In our article dated Dec 13, 2015 titled “What OPEC decision means to Oil and $USDCAD” we wrote about the oil revolution; the rise of shale oil producers from North America and the OPEC cartel trying to fight against this threat by flooding the market with conventional oil to fight for market share and also drive out the higher-cost shale rivals. This strategy by OPEC has created an over-supplied condition in the oil market and has caused oil price to plunge 60% in just a little more than a year from $100 in the middle of 2014 to $40 in December 2015. We said in the December article that as long as there’s no end in sight in this price war, oil is going to continue to slide until OPEC has no choice other than to take action to reduce the glut.

In December 4, 2015 OPEC annual meeting, speculation started to emerge that OPEC members might attempt to cap production volume to prevent further price slide. Smaller OPEC member such as Venezuela has voiced concern over the oil price and wanted the cartel to take action to stabilize the market. However, with Iran soon to be free from the oil embargo at the time of the meeting, Saudi Arabia as the biggest oil producer in OPEC wanted to wait and see and unwilling to make a move. The failure to reach an agreement caused oil price to spiral down further from the already low price of $41 in December 2015 to just $28 in early February 2016 before the bleeding finally stopped.

The catalyst for the bounce came from a meeting in February 16 in which Saudi Arabia, Russia, and several key OPEC members agreed to freeze oil output production at the January level, if other suppliers follow suit. This news is what the market wants to hear, and oil has continued to recover from $28 low in February and now back to $42 in April (50% increase). There will be another summit this coming Sunday April 17 at Doha to secure commitment from a wider range of countries both inside and outside the OPEC cartel to freeze output production.

Oil analysts are skeptical that freezing output production at the January level will solve the oil glut for several reasons. First of all, freezing production output at January level means it is just maintaining the existing high production output, instead of reducing the production volume. Secondly, country like Iran whose economic sanction is recently lifted has also indicated they would not join the freeze and intend to raise production output from 3.1 million barrels to 4 million barrels a day. Last but not least, even if agreement to freeze production output can be reached from a wider range of producers and oil rally extends, this will encourage new supply from the US shale drillers and give pressure back to oil price.

Despite the limited impact of the production freeze to reduce the global supply glut, oil price still reacted positively due to the overextended selloff. At minimum, the summit is a positive sign as it demonstrates that oil participants are no longer indifferent about what happen in the market. If participants can come out from the summit this Sunday with a broader agreement to freeze output or some other measures, oil rally may continue. However, if the meeting falls apart, then oil could retrace back the rally from the February low.

Technical Analysis

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Similar to USD Index, Oil completed the cycle from 2014 peak and it is currently doing the biggest correction if not already formed the weekly low. As shown in the chart above, Oil has broken above the 2014 weekly trend line channel and it has also made a sequence of higher high. Thus, regardless what the outcome of the Doha meeting is, the path of least resistance for Oil is to the upside. Even if the meeting does not produce good result and oil is pulling back, it is likely still to get support from the broken weekly channel

related – Oil: Expectations Running High for OPEC Doha Meeting This Sunday

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Demand for lithium — the hottest commodity on the planet and the only commodity to show positive price movement in 2015 — is poised to continue on its upward trajectory, becoming the world’s new gasoline and earning the moniker of “White Petroleum”. And the battle for market share in and around this commodity has everyone from major tech players to trend-setting investor gurus vying for a foothold.

Driven by the rise of battery gigafactories and game-changing Powerwall and energy storage businesses, the world now finds itself at the beginning of a lithium super cycle that is all about securing new supply, much of which is poised to come from lithium superstar Argentina.

We have Tesla in the far corner, building its battery gigafactory in Nevada, for which it needs tons of lithium at a reasonable price, and just last week Tesla announced its plans for the Model 3, which has already hit over 300,000 pre-orders. To give you an idea of just how meaningful this is, Tesla produced less than 50,000 cars last year. Elon himself mentioned during the unveiling that Tesla will be gobbling up much of the world’s lithium supply with plans to produce 500,000 EVs per year. “In order to produce a half million cars per year…we would basically need to absorb the entire world’s lithium-ion production.” Remember – this is one man, one company. Tesla’s soon-to-be-completed gigafactory will produce more lithium-ion batteries than the rest of the world combined.

