“A genius can’t be forced; nor can you make an ape an alderman.” ~ Thomas Somerville

By any estimate, the uranium market is trading in the extremely oversold ranges, but when the trend is down, a market can trend into the extreme of extremely oversold ranges, and we have seen this occur many times in the past. The 15-year chart illustrates that the next layer of support comes into play in the $21.50-$22.00 ranges, so despite being extremely oversold the market still has room to trend lower. One positive is that the trend is about to turn neutral and if it does it would be the first move into the neutral zone in a very long time.

Uranium

Taking a long-term view; a monthly close above $35 would be needed to indicate that a multi-month bottom is in place. From a contrarian perspective, uranium would start to look quite tempting at any level below $23.00.

Source:www.indexmundi.com/

On the five year chart, Uranium is has broken through former support (27.50-28.00) now turned resistance and it appears that almost all the ingredients are in place for a test of the $21.50-$22.00ranges.

Fundamentals

Uranium costs about $60 a pound to produce and yet mining companies can barely get $30.00 a pound for it. At some point, something has got to give, and that will most likely be the mines. More and more mines will close up shop and call it quits, and it is not easy to bring an offline mine online again; it takes time to get an inactive mine back online.

Countries like Japan, Germany and a host of other nations dreaming of giving up on Nuclear energy are well just dreaming. Japan is now re-embracing nuclear, as will Germany and or any other country with hopes to wean itself away from Nuclear power. It is either Nuclear power or Coal, and since these countries claim to be fighting global warming, they will rather embrace Nuclear than coal.

From the fundamental perspective, the picture looks quite compelling, but fundamentals tend to paint a falsely positive picture. If we take a look at Cameco, one of the top players in this sector, the technical picture is far from positive. Despite trading in the oversold ranges, the stock broke down after posting a surprise second-quarter loss.

The brown dotted lines represent the multiple levels of support the stock has broken through; in fact, the stock has just traded below is 2004 lows. We would not be surprised if it dipped to $8.50 with a possible overshoot to $7.20 before a long term bottom takes hold. If uranium trades lower but Cameco’s stock price does not take the same path, it will trigger a positive divergence signals and such signals are usually indicative of a bottom.

Conclusion

Overall while there are many factors in the fundamental arena calling for a bottom, the technical and psychological patterns offer opposing viewpoints; both suggest that uranium is likely to test the $22 ranges before a long-term base in is in place. As the sector has taken a massive beating since it peaked in 2007, it would be a good idea to keep this sector on your radar and possibly start looking at some stocks in the industry.

“Ability is of little account without opportunity.” ~ Napoleon Bonaparte

Here’s and interesting point of view: Marc Faber: Disaster Alert

After four grinding years of falling metal prices and vanishing market capitalizations, we have seen a stunning shift in market sentiment since mid-January, says Matt Geiger of MJG Capital. Multiple physical commodities are now in technical bull markets, and resource equities in particular have enjoyed a spectacular 2016 thus far. Geiger highlights several companies poised to take advantage of the boom.

Metal prices are again on the rise. Particular standouts include: silver, lithium, zinc, gold, platinum and palladium. All of the aforementioned metals have entered new technical bull markets in 2016 and seem to be building momentum. It took four painful years, but this proves yet again that low prices are the best cure for low prices. When the price of a particular commodity drops precipitously, two phenomenons inevitably occur: (i) higher cost suppliers of the commodity cut production and (ii) buyers of the commodity purchase more in real terms. These twinning events may take a while to play out, but they inevitably do. 

M&A activity has picked up, particularly in Q2/16. This is great news for quality development projects not yet owned by a major producer. The recent bear market has a left a dearth of near-term production candidates and those still remaining are that much more valuable to a potential acquirer. Additionally, if this indeed becomes a multiyear bull market, then explorers too will receive increased attention. Shareholders of well-managed prospect generators are poised to do very well over the coming few years.

Here are a few companies that I believe are well positioned to ride the bull.

Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCPK) has been a strong performer in 2016. The company, founded by the experienced Joe Grosso, has been exploring and developing precious metal projects in Argentina for over two decades. Golden Arrow’s flagship asset, the Chinchillas project in Jujuy Province, looks increasingly likely to reach production by the end of 2017 thanks to a joint venture with silver heavyweight Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ). Once the Chinchillas joint venture begins generating cash flow (or, conversely, is bought outright by Silver Standard), the company will return to its roots as a prospect generator focused solely on Argentina.

The market has rewarded Golden Arrow so far in 2016 for the following reasons:

1. Chinchillas offers near-term production potential with a very affordable initial capex (thanks to synergies with JV partner Silver Standard and its producing Pirquitas asset). 
2. Due to its massive size and relatively low grade, Chinchillas is a classic “optionality play” with significant leverage to the price of silver (which has been the best performing commodity so far in 2016). 
3. Argentina’s election of pro-business President Mauricio Macri has opportunistic mining investors streaming into the country. 

Golden Arrow’s Chinchillas project is a textbook optionality play—a relatively low-grade deposit that contains over 200 million silver-equivalent ounces. One key takeaway is that this is a massive project, particularly when you consider that at least 50% of the land package has yet to be explored. An ultimate resource of 500 million silver-equivalent ounces is optimistic but not impossible.

