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  • What Is Chen Selling? One Of His Tenbaggers. What Is Chen Buying? Two Others With Tenbagger Potential

    What Is Chen Selling? One of His Tenbaggers. What is Chen Buying? Two Others with Tenbagger Potential

    Chen Lin doesn't get attached to stocks, only to profits. The author of What is Chen Buying? What is Chen Selling? buys low, sells high, then tells his subscribers what he's doing and why. In this interview with The Energy Report, Lin describes a recent success and explains his high expectations for two oil and gas producers. Savvy investors: Pay attention.

    The Energy Report: Chen, recent U.S. Environmental Protection Agency [EPA] actions with regard to ethanol blending requirements have been unsettling to the ethanol space. What are you expecting from the EPA and when?

    Chen Lin: I expect an EPA ruling by the end of June. It will likely increase the mandate from last year's proposal, but will be less than the original mandate, which was established a couple of years ago. It will be in the middle because it's an election year, and the agency does not want to make anybody angry.

    TER: Will the domestic market or the export market be stronger for ethanol in the future?

    CL: The domestic market is still the largest and most important for the ethanol industry. However, export is getting more significant. Right now we export to Canada, to Brazil, to Asia-over the world. Europe's still banning the purchase of American ethanol because it wants to protect its domestic agriculture; so is Japan. That leaves China, which l see as potentially the most important up-and-coming market for American ethanol. This will benefit farmers and the renewable energy industry.

    I had a discussion about ethanol use in China in my last interview with The Energy Report. I've done a lot more research on that subject lately. Look at gasoline usage in China: China has a huge automobile market, which translates to a huge gasoline market. Unfortunately, ethanol use is only 1-2%. The Chinese are still using MTBE, which is banned in the United States, Canada and all over the developed world. We know the problem: MTBE pollutes the groundwater. However, big oil in China- PetroChina Co. Ltd. (OTCQB:PCCYF)-continues to mislead Chinese citizens, saying ethanol is bad for car engines and promoting use of MTBE, because it is heavily investing in MTBE. That's actually preventing the export of American ethanol to China.

    We should immediately start an information campaign to educate Chinese citizens about the danger of MTBE. We have a lot of evidence that it's polluting groundwater, and it costs billions of dollars to clean that up. Chinese citizens are very sensitive to pollution and to water quality. If they get that information, they will likely start protesting big oil in China. Also, the United States should have high-level talks with China-with the Premier-because big oil wouldn't listen to popular opinion. It doesn't care. It cares about profit. But big oil does listen to the Premier. That's probably the only way: Educate the people and then go to the top level to push China to gradually retire MTBE and use ethanol. That will benefit American farmers and the American renewable industry for decades to come.

    TER: Are you saying that China will be the main export buyer of ethanol?

    CL: Potentially it would. Right now China is using very little ethanol. If China begins to use more ethanol to cut pollution, the only loser would be big oil in China. China could provide a very bright future for ethanol producers and farmers, in the United States. But we need a strategy and need to push that hard.

    TER: There's been a lot of confrontation in relations between China and the U.S. recently, as the U.S. has indicted Chinese officials for cyber espionage and has resisted China's claims to areas in the East China and South China seas. In response, China is banning or limiting operations by U.S.-based companies. How will these issues affect the companies you cover?

    CL: China remains a big challenge, as well as a big opportunity, for U.S. businesses. China itself is changing because of the rise of the middle class. Believe it or not, the Chinese are very Internet-savvy. Most people I met last year when I was visiting China had Internet VPN [virtual private network] access. They bypass the firewall of the Chinese government and browse the Web freely, because nobody wants to read censored news.

    The issues right now in China are the popping of the housing bubble, pollution and corruption. Those are the top concerns of Chinese citizens. I think they're probably more interested about fixing those than they are about fixing external confrontations. I don't think citizens would support confrontation.

