Finance And Mortgage Blogs | 5pointsartfest.com

Posts Tagged ‘commodities’

If you don’t mind losing $5,000 in 10 minutes, you may enjoy trading commodity futures contracts. There’s an old saying among commodity traders: “It’s easy to make a small fortune in commodities. Just start with a large fortune!” This is not a business for people who are emotionally attached to their money, yet thousands of average “investors” get lured into the commodity markets year after year. Why? Because of the possibility of making high percentage gains using the built-in leverage that is available to commodity futures traders.

The commodity markets include wheat, corn, soybeans, pork-bellies, gold, silver, heating oil, lumber, and numerous other common trade items. The huge companies that operate in these markets use commodity “futures” contracts to lock in their selling prices for the product in advance of delivery. This practice is called “hedging.” On the other side of that transaction is the trader, who speculates on whether the priced of the commodity will go up or down before the contract is due for delivery. Because futures contracts may be purchased using leverage, these financial instruments lend themselves to speculation.

For example, control of a corn contract worth $5,000 may only requrie $500 of actual cash, or 10% of the face value of the contract. If the corn goes up in value, and the contract becomes worth, say, $5,500, the speculator has made $500 on his or her original $500, for a 100% return. Compare this with the regular stock market, which limits leverage to 50%, so that $5,000 worth of stock requires a minimum of $2,500 of capital. If the stock goes up to $5,500 in value, the $500 gain is against $2,500 invested, for a return of “only” 20%. The 100% return sure looks a lot better, right?

You can easily see why investors in search of quick gains are hypnotized by the lure of big profits using maximum leverage in commodity futures trading. The real problem, however, is that the leverage works in BOTH DIRECTIONS. You can lose your entire investment in a matter of minutes due to the wild price gyrations that sometimes occur in these volatile markets. Let’s say the $5,000 contract drops to $4,000 in value instead of increasing. You’ve not only lost the original $500 you put into the contract, but an additional $500. You can go broke quickly this way.

So why do people play this game? Average investors do not wake up in the morning and say to themselves, “Right, I think I’ll start trading commodities.” What happens is, they receive a sales pitch from a commodity trading “guru” claiming to have a “system” for generating sure-fire profits in these wild markets. These “systems” range in price from $25 all the way up to $5,000 or more, and are sold based on the promise of “huge profits” from a small starting investment. Read the rest of this entry »

We discussed with the Ux Consulting president from which countries future uranium supplies may come, and who is going after those supplies more aggressively. He warns about the risks and rewards of Kazakhstan and Mongolia, looks to Africa for supplies, and talks about Russia’s expansion.

StockInterview: How do domestic uranium prospects rate in the eyes of U.S. and foreign utilities?

Jeff Combs: I don’t think that utilities expect the U.S. to be a major supplier of uranium. What you’re seeing with China and other countries, where nuclear power is growing, is that they’re definitely looking to secure supplies. The Chinese are going to Kazakhstan and also Australia, where there are a lot of uranium reserves, a lot of potential for growth. I think there’s some potential for growth in the U.S. But if you had a fast growing nuclear power program, I don’t think the U.S. is the first place I’d look. I believe that you can look for some opportunities in the U.S. But in general, the U.S. utilities are basically in competition with some of these newer entrants into the market for available supplies. Those are primarily outside of the U.S., as U.S. utilities also depend on imports for most of their supplies.

StockInterview: It appears many countries are racing to secure uranium supplies outside their borders.

Jeff Combs: Even Russia, which was a major exporter of uranium in the 1990s, is looking to secure additional supply sources, first to Kazakhstan, Kyrgyzstan, and Uzbekistan, former republics of the of Soviet Union, but also to Africa. Russia has an extremely ambitious reactor expansion program, as well as a desire to greatly increase its exports of reactors to countries like China and India. As it stands now, most of the growth in nuclear power is expected to take place in China, India, Russia, as well as Korea and Japan to a certain extent. All these countries are really looking outside their borders for uranium supplies that are going to sustain them for quite a long period in the future. None of them are blessed with very rich and extensive uranium deposits.

StockInterview: Is Russian President Vladimir Putin trying to create something on the order of a Wal-Mart Super Center for the nuclear fuel cycle?

Jeff Combs: Well, you see them doing a joint venture in Kazakhstan. They’re trying to do something with Kyrgyzstan. They’re definitely looking at how they can shore up their supply through imports, in addition to investing a billion dollars in their own internal production. In this respect, they are trying to draw from their old supply chain arrangements. This is to meet their internal needs, as well as the needs of countries to which they have traditionally supplied reactors and the fuel to run these reactors. As Russia looks to expand its reactor sales to countries that don’t have established fuel cycles, they want to be able to supply them with fuel – possibly even lease them the fuel. This means that they have to be prepared to take back the spent fuel. This is due at least in some measure to nonproliferation concerns, in that you don’t want these new entrants building enrichment or reprocessing plants. While Russia has enrichment capacity and the ability to expand this capacity, they also need uranium to be able to supply these countries with enriched uranium. This is why they’re currently focusing on the uranium side of the equation.

