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  • Cutting-Edge Technologies Will 'Green' Fracking: Keith Schaefer

    Source: Peter Byrne of The Energy Report (9/25/12)

    http://www.theenergyreport.com/pub/na/14421

    Fracking in the U.S. is here to stay, affirms Keith Schaefer, editor of the Oil & Gas Investments Bulletin. North American business is dependent on cheap energy, and even energy utilities are switching from coal to natural gas. Although environmental concerns remain, the industry has incentive to do the right thing, says Schaefer. In this exclusive interview with The Energy Report, Schaefer profiles service companies that are using cutting-edge technology to make fracking safer, greener and cheaper.

    The Energy Report: Keith, considering that natural gas prices are still near all-time lows, can you still argue that fracking has improved North American energy markets?

    Keith Schaefer: In just a few short years, fracking grew the supply of natural gas way ahead of demand. The price of natural gas fell from $8-9/thousand cubic feet (Mcf) to $2/Mcf! Natural gas is the low-hanging fruit for the energy sector and for consumers. Cheapened feedstock provides a huge boom for American business.

    TER: Have fracked oil prices kept pace with falling natural gas prices?

    KS: It has not declined by the same degree, but it has lowered the cost of North American oil. West Texas Intermediate (NYSE:WTI) used to be the major benchmark for oil around the world. Now, WTI is only a benchmark for a small area of the United States and Canada. In addition, the flood of supply coming out of new shale oil wells in North Dakota and Texas is overwhelming the refinery complex in the Gulf Coast, which is about 50% of North America's refinery capacity.

    TER: Is there a glut of gasoline? Prices for consumers are certainly high.

    KS: That's a great question. The short answer is no. But the long-term answer is yes. People are saying, OK, how come gas prices at the pump are so high when we've got all this oil? What's going on? Here is how the game works: the refineries are moving their production flows to produce the least amount of driving gasoline possible, and the most amount of other refined products, like home heating oil fuel, diesel, kerosene and jet fuel. These are products they can export, in which case they get to use the Brent prices, which are 15% higher than WTI prices. These refineries generally operate on skinny-to-average margins, so 15 points is huge for them. That is why the price of retail gasoline for driving is 50% higher than it was in 2008.

    Let me give you an example. I'm in Vancouver. We sell gas by the liter, not the gallon. Back in 2008, we had an uncanny relationship where if oil was $100 a barrel (bbl), gasoline was $1 a liter (NYSE:L) at the pump. If it was $110/bbl, it was $1.10/L. If it was $1.35/L in Vancouver, oil was $135/bbl. Now, gasoline is $1.35/L, but oil is only $96/bbl. Why? Because the refineries are producing the least amount of gasoline, and the most amount of other refined products.

    TER: Does fracking lower oil production costs?

    KS: As a rule of thumb, the cost of production for most shale plays in North America is $40-45/bbl, which is not that much different from costs using conventional methods. It is above-ground logistics that cause lower prices for fracked oil. We don't have enough pipelines to efficiently transport the fracked oil to the refineries. Consequently, supply backs up at the hubs, creating big discounts. For example, in late June, Canadian oil and Bakken oil were at huge discounts, almost $20/bbl to WTI. Because of pipeline disruptions and refinery downtime, Canadian producers were receiving under $70/bbl for their oil. But only 2½ months later, the logistics are running smoothly and Bakken oil is now selling at only a $3/bbl discount to WTI.

    TER: Why do we see regional price differentials at the pump?

    KS: Logistics. Here is an example. Recently, BP Plc's (BP:NYSE; BP:LSE) Cherry Point refinery, which is just south of the Canadian border, went down. The next day, gas prices jumped $0.30 per gallon from Seattle to San Diego.

    It's not like we have no new refining capacity. Even though no new refineries have been built since '76 in the U.S., refineries have been expanding. Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE) and Saudi Aramco have spent $10 billion during the last few years, doubling the size of their Motiva refinery in Texas from 300,000/bbl per day (bblpd) to 600,000/bblpd. It immediately ran at full capacity. But, then, an industrial accident took the new expansion offline for nearly a year, which boosted the retail price.

    TER: Why is fracking politically controversial?

