Revisiting a Breakup of the Eurozone

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It’s Not You, It’s Me

With elections looming over the EU next month, recent news over the old continent has centered around the battle against deflation.

  • “The European Central Bank has let it happen. Inflation has been running at an annual rate of minus 1.5% in the eurozone over the past five months, adjusted for austerity taxes…Prices have been falling at a rate of 5.6% in Italy, 4.7% in Spain, 4% in Portugal and 2% in Holland since September. The rise of the euro against the dollar, yen, yuan and real, accounts for some of this. The eurozone’s trade-weighted index has risen 6% in a year. But that is the direct consequence of the ECB’s own monetary policy. Frankfurt could force down the euro at any time by switching gears. It has chosen not to do so, hoping that a few dovish words spoken without conviction will turn the global tide.”

As with most European hiccups since 2008, the difficulty in battling deflation arises from the core weakness of the eurozone  – it is a monetary union without a complementing political union. From inception as the European Coal and Steel Community (ECSC) in 1951 to the Maastrich Treaty of 1992 to the modern 18-nation eurozone (and larger 28 nation European Union), the notion of a “United States of Europe” has always been more about politics than about economics.

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Resolution Is In: Superior Copper

$110 yearly
 
SUPERIOR, Arizona –  A helicopter tour above the Arizona copper belt, where the Resolution Copper Mine is being built, is our call to action. 
 
Grounded now, I find myself searching for more shares of Desert Star Resources Ltd. ( TSXV: DSR). Canadian banker Vince Sorace’s Desert Star optioned properties from two companies I own: Eurasian Minerals (TSXV: EMX), which is doing a princely job of fashioning a royalty portfolio, and Pilot Gold Inc. (TSX: PLG) — a member of our TCR 8.
 

Quebec Supports Mason Graphite by Investing in $10M Bought Deal Financing

LLG Chart
LLG data by YCharts

After being halted for a couple of days, Mason Graphite (LLG:TSXV) got a nice surprise.  The company, which was running low on cash, announced an initial $8 million bought deal (which was subsequently raised to $10 million with an additional $1.5 million green shoe) with Ressources Quebec, a subsidiary of Investissement Quebec coming in for $3 million of it.

The deal was led by Macquarie Capital Markets who sold units at $0.65 (small discount to market) with a 2-year 1/2 warrant at $0.85.

About Ressources Quebec, Investissement Quebec says on their website: This Investissement Québec subsidiary develops strategic partnerships with companies that undertake projects involving resource exploration, development and processing in Québec. It supports foreign investors that present major projects and provides a range of business solutions to aid in their implementation. Ressources Québec also offers financing solutions and manages the Capital Mines Hydrocarbures fund.

Lac Gueret is one of the highest grade graphite projects being developed (Source: Mason Graphite)

Lac Gueret is one of the highest grade graphite projects being developed (Source: Mason Graphite)

With this mandate, I would expect this backing to help the company in their capital raise for the full-scale construction of the Lac Gueret mine which is currently estimated to cost $80 million.

As part of the release, the company also indicated they are working on an additional $4 million strategic investment by one or multiple institutions.  They are working to finalize this.

Overall, the company is now fully financed to proceed through the next phase of development on their high-grade Lac Gueret project; primarily the completion of a feasibility study and environmental baseline studies.

They expect to complete the Environmental Social Impact Assessment by Q2/2014 and to have their Certificate of Authorization by Q1/2015.

With the completion of the feasibility study they will have to pay Cliffs Natural (who they acquired Lac Gueret from) a $2.5 million cash payment.  There is an additional $5 million payment due upon commercial production.  After that they will own 100% of the project with no other legacy costs or royalties.

Read: Mason Graphite Announces Increase to Bought Deal Private Placement Offering

 

Disclaimer: Please read Mason Graphite’s cautionary note regarding forward looking statements carefully, which can be found on slide two of their corporate presentation. I own shares in Mason Graphite and they are a client which makes me biased. This is not investment or professional advice and you are responsible for your own trades. Please see our full disclaimer. Thank you.

Could IR save Calgary’s junior oil patch?

Relative valuations of Energy stocks back to 1999 levels when oil was $10

The energy sector is deeply out of favour, as the above chart from Frank Holmes, CEO and CIO of US Global Investors, illustrates.

Calgary’s junior oil patch, considered the petrie dish of the entire energy industry, is among the hardest hit, now in the third year of its downturn.