    But there could be some win-win situations. I think ethanol is the perfect example. It could be a win-win solution on both sides. We are living on the same Earth, so carbon emissions in China are the same as carbon emissions in the United States. The Obama administration has been very tough on reducing carbon emissions in the U.S. I think he can push China to reduce emissions as well. There's where I see the opportunities.

    TER: How is the narrowing spread between West Texas Intermediate [WTI] and Brent affecting the companies you cover?

    CL: The narrowing of WTI/Brent is very negative for the refiners; their margins are very sensitive to WTI/Brent. Fortunately, I sold all my refiners for a very nice profit. I don't own refiners at this time, even though I made very good money before. On the plus side, the spread will benefit the domestic oil producers, because the narrowing of WTI to Brent will increase what the producers sell. Also, we had a very cold winter, so the natural gas price is high. Domestic producers are in a very sweet spot right now because the oil price is higher, and the natural gas price is even higher.

    TER: Pacific Ethanol Inc. (NASDAQ:PEIX) has had an exciting year, with a sevenfold increase in its share price. What's behind that, and what's ahead for Pacific Ethanol?

    CL: Pacific Ethanol was one of my biggest winners in the past 6-12 months. It was a great turnaround story, thanks to the low corn price. At the end of last year, the corn price suddenly dropped. For a highly leveraged company like Pacific Ethanol, this was a huge opportunity, because it went from not making money to suddenly making a lot of money. I was very fortunate. I was able to load up on the shares, as well as its call options, at the end of last year. I was able to book huge profits when the share price popped to double digits with the Q4/13 earnings release. That's when I sold my call options; I sold most of my shares at around $16/share, ahead of Q1/14, because at that time I felt the market was a bit frothy. The market expectation was very high. I'd rather take a profit off the table.

    I started buying shares when the price fell close to $10/share. After the earnings, I bought back Pacific Ethanol at $11, $10.50. I told my subscribers I would buy at $11, $10.50 and $10, but $10 was never reached-maybe because my subscribers were also buying. That's life. I feel the stock has a lot of room to grow. The company raised money at $16/share. It strengthened its balance sheet. It restarted Madera, another ethanol plant, in this quarter.

    Right now the ethanol margin is very high. It dipped a couple of months ago; now it's very high again-very volatile. Pacific Ethanol is trading with no hedge. That's a great opportunity to make a lot of money in Q2/14.

    TER: Green Plains Renewable Energy Inc. (NASDAQ:GPRE) began a growth spurt in December 2013 that has continued. What was the catalyst for that?

    CL: Green Plains had a good run. I also own the stock. Again, the ethanol industry had a boom because of the low corn price. Green Plains remains the cheapest publicly traded ethanol producer in terms of capacity versus market cap. However, because of an aggressive hedging program, the upside was very limited; the company's earnings were not strong.

    If you compare the Green Plains margin versus Valero Energy Corp.'s (NYSE:VLO) ethanol division margin, though they are similarly sized, Valero's margin is almost three times higher than Green Plains. That's how bad the hedging program was. On the other hand, Green Plains is the largest independently traded ethanol producer. It could be a very good takeover target. For company refiners on the West Coast, Pacific Ethanol is a better takeover target. Both Green Plains and Pacific Ethanol are excellent targets, and I'm quite excited about both companies.

    TER: Are you expecting Green Plains' growth spurt to continue?

    CL: Yes. It's well run. The only problem is the hedge at the $0.20-0.30 margin, when the company could get $0.70-0.80 margin in the spot market. But the company still makes a lot of money at the $0.20-0.30 margin. It probably will pay off all of its debt by the end of 2015.

    TER: Were you surprised that Wells Fargo & Co. (NYSE:WFC) downgraded Swift Energy Co. (NYSE:SFY)from outperform to market perform and lowered its target price?

    CL: That's a good question. I was a little bit surprised. I would say those analysts are busy counting the trees but missing the big forest. Years ago, most analysts were pushing every oil company to take on more debt to show growth. Now it's just the opposite. They're severely punishing companies with debt. Analysts demand that companies sell their assets at whatever cost to bring their balance sheets to the level the analysts want to see. Personally I see opportunity.