    KS: Scientific studies have shown that fracking is not an environmental issue. It does not contaminate the ground water. There is usually more than a mile of granite between where the fracking takes place and the water table. On the other hand, the government of British Columbia has released a study finding that fracking causes earthquakes. And there is seismic activity associated with fracking and saltwater disposal wells, but that takes place in the formation where the fracking is occurring. The quakes are no different than any of the millions of micro seismic events that happen around the world every day. Of course, there is an impact. Blasting for mining creates seismic events. Building a dam creates seismic events. Filling a large manmade lake creates seismic events, because water is heavy. Fracking is no different.

    It is the fierceness of emotion that is the big issue here. People get nervous about the safety of their water supplies and say, "Hey, prove to me that fracking is really safe!" Industry has responded by saying, "Look, here's the science. We've been doing this for 50 years. No need to worry, it's all good." But that's not what people need to hear. People need to hear, "Hey, we hear that you're really concerned about this, that it's a big issue for you. Let us come together at a community hall and talk about it." That would be more effective than just taking out ads that say, (a) we bring so many jobs to the area, why are you bugging us? and (b) we've done this for decades, why are you bugging us? That kind of attitude is not going to win any arguments.

    TER: Are drought conditions in the Southwest and Midwest affecting the availability of water for fracking?

    KS: Due to drought, the price of water for oil and gas companies has more than doubled in the Midwest and Texas. Some of the oil and gas companies are not drilling as much as they said they would this year because they need to figure out where to get the water and how much they want to pay for it. Even though the amount of water used by the industry isn't huge compared to irrigation, there are areas where the oil industry is bidding for water rights against farmers. The industry needs to be very careful about public relations. Otherwise it becomes a case of the big guy against the little guy.

    TER: Are there any technological fixes to that issue?

    KS: Yes. Firms involved in the fracking supply chain are figuring out how to source, treat, recycle and dispose of water efficiently. One company that comes to mind is Ridgeline Energy Services Inc. (RLE:TSX.V). It has a proprietary water recycling technology. EOG Resources Inc. (NYSE: EOG) is a Ridgeline client, as is Pure Energy Services Ltd. (TSX:PSV). These companies are starting to recycle their fracking water, which is great.

    Other companies doing water management include GreenHunter Energy (GRH:NYSE:MKT). That's Mark Evans' deal from Magnum Hunter (MHR: NYSE.A). This company is determined to use saltwater disposal wells as its entrée into the water management sector. Another company is Poseidon Concepts Corp. (PSN:TSX). It has a water storage product and is branching out into more vertically integrated work in the water sector. There are lots of companies experimenting with this, and for good reason-there are very big margins, 50-85% gross margin. That's fantastic. It beats the pants off any other service in the oil patch. Investors should be taking a strong look at fluid and water service companies.

    TER: Aside from the Bakken shale, what are the most exciting international sources of shale oil and gas?

    KS: The only other notable proven deposit of size is the Vaca Muerta shale in Argentina. There are a few Canadian juniors down there, but the Argentine government has started to nationalize part of YPF SA (NYSE: YPF). Plus, some permits were pulled from juniors by provincial regulators. That put a huge chill in the market for these stocks. They are well funded and cashed up, but the market's just not going to care about them until there's real production growth.

    European shales have been fairly slow to take off. Poland's been on the hot list for a while, but nothing's happened. During the next two to three quarters, we could see a few wells get plunked down in New Zealand. That looks like a fairly thick formation. If it gets going, it could be a big win for investors next year.

    TER: What about the oil and gas shale near Paris, France?

    KS: Fracking is still banned in France. ZaZa Energy Corp. (ZAZA:NASDAQ) dropped its French play and is now focused on the Eagle Ford shale and the Eaglebine in Texas.

    TER: Could fracking be banned in the U.S., either in certain areas or in its entirety?

    KS: Fracking will never be banned in the U.S. But if it did happen, businesses would go bankrupt left, right and center. Many companies are hooked on cheap gas. There would be widespread bankruptcies and unemployment. Power companies are using cheap gas instead of coal. The U.S. reduced its greenhouse gas emissions more than any other country in the world over the last two to three years because of shale gas.

    TER: What technological changes will keep fracking profitable, while reducing its environmental footprint?