Golden Arrow is likely to “add another horse to the stable.” This acquisition would likely be similar in geology to Antofalla, and the goal would be to discover another Chinchillas-like deposit. The company’s deep experience in Argentina will give it a leg up in any negotiations that may take place.

Almadex Minerals Inc. (AMX:TSX.V) is another company that has taken off, with a 500% year-to-date gain. The company was formed just 12 months ago, when well-respected Almaden Minerals spun out its prospect generation business so the company could focus on Ixtaca. We started buying in Q4/15, when Almadex’s market cap was equal to its working capital position. In hindsight, this was a ludicrous proposition considering management’s multidecade exploration expertise in Mexico. 

In the first half of 2016, the company was relatively quiet on the prospect generation front. Instead, the company’s share price was buoyed by positive developments surrounding Almadex’s royalty and equity holdings. There were three major developments: 

1. The materialization of Gold Mountain Mining Corp.’s (GUM:TSX.V) Elk Gold project into a legitimate British Columbia development play, on which Almadex owns a 2% NSR royalty
2. The revitalization of the Ixtaca project, on which Almadex owns a 2% NSR royalty
3. The sale of El Encuentroto to McEwen Mining Inc. (MUX:TSX; MUX:NYSE) for CA$250,000 (Almadex retained a 2% NSR royalty on the property)

However, just within the past two weeks, the company has demonstrated why the prospect generation business can be so exciting. On Aug. 8, the company announced an intersection of 163.5m at 0.68 g/t gold and 0.29% copper at its fully owned El Cobre project. These results were only for the top half of the hole and, sure enough, the company announced earlier this week that another 150.9m at 0.55 g/t gold and 0.22% copper was intersected below the initial zone of mineralization. Assays ended at 540m, with the news release stating that “Porphyry style alteration continues to the end of the hole, currently at ~890 meters depth and advancing.”

While the full results from hole EC-16-010 have yet to be received, this already looks to be a legitimate discovery of a large copper-gold deposit. Over the coming months, Almadex will bring additional drill rigs to the property to both (a) conduct stepout drilling around hole EC-16-101 and (b) test several anomalous areas on the property that have yet to be drilled. These next six months hold the potential for immense value creation at El Cobre.

Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT) remains my favorite mid-tier base metal play. While Nevsun’s share price has lagged many of its peers, the company has had a sensational 2016 from a business perspective. The market will soon catch on.

There have been multiple positive developments thus far this year, but Nevsun’s most significant was the acquisition of Reservoir Minerals and its world-class Timok copper-gold project in Serbia. Timok has become one of the most significant undeveloped base metal deposits in the world due to its high grade, massive size and proximity to existing mining infrastructure. 

An April 2016 PEA on Timok’s Upper Zone outlines the project’s exceptional economics, including an initial capex of $213 million; a post-tax NPV of $1 billion (at 8% discount rate and spot metal prices); a post-tax IRR of 86%; and a payback of less than one year.

For a project of this size, these economics are virtually unheard of. Additionally they don’t take into account Timok’s Lower Zone, which may have a potential production life of 15–20 years. We’ll learn more about the Lower Zone over the coming year as Nevsun has initiated an aggressive drilling program. In a best case scenario, the Lower Zone could double or triple the overall value of Timok.

Developments at the Bisha mine in Eritrea have been overshadowed by the high-profile Timok deal. However, there have been several significant developments this year worth noting, including Bisha’s zinc expansion coming in on time and underbudget and Q1/Q2 supergene copper ore production of 55.8 million pounds at a C1 cash cost of $1.04 per payable, which was above guidance of 40-50 million pounds and under the cost guidance of $1.20 to $1.40 per payable pound of copper.

Additionally, Newsun announced that it had increased its total land package of exploration licenses to 814 square kilometers in Eritrea’s Bisha VMS District. This represents a 1,891% increase from the 41 square kilometers the company had before the deal. This acquisition solidifies my belief that Nevsun will find enough ore to keep the Bisha mine producing for another three decades. This may be a VMS district on the same scale as Manitoba’s Flin Flon district, which has seen 25 producing mines in the past century. I’m thrilled to see what the company can discover elsewhere in the district over the coming years.

Matt Geiger is the general partner at MJG Capital, a limited partnership focused on long-term capital appreciation through investments in natural resources.

1) The following companies mentioned in this article are sponsors of Streetwise Reports: Golden Arrow Resources Corp. The companies mentioned in this article were not involved in any aspect of the article preparation. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
2) Matt Geiger: I or my family own shares of the following companies mentioned in this article: Golden Arrow Resources Corp., Almadex Minerals Inc. and Nevsun Resources Ltd. I personally am or my family is paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds under my company’s control hold the following companies mentioned in this article: Golden Arrow Resources Corp., Almadex Minerals Inc. and Nevsun Resources Ltd.
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“The minute you settle for less than you deserve, you get even less than you settled for.” ~ Maureen Dowd

The chart below clearly illustrates that a relationship exists between crude oil and the Dow. For most of the 1st half of 2015, oil traded sideways, and the Dow followed suit. Then, around July of 2015, oil broke down, and the Dow followed in its footsteps. We see a similar pattern from Nov-Dec 2015; oil headed lower, and the Dow once again followed in its footsteps; so much for the argument that states lower oil prices are conducive for the markets.

