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Doug Casey: Glowing Prospects for Uranium

Source: Karen Roche and JT Long of The Energy Report  (9/22/11)

http://www.theenergyreport.com/pub/na/10970

The Western world's skittishness, skepticism and staunch opposition when in comes to nuclear energy won't stand in the way of its production elsewhere in the world. It will be full steam ahead in China, India and other developing nations, says Casey Research Chairman Doug Casey, and the Western world is tiny in comparison. In fact, "I'd say uranium is a great place to be for at least the next generation," he tells us in this Energy Report exclusive. With ever-advancing technology enabling economic recovery in places where it previously wasn't possible, he's also optimistic about natural gas and oil.

The Energy Report: Next month, at the sold-out Casey Research/Sprott Inc. "When Money Dies" summit in Phoenix, you're on tap for a presentation entitled "The Greater Depression Is Now." Your colleague, Marin Katusa, is on the roster too, talking about "Making Money in Energy." Marin recently told us there's a buying opportunity for uranium companies. Given Fukushima's repercussions in terms of the nuclear energy industry, are you bullish on uranium? 

Doug Casey: Absolutely. It's unquestionably the safest, cheapest and cleanest form of mass power generation. That's not to say that there aren't problems, as the Fukushima incident made clear. As much of a disaster as that was-a combination of earthquake, tsunami and radiation leakage-so far it's just been a big industrial disaster. I daresay that if government hadn't been so involved in nuclear power these last 50 or 60 years, the technology would have been much further along. Nuclear power would be much safer, cheaper and cleaner than it is today. We might, for instance, be using thorium, which appears to be better than uranium in many ways. We would almost certainly have much smaller, cheaper, and robust reactors.

So, yes, I'm a huge uranium bull. If you want mass power, you need nuclear power. And today that means uranium. I'd say uranium is a great place to be for at least the next generation.

TER: But considering the fact that governments remain involved and people are even more squeamish about nuclear power post-Fukushima, won't we see a stall in nuclear power and development?

DC: That's possible. But, the hysteria is mainly going to affect the Western world. China and India recognize they have no alternative to nuclear power. As you know, the growth is in China, India and other emerging economies; it's where the most of the world's people live. The Western world is small by comparison, and getting smaller. These other places will continue full steam ahead with nuclear.

TER: Porter Stansberry, whom you know well, recently told us to expect the U.S. to become a net exporter of natural gas in the not-too-distant future. Do you see that as well?

DC: Quite likely. Let's talk about peak oil first, though. I think that the Hubbert peak theory is accurate, and for good geological reasons-but understand that peak oil doesn't mean we're running out of oil. Rather, it means that we're running out of easily available, cheap light sweet oil. And we are.

However, technology is always improving, enabling economic recovery of oil and natural gas in places where it previously wasn't possible. Horizontal drilling and the fracking process have opened up gigantic reserves of gas, scores of trillion of cubic feet in some basins in the U.S. So, yes the U.S. could become a huge exporter of natural gas. It's entirely possible. It could happen in other regions of the world as well, but probably not with gas at its current prices.

The gas is available, but because it's very underpriced relative to other forms of energy, it probably won't be produced until the price doubles or even triples from where it is now. That would bring it more into historical alignment with oil prices, which I expect will themselves go higher as well.

TER: How is it that the oil prices have remained relatively high and gas is still so low? Given the differential of the two price points, why aren't we seeing a conversion from oil-dependent cars, for instance, to natural gas?

DC: Oil has much a greater density of energy than natural gas, and a much more convenient energy-based fuel, so of course we've all gravitated toward it. It's not really feasible for aircraft, for instance, to be able to run on natural gas, so they'll continue to use oil-based derivatives. In addition, gas is much harder to transport than oil. So it's tended to be a local market, whereas oil is international.

But since most all the easy, cheap oil's been found-mostly in the 60s and 70s-and those old oilfields are going into decline, gas is probably the next thing. Gas has some advantages as well. For one thing, it burns cleaner. Remember that these fuels, these petrochemicals, basically contain just hydrogen, oxygen and carbon. As technology advances, we should be able to manipulate these very simple and well-understood molecules and put them into a form we want. We'll be able to do it ourselves in various ways as nanotechnology, for instance, develops further in the future. Then maybe we won't have to rely on nature doing it for us over billions of years.

