Month: February 2014

Article By RoboForex.com

Analysis for February 25^th, 2014

EUR USD, “Euro vs US Dollar”

Euro is still consolidating close to its latest maximum. Later pair is expected to continue growing up towards its main target, which is close to several upper fibo-levels at 1.3800. Stop on my buy order is already in the black.

As we can see at H1 chart, bulls’ first attempt to break maximum failed. Probably, pair may continue growing up in the nearest future and reach predicted targets inside closest temporary fibo-zone.

USD CHF, “US Dollar vs Swiss Franc”

After breaking local minimum, Franc started new correction. As a result, I’ve got only one sell order left, with stop placed at latest maximum. Target is still at level of 0.8800.

Probably, price may have already finished current correction. If pair starts new descending movement during the day, I’ll move stop into the black right away. Later, after reaching lower target levels, price may start new correction.

RoboForex Analytical Department

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

By WallStreetDaily.com

The purpose of Silicon Valley couldn’t be more straightforward…

Breed amazing and irresistible technologies that captivate the masses – and ultimately garner absurd public valuations.

The latest example is text messaging service, WhatsApp, which Facebook (FB) is purchasing for a whopping $19 billion.

What’s different this time, however, is that even Silicon Valley insiders are shocked at this massive price tag…

Like Aaron Levie, Co-Founder of Box Inc. – an online storage company that’s about to go public in a multi-billion-dollar deal. He didn’t believe it when news of “the bomb that shook Silicon Valley” hit, in the words of The Wall Street Journal.

He received a text that simply read: “WhatsApp, $19 Billion, Facebook.”

His response? “I thought, ‘I don’t know what those three things mean to each other, but there’s no way that this means that Facebook bought WhatsApp for $19 billion.’”

Oh, there’s a way, Mr. Levie. And the implications for everyday investors like us aren’t good.

Here’s why…

New “Zombie Companies” Forming

Facebook’s willingness to pay (way) up for WhatsApp immediately makes other Silicon Valley executives think that their startups are worth just as much, too.

To them, the deal serves as a validation signal – that mobile apps do, indeed, warrant premium valuations.

Heck, I bet you that almost every mobile app company in Silicon Valley updated their pitch books over the weekend. There’s nothing like using WhatsApp’s purchase price as a proxy to inflate the perceived value of your own company… and convince investors to part with their hard-earned capital, right?

Therein lies the danger to us…

By simply taking the amount Facebook paid per WhatsApp user ($42) and multiplying it by the number of users for any other mobile application, we can justify multiple billion-dollar valuations all day long. But that’s the wrong way to go about valuing an investment.

For one thing, not every company promises to be acquired. And very few get bought out at such lofty valuations as WhatsApp.

If we’re only investing in a company because of its takeover potential, we’re going to end up losing money more often than not.

More importantly, though, we need to avoid letting the hype over the deal influence how we evaluate startup investments.

Remember, stock prices don’t follow users. They don’t follow page views, either, like so many dot-com era startups tried to convince us. They follow earnings. Period.

So unless we can justify the same lofty valuations based on a hot startup’s ability to generate actual profits, we should pass. Otherwise, we’ll see a rash of “zombie companies” that are supported entirely by (clueless) investors.

In case you’re wondering, WhatsApp fails miserably in that regard. Forget turning a profit, the company struggled to generate sales.

At the time of the deal, the company had reportedly only booked $20 million in revenue. That works out to a staggering price-to-sales (P/S) ratio of 950, based on the $19-billion acquisition price.

Meanwhile, the average company in the S&P 500 Index trades at a P/S ratio of only 1.6.

Making Matters Worse

The problems with the WhatsApp deal don’t stop with entitlement, though.

In addition to existing startups falsely believing they’re worth just as much, we can expect the premium valuation to convince a new crop of entrepreneurs to get into the game.

In other words, the deal is going to usher in a new wave of startups, intent on striking it rich, too.

It happened in the aftermath of The Social Network, which glorified Facebook’s origins. In fact, one of the best-known technology incubators in the country noted a 30% uptick in startup applications following the film’s release, according to The Wall Street Journal.

Bottom line: The fallout from “the bomb that shook Silicon Valley” threatens to harm everyday investors the most, as more and more startups look to convince us to part with our hard-earned capital to own a piece of their billion-dollar dream.

Thanks to equity crowdfunding, raising capital from everyday investors has never been easier for startups.

My advice to you? Don’t be a fool and easily part with your money. Instead, be more vigilant than ever before investing in any startups.

Ahead of the tape,

Louis Basenese

The post Silicon Valley’s Tech Bomb Hatches Army of “Zombies” appeared first on Wall Street Daily.

