Monday, June 30, 2014

Germany Rebuffs American Companies NSA, US Fed, Russia Gold Reserves At Record High

It's not just soccer that is pitting these two superpowers against one another;
German government cancels contract with America's number two wireless services provider Verizan (nyse:VZ) over allegations the NSA has unrestricted access to all information going through Verizon, regardless of how sensitive that information is.  Germany is deeply concerned about "the ties revealed between foreign intelligence agencies and firms".
russia gold purchases, usa securities, us bonds, united states bonds, russia central bank, bond rates, germany nsa, verizon wireless, nsa spying, china, london, european union,

Germany versus USA: Who Wins ? Federal Gold Reserves Stay In NY

Also this month, the German government cancelled a previous request to repatriate Fed-held gold reserves, on account of the slow pace / doubts about their whereabouts still prevalent.  The cancellation comes just 1.5 years into a 7 year plan that had called for the return of 87 tonnes per year (374 tonnes from Paris, 300 tonnes from New York), though Germany was getting it back at the rate of only 25 tonnes per year.  What's more, The US Fed returned only five tonnes representing only 8% of what should have been returned.

Russia Replaces US Security Bond Reserves With Physical Gold

Over the last three years Russia has dumped $50 billion in US securities, replacing dollars mainly with gold bars.  In the month of May 2014 alone, Russia purchased 900 thousand ounces of gold ($1.17 billion) bringing its total gold holdings up to 35.5 million ounces (valued at $44.3 billion).  The previous month of April was also a big month for purchases, had been the biggest month for gold purchases by the Russian central bank since 2010.

USA to export first shipment of oil in August 

On June 25, 2014 the Obama administration signs bill lifting previous oil export ban; the ban had been in place to protect US oil supplies.
Over the last few years American oil output increased from 5.5 million to 8.0 million barrels per day, while at the same time US oil consumption fell from 20 million to 18.5 mbpd.  Initially, exports will be limited to condensate from shale produced at Eagle Ford.  Exports could reach 700,000 barrels per day by early next year.  note: shale oil is light oil, making it easier to use in industry; for instance it can be used as aerospace fuel whereas heavy oil cannot.

China Buying Up London

Just this week China Construction Bank paid £110 million for a 123 thousand ft2 seven story building at 111 Old Broad Street.  The building will presumably be its headquarters in Europe and base for yuan clearing bank operations.  This comes one week after China Life paid £795 million for 70% stake in a London office tower.

China Construction Bank is the second biggest bank in China after ICBC.  It has an aggressive overseas expansion plan (in 2013 overseas assets up 40% to $120 billion).

Tuesday, May 27, 2014

Lithium Ion Battery Usage Soars, China Takeover, Growth Stocks Companies

Lithium demand is projected to rise very quickly over the next few years, possibly doubling within a decade. Consumption has the potential to increase even further if electric vehicles become commonplace; sales of Ford hybrid electric vehicles fell between 2010 and 2012 but set a new record in 2013: 65,326 (previous record is 35,496 set in 2010); total US sales for 100% electric vehicles +230% to 46,148; sales at Tesla TSLA keep going up-  Lithium Exploration Group LEXG is expected to be a key lithium contributor at Tesla's newest giga plant, the biggest lithium-ion factory in the world.
Don't forget about lithium-ion battery usage in aerospace: the new Boeing 787 Dreamliner operates on lithium-ion batteries- A key advantage of these batteries is a long battery life.

Bolivia knows this and is currently putting in place the infrastructure needed for companies to make the batteries within its own borders - a very wise move since there is a considerable amount of value added in the secondary industry.

This is especially important in GDP calculations:  If all of the parts forming a product are made elsewhere but assembled in China when exported, China gets credit for the whole thing despite having made no part of it. This has become a problem with respect to high-value US imports of electronics such as computers and mobile phones.

Lithium maintains a strong position in the industry, but investors must also be aware of the risks posed by alternative batteries - the Ryden dual carbon battery is just one example that's raising eyebrows.  It requires only 90 seconds to charge fully versus 30 minutes for lithium-ion.  It also has much improved battery life.