TER: Despite criticism of the effects of government involvement-stifling nuclear energy advancement over the years, as you mentioned earlier, or printing money to paper over enormous amounts of debt, as you've pointed out in other interviews-you've indicated that improving technology is a countervailing trend that actually will increase the standard of living.

DC: Exactly. There are more scientists and engineers alive today than have lived in all previous history put together; that's a huge cause for optimism. Technology is very likely to solve many, many problems-as long as the scientists and the free market are allowed to develop these things, and as long as there's capital available to manufacture the tools they need to do so.

TER: What are you hoping attendees come away with from next month's summit?

DC: People come to these conferences is to get ideas about intelligent places to put their capital. Today those places are harder to find than has ever been the case before in my lifetime. With the dollar's imminent demise, staying in cash is also very dangerous. There are very few bargains to be found in the world of investment today. Stocks today are quite overpriced by almost any parameter. Bonds will implode; that's especially serious because they're a much bigger market than shares. Property prices are still headed down. So people are looking for answers, and I think we have some.

Beyond answers along those lines, we also host these summits to discuss some investment principles so that our attendees don't have to rely on us for answers. They'll be equipped to deal with these things on their own.

TER: What are some things that investors can do to protect themselves?

DC: It's very hard to be an investor in today's world, because an investor is someone who allocates capital in a way to create new wealth. Inflation, taxation and regulation make investing very problematic-and all three are becoming much more severe. That said, it's late in the day but not too late to buy gold, silver and some other commodities. Productive assets of several types are good to own. Of course, the easiest way to buy most productive assets is through the shares of publicly traded companies, but since the stock market is overvalued in my opinion, that's not the best option right now.

In addition to trying to build personal holdings of gold, and to a lesser degree silver, I think people should learn to be speculators. That's not to be confused with gamblers, who rely on random chance. Speculators position themselves to take advantage of politically caused distortions in the marketplace, and we'll be seeing lots of those. In a true free market society, you'd see very few speculators because there'd be very few such distortions. But compounding regulations, taxes and currency inflations are likely to keep markets very volatile. Good speculators will position themselves to both capitalize on inflating bubbles, and identify bubbles that already have been blown to their maximum and are about to pop.

Increasing government involvement in the economy is going to literally force people to become speculators.

TER: What bubbles might speculators look to exploit?

DC: As I mentioned earlier, most forms of real estate in the U.S. are problematic because the U.S. bubble hasn't completely deflated yet, and real estate bubbles are just starting to deflate in places such as Australia and Canada. Probably the world's biggest real estate bubble is in China. It's relatively hard to short real estate, of course. But shorting banks there might work well. . .

Bonds are another story. I'd say bonds are the short sale of the century. They're going to be destroyed. Bonds pose a triple threat to capital:

1. Interest rates are artificially low, and as interest rates rise-which they must-bonds will fall.
2. The currencies that bonds are denominated in, let's say dollars, will depreciate radically.
3. The credit risk presented by many issuers-certainly including governments-very high.

On the long side, mining stocks are very cheap relative to the price of gold right now. There's an excellent chance of a bubble being ignited in gold mining stocks, especially the small ones; in fact, I'd put my finger on that as likely being the easiest way to make a killing-although there's plenty of risk.

TER: How about technology? Do you see a bubble forming there?

DC: You have a point, but I'm not sure you can talk about technology stocks as a whole; technology is too variegated, too vast a field. I must say, however, that I've always been a huge fan of nanotech-that is an area that will change the nature of life itself. The market will see that, and so it's a definite candidate for a mania. With gold stocks, however, you can jump into a discrete universe.

TER: Any others?

DC: Just talking about the things that seem most obvious to me, like gold. . .well, oil isn't cheap, but a lot of oil stocks are. Natural gas, as we said, impresses me as being cheap relative to other commodities. A favorite of mine is cattle-the downside is de minimus and the upside is huge.

