Seeking Alpha

The Energy Report's  Instablog

The Energy Report
Send Message
The Energy Report features leading investment coverage of fossil, nuclear, renewable and alternative energies. A Streetwise Reports publication. www.TheEnergyReport.com
My company:
The Energy Report
My blog:
TheEnergyReport.com
My book:
The Energy Report Newsletter
View The Energy Report's Instablogs on:
  • The Nuclear Revival: Mark Lackey
    The Nuclear Revival: Mark Lackey
    12 March 2012 @ 05:08 pm EDT

    The Nuclear Revival: Mark Lackey

    Source: Brian Sylvester of The Energy Report (3/8/12)

    http://www.theenergyreport.com/pub/na/12771

    Emerging from the shadow of Fukushima, the nuclear sector is on the cusp of a comeback, according to Mark Lackey, chief investment strategist with Toronto-based Pope & Company. Nuclear plants have been reopened, and as many as 200 new plants worldwide are scheduled to come online. At the same time, uranium supply shortages loom on the horizon, making for bullish fundamentals for uranium miners. Lackey's faith in the coal sectors also burns brightly. He reveals his favorites in both sectors in this exclusive Energy Report interview.

    The Energy Report: The Fukushima disaster, protests in Australia over lifting a ban on uranium exploration, and a fire aboard a Russian nuclear submarine in December indicate negative sentiment toward nuclear power. Why would investors risk exposure to a commodity that is so price sensitive to events like these?

    Mark Lackey: The fundamentals of the uranium sector still look good. Worldwide, 1.3 billion (NYSE:B) people lack electricity. In China, load growth for electricity is 10% annually; in India, 8%. That growth is unlikely to diminish any time soon. Nuclear power has to be considered as an option to meet demand.

    I would remind you the nuclear industry did not end after the accident in Fukushima, Japan. Yes, there was a reaction; plants were shutdown in Japan and Germany. Subsequently, some startup of those same plants is planned. Furthermore, construction on 65 plants around the world did not stop.

    There have been more inspections in China, India and France and that reassures people that everything has been built to specifications.

    As many as 200 new nuclear plants are being planned in Asia, Brazil and even Saudi Arabia. The week of Feb. 13, China announced its long-term goal to increase installed nuclear capability by an additional 30%. Their original goal was 65 million (NYSE:M) kilowatts (NYSE:KW) by 2020; now it is 80M KW. Clearly, the country does not plan to stop or change direction.

    TER: What impact did the U.S. Nuclear Regulatory Commission's approval of construction of two nuclear reactors in the state of Georgia have on the uranium sector?

    ML: It did not move the spot price, but the industry views this as a positive. Recent growth has been largely in Asia and South America. We will have to wait and see if this leads to more positive announcements in the U.S.

    TER: Do you expect more licenses to be granted in the U.S.?

    ML: Even though U.S. load growth will grow only in the 1% range, the country will need additional capacity in the next 10 to 15 years. It is very hard to build coal plants in the U.S. and the hydroelectric sites are pretty well maxed out. The other option is to burn natural gas. All of this puts nuclear power back in vogue.

    TER: Among commodities, is uranium the most sensitive to world events or would you put gold in that category as well?

    ML: I would put uranium up there. But it is not the only commodity that is event driven. Gold really reacts to events. You can see that in its volatility related to events in Europe. Silver is also event-driven because it tends to follow the gold market. Base metals are not all that event-driven, although oil has been lately.

    TER: In 2010, the nuclear industry used 152 million pounds (Mlb) of uranium. Yet uranium suppliers only produced a total of about 118 Mlb. The shortfall was covered by reprocessing nuclear weapons. When will those finite sources run out?

    ML: Russia will stop exporting the highly enriched uranium it has been processing from its nuclear warheads by 2013. Unless a new source is found, a potential shortfall could happen over the next two or three years.

    TER: It is now almost a year since Fukushima. The spot price for uranium is now $52 a pound. Has that spot price resumed an upward push?

    ML: No, our 2011 forecast would have been correct if the earthquake and tsunami had not happened. The price fell from $72 to the $40s and has remained at $52 the for last six months.

    The decision to shut down some plants in Germany and Japan took away short-term demand. During the recent cold weather, Germany restarted a few of those plants, and the Japanese are looking at proposals to restart some as well. As that trend continues and new plants are commissioned, demand should rise.

    TER: Just about a year ago, the spot price and the long-term price for uranium crossed paths on the charts. Ever since, they have diverged. When do you think those two lines will meet up again?

    ML: Interestingly enough, most uranium sells in the long-term market. The equities all follow the short-term price, partly because that is what the market follows. In the next couple of years, I expect spot prices and long-term prices to rise. We anticipate they will be trading in the same relative price range by 2014.

    TER: What range do you expect the spot price to trade in this year?

    ML: By the end of 2012, we anticipate $65, moving into the mid-$70s in 2013. That upward pressure is due to the fact that the Russians will no longer export highly enriched uranium starting next year.

    TER: What are some different ways to gain exposure to the uranium sector?

