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  • Revolutionary Oil Prospector Richard Masterson Shares Fracking Investment Opportunities Gov. Cuomo Can't Touch

    Richard "Rich" Masterson, a Midland, Texas-based consulting geologist, has helped originate oil and gas projects with previously unseen potential. In this interview with The Energy Report, Masterson describes the significance of innovative science and new methods of prospecting to locate and liberate large amounts of energy, regardless of NIMBY politics like those playing out in New York State. He also brings projects and companies with potential upside for investors to the surface.

    The Energy Report: Rich, you're a consulting independent geologist. What do you do for your clientele?

    Rich Masterson: Basically, I find oil and gas by being a prospector. I originate ideas and come up with new ways of looking at prospects and drilling projects-and use some old-school ways as well. I review scientific data, and may go into the field to make sure the electric logging, coring and sample collection is done in the proper manner. I also perform economic reviews with risk/reward evaluations and make recommendations on how to reduce risk for drilling projects.

    TER: The drop in oil prices has been in the news a lot lately. On Dec. 17, Federal Reserve chief Janet Yellen said plunging oil prices would not have the kind of effect in the U.S. that they have had in Russia, which is experiencing a depressed ruble and economic disruption. In fact, she said the drop would be a net positive for the U.S. economy. Would you agree with that assessment?

    RM: I agree, especially with regard to goods and transportation. We have $2/gallon gas out here in Midland, so for individual consumers in the U.S., the price drop is also a positive. We won't be quite as dependent on overseas sources. The U.S. won't be hurt as badly as Russia because we're a democratic state, and we don't have all of our eggs in one basket.

    That said, I think this very low pricing is going to be rather short-lived. But overall, lower pricing is going to be a common occurrence going forward because we have so many reserves in the ground.

    TER: Interestingly, Yellen specifically singled out the service industry as being vulnerable to current low oil prices. Do you agree?

    RM: Yes, those companies will be hurt immediately. The service industry has been doing well over the last several years, so if margins are reduced, they can still stay in business through the downturn. The service industry is usually the first to adjust to the changes in pricing, and they must be more competitive because there will be a limited amount of drilling in a downturn. We saw this in 2008-2009, when service companies reacted very quickly to the bust and laid off workers. At that time, the industry had just gotten into a decent working situation, with experienced workers in all the various jobs that go into drilling a well. The price bounced back fairly quickly, and then companies had to train new personnel.

    TER: What about the exploration and production [E&P] companies?

    RM: E&Ps will take a hit. We see that in all the boom/bust situations, but we also see it with smaller drops in oil and gas prices. Companies with large debt loads are going to be in trouble, obviously. Companies holding acreage with leases with expiration dates will be hurt as well. It's going to be very difficult to allow that acreage to expire without drilling wells, because the acreage values are huge. Smaller companies, especially, are going to be under the gun to hold those very expensive leases. Also, E&Ps with large overheads, which have hired new people or that may have hired people to expand quickly for their acreage positions, are going to have a rougher time.

    TER: Will the smaller companies have to go for the low-hanging fruit-the easiest-to-reach fossil fuels? I should also ask if any low-hanging fruit is left.

    RM: There is plenty of low-hanging fruit, but it's pretty tightly held. These are held-by-production [HBP] leases, as we call them, and are hard to get a hold of.

    But when prices drop enough, companies that have HBP leases may need to let them go. Others will be able to get the service industry to work on some of the shallower low-hanging fruit. They have had to compete with the profit-making service work on big frack [hydraulic fracturing] jobs, but this situation could help small companies because they may be able to get service companies to drill the low-hanging fruit now.

    TER: Rich, what is different about the current recession in energy prices compared to past boom/bust cycles?

    RM: One thing that's different is that reserves are in the ground now. We've found them. They are proven. Using the science that's been developed and the data retrieved over the last couple of years, we are perfecting the ability to get these reserves out of the ground more efficiently. The productivity of the wells has quadrupled, and the fracking techniques are still getting better-cheaper and more environmentally friendly. There are billions of barrels of oil out here. If this drop happened a couple of years ago, it would have hammered production activity.