And opposite Tesla, we have some other major players shifting gears that will affect the lithium space.

Chinese billionaire Jia Yueting is stepping onto Tesla’s playing field with its own electric car start-up, Faraday Future, and Apple is planning one too, by 2019. Through its Alphabet holding company, Google is also getting into the game with plans for a self-driving car.

They are fighting it out not only to be the first to capture the most electric vehicle market share and the best engineers, but they are getting down to the core of this arena, which is lithium — the key element that will make it all work.

This is D-Day for lithium miners, and it’s all about new entrants to a space that is about to change exponentially. Big investors are definitively standing up and taking notice — and even jumping into the game.

One of Canada’s most noteworthy investors in the mining sector, Frank Giustra, is the latest to see lithium for what it is — the single-most valuable commodity of our tech-driven future, and one that is already in short supply.

The investor extraordinaire with a focus on big mining deals has thrown his support behind Lithium X which is exploring in the key “Lithium Triangle” area of Argentina and is the largest land holder in Nevada’s Clayton Valley, the only producing lithium area in the entire United States. Lithium X has over 15,000 acres in Clayton Valley, near Albermarle’s Silver Peak mine, the only American lithium producer right now, and about three hours from Tesla’s gigafactory.

“Right now, there is a lot of ‘smart money’ getting in on the lithium land rush, and a mining legend like Giustra would never have been late to this party in Nevada — but the big attraction is our lithium plays in Argentina, which is ground zero for the commodity in South America,” Lithium X Chairman Paul Matysek told Oilprice.com.

“At the end of the day, Frank, likes to get involved in a project if he sees a massive shift in an industry’s fundamentals,” Matysek added. “Lithium — is certainly showing all the right signs!”

Floored by the ‘White Petroleum’ Fundamentals

The fundamentals here are impressive, and the catalysts for lithium prices are spectacularly clear — all of which is pushing prices up and creating an aggressively competitive playing field that is likely to see a lot of acquisition talk.

There are plenty of reasons to be bullish about what Goldman Sachs calls the “new gasoline” that will fuel our technology-driven resource era.

According to The Economist, the ”global scramble to secure supplies of lithium by the world’s largest battery producers, and by end-users such as carmakers”, among other things, has seen the price of lithium carbonate imported to China more than double just in November and December of last year alone, when it reached an amazing $13,000 per ton. Some contracts in China, according to Bloomberg, have seen over $23,000.

There is no denying that this is a euphorically tight market, with demand rising steadily and expected to spike drastically, and suppliers struggling to keep pace — which means that the door for new lithium supplies is wide open and this is now a fast-paced exploration and exploitation game.

And even without the battery gigafactories, a Powerwall and storage revolution or streets lined with electric vehicles — demand for lithium would still remain steady just to keep up with consumer electronics.

For the electric vehicle industry alone, Goldman Sachs predicts that for every 1 percent rise in EV market share, lithium demand will rise by 70,000 tons per year. Furthermore, Goldman Sachs predicts that the lithium market could triple in size by 2025 just on the back of electric vehicles.

The Hunt for Lithium Is On…

The lithium that is currently being mined quite simply is not enough to put a dent in the projected demand dictated by our hunger for consumer electronics and the pending energy revolution. This means that the new market is all about new players.

Right now, most of the world’s lithium comes from Australia, China and the “Lithium Triangle” of Argentina, Chile and Bolivia. In North America, Nevada is the only player in this game, but more to the point, the U.S. state has the best lithium there is to have — lithium found in the brine.

Lithium sourced from brines, or salt water, is the most cost-effective on the market, and sourcing enough of it right at home would be a coup for all sides in the battery, storage and EV game.

And while lithium has traditionally been controlled by a handful of major global suppliers, spiking demand is changing this landscape drastically.

The four companies that currently control the lithium space — Albermarle (NYSE:ALB) in Chile and Nevada; SQM (NYSE:SQM) in Chile; FMC (NYSE:FMC) in Argentina; and Sichuan Tianqi in China — are about to make way for the new entrants.

And when it comes to new entrants, the biggest market share will be scooped up by those who can come up with the most lithium sourced from the brine. That means getting in on the new game in Nevada, but perhaps more importantly, securing positions in the bigger venues, particularly in Argentina.

