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Jim Letourneau's Blog

Investing, Technology, Travel, Geology, Music, Golf. I think that covers it.

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A Face in the Vancouver Crowd? Game 7 on Georgia St.

If you were watching Game 7 of the Stanley Cup Final in The Vancouver Canucks Fan Zone along Georgia St. you will probably be able to find yourself in this Gigapixel photo. Even better, you can tag  yourself and your friends using Facebook. Bonus points if you can tag an anarchist! Who's Zoomin' Who?

CLICK on the image blow to start zooming.



Privacy loving Canadians who know the power of automatic face detection in iPhoto or Picasa are feeling more apprehensive than usual today.

Seafloor Rare Earths Discovered

There is lots of buzz about the recent Nature Geoscience article by Japanese scientists - Deep-sea mud in the Pacific Ocean as a potential resource for rare-earth elements. According to the article abstract,  We estimate that an area of just one square kilometre, surrounding one of the sampling sites, could provide one-fifth of the current annual world consumption of these elements. Clearly, the resource potential is huge.

While there is naturally some skepticism as to whether this resource will ever be commercially exploited, there are numerous advantages to seafloor mining and ultimately it should prove cheaper than terrestrial mining. However, these muds shouldn't be moved into the reserve category just yet (see WSJ article faux pas).

Nautilus Minerals (NUS.TO, NUSMF) have been working on  seafloor mining (click to watch seafloor mining video) for over 5 years. Some of the key advantages of seafloor mining include:

  • No disruption to settlements

  • Minimal overburden, stripping, and waste

  • Ability to move mining to new deposits in a matter of days


There will be legal and environmental considerations but if rare earth prices remain high, these deposits will be pursued. Nautilus is currently working within the exclusive economic zones and territorial waters of Papua New Guinea, Fiji, Tonga, the Solomon Islands and New Zealand. Clearly, Nautilus saw fit to stay clear of the murky workings of the International Seabed Authority which control mining in international waters. In June, there were 43 member countries with dues outstanding for at least 2 years. Interestingly, the United States is not a member because it has not ratified the Law of the Sea treaty.

Currently Nauru, Tonga, China and Russia have Applications for Exploration Contracts (not for rare earths) that will be reviewed at the Seventeenth session of the International Seabed Authority held in Kingston, Jamaica from July 11-22, 2011. I'm sure the International Seabed Authority is being swamped with applications for mining rare earth rich muds and that they are woefully understaffed.

Potash Trains

I see unit trains of potash headed towards Vancouver and Seattle regularly. While the picture below is from 2008, they haven't changed much. I'm sure many motorists would welcome a new color scheme for these cars as sooner or later they'll be stuck watching 100 130, 142 or 170 of them roll by at a level crossing.

Potash - still being sold by the trainload. Just like last ye... on Twitpic

Today, I saw another potash train as I headed downtown. I also heard on the radio that potash prices could be headed to $600/tonne by 2012. This "news" is from a widely reported  Goldman Sachs forecast. I could care less about their prediction but it sure made me curious as to the value of the potash contained in one of these Canpotex railcars. Canpotex handles the marketing and distribution of Saskatchewan potash produced by Agrium Inc. (AGU, AUG.TO) The Mosaic Company (MOS), and Potash Corporation of Saskatchewan Inc. (POT, POT.TO).

As we drove through an underpass beneath the rail line I shouted out "Quick!, how many tons can those railcars hold?". Unfortunately my spotters couldn't read the fine print on the railcars as we zipped beneath them. My kids are no longer punching in my Google search orders (how this critical potash information is less important than the number of mosquitoes a bat can eat in an hour is beyond me - welcome to Google Nation) so I had to wait until I got home. It turns out that Canpotex has roughly 5000 rail cars and full unit trains consist of 130, 142 or 170 railcars.

According to the Canpotex website, A 170-railcar train carries approximately 17,500 MT  of potash, and is nearly 2,600 metres long (8,500 feet).

From the above, I'll assume that each railcar carries ~100 tonnes of potash. Using $500/tonne for a price means that each one of those railcars is carrying $50,000 worth of potash. Using the $500/tonne price for a 170 railcar train means that up to $8.75 million worth of potash is rolling through the city on each train. Right in front of our eyes! No armed guards to be seen.

How do you hijack a train?

Natural Gas Doubters

The New York Times is one of the few newspapers out there with the resources to actually report on news. That does not mean that it lacks an agenda. The paper has a well documented liberal bias. From my browsing of their natural gas related articles, I'm pretty sure they are not in love with the stuff. Prefacing hydraulic fracturing, a procedure used in oil and gas wells for the last 60 years, with the term "controversial" has created an atmosphere of fear around the process. Toxic chemicals! Earthquakes! Fire!