    TER: Since some of these wells are very expensive, and with oil prices so low that some companies just can't play, do you think the environment is perfect for consolidation?

    RM: Yes, and I think you'll see a lot of consolidation occur. Some of these small companies have huge reserves, and the larger companies looking to buy know that. Some areas have five to eight horizontal targets under one proration unit. This isn't like the Eagle Ford or Bakken formations-it's like a lot of those formations stacked on top of each other. The oil in place in the Delaware Basin is over 100 million barrels [100 MMbbl]/section oil, and in the Midland Basin, most people are estimating over 50 MMbbl/section oil. These are huge reserves, and they are identified.

    TER: Classic economic theory tells us that if the price of a commodity goes down, people will quit producing that commodity, and prices have to rise after that. How low do oil prices have to dip before production begins to decline?

    RM: At certain prices you'll see a leveling off, but I don't know exactly what that price per barrel will be. At current prices, you'll see a very marked decrease in drilling of some types of projects because people won't want to drill their good flush production at these prices. That situation will show up pretty quickly, but I can't give you exact timing.

    TER: You recently said that this is a very exciting time to be in the energy sector. I'm guessing that means investors can get in on a low-cost basis. Is that right?

    RM: It is an exciting time, but excitement isn't always positive for investors. I'm more a geologist than a businessman, so from my point of view, I see many new developments and many new ways of approaching problems and solving them. The way I've been working on geology in the last 10 years is 180 degrees different from what we were taught in school, and how we found oil and gas in the 1970s, 1980s and 1990s. I haven't seen anything like it in the last 30 years. So for me, as a geologist, this is an exciting time.

    TER: Things are always different after a disruption-usually for the better, because people are forced into new and more efficient ways of doing things. What do you see coming out of this disruption?

    RM: It's tough for young people getting into the industry. With other busts, we lost many geologists because it was so severe. The science end of the business is usually the first to go; it becomes more about engineering and accounting when times get tough. But the science is what finds the new oil and gas, not engineering and accounting. Yes, everything changes after a disruption, but it makes the companies that survive quite strong.

    TER: New York Governor Andrew Cuomo is banning hydraulic fracturing in the entire state of New York due to health concerns. Could this mindset spread? What are the ramifications of this ban?

    RM: It's politics. It has to do with what the majority of the people want in a localized area. There is a lot of information going out that's incorrect.

    With regard to fracking bans, the answer to this question will be very important: Who owns the minerals? Does the federal government own the minerals? The federal government allows fracking-and loves it because it makes a lot of money. But does the government just let companies go wild? No. There are very strict laws and regulations on how people should behave in the oil business.

    I don't know the situation in New York. But if I'm a mineral owner and they tell me I can't have my minerals tested by fracture stimulation, I'm going to be rather upset with the state of New York and with Governor Cuomo. Here in Texas, most all the minerals are owned either by trusts or by individuals, such as farmers and ranchers. They're not owned by the federal government or the state government. New Mexico allows fracturing. North Dakota allows it. A lot of the states that have a lot of federal and state land allow it.

    I can understand the sensitivity in New York. The decision is up to the people of the state, but I don't see bans coming into areas where there are large reserves-at least not yet, and not in a big way. There will be a lot of legal battles if that does occur.

    TER: You've been rather prolific in your career. You originated the Wolfbone unconventional play in the Delaware Basin in West Texas and southern New Mexico. Why is it called "unconventional?"

    RM: It's in unconventional types of rock. In the past, most producing rocks, which we refer to as "conventional reservoirs," have higher porosity and permeability. Conventional reservoirs are based on rock that was deposited in high-energy environments. What we look for in the majority of unconventional plays-the ones with the huge reserves-is what were once considered source rocks. They were too tight to produce, and were deposited in deeper, low energy environments for the most part. The study of those rocks, and how to produce from them, is unconventional.