China Is Investing Heavily In Australia but Are Outright Takeovers In Anyone's Interest ?

In April, China made it easier for domestic companies to complete foreign takeovers:  up to $1 billion takeover deals don't  require government approval.  Virtually all of the takeovers have gone through smoothly with one exception:  Westside Corp Ltd asx:WCL rejects $164.5 million bid by China's Landbridge Group.

  • Just this month
  • Aquila Resources AQA owner of the $7 billion West Pilbara Iron Ore Project, got bought out by privately held Baosteel Group of China for $1.4 billion.  If I were an Australian shareholder I'd ask myself, will Baosteel bring over its own employees to run the mine ?  But shareholders were compensated well ($400 million was paid to former Aquila executive chairman) so the deal encountered no opposition.
  • Another takeover this month (May 2014) has PanAust Limited asx:PNA going to Guangdong Rising Assets Management.  A 45% premium makes the transaction hard to resist ($1.4 billion $2.30 per share vs $1.58).
  • The current gold price is posing challenges for Bullabulling Gold GGG:  hard time developing the Bullabulling Gold project.  Financing is not a problem for Zijin Mining of Xiamen, China and that gives it leverage in negotiating a deal.  The $24 million takeover is by Norton Gold ask:NGF, Zijin's Australian division.
  • Earlier this year
  • Carabella Resources CLR of Brisbane was taken over by Kingho Energy Group in a bid that was initially hostile (offer increased to $71 million in January).  The deal gives Kingo Energy control of Grosvenor West, a mega project that remains undeveloped due to high capital expenditure/development costs.

Big Gold Projects Propel Stocks Higher

High development costs ($1.77 billion) for Cadia East had led to construction delays, resulting in years of waiting for the underground mine (largest in Australia) to become operational.. but the extra capex is about to pay off nicely for Newcrest.  Cadia East will boost annual Cadia Hill gold production from under 400,000 oz to over 800,000 ounces (at a competitive cash cost).

Effect of Cadia East news on Newcrest Stock ytd +36%  6 months  +22%  1 month +0.1% vs Newmont NEM +2%  -9%  -8%, Barrick ABX  -6%  +1%  -10%

Canada's version of Cadia East is Kerr Sulpherets Mitchell, a 44.7 million ounce gold-250 million ounce silver-molybdenum mine that's 100% owned by Seabridge Gold.  Keep a close eye on ANY news reguarding its development:  Seabridge stock is due for a big jump in price.

China Agrees to $340 Natural Gas Price, It's A Done Deal 

The 30-year $400 billion deal reached last week between Russia and China will obviously impact the amount of natural gas China imports from other countries, but if you're Australia you shouldn't be too concerned :  Chinese companies already own interest in a number of Australian natural gas projects:  Curtis LNG project is 25% owned by Chinese company.  The Russian deal calls for Gazprom to sell 38m mmcf per year at the fixed rate of $340 per mmcf which is cheap, especially when you compare it to what the Europeans are paying for it.  Whatever happens though, don't expect Russia to ever play hardball with China when it comes to keeping the gas flowing - Russian government gets 6% of its revenue from natural gas exports.  A lot of the growth in Australia's natural gas industry is happening in the northern region.

Growth Stocks

Caterpillar CAT
Even though revenue and earnings declined slightly quarter on quarter, quarter to quarter earnings were stronger being up 4.7% to $922 million.  Pushing this hot stock higher is its earnings beating estimates: $1.61 vs $1.23.

Freeport McMoran FCX
eps beat analyst estimates : 49 cents versus 41 cents

MTR Corp MTRJY is the second largest land owner in Hong Kong.  little risk, lots of upside.  maintains AA+ rating at R&I.