There are several factors at play here. Gone are the days of building a 5000 bopd producer before selling to an income trust and starting over. Additionally, retail investors have become more risk averse, and are avoiding junior companies. Institutional investors are favouring larger deals where they can more easily deploy $25-50 million. The result is putting juniors in a bit of a tough spot. Read: Juniors’ growing painsFinancial Post

Calgary’s energy sector lacks investor relations expertise, says Steve Calderwood, a former energy investment banker with Salman Partners, who has recently joined 5 Quarters Investor Relations Inc. Read: Calgary banker who left Salman trying hand at investor relationsGlobe and Mail (subscribers only).

Many of the junior energy CEOs we’ve encountered balk at suggestions to spend more time and money on IR activities like hosting site visits, presenting at investment conferences, pitching their stories to the media, and or advertising. They are focused on delivering results, rather than communicating their stories to the market.

Who can blame them: merit is the best IR, but there should be a better balance between execution and communication, at least in the case of publicly traded junior oil companies.

Retail investors bear some responsibility here too. Canada’s junior oil patch has been an incredible, albeit risky, wealth creation tool. If retail investors don’t soon show some love for the sector, the whole thing could end up private.

Related: Calgary energy merchant banker Sonny Mottahed interview. CEO.CA

April 3, 2014

[Most Recent Quotes from www.kitco.com]Yamana Poised to Prevail in Fight for Osisko. Bloomberg

“The long-term production of some of those oil-rich wells may be overstated.” Old Math Casts Doubt on Accuracy of Oil Reserve EstimatesBloomberg

Recent gains in junior resource stocks will need to be consolidated, Sprott Chairman Rick Rule tells Eric King. A full on bull market for the sector may still be 12-18 months away, but Rule is encouraged by what he’s seeing in the charts, and suggests investors start to position themselves in companies via private placements carrying warrants. Rick Rule Interview. King World News

John-Mark Staude’s Riverside Resources has lined up another drill program for summer 2014, fully funded by their partner. Riverside Outlines Exploration Plans At The Swift Katie Project In British Columbia, CanadaRRI.v [sponsor]

Resources Quebec backs Benoit Gascon’s Mason graphite. Mason Graphite Announces $8.0 Million Bought DealLLG.v [sponsor]

Lol. L.P.D.: Libertarian Police Department. New Yorker

The ECB is on the Cusp

The Euro Area continues to face challenging disinflationary headwinds which have vexed ECB policymakers for the past couple of years:

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Euro_Area_Inflation_Rate

After this morning’s ECB statement and Mario Draghi press conference it is becoming increasingly likely that the ECB is on the cusp of launching some form of large scale asset purchase program (LSAP) – a few choice excerpts:

“ we are closely following developments on money markets. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation.” – ECB Introductory Statement

“The risks surrounding the economic outlook for the euro area continue to be on the downside” – ECB Introductory Statement

“The longer the period of low inflation, the higher the risk” ~ Draghi

“My biggest fear is actually to some extent a reality. That is the protracted stagnation (we are already seeing).” ~ Draghi

“the ECB will present a joint paper with The Bank of England on ABS at the next IMF meeting” ~ Draghi

“The euro area can’t really go back to serious growth if the banking system is impaired.” ~ Draghi

It’s not difficult to read between the lines of these quotes and excerpts from the introductory statement; the ECB is seriously considering LSAPs, however, these purchases are likely to be focused on credit easing through the banking system via ABS purchases (asset-backed securities). Low levels of inflation and economic growth are especially pernicious for bank lending and credit growth.

From our vantage point, this morning’s ECB press conference was a tacit admission that the ECB is in the final stages of preparing a LSAP program focused on Euro Area ABS . Such a move by the ECB is likely to be highly beneficial for the share prices of Euro Area banks and potentially a large negative for euro exchange rates (EUR/USD, EUR/GBP, etc.).

Another All-Time High for the S&P 500 – More Momentum Ahead?

Isn’t it funny that 60 Minutes ran a headline story about how the stock market is rigged on Sunday night and the S&P 500 makes another all-time high less than 48 hours later? You simply can’t make this stuff up:

Click to enlarge

SXP_Daily_4.1.2014

With today’s rally the S&P 500 has made an all-time high for 10 consecutive months:

SPX_Streak

This is the 2nd longest monthly all-time highs streak for the S&P – the longest streak occurred between February 1995 and February 1996 when the S&P 500 made an all-time high for 13 consecutive months:

95-96

While there is often some additional short term upside momentum following an all-time high, we are fast approaching the seasonally bearish May-June period which should offer ample pause to bullish investors who are tempted to chase the fresh all-time highs:

S&P_Monthly

Our baseline scenario calls for some additional upside over the near term, perhaps to as high as 1950 on the S&P, before a summer correction takes hold which should wipe out all the gains for the year and potentially take us back down to the early February lows. Regardless of what happens it should be an interesting summer for equity investors as volatility picks up from historically ultra-low levels:

VIX_Daily_4.1.2014

The VIX closed at its lowest reading since January this afternoon – if history is any indication, buying “vol” over the next couple of weeks could be a shrewd bet as May approaches.