TER: Well, Doug, thank you so much for your time and this preview of your October event. I imagine you look forward to it for many reasons, including the fact that it's sometimes nice to be with other intelligent people who want to broaden their horizons.

DC: It is. It's nice to spend time with others who see things the way you do, and with whom you have some philosophical principles in common. The people who come to our conferences share what I believe to be a sound view of the world. They're not statists; they're not collectivists; they're not misguided, ignorant or wrong-headed. They're an enjoyable company.

Doug Casey, chairman of Casey Research, LLC, is the international investor personified. He's spent substantial time in over 175 different countries so far in his lifetime, residing in 12 of them. And Doug's the one who literally wrote the book on crisis investing. In fact, he's done it twice. After The International Man: The Complete Guidebook to the World's Last Frontiers in 1976, he came out withCrisis Investing: Opportunities and Profits in the Coming Great Depression in 1979. His sequel to this groundbreaking book, which anticipated the collapse of the savings-and-loan industry and rewarded readers who followed his recommendations with spectacular returns, came in 1993, with Crisis Investing for the Rest of the Nineties. In between, his Strategic Investing: How to Profit from the Coming Inflationary Depression broke records for the largest advance ever paid for a financial book. Doug has appeared on NBC News, CNN and National Public Radio. He's been a guest of David Letterman, Larry King, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin and Maury Povich. He's been featured in periodicals such as Time, Forbes, People, US, Barron's and the Washington Post-not to mention countless articles he's written for his own various websites, publications and subscribers. 

For the complete audio collection of the Casey Research Summit, click here.

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Bruce Edgelow: New Technology Solutions Mean New Opportunities

Source: George Mack of The Energy Report  (9/20/11)

http://www.theenergyreport.com/pub/na/10914

U.S. banks may be increasingly reluctant to loan, but ATB Financial Energy Group's Bruce Edgelow is actively supporting opportunity-rich Canadian juniors. His participation with energy explorers and producers (E&Ps) offers him a bird's eye view of new, high-potential technologies. Energy extraction from carbonate reservoirs, Bruce says, represents a potential bonanza for investors. In this exclusive Energy Report interview, he shares some attractive names pioneering the most promising technique since fracking.

COMPANIES MENTIONED: ATHABASCA OIL SANDS CORP. - CALFRAC WELL SERVICES LTD. - CENOVUS ENERGY INC. - ENCANA CORPORATION - PRECISION DRILLING CORP. - SPARTAN EXPLORATION LTD. - TAMARACK VALLEY ENERGY LTD. - TOURMALINE OIL CORP. - TRICAN WELL SERVICE LTD.

The Energy Report: In the United States, we're hearing a lot about banks refusing loans due to fear of regulators or a possible double-dip recession. Is loan capital currently available to the junior E&Ps? 

Bruce Edgelow: Yes, we are delighted to say that in the Canadian banking environment, the E&P space is as open as it's ever been. Just to give you a sense of deal flow, our organization, which represents 8% of the total loans out to the E&P marketplace since April 1 of this year, has concluded 65 new increased participations in the E&P space, totaling just a bit over $800 million (M). We're $200M short of $1B of new commitments to the E&P space, and that's simply from April 1 to September 6. There are another 46 transactions that we've done for $400M in the drilling and services space. Our organization has put out more than $1 billion (B) of new commitments, and we represent about 10% of the business. I would suggest that because of our market niche, we may be the leading edge on that information. But at the same time a lot of those are syndicated pieces, and you could get a sense that there's a healthy lending regime that is supporting Canadian juniors. 

TER: About 15% of your $5.3B loan portfolio is in drilling and services. That seems to be a lower-risk area to me, so why not more? Your stake in these deals isn't equity, and you don't really have a huge upside on your higher-risk loans the way an investment bank or venture capital firm may have.

BE: The number 15% has a direct correlation related to the consolidation that's taken place. We've probably seen 25% of the players in this business get consolidated as people aggregate horsepower, equipment and services to be able to provide these services across the North America platform. So there are not as many players. Those that are fairly large and integrated have been able to go to the bond markets to raise additional capital through the issuance of high-yield notes having maturities of anywhere from seven to 10 years. They've sopped up a lot of the liquidity available to them, and that has paid down a lot of the bank's exposure.