    As we discussed earlier, WTI is on the rise and natural gas is on the rise. I heard liquified natural gas [LNG] export terminals will be ready by 2016. We had a very cold winter; natural gas storage is very low. It will take a few years to refill natural gas storage facilities. Before we can finish the refill, LNG exports will start. Natural gas looks brighter than oil, if you look ahead a few years. But both commodities-oil and natural gas-are looking good. A lot of businesses are looking to get into the North American oil and gas opportunities.

    In addition, there has been very active deal-making. In the last month or so, when Swift Energy farmed out its natural gas property, it sold half its assets for about $175 million [$175M], which is about $70,000 [$70K] per acre. It had estimated only $20-30K. That's a perfect example of how, in a rising commodity environment, which I believe we are in, leverage is a good thing. Swift Energy has a big acreage at Eagle Ford, and it's trading at two times cash flow when most companies are trading at five or more. Many assets recently sold for ten times cash flow. There are a lot opportunities.

    Analysts have a fancy term. They call it EBITDA [earnings before interest, taxes, depreciation and amortization]. They use that to analyze value. Basically, they add the debt to the market cap. That's only one side of the story-EBITDA versus EV [enterprise value]. How about the asset? How about acreage? How about 2P reserve? That's my experience. The analysts tend to be overly bearish when the market starts to turn, when you should buy, and be overly optimistic at the top of the market. Again, that's my opinion. Maybe the best analysts are not working for the hedge funds.

    I had a very good run last year. I bought Penn Virginia Corp. (NYSE:PVA) below $5 late last year. It more than tripled in less than a year. I also have a big run on Lightstream Resources Ltd. (OTCPK:LSTMF) [LTS:TSX]. I still hold Lightstream; I sold Penn Virginia. They're quite similar to Swift Energy. They're heavily shorted. They have a sizeable debt. They have no love on Wall Street. It's a little like the housing market: When it goes down big time, you don't want any leverage; when it goes up, leverage is good. When the energy outlook looks brighter, as I see it is, a company can sell assets at good prices. Then the funds will get in. The shorts will try to get out. The stock can have a big run, and I see similar situations to that of Swift Energy.

    TER: Do you have any other companies that you're excited about right now?

    CL: I still like international plays. I like companies with good balance sheets. I like companies with good cash flow. I like companies that can grow on their own. Also, right now, I feel the North American market has stabilized enough that companies with a reasonable amount of debt look very good. The market has been going to extremes on debt.

    I'm also very bullish on ethanol. Finally, I want to emphasize that every commodity China needs went through the roof. Oil, liquefied natural gas, copper-you name it. If the United States can open up the ethanol market in China, the ethanol boom will go on for years, if not decades.

    TER: Thank you, Chen.

    CL: Thank you.

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

    Chen Lin writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling?, published and distributed by Taylor Hard Money Advisors Inc. While a doctoral candidate in aeronautical engineering at Princeton, Lin found his investment strategies were so profitable that he put his Ph.D. on the back burner. He employs a value-oriented approach and often demonstrates excellent market timing due to his exceptional technical analysis.

    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) Tom Armistead 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: Royal Dutch Shell Plc. Streetwise Reports does not accept stock in exchange for its services.
    3) Chen Lin: I own, or my family owns, shares of the following companies mentioned in this interview: Pacific Ethanol Inc. and stock options, Swift Energy Co. and stock options, Green Plains Inc., and Lightstream Resources Ltd. 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 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 Energy 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 Energy Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8204
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Tags: GPRE, PEIX, SFY, Oil, Gas, Mining, Energy
    Jun 25 5:31 PM | Link | Comment!
  • Brent Cook's Tips For Finding Juniors That Can Survive The Dust Bowl

    Brent Cook's Tips for Finding Juniors that Can Survive the Dust Bowl

    As romantic as the idea of the gold explorer who strikes it rich in lightning fashion is, the far more common tale is one of hard work and persistence. For investors, that means doing due diligence to search out the likely success stories. In this interview with The Mining Report, Brent Cook of Exploration Insights shares the telltale signs of success he looks for in the junior gold, phosphate and uranium sectors and discusses the synergies that stand to benefit some recent mergers.