Article By WallStreetDaily.com

Original Article: Silicon Valley’s Tech Bomb Hatches Army of “Zombies”

GBPUSD remains in uptrend from 1.6252, the fall from 1.6822 is likely consolidation of the uptrend. Support is at 1.6530, as long as this level holds, the uptrend could be expected to resume, and another rise towards 1.7000 is still possible. Resistance is at 1.6730, a break above this level will signal resumption of the uptrend. On the downside, a breakdown below 1.6530 support will indicate that the uptrend from 1.6252 had completed at 1.6822 already, then the following downward movement could bring price to 1.6400 zone.

Provided by ForexCycle.com

By MoneyMorning.com.au

Apple [NASDAQ:AAPL] might have officially gone bonkers. I get the feeling they’re trying too hard to be everything to everyone. I say this because in the last week there have been reports about Apple getting into making electric cars.

Now this wouldn’t be out of place for a company like Google [NASDAQ:GOOG]. Google is renowned as a ‘Moonshot’ company. They go with the out-there project like self-driving cars. Whether or not they turn out to be a success…who knows? But Moonshot projects are as important to Google as their search engine.

But at the core of Apple they make very pretty computers and smartphones. So why on earth would they be considering electric cars? Maybe things are worse at Apple than we realise?

Just the idea and rumour of Apple getting into electric cars is a revelation in itself. It means that a ‘cool’ company like Apple believes these kinds of cars are a fit for the brand.

Just a few short years ago hybrid and electric cars were very ‘uncool’. I’m sure every Toyota Prius came with an Al Gore poster and a ‘Welcome to the Club’ letter on hemp paper from Leonardo DiCaprio.

It’s not like there haven’t been attempts to bring the electric car industry to life. You can look back 100 years to find examples of battery powered electric cars. Yet until the last few years, most failed.

The most notorious example of failed electric cars was the GM EV1. Some believe an underhanded conspiracy by the major oil companies signed the death warrant for the EV1. But if you take it on face value, perhaps it failed because it was possibly the ugliest, most ‘uncool’, and rubbish looking car ever made.

Fast forward to 2013 and 2014 and it’s a whole different story. It’s simple…electric cars are back. And this time they’re here to stay.

The big car makers known the time is right

Anyone with an electric or hybrid car now is a trendsetter, a pioneer, a saviour of the earth. It’s about time too. I believe the auto industry needs to make electric power the standard when it comes to car making. And it looks like a few of them might just agree.

Electric charging infrastructure has been one of the car industry’s failures. But with the success of the Tesla Motors [NASDAQ:TSLA] supercharger network across North America, it’s clear to see this failure is about to be fixed.

Speaking of Tesla, you have to give a lot of credit in the resurgence of electric cars to Elon Musk. Tesla is the first car maker that makes electric cars people want to buy. Simply, it’s jam-packed full of tech, looks amazing and smashes other electric cars with its range.

And the fact Musk has built a $25 billion car company that only makes two models says something. There’s a huge market for electric cars with a genuine bit of sex appeal. And as Tesla release an SUV, and an ‘affordable’ electric car, this is going to be a hotly contested market.

Because of the increasing popularity of Tesla cars, other car makers have realised that the time is ripe to push this technology through to the masses. If they don’t they’re going to fall behind, fast.

BMW now has the i3. It too is an electric car (with an optional petrol range extender). The i3 is also full of new technology and looks like something you’d want to drive. Not to stop there, BMW also has the soon to be released i8 (a hybrid), which is even better looking and will be sold alongside Porsches, Ferraris and Lamborghinis. And BMW’s use of carbon fibre really has car makers talking.

More on carbon fibre shortly. But what’s clear is that car makers around the world know that hybrids and electric cars are inevitable. That’s why other electric cars you can already buy include the Fiat 500e, Renault Zoe, Chevrolet Spark, Volkswagen e-UP! and soon the Audi A3 e-tron.

If you have any doubt that the immediate future of cars is hybrid and electric, just look at those names. We’re talking the biggest car companies in the world. And they’ve all figured out that for EV’s and Hybrid to be a success they need the x-factor. A bit of sex appeal. They need to be ‘cool’.

To realise this you only need to look at a comparison of today’s tech-laden ‘green’ cars versus yesterday’s… It’s the modern day McLaren P1 versus yesterday’s GM EV1.

© Copyright McLaren Automotive Limited   Source: RightBrainPhotography (Rick Rowen)

It’s pretty easy to see which you could term ‘inspiration’ and which you could call ‘aberration’.
The McLaren P1 is more than just good looks though. It’s possibly the biggest leap forward in car making since the Model T Ford.