Cameco Set to Resume Rally

After a nearly textbook 38.2% retracement of its October-March rally CCJ is set to resume its uptrend:

Click to enlarge

CCJ_Daily_4.1.2014

The weekly chart shows that CCJ found support after a standard pullback to previous resistance:

CCJ_Weekly

Moreover, today’s 5% rally took place against a backdrop of a steep sell-off in crude oil and continued stagnation at a depressed level in the uranium price. Investors are clearly betting on a much brighter future for nuclear energy in the years ahead and the upside for shares of CCJ from current levels is nothing short of enormous.

Asanko Gold Gets Closer to Phase 2 Permits and Prepares for Production Decision in Q2

AKG ChartAKG data by YCharts

Asanko Gold (AKG:TSX) has been able to take advantage of the gold endowments in Ghana, not only by finding and developing the Esaase deposit but also by acquiring a nearby and equally sized development project called Obotan (part of PMI Gold acquisition, now called the Asanko Gold Project).  Today, the company announced they received receipt of the environmental invoice and water use permits for the Esaase deposit.  This is a positive step in obtaining the final environmental okay from the EPA for Phase 2.

Importantly, this receipt means that Asanko will be able to apply for a temporary mining permit and begin early works to prepare the development site.

Commenting on the announcement, Peter Breese, President and CEO, said: “We are delighted that we have now received our invoice from the EPA and water use permits from the WRC for the Esaase site. This means that in addition to our fully permitted phase 1 project, we now have a second site that has passed the necessary hurdles as required by the Ghanaian regulatory authorities.”

Under the new leadership of Peter Breese and Colin Steyn (Chairman), Asanko has been able to progress into the production decision phase quickly.  The duo, were both founders of LionOre Mining and Mantra which were both sold to Russian interests for $6 billion and $1 billion, respectively.  The two helped Asanko successfully acquire PMI Gold and their Obotan project which now provides the company with a clear pathway to 400,000 ounces of gold production per year.

Each of the projects, now under the Asanko name, have the potential to produce in excess of 200,000 ounces of gold per year (400,000 ounces per year total).

Asanko plans to grow to a mid-tier 400,000 ounce per year gold producer (Source: Asanko Gold)

Asanko plans to grow to a mid-tier 400,000 ounce per year gold producer (Source: Asanko Gold)

The leadership at Asanko decided to put Obotan (phase 1) into production prior to Esaase (phase 2) for a number of reasons including the fact that Obotan was permitted and was also the higher margin of the two projects making for slightly better economics.

The company has over 7.5 million ounces of gold (average grade of 1.68g/t gold) in the measured and indicated categories at their combined Asanko Gold Project.  They trade at $1.00 per M&I ounce in the ground.  This is ridiculously cheap considering they are fully funded, have two 200,000 ounce per year gold projects, are located in a great jurisdiction and are led by some of the best company builders in the business.

They have $270 million in cash and access to another $150 million debt facility (market capitalization of $403 million).

Upcoming Catalysts:

  1. Construction decision (Q2/2014)
  2. Early works of Obotan (Q2/2014)
  3. Finalize financing package (Q2/2014)
  4. Revised resource estimate and updated mine plan (Q2/2014)

Read: Asanko Gold Receives Environmental and Water Approvals for Esaase Site

4 Areas Revved Up for a Resources Boom

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

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Commodity returns vary wildly, as experienced resource investors can attest and our popular periodic table illustrates. This inherent volatility can spell opportunity for the nimble investor who can look past the mainstream headlines to identify hot spots. Our global resources expert, Brian Hicks, CFA, identified four we believe are revved up for a resources boom.

1. Plenty in the Tank for Energy Stocks

Because of the previously low expectations of global growth and oil demand, energy stocks have been shunned by investors and have languished in recent years. In fact, according to Goldman Sachs, oil equities held in the Energy Select Sector SPDR ETF have underperformed the broader market by 32 percent since 2008!