    The Mining Report: Brent, you've predicted that the summer of 2014 will be a great dust bowl for junior mining investors. Why so bleak?

    Brent Cook: The junior mining sector has lots of issues to work through. The major mining companies have even bigger issues to work through, starting with the inability to show a profit over an extended period of time. Investors are disappointed by the performance of the majors and have left the sector in search of more reliable, more profitable sectors.

    Until we see the major mining companies start making money, it will be tough for the juniors to raise money. That's the reason for my prediction.

    TMR: You've said that investors might start to return to the mining sector as soon as 2015-2016. Is that because you think the majors will be making money by then?

    BC: No, I think the opposite. The majors, on average, have all-in production costs that are higher than the gold price right now; they are struggling. They're cutting costs by 1) curtailing development and exploration, 2) laying off staff, including geologists, engineers and, hopefully, some human resources people, and 3) high-grading their deposits. High-grading is more profitable in the short term, but in the long run it degrades the future revenue from that deposit.

    Although the majors will improve their earnings this year, in 2015 and 2016 their mines won't be making much money. At that point, they will have to replace what they're producing with new, profitable ore deposits, but the problem is there aren't that many out there. In the next couple of years, and we're starting to see it already, the majors will be acquiring the very few profitable deposits out there that are now held by juniors.

    TMR: Do you foresee a lot more deals coming up?

    BC: Not a lot more, and that's the problem. There aren't that many good deposits out there.

    In H1/14, I went through more than 100 gold deposits with NI-43-101-compliant resources and found very few that I felt actually made good money. There are lots of resources being touted by too many companies, just not many that can make money, assuming the gold price and cost structure stays more or less where they are.

    If we see a rapid rise in the gold price, maybe some of these assets will look more profitable. The last time the gold price rose, the majors dropped the grade they were mining, thereby lowering their per ton profitability. At the same time the input costs that go into mining-labor, materials, consumables-rose. We never saw the profit that was advertised and that we expected.

    TMR: Let's talk about some of the deals that have been made. What were the synergies and the challenges?

    BC: A couple of weeks ago, Rio Alto Mining Ltd. (NYSE:RIOM) bought Sulliden Gold Corp. (OTCQX:SDDDF). That's a great deal for Rio Alto, which is currently mining an oxide-gold deposit in Peru. By acquiring Sulliden, Rio Alto gets another Peruvian deposit that is very similar geologically and metallurgically, so it shouldn't be too big an issue to bring it into production. The timing works well because the Sulliden deposit should pick up just when Rio Alto's La Arena deposit starts to decline. Rio Alto knows how to work in Peru, and it seems to have the social issues under control. The synergies work really well when a company that knows what it is doing buys a deposit that fits right in with what it's up to.

    Another one is B2Gold Corp.'s (NYSEMKT:BTG) planned purchase of an Australian company called Papillon Resources Inc. (OTCPK:PAPQF). Papillon's deposit in Mali is more than 5 million ounces [5 Moz], in my opinion probably the best gold deposit not owned by a major. We bought it in my letter about a year ago because of its high quality asset. B2Gold is just finishing off building its deposit in Namibia, so the whole team now moves to the deposit in Mali and begins building that. Again, very synergistic for B2Gold.

    TMR: Interestingly, looking at the stock prices it appears that Papillon shareholders saw it as a positive, but the B2Gold shareholders did not.

    BC: It's an all-share deal, so it's a lot of dilution. The Papillon shareholders end up with about 25% of B2Gold. B2Gold dropped quite a bit, but it has come back. But I guarantee you this will be a fantastic profitable deposit for B2Gold; it made a good move while the majors who should be buying it have their collective heads in the sand.

    TMR: The bidding war over Osisko Mining Corp. (OTCPK:OSKFF) was one of the deals that kicked off a lot of this activity. Now that some time has passed, is that deal positive for the shareholders?