If you’ve never heard of the P1 here’s a brief explanation. It’s the future of cars. It’s the world’s most technologically advanced road car. Sure it’s got a 3.8 litre twin-turbo V8 petrol engine, but it’s also got a 176 horsepower electric motor. Its CO2 emissions are sub 200 g/km (about on par with a Ford Mondeo) and you can even switch it into full electric mode for pottering around short distances.

Now although the P1 might cost north of $1.5 million, it’s full of technology that’ll eventually find its way down into passenger cars over the next five to 10 years. One of the biggest advances you’ll see filter down is the P1′s full carbon fibre monocoque.

What that means is the car is basically all carbon fibre. McLaren’s Press Release explains it best,

‘On the McLaren P1™, the new carbon fibre MonoCage forms a complete structure, incorporating…the vehicle’s roof and distinctive snorkel air intake.‘

The release continues to explain,

‘At just 90kg, the McLaren P1™ has one of the lightest carbon fibre full-body structures used in any road car to date, and uses the most advanced carbon fibre technology. A combination of Formula 1 style pre-preg autoclave technology and precision resin transfer moulding (RTM) achieves a single piece.‘

From Le Mans and Monte Carlo to the dealers of Melbourne

The use of carbon fibre composites in car making isn’t all that new. Motorsport championships like F1™ and Le Mans series have used carbon fibre monocoques for years. But what happens is the tech from F1™ and Le Mans finds its way into the workshops of car makers. Ferrari, Porsche, Mercedes, Audi and McLaren are a few car makers that benefit greatly from this process.

And as the technology improves over time it filters down from the supercar makers to the rest of the auto world.

Carbon fibre is crucial to the long term future of ‘green’ cars with low emissions. The big problem is it’s always been expensive to use in the car making process. However, one Aussie company, who I can’t name, thinks their proprietary carbon fibre composite system is the answer car makers have been looking for.

They’re currently in discussions with leading car makers about licensing out their system. The technology this Aussie minnow has could completely change the auto industry. Instead of carbon fibre being commonplace in cars that cost six figures and more, you could see carbon fibre on your next Corolla, Mazda 3 or Hyundai i30. It’s this kind of technological approach and innovation that’s going to drive the auto industry forward in the coming years.

Even when driverless cars are on the road, how car makers put them together will be crucial to a sustainable, ‘green’ world. Carbon fibre in cars makes them stronger, lighter and more fuel efficient. It improves safety, economy and makes the cars look cool. So you can see the potential this has in the modern, ‘green’ world.

The P1, i8, Model S and soon to be released Porsche 918 Spyder are the aspirational cars of the future. They combine pioneering technology with car making and motorsports. The sophistication and technology used is simply mind-blowing.

Thanks to these hybrids electric cars are finally cool. Although some of these ‘hero’ cars aren’t technically full electric, the fact they use electric motors and electric energy systems, is a huge step forwards.

Advanced technology companies like Tesla and McLaren just happen to also make cars for a living. And that’s a good thing. With these tech pioneers at the helm of car making, the future looks bright for hybrids and electric cars.

Sam Volkering+,
Technology Analyst

Ed note: The above article was originally published in Sam Volkering’s Tech Insider.

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By MoneyMorning.com.au

By MoneyMorning.com.au

‘The plunge in the Australian dollar to the mid-US60c level would come about if the Reserve Bank keeps interest rates on hold until 2016, if the US lifts its rates by mid-2015 and if the United States’ dollar continues to strengthen, Deutsche Bank’s chief economist for Australia Adam Boyton said.‘

Sydney Morning Herald

Hmm. And if my uncle had wheels he’d be a bicycle!

There are a lot of ‘ifs’ in that statement. Any one of them may or may not happen.

That kind of forecasting is so wishy-washy and contingent on circumstance that it doesn’t actually help any investor make a decision. What does it mean? Should you buy stocks or sell stocks?

It’s impossible to say. The trick to forecasting future events is to do your homework, check the lay of the land, and then make a clear cut, unambiguous forecast of what your analysis says will happen next.

That’s what we did with our forecast of the S&P/ASX 200 hitting 15,000 points within the next five years. That’s advice you can act on – now…

The finance sector in general is about as wishy-washy as it gets when it comes to giving advice.

We remember back to our broking days. Clients would phone in to ask their broker for advice on a particular stock. The first question the broker would ask is, ‘What do you think?’

Invariably the client would say they like it. After all, who goes to the bother of phoning a broker to ask their opinion on a stock they don’t like?

Of course, what the clients should have said is, ‘I want your opinion, that’s why I’m paying you 2% commission.’ But most investors don’t have the guts to do that.

So they tell their broker why they like the stock. The broker asks, ‘Well, how much do you want to put into it?’ The client replies, ‘The usual.’ And that’s it. Commission booked, a few niceties about the weekend, and the client hangs up without realising that they’ve paid for the privilege of giving their broker advice!