    ML: Investors could go a couple of different ways. They could buy mutual funds that specialize in the uranium market. Investors also could buy into companies involved in building nuclear plants or other related industries. We tend to focus more on uranium mining companies themselves.

    TER: What are some companies you follow?

    ML: We like Fission Energy Corp. (FIS:TSX.V; FSSIF:OTCQX), a play in the Athabasca Basin. A number of people caught on to Fission after Hathor Exploration Ltd. was taken out because Fission has the adjacent property. The numbers on its Waterbury Project are impressive. Fission also has interesting projects in Saskatchewan and Québec. From our perspective, this would appear to be a takeover candidate, depending on its success drilling the Waterbury Lake property.

    TER: Waterbury Lake is owned by a consortium, which is headed by the Korean Electric Power Corp. or KEPCO. Do you view that as a positive or negative?

    ML: I view it as a positive. I do not buy the idea that the presence of KEPCO means Fission is less likely to get a takeover offer. I think KEPCO's presence tends to derisk the project and reduces Fission's financial requirements in the future.

    TER: Does it make sense to develop Hathor's Roughrider Project without having what is believed to be its extension, which Fission owns, in the J Zone?

    ML: Ultimately, the more work that is done at Hathor-especially if the numbers remain as good as they are and the trend continues to move toward Fission-the greater the likelihood that somebody would want to acquire Fission. Rio Tinto (RIO:NYSE; RIO:ASX) is an obvious candidate, given that it won the Hathor stake and clearly wants to extend its presence in North America.

    Cameco Corp. (CCO:TSX; CCJ:NYSE), another significant player in the basin, would not sit idly by if a company like Fission was put into play.

    TER: Fission also has the Dieter Lake Project in Québec. Is the market crediting Fission for the value of that property or is the valuation based solely on Waterbury Lake?

    ML: I would say that few people give the Québec project a whole lot of credit; not enough people have looked at it. The market is not paying attention to the real promise of the Québec property. That is partly because people believe that the Athabasca situation is what will make Fission. In the short run, that is where the company is concentrating as well. Another factor is that there just are not many uranium players in Québec.

    TER: What other companies are you following?

    ML: We like Strathmore Minerals Corp. (STM:TSX; STHJF:OTCQX), a company with significant land positions in New Mexico and Wyoming, the two states that have had the most production in U.S. history and have by far the biggest reserves of uranium. We believe the company could have production as soon as early 2015. The company has low capital costs and Strathmore has significant in situ recovery (NYSEMKT:ISR) expertise on staff. The market has not completely recognized its Church Rock project as a much larger and cheaper source of uranium. The focus has been on Roca Honda and its Gas Hills play in Wyoming.

    TER: How sensitive are uranium juniors to the spot price?

    ML: In general, the correlation on uranium stocks is fairly high. The junior stocks tend to move after the big market has shown recovery.

    For example, if we see continued movement in Cameco, Denison Mines Corp. (DML:TSX; DNN:NYSE.A) and Paladin Energy Ltd. (PDN:TSX; PDN:ASX), I think the juniors will start to follow. If the uranium price gets to where we believe it will be by the end of 2012, the juniors that are in production or relatively close will move with the market.

    When you get a company like Strathmore, as you get closer to 2014 and if we are right about uranium prices, there should be considerable gains in Strathmore's share price. It will be a significant uranium producer as we get to the latter part of this decade.

    TER: What is the next near-term catalyst for Strathmore?

    ML: It is probably getting all of its permitting done so the company can get into production by 2015. Given that its projects are in mining- and uranium-friendly jurisdictions, I would not anticipate any major impediments to this process.

    TER: KEPCO recently acquired 14.5M shares of Strathmore at $0.55/share. What did you make of that move?

    ML: I think it is positive for Strathmore, because it reaffirms the KEPCO commitment to the company and it now owns about 14% of the company.

    This has become a trend in the base metals, whether it is China, Korea or India. In cases where there is an offtake agreement, countries secure some of the uranium themselves. Korea, Japan, India and China want to make sure that uranium opportunities are out there, that the physical supply will be there.

    TER: Can you give us one off-the-radar name our readers may not know about?

    ML: They may not be aware of Tigris Uranium Corp. (TU:TSX.V), run by Bill Sheriff. Bill built Energy Metals Corporation, which Uranium One took over four or five years ago. He brought in Dennis Stover, who was COO of Energy Metals. Dennis knows ISR better than most people.

    TER: Given your expertise in coal, we have to talk a little bit about that. Prices for thermal coal and metallurgical (met) coal remain healthy despite reports about the contribution of greenhouse gases generated by coal-burning power plants and steel mills to global warming. What are your outlooks for thermal and met coal?

    ML: The met coal market looks pretty good. We expect steel production to grow in the 6% range over the coming four to five years. European steel production shows some weakness right now, but there is no significant slowdown in India, Korea or China. Even in the U.S., it looks like steel production will be OK, given the expected decent year for auto sales. We expect met coal to trade in the $200-225/ton (t) range, which will be very positive for met coal producers.

    Thermal coal is a little more diverse. It can be as low as $15/t and as high as $120/t, depending on the British thermal units (BTUs), sulfur and ash content. At the upper end, the markets for thermal coal look very good. The lower end is always more problematic. Environmentalists have the most problems with this coal, particularly in developing countries. And, it is a little more difficult to develop plants.