    BC: It appears to be. I don't follow Osisko in much detail. The deal offers Yamana Gold Inc. (NYSE:AUY) a big tax advantage because it gives Yamana a Canadian operation. In addition, it gives Yamana some political security in that most of its other options are in less stable jurisdictions. This deal is a big plus for Yamana.

    TMR: Do these deals add liquidity to junior mining investors who, after having had a positive experience, might now be willing to put some money into other junior mining stocks?

    BC: Certainly. I think a lot of the funds and individuals are taking some money off the table and plowing it back into the sector. That's positive.

    TMR: Your newsletter recently quoted a Newmont Mining Corp. [NEM:NYSE] study that 1 in 1,000 prospects turns into an economic deposit, and 1 in 10,000 becomes a 4 Moz or more resource. Why is it getting more difficult to find economic deposits, given all the cool new technology?

    BC: That study is a few years old, and I need to emphasize that it's a statistical number. The real odds are better than that if you do a bit of due diligence.

    It's getting harder because we've scoured the earth fairly well. There are not many outcropping ore deposits left to find. We have to look under cover or through barren rocks. Explorers have to spend more to drill and use geophysics and such. The less expensive but still critical surface work now only gets you to a drill test that is often little more than an initial look at the rocks of interest.

    Once you do find something, it has to be good because it's probably buried under 100-200 meters [100-200m] of rock. That depth adds to the cost of exploration, resource definition, stripping, engineering and often recovery. Therefore your grade and tons hurdle are higher for an economic deposit. A 2 Moz deposit grading a gram at surface may make money, but at 150m depth it probably doesn't.

    There really haven't been that many advances in technology. Unlike the simpler geology of oil and gas, this is complex geology. Take a porphyry copper deposit, for example, or an epithermal gold deposit. They form on continental margins, subduction zones, fault zones. The deposits get chewed up, broken up, bent up and moved. I just posted an article on my website that goes into the complications of exploration and the discovery process.

    TMR: Do investors understand the difficulty of finding and developing a successful project?

    BC: Overall, no. That's a real problem with this industry. There is a lack of communication and understanding between the finance side and the technical side.

    Most speculators in this sector have very short-term time horizons. They expect to drill a few holes, make a discovery and turn a $0.10/share stock into a $1 stock. It doesn't happen that often. It occasionally does, and that's what keeps hope alive.

    Exploration is a scientific endeavor, in which you conceptualize a target or a theory, and you test it using a drill and the data. You re-analyze the data and adjust your model to fit, often more than once. That takes time and money.

    A lot of companies are raising money on prospects that have been tested and retested in the past. The rationale is that speculators will give them a bit of money if they know some flash drill assays are coming from a re-drill of a previous hole, thereby providing the speculators a chance to get off the stock with a small profit. In reality, however, the project was a dog, always has been a dog, and the problem was all the other holes that didn't carry any grade, not the one good hole that keeps getting re-drilled. Schemes like this are a waste of precious capital and one of the reasons that odds of success are so low.

    TMR: Nonetheless, you're still buying companies. What do you look for and how do you take that deep breath and make your estimates?

    BC: I've done this my whole life. I think you can get the odds down with a lot of due diligence and understanding what a company is looking for.

    I look for the very few projects that offer a shot at a deposit, whose production costs and capital expense [capex] will be in the lower third of the projects out there. Those projects will make money, assuming some government doesn't steal it.

    First off, you need to consider the economics behind mining something as early as possible. Most companies, and most investors, don't seem to do that, which is too bad, because it's really important. On my first visit to any early-stage project I mentally build a mine that includes metallurgy, mining costs and capex and then judge results based on that rough model.

    Second, you need to invest in a company with competent people who understand what they're looking for: the target type, the geology and what it will take to advance the project. Too many companies find something and, although their market cap may increase, the share price never increases because management needs to keep financing to continue exploring. Even if the company succeeds, we shareholders don't get much bang for the buck because we've been diluted out as management kept on drilling. A company has to know how to financially engineer the exploration and development of the project.