If you’re older than 35 you may recognise that scenario. If you’re younger than 35 you’re probably wondering, ‘What’s a broker?’ That’s not a surprise; they’re a dying breed. And no wonder, with the flimflam they offer up as financial advice.

Avoid ‘Cover-your-backside’ Advice

We’re not sure if there’s a more indecisive profession than the financial services sector. We know GPs and car mechanics get bad press. But nothing beats finance.

But in a way we don’t blame them. The regulatory environment is so tough in financial services that we wonder why anyone would bother going into the profession offering personal advice.

It’s reached the extent that many financial advisors are too afraid to give advice for fear of getting into trouble if something goes wrong.

It’s that kind of cover-your-backside approach that leads to the ‘ifs’ and ‘buts’ analysis that we showed you at the top of this letter.

That’s where we try to fill the gap by providing you with direct and actionable advice in paid publications such as Australian Small-Cap Investigator.

So, let’s look at the analysis from Deutsche Bank to see if we can eke anything of any value from it to help you make an investing decision. The upshot is that the Aussie dollar could fall if a bunch of things happen, mostly related to interest rates.

However, elsewhere the article refers to that big economic behemoth, China. The worry is that if China’s economic growth slows this will have a negative impact on commodity prices. And because the Aussie dollar is a ‘commodity currency’, it will have a negative impact on the Aussie dollar.

Let’s get one thing straight that the mainstream press has consistently ignored – China’s economy is set to double within the next 10 years even if growth slows to just 7% from today’s level of 7.7%.

Stocks and Currencies Don’t Always Move Together

We agree that the growth rate could decline to some degree. It’s hard for any economy to grow as fast as China has grown over the past 10 years.

But you should also know that you’re living through one of the key economic growth events of the past 120 years.

China has grown fast, but it’s not over. The US growth rate didn’t stop once it became the world’s biggest economy in the early 20th century. And Japan didn’t stop growing in the 1960s once it had become established as a leader in technological innovation.

Also remember that China is still a long way from becoming the world’s largest economy. It will get there one day, but not until it has consumed a heck of a lot more of Australia’s natural resources.

‘But the Aussie dollar Kris, the Aussie dollar,’ we hear folks cry.

We get that currency movements play a part. But we also know that investors shouldn’t pay too much attention to currency movements as a way to pick the movement of Aussie stocks.

As the following chart shows, it’s hard to argue that there is a consistently strong and lasting relationship between the two:

Source: Google Finance
Click to enlarge

If you look at the period from 2005 to the beginning of 2007 the Aussie dollar (blue line) was mostly flat. At the same time the Aussie market gained nearly 60%. From 2007 to 2008 the stock market still went up as the Aussie dollar gained.

And over the past year the Aussie dollar has fallen 13.1% while the Aussie stock market has gained 8.4%.

So, we’ll leave others to play around with currency movements and interest rates. We’ll stick to what we know. And we know that, regardless of what the mainstream would have you believe, there is a strong fundamental argument for stocks to rise over the next five years as China and the rest of Asia continues to grow.

That’s not even taking into account improvements in the US, Europe, and Australia.

Contrary to the mainstream commentary, the outlook isn’t half bad. And that’s why we’re making the clear-cut forecast for the Aussie stock market to hit 7,000 points by early next year, and 15,000 points well before the end of this decade. That would be 175% higher than today.

Cheers,
Kris+
 
PS: You can quiz me on my bullish stock market views in person at the upcoming World War D conference in Melbourne at the end of next month. I’ll be on the stage with global finance gurus Dr Marc Faber, Jim Rickards, and Satyajit Das. You can find out more here about what I consider to be the best money and finance conference in Australia this year. Click here for the revealing trailer…

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Special Report: Retirement Security Ladder

By MoneyMorning.com.au

The Energy Information Agency (EIA) has predicted that natural gas production in the US will continue to grow at an impressive pace. Right now output is close to 70 billion cubic feet a day and is expected to reach over 100 billion cubic feet per day by 2040. The trend is likely to continue without hitting a geologic “peak”, and along with this trend will come new marketing opportunities for America.

In an exclusive interview with Oilprice.com, EIA Administrator Adam Sieminski discusses:

• What’s at stake in lifting the US crude export ban
• Whether lifting the ban is inevitable
• Why energy-related CO2 emissions will likely climb this year
• What we can expect from US coal output through 2014
• Why US natural gas production will continue to grow strongly
• Where we can expect (unexpectedly) new production to come from
• Why Alaska just might surprise us
• Where the biggest new shale opportunities lie
• How production increases might come from ‘non-shale’ formations
• The potential for Colombian shale
• What to expect from Mexico’s reforms
• What the Panama Canal expansion really means
• Why we will see new marketing opportunities for the US

Interview by James Stafford of Oilprice.com

Oilprice.com: US mainstream media are heralding the debate over lifting the US crude oil export ban as potentially one of the most critical for this year. While most agree this is not likely to happen anytime soon, is it an eventuality?