    TER: What do you like to see in a coal play?

    ML: All things being equal, my preference is to be in the met coal market or the upper-end thermal market. We tend to be in North America, where we are familiar with the permitting processes and government issues.

    I also look for good infrastructure. Without rail or water or power, having a big coal deposit is not very useful. You also want companies in places where there are lots of people who understand the geology in that jurisdiction.

    TER: What names are you following in the coal space?

    ML: We like Fortune Minerals Ltd. (FT:TSX). The company has its Mount Klappan project, a met coal deposit in British Columbia. It has access to infrastructure and ports. Being in the western part of Canada, its market is Asia. This is one of the world's premiere met coal development projects. There is obviously a lot of expertise in the area, given all the met coal that has been developed around British Columbia and Alberta.

    TER: Fortune is trading at about half its 52-week high, after taking a bit of a beating in 2011. Is this a good entry point?

    ML: If you look at when this stock peaked and you look at what took place in the Venture Exchange, which is down about 35% to 40% from its peak last April, Fortune has really followed that trend. Many people moved out at tax-loss selling time. Production will not start for a few years, and some people want to be in coal plays that are in or near production. But if you take a longer-term view and look at the size of the reserves, you recognize the significant potential three or four years from now.

    TER: The Canadian subsidiary of the Korean steel-maker, POSCO, owns 25% of the Mount Klappan project. Why are Korean companies so consumed with North American energy plays?

    ML: I think they recognized that areas of the world you can go to are limited. The Koreans like the stability of Canada, that we do not change legislation a lot. You can find a lot of strong, competent people to run companies. China and Korea probably have the most joint deals in the North American energy sector; China probably more than Korea in the last year.

    TER: What other coal plays can you tell us about?

    ML: We like Corsa Coal Corp. (CSO:TSX), a met coal play with an operation in Pennsylvania. Management has a successful track record in the state. Don Charter, who was one of the senior guys at Dundee for years, runs it. It is in production and the potential is there to get higher levels over the next few years. This is a company that is not on a lot of people's radar screens.

    TER: The company produced about 250,000t coal last year, with an average realized price of $167/t. What do you think the average realized price will be in 2012?

    ML: The met market has not been as high as in China, but then you have to ship it to China. You need to realize that, if we quote a price of $225, you need to deduct the shipping costs. The price Corsa is getting is in line with what you get in the U.S.

    If we had a decent year in the U.S., the price could go slightly higher. It will not skyrocket. A lot of met coal producers would be happy if they saw $150/t or $140/t. I would suggest prices will stay at the $170/t level, or slightly higher.

    TER: Corsa expects to produce 695,000- 765,000 raw tons of met coal in 2012 at a cash cost of roughly $50/t. Are those reasonable estimates?

    ML: The cost numbers look good and the production numbers look reasonable. Of course, there is always execution risk, which management has helped lower.

    TER: Do you have any other coal names?

    ML: NovaDx Ventures Corp. (NDX:TSX.V) is a met coal play in Alabama and Tennessee. It picked up a lot of top management from coal companies in both states. The company expects good production increases down the road. We think that these significant production increases will likely result in a much higher share price in the next few years.

    TER: Do you have any parting thoughts to share?

    ML: We put world growth in 2012 at around 3.5%, down from almost 4.5% last year and almost 5% in 2010. That is better than forecasters who peg world growth as low as 1.5% to 2%. Clearly, if you believe the latter outlook, it will not be a great year for the energy space.

    But if you believe our 3.5% forecast, we expect to see good opportunities in both uranium and coal. And, we expect appreciation of these equities as we go through the year.

    TER: Mark, thank you for your time and insights.

    Mark Lackey, currently the investment strategist at Pope & Company Limited, has 30 years of experience in energy (oil and gas; hydro), mining, central and corporate banking and investment research and strategy. He worked at the Bank of Canada where he was responsible for the production of U.S. economic forecasting, briefing Governor Gerald Bouey on U.S. economic developments on a weekly basis. Mr. Lackey was a senior manager of commodities at the Bank of Montreal where he helped to determine whether or not the bank would loan money to companies in the commodity space. He spent 10 years in the oil industry with Gulf Canada, Chevron Canada and Petro Canada where his main responsibility was developing corporate plans. He is a regular guest on BNN, having made more than 200 appearances in the last 10 years (more than 40 of which were in 2010). On his most recent appearance, Lackey discussed his new role at Pope & Company and branded Pope as an up-and-coming institutional resource boutique dealer.

    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) Brian Sylvester 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: Fission Energy Corp. and Strathmore Minerals Corp. Streetwise does not accept stock in exchange for services.