    KS: A company called GasFrac Energy Services Inc. (GFS:TSX) has been trying to get the industry to start using liquid petroleum gas (NYSE:LPG) for fracking, instead of injecting water into the ground. LPG is propane, which is a naturally occurring substance in the formation, so it doesn't damage the formation, as water can. Unfortunately, the company is not having very much success. But the industry is doing a lot of research into food-grade fracking fluid. The idea is to make fracking fluid as green and environmentally friendly as possible. That's a couple of years away, but it's only a matter of time.

    TER: Any other names on the cutting edge of fracking technology?

    KS: Raging River Exploration Inc. (RRX:TSX) has a big play in the Viking formation in Saskatchewan that is very profitable. Its water flood technique is returning incredibly cheap oil. It got the first half million barrels of oil out at about $30-35/bbl, and the last half million barrels at $5-10/bbl. It is at the forefront of recovery technology. Normally, a firm is lucky if fracking returns 10-15% oil. But with the water floods, the recovery factor can go way up. That is great news for Raging River stockholders.

    Renegade Petroleum Ltd. (RPL:TSX.V) is also working in the Viking formation, and it has two other upcoming plays worth watching. One is the Slave Point play in Red Earth, which is north of Edmonton. Pinecrest Energy Inc. (PRY:TSX.V) has been involved. Renegade will drill the first well later this year. If it can prove up one or two wells, it has a big enough land package to allow a lot of new locations to open up. Renegade also has a really interesting conventional play in southern Saskatchewan called Souris Valley. It's turning out to be a lot more profitable than the company had originally thought it would be.

    TER: What is your bottom-line message on the future of fracking?

    KS: Mainstream public attention on water management isn't a bad thing. It makes the industry do things that should get done. Fracking water should be food grade. The market rewards stocks for doing the right thing. There's nothing that the market hates more than uncertainty. If the industry starts to lose what I call its "social license" in the United States, that loss will have a very big impact on valuations. Companies are incentivized to do the right thing, to do it well-and to do it fast. That's why we will soon see a resolution to the fracking issue.

    TER: Thank you for chatting with us today.

    KS: A pleasure as always.

    Keith Schaefer of the Oil & Gas Investments Bulletin writes on oil and natural gas markets. His newsletter outlines which TSX-listed energy companies have the ability to grow and bring shareholders prosperity. Keith has a degree in journalism and has worked for several dailies in Canada but has spent the last 15 years assisting public resource companies in raising exploration and expansion capital.

    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) Peter Byrne 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: Royal Dutch Shell Plc.
    3) Keith Schaefer: I personally and/or my family own shares of the following companies mentioned in this interview: GasFrac Energy Services Inc., Poseidon Concepts Corp., Raging River Exploration Inc., Renegade Petroleum Ltd., Ridgeline Energy Services Inc. and ZaZa Energy Corp. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this story.

    Streetwise - The Energy Report is Copyright © 2012 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.

    The Energy Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

    From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

    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.

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    Sep 25 7:52 PM | Link | Comment!
  • The Great Graphite Supply Shakeup: Simon Moores

    Source: Alec Gimurtu of The Critical Metals Report (9/25/12)

    http://www.theaureport.com/pub/na/14419

    Investors who remember the lithium boom (and bust) a few years ago may be twice shy to enter a space with big upside potential tied to electric vehicles. But the parallels between graphite and lithium are superficial, insists Simon Moores, analyst with Industrial Minerals. Graphite, unlike lithium, supplies layers of demand, with reliable end-users in the steel industry. Meanwhile, China's production lull is making way for market entrants. In this exclusive interview with The Critical Metals Report, Moores profiles graphite miners around the world competing for the market's attention.

    The Critical Metals Report: The graphite market is one commodity sector that is getting increased interest over the past year or two. What's the best way to participate in this market?

    Simon Moores: Because the graphite market is dominated by Chinese companies and private companies, juniors are really the only way to participate directly in this market. The non-Chinese major players, like TIMCAL Graphite & Carbon in Canada, are part of larger minerals companies. So when you invest in Imerys (NK:PA), which is the parent company, you're not investing in an exclusively graphite-focused company. Graphite is only a tiny percentage of its business. Many of the other major non-Chinese companies in the market are private, such as Nacional de Grafite in Brazil, as well as a number of smaller private producers in Zimbabwe, Austria, Russia and Norway. Ultimately, your most direct option is to go for the juniors.

    TCMR: Who are the main graphite consumers?