Adam Sieminski: When I first took office at the EIA, I said that light sweet crude oil production was growing very rapidly, and that it would ultimately have a number of impacts on the energy infrastructure in the US; for instance, that we would see changes in things like movement of oil by rail. We would see changes in refinery configurations designed to deal with light sweet crude. The Gulf Coast refineries in the US over the past decade were upgraded to run heavy sour imports, and so there are issues with the ability of refineries in the US to handle rapid increases in light sweet crude oil production.

I noted at the time that at some point, policymakers were going to be confronted with all of these changes resulting from the enormous shift in thinking about US production growth. Five or 10 years ago, everybody thought that US oil production would just go down, and demand would always go up. Now we have in the EIA’s forecast over the next five years very strong growth in crude oil production and weak growth—if not negative trends—going on in gasoline and liquid fuels demand. This creates an interesting atmosphere.

Is lifting the crude export ban inevitable? I’m not sure that anything is inevitable. Certainly what I’ve learned in the last five years is that the inevitable declines in production and growth in demand didn’t come true.

OP: What are the congressional hurdles faced here?

Adam Sieminski: I don’t know that there’s a hurdle. That’s a question that’s going to be dealt with by policymakers. Energy policy issues generally tend to involve environmental concerns, national security concerns, and economic concerns.

The biggest hurdle that congress faces is just having good information on future trends in supply and demand, refinery configurations and pipeline and railroad transportation infrastructure.

OP: What would be the consequences of lifting this ban, for the industry, for refiners, for consumers?

Adam Sieminski: Well, that’s going to be part of the debate. I don’t have the answer to that, and I doubt that anybody at this point has the complete answer to that question. What is the economic impact? Does it increase jobs or not? What is the environmental impact of producing, moving and refining the crude oil? What are the national security implications? Is it better to keep the oil here, or to move it into global markets where it might have an ameliorating effect on volatility? There are a lot of questions, so I’m not going to try to pre-judge that debate.

OP: The EIA has noted that after two years of declining production, US coal output is expected to increase in 2014, forecast to rise almost 4%, as higher natural gas prices make coal more competitive for power generation. At the same time, there is concern about the EPA’s proposed new carbon emissions standards for power plants, which would make it impossible for new coal-fired plants to be built without the implementation of carbon capture and sequestration technology, or “clean-coal” tech. Is this a feasible strategy in your opinion?

Adam Sieminski: Well, the facts as you laid them out are certainly what the EIA is looking at. Natural gas prices have gone up, so in 2013, we already saw some recovery in coal at electric utilities. As a consequence, energy-related carbon dioxide emissions actually climbed in 2013 and probably are going to do so again in 2014 for the reasons that you stated.

Longer term, even without changes by the Environmental Protection Agency, there’ll be coal retirements, and the amount of coal being burned in the US will eventually come below the amount of electricity being generated by natural gas. So sometime after the year 2030, we will have more electricity in the US being produced from natural gas than from coal.

OP: What can we expect from US onshore natural gas production over the next two years;
over the next five years? And where will production increases offset declines?

Adam Sieminski: Well, the EIA has been pretty clear on this in our Annual Energy Outlook Reference case for 2014, which we published in mid-December. We reiterated what we said the previous year: natural gas production in the US is going to continue to grow very strongly. We are close to 70 billion cubic feet a day of output now. That number will be over 100 billion cubic feet a day by 2040. Shale gas will be easily 50% or more of production by 2040.

We also see increases in natural gas production from geologic formations that we don’t consider to be shale gas. We think that there might also be some production, believe it or not, from Alaska, because the economics ultimately will favor construction of an LNG facility in Alaska that would allow production from the associated gas in the North Slope of Alaska.

Just in the last five years, we’ve seen natural gas production in the US from shale go from about five billion cubic feet a day to nearly 30 billion cubic feet a day–a huge increase. A lot of that is coming from places like the Haynesville—and more recently the Marcellus in Pennsylvania and West Virginia. In our view, those production trends are going to continue without the likelihood of running into a plateau from a geologic standpoint.

OP: How do you see future extraction, development and commercialization of oil and gas resources in the Americas playing out over the next 5-10 years?

Adam Sieminski: Well, the big new opportunities, I think–certainly in the US and Canada–lie in the development of shale resources. There are oil and gas shale resources in places like Argentina, Mexico, Columbia, and elsewhere across the Americas. Whether or not the very rapid development of shale resources in the US can be duplicated in a lot of other countries—even in the Americas—remains to be seen. Certainly there has been some interesting progress in developing shale resources in Canada and Argentina.