Global energy stocks have also suffered: In a comparison of the price-to-book valuations of the MSCI World Energy Index to that of the MSCI World Index, the ratio is at a level we haven’t seen since the late 1990s and early 2000s. Back then, crude oil plummeted to a very low price of $10 per barrel.

Today, with oil hovering around $100 a barrel and improved economic conditions in the U.S., energy stocks appear to be a tremendous bargain compared to overall stocks.

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When it comes to natural gas, the cold, snowy winter has caused inventories of the commodity to rapidly decline. As the U.S. is experiencing the coldest winter in 13 years – some parts of the country have had the coldest weather in nearly three decades – natural gas inventories have been drawn down to levels we haven’t seen in 10 years.

Still, Old Man Winter hasn’t been persuasive enough for companies to respond with supply.

Based on data from the research firm IHS, 384 gas-directed rigs were online in the lower 48 states to refill storage and meet new demand coming online from the industrial sector in 2013. However, looking ahead over the next few years, the rig count is going to have to rise dramatically “as the gas market tightens in late 2014 and 2015,” which is a tremendous opportunity for investors, says IHS.

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Before rig counts can increase, higher natural gas prices are needed to incentivize operators to invest in natural gas. Based on last quarter’s earnings reports, many major producers, such as EOG, Southwestern or Pioneer Natural Resources, are not planning on increasing their natural gas budgets. Bill Thomas, Chairman and CEO of EOG Resources, explained his reasoning that is part of the collective thought process across the industry:

“For the sixth year in a row we are not [trying to] grow EOG’s North American natural gas production. This is reflective of our view of low returns on natural gas investments. We won’t drill any dry gas wells in North America during 2014 because we don’t see a change in the gas oversupply picture until the 2017-2018 time frame.”

As we come out of this winter season, the complacency toward adding to rig counts may amplify the deficit in natural gas inventories.

2. U.S. Chemical Industry Has a Competitive Edge

One upside to the low natural gas prices in North America is that it equates to relatively cheap feed stock for U.S. chemical companies. Whether it’s Asia or Europe, gas prices outside of the U.S. tend to be benchmarked to the higher price of crude oil.

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Along with the global economic recovery, natural gas is giving the U.S. a competitive advantage. We’re seeing chemical companies coming back to the states, creating jobs, expanding exports out of the U.S., and helping the nation’s current account deficit.

3. Shipping Companies at a Possible Inflection Point

The prices to ship commodities around the world have been hovering around the lowest we’ve seen in five years. However, demand for shipping is starting to overtake the supply of new ships, which bodes well for shipping companies.

Take a look at the chart showing the Baltic Dry Index over the past five years. The index is made up of various sizes of carriers including the Baltic Capesize, Panamax, Handysize and Supramax indices and measures the price of moving raw materials by sea. Primarily, these vessels transport iron ore and grains, i.e., wheat, corn and soybeans, which are especially vital goods for China.

To keep its population of 1.3 billion fed, China needs to import millions of tonnes of wheat, corn, rice and soybeans. As this demand is recognized, shipping companies should benefit.

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4. Alternative Energy Could Get You More Green

In China, residents have been dealing with increasing cancer-causing pollutants and vehicle congestion on roads, and public discontent is rising. This winter, as pollution grew to be 10 times higher than the acceptable rate, Beijing University students protested the conditions by putting masks on iconic statues.

The effect that pollution is having on China’s economy benefits certain industries, including renewable energy or clean energy, whether it’s solar or wind power.

You can see just how dramatic the investment has been over the last five years. Specifically, wind power and solar look especially attractive. Take a look at CLSA data: In 2009, the country had about 0.2 percent of the global market. By 2014, it’s estimated to grow to one-third of the global market.

China isn’t the only country with a growing renewable energy market. With the Fukushima nuclear reactors incident after the massive earthquake in Japan, the solar market is taking off there too.

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The Diverse Approach of the Global Resources Fund (PSPFX)

We believe these areas of the market offer the most exciting opportunities today. They have the wind at their back, giving us the confidence to overweight the companies within these areas of the market that are also showing extremely robust fundamentals.

Because of the diversity and volatility of each commodity, we believe investors benefit by holding a diversified selection of commodity stocks actively managed by professionals who understand these specialized assets and the global trends affecting them.

I just flew back from Asia, where I spoke at Robert Friedland’s Asia Mining Club and Mines and Money Hong Kong, with a special stop in Carslbad, CA on my way home to speak at the Investment U Conference. It has been an exhilarating week meeting with global entrepreneurs, mining executives and curious investors. I look forward to sharing their advice and insights with you next week.