    There are varieties of unconventional plays, which constitute the great majority of our reserves, and we have to look at them differently. Tight unconventional rock is better in a siltstone than in shale because it will hold more hydrocarbon molecules and more complex hydrocarbons, such as oil, versus just the methane gas molecule. It's a whole new world, a whole new technology, a whole new way of looking at science. We have different crucial parameters with silica-rich siltstones containing relatively low clay content. The siltstones need calcite cement to keep the rock brittle for fracking. The size of the pore throat space minus the clay content leaves us with the percentage of the porosity that can contain the hydrocarbon.

    TER: Could you talk about some companies you've been involved with? How have you worked with them?

    RM: Most of my work was in the Delaware portion of the Permian Basin. I've worked with and sold deals to quite a few companies-Energen Corp. (NYSE:EGN), Cimarex Energy Co. (NYSE:XEC), Anadarko Petroleum Corp. (NYSE:APC), Rosetta Resources Inc. (NASDAQ:ROSE), Occidental Petroleum Corp. (NYSE:OXY), J. Cleo Thompson [private],Clayton Williams Energy Inc. (NYSE:CWEI), Concho Resources Inc. (NYSE:CXO), as well as Atlantic Exploration LLC [private], which sold Wolfcamp assets to Centennial Resources Development LLC [private]. We have worked with all these companies, or sold them acreage, or performed work in a consulting manner, such as reviewing logs. I've also worked with Schlumberger Ltd. (NYSE:SLB).

    TER: You have intimate knowledge of some of these companies. Could you highlight a few involved in the Wolfbone?

    RM: Companies in the Delaware, like Concho, Cimarex and Energen, which came out in the Wolfbone, have performed very well. At first, we had certain perceived ideas and biases that proved to be wrong. As I said, you had to turn your head 180 degrees to understand these unconventional plays. At first, it was a slow process for companies, because they didn't want to leave their somewhat conventional perceptions. None of us understood how much you had to stay in conventional reservoir rocks. It was a slow learning curve.

    But eventually these companies figured out where to land the rock to get the maximum fracture stimulation, and were able to stay in the best rock to make sure stimulation worked and drained the most efficient area. A lot of other companies are following suit.

    Rosetta and Occidental are getting better at figuring out the problems and solving them. The proof is in the production. You can see the chronological change in the improvement of the wells, improvement in landing the horizontals in the correct zones and improvement in the fracks. The science matters a lot.

    In the Midland Basin, Pioneer Natural Resources Co. (NYSE:PXD) has been one of the leading companies in science, development and production. A lot of the smaller companies, like Diamondback Energy Inc. (NASDAQ:FANG), have done quite well over in the Wolfcamp play, especially. But many companies have done well in the Midland Basin; typically it's the smaller companies there. Early on, these companies used almost no science. They just drilled, like in the Spraberry Trend wells, another Permian Basin field. But they've learned by using the science.

    TER: Generally speaking, how does the Orogrande compare to the Wolfbone?

    RM: I think the company is taking a very well-thought-out risk. I had the same questions about the Wolfbone, and I had people tell me it would never work. I had less scientific data, and less was known about what made these plays work. In many ways, the Wolfbone project was quite risky, but the outcome was quite good.

    It's great to take a higher-risk situation when it's well thought out. That's the way we look at it. Many of my peers have looked at the Orogrande locally, and would like to be in it as geologists. It's been critiqued by many people, and it needs to get drilled.

    TER: You have mentioned Cimarex. Could you speak to that, please?

    RM: Cimarex is one of those companies that started off with a preconceived idea that a certain zone was the main productive zone. Like everyone else, the company was trying to apply production from that interval throughout the basin. But it didn't behave the same. The zone changed and became wet. In other words, it has water in it, and it is a more conventional play.

    Cimarex was one of the originators in the Third Bone Spring in western Ward County, Texas. The company found that the acreage west of the river was wet, but it learned how to adjust to staying out of the water with more conventional plays-the turbidites and the Second Bone Spring and Third Bone Spring formations-to target the good rock. Cimarex went deeper into the Wolfcamp and found excellent wells with its new frack designs. The company has done very well in the last year.