    TMR: What's another company?

    BC: Dalradian Resources Inc. (OTCPK:DRLDF) is proving up an interesting deposit in Northern Ireland. It's a series of narrow, high-grade vein structures that run under what is basically sheep pasture. In its preliminary economic assessment [PEA], Dalradian has proven up a Measured and Indicated 1 Moz grading 10.4 g/t, plus an Inferred 2.5 Moz grading about 9.6 g/t. It's located in an area of Northern Ireland that has high unemployment. From what I've seen and heard, the local authorities are positively inclined toward development. I don't see any serious environmental hurdles.

    It's a simple deposit, low capex, low operating costs in a very stable place. I think a midtier company should go in and buy it. Right now, the PEA, which is going to be updated, shows a value close to $500M on an after-tax basis, and the company is selling for $100M. It has enough cash to move ahead to the feasibility stage. This summer and fall, Dalradian will be taking a bulk underground sample; I am headed there to get a closer look at the resource shortly.

    TMR: How soon could that be a mine?

    BC: Let's give it two years. Engineering, permitting and production all take time. If the old PEA is accurate-and I think it's probably close-this would produce gold for less than $600/ounce. There aren't many projects that can do that. The internal rate of return on Dalradian is about 42%.

    TMR: Who else do you like?

    BC: One of the most geologically boring deposits in the world is a phosphate deposit being proven up by Focus Ventures Ltd. (NASDAQ:FCV) in Peru. It's dead simple geology: shallow seabeds that are continuous for tens of kilometers. The phosphate beds within them are being mined or developed on two adjacent deposits, one owned by Vale S.A. [VALE:NYSE] and the other owned by Hochschild Mining Plc [HOC:LSE], as well as some agricultural companies. They are making lots of money off the phosphate.

    The deposit that Focus is drilling is essentially the same. It is proving up a resource right now. If it's successful, it should be worth multiples of what the company is trading at right now, which is about $0.26/share. I can see Focus going substantially higher, assuming it brings in a company that can take the project forward and mine it. I think there's a good chance of that happening.

    TMR: Is phosphate a play on the thesis that developing countries need more food?

    BC: Yes, in a sense this is a play on a growing world population that needs more and higher-quality food. Phosphate is a major fertilizer. China and India have trashed their environments, so they need to use more and more fertilizer.

    TMR: If junior gold mining investment opportunities resemble a dust bowl, how do you describe uranium juniors?

    BC: They're even worse. Not too long ago, Rick Rule called uranium the most hated sector. When I first joined up with Rick in 1997, uranium was about as hated as it is now.

    You have to step in and buy these things when they're really unloved, and that is where uranium is now.

    TMR: We've covered a lot of ground. How about some advice for investors looking to get through the great dust bowl intact?

    BC: The rain will come. At my most recent presentation in Vancouver, I showed a slide of a couple of stocks that collapsed in 1997. One of them was First Quantum Minerals Ltd. (OTCPK:FQVLF). It got down to about $0.50/share; within five years, it was up to $17 and, ultimately, got up to be a $28 stock.

    You have to ask yourself these questions: Will we keep consuming metals? Are we consuming metals at a higher rate than we used to? Will we be finding enough deposits to replace what's being produced? I think the answer to the first three questions is yes and the last is no. If that's the case, all we have to do is selectively and intelligently buy the companies that have the prospects or the people capable of finding the deposits that will be the leaders when the bull market comes back to the sector, as it will.

    TMR: That's great advice. Brent, 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.

    Brent Cook brings more than 30 years of experience as a geologist, consultant and investment adviser. His knowledge spans all areas of the mining business, from the conceptual stage through detailed technical and financial modeling related to mine development and production. Cook's weekly Exploration Insights newsletter focuses on early discovery, high-reward opportunities, primarily among junior mining and exploration companies.