    SM: Graphite's current demand is mainly driven by industrial uses, metal production being the most important. Steel is the main driver of the graphite market on two fronts. First is in refractories, which is the biggest end use. Refractories are used to line huge steel kilns and as protective linings in bricks. Graphite is also used as an additive, in what is called a "recarburizer." Steel demand has historically driven the graphite market, accounting for approximately 39% of the market.

    TCMR: In your research, you talk about "layers of demand," where there is a base of traditional industrial uses for graphite with new uses incrementally increasing total demand. Tell us more about that.

    SM: For the past 100 years, you've seen layers of industrial demand, first for graphite as a lubricant. Then in a post Second World War construction boom, its use as a refractory mineral and recarburizer really took hold. This growth was tied directly to steel in the economies of the U.S. and Western Europe in the 1950s, 1960s and 1970s. In the 1980s and 1990s, industrial demand stepped up in Asia's boom, first in Japan and South Korea, and more recently in China.

    Beginning in the 1990s, graphite's diversity was truly seen when you saw batteries taking off as the world required more mobile forms of communication and entertainment with the advent of the Sony Walkman and first mobile phones. Graphite's use as the anode material of choice for all battery technologies saw a new market and fresh demand emerge-a new layer of demand.

    Because graphite has so many unique uses and properties, new applications are being created all the time. Graphene is the latest "super material" and the only real chance of commercializing this is by physically stripping flake graphite.

    The difference with graphite demand is that one technology does not supersede another. Its incremental demand just builds. On average, graphite demand steps up every 15-20 years, and if the past is anything to go by, we are on the cusp of a new era.

    TCMR: What specific new applications could make waves in the graphite market?

    SM: The market you're looking at is lithium-ion batteries and anything that uses them. Graphite is already used in all current battery technologies as an anode material. But as we speak, lithium-ion battery technology has the potential to go through the roof, especially with electric vehicle manufacturing. There are a lot of unknowns as to how that market will develop, but it has the potential to grow quickly and in large volumes. Electric vehicles should be the catalyst for explosive growth in graphite demand.

    TCMR: With the Chinese the dominant supplier and consumer in the market, is there geopolitical risk associated with Chinese behavior-perhaps something similar to what happened in the rare earth markets?

    SM: Definitely. China dictates everything in the current graphite market. In the late 1980s and early 1990s, China came into the market in a big way as an exporter. Producers there undercut many suppliers around the world, and as a result newer, higher-cost mines in Canada and Western Europe were forced to close only a few years after opening. Many of the non-Chinese miners were destroyed overnight. Fast forward two decades, and China has held the potential to restrict graphite exports that the world has come to rely on. The Chinese government doesn't like many things in mining, namely low-value exports and polluting plants and mines. Much of the Chinese graphite sector optimizes these points. It is a much older industry than many realize, and because the space dominated by small- to medium-sized companies' it's hard to regulate. Plus, the wastage of resources is significant on most graphite mines.

    China still has some world-leading companies that supply high-quality graphite. But the majority of supply comes from the smaller producers to provincial markets. The concern is that China may not be a reliable and low-cost supplier indefinitely, and that's why you're seeing lots of junior exploration today.

    TCMR: What happened to the mines in the 1980s and 1990s? Have any of them been restarted? Are those brownfield exploration targets in some cases?

    SM: The only new mine that survived, strangely enough, is TIMCAL in Quebec, Canada, which is one of the biggest outside of China. It produces 20 thousand tons (Kt) per year. It really only survived because Imerys, a major French minerals company, bought it because it is a big buyer of graphite. The company then was known as Stratmin. Otherwise, the rest of producers stopped abruptly. Examples include the Uley mine in Australia, which Mega Graphite Inc. (MEGA) is currently developing, Ontario Graphite Ltd.'s (private) Kearney mine and Flinders Resources' Kringel mine, formerly known as Woxna.

    TCMR: Speaking of Australia, do you want to give us an update on Strategic Energy Resources Ltd. (SER:ASX)?

    SM: It's gone a bit quiet. It was making good progress at the start of this year, but I think there have been some changes at the corporate level of MEGA Graphite. The last six months have been very quiet for many resource companies, however. Most likely, it is probably a case of the commodity cycle taking a break.

    TCMR: Do you see any catalysts coming up for MEGA/Strategic Energy Resources?