    Cimarex has a big acreage position where the zones are shallower, which will cost less to drill. It has fewer drilling problems because the shallower zones, which are headaches, are thinned out on the west side. The company is sitting on a very good acreage position at lower cost and high gas production.

    TER: Rich, you mentioned Energen and Concho in the same breath with Cimarex. Would you briefly address them?

    RM: Energen and Concho are in the same position. They are positioned well acreage-wise, and have the knowledge to get the drilling done at a lower price. Rosetta also is in the same position, but its resources are deeper. The company is figuring out how to do the horizontals quite successfully.

    TER: You also mentioned Diamondback. It's a mid-cap company with a market cap of about $3.4 billion. You have said the company has done a good job of learning about its rock. Would you comment?

    RM: Diamondback has done a good job of both learning about its rock and learning how to frack it. It is staffed with good people who do a good job, and you can tell. Again, here's a company that did a lot of drilling in the Midland Basin making basic assumptions on conventional rock, and tried to find tighter conventional rock and produce out of that. What it found instead was siltstones. The company performed a scientific evaluation and has been pretty successful. Diamondback did a fine job academically and practically on the Wolfcamp.

    TER: Any other companies you wanted to mention?

    RM: I would just mention Pioneer, which was a leader in learning where to land horizontals and in learning about frack sizes, the density of the fracking and the length of the horizontals. It tested the first really long laterals. Other companies that have done very fine scientific work include Laredo Petroleum Inc. (NYSE:LPI) and Reliance Petroleum Ltd. [part of Reliance Industries Ltd.]. There are some very fine geologists working in the Midland Basin.

    TER: It's been a pleasure, Rich. Thank you.

    This interview was conducted by George S. Mack of The Energy Report and can be read in its entirety here.

    Richard Masterson is a geologist in private practice with more than 40 years of experience, and has provided consulting services concerning the purchase of leases and minerals in the Permian Basin, as well as presented geological findings, drilling and completion results, and updates for investors. He originated the Wolfbone unconventional play in the Delaware Basin, and prepared prospects totaling more than 150,000 acres in the play, which are being leased, drilled and developed by a number of companies. Previously he has held positions with Southwest Royalties Inc., Grand Banks Energy, Monsanto Oil Co. and Texaco. He holds a bachelor's degree in geology from Trinity University, and is a member of the West Texas Geological Society.

    Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) George S. Mack conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    3) Richard Masterson: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid royalties by Cimarex Energy Corp., Concho Resources Inc., Rosetta Resources Inc. and Occidental Petroleum Corp. We have sold leases to Energen Corp. and have a back-in-after-payout [BIAPO] working interest. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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    Jan 08 1:15 PM | Link | Comment!
  • Chris Berry Identifies Commodity Companies With The Disruptive Advantage

    Globetrotting Chris Berry, founder of House Mountain Partners, finds most retail and institutional investors sitting on the sidelines waiting to see where the energy sector is headed before jumping back into the game. Game-changing disruptive technologies or sustainable end-user agreements are what companies need to succeed and he shares some likely names in the cobalt, lithium, nickel, graphite-even uranium-spaces in this interview with The Mining Report.

    The Mining Report: Chris, on your travels, what are you seeing in Europe and Asia regarding supply and demand in the commodity markets?

    Chris Berry: Sentiment varies depending on location. In Hong Kong the institutional community is generally optimistic and really favored gold, nickel, and aluminum heading into 2015, with a more bearish stance on coal and iron ore. While there are serious structural headwinds facing the global economy including the threat of deflation and a slowing China, the general consensus was that we're at the bottom of the cycle.

    In Germany and Switzerland, the outlook is much more somber. In Germany, the call for higher gold prices based on market manipulation was in full force as it perpetually seems to be. The failure of gold to increase in price in the wake of the end of quantitative easing in the U.S. and the almost immediate continuation on the part of the Bank of Japan has many people scratching their heads. Clearly, the lack of inflationary pressure has stunted gains in gold or gold shares.