Monday, April 28, 2014

Palladium Production Companies With Strong Outlook Anglo Platinum AMS, Chinese demand

Platinum group metals which include palladium, platinum and rhodium have important auto (catalytic converters), jewelry (white gold plating) and industrial applications.  In recent months, people have raised concerns regarding supply since Russian company Norilsk is the world's leading producer of the white metal.  Add to that the potential for worker strikes in South Africa's platinum belt and you have a recipe for the perfect storm.  Europe is by far the biggest platinum group metals customer for both Norilsk (50% of sales) and Anglo Platinum (over 48% of sales).

Russian palladium shipments via Switzierland continue to decline.  

According to Barclays, the Palladium market will deliver a sizable deficit in 2014 which will lead to a higher bottom price.  Not only are Russian stockpiles dwindling but because it's Russia there are other geopolitical issues at play.  Will Russia limit the supply in order to use palladium as a tool to counter economic sanctions?

And don't forget about the China-effect:  Chinese demand for platinum continues to soar.  Recently, China became the world's largest consumer of platinum thanks in part to fragile European auto markets.
Norilsk Nickel NILSY i) world's number one nickel producer ahead of Vale, Jinchuan, Xstrata.  ii) leading producer of palladium.  production:  platinum:  651,000 ounces (vs 683).  palladium: 2661,000 ounces (vs 2732). revenue, percent of revenue: platinum:  $956 million  9.2%  (vs $1028m 9.0%), palladium:  $1,935m  18.6%  (vs $1722 15.1%).

Anglo Platinum AMS-JO i) low risk South African miner:  BRPM achieved 2 million fatality free shifts in April, a milestone.  Modikwa had no fatalities in 2013.  World's largest platinum producer (38%).  production: platinum: 2376331 oz  (up from 2391), palladium:  1556m (up from 1554m).  palladium output by quarter:  428 vs 413; 369 vs 392; 320 vs 356; 439 vs 403.  revenue six months 2013: platinum:  15398 (vs 11705) 63.3% (vs 59.9%).  palladium:  3868 million ounces (vs 3206m) 15.9% (vs 16.4%)

Stillwater Mining SWC - As of December 31, 2013 2p reserves: palladium 10.346 million ounces (+1.59m), platinum 2.873 million ounces (+0.207m). realized prices: palladium $641-> $721 platinum $1551-> $1481

Primary mine production (supply from metals recycling in brackets): palladium   404.2 (395.9)  223.9 (258.5), platinum 119.7 (117.8) 345.7 (154.9).  percent % of revenue: palladium 37.4% (45.4%), platinum 58.4% (50.0%).

Lonmin LNMIY - Fiscal year ends September 30.  i) platinum sales of 696,000 ounces exceeded guidance by +30,000 oz.  ii) three work related deaths.  iii) capex of $159 million iv) increase in reserves at Marikana +3 million ounces platinum group metals, gold up by 0.9 million ounces.  Production:  palladium 320,503 (331,601), platinum 709,029 (687,372).  percent of revenue: palladium  14.7%   13.1%, platinum  69.4% 65.9%

Aquarius AQP - Fiscal year ends June 30.  i) total revenue declined 24% to $371 million; net earnings amounted to a loss of $288 million or $0.6113 per share.. this despite total PGM production up 13% to 325,103 ounces.  Bulk of metals production comes from Kroondal - 100th oz per quarter for final 3 quarters of 2013. Joint parter at Platinum Mile (12,596 oz) is Anglo Platinum.

Monday, March 31, 2014

Bombardier Flight Test Delay Ok With Customers, BlackBerry (BBRY) Developing New Sources of Revenue Infotainment

Bombardier (BBD.B) cseries delay not a problem for customers
Airlines Lufthansa (fra:LHA) and Odysey have firm orders for 30 and 10 cseries aircraft, respectively;  Lufthansa also has an option for 30 more; that represents 23% of all orders.  First flight was suppose to have occurred back in June 2014 but software upgrades pushed the date back to September 16, 2014.  That date was eventually scrapped in favor of one 15 months later- December 2015.  Engineering is not the problem (already done / confirmed by key customers) rather, the certification process overseen by Transport Canada is to blame as it is time consuming especially since it involves a new United Technologies Pratt & Whitney engine.  The flight test program is scheduled to be 2400 hours long with only 159 logged thus far.  According to Odyssey Airlines, when ready the Bombardier cseries plane will have a flawless entry into service with airlines, making long delays justifiable.