StockInterview: Let’s talk about some of the target countries, where those with the more ambitious nuclear energy programs will want to secure uranium.

Jeff Combs: We have recently done a series of reports, looking at countries where major production is taking place, or could take place. Of course we’ve done them on Canada, Australia, Namibia, South Africa, Kazakhstan, and Uzbekistan. I think the next country might be Mongolia because of the exploration and development activity that is taking place there. Mongolia’s mining laws are very favorable to foreign companies. Mongolia is also located in that part of the world where the bulk of nuclear power expansion is taking place. The problem in Mongolia now is the lack of infrastructure – the location of the exploration sites relative to roads and rail lines, and the ability to connect to the electricity grid and water lines.

StockInterview: There has been so much press and chatter about Kazakhstan. Is there substance in these commentaries, or is it mainly hype?

Jeff Combs: They’ve got a lot of uranium resources and reserves. They’ve also got a commitment to expanding production there and a pretty big customer in China. The hype might be related more as to whether they can do it as quickly as they say, as opposed to whether they can eventually get to the levels they’re talking about. One of the things that will slow them down is the infrastructure, including the skilled work force, needed to expand at that rate. They have increased production. They definitely will continue to increase production, but perhaps not at the rates they are advertising. They’ve produced a lot in the past, in the old Soviet Union days. I think they can get back up to those production levels, but it’s going to take some time.

StockInterview: What will be required to get things going in Kazakhstan?

Jeff Combs: It appears they’ve been able to attract capital. A large part of it is just the time is takes to build the infrastructure, including training workers. You can have all of the investment in the world, but it still takes time to get things done, especially if the infrastructure isn’t well developed in the first place. If you look at Kazakhstan on the map, it is very close or adjacent to Russia, China, and India, where the major part of nuclear growth is occurring. I don’t think there will be any shortage of demand for their output.

StockInterview: Where does Japan fit into the current uranium bull market?

Jeff Combs: Japan is definitely a factor in the market. Their growth might not be as rapid as it once was, or once was expected to be. With Japan you have a country that does not really have any indigenous uranium resources to speak of. They really need to import uranium. To facilitate this and to secure future supplies, Japan has historically developed different supply relationships around the world, both by taking positions in uranium mines and by nurturing long-term relationships with producers. I think that it’s likely the case that this recent price rise caught them somewhat off guard, but recently Japanese utilities have put more effort into shoring up their supply options.

StockInterview: There are countries, which get little media coverage, such as Namibia. How does this country rate?

Jeff Combs: I think Namibia will definitely have an important role in supplying uranium. I don’t think it’s going to have the expansion potential of Canada, Australia, or Kazakhstan, but I think South Africa, Niger and Namibia are going to be an important component for uranium supply in the future.

StockInterview: You mentioned Niger, which was the world’s third largest uranium producer, and has now fallen to number four, behind Kazakhstan.

Jeff Combs: The funny thing about Niger is that in a way it’s sort of fallen off the radar screen. It produces, but it just doesn’t get the press as other places. If the price increases, it really changes how people look at all these different projects going forward and a lot of things, which might not have been looked at 20 years ago or so, are being reinvestigated. Obviously, there is uranium in Niger. It’s quite important to the economy there. As I said, they haven’t really been on the radar screen as much as a lot of other regions in the world. Perhaps this is because production there has been controlled by the French for a long time. There are some Canadian companies exploring in Niger now. Since this activity is fairly recent, it won’t likely bear any fruit for five to ten years down the road.
Read the rest of this entry »

Perhaps the White House flap as to whether or not Saddam Hussein’s government tried to buy uranium ore from the country of Niger was the best publicity Niger has had about its uranium production for more than two decades. How many geologists know that the Republic of Niger ranks fourth, behind Canada, Australia and Kazakhstan, in terms of the quantity of uranium annually produced worldwide?

Named after the river which runs through it, Niger produces nearly four times the uranium currently mined in the United States. More uranium is mined in Niger than in Russia, South Africa, India, China, Brazil, Ukraine Namibia or Uzbekistan. In fact, if you added up the total amount of uranium mined in South Africa, China, India, Brazil, Czech Republic and the Ukraine for 2004, Niger would trump the combined production of those six countries. Until Dr. Jon North came along, uranium mining was pretty much monopolized by Cogema and a consortium that includes Spanish and Japanese interests.