    Switzerland was an interesting place to be, as I was there two weeks before the referendum voting on whether or not the Swiss National Bank would be required to hold 20% of its reserves in gold. Most people I asked had no opinion or didn't think the referendum would pass, but the fact that over 75% of voters voted against it was a real surprise. That the Swiss would rather have their national bank hold fiat currency in reserve rather than gold says a great deal about how gold is viewed in the financial markets these days.

    My message to the institutional groups I spoke with was simple: If all you do is turn on the TV and listen to commentators rail about the falling price of gold and oil and you think that all commodities are faring the same, you're going to miss out on a host of opportunities. Not all commodities are in trouble. The outlook for lithium, cobalt or aluminum, for example, is positive, and this is where I see a number of opportunities going forward.

    TMR: What is the collective opinion on the price of oil and what roles are Russia, OPEC and the U.S. playing in the era of fracking?

    CB: With the price of a barrel of oil down close to 50% this year from its highs, I think everyone is in a collective state of shock. Fracking in the U.S. has led to a glut of oil on global markets. That and soft global aggregate demand are the primary forces responsible for the collapse in the oil market. The implications are positive or negative depending on which side of the investing coin you're on.

    Consumers in the U.S. will presumably benefit as low oil prices give them a giant tax cut. What they choose to do with this-pay bills or spend on goods-is another story. I filled up my car yesterday for just $38. I cannot remember the last time I did that for less than $50.

    Ultimately, low oil prices could end up hurting the mining industry in the near term as cheaper energy encourages increased production into many oversupplied markets. This remains to be seen, however.

    TMR: What is your prediction for the price of oil going into 2015?

    CB: It's not my area of expertise but it seems that the price of oil will continue to fall and may not bottom until mid-2015. In June 2014, West Texas Intermediate oil [WTI] was $108/barrel [$108/bbl]. Today it's near $56/bbl. Wells that are currently producing oil can continue to do so until they run dry, as the costs are largely sunk. We're likely looking at another six months of oil prices in the current range.

    Longer term, my sense is that the equilibrium price for WTI crude oil will be $70-80/bbl. That level still hurts a number of OPEC members and Russia; they need a higher oil price to balance their budgets. It would appear that OPEC is backed into a corner and will continue to suffer regardless of the final new equilibrium for oil prices.

    In the U.S., we're reading a lot about how the fracking industry is exposed to high-yield debt. The Saudi Arabians know this and it's one of the main reasons they won't allow OPEC to cut production to support the price of oil. The goal is to push the marginal players in the U.S. shale industry out of business.

    TMR: With such low prices, are energy investors doubling down and investing in companies while they're at their historic lows or are they waiting to see what comes next?

    CB: Almost universally, in both the institutional and retail sectors, energy investors are waiting and are pursuing higher returns elsewhere. This is a classic falling knife scenario where many commodities have fallen hard consistently and nobody wants to be the first person back in the market for fear of incurring additional losses. It seems that this is a market where you find out if you're a true contrarian or not.

    Instances like this strengthen my belief that deflation, rather than inflation, is the more pressing economic issue to tackle.

    TMR: Let's talk about some of those other commodities. You've written a lot about the impact of increasing battery demand on commodities. What's your outlook for lithium?

    CB: Lithium is one of my top picks going forward. Despite the large amount of press lithium receives, it really is a small industry. The combined market capitalization of all lithium mining companies I'm tracking amounts to about US$18 billion [US$18B]. When you strip out the established lithium producers, that market cap number plummets to about $550 million [$550M]. For the sake of comparison, Apple, a major lithium-ion battery customer, has a market cap of $653B, over 36 times larger than the entire lithium industry.

    Currently, just about all metals are suffering from excess capacity that built up during the first leg of the commodity super cycle between 2002 and 2011. Lithium is no exception. That said, there are two primary reasons I'm optimistic about lithium in the coming years.