The c100 will cost 15% less to operate versus similarly sized planes (110, 130 seater).  The c300 will seat 20 more passengers than the c100.

Russia crisis affects $3.4 billion Q400 turboprop contract between Bombardier and state owned Rostekhnologii. - Sanctions tabled by the US and Canada prevent Bombardier from moving forward with the contract.  In 2013 Russia accounted for only 1.4% of company revenue ($250m), this deal is pivotal for boosting sales to the region.  Russia is an expanding market and key member of the BRIC group of nations.  In my opinion this is a deal the company must hang onto.

BlackBerry's QNX platform superior to Apple IOS ?

Last month Apple revealed something somewhat surprising:  Apple's new in car operating system Carplay- which enables iPhone to power the infotainment, is actually built on BlackBerry's qnx platform.

"Connectivity to smartphones and other mobile devices is a key strength of qnx Software Systems’ platform", "We have a long-standing partnership with Apple to ensure high-quality connectivity with their devices, and this partnership extends to support for Apple CarPlay".
with automakers Toyota (TM), BMW, GM and Ford (F) already designing their vehicles to be compatible with qnx software it seems inevitable that, as the technology increases in popularity BlackBerry is going to develop a significant new source of revenue.
Also in March:  US department of defense approves BlackBerry Full Operational Capability software to run on government networks.

The week prior to this, the US National Institute of Standards and Technology (NIST) approved BlackBerry's iOS and Android Secure Work Space mobile service for use by the US and Canadian governments- allows IT managers to create a separate area on any iOS or Android device that's managed by Blackberry Enterprise Service 10.  The partnership with Android is another way BlackBerry is increasing revenue stream and future cash flow.

Blackberry About To Make Up More Ground In Smartphone Battle

The new BlackBerry Z3 is a low cost device (under $200;  Samsung and LG rely on low end devices for their sales growth).
Indonesia will be the first country in Asia to get it / Z3 is the first phone manufactured by contract partner Foxconn.

Wednesday, February 26, 2014

Oil Companies 2013 Results Impacted By Oil Sands Production, Lower Refinery Margins, Kearl Project Christina Lake

2013 was a great year for three of my favorite oil companies - Suncor Energy (nyse:SU), Cenovus Energy (nyse:CVE) and Imperial Oil (nyse:IMO).  For the most part, production, revenue, earnings and dividends were up, however plummeting refining margins coupled with a stronger US dollar negatively affected an otherwise solid financial statement from Cenovus Energy.  I have read through the SEC filings from these companies and will give a brief synopsis of the results.

America Choosing Not To Renew Licenses For Coal Fired Power Plants Gives China, India Economies Competitive Advantage

Nearly 1200 coal fired power plants will be coming online around the world in 2014 ; a cost-benefit-efficiency analysis shows that coal fired power plants produce energy at a very low cost and that's giving US competitors China, India and other emerging markets a strategic advantage.  Another interesting thing to note is this - after a string of attacks on nuclear power plants, their vulnerability has been called into question.

Despite what the nay sayers are saying, US carbon emissions are at their lowest levels since 1994; the reason for this is simple - the so-called 'dirty energy' sources are producing at a very high level of efficiency (power plants fitted with sulfur and carbon scrubbers).

2013 Highlights From Suncor Energy, Cenovus Energy, Imperial Oil

Suncor Energy (SU) 2013 Highlights

Net earnings up significantly thanks in part to a strong fourth quarter; last year, 4Q loss was $574 million due to Voyageur incident / writedown on assets in Libya.  12-month net income: $3,911 million up from $2,740 million.  Hindering earnings is the strong US dollar:  fx loss of $157 million in 2013 vs fx gain of $521 million in 2012.
Capex of $6.380 billion is up marginally from $6.370 billion last year: capex on oil sands down 13% -> $4.311 billion; capex on refining and marketing up 38% -> $890 million.  Planned capital and exploration budget of $7.8 billion for 2014.