Our loans are not as utilized in that space because of the fact that there have been ample sources of capital available to them from the bond market. And those would be clearly to the larger names likePrecision Drilling Corp. (PD:TSX), Calfrac Well Services Ltd. (CFW:TSX) and Trican Well Service Ltd. (TCW:TSX)-companies like these that are integrated across both platforms-Canada and the U.S. They have good fracking equipment and horsepower and are doing a variety of different services across the different basins. So among them all, those companies have probably raised easily in excess of half a billion dollars of long-term debt that has paid down their conventional senior notes. So that's one anomaly that we would point to, that they're getting their capital elsewhere. So that's part of the issue that has arisen. 

TER: They have high margins, they consolidate and they have easy access to capital. 

BE: They have had. That market has backed up a bit since the first of August, and we're waiting for it to reopen. Prior to that point in time, there was fairly ready access to those large, integrated oilfield services companies. 

TER: Bruce, a joint venture (JV) can clearly help a junior explore for energy and at the same time derisk it a bit. Do you ever play matchmaker for companies so that they can form JVs? Do you attempt to find drilling partners for the small guys? 

BE: The answer to this is a robust yes. We're not yet fully integrated in our shop to be able to do this on a fee-for-service basis, but we have so many opportunities in front of us that we actually keep a database and track opportunities as to who's buying and who's selling or who would like to be a joint venture. We try to have those partners speaking together. I think that's commonplace. There are others who will do this on a fee-for-service basis and ask others to provide bids for farm-outs. We often see that function performed through Sayer Energy Advisors and a variety of other players in that space. But on a quiet basis, our firm is doing this all the time. We're trying to put people together because it is all about those that have risk capital and those that have good plays but are constrained on capital. We're trying to put these people together on a regular basis. 

TER: What about the M&A matchmaker side of the business? You can derisk a loan by introducing a struggling company to a larger company. 

BE: We do that on a regular basis. We have a 19.9% interest in a capital markets firm called AltaCorp Capital Inc. It is setting itself up in this space where it will have an acquisitions and divestitures (A&D) group that will look at formal A&D assignments. So we will, on a formal basis, provide that lead-in through some of our clients who want to do that on a more broadly based bid process, et cetera. But on a quiet basis, we are constantly seeking those individuals who are opportunity rich. For example, they may have less capital but lots of opportunity. They may be selling assets, or they may want to further develop assets. Alternatively, we may have companies that have recently divested assets and have lots of cash and opportunities available to them and are looking for specific play types or are looking to expand in areas that they've got.

TER: Your forecast for natural gas suggests a return to the $6-$8/Mcf range prior to the winter of 2013. I'm assuming that you don't make loans to junior explorers based on what you think the price of energy may be in 12-18 months. From what you're seeing right now, can the juniors make money with natural gas in the $3-$5/Mcf range? 

BE: Given the fact that we've been in this regime of low prices for at least the last 24 months, if not longer than that, the sole natural gas producer has learned to survive on $3.50-$4/Mcf gas. The real question is whether they're making enough to replace reserves. We don't think, on a full depletion basis, that they're actually being able to replace reserves. They are paying heat and light and managing to keep things going, but they've been hard-pressed to grow their business in this current environment of low prices.

The benefit in most cases is that the clients have had access to cash, whether it's joint venture money that's come in from other people or whether they've had access to lines of credit. So they have been able to grow their businesses from other sources than cash flow. We're seeing most of those survive by those means. I would agree with your earlier comment that we're not lending on the supposition that we're going to have an increase in natural gas prices until it actually happens.

TER: The WTI and Brent Crude spread is wider than ever. You have said that this dramatically lower WTI price reflects oversupply in the U.S., but there was a significant WTI-Brent spread when gasoline was $4/gallon, Brent was at $124/barrel (bbl) and WTI was at $114/bbl back in May. So, why this large spread?

