Energy and food will be hot commodities as emerging middle classes start buying cars and beef. That is why, in this interview with The Energy Report, Discovery Investing Founder Michael Berry explains the importance of quality of life investing. Oil and gas, uranium and fertilizer stocks are on sale now, but might not be in the years to come. 

The Energy Report: When we last interviewed your son, Chris Berry, he advised to invest based on the reality of a growing, emerging market in China. That included both energy and agriculture sectors. Are you also bullish on quality of life-based (QOL) investing?

Michael Berry: I am bullish; I developed the QOL concept a few years ago. What I’m seeing is quite a few big institutions—life insurance companies, family offices and money management companies—opening quality of life funds, although often with different names. They are beginning to recognize that as people move from the country to the cities in the emerging markets, and a new middle class develops, they will want more animal-based protein—chicken, fish, pork, beef and eggs. By 2030, once the credit cycle is corrected, I’m very bullish that quality of life funds are going to push forward. I think both the energy and the agriculture sectors are going to be interesting investment areas.

Chris and I have been spending a fair amount of time lecturing and presenting our QOL thesis and talking to investors and companies that have big stakes in this area. When you have 2 billion (2B) new consumers who want to live longer, healthier and easier, and who want better food, education and transportation, energy and nutrition will be key sectors.

TER: Does that mean that you are not worried about reports of slowing economic growth in China?

MB: I’m not worried about the long term because growth in China must slow. As economies expand, growth, by definition, slows. I’m not saying we won’t have serious economic headwinds in the next few years. We have talked before about the impact of possible deflation in the metals sector. But ultimately, that will be overcome because members of the new and much larger middle class want to live better and they want to consume.

China and India are changing their models from export-driven economies to consumer-based economies. That might take a decade or more, but the Chinese government is transforming it now. China has its own credit problems that it must solve. Same goes for the United States. Regardless of the timeframe, energy and food are still keys to a higher quality of life. We are prepared to watch as this secular tsunami develops, and then take investment positions.

TER: A big part of that energy play is oil and gas. When we last interviewed Matt Badiali, he was very excited about shale plays because, “these are real companies producing real profits” compared to gold explorers. What’s your approach to the controversial shale oil sector?

MB: Shale oil is a great diversification play for all of your readers in either the metals sector or the energy sector. You want to spend some time and understand the Bakken and also the Eagle Ford Shale. I’m very bullish on the Eagle Ford. It is clear fracking technology works. The biggest oil producers are involved, including Freeport-McMoRan Copper & Gold Inc. (FCX:NYSE).

Specifically, I like the royalty play in the Eagle Ford Shale Trend. The U.S. is a great country because if you own the land, you own all of the mineral rights beneath the land. We are the only country in the world where private citizens can own the minerals. The first 25% of oil that comes out of the land comes to the property owner, with no working interest risks and no environmental risks. The royalty owner pays only his share of the taxes; other than the cost of purchasing the royalty, he has no capital costs associated with drilling and completing the wells, or monthly lease operating expenses.

It is a great dividend-like diversifier for people who are looking for yield and a hedge against inflation. Just in the Eagle Ford Shale alone, there have been approximately 9,000 wells drilled since its discovery in 2008, with a 97% success rate. The current average estimated ultimate recovery (EUR) per well is 351,000 barrels of oil equivalent (351 Mboe). This recovery rate appears to be increasing over time as the technology improves. There will likely be an additional 200,000 wells drilled in the Eagle Ford over the next 50 years.

TER: So you’re not worried about decline rates.

MB: Not at all, because the initial rate of production is about 1,000 barrels per day (1 Mbbl/d) or more. First-year declines are 76%, second-year declines are 35%, 20% for the third year and 6% or less thereafter. So 40% of the total estimated ultimate reserves are produced in the first five years, then it tapers off. But a company like EOG Resources Inc. (EOG:NYSE) is now drilling one well on 20 acres. There is lots of potential, even though the decline rates are steep and it’s $10 million ($10M) to drill a well. When you’re producing 11,500 bbl/d at $100/barrel ($100/bbl), the economics work. The risk is if oil were to fall to $40 or $50/bbl.

TER: What are some other companies that have been active in the shales?

MB: Penn Virginia Corp. (PVA:NYSE) and Carrizo Oil & Gas Inc. (CRZO:NASDAQ) are producers that know where the profitable properties are located.

TER: My understanding is that Penn Virginia is buying on the outskirts of the Eagle Ford, where the property is cheaper. Is that working?

MB: The Eagle Ford Shale in Texas is more than 450 miles long and 50 miles wide. Moving west to east across south Texas, it is about 300 feet thick, thinning to 50 feet thick around central south Texas, and thickening to 1,000 feet as you move east, to the Eaglebine. That is why the best properties may not be found in the heart of the Eagle Ford, but to the east, on the fringes. The whole oil window play is moving east across Texas now. In fact, the Eagle Ford probably goes all the way into Florida. Penn Virginia is doing a great job of buying properties before they are overpriced. Carrizo is another great operator in the Eagle Ford Shale. There is a lot of potential here, and I’m just talking about Texas. I’m not talking about North Dakota, the Bakken, Pennsylvania or any of the other ones that are there. The future energy scenario for the U.S. is very positive.