The continued attack on shale gas has now shifted from environmental concerns to economic ones. Two recent New York Times articles Insiders Sound an Alarm Amid a Natural Gas Rush and Behind Veneer, Doubt on Future of Natural Gas are quoting industry "insiders" who have negative opinions on the economic viability of shale gas (source material). While they may be "insiders" most of the quotes come from shale gas "outsiders" with little or no investment of money or creativity in actually making these plays work. These bean counters aren't making a bit of difference to energy supply. Many of them use the term "Ponzi scheme" or "bubble" which is confusing to me because there certainly isn't a price bubble. I don't see one in share prices either. Since when was tying up large reserves of a commodity when prices are low a scam?  Natural gas prices could rise 50% and still be comparable to prices back in 2004.



Natural gas producers went through 2005-2009 with a price that rarely dropped below $6 but since 2009 it has been mired in the $3-6 range.



US natural gas production has increased 6 years running in spite of lower natural gas prices. I'm not sure how increased natural gas supply in a lower price environment is a problem. There are all kinds of things to consider when evaluating natural gas supply scenarios but the bottom line is there has been large upward shift in supply at current prices. If producers are lying about their costs in order to raise capital, the market will eventually find them out. Some shale plays may not perform as well as expected, others may do better. I suspect a few more years of operator experience will allow for better results (it is very early days for shale plays) and more confidence. In the interim natural gas prices may have to rise. If they do, I suspect natural gas supply will quickly increase.

Given that natural gas has the potential to dramatically alter North American energy supply options, my question to the doubters comes courtesy of The Stork (his only line in Animal House - click here). I'd rather hear about solutions. The bean counters quoted by the New York Times don't have any.

A New Low in Metal Thievery - Stealing Steel

In the early stages of this commodity bull market, the news of copper thefts helpt to confirm the fact that metal was indeed something of value (and worthy of stealing). Over time, news of the death and injury to copper thieves through electrocution took some of the cuteness out of the stories. Power failures are irritating and most utility workers don't have "body recovery" in their job descriptions. Here in Calgary, I see numerous concrete pedestals along the Elbow River with nothing to read on them because the metal plaques have been pried off of them. Grrrrrr.

Taunton, Massachusetts appears to be a metal theft mecca. Thieves have ripped out copper pipes from occupied homes (source). The latest example of metal thievery is extremely disconcerting. Metal criminal masterminds are now removing sections of railway track. This recently caused a CSX train derailment in Taunton (source).

Is this the beginning of the Apocalypse?

Daddy, Why Do Commodity Bull Markets End?

I'm fascinated by people who regularly accept technological advances in consumer electronics (ie. many friends tell me that Apple could have easily put a camera in the first generation iPad) but then believe in "peak oil". Technological advances have completely altered the North American natural gas landscape and the same will happen with oil. Between improved oil recovery techniques and shale oil advances, oil reserves (not resources) are being proven up in well explored areas that were previously thought to be tapped out.

For some reason, The New York Times chose not to portray the Eagle Ford Shale oil drilling boom as an environmental catastrophe. There are some pretty exciting opportunities for early investors. According to  Daniel Yergin “This is like adding another Venezuela or Kuwait by 2020, except these tight oil fields are in the United States.”

Throughout history, commodity bull markets have ended with stockpiles of previously scarce commodities. We're not there yet but the seeds of a commodity bust are being planted and it will be fun to watch them grow.

Bawitdaba

My first Kid Rock experience was watching him on TV for a live Much Music performance. The throbbing heavy metal chant of “Bawitdaba” played while Kid Rock drove up to the studio in a yellow Mustang convertible! For me, this was on par to seeing James Brown’s cape routine for the first time. The performance was everything rock and roll should be. Outrageous, offensive and in your face. That was my reason to go see him live on a Friday night in the Saddledome. I was expecting a spectacle and I was not disappointed (lots of explosions and fireballs!).




Like most popular artists, Kid Rock borrows from a broad range of sources, most of them are obvious. The origin of Bawitaba is not. It comes from an early rap artist Lovebug Starski (listen at 1:11 and 2:09). Not sure if Lovebug Starski got any royalties for his few scat syllables but his “baba” lines are reminiscent of The Chips “Rubber Biscuit”.

But it's Warmest in the Middle of the Herd!

"If you read what everyone else reads, you will think what everyone else thinks."  - Haruki Murakami

Great reality check on the "wisdom of crowds" from Kevin Depew at Minyanville. Crowd-sourcing is a fascinating process that has led  to things like Wikipedia and Waze (as an aside, I'd like to see more Calgary users so I know where all the radar traps are!)

However, in the markets crowds usually do the wrong thing at the wrong time. Even when all the participants have fast Internet connections, go figure.