Within the Lithium Triangle, it’s all about Argentina right now. Chile is not granting any new concessions, and opposition in Bolivia has led to a suspension of lithium mining. Argentina has recently announced a deal with creditors to repay debt stemming from the country’s 2001-2002 default, paving the way for Argentina’s return to global financial markets.

And the Argentina lithium rush is already in full swing, with miners eyeing resources of up to 128 million tons of lithium carbonate.

Investors have been pouring into this sector, according to Argentine Mining Secretary Jorge Mayoral, who recently noted that “all the big auto makers have been present in Argentina trying to get a foot in lithium development”, including Toyota, Mitsubishi and Posco.

For those who come up with the next supply, the industry will come right to them, and the sniffing around has already begun in full force.

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Blockbuster Uranium Call & Best Metal & Oil Plays

Oil futures rallied above $42 a barrel Tuesday to settle at their highest level of the year, buoyed by a report that said Saudi Arabia and Russia have reached a deal to freeze production ahead of a meeting of major oil producers this weekend. Adding further support, the Energy Information Administration raised its oil-price forecasts and cut its U.S. output expectations for this year and next. May WTI crude CLK6, +3.99% rose $1.81, or 4.5%, to settle at $42.17 a barrel on the New York Mercantile Exchange. The settlement was the highest for a most-active contract this year. 

Hedge Fund Chief Warren Irwin’s event-driven hedge fund has beat its benchmark by over 50% since inception in 1998, and its founder and CIO Warren Irwin says it does so by going deep, looking at very specific events or situations that are special within industry sectors. Irwin made his name by shorting Bre-X some 20 years ago and hasn’t looked back. In this interview with The Gold Report, Irwin gives us a peek into Rosseau’s portfolio, discussing opportunities that he is excited about in metals, uranium and oil.

The Gold Report: Warren, I just got your latest partnership numbers. It looks like you’re off to a great start for the new year, up 20.38% through February. I think we first met around 2006 when you were up 121%. That was quite the year.

Warren Irwin: Yes. We have a shot at a 100% year this year, too.

TGR: Would you describe for our readers your investment approach and what makes you different from a lot of other people?

WI: What makes us different is Rosseau Asset Management does heavy, in-depth research for very specific events or situations that are special within industry sectors. Because we spend so much time on the names, we run a reasonably concentrated book. For example, we are able to go into the gold sector and pick the top two or three situations where companies are either drilling out properties and creating resources or making big discoveries, something unique to the company itself rather than making a raw bet on the price of gold.

TGR: When you say a relatively small book, during a given year, how many positions might you have?

WI: We try to keep the number at or below 20 names. One thing that helps us a lot, too, is our hold periods are quite long, usually three to five years and sometimes longer.

TGR: Let’s get to some of those names. What are some companies that you are excited about?

“NexGen Energy Ltd.’s stock right now is extremely undervalued; it’s probably trading at about a third of the value it should, even with the run-up with the release of the maiden resource estimate.“

WI: I’ll start with NexGen Energy Ltd. (NXE:TSX.V; NXGEF:OTCQX), which just put out its maiden resource estimate. NexGen is a perfect example of an event-driven situation in that, although the fundamentals for uranium look very good over the next few years on a supply-demand basis, the commodity hasn’t started to run yet. What is fascinating is NexGen has managed to find a massive new uranium discovery in the Athabasca Basin. It’s very exciting and could be worth, at the end of the day, multiple billions of dollars.

TGR: The day of the news release, NexGen had a pretty big pop on volume, going up $0.27/share.

WI: Yes. It’s a unique discovery. My original estimate from our proprietary resource model was 200 million pounds (200 Mlb) U3O8. The NI 43-101 did indeed come in around those levels at 202 Mlb. The market was actually expecting a lot less than that. We have long since touted 200 Mlb, and we were right on the money with that. We plotted every single drill hole and went very in-depth with our model to determine the size of the discovery. Having our own model is extremely time-consuming but allows us to really understand what the company is doing.

The current winter drill program is underway. We believe NexGen has the potential to add between 100 and 200 Mlb to that resource. So there is a potential for a doubling of the resource over the winter drill program. Long term this has the potential of being the largest uranium mine in the world.