TER: You mentioned that you think we’re about a year from uranium prices returning to higher levels. What would be the catalyst behind that?

MB: The spot price of uranium has fallen to around $32.50/pound ($32.50/lb). That can’t last with the rest of the world building out its nuclear power capability. I don’t know what Japan and Germany will do, but China and India are building reactors as we speak. I think we’re a year away from a realization that the Russians aren’t going to be our friends anymore when it comes to sending us uranium to be down blended for commercial reactors. We are going to need more uranium soon and that means higher prices to make some of the great deposits in the Athabasca economic and hence mineable.

Chris and I attended the SME Conference on uranium in Corpus Christi in October and recognized the difference between the successful companies and those that might not survive to see higher prices. Presently, what’s really important about uranium is being able to produce it cheaply. So the in situ leach (ISL) producers are the place to be right now.

TER: What companies have that ISL advantage?

MB: One is Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.MKT). The company recently announced that the NRC has allowed Uranerz to commence production at Nichols Ranch in Wyoming. Production means cash flows and liquidity. U3O8 Corp. (UWE:TSX; UWEFF:OTCQX) has Colombian and Argentinian assets of uranium and vanadium. It’s an earlier stage play that looks promising. I met with management at PDAC in March. I like Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT) because it has been producing via ISL in Wyoming for several months. ISL is particularly economic in a low uranium spot and term market. Uranium Energy Corp. (UEC:NYSE.MKT) interests me because it’s a domestic producer.

We’ve had some wonderful discoveries in the Athabasca led by Fission Uranium Corp. (FCU:TSX.V). These will require a higher uranium price to enhance the economics of hard rock discoveries. We think we will require $50/lb or $60/lb uranium before we start to gain share price momentum in the sector.

TER: Despite the low uranium prices, some of the companies have had some traction in the market. Uranerz did an update on the Nichols Ranch ISL project and the stock is way up from the beginning of the year. What happened there?

MB: First of all, it is an ISL producer, which is where you probably want to be invested today. Second, I think there’s been a lot of hype in the sector itself, generating some behavioral excess in some of these stocks. Having said that, I think the ISL producers are probably going to hold their value as we go forward.

TER: You mentioned that energy and food are directly related. What fertilizer companies could benefit from an increased need for food?

MB: We’re going to see a massive need for new fertilizer development globally. The three things farmers need to grow more food on less land are nitrogen, phosphorus and potassium.

There’s an advanced phosphate developer in Quebec that I like called Arianne Phosphate Inc. (DAN:TSX.V; DRRSF:OTCBB; JE9N:FSE). It currently has an NI 43-101 feasibility study completed. Arianne has a very high-grade phosphate deposit at Lac à Paul in Quebec. The feasibility study shows a 25-year mine life with annual production of 3 million tones (3 Mt) of phosphate concentrate with a grade of 38.6% P2O5. There are many zones still to explore that will expand the resource. The feasibility study shows that after beneficiation, the resource will provide among the highest P2O5 grades in the world.

I think the company is an attractive takeover target given its location in Quebec, the vertical integration of the phosphate market and the very strong economics of the project. The phosphate market is comprised of a handful of big players, including OCP in Morocco (state owned), PhosAgro (PHOR:LSE) in Russia and The Mosaic Co. (MOS:NYSE) in the U.S.

TER: I understand Arianne has some permitting that it expects to get approved this year. Will that be an important catalyst?

MB: That should be a very important catalyst. The stock went up to CA$1.69, and it’s backed off to CA$1.15. I think it’s way too cheap right now. I think it’s a stock that you want to own now. It’s a big resource of 590 Mt of 7.13% Measured and Indicated ore. I don’t think it will have any major problems on the permitting side. The one area it’s going to have to deal with is the capitalization of the project. It may require a capex of $1.21B.

On the other hand, it certainly has a really strong following, with a very low estimated production cost of $93.70 per tonne. The average selling price will likely be around $200 per tonne. This is a wonderful margin. Furthermore, it’s a commodity that is relatively scarce in North America.

TER: You mentioned that potash has been much more volatile lately. What are some companies you like that could survive in a depressed potash market?

MB: The good news is the potash market is probably pretty close to a bottom right now because of big producers flooding the market. As the middle class consumer grows worldwide, I think we’re going to have much more demand for fertilizer, particularly overseas.

A Canadian company called Allana Potash Corp. (AAA:TSX; ALLRF:OTCQX) has a big, low-cost potash project in Ethiopia that is going fertilize Africa and some of Asia. It has an offtake agreement withIsrael Chemicals Ltd. (ICL:TASE) that could be transformational for the fertilizer space itself. This 80% offtake agreement places Allana in a different league from its competitors.

These are the Discovery Investments we love to understand.

The stock is in strong hands; Liberty Metals & Mining, an offshoot of an insurance company, is a big shareholder. If I were investing in potash companies, I would pick some producing companies overseas to supply demand overseas. Allana fits that bill, and the stock is trading for CA$0.38.