This Just In!

...entrepreneurs continue to be optimistic...

The Ivey Entrepreneurs Index is based on a short survey of five questions distributed to Fellows of QuantumShift™ and its up 5%! Now 92% of those surveyed expect their revenues to increase in the next year.

source


Ivey Entrepreneurs Index is updated twice a year and currently consists of two data points. The trend is up! Would there ever be a room full of pessimistic entrepreneurs? Actuarial consultants sharing the statistical likelihood of their ventures failing perhaps?

Entrepreneurial insight is worth tracking, at least for academics. It will be interesting to see if anything besides semi-annual press releases come from the project. Will it be a contrary indicator?

What Everyone Ought to Know About Hard Assets Investing

Here are the key points from my Main Hall presentation at the New York Hard Assets Investment Conference. Of course I don't know what people don't know... I had to guess.


I started with a meditation from Douglas Adams from Mostly Harmless:


Protect me from knowing what I don't need to know.

Protect me from even knowing that there are things to know that I don't know.

Protect me from knowing that I decided not to know about the things that I decided not to know about. Amen. ~




  • Commodity prices are not the same as commodity related stock prices.

  • Every degree of separation from owning the physical commodity adds a degree of risk to your investment.

  • Opportunities come when there are dislocations in price/politics

  • Lack of pure plays.

  • The commodity bull market is not one market

  • DO not forget currency risk.

  • Commodity Bull Markets Always End



I'll elaborate on the last two points because they don't get discussed very often. Canadians are pretty happy about the near 30% increase in the value of the C$ vs. US$ over the last 2 and a half years. Something to think about when you're agonizing over low interest rates. Of course all the scrolling numbers on CNBC are in US$. Currency matters.


Of course nobody, and I mean NOBODY saw the massive buildup in natural gas supply coming. I don't think we'll see a true bull market in natural gas prices for many decades. Oh sure, if oil prices are $200/bbl and all the rigs are drilling for oil instead of natural gas we could see prices increase but it won't take long to fill any supply gaps. We know where the gas is, how much is there, and how to extract it. Bull market over, at least for natural gas. What commodity will be next?

Why Does Enmax Invest in Penny Stocks?

Enmax Corporation is 100% owned by the City of Calgary. Why would it invest in penny stocks? It appears that Enmax put over $4 million into speculative green energy investments that have a market value of around $400,000 today.

Enmax is a shareholder in Streetlight Intelligence Inc. (SLQ.V) and NaiKun Wind Energy Group (NKW.V). On May 4th, these companies closed at 18 cents and 1 cent, respectively. These investments have not gone well. I'm not sure this public utility should be in the energy venture capital game, at least based on the performance of these two investments.

Streetlight Intelligence


Streetlight Intelligence has developed lighting control systems (wireless dimmer switches). The company's chairman of the board is recently re-elected Calgary Centre MP, Lee Richardson. Enmax first invested in Streetlight Intelligence on March 13, 2008 by participating in a private placement. They bought 11,562,500 common shares at a cost of 16 cents per share for a total subscription amount of $1.85-million. Rather than cut their losses, Enmax bought another 2 million shares at 10 cents on June 10, 2009 for $200,000.


What do they have to show for their investment of $2.05 million? At the current share price that investment is now worth $20,050 and could soon be worthless as Streetlight Intelligence announced that it has ceased operations on April 15.

NaiKun Wind Energy


Enmax also invested in NaiKun Wind Energy Group. NaiKun wants to develop an offshore windfarm in Hecate Strait between Haida Gwaii and Prince Rupert of the northwest coast of British Columbia. The project was conceived in response to the government's BC Energy Plan. Unfortunately for NaiKun, BC Hydro dropped the project in March 2010 from its list of potential clean power suppliers. This was a high risk venture with considerable opposition (source).


Enmax purchased 1,097,562 common shares in NaiKun Wind Energy Group at a price of $1.36 per for a total of $2 million in March of 2007. Shares reached an all time high of $3.97 that summer but have been steadily declining since. In addition to the shares in NaiKun Wind Energy they received 500,000 common shares of NaiKun Generation, a subsidiary with the exclusive rights to install the generation facilites. Enmax also received a seat on NaiKun's board. The market now thinks the value of Enmax shares is just shy of $198,000. This investment doesn't show up on insider filings but it is unlikely that Enmax would have sold given their partnership relationship with NaiKun. Enmax could recover some of their investment if wind power ever comes to Hecate Strait but the project currently appears "dead in the water". Their ownership of private NaiKun Generation is worthless if no project construction occurs. NaiKun's cash reserves (just over $7 million as of December 2010) will keep their lights on for a while longer but the meter is ticking.