P.s. It’s not too late to join me for an investment adventure in Turkey in May.

 

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources as a percentage of net assets as of 12/31/13: Energy Select Sector SPDR ETF 0.00%; EOG 0.00%; Pioneer Natural Resources (2.18%); Southwestern 0.00%

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. MSCI World Index is a capitalization weighted index that monitors the performance of stocks from around the world. MSCI World Energy Index is an unmanaged index composed of more than 1,400 stocks listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand and the Far East. The MSCI World Energy Index is the Energy sector of the MSCI World Index. The Baltic Dry Freight Index is an economic indicator that portrays an assessed price of moving major raw materials by sea as compiled by the London-based Baltic Exchange.

Star In Desert | Uranium | Biomedical: TCR

THE CALANDRA REPORT: Subscribe

NexGen | Desert Star | Prophecy Coal** | Powertech | Kaizen | Stellar Bio

Editor: Adds Peter Epstein’s interview with Powertech/Azarga uranium principal; a fresh look at Stellar Biotech; note on Prophecy Coal at close of report

When a uranium prospector comes in with the final hole of a winter drilling program up north, No. 8 in this case, the icing already is on its Athabasca cake.

If NexGen Energy‘s evidence were lacking, the program — which in total for winter 2013-2014 comes to 17 holes at 7,400 meters — never would have proceeded beyond the first few thousand meters.

The NXE (in Canada) team directed a drill program that is striking what it calls radioactive anomalies on most every rig placement. Leigh Curyer and his geologists and drillers delivered a drill program that is so successful, this final winter hole, published today, was 215 meters from the original Arrow targets.

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Debating Marx

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“Ain’t no party like a Communist party”

The New York Times put together a panel of five people that know what they’re talking about and asked them the less than benign question “Was Marx right?“.

Below is the roster of the participants and links to their respective answers:

Doug Henwood, “A return to a world Marx knows”:

  • ...a system dependent on high levels of mass consumption has a hard time coping with the stagnation or decline in mass incomes.The development of a mass consumer market after Marx died, with the eager participation of a growing middle class, caused a lot of people to say his analysis was obsolete. But now, with the hollowing out of the middle class and the erosion of mass purchasing power, the whole 20th century model of mass consumption is starting to look obsolete.

Michael R. Strain, “Responsible Politics can cure capitalism’s ills”

  • But these problems don’t mean capitalism will inevitably unravel, as Marx thought…many of today’s problems are temporary results of the Great Recession. And on a deeper level, Marx erred significantly in believing that social relations and social institutions are founded upon economics. We are not slaves to changes in the way goods and services are produced and exchanged…Likewise, the flipside of communism is mistaken: The economy is not a holy, untouchable, object…In fact, both Marxism and pure laissez-faire elevate the economy above its proper station, ignoring the ability (Marxism) and the duty (laissez-faire) of culture, and through it politics, to soften the rough edges of the free enterprise system.

Yves Smith, “Foreseeing the dangers, but not the response”

  • Marx failed to anticipate how the immense growth of commercial enterprises would create the need for a large range of managers, from shop supervisors and office managers to top executives, as well as technocratic experts such as accountants, lawyers, computer programmers and consultants. And while the Great Depression raised fears of radical revolt, the rise of large unions and Rooseveltian social safety nets served as a bulwark against the Red Menace.
  • ….as long as there is a sufficiently large remnant of the American middle class, still socialized to identify with the established order, no matter how beleaguered they are, it’s hard to see how any organized, large scale uprising could occur.

Tyler Cowen, “Problems are in sectors, not systems”

  • Marx pointed out, again perceptively, that capitalism might be subject to a declining rate of profit, and indeed the rate of productivity growth generally has been lower since the 1970s. But why? I would cite energy price shocks, greater investments in environmental goods (which may well be optimal), political dysfunction, the difficulty of topping the amazing achievements of the early 20th century, a bit of cultural complacency, and a generally greater aversion to risk, failure and also the new NIMBY “not in my backward” mentality. Most of Marx’s analytical constructs are convoluted, replete with contradictions, and in any case not ideally suited toward analyzing those problems.

Brad Delong, “Blind to system’s ingenuity and ability to reinvent”

  • Karl Marx in his day could not believe the volume of production could possibly expand enough to re-employ those who lost their jobs as handloom weavers as well-paid machine-minders or carpet-sellers. He was wrong…The optimistic view is that our collective ingenuity will create so many things for people to do that are so attractive to the rich that they will pay through the nose for them and so recreate a middle-class society.