Some investors are nervous about Ethiopia, but the asset is there and the management is excellent. I know CEO Farhad Abasov very well. I’ve worked with him on other situations. I will be shortly travelling to Ethiopia to visit the Allana site.

The fertilizers are going to be very strong over the next few years as demand for protein skyrockets from the urbanization of the emerging world’s new middle class. Be patient and select good management with quality assets and sustainable business plans.

TER: Any final advice for energy investors trying to get through the rest of 2014?

MB: Look at the shale plays. Look for royalty trusts on the shale plays, particularly the Eagle Ford in Texas. There are all kinds of new rules. You can even put royalties in your IRA now. We haven’t gotten very much yield from the junior miners. It’s time to start rewarding yourself.

TER: Thank you for all the ideas.

MB: Thank you.

Over the last month the energy sector has outperformed the market, and as you can see in the chart below, has done so by 6.5 percent. Year-to-date the sector is beating the S&P 500 Index by over 3 percent.

In a spectacularly performing market during 2013, energy lacked some of the incredible performance seen throughout the other sectors, but recently it has turned up, catching the attention of the market yet again.

What’s causing this sudden shift in relative strength?

As our Director of Research John Derrick describes in our recent video on the Periodic Table of Sector Returns, it is not unusual to see sectors move from top to bottom from one year to the next. For example, energy ranked as one of the top-performing sectors from 2004 through 2007, but quickly lost momentum in 2008 when it was hit the hardest after the financial crisis. In 2012 and 2013 energy turned in some solid numbers, but lagged in comparison to the other sectors.

Click imgage for larger view

In looking at an overview of market performance, it’s important to recognize what caused the moves. For example, one reason the energy sector is climbing back up, could be due to the broader market rotation that we’ve noticed recently, from growth stocks to value stocks.

Growth stocks are generally successful companies that are expected to continue growing their earnings, usually at a rate that outpaces the market, causing investors to pay more for them. Value stocks rarely outpace the market as much as growth stocks do. Investors see potential in buying these cheaper names, ones that trade at lower price-to-earnings (P/E) ratios than the S&P average, because they still have the potential to significantly outperform over time.

As I mentioned, in the past few weeks high-growth names have pulled back, while value names are steadily gaining momentum. One of the main reasons for this rotation is that some investors view the valuations of growth names as too high, especially in comparison to the value companies.

What’s significant is that many of these value names happen to be in the energy sector. We’ve taken advantage of this shift to value in our Global Resources Fund (PSPFX) through names like Pacific Rubiales and Valero Energy.

Although this rotation is important to the recent moves in energy, it is not the only factor driving the sector up. Take a look at the price of oil and natural gas.

Currently natural gas prices are starting to stabilize while the price of West Texas Intermediate (WTI) crude oil is up by 4 percent year-to-date, reaching $104 a barrel just this week. This price increase in WTI is linked to concerns over future supply, but nevertheless higher oil prices bode well for stocks within the energy sector.

According to the Energy Information Administration (EIA), short-term projections for the price of WTI remain relatively high. Additionally, the group commented that, “Aside from seasonal issues, the EIA expects strong crude oil production growth, primarily concentrated in the Bakken, Eagle Ford, and Permian regions, continuing through 2015. Forecast production increases from an estimated 7.4 million barrels per day in 2013 to 8.4 million barrels per day in 2014 and 9.1 million barrels per day in 2015.” This projection is good for North American producers and service companies.

So how can you gain entry into this energy opportunity?

The portfolio managers and I continue to stay focused on companies that show robust fundamentals and are located in sectors showing strength. Currently, within ourGlobal Resources Fund (PSPFX), we are seeking to capture the latest takeoff in the energy sector through our exposure to companies that appear reasonably valued. In addition to the two I mentioned previously, if you look at the fund’s top 10 holdings you will also see our investments in large-cap names like Schlumberger, EOG Resources and Halliburton.

Are you ready to energize your portfolio? I believe a well-diversified portfolio includes exposure to natural resources. In fact, I am in Tirana, the capital city of Albania, where I have had the opportunity to expand my tacit knowledge by visiting several resource companies.

I am excited to share my journey with you next week when I return home!

Index Summary

• Major market indices finished higher this week.  The Dow Jones Industrial Average rose 2.38 percent. The S&P 500 Stock Index gained 2.71 percent, while the Nasdaq Composite advanced 2.39 percent. The Russell 2000 small capitalization index rose 2.38 percent this week.
• The Hang Seng Composite fell 1.16 percent; Taiwan gained 0.41 percent while the KOSPI declined 0.27 percent.
• The 10-year Treasury bond yield rose 9 basis points to finish the week at 2.72 percent.

Featuring 3 Junior Mining Stocks:  FISSION URANIUM CORP.: CUB ENERGY INC.:  FREYJA RESOURCES INC. 

Etienne Moshevich, editor of Alphastox.com, looks at three things before he decides to get excited about a company: people, projects and structure. In this interview with The Mining Report, Moshevich explains his ground-up approach to evaluating junior resource companies and names the names that are set to rake in the profits.