BE: There are a variety of factors that play into it, and I've checked with our traders. We do have a bit of a landlocked situation with WTI at Cushing, Oklahoma where our crude supplies are, and we've seen a trading anomaly come into play here, and there may not be a supply differential that would match the price differential. We have North Sea production that is coming off. We have Libya production that is coming offline. There are other political factors that have happened in the last six to 12 months that have taken some of the foreign oil offline, and yet, we've not seen a reduction in that WTI and Brent Crude spread. In fact, in certain cases, it's widened. Our analysis would lead us to believe that it is not based upon physical production or physical traders, but rather it is a financial trading anomaly that's moved into the marketplace. Those are players that are, again, not fundamental on supply-demand but players who have the ability to move contracts and make a market all unto their own. There are certain trading tools that are being used that have been detached from the physical reality, and they have momentum all unto themselves. It's hard to understand it at times.

TER: It sounds like there's something of a bottleneck at the Cushing hub, and that people trading the spread are creating an artificial valuation. 

BE: It has a volatility all unto itself that would lead one to believe that there is a trading anomaly taking place that's beyond the physical side. 

TER: You've devoted more than a little of your diligence to analysis of the environmental lobby. How significant are these environmental worries? Are they significant enough to hurt the smaller E&P guys that you do business with? 

BE: Our view overall is that the industry is well policed on environmental matters. There is an environmental lobby all unto itself that may have certain agendas that it wants to have captured. But with respect to the actual day-to-day running of the business, there is a large environmental application and oversight that is done both at the federal and at the provincial levels, and we think that the industry is well policed.

I believe technology advances are giving us great reason for optimism with regard to environmental concerns. We'd like to believe that in three to five years the tailing ponds at the Syncrude-Suncor will be a thing of the past. By that time, new refining techniques will have eliminated the need for reclamation- or settling-pond processes. We are optimistic that environmental issues around fracking are going to be well managed as a result of technology advancements. The industry will survive well past my generation and others as a result of technology advancements in lock-step with the need to continue to produce. 

TER: It sounds like these technology advancements represent investment opportunity. Are you involved in any of these? 

BE: We're encouraged, to say the least, by the new opportunities coming about in the space. We'll hear about them more as they grow in size and stature, but these are sustainable processes that have been long-sought in the industry, and we're quite encouraged by some of the things we're seeing. 

TER: I understand that you have some interest in the carbonate reservoir plays. The market potential looks amazingly large. More than 60% of the world's oil and 40% of the world's gas are being held in carbonates. How big is this market? 

BE: Our expectation is that the carbonates could rival the size and breadth of what we currently have in the unconventional oil sands to date. If we take a look at the non-mining oil sands plays on record and booked in the oil sands area of Central Canada, the carbonates, with the exception of maybe two plays most recently coming to the forefront, are not currently booked in those reserves. It's our understanding that as the science is unveiled, they may match the existing non-mineable oil sands reserves, the volume of which is significant.

TER: What opportunities are there for public investors in the carbonates? 

BE: We've recently seen Athabasca Oil Sands Corp. (ATH:TSX; ATI:Fkft) come to the marketplace with an offering that speaks specifically to the carbonates. A couple of others in the adjacent areas have recently released reports and done some equity offerings based on the carbonate potential. I think that those are just the tip of the iceberg. 

TER: I presume it's cost-effective. 

BE: Very much so. If we consider a $75/bbl or an $80/bbl oil price floor, we're led to believe that that is quite an economic platform to produce those carbonate reservoirs. 

TER: And, of course, as we've seen with all the newer technologies, costs tend to go down dramatically over time. 

BE: I think you're right, if we look at shale's initial extraction process and cost, those costs have come down with volume, science and time. I think you're very fair in your assumption that as you amass more volume, you'll have better economies of scale. 

TER: Are there other companies that deserve special attention or mention? 

BE: We think Cenovus Energy Inc. (CVE:TSX; CVE:NYSE) is one that continues to receive high marks from the equity investing community as a company that has size and is playing across all different types. It's often touted as the top pick. It's a spinout from Encana Corporation (ECA:TSX; ECA:NYSE). Tourmaline Oil Corp. (TOU:TSX) is one that's recently come back to market. It has a team that has been there in the past and has come back out into the public domain. That's appearing on many companies' top picks list. There have been some companies-Spartan Exploration Ltd. (SPE:TSX) and Tamarack Valley Energy Ltd. (TVE:TSX.V) in the junior microspace that have recently caught some people's attention. Those are just a few of the names we're following. 