“This is the fourth largest uranium producer in the world,” raved an excited Dr. North into his cell phone during our taped interview. “Niger has never had an entrepreneurial and nimble junior mining company ever explore for uranium. And this is the first one.” North was talking about Northwestern Mineral Ventures (TSX: NWT; OTC BB: NWTMF). “Imagine if Australia, Canada and Kazakhstan having never had a junior company looking for uranium. It’s absolutely absurd to even consider the concept.”

The Republic of Niger supplies about 9 percent of the world’s annual production to meet the growing need for uranium to fuel the world’s nuclear reactors. According to the IAEA-NEA Red Book of 2003, the sub-Saharan Niger ranked #4 behind Australia, Kazakhstan and Canada for total uranium reserves. In the 2005 update, it fell to seventh place. It may be that this country is under-explored. In 1981, Niger produced a peak of 4366 tonnes of uranium. As with others, mining production plummeted with the spot price of uranium during the 1980s and 1990s. The slump hit the country hard because Niger depends upon uranium for more than 30 percent of its exports, more than $100 million. Five percent of the country’s tax revenues come from uranium mining.

Dr. North discussed how he came to obtain concessions for both his company, North Atlantic Resources (TSX: NAC) and Northwestern Mineral Ventures, in which he serves as a director and helps guide geological colleague and president Marek Kreczmer. “I traveled around the Sahara Desert twice on field trips with a local Niger geologist before I decided to apply for permits. When I did this in 2004 with the minister of mines, he said to me, ‘You know, you’re the first person to ever do this, and the only people who have done this are energy companies or governments.’ So, I told him I would like to apply for two permits.” North obtained two for Northwestern Mineral Ventures and another for North Atlantic Resources.

Salt Tectonics the Key to Uranium in Niger

North explained, “We selected the projects based on the geologic ingredients that we felt were important in the control and distribution in the uranium, such as, but not limited to, northwest trending fault corridors, northeast trending fault corridors, and inliers of stratigraphy that are popping up through younger parts of the stratigraphy.” According to North, the salt structures are the key to finding uranium in the Republic of Niger. “The northeast and northwest faults, and the inlier there, are all salt-related structures,” North remarked. An inlier is an area or formation of older rocks completely surrounded by younger layers. “For decades, the oilfield people have understood, emphasized and completed research on salt, the deposition and then the movement of salt through stratigraphic sequences,” North pointed out.

Salt is very common but it doesn’t last very long in stratigraphy and it escapes, North explained. “When it escapes, it forms walls and diapirs (an anticlinal fold where the salt has pierced through the more brittle overlying rock).” Oil exploration geologists pay attention to these because they tend to form permeability barriers to oil and gas deposits. North is interested in them for a different reason, “We noticed that the salt diapirs, where they escaped through the sequence in Niger, coincided with the distribution of uranium deposits.”

Uranium in the Republic of Niger is mined by open pit because of the sandstones. “These are redox deposits,” North noted. “They tend to be associated with reduced layers and structures, such as the former salt diapirs and faults in the stratigraphy. At the time, we didn’t really understand why we were doing that. We just knew there was an association with uranium deposits and these structures in Niger.”

That appears to have made Dr. North’s job a walk in the park, or in this case, a walk in the desert. How do you inexpensively explore concessions of 2,000 square kilometers each? That’s about 24 miles and 30 miles each, both in the desert. “If you do the target selection carefully, and you stick to the salt diapirs, those really narrow down the search,” North revealed. “When we do our first multi sensor mag and radiometric survey, which will happen in the next couple of months, we will map out those structures and features, and look for radiometric anomalies associated with them. When we have that data, we’ll have at least 50 drill targets on those projects.” There appear to be no scarcity of drill targets on the concessions.

Without that data, North believed he could have picked out ten high quality drill targets, just from the geology map. “They show up as circular bull’s eyes on geology maps,” North noted excitedly. “In the desert they show up as low hills. They’re topographic anomalies where you have about maybe 50 meters of relief. It’s just a low rise because the desert is flat as piss on a plate.” North explained that you can drive anywhere by pointing your vehicle and stepping on the gas. “The only things in your way are these very low hills, and those hills are related to either faults or inliers (exposed older rocks surrounded by younger rocks).” Initial targeting comes straight from a topography map.

A Vote of Confidence on Current Progress

But what about the availability of drill rigs for this project? North conceded there is a global shortage. But he shot back, “There’s a drilling company in West Africa called West African Drilling services – and surprise! surprise! – I’ve been working with them for the past four years.” North has already discussed moving a rig in with them. “Quite honestly, it’s not a big issue,” he said. Neither is labor or the cost of drilling. “We pay an all-inclusive cost of approximately US$150/meter,” North told us. “Labor costs are very low, about one-third the cost of North America. We use all local people because that’s what we do in Mali. There are lots of highly trained, skilled geologists in Niger.”