    First, overall demand for lithium is growing at about 8% annually. I can't think of another metal I'm tracking with that same growth trajectory. Compare that to global GDP growth at about 3%. Even if lithium demand falls to 6%, it's still growing at double global GDP. This provides some insulation.

    Second, lithium has multiple avenues of demand. "Current day" uses include ceramics or pharmaceuticals. The next generation of use is the battery business, which is growing at healthy double digit rates. Vehicle electrification and energy storage are key drivers for lithium going forward. Almost any major auto manufacturer is either producing or working on some sort of a vehicle with an electric drive train, and with so much R&D funding focused on building more powerful and cheaper lithium-ion batteries, I'm confident that breakthroughs with energy density can occur, but will take time to be commercialized.

    I'm paying particular attention to how companies like Panasonic, LG Chem, or Sumitomo are positioning themselves in the industry.

    TMR: You also need cobalt to make batteries. What is its supply and demand picture?

    CB: If there is a pain point where the grandiose plans for North America-based lithium-ion battery supply chains could come unraveled, it would be with cobalt procurement. Battery chemistries can differ but cobalt is typically the most expensive raw material or component in the batteries. It also originates from challenging investment locales such as the Democratic Republic of Congo or Russia, with much of the refining taking place in China. The cobalt price on the London Metals Exchange is up about 8% in 2014, in stark contrast to just about all other metals, indicating that demand is healthy. The overall demand picture looks reasonably strong, with a 6-7% annual growth rate, primarily coming from the battery and aerospace industries.

    The challenge with cobalt is the lack of near-term production stories in reliable geopolitical jurisdictions. End users trying to find sustainable, secure sources of cobalt have a real problem. I'm not sure what the answer is, but it's a real potential flashpoint for the supply chains.

    TMR: What about nickel and graphite?

    CB: Nickel has been hogging the headlines lately and rightfully so.

    A lot of the interest in nickel was due to the Indonesian government's actions shutting off exports of raw nickel ore. The goal of the government is to build its domestic supply chains and export higher-value products. I think the real keys to watch regarding nickel in 2015 are the inventory levels on the London Metals Exchange [LME], nickel production in the Philippines, and also nickel stocks in China.

    As for graphite, it has a different story. Of the metals and minerals I cover, graphite is among the most difficult to reliably forecast. The market is incredibly fragmented and there are dozens of end products, making an overall forecast challenging, to say the least. China's relative dominance in the market is another factor adding a layer of opacity to the supply and demand picture.

    A main difference between graphite and other metals and minerals is that graphite has a substitute in synthetic graphite. This product is also already integrated into global supply chains. Even though synthetic graphite is more expensive to produce than natural graphite, end users know exactly how it will fit into their supply chains.

    Substituting natural graphite for synthetic is a sizable risk. That said, with so many potential uses for graphite being discovered in labs, the future for graphite, both synthetic and natural, remains positive. I think the optimal junior mining graphite opportunities going forward will be those that have worked to establish their own supply chains, or have established patented production technologies. In an era of excess supply and muted demand, increased productivity is crucial for sustainability.

    TMR: What other commodities are playing disruptive roles right now?

    CB: It's less about the commodities and more about which companies are employing unique technologies to reduce costs and compete in oligopolistic markets with high barriers to entry. An example is the titanium dioxide market, which is currently well-supplied. Titanium dioxide is a $15B per year market and is mainly used in the paint business. Recent production figures peg the size of the market at 5 million tons. It's dominated by the Chinese and by companies like DuPont.

    TMR: Let's move on to the last commodity, uranium. Rick Rule calls it one of the most hated materials and therefore one of his favorite investments. What role does uranium play in the changing energy landscape and which companies could capitalize on that?

    CB: Uranium is definitely hated. It's still my top contrarian pick. It's indispensable in our global energy nexus. Nuclear energy supplies about 20% of global electricity today, and will arguably provide about 20% into the future as the overall size of the energy "pie" grows. Nuclear infrastructure is in place and, of course, growing in countries like China and a lot of R&D is underway to make nuclear power safer and more effective.