TER: I've enjoyed speaking with you very much. 

BE: Thank you, George. I appreciate your time today. 

Bruce Edgelow is responsible for the leadership and growth of ATB Financial's energy business and capabilities. Before joining ATB, he was a senior Royal banker and has more than 40 years of experience with a focus on the oil and gas industry. Bruce is a Fellow of the Institute of Canadian Bankers, a member of the Calgary Petroleum Club and is a very active participant in community and church activities. Bruce leads a team of over 30 energy-industry professionals making ATB's energy group one of the largest units in Canada. His team specializes in all aspects of the energy market, including oil and gas exploration and production, drilling and oilfield services, pipeline and utilities and midstream. Over the past several years, ATB's energy group has grown to become a significant leader in Alberta, largely due to its focus on developing highly responsive relationships.

Want to read more exclusive Energy 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 Exclusive Interviews page.

DISCLOSURE: 
1) George Mack of The Energy Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: None.
3) Bruce Edgelow: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None.

Mickey Fulp: Looking Past the Summer Uranium Doldrums

Source: JT Long of The Energy Report  (9/15/11)

http://www.theenergyreport.com/pub/na/10852

There have been few catalysts driving uranium stocks this summer. But Mickey Fulp, the "Mercenary Geologist," believes that this market funk resembles the period that preceded one of the best junior resource bull markets ever seen. In this exclusive interview with The Energy Report, Fulp tells us why he's "hopefully optimistic" about the coming months.

COMPANIES MENTIONED: CAMECO CORP. - FISSION ENERGY CORP. - HATHOR EXPLORATION LTD. -STRATHMORE MINERALS CORP. - URANIUM ENERGY CORP

The Energy Report: Cameco Corp. (CCO:TSX; CCJ:NYSE) recently initiated a hostile takeover ofHathor Exploration Ltd. (HAT:TSX.V) for CAD$3.75 a share. Hathor called the offer "opportunistic" based on softness in share prices following the nuclear disaster in Fukushima, Japan. How could this change the shape of the market?

Mickey Fulp: Although the bid was 40% over its current market price, higher than the pro forma 30% for a takeover, Hathor's board of directors rejected the bid and put out a statement urging shareholders to reject the offer and "wait and see" until Hathor releases assays from this summer's drilling at Far East and publishes a scoping study in the fall. 

I certainly think that a bidding war could ensue. Players that could possibly be involved are AREVA SA (CEI:PAR), Denison Mines Corp. (DML:TSX; DNN:NYSE.A), Rio Tinto plc (RIO:NYSE; RIO:ASX), BHP Billiton Limited (BHP:NYSE; BHPLF:OTCPK), Vale S.A. (VALE:NYSE), or perhaps sovereign companies and governments. The market obviously thinks the bid is too low, with speculators pushing HAT's recent trading to the $4.15 range.

TER: How long do you think it will be before this is flushed out? 

MF: It usually takes a few months for these things to settle. Rest assured, I'm not selling my Hathor stock now.

TER: Are you making any other changes in your uranium portfolio based on what's going on right now?

MF: Yes. I have been buying Fission Energy Corp. (FIS:TSX.V; FSSIF:OTCQX) via stink bids during the summer and added to that position upon the takeover bid announcement. It controls the ground adjacent to Hathor's flagship Roughrider Property. Fission Energy must be taken out, too, if Roughrider is developed into an open-pit mine, which is the likely scenario. If you draw an open-pit outline around the main Roughrider zone, it severely encroaches upon Fission's ground. Its ground also contains a significant uranium deposit, the J Zone. 

TER: Fission's stock is up 10% and it's traded as high as $0.73. Is that on news of the takeover bid? 

MF: Absolutely. It's been trading tremendous volumes over the last few sessions.