The Mining Report: Alphastox.com follows junior equities in everything from gold, silver and diamonds to uranium, oil and gas. Why did you choose those particular market segments?

Etienne Moshevich: If you invested wisely and at the right time—meaning in companies that have the right management teams, the right projects and the right capital structure—there’s a lot of upside in those segments. Every day I come to work, there’s a new opportunity for me to relay to my subscribers.

TMR: Alphastox.com is part of the larger Transcend Resource Group. How do you remain independent in your coverage?

EM: I’m totally open in terms of my disclosure for every company I feature.

If I think a company offers good growth opportunity, I want to feature it, to help it build a track record. I’m very open about whether I’ve been paid, whether I own stock and at what price or if I’m just looking at becoming an investor. I often feature companies that don’t pay me or that are not Transcend clients.

TMR: In a recent research report you wrote that the junior mining sector is “not where it was in 2009, but it’s definitely getting better.” What makes you think that?

EM: In the last three months, more money has poured into the junior markets than in all of 2013. A lot more financings are being done. Banks are starting to raise money for exploration and development plays. Investors see that the game is back on; the institutional side is showing more interest.

The retail side is starting to follow along. You see transactions like Goldcorp Inc.’s (G:TSX; GG:NYSE)bid to take over Osisko Mining Corp. (OSK:TSX). You see Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) buying 50% of Osisko’s assets. People see quality assets getting the recognition they deserve, and the market is reacting.

TMR: You’ve written about mitigating risk in the junior resources market. How can investors reduce risk in their resource portfolio?

“Investors would greatly benefit by investing in a public vehicle that has the right management team to intelligently invest their capital. Zimtu Capital Corp. is a perfect example of this.“

EM: To lower risk, number one, you have to diversify. Out of the 10 junior listed companies one invests in, some lose market share, and a couple may stay even, but you really hope one makes it big—hopefully big enough to pay off all the other losses and then some. That’s the name of the game.

However, the amount of capital needed to invest in several companies at the same time can pose a problem. Second, many retail investors don’t have the necessary expertise to invest in the right company at the right price. That is why investors would greatly benefit by investing in a public vehicle that has the right management team to intelligently invest their capital. Zimtu Capital Corp. (ZC:TSX.V) is a perfect example of this. By investing in one entity like a Zimtu Capital, you not only gain exposure to a number of different companies and decrease your risk, but you are also investing in an undervalued company where its asset value is worth more than its current market cap.

Which brings me to my next point: Invest in companies that are fundamentally sound—companies that have cash in the bank, companies that are trading below cash or asset value and companies with the right structure. With the right capital structure, if the company were to make a real discovery, investors will get the appreciation and the valuation they deserve. Bottom line, you need to invest in companies with sound assets, whether that be cash or a project with real assets that can be objectively valued.

TMR: How do you determine which companies fit that profile?

EM: I look first at capital structure, even before looking at the people and the project. Oftentimes, companies with great management and great projects don’t get the valuation they deserve because there’s too much stock out there.

I need to know where 70–80% of the stock is before deciding to get involved in the deal. If you have investors with similar mindsets all rowing the boat in the same direction, you have a higher chance of success.

When it comes to people, I look at track records. I look for success; not just one discovery, but multiple successes.

TMR: How much do you like to see owned by the management team?

EM: I need to see at least 10% management ownership. If it’s not good enough for management, how can it be good enough for others to invest in?

I make sure management is writing a check at the same level that I’m writing a check; that management is buying stock in the market and putting it out on its Canadian Insider reports.

TMR: How do you react if management starts selling?

EM: I don’t come to any conclusions right away. I speak with the CEO and get his reasons for the sale, then decide whether I’m positive about the sale or not. Often, management will sell some stock, but will come back into the private placement if the company is doing one. I’m fine with that.

Generally however, I try to make sure that a lot of the management stock is tied up so it can’t be sold easily. If management sells into the market, no matter what the reason, the market will react negatively. It damages confidence. You can’t blame the market for that.

TMR: Let’s turn to your thesis for the oil and gas sector for 2014 and beyond.

“Cub Energy Inc.’s netbacks are very high, something I look for when evaluating oil and gas companies.“

EM: Oil and gas prices are going higher. I see a narrowing spread between West Texas Intermediate (WTI) and Brent. Canadian companies are now paying for their operations in Canadian dollars, but are getting paid back in U.S. dollars. Geopolitical issues are creating higher demand for North American supply. The gloom and doom that hung over the sector due to worries over Canadian oil and gas production are fading. These are all positive signs.

Given increased demand for natural gas, I see those prices stabilizing in 2014.

TMR: Which companies do you follow in the oil and gas space?

EM: Crocotta Energy Inc. (CTA:TSX) is one. It’s about a $350 million ($350M) market cap company that does about 10,000 barrels oil equivalent per day (10 Mboe/d). The company is targeting its Edson play in Alberta and the Montney play out of British Columbia. Crocotta is taking a conservative approach to growth, going after stable and proven fields.