    SM: Funding is key. The Uley mine has a stockpile of approximately 10 Kt of graphite that the company says is almost ready to go. It needs to be reprocessed however, and building a functioning processing plant is most of the battle. Luckily, getting tonnages to the market is easier for MEGA/Strategic than a lot of companies-the key is getting it accepted by end-users that have been using the same supplier for many years.

    Consistency is key for Mega and for all new graphite suppliers. Graphite is a specialist product, not a commodity. Buyers want a consistent product with impurities they can manage. Knowing what to expect when you buy graphite is more important than producing the highest quality and purity.

    Ultimately, with the global financial situation the way it is, funding is critical for all these companies. It's been difficult.

    TCMR: Are the capital costs high for graphite processing?

    SM: It depends what you want to do. Basic processing methods include crushing, grinding, flotation and sizing. Flotation is the most expensive part, depending on the desired level of purity. It's much more expensive to get the float graphite-known as graphite concentrate-above approximately 97%. Generally, it is not worth it because the market accepts 94-97% as the highest quality. Now, if you want to then take it up to the high-purity material that's used in batteries (in the 98-99.99% range), you have to build a new plant. It's a whole different ballgame of mechanical processing and chemical purification. You have to do it all over again with special techniques, which is very expensive. For that reason, companies will shy away from the top end of that market.

    TCMR: Would some deposits be more suited for the higher purity or is it really just value-added processing that gets them there?

    SM: Ultimately, it's value added. Obviously, the quality of the graphite in the ground significantly aids that, but it comes down to processing. It always has. That's why Western graphite companies like Superior Graphite Co., Asbury Carbons (private) and Graphit Kropfmühl AG (GKR:FKFT) in Germany were able to continue regardless of China's production dominance. These companies are the biggest graphite companies outside of China, but they are not miners. They can add value with proprietary technology and processes.

    TCMR: Should investors who want graphite exposure look for the junior mines that are going to feed the supply chain?

    SM: Yes, exactly. Look for high-quality deposits in the ground. Look for large-flake or high-grade content but, ultimately, focus on how a company plans to process it and get it to the market. That will make or break a graphite company, and that's why most of the deposits that are listed won't even get beyond a few drill holes. The serious ones will have a business plan from mine to market.

    TCMR: Lithium is a recent example of a speculative boom followed by a bust. Is there an analogy between what happened with lithium a couple of years ago and where graphite is today?

    SM: Superficially, the investment thesis for both lithium and graphite starts with batteries for electric cars as a catalyst for growth. But when you look a little deeper, there are large differences in the two markets. The fundamental supply structure is very different. Most current graphite comes from a single country-China. With lithium, that's not the case. Supply is fairly stable across several countries-Chile, Argentina, and Australia. The lithium market is dominated by big companies that have supply locked and secured and prices under control. There's very little room for new producers to come in.

    But the largest graphite companies aren't graphite miners. The dominant supplier is China, with just under 80% of the market. If the largest companies aren't miners and China is supplying the lion's share of graphite concentrate, even though there are no significant restrictions, there is going to be room for some new suppliers outside of China. Compared to the lithium market, the graphite market has much more opportunity.

    You also have to look at the trend in the biggest buyers of graphite, the world's third-largest refractory company-Brazil's Magnesita Refratarios-is seeking to be 100% self sufficient in graphite supply and intends to open a new mine in the next 18 months. This drive stems from its distrust of China. The company has gone on record as saying graphite is not a stable supply chain and reliance on China must be reduced. While I think the graphite supply chain is stable today, I agree with that sentiment going forward.

    And that is just the supply side. There is healthy demand for graphite across the many industrial uses as well as the "layers" of demand from evolving technology.

    TCMR: Where might some of those new suppliers come from? Are there any geographies that look especially good-maybe Africa or Canada?

    SM: Canada has a chance to develop new graphite mines. There are some good projects there. However, there is a unique challenge that Canadian companies face-the companies are bogged down with the stock market, putting out results, trying to woo investors and raise funds. That's the game in Canada, and I understand that. But it concerns me in that it is a distraction to exploration and mine building.

    However, if you look outside of Canada, exploration is nowhere near the same level.