The bottom line is that Enmax put over $4 million into speculative green energy investments that are approaching a valuation of zero. To Enmax, $4 million is lunch money, after all they paid $4.6 million in severance to former CEO, Gary Holden. To the citizens of Calgary however, it would have been enough to pay for over 57 Blue Rodeo concerts.

Charts from stockwatch.com

Harper Wins, Game Over - Game On



Lots of good news for Canadians tonight. The end of the Bloc Quebecois is a major shift in Canadian politics. With 2 seats, a party that was pro Quebec separation is decimated. International investors will feel relief, an element of risk to investing in Canada has been removed, at least in the short term.

A Harper majority means that Conservative policies can finally be implemented in full. Its been a long wait for Harper. I once met with him briefly in his Calgary office when he was a Reform Party MP. Back then he was duking it out with party leader Preston Manning about a clothing allowance. I was suggesting that it might be efficient for MP's share their email addresses with constituents. Not much happened, at least right away. Now we have social media. Who knew?

Jack Layton lead a party with 36 seats. They've gone from 1 to 59 Quebec MPs for a total of 104. Big improvement. Who are these new MPs? Layton forcefully pointed out that they consisted of "women and men". He hasn't a clue yet. Please fax your resumes to Jack ASAP. One example is Ruth Ellen Brosseau. She was hard to track down during the campaign as she was in Las Vegas. Now she's the most famous assistant manager pub manager in Canada. Running for political office as a candidate for a a lesser political party gives you a call option on a Black Swan political event. Free shots for Ruth Ellen!

The Liberal Party was crushed. They should be able to retool and come back but it will be a painful process.

The official Opposition will be ineffective and disorganized. It will have a significant Francophone component. Layton will have his hands full herding the cats. Caucus meetings in Vegas? Cirque and Dion!

Investors are going to be enthused. This is likely to push up Canadian markets tomorrow. Would Potash Corp. have been taken over by BHP if there was a Conservative majority? Now it gets interesting. Game on!

Everton Resources Property Tour (EVR.V)


Back in December, I visited the Dominican Republic courtesy of Everton Resources (EVR.V). While visiting a warm place in the middle of winter is always a treat, I managed to fail the travel portion of the trip by turning on my iPhone for a day. I learned that data roaming is obscenely expensive. I also lost my iPad somewhere in the Miami International Airport on the return trip.


After a very full travel day from Calgary to The Dominican Republic (via Dallas and Miami) I met with Everton management (President and CEO, André Audet, Director Brooke Macdonald, and country manager Hugo Dominguez) in our hotel in Santo Domingo.

The following day we headed North/Northwest on the #1 highway (Autopista Juan Pablo Duarte) turning right at Piedra Blanca. Our first stop of the day was the Acme Analytical Lab in Maimon. While there was no evidence of any Coyotes, it was interesting to watch the prepared samples being wheeled around on gurneys... it was like a rock hospital.

Acme Labs
Then we headed ~4km east to check out GlobeStar's Cerro de Maimón operation. Construction of this 6 million ton open pit copper-gold mine was completed in late 2008.



Open pit at Cerro de Maimón



Contract mine truck (and palm tree) - Cerro de Maimón

We squeezed in a lunch at an interesting hotel where the bandstand was directly behind the pool. I'm sure there are some pretty interesting stories coming out of this place.

A moat to protect the band? How many great musicians have been electrocuted here? They finally found a way to make stage diving safe.

While Cerro de Maimón was an impressive operation, it didn't prepare me for the massive size of Barrick Gold's Pueblo Viejo project. It was oilsands big, the largest gold mine in the Western Hemisphere. Entering a construction mega-project is not a trivial exercise and we had to go through an engrossing safety training course followed up with TSA like security measures to gain access to the minesite.


Pueblo Viejo

All of these mines were accessible by paved road only 100km from the capital city of Santo Domingo. By the time Pueblo Viejo is completely up and running the infrastructure in the region will be even better.

We then took a look at an active drill at their La Lechoza VMS project and some drill core. It was a long day but I was left with a couple of impressions, firstly, the Dominican Republic has solid infrastructure (even their pedestrian bridges have serious flair) and secondly Pueblo Viejo is huge... and Everton has land on trend that surrounds it.



As you can see from the map above, there is plenty of geological "smoke" (grab samples, trenching results, soil geochemistry, and scattered drillholes) on Everton lands. The company has been selling off North American assets and focussing more on the Dominican Republic. This has been a source of funding allowing them to go "all in" on the DR.

Everton shares have remained range bound over the last few months but that will change now that they have kicked off a 20,000m deep drilling program at Ampliacion Pueblo Viejo.

Disclosure

Everton paid for my trip expenses. I currently don't own any shares in EVR.V.