Jagercor Energy Corp. (EM:CNSX; JAMTF:OTC) is basically a shell company right now; it has no asset. However, I invested in its last private placement at $0.20/share because I’m betting on the management team. The company is run by Matias Bullrich. He spent 11 years at Morgan Stanley structuring energy deals in Argentina, which is where Jagercor is looking for an asset. I’m betting on Bullrich and CEO Edgardo Russo, an ex-YPF guy, to pick a good asset and get it financed.

Two years ago, no one in the oil and gas sector was bullish on Argentina because of the YPF SA (YPF:NYSE) expropriation. Today, a lot more positive sentiment and capital are going into the country. Chevron Corp. (CVX:NYSE), Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE) and Wintershall Holding GmbH are paying between $7.5–10K/acre. Yesterday, YPF and Chevron signed an agreement to invest $15 billion ($15B) over 35 years. That’s giving more confidence to the space.

TMR: Jagercor dropped 7% in one day in early April. Is volatility like that common with these stocks?

EM: Yes. If you’re looking at it as a penny stock, that means the stock went down two pennies from $0.27 to $0.25/share. That might not seem like a lot, but yes it is 7.5%. Investors need to be aware that penny stocks are risky. Your portfolio can go up 10–50% or down 70–80% in a day. You have to be patient.

TMR: Are there any other oil and gas companies you want to discuss?

EM: I follow Cub Energy Inc. (KUB:TSX.V), which has assets in Ukraine. The company is doing about 1,800 boe/d. Mikhail Afendikov, its president and CEO, has lots of experience in the region. The company just announced that it is drilling its O-11 development well. Cub owns 30% of that well.

TMR: KUB-Gas LLC owns the other 70%. What’s the relationship with KUB-Gas?

EM: KUB-Gas is Cub Energy’s subsidiary. Cub Energy has a 30% ownership interest in KUB-Gas.

TMR: This story is really about the netbacks isn’t it?

EM: Yes. Cub’s netbacks are very high, something I look for when evaluating oil and gas companies.

Two other companies I follow, in totally different jurisdictions, are Taipan Resources Inc. (TPN:TSX.V)and High North Resources Ltd. (HN:TSX.V).

I took a position in Taipan’s latest financing at $0.36/share. The company has assets in East Africa. Africa Oil Corp. (AOI:TSX.V) got a massive valuation for its discovery in the same area. If Taipan does the same, the market will react and move the stock a lot higher.

High North is targeting its Montney wells in Alberta. The company just closed about $8.5M on a convertible debenture led by GMP Capital Inc. High North is doing about 350 bbl/d now. We saw great results from its first two Montney wells and I expect more from the third well that it is drilling now. President and CEO Collin Soares has been very successful with privately held companies. He has the right people in place to guide High North on the public side.

TMR: Is it easier for companies to get financing through private placements, given that capital is more difficult to come by these days?

EM: Definitely. Sentiment is becoming more positive. Investors are more willing to put money into the right deals. Companies are more able to raise money without having to restructure. But both retail investors and the investment banks are a lot pickier in terms of which deals they decide to raise money for. That weeds out a lot of the deals that should not be in the game in the first place.

TMR: Uranium is another energy play getting fresh attention. Is that just about Fission Uranium Corp.’s (FCU:TSX.V) big discovery in the Athabasca Basin or is this a larger story?

“The discovery that Fission Uranium Corp. and Alpha made in the Athabasca Basin is huge.“

EM: In the long term, the outlook for uranium is positive, and the discovery that Fission and Alpha Exploration Inc. (AEX:TSX.V) made in the Athabasca Basin is huge. There were only three big winners in 2013 for investors, in terms of penny stocks going to multiple dollars: Zenyatta Ventures Ltd. (ZEN:TSX.V) went from $0.30 to $5/share, Alpha went from $0.20 to over $7.50/share and Fission from $0.20–0.30 to close to $2/share. When investors saw that two of the three big winners were in the uranium space, they started moving there.

TMR: Beyond the discovery itself, it was about the discovery being a different deposit model in a structure thought to be barren of uranium mineralization. This could be a game changer, no?

EM: I agree; it opens a lot of doors. People forget that Fission was spun out of Strathmore Minerals Corp. (STM:TSX; STHJF:OTCQX). Fission is exploring assets that Strathmore had not. This gives people hope that the majors may have overlooked properties and that a junior could leap to being a developer and vastly expand its market cap.

TMR: What other companies operating in the basin could benefit from this renewed interest?

EM: Skyharbour Resources Ltd. (SYH:TSX.V) is one. It’s run by Jordan Trimble. When the company got into the uranium sector, it syndicated with a few partners. Now, it’s the largest landholder around Fission’s discovery. Skyharbor is fully funded for this program.

TMR: To some investors, Jordan Trimble might seem rather young. What would you say to them?

EM: He is young, but I’d much rather invest with somebody who’s willing to work and market his company every single day. I don’t care how old somebody is. Skyharbor stock more than tripled from $0.04 to $0.14/share over the last year, so he has made his investors substantial profits. All that matters are the returns, and Jordan Trimble has delivered them so far.