I’ve been hearing from many people that they’re quite hopeful there will be developments in shale in Colombia, and given the constitutional changes that have now been agreed in Mexico, that opens up an opportunity for Mexico to step into this area.

One of the things that is happening is the increase in oil production in the US and the fact that we have very sophisticated refineries with very strong technology, while relatively low natural gas prices are allowing us to run our refineries at higher utilization rates and dispose of surplus products—by exporting petroleum products like gasoline and diesel fuel—into Latin America and Canada.

In a sense, this creates a manufacturing opportunity for the US to take a raw material, process it, and sell it abroad. It also fits in pretty well with the fact that a number of countries in Latin America have had difficulty in building and upgrading their own refineries. So it’s opened up a marketing opportunity for the United States to take advantage of.

OP: What can we expect from Mexico’s recently adopted energy reforms and what regional effect could this have?

Adam Sieminski: Well the Mexican government and Pemex, the state oil company, are very excited about the opportunities they see for Mexico to increase its production and to take advantage of some of the new technologies that are available through cooperation with non-Mexican companies. They believe that it is going to be instrumental in reversing some of the difficulties they’ve had in oil production and natural gas production.

It certainly looks to the EIA as something that we’re going to have to watch very carefully when considering the longer-term outlook for Mexican energy production.

We actually bumped up the Mexican numbers because of the opportunities we think will be created by constitutional reform there. If the implementation of that proceeds along the lines that the Mexicans are considering, I think we’ll probably have to look at it again.

OP: In its latest report, the EIA notes that the Americas accounted for 20% of global natural gas trade, and while 80% of that was via pipeline, the rest was traded as LNG. How do you see this proportion changing over the next 5-10 years?

Adam Sieminski: Well, I suspect that we’re going to see more of both. Our longer-term outlook shows US pipeline exports of natural gas to Mexico going up, and we also see LNG exports from the United States increasing. We’re not responsible for permitting. What we try to do is look at the economics. We run our national energy modeling system to basically say, “What would the economics do if you let them run?” And that shows we’re likely to see increases in exports of both LNG and pipeline gas.

Interestingly, the model also says that there’s plenty of production to do that and still allow demand in the US to go up considerably. We’re seeing demand increases in natural gas use by refineries; it’s a big refinery fuel. And in the industrial sector, we see significant gains in natural gas consumption occurring in areas like bulk chemicals, food processing, and elsewhere. And then the biggest increases in natural gas may come from electric utilities, which will likely be using more natural gas relative to coal to provide electricity growth in the United States.

OP: Is the US Department of Energy moving too quickly or too slowly to approve LNG exports to non-FTA countries?

Adam Sieminski: I think that the Department of Energy’s Department of Fossil Energy, which is responsible for permits, is moving exactly the way it should under the law to make the kinds of findings necessary from a legal standpoint. I wouldn’t characterize it as too fast or too slow. I would say that from what I can see, it’s just right given the legal framework.

OP: When could we expect the US to become a net gas exporter?

Adam Sieminski: The EIA’s forecast is that the US will become a net exporter of natural gas before the end of this decade.

We’re already a net exporter of coal. In terms of electricity, most of our trade is with Canada, and that never really seems to have been much of an issue. The US is also a net exporter of petroleum products, so we now export more gasoline and diesel fuel than we import. We import a lot of oil products, particularly into the East and West Coasts. But we are a big exporter, mostly from the Gulf Coast, with the increase in refinery utilization down there. The overall picture now is one in which the US trade deficit is being reduced by growing oil and petroleum product exports.

The only big outstanding question is: could the US potentially be a net exporter of crude oil? In the EIA’s Reference case forecast, that doesn’t seem likely. Despite the fact that our production is rising while demand is falling, we’re still importing about five million barrels a day net of of crude oil and products. It doesn’t seem likely that net importsd are going to go to zero–at least not given the facts as we currently see them. It’s possible, in a high petroleum resources case combined with a technology and policy-driven low demand case, but not probable.

One thing you want to keep in mind is what it would mean, exactly, if the US were completely self-sufficient in energy. Some people like to use the phrase, “energy independence.” We would still be part of a global trading system in energy, and particularly petroleum products and crude oil. And if oil prices go up globally, they’re going to go up in the United States. If there’s a geopolitical problem somewhere or a weather problem somewhere—anything—the US would be impacted just as it has always been. The US has a lot of interest in what’s going on around the world, in the Middle East and elsewhere, regardless of whether it is independent or self-sufficient in fuels. Those political and economic interests will remain whether we become an exporter or not.

OP: What role will the expansion of the Panama Canal play in this?