    But there are a couple of countries that have good potential to become graphite producers. Mozambique is a former producer with some very high-quality graphite resources. The German company Graphit Kropfmühl is active there. Out of the whole of Africa, Madagascar is the country with the brightest prospects. Energizer Resources Inc. (EGZ:TSX.V; ENZR:OTCBB) is the leading company in Madagascar.

    TCMR: What are its prospects?

    SM: Energizer Resources is about to announce a huge resource in Madagascar. The deposit is at surface, so the mining side is easy. The company is working out the infrastructure, power and water, which will be the project's lynch pin-it's planning to team up with much larger projects nearby, including a big coal mine. The deposit will be more than 100 million tons (Mt), which will be the largest proven resource in the world.

    TCMR: Larger than the Chinese deposits?

    SM: With the Chinese deposits, it's very difficult to know the size. The Chinese companies don't need to drill to satisfy NI 43-101 or JORC requirements. Instead, they do some sensible drilling and then mine-they explore when they need to.

    TCMR: Does Energizer have some catalysts coming up?

    SM: The announcement of the resource financing should be the next catalyst. It's already in the leading pack of development companies, but when it comes out with a huge resource on the order of 100 Mt, that will strike a chord with the Canadian investors, who are focused on grade and size.

    TCMR: Are there any other Canadian companies that you like?

    SM: Northern Graphite Corporation (NGC:TSX.V; NGPHF:OTCQX) and the Bissett Creek project is a very strong prospect. It's the most advanced graphite project out of all of them. Northern has just completed its bankable feasibility study, beating everyone else to the punch. The efforts that the company took in the 2000s, when graphite wasn't on the radar, are now paying off.

    Focus Graphite Inc. (FMS:TSX.V) and its Lac Knife project is also a strong prospect. The company is also looking at the technology and processing side more than other companies, which is a positive sign.

    One other interesting project in Canada is by Zenyatta Ventures Ltd. (ZEN: TSX.V). I like it because it's vein graphite, and this is the only known deposit of its type outside of Sri Lanka. Vein graphite is much cheaper and easier to mine and process. This could offer the company a significant cost advantage. In Sri Lanka, the graphite is found in lumps that they can hand mine, crush and size. Its purity is so high that no flotation is needed. Skipping this part can save a lot of time and money. The company hasn't promoted the deposit heavily-certainly not as a vein deposit, which it really should. The project marketing has been about trying to compete based on resource size and grade with the rest of the juniors. But it should focus on the purity of graphite in the ground.

    TCMR: Do you have any final advice for investors either getting into the space or looking for a little bit of nerve to stay in the space?

    SM: My perspective is from the market side. Predicting winners or giving advice on public graphite juniors is a hazardous game because it's not always about the deposit's merits or company's plan. That said, here is how I would analyze the graphite sector as a whole if someone was looking to invest: Look at the fundamentals of the industry. I understand how investors get scared when commodities fall across the board. Money comes out of the market and the investors wait for the moment to go back in. But keep your eyes on fundamental supply and demand dynamics over the next five years. Where is the supply coming from, and is that supply source reliable?

    As far as demand, we need to look at what will power the next "industrial revolution" in the West. I believe this is technology and sustainable living/cleaner energy. Investors can see for themselves that batteries are increasing in all walks of life. Five years ago, I carried one mobile phone, but now, when on business, I carry two mobiles, a laptop and an iPad-all battery powered. It makes complete sense that transport is next-and that will be the game changer.

    And we must not forget that heavy industry will continue-maybe not at the boom rates of the 2000s, but we will always need buildings and vehicles. This will ensure that refractories remains a major market for graphite.

    TCMR: Thanks for your time, it has been interesting and informative.

    SM: Very happy to give my thoughts.

    Simon Moores has been reporting on, researching and analyzing the non-metallic minerals sector since 2006, when he joined London-based publishing and research house Industrial Minerals. He has specialist knowledge in critical and strategic minerals including graphite, lithium, rare earths and titanium. He led the research and publication of the market study, The Natural Graphite Report 2012: Data, Analysis and Forecast for the Next Five Years. One of the study's key findings was China's dominance of production was significantly higher than previously thought, accounting for 78% of supply. He has chaired conferences and given keynote presentations around the world. He has also been interviewed by international press including London's The Times regarding Chinese control on world graphite production, and The New York Times with regard to rare earths after breaking the story that China blocked exports to Japan in 2009.