I judge people on track record and what they can bring to the table. He is an extremely hard worker. He brought a lot of contacts from the market side into the business when he stepped in as president and CEO. He’s always willing to tell his story, nonstop.

Trimble has the right team in place. Skyharbour has the right advisors helping run the field and exploration programs, people like Thomas Drolet, Rick Kusmirski, who ran JNR Resources Inc. (JNN:TSX.V; JNRRF:OTCPK), and Jim Pettit, the CEO of Bayfield Ventures Corp. (BYV:TSX.V). These are successful people. Any successful company needs one guy who knows the geology and the project inside out, and can lead a drill program. You need guys with capital markets experience and capital markets contacts. Jordan brings those contacts to the table.

TMR: Skyharbour just acquired 60% of the Mann Lake uranium project. What do you make of that?

EM: I think Skyharbour got a great project at a cheap price, for $15,000 and 1M shares. It offers investors a nice bonus property. Mann Lake gives Skyharbour another chance to make a discovery in the basin.

TMR: What other companies do you follow in the Athabasca Basin?

EM: Lakeland Resources Inc. (LK:TSX.V) has done extremely well for investors, going from $0.10/share to a high of $0.295 in January.

Lakeland’s President and CEO is Jonathan Armes. He has great support for financing and market from Dave Hodge and Ryan Fletcher of Zimtu Capital, one of Lakeland’s largest shareholders. It may take some time, but we see Lakeland rewarding shareholders over the next three to six months. Recently, Lakeland did an option with Declan Resources Inc. (LAN:TSX.V), another company that I’ve talked about and whose stock I own. Declan has an option to earn up to 70% of Lakeland’s Gibbon’s Creek project by incurring $6.5M of staged exploration expenditures.

Lakeland has a great model and a very tight share structure. At Gibbon’s Creek, for example, Declan is committed to spending about $1.25M in the first year. Declan brings a great team to the table, as well with David Miller as their new CEO. Miller used to run Strathmore Minerals (bought by Energy Fuels in late 2013). Altogether, both Lakeland and Declan have built a solid asset base and large scale presence in the Basin. Lakeland is well funded, having recently closed an oversubscribed $2.8M private placement and can continue to build its asset base and advance its projects by exploration, joint-ventures, and options. Look for Declan to follow suit shortly.

TMR: Moving on to copper, prices have hovered around $3/pound ($3/lb) since early March. Where do you think the price is headed?

EM: I think copper prices are going to stabilize and then could increase over the next 12–18 months.

One reason is China. I think China’s demand will rise. Chinese utilities account for around 40% of Chinese copper demand. The State Grid Corporation of China (SGSC) provides power to 80% of the world’s second largest economy. SGSC recently reported it would boost its annual investment to more than $60B. That sort of increase in capital investment should firm up or increase prices.

The second reason is supply. A number of weather issues, strikes and scheduled maintenance at major facilities flattened the growth in copper production. A hold on supply should increase the price.

TMR: Are you following any copper stories?

EM: I am. One is Kombat Copper Inc. (KBT:TSX.V). The company has the right guys in place to take the project to the next level. It just brought Justin Reed on as chairman. He is the president of Sulliden Gold Corp. (SUE:TSX; SDDDF:OTCQX; SUE:BVL) and used to be the head of mining and metals at National Bank Financial. He brings a lot of capital market experience and contacts on the Street. Kombat’s president and CEO Bill Nielsen, formerly vice president of exploration at Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT), was there when that company made its big discovery on the Bisha Gold volcanogenic massive sulfide deposit.

The project in Namibia is very good. This month, Kombat will release an initial resource report, followed by a preliminary economic assessment. The initial resource will come from a historic, past-producing mine. The existing infrastructure will cut down on a lot of the cost.

TMR: Kombat owns an 80% interest in five mining licenses and five exclusive prospecting licenses. Who owns the other 20%?

EM: It varies from project to project.

TMR: What is Kombat’s core focus?

EM: It will be on the Kombat mine, the past-producing, underground copper mine I mentioned. Over 54 years, it produced 12 million tonnes (12 Mmt) of ore between 2.5–3% copper. Kombat hopes to prove there’s a lot more there.

If Kombat can show an initial resource of 2 Mmt grading at 2.5%, the company could be looking at a market cap a lot greater than where it currently stands at $16–17M. That doesn’t even take into consideration the tailings.

In its presentation, the company estimates it has 17,400 tonnes. At $6,500 per tonne, that pencils out to more than $110M. If you assume 60% recovery, that’s $68M going to Kombat.

“Freyja Resources Inc. just raised money on the debt and equity side. The next step is to turn the company into a producer.“

TMR: How soon could it be in production?

EM: Probably 18 to 24 months.

TMR: Any other copper names?

EM: Freyja Resources Inc. (FRA:TSX.V) is trying to take its Las Cristinas copper project in Mexico into production. The company just raised money on the debt and equity side. The next step is to turn the company into a small-scale producer and generate real cash flow.

Alain Lambert is its chairman. He wants to fund further exploration work with the cash flow the company generates from its production, which I like. Too many companies keep going back to the public markets to raise more equity and dilute their structure.