    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 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) Streetwise Reports does not accept stock in exchange for its services.
    3) Brent Cook: I own, or my family owns, shares of the following companies mentioned in this interview: Focus Ventures Ltd. and Dalradian Resources Inc. 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 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

    Jun 24 4:40 PM | Link | Comment!
  • Randall Abramson: Juniors Clean Up Behind The Elephant Hunters

    Randall Abramson: Juniors Clean Up Behind the Elephant Hunters

    Junior explorers and producers may be at the mercy of market forces, but an opportunistic management team can control its own destiny by capitalizing on industry opportunities. In this interview with The Energy Report, Randall Abramson, president, CEO and portfolio manager at Trapeze Asset Management Inc., tells the story of how one junior company cleaned up on an asset the majors overlooked. He also shares compelling oil and gas names from Canada to Tanzania.

    TER: Northern Tier Energy LP (NYSE:NTI) is an independent, downstream, energy master limited partnership [MLP] with refining, retail and pipeline operations that serve the Petroleum Administrative for Defense District [PADD] 2 region of the United States. What's your recommendation for Northern Tier?

    RA: I think Northern Tier is getting closer to fair value. There is still probably 10% or 15% upside there, particularly if its large owner, Western Refining Inc. (NYSE:WNR), which owns close to 39% of the company, decides it wants to have the rest of the company for itself, to unlock significant value. This transaction could diversify Western Refining by geography, end-markets and feedstock, and allow a cash-flow boost in Western Refining's own MLP by adding Northern Tier's significant assets in retail, pipeline and storage facilities.

    TER: How does the cyclical nature of the refining industry affect Northern Tier's earnings?

    RA: I think Northern Tier is a bit of a standout. There is a shortage of refinery capacity within the U.S., which makes the refining industry less cyclical than it used to be. And Northern Tier should be even less cyclical than the group because there's a more pronounced supply/demand issue in its region. The company should also have better margins: It gets a Bakken feed of light oil, and at the same time there's a significant shortage in its Minnesota backyard, which allows it to get a better margin when it sells the refined product. Northern Tier also has some vertical integration because of its ownership of the retail downstream.

    TER: Corridor Resources Inc.'s share price is up more than 300% over the last year. What's driving that?

    RA: One of the key ingredients is that natural gas prices themselves have been rocketing up to where they sit today, just shy of the $5 per thousand cubic feet [$5/Mcf] range from as low as $2-and-change a year ago. That's attributable to storage inventory dropping as the number of gas rigs has plummeted, and to the fact that we had a disgusting winter. Demand has also been up because there has been switching from coal to gas for economic reasons, although, bizarrely, it's been going slightly back in the other direction recently because of the change in prices. But the carbon footprint issues have put upward pressure on the natural gas price.

    At the same time, what's really helped Corridor, specifically on the gas price front, is the higher gas price in its specific market, which is the U.S. Northeast, as it sells into the New England area. There's been a tremendous shortage there. Gas refineries and natural gas plants were lying idle on the coldest days of the year simply because they couldn't get enough product.

    There isn't enough pipeline capacity coming into New England right now. Corridor ships its gas through the Maritime Northeast Pipeline into New England. It has already locked in US$11/Mcf for a good part of next winter. That's been a huge change for Corridor, to be able to lock in those prices and to start capital spending again in a significant way both at its McCully Field, which is its main field, and its Frederick Brook shale field.

    Corridor also took on partners for exploration and production on Anticosti Island in the Gulf of St. Lawrence: the Québec government and Maurel & Prom (OTC:MRELF) [MAU:EPA], out of France. Corridor has about 22% of the Anticosti play. The partners will put in the money to drill on that property over the next couple of years. We think anticipation of that event and the event itself have helped propel the share price. Anticosti Island is a shale oil project similar to what we've seen in the Utica Shale. It still requires some work to assess the viability of the project, but on the holes that the company has looked into thus far, the core samples look exactly the same as what we've seen in the Utica. Corridor should be drilling and doing more work through the rest of 2014 and 2015 to determine flow rates.