    It's been encouraging to see the uranium price increase this year. It was up about 50% off its lows this year, although it has backed off some.

    Again, the key is finding the lowest-cost near-term producers. I am still tracking Uranerz Energy Corp. (NYSEMKT:URZ), as an example. The company recently achieved commercial production from its in situ projects in Wyoming and is one of the few companies that can operate in the current low uranium price environment.

    With a great deal of uranium production not economic at current prices and the long-awaited restart of Japanese reactors looming, finding low-cost production stories is the most realistic way to play the uranium market. Exploration isn't getting rewarded, so I would argue that the greatest leverage can be had by finding near-term production stories. I don't think you'll see new supply incentivized until uranium reaches $70 per pound.

    TMR: Any final advice for taking advantage of disruptive technologies looking forward?

    CB: One of the more powerful lessons I've learned in investing is that when you hear people say, "This time it's different," remember that it's never different. Disruption and innovation are certainly clichés, but given that we are dealing not only with cyclical challenges but structural challenges as well, including excess capacity, structural challenges can be mitigated through applying technology that can lower costs in a mining operation. Structural challenges take much longer to work through before we can begin a new commodity cycle.

    Technologies, relationships and intangibles like those I described above can help companies achieve low production costs.

    I think energy metals are set to outperform during the next metals cycle as technology and higher living standards converge to demand a sustainable path of growth going forward.

    TMR: Chris, thank you for your time and your insights.

    This interview was conducted by JT Long of The Mining Report and can be read in its entirety here.

    Chris Berry is a well-known writer, speaker and analyst. He focuses much of his time on energy metals-those metals or minerals used in the generation or storage of energy. He is a student of the theory of Convergence emanating from the Emerging World and believes it will have profound effects across the globe in the coming years. Active on the speaking circuit throughout the world and frequently quoted in the press, Berry spent 15 years working across various roles in sales and brokerage on Wall Street before shifting focus and taking control of his financial destiny. He is the co-author of The Disruptive Discoveries Journal. Berry holds a Master of Business Administration in finance with an international focus from Fordham University, and a Bachelor of Art in International Studies from The Virginia Military Institute.

    Want to read more Mining Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit The Mining Report home page.

    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Uranerz Energy Corp. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    3) Chris Berry: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.

    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Mining Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Mining Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Dec 30 4:23 PM | Link | Comment!
  • 8 Billion Reasons To Invest In Potash: Paradigm's Spencer Churchill

    Potash producers have 8 billion reasons why demand for the minerals that increase food production will grow in the coming decades. Plus, a sinkhole emerging under a Russian mine is raising questions about the ability to produce enough fertilizer to feed what is projected to be an even larger and more demanding global population. The right companies could reap the benefits of exposure to the agricultural market. In this interview with The Mining Report, Paradigm Capital Analyst Spencer Churchill shares some of his favorites and talks about a unique streaming model that benefits from immediate upside.

    The Mining Report: The United Nations recently raised population projections based on increased births in industrialized nations, and has said that it expects 8 billion people to be on the planet by 2050. Is this good news for agriculture and fertilizer companies?

    Spencer Churchill: Population growth is a positive long-term driver for agriculture and fertilizer companies, and this has been one of the key arguments for many years in favor of investing in these stocks. That said, the market is more concerned with changes in the near-term fundamentals [grain and fertilizer prices, inventories, geo-political events, macro-economic factors etc.] and we believe the long-term argument has lost some weight in the minds of investors, partly because it is repeated so many times and referred to during periods of underperformance.

    TMR: Will some types of companies in some places do better than others? What is your litmus test for picking companies?

    SC: Our litmus test for picking companies is a combination of financial health [solid balance sheet, track record of profitability in different environments], strong management, positive macro trends and valuation [trading in line or at a discount to peers/historical average].