TER: Let's look at some of the fundamentals for uranium. When we spoke in March, you said that you didn't think demand would diminish much in the short- to mid-term after Fukushima because fundamentals had not changed. Is that still your position?

MF: Yes. We're presently seeing a weak spot market, which has been reduced to discretionary buying and consumers looking for bargains. Some traders and speculators have moved out of this market. We have seen more demand destruction than we did originally because Japan has taken many reactors offline temporarily. Their use is only one-third of pre-Fukushima capacity. At last count, 18 of 54 reactors were operating. 

TER: Do you think that is going to keep the price down for longer than you had forecast in March?

MF: No. We're still dealing with a +$50/pound (lb.) spot price and a long-term contract price of $65/lb. The spot price is down from a yearly high of $73/lb., so that's very significant. But the long-term contract price is down much less. It was $72/lb. pre-Fukushima. 

There has been a significant decrease in the spot price, but this is the slow season for uranium. Uranium goes through the summer doldrums just as the stock market does. The fall buying season is still ahead of us. I don't expect uranium to drop much below $50/lb. in the near term. 

TER: Have the U.S. Department of Energy's stockpile sales impacted either the spot price or the long-term contract price?

MF: No. That actually stabilized a few months ago. Of the 5 million pounds (Mlb.) in scheduled sales per year, the Dept. of Energy forward sold 3.5 Mlb. and took it off the open market for 2011 to 2013. If anything, this agreement has stabilized the market-it is a significant positive factor. 

TER: Has concern about finding a reliable domestic supply of uranium in both the U.S. and Europe been a catalyst for companies that could fulfill that demand?

MF: Western Europe is the only part of the world that seems to be trying to move en masse away from nuclear power. The U.S. will produce a bit more than 4 Mlb. this year. It uses 55 Mlb., so do the math: We produce only 7% internally at our own mines. We need a viable domestic industry and I'm still bullish on uranium mine development in the U.S.

TER: What are some companies in the U.S. that might be able to meet domestic demand?

MF: Uranium Energy Corp (UEC:NYSE.A) is a new producer with its in-situ recovery project in South Texas. It recently announced another key permit for its Goliad satellite facility. That well field could be in production within the next year. UEC is the one company that I am most bullish on.

I have been a long-term supporter of Strathmore Minerals Corp. (STM:TSX; STHJF:OTCQX), which has an on-going feasibility study at Roca Honda in New Mexico with joint venture partner Sumitomo Corp. (8053:TYK; SUMF:OTCPK). It also has the largest play in the Gas Hills of Wyoming with a partner in an announced, but not completed, deal with Korea Electric Power Corp., or KEPCO. The memorandum of agreement was announced about a month ago.

TER: Has that been a catalyst for the stock price?

MF: There are no catalysts for stock price in the uranium business at this juncture, except for Hathor, with the hostile takeover bid, and Fission as the next-door neighbor that has to be invited along for the ride. The uranium business continues to muddle along, which is to be expected during the summer doldrums. I wouldn't expect any catalysts this time of year, especially given world economic uncertainty.

TER: In March, you talked about placing stink bids below a stock's normal range to get bargains. Have any of those contrarian opportunities in energy paid off?

MF: I have continually bought Uranium Energy Corp. post-Fukushima. Has it paid off? No, because I haven't sold. I have a profit on paper, but it's not a profit until it is sold. Certainly, my stink bids that were filled for Uranium Energy Corp. and Fission Energy are looking good now.

TER: Regarding natural gas, another domestic energy source that you talked about in your July Musings, you said that "we import 9.4 Mbl. of oil a day, and we have a treasure trove of cleaner-burning and cheap natural gas in the ground, but we lack the infrastructure and political will to develop it." What is limiting our will to utilize our own natural gas resources?

MF: I think a good portion of it is the NIMBY (not in my backyard) and the BANANA (build absolutely nothing anywhere near anything) crowd. We see environmental opposition to horizontal drilling and hydro-fracking, especially in the northeast U.S. where the Marcellus Shale is located. It has by far the largest shale gas potential in the U.S. 