    Want to read more exclusive Critical Metals Report articles 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 and learn more about critical metals companies, visit our Critical Metals Report page.

    DISCLOSURE:
    1) Alec Gimurtu of The Critical Metals 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 this article are sponsors of The Critical Metals Report: Strategic Energy Resources Ltd., Northern Graphite Corp. and Energizer Resources Inc. Interviews are edited for clarity.
    3) Simon Moores: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family are paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.

    Streetwise - The Gold Report is Copyright © 2012 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.

    The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

    From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

    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.

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    Sep 25 7:33 PM | Link | Comment!
  • Uranium Fundamentals Are At A Tipping Point: Alka Singh

    Source: Peter Byrne of The Energy Report (9/13/12)

    http://www.theenergyreport.com/pub/na/14344

    Uranium prices may be down, but so are supplies. Demand for the heavy metal is rising fast, says Independent Researcher Alka Singh of Mine2Capital. In an exclusive interview with The Energy Report, Singh notes that with the flow of enriched uranium from Russia drying up, the pressure is on for the mining industry to produce millions more pounds of yellow cake each year.

    The Energy Report: Alka, how robust is the global supply of uranium fuel?

    Alka Singh: There are 433 currently operating nuclear power reactors around the world. Annually, they consume 177 million pounds (Mlb) of uranium. The world does not produce that much yellow cake. Last year, production was 130 Mlb. The gap is currently being filled largely by the Highly Enriched Uranium Agreement (HEU) with Russia and by other sources. As we approach the 2013 HEU Agreement expiry date, the supply/demand fundamentals will prove positive for uranium prices, and that will boost the price of uranium equities.

    TER: Who has the pricing power in this market?

    AS: When electrical power utilities buy uranium through long-term contracts, the agreements run as long as 8-10 years. That's why utilities have pricing power. The challenge now is that spot uranium prices are at $48 a pound (lb). But for many mines, the cost of production is $50-60/lb. The utilities have an enormous amount of power when it comes to determining the price of yellow cake. They are happy to sit on the sidelines and jump in to buy supply at basement prices. When spot prices compare favorably to the long-term prices, the utilities will buy supply from the short-term market. But, over time, the long-term prices determine where the market is heading.

    TER: Globally, do state-owned energy utilities have a competitive advantage over the private utilities when it comes to obtaining uranium?

    AS: Yes. Since state-owned utilities receive government backing for resources and loan guarantees, it's always easier for the public enterprises to be more successful. But, that is more so in developing countries, such as South Africa, than in the developed countries.

    TER: How significant is military demand for uranium globally versus demand from electrical utilities?

    AS: Most of the demand comes from the civilian nuclear reactors rather than military need. Some military applications require enriched uranium, but they compose a very small percentage of market demand.

    TER: How can the HEU Agreement supply gap be filled?

    AS: That's the question that every uranium investor should be considering. The HEU Agreement annually supplies about 24 Mlb of uranium. The uranium producers are having difficulty in scaling up production to fill the looming gap. For example, BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) recently announced a decision to delay expansion at Olympic Dam by at least a couple of years. The initial expected expansions would have brought production up to about 20 Mlb from about 9 Mlb.

    Kazakhstan is the world's largest uranium producer, followed by Canada and Australia. However, at the current market prices, production in these regions cannot increase a lot. The supply/demand fundamentals for uranium are looking good, because the long-term prices and the spot prices will have to increase to catalyze enough production to meet demand.

    Foreseeable events are priced into stocks, before the events actually occur. The HEU Agreement is slated to expire late in 2013, so by late 2012 uranium equities and prices should be discounting the market's loss of 24 Mlb. Obviously, there will be some increase in production from Kazakhstan and Australia and Canada. But that is not likely to fill the expanding gap. The U.S. has 104 operating nuclear power reactors out of the 433 reactors in the world. But last year, the U.S. produced less than 4 Mlb of uranium while consuming 55 Mlb.

    TER: Are there any uranium producing regions in South America?

    AS: Exploration is picking up pace in South America. For example, Uranium Energy recently acquired an asset in Peru, which is amenable to in-situ leaching. There are a few companies exploring for uranium in Argentina, Bolivia, Brazil, Chile, Ecuador and Guyana. But 65% of the world's uranium production still comes from Kazakhstan, Canada and Australia. There are several upcoming uranium producers in Russia, Niger, Nigeria and other parts of the world. But, most of the current production comes from only three countries.