    More people eating more and eating better should lift all boats in the space, but there are definitely times in the cycle when some will outperform others. A good example of this is the current situation in the agricultural equipment market. While sales of big ticket items like tractors and combines have been hit hard with the drop in grain prices and decline in farmer sentiment and spending, some companies in the equipment space have prospered. For example, Ag Growth International Inc. (OTCPK:AGGZF) [AFN:TSX] sells lower-ticket equipment that is essential to farm operations and that must be replaced regularly. One of the primary drivers for the company is corn volumes in the U.S., which have reached record levels two years straight. Lower corn prices have resulted, but this is a positive for Ag Growth. Farmers are more reluctant to sell at depressed prices, which increases the need for on-farm storage capacity. Ag Growth is a player in that space as well, and will be a much larger one with the proposed acquisition of Vicwest's Westeel division.

    TMR: Could reports of a giant sinkhole under a potash mine in Russia bring potash commodity prices up, at least short term?

    SC: While there is still uncertainty around the final outcome of this event, Uralkali [URKA: LSE] recently indicated that the sink hole has increased in size to 50-80 meters [from 30-40 meters] and that there is a high probability the mine could be a complete loss [according to the director of the Mining Institute of the Urals Branch of the Russian Academy of Science]. Given the size of the mine [~3.5% of global capacity], the increased likelihood it will be at least shut down for many months and the potential the flooding spreads to the second mine [~1.5% of global capacity], we believe the event should support potash prices in the near term.

    TMR: What potash companies could be poised to take advantage of future price increases?

    SC: Those with the greatest exposure to potash would benefit most: 50% of PotashCorp.'s (NYSE:POT) gross margin is generated from potash, Intrepid Potash Inc. (NYSE:IPI) has 100% exposure to potash in the U.S., The Mosaic Co. (NYSE:MOS) revenue is derived from around 40% potash and Agrium Inc. (NYSE:AGU) is the lowest with around 5% potash.

    TMR: Funding is always a challenge for juniors. You follow Input Capital Corp. (OTC:INPCF) [INP:TSX.V], which is a unique agricultural streaming company. Can you explain the value proposition for investors?

    SC: Input Capital is a small cap in the space, but not a junior. The company is not exploring or developing a fertilizer deposit. Input provides capital to canola farmers in Canada in exchange for a stream of canola production, which Input then sells into the market.

    Like other royalty companies, the attraction is the very high earnings leverage these companies can produce [EBITDA margins of 90%+], given the relatively low headcount required and the growing recurring revenue base generated as capital is deployed. Input is unique in that it generates revenue from its contracts in year one, with no waiting for a mine to be built, concerns about capital expenditure, mineralogy etc. like with the precious metal streamers. There is much less concentration risk; the company already has 20 customers and is growing. And by reinvesting the cash flow from current contracts, Input can grow the business 25-35% a year without having to raise new capital. Input is the first company to attempt this business model in the agricultural space and the founders have a great pedigree. They founded and grew Assiniboia Farmland LP, which sold for $128M in December 2013.

    The biggest risks are with the commodity price [the company does not hedge] and Input's ability to continue to deploy more capital to meet the market's expectations for growth. Input is one of our favorite names in the space.

    TMR: Thank you, Spencer.

    This interview was conducted by JT Long of The Energy Report and can be read in its entirety here.

    Spencer Churchill has been working in the investment industry for 15 years. Prior to joining Paradigm, Churchill worked as a sellside research analyst at CIBC and Clarus Securities, with coverage areas including agriculture, clean technology, special situations, software and wireless technology. Churchill also spent two years working as an associate portfolio manager at a hedge fund in Toronto.

    Want to read more Mining Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) Spencer Churchill: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Input Capital Corp. and Ag Growth International Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. Paradigm Capital Inc.'s disclosure policies and research distribution procedures can be found on our website at: www.paradigmcapinc.com/documents/show.ph...
    3) The following companies mentioned in the interview are sponsors of Streetwise Reports: Input Capital Corp. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.

    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Mining Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Mining Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Dec 23 2:38 PM | Link | Comment!
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