We have many plays in various parts of the U.S. that look good, but there is a lack of pipeline infrastructure and a lack of separating capacity where we need it. There is a very cheap natural gas price, which does not stimulate exploration or development. Lots of wells have been drilled that are now shut-in, either because of low price or lack of transport infrastructure. 

The natural gas use that makes the most sense-and I will say that T. Boone Pickens has it absolutely right-is for small, mass transit and fleet and cargo vehicles, all are very easily converted to natural gas. We actually should be building natural gas-burning vehicles at the factory, but lack of fueling infrastructure is hindering that market. You can't drive down the interstate, get off at every exit and fill your car or truck with natural gas. Until we are able to do that, the gas industry is not going to reach its full potential in the U.S.

TER: Do you think that those new natural gas fueling stations will be government driven or market driven?

MF: I hope they are market driven because I do not support government subsidies in any way, shape or form. I'm a strong proponent of free markets with little regulation, credits or stimulus.

TER: How long do you think it will take the market to get that installed? 

MF: Well, that's the $64,000 question. We must have the will to do it, and I don't see the will to do it now.

TER: Any natural gas companies you're following?

MF: I follow some natural gas companies, but the market has not been conducive to entering them. I've been watching the natural gas market for over three years now and haven't made a move into it. I'm a contrarian, and try to be patient, but in retrospect, I'm glad that I didn't go into natural gas exploration or development companies three years ago. 

The oil and gas business is much different from mineral resources in that development and production companies must have a substantial revolving line of credit; they must continually have cash calls to grow and there can be hell to pay if the market is not good during these periods. They can end up going bankrupt. If mineral exploration companies have a significant cash kitty from equity financings, they can sit on their thumbs during bad market times. 

TER: Do you have some companies you're following in potash?

MF: I'm bullish on all agricultural minerals, especially potash, and on future prices. We see increased demand as the world's middle-class grows, especially in eastern Asia. The three largest consumers in the world are China, India and the U.S. 

TER: Does that relate to the growing middle class and its changing diet, or is it just pure population demand? 

MF: It's largely the former, the growing middle class and its changing diet from carbohydrate-rich to one higher in protein. It takes about 7 kilograms (kg.) of vegetable protein to produce 1 kg. of animal protein. On the other hand, there are also 75 million more people walking the planet every year, and they have to be fed.

TER: The macro picture on potash and agriculture depends a lot on geography, and potash is expensive to transport. Are some countries going to drive demand more than others? 

MF: It's an agricultural mineral that sells by the ton, so it's a bulk mineral product. It is very location-sensitive. We know where the world's potash deposits are. We know where they are likely to be developed. Are there new areas on the horizon? Yes, but time and time again, we'll go back to the established producing areas, one of which is my home state of New Mexico, but most potash is produced in Saskatchewan, Russia and Belarus.

TER: Any final thoughts? 

MF: We're approaching the end of the summer doldrums. I see many things that happened during this summer that are analogous to the summer of 2010. Last year Labor Day launched arguably one of the best bull markets for seven months that the junior resource sector has ever seen. I am hopefully optimistic that we will see a boisterous fall, winter and spring for all the speculators in the junior resource sector. 

TER: Great. It is always a pleasure chatting with you. Thank you so much for taking the time, Mickey. 

Michael S. "Mickey" Fulp is the author of The Mercenary Geologist. He is a certified professional geologist with a B.S. in earth sciences with honors from the University of Tulsa and M.S. in geology from the University of New Mexico. Mickey has more than 30 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, coal, uranium, oil and gas and water in North and South America, Europe and Asia. Mickey has worked for junior explorers, major mining companies, private companies and investors as a consulting economic geologist for the past 24 years, specializing in geological mapping, property evaluation and business development.

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DISCLOSURE: 
1) JT Long of The Energy Report conducted this interview. She personally and/or her family owns the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: Strathmore Minerals Corp., Fission Energy Corp., Uranium Energy Corp.
3) Mickey Fulp: I own shares of the following companies mentioned in this interview: Fission Energy Corp., Hathor Exploration Ltd., Strathmore Minerals Corp. and Uranium Energy Corp. Strathmore Minerals is a sponsor of my website.

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