    3) Mark Lackey: 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. I was not paid by Streetwise 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

    Email: jluther@streetwisereports.com
    Mar 16 5:55 PM | Link | 1 Comment
  • From Fracking To Fuel Cells-Capitalizing On The Energy Revolution: Laird Cagan
    From Fracking to Fuel Cells-Capitalizing on the Energy Revolution: Laird Cagan
    06 March 2012 @ 04:58 pm EDT

    From Fracking to Fuel Cells-Capitalizing on the Energy Revolution: Laird Cagan

    Source: George S. Mack of The Energy Report (3/6/12)

    http://www.theenergyreport.com/pub/na/12754

    For investors seeking high potential returns and the thrill of participating in market innovation, the smallcap energy space is where it's at. Managing Director and Co-Founder Laird Cagan of merchant bank Cagan McAfee Capital Partners has built his career by backing companies that are both filling current demand and creating new markets. In this exclusive interview with The Energy Report, Cagan shares his experiences and discusses several companies at the forefront of the energy revolution.

    The Energy Report: Laird, you and your partner are active investors. You are company founders, you sit on the boards and you actually run the businesses in some cases. What kind of advantage does that give you?

    Laird Cagan: We are involved with fewer portfolio companies compared to a private equity or larger firm. Because we take a very active role and are starting companies at early stages, our preference is to create a new platform company and a new business opportunity. So the benefit is that we can be very close to the company and try to launch it quickly to take advantage of whatever market opportunity we see. We have a lot of skin in the game, a lot of ownership, and we try to help guide companies in the right direction. But like private equity investors, we generally have professional managers from the industry who were either co-founders or who were brought in to lead the company on a day-to-day basis. One exception is the case of my partner Eric McAfee, who has been running Aemetis Inc. (AMTX:OTCPK) since 2005, when we started that company.

    TER: What kinds of companies interest you most?

    LC: For the last 10 years or so we've been focused on building companies in the microcap public space. We have found that this has given us better, faster access to capital for the right opportunities. Public investors don't want to take the three, six, nine or 12 months that venture capitalists and private equity firms take to investigate opportunities before making an investment decision. Public investors want to see something faster and want an opportunity that they can understand. Typically, that means we stay away from pure-play technologies, but we do look for technologies that are creating new markets. For example, we founded Evolution Petroleum Corporation (EPM:NYSE) in 2002, when oil was $25 per barrel (/bbl). We created that company to do enhanced oil recovery using technologies like lateral drilling, which was not very prevalent back then. We could take mature oil and gas fields and extract additional reserves using new technologies. But we also benefited greatly from having oil prices go from $25-100/bbl. We founded Pacific Ethanol Inc. (PEIX:NAS) to replace gasoline additive MTBE (methyl tertiary butyl ether), which was outlawed in 2004 in California and many other states. Ethanol was the only known oxygenate that would burn gasoline cleanly enough to meet the clean air act. So, it was less of an alternative energy play than a replacement-commodity play with a West Coast focus. Those companies, Evolution Petroleum and Pacific Ethanol, got us into the energy space. With rising energy prices and a multitrillion-dollar marketplace, all sorts of new opportunities began to arise because of technology. Aemetis, originally called AE Biofuels, was focused on next-generation biofuel moving from corn to other feedstocks that would be more plentiful, more predictable and would not be in the food chain.

    TER: Was horizontal drilling technology more capital-intensive at the time, with oil at $25/bbl?

    LC: Not particularly. There were thousands and thousands of wells around the United States that had been drilled and shut-in or were at a trickle of their former production. Some were getting ready to shut down. People would practically give them away because it costs money from an environmental standpoint to close them. For us, Evolution was an opportunity to create an early-stage platform company to produce oil using enhanced oil recovery. We were fortunate that by 2006 oil prices were at $40-50/bbl.

    TER: What's the technique?

    LC: The technique used is called CO2 (carbon dioxide) flooding, where you inject CO2 into the ground and it releases the trapped extra oil, which then bubbles up. The CO2 adds pressure, just as it does in a carbonated beverage. When you drill an oil well for the first time and release the virgin pressure by traditional means, you might get 40% of the oil. This means somewhere between 50% and 60% of the original oil in place is still there. With the CO2 floods, you can typically get between 15% and 20% of the original oil in place, and that's a meaningful well.

    TER: As a pioneer of this technology, where did you incur the most extensive costs?

    LC: You have to have a pipeline to get your source CO2, and that's a challenge. If you're close to a source, the cost of injecting it can be around $10/bbl. But a project's viability depends a lot on the fixed cost of getting the CO2 to the site. At the Delhi Field in Northern Louisiana, Evolution Petroleum formed a very effective partnership with the leading CO2 player in the industry, Denbury Resources Inc. (DNR:NYSE). Together we've done very well. The Delhi Field was 14,000 acres and is estimated to be capable of releasing an additional 60 million barrels (MMbbl) of oil. And with oil now over $100/bbl, that's $6B worth of oil, and you can afford to spend a lot to go after that.

    TER: Great foresight.

    LC: I would say yes, it was foresight and some luck. We didn't anticipate $100/bbl oil at the time. But, we really do focus on trying to get a play at the beginning of a growth cycle. Of course for any investor, being at the beginning of a rising tide is one of the keys to success and having superior returns.

    TER: You're not as actively involved in Camac Energy Inc. (CAK:NYSE) as you are in some of your portfolio companies, but starting the company has been an interesting saga. Can you tell us about that?