Click image for larger version

Fast forward to Jan-Feb 2016 and you notice that the Dow followed crude oil to a “T”. The only difference being that while crude oil dropped to a new Low in Feb, the Dow put in a higher low. After trading above $51.00, oil consolidated and many a naysayer would have you believe that the oil rally is over. They will soon be proven wrong once again, but that is a story for another day.   Given the strong run up the pull back that oil experienced was minor in nature, and crude oil has put in a bottom. From low to high, crude oil almost tacked on 100% in gains.

We were expecting it to pull back to the 40.00 ranges with a possible overshoot to the $39.00 ranges; it traded as low as $39.19 before reversing course.  As far as we are concerned, the oil correction is over, and it is getting ready to trend higher. Moreover, it appears that the Dow is once again following in its footsteps as illustrated in the above chart. In this instance, the Dow bottomed early than oil. After dropping down to the 18,300 ranges, the Dow reversed course and soared to new highs. Potentially it could still test the 17,800 ranges; former resistance turned into support, before attempting to trade past 19,000.

Conclusion

The consolidation in oil appears to be over and given their relationship, the Dow together with Crude oil could be gearing up to trade to new highs.  Ideally, (but it is not necessary) the Dow would test the 17,800-18,000 ranges before making a break for 19,000. Thus all sharp pullbacks should be viewed as buying opportunities

“The art of acceptance is the art of making someone who has just done you a small favor wish that he might have done you a greater one.” ~ Russell Lynes

The U.S. electric power sector burned through a record amount of natural gas in recent weeks, a sign of the shifting power generation mix and also a signal that natural gas supplies could get tighter than many analysts had previously expected.

The EIA reported a surprise drawdown in natural gas inventories for the week ending on August 3. The reduction of 6 billion cubic feet (Bcf) was the first summertime drawdown since 2006. Natural gas spot prices shot up following the data release on August 4, although they fell back again shortly after.

Natural gas consumption patterns are much more seasonal than for oil. Demand tends to spike in the winter due to heating needs, and then drops substantially in the intervening months, particularly in the spring and fall. Between March/April and October/November, natural gas inventories build up as people need less heating, and that stockpiled gas is then used in the next winter.

So it comes as a surprise that after a record buildup in inventories this past winter, the summer has seen a much lower-than-expected buildup in storage. And last week’s drawdown, the first in over a decade during summertime, says quite a bit about the shifting energy landscape. The EIA says this is the result of two factors: higher consumption from electric power plants, and a drop off in production.

The U.S. is and has been in the midst of an epochal transition from coal-fired electricity to natural gas and renewables, a switch that will take many more years to play out. But the effects are already showing up in the power generation mix. Utilities have rushed to build more natural gas power plants over the past decade, and now with so many online, demand for gas has climbed to new levels.

Just a few weeks ago, on July 21, the U.S. burned through 40.9 billion cubic feet, the highest volume on record, according to the EIA. And in late July, the power burn exceeded 40 Bcf/d three times due to a hot weather. Nine of the ten highest power burn days on record took place last month, with the other one occurring in July 2015. Average consumption of 36.1 Bcf/d in July of this year was 2.7 Bcf/d higher than a year earlier, and 1.5 Bcf/d higher than the previous high reached in July 2012.

 The high rates of consumption from the electric power sector are contributing to tepid growth in inventories this summer. This comes on the heels of a massive buildup in inventories last winter, and heading into summer the expectation was that huge storage levels would keep natural gas prices at rock bottom levels, perhaps for years. But that doesn’t look like it will come to pass.

While high demand is keeping natural gas from being diverted into storage in large amounts, the other main reason that natural gas inventories are not building up as much as previously thought is because of a supply-side issue: natural gas production is actually falling after years of steady increases. Natural gas prices have traded below $3 per million Btu since the beginning of 2015. U.S. gas drillers continued to ratchet up production through 2015, however, creating this past winter’s inventory glut. But the resulting downturn in prices has now made drilling unprofitable in many areas. On top of that, the oil price crash has ground oil drilling to a halt, which means that the natural gas produced in association with oil has also come to a standstill. The upshot is that natural gas production is now falling in the United States. The Marcellus Shale, the most prolific shale gas basin in the country, saw production peak in February at 18.5 Bcf/d. Since then output has declined 3 percent. In August, the EIA expects gas production from the Marcellus to fall by another 26 million cubic feet per day.

Of course, this stuff is cyclical. The first summer drawdown in inventories in a decade means that natural gas markets are now tighter than many analysts thought only a few months ago. Falling production and rising demand could lead to steeper drawdowns in inventories this coming winter. The effect of that will be to push up spot prices, which could induce more drilling once again.

By Nick Cunningham of Oilprice.com

...also: A clear, concise and gripping interview between Michael Campbell and the highly praised Greg Weldon – On The Brink of Soaring Move Up In Gold & Silver