TMR: What do you think of Mexico as a copper jurisdiction?

EM: I like it. Mexico has very rich copper resources and high grades. Some districts are favorable to mining. It drives a lot of the Mexican economy.

TMR: Do you follow any precious metals stories?

EM: Definitely. Ascot Resources Ltd. (AOT:TSX.V) just released an NI 43-101 resource of 2.85 Moz at just over 1 gram per ton (1 g/t) Indicated on its Premier/Dilworth project near Stewart, British Columbia, not far from Pretium Resources Inc.’s (PVG:TSX; PVG:NYSE) project.

Ascot’s management team is second to none. John Toffan is the CEO. He ran Westfield Securities. He took Delaware Resources from $0.30 to $26/share, by discovering gold in the Steward area. Then he started Stikine Resources Ltd., the Eskay Creek discovery that went from $0.10 to $75/share. Even better, John has brought Bob Evans, Stikine’s CFO and many of Stikine’s biggest backers to Ascot.

Ascot is close to a $95M market cap. In addition to its Premier project, Ascot has a gravel pit filled with 66 Mmt of gravel. That’s important because liquid natural gas (LNG) plants use a lot of gravel. Ascot’s Swamp Point gravel deposit could be one of the cheapest deposits around. Several LNG plants in the area are exploring a deal with Ascot. At $4.50/t, 66 Mmt is worth $300M. That’s a significant cash injection.

The company also has the Mt. Margaret project in Washington state. That is a 523 Mmt, NI 43-101-non-compliant historic resource from Duval Corp in 1980. Ascot has the Bureau of Land Management permits and will hopefully be developing that resource later this year.

I’ve also been looking at Source Exploration Corp. (SOP:TSX.V). It just announced 97 meters (97m) of 2.7 g/t gold equivalent ounces at its Las Minas project in Mexico. The results are very promising. These are shallow holes. It won’t take a lot of money. The company drilled more than 22 holes on $320K. With such low all-in costs, Ascot will be able to generate incredible results.

David Baker, who’s now the chairman of Source Exploration, accumulated his stock in Source in the market while he was still at Goldbrook Ventures Inc. The moment he sold Goldbrook for $100M to a Chinese group, he fell in love with Las Minas and decided that Source Exploration would be his next venture.

TomaGold Corp. (LOT:TSX.V) is one of the first companies I featured on Alphastox.com. The company completed a $17.5M joint venture with IAMGOLD Corp. (IMG:TSX; IAG:NYSE) recently. IAMGOLD is now heading up TomaGold’s Monster Lake project, having to spend $17.5M to acquire a 50% stake. Toma drilled a hole that hit over 237 g/t on its Monster Lake Project a couple of years ago, and the stock ran to $0.96. IAMGOLD values the Monster Lake asset at $35M and the company now has a $10M market cap and the program is just starting up again. This is a very exciting time for TomaGold. David Grondin, Toma’s CEO, is extremely hard working and always works to add value for his shareholders. One way or another, I believe in Toma and the potential of its assets and more importantly, the team which surrounds it.

TMR: One more?

EM: Sure. Great Bear Resources Ltd. (GBR:TSX.V) is looking to potentially develop a 2 Moz NI 43-101-non-compliant exploration target first drilled by Newmont Mining Corp. (NEM:NYSE) and BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) in the late 1980’s. The company has a very tight share structure, with about 17M shares out. It has about $1.1M cash in its treasury. It hopes to get its exploration permit in May or June and assess its drilling options then.

Atna Resources Ltd. (ATN:TSX) is another cyanide heap-leach producer in the same county. California once posed a lot of environmental hurdles for mining. That is changing because the state is not doing very well financially.

TMR: It may be changing, but not quickly enough for the appetite of most investors.

EM: Previously, many projects couldn’t even get exploration permits because of the environmental lobbyists. That has changed; there are active mining operations in the area today.

TMR: That’s a positive outlook on an unexpected topic to end our conversation. Etienne, thanks for your time and insights.

Etienne Moshevich is the editor of Alphastox.com, a junior market newsletter featuring companies with the very best in management teams, projects and capital structures. Moshevich is also the president of Transcend Resource Group, an investor relations company based in Vancouver, B.C., specializing in exposing undervalued companies to the market place. With a degree in economics, Moshevich has helped finance many successful mining, oil and gas, technology and biotech companies over the years, many of which have rewarded shareholders with substantial returns.

California is a great example of how unsuccessful alternative energy has been. Despite massive government spending (borrowed to the extent that California issues IOU’s instead of tax refunds), California is hugely dependent on oil. That case is graphically represented in this article below. – Editor Money Talks  

California’s Dirty Little Secret

Can California really be in the thick of a full-blown oil crisis?

After all, this is the same state humorists and environmentalists alike hail as the champion of clean energy. In fact, nearly half of the Tesla cars in the U.S. are registered and driven on California highways.

Then again, it’s also the same state that hands out I.O.U.s in place of tax refunds… but I digress.