    Corridor has two other properties, one called Old Harry, offshore Newfoundland and Québec, and Frederick Brook, the shale property. Those two fields need partners because they require tens, if not hundreds, of millions of spending to bring them to fruition. But they are massive projects.

    What's amazing about Corridor is that it's still trading, in our opinion, below the breakup liquidation value of the company. If you took the land value, the value of existing production and the value of its compression gas plant, and sold those off, you'd probably get more than the share price today. Because that's not going to happen, we still believe that we're getting those megaprojects for free. The company has no debt and about $35 million [$35M] in cash on hand.

    TER: Corridor has one producing property in New Brunswick. Is that shale gas or conventional gas?

    RA: Most of it is conventional, but there is a little shale gas on the Hiram Brook zone, which is on the company's McCully property. Underneath the Hiram Brook zone, Corridor has discovered a zone called the Frederick Brook, and it's one of the most prolific shales in North America. It's more than 1,000 meters thick.

    The problem for Corridor has been that it requires $100M-150M to begin developing it, and the company needs a partner to pull that off properly. Repsol-YPF S.A. (OTCQX:REPYY) has an LNG import facility nearby that it has been talking about converting into an import/export facility. That would create instant demand for Corridor and others' gas in the region, not just to sell into the Maritimes and into the Northeast of the U.S., but also to Europe and elsewhere. That can be done at a much lower cost than what we're seeing with export facilities in Louisiana or on the coast of British Columbia.

    TER: Are the protests against fracking in New Brunswick threatening Corridor's operation?

    RA: I don't think they've had an impact on Corridor because Corridor operates away from metropolitan areas. The protesting has led to more stringent regulations. That's a positive. To think that we're not going to have fracking at all is somewhat ridiculous because, again, circling back to conventional versus unconventional, this isn't the Beverly Hillbillies anymore, where the oil gurgles up to the surface. With Corridor, its rock has to get fracked. That's the case with most unconventional formations, which means most of the formations and reservoirs that exist today. Fracking is just reality.

    TER: What are some other companies you're excited about?

    RA: We like Legacy Oil + Gas Inc. (OTCPK:LEGPF) [LEG:TSX]. It's a mid-cap company with just over a billion dollars [$1B] of market value in the Saskatchewan/Dakota area. It's an unconventional play and has essentially batted 1.000 on its drilling. I think last year it went 99% because it missed one, but in the most recent quarter it hit them all.

    What we like about Legacy is its high netbacks. It's virtually all light oil, with a high IRR. It trades at about a 20% discount to its asset value. We see that changing over the next 6-12 months as the company makes accretive acquisitions or gets the balance sheet more in line with what the market would like to see. In the meantime, Legacy is growing its fair value. This is not a small company. This is a company that has forecast an exit rate of about 24 Mbbl/d production for this year.

    TER: Thank you very much for your thoughts.

    RA: My pleasure.

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

    Randall Abramson, CFA, is CEO and Portfolio Manager of Trapeze Asset Management Inc., a firm he cofounded in 1999 shortly after founding its affiliate broker dealer, Trapeze Capital Corp. Abramson was named one of Canada's 'Stock Market Superstars' in Bob Thompson's Stock Market Superstars: Secrets of Canada's Top Stock Pickers [Insomniac Press, 2008]. Trapeze's separately managed accounts are long/short or long only, and have either an all-cap orientation or large cap-only mandate via the company's Global Insight model. Abramson graduated with a bachelor's degree in commerce from the University of Toronto in 1989, and his career has spanned investment banking, investment analysis and portfolio management.

    For additional comments on Corridor Resources Inc., Legacy Oil + Gas Inc., Northern Tier Energy LP ., and Western Refining Inc. from newsletter writers, money managers and analysts, click on their respective links or visit The Energy Report.

    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) Tom Armistead 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) Streetwise Reports does not accept stock in exchange for its services.
    3) Randall Abramson: I own, or my family owns, shares of the following companies mentioned in this interview: Corridor Resources Inc., Northern Tier Energy Inc. 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 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.
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    Jun 19 6:49 PM | Link | Comment!
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