immense challenges ahead of us for liquid fuels, thanks to peak oil, and the desperation of oil companies to find anything worth investing in at this point, a 1% royalty rate seems an outright steal of natural capital from the people of Canada. No wonder that a public consultation process on the taxation of tar sands projects is now under way.
If the royalties on the tar sands were allowed to rise to anywhere near the normal levels for oil-around 40%, not 1%-the entire industry would cease to be. The profit would vanish, simple as that.
Next week, we'll look at the rest of the tar sands' troubles: water, energy, labor, and the environment.
You are right!Some bastard has been drinking some of my share!
A recent study found the average American walks about 900 miles year.
Another study found Americans drink, on average, 22 gallons of beer a year.
That means, on average, Americans get about 41 miles to the gallon.
Fund manager letter.
Aug. 16 (Bloomberg) -- Dear investor, we'd like to take this opportunity to update you on the recent performance of our hedge fund, Short-Term Capital Mismanagement LLP.
As you know, market selection for the entire fund is guided by a proprietary investing tool we like to call "a dartboard.'' Once the asset classes are decided, individual security selections are generated by digitizing our unique hexagonal cuboid models.
Unfortunately, it transpires that our hexagonal cuboids are not as unique as we thought. Hundreds of other hedge funds possess identical dice. The technical term for this is a "crowded trade.'' You may also see it referred to as "climbing on a bandwagon already headed for the wall.''
As our alpha generation collapses, our beta has turned negative, our delta hedging has gone toxic and, trust me, you do not want to hear about our gamma. We can't even find our epsilons in the dark with both hands.
You will appreciate that accurate pricing is essential for evaluating our investment strategies. This has proven to be extremely challenging in recent days. Previously, we have relied on Bob, the sales guy at Hokey-Cokey Bank. Bob assured us the securities were still worth 100 percent of face value, so everything was cool. Bob sold the collateralized debt obligations to us in the first place, so he knows what he's talking about.
Bob, however, appears to have had a nervous breakdown, judging by the maniacal laughter that greeted our requests for price verification this week. Our efforts to implement an in- house CDO valuation framework, using a technique the ancients knew as "making things up,'' proved unsatisfactory.
Where's the Bid?
Currently, all of the portfolios we manage are undergoing a rigorous screening known as "crossing our fingers and praying that we don't have to try and find a bid in the market.'' This is supplemented by a cross-market statistical analysis originally developed by the U.S. military called "don't ask, don't tell.'' This "unmarking-to-unmarket'' procedure has been the benchmark for the hedge-fund industry for the past, ooh, 72 hours.
We have, of course, been in touch with the rating companies to update our default-probability scenarios, particularly on the AAA rated investments we own. They recommended a forecasting method using stochastics to regress the drift-to-downgrade timescales for the past 100 years and throw them forward for the next five minutes. The technical term for this is "induction,'' though those of you of a less quantitative bent may know it as "guessing.''
AAA or Toast?
We are pleased to report that, contrary to what current market prices might suggest, all of our top-rated securities remain absolutely AAA. Provided, that is, the future performance of the underlying collateral is identical to its history. Otherwise, the rating companies say our investments are likely to be reclassified as "toast.''
We have also been checking our back-up credit lines with our friends in the investment-banking world. As soon as they return our calls, we'll be able to update you on our emergency liquidity position. We are sure they are fine.
Some of you have written to us asking for your money back, citing clauses in the fund documentation called redemption rights. Frankly, we never expected you to actually read that prospectus, which came prepackaged when we bought the Microsoft Hedge-Fund Guy software. We certainly have no idea what all those long words mean.
We have filed your letters in a special drawer in the filing cabinet marked "trash'' for now. Do you have any idea how much trouble you all would be in if we actually sold this stuff in the market today? At these crazy prices? Fuhgeddaboudit. You'll thank us later.
Not a Rescue
Speaking of crazy prices, we know you'll be thrilled to learn that we've invited a bunch of our rich pals into the fund to participate in this once-in-a-lifetime opportunity. But this is not a rescue. Do not even think the word rescue. This is an opportunity. Not a rescue. An opportunity.
In fact, we think this is such a fantastic opportunity, we've agreed to forgo our usual management fee, and we'll only take half our usual slice of the profits. Provided there are any profits to slice. You, of course, are absolutely invited to participate in this offer by sending us yet more of your money on exactly the same revised terms as our rich pals.
Finally, a word for all of you who have been kind enough to inquire about my personal financial situation. I am relieved to report that my directors and officers insurance is fully paid up. Furthermore, my Bentley Continental was paid out of the 2 percent fee we levied when you wrote your first check to us, so I will still be able to trundle into the parking lot each morning in an open-necked shirt to ignore your telephone calls and emails.
Yours, Hedge-Fund Guy.