    LC: In 2006, after having had some success with both Evolution Petroleum and Pacific Ethanol, I was introduced to Frank Ingriselli, the former head of Texaco International. He developed some important relationships in China and he had a lot of very high-level experience with majors in that region. After Chevron Corporation (CVX:NYSE) bought Texaco in 2001, he wanted to start a new oil and gas company and needed capital to grow, for which I was approached. We ended up funding a $21M offering and creating a new public entity, Pacific Asia Petroleum. Frank went to China to visit as a long-time contact and was granted a concession of 175,000 acres in the prime coal-bed-methane region of China. Without any upfront money, we got a hold of a major resource that launched the company. The Chinese government's goal was to bring in people that had expertise and ability and who could bring capital for projects, because the country needs energy. Over time we ended up acquiring Camac, which owned a large property in offshore Nigeria that was just beginning production. In a sense it was a reverse merger for Camac because it became the majority shareholder and ended up taking control by its Chairman and CEO Kase Lawal. I dropped off the board around that period of time.

    TER: Camac shares have been flat over the past six months, but down about 50% from a year ago. What accounts for the lag in the stock price?

    LC: Its first production well started out at 20 thousand barrels per day (Mbbl/d) and it has gone down to about 4 Mbbl/d, but there's still a huge reserve there, which is estimated to be between 600 MMbbl-2.2 billion (NYSE:B) bbl of recoverable oil in the entire field. Camac is working on getting a new partner to come in and develop that. I'm bullish on the long-term. It's going to take time, but it should be very exciting. I'm still a big shareholder and waiting, watching and hoping for the best.

    TER: Were there any other companies you wanted to mention briefly?

    LC: I recently became chairman of Blue Earth Inc. (BBLU:OTC), which is in the energy efficiency space. This is a very important new category, and it is frankly the lowest-hanging fruit of energy conservation by reducing energy consumption. Commercial real estate uses about 20% of our nation's energy. Making those buildings more efficient is very important, and provides quick returns. For example, replacing old motors and with energy-efficient motors produces a one- to two-year payback. Blue Earth is geared toward doing that.

    TER: Is the company actually manufacturing new technology?

    LC: It's not a technology company, but it's using the latest improvements in energy efficiency to retrofit commercial real estate. It will also do energy audits for clients' buildings and recommend an energy-generation project, be it solar, fuel cell, etc. that fits the client's needs. This is called distributed generation: Instead of going into the grid and selling power back to the utility, the company sells directly to the customer. It therefore has none of the energy losses of going through the grid, nor any of the capex issues. Retrofitting to localize energy at a site is a tremendous innovation that needs to happen in order to reduce national and even global energy consumption. I'm very bullish on the energy efficiency and distributed generation space for the next 50 years. It has the power to replace and transform our energy production. We are not going to get rid of utilities because we need them, but we can chip away at our use of fossil fuels from our insatiable appetite for energy in a way that is cost effective. It also reduces carbon emissions.

    TER: Is Blue Earth a consulting company?

    LC: No. It's more of a contractor, or a construction company. In other words, it does the work. In the solar world it's called Engineering Procurement Construction or EPC. After the energy audit, the company does the engineering, including procurement of parts and construction. As we move on and migrate this business model, the company will also provide the financing and effectively become the developer. There are some good tax incentives involved in alternative energy, both in solar and fuel cells. Depreciation is also available, and that adds to the return.

    TER: Solar systems would be on the roof or on land, but how far away would a generating fuel cell typically be from the building?

    LC: Adjacent to the building. There's no sound, and there are no moving parts. You need a footprint about the size of a tractor trailer. There are a few significant fuel cell manufacturers in the U.S., and they are growing nicely. Fuel cells are significantly more cost effective than solar if you can use energy 24 hours a day such as in a data center and can have net paybacks in 5-10 years at most, whereas it might take solar 10-20-years to payback.

    TER: What are the fuel cell companies?

    LC: One of the companies to look at is Bloom Energy (private). It has the larger units, and Google Inc. (GOOG:NASDAQ) put Bloom units into its building in Silicon Valley with a lot of publicity a year or so ago. Bloom is different from the other three manufacturers, as there is no waste heat, which is interesting. So, if you have large, consistent needs, Bloom is good. The data centers that Google runs are 24-hour operations. So, it would not be quite as suitable for a company that shuts down at night because you can't amortize 24 hours, and perhaps solar would be better for a company that needs mostly peak daytime energy. That's why an energy audit is so important, so clients can understand what's most appropriate for their business.

    Other companies include FuelCell Energy Inc. (FCEL:NASDAQ) and ClearEdge Power (private), the latter of which makes a variety of units, including small residential-size fuel cells. ClearEdge is blitzing homes. It's the SolarCity (private) equivalent. SolarCity is trying to put solar on your roof, and ClearEdge is trying to put a fuel cell next to your house, and it makes systems all the way down to 5 kilowatts, which is appropriate for a midsize house.

    TER: It has been a pleasure meeting you, Laird.

    LC: Thank you.