Adam Sieminski: What they’re doing is widening the Panama Canal. They’ll make the Canal itself wider and the locks longer, and the net result will be the potential to save in transportation costs through the use of larger oil tankers and LNG tankers. This offers an opportunity to reduce the costs associated with global trade. It is something that I know Panama and all of the customers who use the Panama Canal are very interested in seeing happen. There have been some cost and labor issues, but I’m sure those will be resolved and this expansion will eventually be completed. When that happens, it’s going to reduce the cost of moving goods back and forth between the Atlantic and the Pacific, and that’s going to apply particularly to things like liquefied natural gas and oil.

Source: http://oilprice.com/Interviews/Boundless-Natural-Gas-Boundless-Opportunities-Interview-with-EIA-Chief.html

By. James Stafford of Oilprice.com

By Rick Rule, Chairman and Founder, Sprott Global Resource Investments Ltd.

Natural-resource-based industries are very capital intensive, and hence extremely cyclical. It is not unreasonable to say that as a natural-resource investor, you are either contrarian or you will be a victim. These markets are risky and volatile!

Why cyclicality?

Let’s talk about cyclicality first. Some of the cyclicality of these industries is a function of their being extraordinarily capital intensive. This lengthens the companies’ response times to market cycles. Strengthening copper prices, for example, do not immediately result in increased copper production in many market cycles, because the production cycle requires new deposits to be discovered, financed, and constructed—a process that can consume a decade.

Price declines—even declines below the industry’s total production costs—do not immediately cause massive production cuts. The “sunk capital” involved in discovery and construction of mining projects and attendant infrastructure (such as smelters, railways, and ports) causes the industry to produce down to, and sometimes below, their cash costs of production.

Producers often engage in a “last man standing” contest, to drive others to mothball productive assets, citing the high cost of shutdown and restart. They fail to mention their conflicts of interest as managers, whose compensation is linked to running operational mines.

Interest-rate cycles can raise or lower the cost and availability of capital, and the accompanying business cycles certainly influence demand. Given the “trapped” nature of the industry’s productive assets, local political and fiscal cycles can also influence outcomes in natural-resource investments.

Today, I believe that we are still in a resource “supercycle,” a long-term period of increasing commodity prices in both nominal and real terms. The market conditions of the past two years have made many observers doubt this assertion. But I believe the current cyclical decline is a normal and healthy part of the ongoing secular bull market.

Has this happened in the past?

The most striking analogy to the current situation occurred in the epic gold bull market in the 1970s. Many of you will recall that in that bull market, gold prices advanced from US$35 per ounce to $850 per ounce over the course of a decade. Fewer of you will recall that in the middle of that bull market, in 1975 and 1976, a cyclical decline saw the price of gold decline by 50%, from about $200 per ounce down to about $100 per ounce. It then rebounded over the next six years to $850 per ounce.

Investors who lacked the conviction to maintain their positions missed an 850% move over six short years. The current gold bull market, since its inception in 2000, has experienced eight declines of 10% or greater, and three declines—including the present one—of more than 20%.

This volatility need not threaten the investor who has the intellectual and financial resources to exploit it.

The natural-resources bull market lives…

The supercycle is a direct result of several factors. The most important of these is, ironically, the deep resource bear markets which lasted for almost two decades, commencing in 1982.

This period critically constrained investment in a capital-intensive industry where assets are depleted over time.

Productive capacity declined in every category; very little exploration took place; few new mines or oilfields replenished reserves; infrastructure and processing assets deteriorated. Critical human-resource capabilities suffered as well; as workers retired or got laid off, replacements were neither trained nor hired.

National oil companies (NOCs) exacerbated this decline in many nations by milking their oil and gas industries to subsidize domestic spending programs for political gain. This was done at the expense of sustaining capital investments. The worst examples are Mexico, Venezuela, Ecuador, Peru, Indonesia, and Iran. I believe 25% of world export crude capacity may be at risk from failure of NOCs to maintain and expand their productive assets.

Demands for social contributions in the form of taxes, royalties, carried equity interests, social or infrastructure contributions, and the like have increased. Voters are not concerned that producers need real returns to recover from two decades of underinvestment or to fund capital investments to offset depletion. Today this is actively constraining investment, and hence supply.

Poor people getting richer…

The supercycle is also driven by globalization and the social and political liberalization of emerging and frontier markets. As people become freer, they tend to become richer.

As poor countries become less poor, their purchases tend to be very commodity-centric, especially compared to Western consumers. For the 3.5 billion people at the bottom of the economic pyramid, the goods that provide the most utility are material goods and consumables, rather than the information services or “high value-added” goods.