    TER: Let's talk about U.S. uranium supply solutions. There are several junior firms developing properties in uranium-rich regions in Wyoming and Texas. Where do these projects stand right now?

    AS: In those areas, I've been tracking Uranium Energy Corp. (UEC:NYSE.A) and Ur-Energy Inc. (URE:TSX; URG:NYSE.A).

    Ur-Energy will soon be in production; it has been permitted by the Bureau of Land Management to construct the Lost Creek project in Wyoming. Production could commence in Q2/13 at a cash cost of $20/lb. That is economical, even given today's relatively low uranium prices.

    UEC is producing from its Palangana deposit. It is also making progress at its Goliad project. Uranium Energy Corp., Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.A) and Ur-Energy are all low-cost producers that utilize in-situ recovery (NYSEMKT:ISR) methods. The ISR technique is similar to water purification, which is also an ion-exchange technology. One environmental benefit is that nothing is mined in the traditional sense. The ISR method entails injecting oxygen-fortified water into the deposit. The liquid dissolves the uranium underground, and the mineral-laden water is then pumped up to the surface, where the heavy metal is recovered.

    TER: How prevalent is ISR?

    AS: The ISR technique is not applicable to every kind of deposit. Sandstone-hosted, roll-front uranium deposits are especially amenable to ISR. In 2011, 45% of world uranium was mined through ISL operations. Most uranium mining in the U.S. and Kazakhstan is now executed using ISR.

    TER: Let's talk about advanced technology mining (ATM) techniques, such as audio magnetic geophysical exploration. Are these techniques cost effective?

    AS: As with gold and silver deposits, uranium deposits are discovered through geochemical and geophysical techniques. The audio magnetic geophysical exploration technology is relatively new. It uncovers the deeper deposits. ATM, generally, has been very successful in unearthing new uranium deposits in Canada's Athabasca Basin. Clay mineralogy is another technology used to find new uranium deposits. None of these technologies are very cheap-but it's getting tougher and tougher to find large deposits these days.

    TER: Will the uranium juniors be able to hang on for as long as it takes for the demand metrics to substantially improve their stocks?

    AS: That's the big question. Equity prices are depressed, but mergers and acquisitions (M&A) are taking place. Cameco Corp. (CCO:TSX; CCJ:NYSE) recently paid $430 million for BHP's Yeelirrie Uranium Project in Australia. Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) bought Hathor. Mantra was also taken over by ARMZ Uranium Holding Co. early last year. Some juniors are also looking for assets. And, there could be a merger of equals in the U.S. uranium space. The bottom line is that M&A will continue apace, especially because the asset valuations are currently depressed.

    When the price of uranium improves, the junior mining sector will take off. But, until then, if I were investing, I would invest in producers with positive cash flows. My top picks are Paladin Energy Ltd. (PDN:TSX; PDN:ASX), Uranium One Inc. (UUU:TSX), Cameco and Uranium Energy Corp. I also like Ur-Energy, because it is within reach of an important milestone as construction starts at Lost Creek. Fission Energy Corp. (FIS:TSX.V; FSSIF:OTCQX) is another one to watch in Canada.

    TER: Thanks for talking with us, Alka.

    AS: You are welcome.

    Alka Singh started her career as a mining research associate with Wellington West Capital Markets in Toronto. Since then she has worked for Orion Securities and Merrill Lynch in Canada. She then moved to New York City to build the mining franchise for Rodman and Renshaw, where she covered 24 precious metals, base metals and uranium names. Singh has since started her own independent research firm, Mine2Capital, to provide unbiased research for clients. She holds a Bachelor of Science in geology and a Master of Business Administration in finance. She is a CFA charter holder.

    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) Peter Byrne 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: Uranium Energy Corp., Uranerz, Ur-Energy and Fission Energy Corp. Interview are edited for clarity.
    3) Alka Singh: I personally and/or my family and Mine2Capital may 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. I was not paid by Streetwise Reports for participating in this story.

    Streetwise - The Energy Report is Copyright © 2012 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.

    The Energy Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

    From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

    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
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    Sep 13 6:19 PM | Link | Comment!
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