    Laird Cagan is managing director and co-founder of Cagan McAfee Capital Partners LLC, a merchant bank in Cupertino, CA. Cagan McAfee has founded, funded and taken public 10 companies in a variety of industries including energy, computing, healthcare and environmental. The company has helped raise over $500M for these companies, which achieved a combined market capitalization of over $2B. Mr. Cagan was the founder/chairman of Evolution Petroleum Corporation (AMEX: EPM), a company established to develop mature oil and gas fields with advanced technologies, and he is a former director of American Ethanol (AEB) and Pacific Asia Petroleum (PFAP).

    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. Streetwise Reports does not accept stock in exchange for services.

    3) Laird Cagan: I personally and/or my family own shares of the following companies mentioned in this interview: Evolution Petroleum Corporation, Camac Energy, Aemetis Inc. and Blue Earth Inc. I personally and/or my family are paid by the following companies mentioned in this interview: Evolution Petroleum Corporation, Aemetis Inc. and Blue Earth Inc. I was not paid by Streetwise for this interview.

    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

    Email: jluther@streetwisereports.com
    Mar 12 6:37 PM | Link | Comment!
  • Tap Energy Profits With Undervalued Producers: Chen Lin
    Tap Energy Profits with Undervalued Producers: Chen Lin
    28 February 2012 @ 06:59 pm EDT

    Tap Energy Profits with Undervalued Producers: Chen Lin

    Source: George S. Mack of The Energy Report (2/28/12)

    http://www.theenergyreport.com/pub/na/12647

    The idea of finding an undervalued stock is enticing, but how can investors distinguish between an international value tap and a bottomless money trap? Private investor and newsletter writer Chen Lin combs every continent to find junior exploration and production companies whose balance sheets outshine low stock valuations. In this exclusive interview with The Energy Report, Lin shares some lesser-known names that offer major profit potential.

    The Energy Report: Chen, you follow world events very closely. Do events in Europe, especially Greece, have any effect on any of your decisions to buy or sell?

    Chen Lin: Yes, but I look more at the fundamentals. Greece is on the edge of bankruptcy, but I think the market is well prepared for that. I'm looking more at whether there's a major impact to the financial markets.

    TER: How would it affect the way you trade?

    CL: If we have another round of a huge deleveraging, I think I will be more conservative in general. I've become very aggressive in my investing since the beginning of the year because the European Central Bank (ECB) did another round of money printing and low-interest loaning to all the banks for three years. That dramatically expanded balance sheets, just like quantitative easing (QE) did in the U.S.

    TER: You have had stellar returns in your portfolios. You grew $5,411 as of Dec. 31, 2002, to $1,383,041 by Dec. 31, 2011, but your portfolios were down 11% in 2011. What were the issues that resulted in that downturn?

    CL: In 2008 I had a down year by a similar amount. I usually invest mostly long in the market, and I like to invest in undervalued stocks. Sometimes if they are extremely undervalued, I overweight them. So that tends to concentrate those stocks. When the market is down and investors don't recognize the value, my stocks can be dragged down along with the overall market. Considering how tough the market was in 2011, I think I did relatively well in the period. I'm up quite significantly since the beginning of this year. People were seeking refuge in U.S. Treasury bonds, and now are suddenly starting to put money back to work. There has been a huge run-up of commodities and commodity-related stocks.

    TER: At the end of 2011, you said that energy stocks were on a year-end clearance sale. After some price appreciation, are they still on clearance?

    CL: A lot of the stocks I own have already appreciated dramatically since the beginning of the year, some even close to 100%. However, because they went down very hard last year and people panicked and sold everything they could to raise cash, I think there are still a lot of extremely undervalued energy stocks right now. Historically, if you compare the risk-reward, they're still extremely undervalued. So I'm still overweighting energy versus precious metals.

    TER: Are you currently trading out of equities that have greatly appreciated since the beginning of 2012?

    CL: No, I am not. Well, some stocks I have, but mostly I've stayed with what I'm holding. I believe this rally still has legs. My largest position is Mart Resources Inc. (MMT:TSX.V), and my second largest isPan Orient Energy Corp. (POE:TSX.V). Although I've been mentioning them in my newsletter for quite some time, I am still holding and riding those two stocks. I believe they are still very much undervalued.

    TER: You've written that you're expecting some big news from Mart pretty soon.

    CL: I'm hoping the company can deliver a dividend. Its cash has been increasing dramatically in the past few months. It's going after light sweet oil in Nigeria and selling it at a premium to Brent crude, so the company has a lot of free cash flow. The money is just piling up on its balance sheet, and I expect that to continue for the rest of the year. It's pretty amazing that only two years ago the company was close to bankruptcy. Since then, it has just changed dramatically, and I don't think it is appreciated by the market. I'm still very optimistic about the company and holding my position.

    TER: Mart Resources has given back about 6% over the past month. Is this a buying opportunity?

    CL: I think so. If you compare the valuation of Mart to other companies in the space, seldom do you see a company trading potentially at one or two times this year's cash flow. Potentially, it could more than double its cash flow next year because it is finding more and more oil. Every well has been great in the past two years. That's very unusual for a junior company. In addition, its wells have no decline. That's something that amazes me because if you look at nearly all energy companies, you're looking at very sharp declines in the first three to six months.