Concluded 2013 with record quarterly net production from the oil sands (409,600 bpd) up from 342,800 bpd in 4Q2012.

For the year, production was up at oil sands operations (+33,300 or 9.3% -> 392,500 bpd) but down in the exploration and production segment (189,900 -> 169,900).  Production mix is moving away from natural gas (only 6% from natural gas, down from 9%). Refinery utilization down in Western North America (100% -> 96%).  Price per barrel realized up:  oil sands: $84.22 (vs $82.75);  exploration and production: $91.44 (vs $84.05).

Operating Netback:  increases came from North America Onshore (+33.5% -> $2.51 / mcfe), Other International (+14.5% -> $47.85 / bbl), East Coast Canada (+12.0% -> $73.02 / bbl).  Strongest netback results from North Sea Buzzard where the company pays no royalties (netback @$101.50 (vs $99.74) on avg price realized of $109.95 (up from $108.46).  15% increase in quarterly dividend up to 23 cents.  Net earnings up significantly in the final quarter:  $443 million profit, up from $557 million loss.

Cenovus Energy 2013 Highlights 

Wednesday, January 29, 2014

Gold Looks Good In 2014 Despite Fed Tapering, Canadian Oil Price Differential Under $20 Into 2016 pipelines

Key things to note this first month of 2014:  From December 31, 2013 to January 29, 2014 spot gold gained US$85 to close at just under $1270 but keep in mind that if your currency isn't the US dollar then gold got even more expensive thanks to i) ongoing currency crises in emerging markets ii) Canadian dollar drops to 4-year low versus the greenback; country decides not to raise interest rates. iii) fiscal liquidity problem developing in China.  But don't get too excited just yet - At $1255 the April futures gold price remains lower than spot.  Osisko is suing Goldcorp - alleges misuse of confidential information.  I guess that puts an end to Goldcorp's $2.6 billion hostile bid for Osisko.

Canadian WCS oil price:  Canadian oil price differential expected to remain under $20 for the foreseeable future, well into 2016.  A couple reasons for this

  • Enbridge is expanding the capacity of a key pipeline in Wisconsin:  from 400,000 bpd to 1.2 million bpd.  That will have a positive effect on the oil and gas industry in the US NW (three-fifths of oil output in ND is shipped by rail).  Enbridge has also proposed the Sandpiper Pipeline which will add 225,000 bpd to Minnesotia plus another 375,000 bpd to Wisconsin.
  • BP and Marathon refineries in the US are being upgraded to handle more heavy crude from Alberta.
  •  Glut of supply in Wisconsin may be relieved when portions of the Keystone pipeline come online (southern leg of Keystone running through Cushing, Oklahoma became operational January 22).
  • Trans Mountain pipeline from Edmonton to Burnaby tripled capacity from 300th to 890th barrels per day.

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Despite several factors working in its favor, over the last few weeks the price of gold hasn't really moved in either direction, as investors were anticipating a tapering to the Fed's $80 billion monthly bond buying program (put downward pressure on commodity prices).  When it finally happened on January 29 ($10b/mo) gold went up as is to be expected (no more tapering in the short term).  I have some concerns about Fed tapering.. The Fed claims that economic activity picked up in recent months -> this should cause money to flow out of commodities and into equities... however that doesn't appear to be happening (soft jobs growth in December).  If you're concerned about interest rates rising in response to Fed tapering don't be:  The Fed has explicitly stated that it will maintain a policy of record low interest rates (gold does well when interest rates go down).

Counteracting this and lifting the price of gold is

  • Currency crisis in emerging markets specifically Turkey, South Africa, Argentina - safe haven investing favors gold, US security notes
  • Financial liquidity problem developing in China; banks aren't lending and that's making it worse
  • Less US monetary stimulus is wreaking havoc on currencies in South Africa and Turkey where account deficit problems are forcing interest rate hikes.