Despite the Golden State’s reputation for being a leader in alternative energy, the cold, hard truth of the matter is that the state is just as indebted to oil as the rest of us.

Actually, they have it much worse…

California Dreaming

It’s far too easy to fall for the wondrous things California is accomplishing with clean energy.

One quick trip to the California Energy Commission will inundate you with a plethora of new clean initiatives — like the latest news that the state is spending over a hundred million dollars to improve its electricity system, or that 45% of the 200,000 gigawatt-hours of electricity California generates is from natural gas, or even the addition of the state’s Renewables Portfolio Standard that was passed a few years ago.

Don’t get me wrong — show me the same goals in Maryland, and I’ll be the first one on board.

Unfortunately, oil dependence is a horse of a different color. California still relies on oil to fuel 96% of its transportation sector, and the state is home to almost 11% of the total number of vehicles registered in the U.S.

And for a state where oil production has been in decline for the better part of three decades, an addiction to crude oil is the last thing you want see.

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To say California is oil-rich is a little misleading. Even though the state has 2.9 billion barrels of proved reserves, both you and I know the only thing that matters is what you can get out of the ground.

They’re not alone in these peak oil woes. I mentioned last week that Alaska was dealing with its own oil production crisis.

There is, however, one slight difference.

California now relies on foreign countries for imports for over 60% of its oil supply. (I did say they have it worse than the rest of us, didn’t I?)

Since 2005, U.S. imports of crude oil and petroleum products dropped by nearly 24%, mostly due to the boost in tight oil production in the lower-48 states.

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During the same period, the amount of crude oil imports reaching West Coast refineries increased by 3.5%!

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The Oil Noose Tightens

It’s bad enough that California became a net exporter as production plummeted over the last 25 years, but this crisis situation didn’t exactly sneak up on anyone. Back in 2009, the Society of Petroleum Engineers released a report on the future of California’s oil supply.

You see, the most troubling issue isn’t necessarily how much oil they’re importing, but who is selling it to California refineries.

Toss Alaska’s own peak oil troubles into the mix, and you can probably guess where our clean energy champion will go for more oil:

That’s not a comforting chart no matter how you look at it.

Last year, 54% of the crude oil imports hitting the West Coast came from just three countries — all of which also happen to be card-carrying members of OPEC.

I have a feeling that most of you already know OPEC has been struggling to maintain its dominance over the world’s oil supply. It was only a few days ago that the IEA released its latest monthly oil report showing that OPEC production fell to 29.6 million barrels per day — its lowest point since 2011.

As for California’s three largest oil suppliers in OPEC, two of them — Saudi Arabia and Iraq — led the group’s 890,000 bbls/day production decline.

Stay tuned, because we’re not only going to delve further into OPEC’s brewing oil crisis, but we’ll also take a look at how you can take advantage of this dynamic shift in global supply.

Until next time,

Keith Kohl

@KeithKohl1 on Twitter

A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing’s Energy Investor.For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media.

Two companies, Genel and Chariot, should be on any oil investor’s radar.

In recent months, investors have shied away from mining investments globally and across all category assets. Whether it’s gold mining in Africa, copper mining in South America or iron ore mining in Australia, investors have exited the industry en masse. It’s tough to remember the last time we witnessed such an exodus in a sector that was the darling of investors only a few quarters ago.

On the other hand, we’re seeing a large and unstoppable demand for oil field services and exploration and production companies that are out there exploring for oil. In particular, large amounts of capital are flowing into companies that are active in North Africa, West Africa and Latin America. In this week’s report, we examine this trend and set up a strategy for investors to benefit.

What Shines Isn’t Always Gold

To say that the mining industry had a rough year in 2013 is to put things lightly. We calculate that tens of billions of dollars exited this industry, with many companies slashing their exploration projects and many more cutting down on their production targets. Mines have been shut down and workers are on strike. To get a real sense of the turmoil the industry is facing, look no further than the worker strikes in some of South Africa’s most prominent mines.

In addition, many producing mines have been ramped down, because it is no longer economical to run the mines where metals prices (such as gold) are trading. Therefore, it makes more sense to shut down the mine than run it at a loss. And that’s not all. Certain governments have made it their policy to drive away miners from their borders.

Take a look at what happened at the Pascua Luma mine in Chile. The mine, partly owned by Barrick Gold (NYSE:ABX), has come under intense scrutiny from the Chilean government, which has been interfering nonstop in the operations of the mine. At one point, the government even ordered a freeze on all activities at the mine.

It’s no wonder that investors’ honeymoon period seems to have come to an end with the miners. As a result, the mining industry is currently undergoing one of the biggest divestment programs in recent memory. Both large and small mining companies (whether single metal or conglomerates) are shedding assets at record rates and keeping banks and financial mining outfits very busy.

In all, it’s estimated that the top 10 mining companies have sold more than $10 billion worth of assets in the last 12 months alone. Many of the buyers are distressed private equity houses who have the ability to ride out the down cycle; and other buyers have been government-backed miners (particularly Chinese) who see the benefit of owning these assets long term. As for the medium term individual investor, they have pretty much given up on the sector right now.

….read page 2 HERE