Clearly, Northwest Mineral Ventures is excited. “We are very pleased to be one of the first North American companies to acquire exploration permits in Niger – a country that has not been explored using modern techniques and has, until now, been one of the world’s best-kept uranium secrets,” Northwestern’s Chairman and CEO Kabir Ahmed told Reuters in wire service story published in March.
Read the rest of this entry »

Cameco Corp (NYSE: CCJ) is the 800-pound gorilla of the uranium sector. Cameco is to uranium what Wal-Mart is to retailing, and what Saudi Aramco is to petroleum. On a percentage basis, Cameco dominates its sector more so than either of the two. Cameco probably has more clout in turning off the electricity now powering your computer than any other company in the world.

This week, the spot price of uranium rose to $40/pound, for the first time since Ronald Reagan was president. That should help grow the uranium business in Wyoming by leaps and bounds. In Part 5, we look at the largest U.S. uranium producer, Cameco-owned Power Resources.

Understanding ‘In Situ Leach’ Uranium Extraction

“It took $284 million Canadian to build, and it operated with 546 people,” said Patrick Drummond, Plant Superintendent for Cameco subsidiary Power Resources’ Smith Ranch facility. He was pointing to Kerr McGee’s Smith Ranch underground mine on the wall across from desk, which was later converted into an ISL operation, first run by Rio Algom. “This operation cost US$44 million to build and 80 people to start.” Drummond was referring to the In Situ Leaching (ISL) uranium extraction facility, known as Smith Ranch. “That should give you the scale of the ISL versus an underground mine,” he explained.

The aging, but sprightly, Drummond knows his uranium. He’s worked in underground mines, open pit mines, and uranium mills since 1980. From 1996 to the present day, he’s worked in Wyoming for Power Resources at the company’s ISL uranium extraction facility. “I started off in the coal mines in Scotland,” boasted Drummond, who claims he can spot a coal miner in a bar, just by looking at the veins in his hands. “I worked up in Elliot Lake and the massive underground mines up there.” Clasping his hands and looking down, he seemed to apologize, “It’s also a massive environmental problem to clean up, a major undertaking. Quirk Lake was one of the bigger mines up there. It cost a lot of money to clean it up.”

The New Face of Wyoming’s Uranium Mining is the ISL uranium extraction method, also known as solution mining. The differences between mining uranium underground and an ISL operation are both minor and vast. Both methods mine uranium beneath the surface. So both methods are underground mining. However, that is where the similarities end. “With underground, you bring up the ore, grate it, crush it, and extract the uranium from the ore,” Drummond explained the basics of underground uranium mining. “That ore becomes waste, which is known as tailings. You then have to service these big tailings and then decommission.”

ISL is the new breed of mining. “With ISL, we don’t do that,” continued Drummond in his day-long lecture to our editorial team during a VIP tour of the Smith Ranch facility. “To mine underground with ISL, you drill the holes where the uranium is and extract the uranium from the underground ore,” he said. “Then, you process that into yellowcake.”

It’s not all wine and roses for Drummond, though. He pines away for his underground mines, “From a mining perspective, it’s not mining so it is not as exciting. Drummond laughs, “ISL is like a water treatment plant. We take water out and remove some ions.” He makes it sound so simple, “We remove the water from the underground and remove the ions, being the uranium ion. Then, we put the water back under the ground.” All of the water goes back into the ground? Actually no. Drummond explained, “We take our water out and we put 99 percent back in. The one percent we call ‘bleed.’ It’s a control function.”

Drummond cites more comparables, “To start an underground mine, it would take a year to do the shaft before you could start mining. Then, there’s the development cost of the mill complex. You have all that outlay of cost before you can get any benefit. It’s expensive to do underground — $200 million plus – because of the upfront development costs.” From his perspective, the miner in Drummond has come to like solution mining. “ISL is easier. It is a lot cheaper: less expensive capital costs and less operating expenditures. It is less labor intensive.” Asked about the deadly radon emissions, often cited as a danger in underground mining, Drummond shot back, “This is a zero emission facility.”

Analyzing the two methods, he said, “You can start producing faster with an ISL operation. You start your first header house, and you can start producing and make money.” He added, “So you get a return on your investment faster.” What’s the downside? “We also recover less uranium with ISL,” Drummond admitted. “Some of Cameco’s mines in Saskatchewan are running around 5, 10, 15, and 27 percent uranium. In this area, or in an ISL, it runs less than one or two percent. It’s very low.” Plus the uranium ore body must be found below the water table. He added, “You can only do ISL in rock that’s porous and has water in it in the first place.”
Read the rest of this entry »