    TER: Is there no sign at all of depletion? This huge oil field just continues to keep producing?

    CL: That's the thing. My guess is that it is sitting on a huge oil pool that's interconnected and extends over a very big range. Once it pumps oil out, still more oil flows to the area, and so there's no decline. This type of well is very hard to find on earth except in Saudi Arabia and a few other countries.

    TER: So, Mart is producing oil that gives the company a marketing advantage because light-sweet refinement is low cost and therefore commands a premium price to Brent crude. Plus, depletion is not notable yet. What am I missing? I'm sure the picture can't be this bright.

    CL: Exactly. Well, the issue is Nigeria. It is a country where there are frequent protests and attacks on the pipelines. But those conflicts are mostly in the north, whereas Mart operates in the south, near the coast. So it's pretty far away from the major violence. There is still tremendous opportunity and tremendous cash flow for this company. I think this will be the year when people see a dramatic rise in cash on its balance sheet and hopefully, with all that cash, it can pay dividends and bring in more rigs. It will build a pipeline and do everything organically without coming back to the market. That's the beauty of this.

    TER: A year ago you said you expected investors to begin accumulating shares in Pan Orient based on anticipated production from its big land position in Indonesia. You were correct. Shares are up more than 60% over the past three months. How much more growth can we expect?

    CL: Pan Orient has a slightly different thesis than Mart Resources because there is some exploration/discovery risk. It is drilling wells, potentially very big wells, but I don't know if the wells will be successful. With Mart, there is much more certainty. However, though there is risk for Pan Orient, it is a very experienced oil exploration company, and it's been in Thailand for five years, drilling and fine tuning its technology.

    I shared with my subscribers a report that estimates each of the three Pan Orient wells in Indonesia is worth about $3 of net asset value (NYSE:NAV)/share if successful in the first half of 2012 and $2 for each of the other three wells in the second half of 2012. In addition, Pan Orient also has an oil sands property in Canada that it wants to sell. The company has $1/share cash on the balance sheet and cash flow over $1/share right now, and this is in addition to the oil sands property that it has for sale. Thailand is ramping up production and Indonesia has the big wildcat wells at work. So in terms of risk-reward, it's an ideal situation. I wouldn't be surprised to see the stock be a ten-bagger by the end of this year. The company could be a $1 billion (NYSE:B) company. It was a $2 stock when I recommended it in my newsletter. Right now it's $3 and change. With some success in drilling in Indonesia, I'm looking for a ten-bagger. Seldom do you have those in one year, so I have pretty high hopes on the stock.

    TER: What other companies do you like?

    CL: This year, I have put a new fracking company in my newsletter, New Zealand Energy Corp. (NZ:TSX.V; NZERF:OTCQX). It has done very well so far. The stock has really exploded, and some of this excitement is about the company getting ready to explore for shale oil in New Zealand. The company has a big land package, and I think Apache is going to start drilling in April not far from their huge land package, and so we may see some results in H212. In the mean time, the company has drilled a nice conventional well, which has 500 barrels per day on restricted flow. It is drilling the second well and planning the third. The success of the current drilling program can move the stock as well.

    I still have Porto Energy Corp. (PEC:TSX.V) on my list. It was one of my biggest losers last year. You win some and lose some. The stock has been down to about $0.11 recently, but I'm seeing significant insider purchases. The company has about $10 million (NYSE:M) in working capital, but it doesn't intend to use all the money to drill the well on its own and then have to come back to the market to raise money at this depressed level. Instead, it is looking to do a joint venture (JV). So basically it would like its partner to pick up the costs and risk. I just spoke with the company, and management is still optimistic about getting a JV deal very soon. Porto is unique in that it has a huge land package in Portugal of over 1M acres on trend with the North Sea.

    TER: You've said that the Portuguese government wanted to do anything it could to help Porto, and so it's disappointing to see that the stock has been so weak. What is the government doing to help the company?

    CL: I think the government is making it easier to get permits. Porto has drilled three dry holes. It hasn't found any major oil yet, and that was its big downfall last year. I was told last year that if it found oil it would be easier to work with the government to bring the oil into production.

    Portugal is trying to do everything it can to avoid the fate of Greece, and so an oil discovery would be very significant. Porto is being run by very experienced oil guys, and most of them came from Devon Energy Corp.'s (DVN:NYSE) international division. In fact, Joe Ash was running the International division, but he left a comfortable, high-paying job to run Porto because he believes in the potential. You can see from insider trading reports that he has recently purchased more shares with his own money. So that tells you the people still believe in the whole thesis of finding massive amounts of oil in Portugal.

    TER: At this low $25M market cap, it seems like Ash with a few other people could easily buy this company and take it private.

    CL: Yes. But when the stock went down, the company adopted a poison pill. I think it's afraid of a hostile takeover. Taking it private is possible.

    TER: You mentioned New Zealand Energy. Its shares, as you indicated, have gone to the races. The company is up well over 100% over the past three months. That's a lot of conviction.

    CL: I believe there is the potential of doing fracking on this Bakken-like land. There will be some development later this year, and that's actually driving the stock price. This stock is still very undervalued.

    TER: Are there other companies you like?