TGR: How long have you been in this stock? When did you start building a position?

WI: I first visited the property in 2014, and I’ve been watching it ever since. We started building a position mid-year last year. Right now the stock is extremely undervalued. It’s probably trading at about a third of the value it should, even with the run-up with the news release. Putting out more results is not going to improve the situation. What it basically needs now is to have more people be aware of what an extraordinary discovery this is, and realize that it’s very undervalued.

Canada is viewed by many utilities as the premier supplier of uranium to the world, and all of Canada’s three uranium mines are in the Athabasca Basin, as is NexGen’s discovery. But what’s unique about NexGen is it’s not in the sandstone or at the unconformity, which is the border between the sandstone and the basement rocks. When you’re dealing with sandstone, it’s water saturated, so there are a lot of water ingress issues. But for NexGen’s deposit, it will be just regular underground mining in the basement rocks. It’s very easy to mine and very attractive. And the scale of the deposit is clearly attracting the interest of all the global miners.

TGR: What about another opportunity?

WI: There is Canadian Overseas Petroleum Ltd. (XOP:TSX.V). I’ve been in the business 30 years, and I have never seen a higher-octane, more awesome risk/reward situation than this one, which involves the former CEO of Oilexco Inc., Arthur Millholland. Oilexco grew to a multibillion-dollar company but collapsed in 2008 as a result of a liquidity crunch when its bank ran into financial difficulties. When Millholland started up a new company, Canadian Overseas Petroleum, I was one of the first people to back him.

“The market cap for Canadian Overseas Petroleum is sub-CA$20M, yet it would participate in a well of which it would own 17%, and Exxon is prepared to spend $120M drilling it.”

The company managed to obtain Block 13 in offshore Liberia, a very lucrative oil block. Millholland put his technical team on this project, and they found that the targets on the block are quite extraordinary. It is exciting enough that Exxon Mobil Corp. (XOM:NYSE) paid $130 million ($130M) to get involved in the project and, in addition, agreed to spend $120M to drill the first few wells. It’s a very strong stamp of approval, Exxon moving forward with this project and deciding to partner with a very small junior. Generally, juniors don’t operate in the offshore realm, so Canadian Overseas Petroleum is rare in that respect. Exxon was prepared to drill the initial wells about two-and-a-half years ago when the outbreak of Ebola in Liberia took place, and Exxon shut down its offices in Monrovia. We’ve basically been delayed two-and-a-half to three years. Exxon mentioned in a press release late last year it looked as if it was prepared to drill the well in late 2016/early 2017.

The market cap for Canadian Overseas Petroleum is sub-CA$20M, yet it would participate in a well of which it would own 17%, and Exxon is prepared to spend $120M drilling it. What’s exciting is the reserve engineers are indicating that if there is oil found in the target areas, the expected recoverable number of barrels net to Canadian Overseas Petroleum is half a billion barrels, worth in today’s market about US$2.5 billion. So a company trading at less than CA$20M, if successful, could be trading at multiple billions of dollars in market cap, or several dollars per share. The important thing to note here is that even in this terrible time with respect to oil exploration, Exxon is still keen to move forward.

TGR: This is offshore drilling. How long does it take to do that drilling and to get the results?

WI: It would take several months to drill the first hole. If a discovery is made, there will also be certain production tests that Exxon will need to do. Then once that is completed, there’s also a follow-up No. 2 target. So the news will not stop. There are lots of exciting and interesting things happening.

TGR: What sort of a depth are we talking about?

WI: Deepwater offshore in about 6,300 feet of water.

TGR: Did you have metal companies that you wanted to talk about?

WI: We’re involved with GPM Metals Inc. (GPM:TSX.V). It’s a very interesting story. The company started five years ago to acquire the rights to the Walker Gossan in northern Australia. That was a project Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) has held since the early 1970s. Rio Tinto held on to this property because it believes it’s a world-class prospect, but it hasn’t had any luck moving the project forward with the traditional landowners in Australia. GPM Metals was able to strike a deal with Rio Tinto over two years of negotiations, and then in another two years of negotiations with the traditional landowners, it was able to strike up an access agreement. With certain payments, GPM Metals could earn into 75% of the project.