    CL: There are quite a few still that I like. PetroBakken Energy Ltd. (PBN:TSX) has been a big winner for me. It was paying a 10% dividend when I picked it up, but it's up almost 70% since then, and now it is paying a 6-7% dividend. The key is that if you compare the company with other North American-based fracking companies in Bakken plays, it's still relatively cheap. I think it could potentially have more upside, but the easy money has been made with this stock.

    I am also holding Prophecy Coal Corp. (PCY:TSX; PRPCF:OTCQX; 1P2:FSE) and Prophecy Platinum Corp. (NKL:TSX.V; PNIKD:OTCPK; P94P:FSE). Both stocks are rising this year. I like Prophecy Coal as it is getting close to a contract with Mongolia's government. That will lead to financing and construction of the power plant. Prophecy Platinum should have its preliminary economic assessment very soon, so investors can get a peek of the project's huge potential.

    TER: Most of your stocks are microcap companies. I find it interesting that you own Petrobakken, which has such a large market cap at $2.8B.

    CL: As far as market cap, it's one of the largest I own now, but it had been hit very hard, and thankfully I was able to pick it up when it was quite depressed.

    TER: What about another company that you like?

    CL: Another company I like, which still hasn't appreciated much, is Harvest Natural Resources (HNR:NYSE). This company has had bad luck like Porto. It drilled three dry holes in a row, and the stock is still very close to its 52-week low. The main attraction is that it has a big oil field in Venezuela. If you are looking at normal valuations, and if it's not in Venezuela but rather a country friendlier to the U.S., then the company is probably worth at least $20/share. The stock is trading at $6-7. Venezuela is going to have an election this year in the fall, and Hugo Chavez will be seeking his third term. With all the things happening around the world, like the Arab Spring, I wouldn't be surprised if Venezuela has some major changes this year. If that's the case, this stock can have a huge upside.

    TER: Harvest Natural just hit another dry hole, but clearly the dry holes don't make you as nervous as the Venezuelan government, is that right?

    CL: If it gets a hit in Indonesia that would be great. But this company already has a huge oil field in Venezuela that is self-funding. It doesn't need to put money in. It was hoping to get money out as dividends for shareholders, but so far it has been having trouble getting any money out because of the government. But this could change overnight if the government has a change of regime.

    TER: What other companies did you want to mention to us today?

    CL: Another company is TransGlobe Energy Corp. (TGL:TSX; TGA:NASDAQ), which I own. It is operating mostly in Egypt and Yemen. If you compare the company, cash-flow wise it is very, very cheap. Due to political problems, the company has mostly stopped production in Yemen. If it can start flowing again in the country, that would be another big catalyst. I like the stock, and I own the stock and options.

    TER: What effect has the Arab Spring in Yemen had on TransGlobe's business? Its shares have been above water for the last six months.

    CL: The Arab Spring in Yemen actually depressed the stock. It used to produce from Yemen but because of violence, it stopped producing there. Any peaceful resolutions and new production would be a big plus.

    TER: Any other positions you could talk about briefly?

    CL: I also have two companies in the North Sea. Both did very well. One is Ithaca Energy Inc. (IAE:TSX). It just went up 40-50% because of a potential takeover. Another is a Iona Energy Inc. (INA:TSX.V), which was funded by the founder of Ithaca Energy. Both of these have done very well.

    TER: Do you have any new positions?

    CL: I recently purchased Coastal Energy Co. (CEN:TSX.V), operating in offshore Thailand. It has been growing its production quite dramatically in the past year, and it continues to grow.

    TER: Coastal is another larger name with a $2B market cap. But just the opposite is Groundstar Resources Ltd. (GSA:TSX.V), which you owned last year.

    CL: Yes. Groundstar was one of the worst stock picks I had last year. It drilled a well in Iraq and one in Egypt, and every well it drilled turned out to be a dry hole. So I had to cut my losses and get out of the stock when I saw it was raising money and diluting shareholders at a very low share price. The stock would have probably had a difficult time rebounding.

    TER: It is so nice speaking with you again, Chen. Thank you for your time.

    CL: I enjoyed it. Thank you.

    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 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 S. 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: Mart Resources Inc., New Zealand Energy Corp., Prophecy Coal Corp., Prophesy Platinum Corp., Iona Energy Inc. and TransGlobe Energy Corp. Streetwise Reports does not accept stock in exchange for services.

    3) Chen Lin: I personally and/or my family own shares of the following companies mentioned in this interview: Mart Resources Inc., Pan Orient Energy Corp., New Zealand Energy Corp., Porto Energy Corp., Devon Energy Corp., Petrobakken Energy Ltd., Prophecy Coal, Prophecy Platinum, Harvest Natural Resources Inc., TransGlobe Energy Corp., Ithaca Energy Inc., Coastal Energy Co. and Groundstar Resources Ltd. I personally and/or my family am paid by the following companies mentioned in this interview: In early 2010, when Porto Energy was a private company, Chen Lin received shares from the company to introduce it to hedge funds. I was not paid by Streetwise for this interview.

    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

    Email: jluther@streetwisereports.com
    Mar 05 5:49 PM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.