“GMP Metals Inc. has the possibility of a very exciting world-class discovery of zinc at Walker Gossan.”

The majority of the large gossans in this region have turned out being large zinc mines. Along trend with the Walker Gossan are zinc mines like McArthur River, Mt. Isa and Century; it’s the only undrilled major gossan in that trend. It’s a very good risk/reward situation. GPM Metals’ CEO is Pat Sheridan Jr., a proven mine finder. He was involved with both the discovery and building of the Aurora mine for Guyana Goldfields Inc. (GUY:TSX) in Guyana.

What I like about this situation is, again, we’re dealing with one of the world’s largest mining companies as a partner. Rio Tinto would only have held this project if it believed it was prospective to be a world-class discovery. There’s the possibility of a very exciting world-class discovery of zinc.

Right now zinc’s fundamentals look very good. I’m told by my mining contacts that the supply of zinc concentrate is getting very tight. I would not be surprised to see a very strong rally in zinc before too long.

TGR: Have there been zinc mine closures?

WI: The massive Century mine has closed recently. Also, Glencore International Plc (GLEN:LSE) has announced capacity shutdowns. The fundamentals on the supply/demand side for zinc look very good.

TGR: What sort of timeline are we looking at for GPM?

WI: GPM has done soil sampling that indicates there’s an abundance of lead on the property. The gossans are a weathered outcrop of mineralization. The original outcrop would probably have contained lead and zinc, but the zinc has been weathered away over time. Finding lead at surface on the gossan is a very good indication that there is possibly zinc associated with the metal system. The initial geochem work has been done, and now, over the next 12 months, there will be follow-up drilling taking place where GPM will be testing to see if there is an economic zinc deposit there. If there is a discovery, it will take a few years to drill off the deposit and then years more to put the mine into production.

TGR: Could there be a revaluation of the stock based on it figuring out if it is economic and the zinc price going up?

WI: Yes. If so, there will be a massive bump in the price of this project. If we end up with a world-class discovery in a very strong zinc market, this project will be worth a lot of money.

I also want to mention that these three companies are more rock ‘n’ roll than blue chips, but for people who have a tolerance for high risk, they’re very good risk-reward trades.

TGR: You mentioned Guyana Goldfields. Any comment on this company?

WI: I’ve followed Guyana Goldfields for about 20 years and have always been impressed with CEO Pat Sheridan Jr. I watched him from the original discovery right through to putting the mine in operation. I’ve been very impressed with Pat, and that’s part of the reason I’m backing him again with GPM Metals.

TGR: Any last closing words to our readers on what we should look forward to for the balance of this year, and why you think it could be a 100% gain for your portfolio this year?

WI: I believe the bottom is in for the majority of the metals and there is tremendous value in the mining sector. Before too long, we’ll probably start seeing a recovery in oil. Being in the resource sector is a really exciting and interesting place to be. It’s been beaten up over the last number of years and I think the sector represents tremendous value.

TGR: Warren, I appreciate you taking the time.

Warren Irwin is president and chief investment officer of Rosseau Asset Management Ltd. He founded the firm in 1998 after several successful years as vice president and director of special investments at Deutsche Bank Canada. The firm’s flagship event driven hedge fund, Rosseau LP, was established on December 31, 1998, and has since earned a reputation for solid long-term performance earning over 50% the return of its benchmark index. Irwin started his career as a bond analyst for Scotia Capital Markets where he developed the Universe Bond Index, the Canadian bond market benchmark, and shortly thereafter developed and managed Canada’s first bond index fund. He is a Chartered Financial Analyst and holds a Bachelor of Mathematics from University of Waterloo and a Master of Business Administration from the University of Western Ontario.

USD range bound for now, likely near interim bottom.

This week is a tricky week, though given the risks of a no agreement at the April 17 OPEC meeting we think short term traders can sell WTI at current levels with a stop at $41.80. However, we do note that this is an extremely high risk trade which we prefer not to put on if given a choice.

….read entire article with 6 charts and analysis HERE

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With friday’s over $2.00 jump in the price of oil: Canadian Dollar Retakes Key Level as Oil Prices Soar