A poor or very poor household is likely to increase its aggregate calorie consumption—both by eating more food and more energy-dense food like meat. They will likely consume more electrical power and motor fuel and upgrade their home from adobe or thatch to higher-quality building materials. As people’s incomes increase in developing and frontier markets, the goods they buy are commodity-intensive, which drives up demand per capita. And we are talking billions of “capitas.”

Rising incomes and savings among certain cultures in the Middle East, South Asia, and East Asia—places with a strong cultural affinity for bullion—have increased the demand for gold, silver, platinum, and palladium bullion. Bullion has been a store of value in these regions for generations, and rising incomes have generated physical bullion demand that has surprised many Western-centric analysts.

Competitive devaluation

The third important driver in this cycle has been the depreciation of currencies and the impact that has had on nominal pricing for resources and precious metals.

Most developed economies have consumed and borrowed at worrying levels. The United States federal government has on-balance-sheet liabilities of over $16 trillion, and off-balance-sheet liabilities estimated at around $70 trillion.

These numbers do not include state and local government liabilities, nor the likely liabilities from underfunded private pensions. Not to mention increased costs associated with more comprehensive health care and an aging population!

Many analysts are even more concerned about the debts and liabilities of other developed economies—Europe and Japan. In both places, debt-to-GDP ratios are greater than in the US. Europe and Japan are financing themselves through a combination of artificially low interest rates and more borrowing and money printing. This drives down the value of their currencies, helping their exports.

But which nations’ leaders will stand firm and allow their export industries to wither as their domestic producers suffer from cheap competing foreign goods? If Japan’s Abe is successful at increasing his country’s exports at the expense of its competitors like Taiwan, Korea, or China, then his policies could lead to competitive devaluation. And how will the European community react, for that matter?

Loss of purchasing power in fiat currencies increases the nominal pricing of commodities and drives demand for bullion as a preferred savings vehicle.

The factors that have driven this resource supercycle have not changed. Demand is increasing. Supplies are constrained. Currencies are weakening. Thus I believe we remain in a secular bull market for natural resources and precious metals.

With that in mind, I would call the current market for bullion and resource equities a sale.

Where to invest?

Let’s talk about a type of company most of us follow: mineral exploration companies, or “juniors.” We often confuse the minerals exploration business with an asset-based business. I would argue that is a mistake.

Entities that explore for minerals are actually more similar to “the research and development” space of the mining industry. They are knowledge-based businesses.

When I was in university, I learned that one in 3,000 “mineralized anomalies” (exploration targets) ended up becoming a mine. I doubt those odds have improved much in 40 years. So investors take a 1-in-3,000 chance in order to receive a 10-to-1 return.

These are not good odds. But understanding the industry improves them substantially.

Exploration companies are similar to outsourcing companies. Major mining companies today conduct relatively little exploration. Their competitive advantage lies in scale, financial stability, and engineering and construction expertise. Similar to how big companies in other sectors outsource certain tasks to smaller, more specialized shops, the big miners let the juniors take on exploration risk and reward the successful ones via acquisitions.

Major companies are punished rather than rewarded for exploration activities in the short term. Majors therefore tend to focus on the acquisition of successful juniors as a growth strategy.

Today, the junior model is broken. Many public exploration companies spend a majority of their capital on general and administrative expenses, including fundraising. Overlay a hefty administrative load on an activity with a slim probability of success, and these challenges become even more severe.

One response from the exploration and financial community has been to put less emphasis on exploration success and focus instead on “market success.” In this model, rather than “turning rocks into money,” the process becomes “turning rocks into paper, and paper into money.”

One manifestation of that is the juniors’ habit of recycling exploration targets that have failed repeatedly in the past but can be counted on to yield decent confirmation holes, and the tendency to acquire hyper-marginal deposits and promote the value of resources underground without mentioning the cost of actually extracting them.

The industry has been quite successful, during bull markets, at causing “sophisticated” investors to focus on exciting but meaningless criteria.

Being successful in natural-resource investing requires you to make choices. If your broker convinces you to buy the sector as a whole, they will have lived up to their moniker—you will become “broker” and “broker.”

We have already said that exploration is a knowledge-based business. The truth is that a small number of people involved in the sector generate the overwhelming majority of the successes. This realization is key to improving our odds of success.

“Pareto’s law” is the social scientists’ term for the so-called “80-20 rule,” which holds that 80% of the work is accomplished by 20% of the participants.

A substantial body of evidence exists that it is roughly true across a variety of disciplines. In a large enough sample, this remains true within that top 20%—meaning 20% of the top 20%, or 4% of the population, contributes in excess of 60% of the utility.

The key as investors is to judge management teams by their past success. I believe this is usually much more relevant than their current exploration project.

It is important as well that their past successes are directly relevant to the task at hand. A mining entrepreneur might have past success operating a gold mine in French-speaking Quebec. Very impressive, except that this same promoter now proposes to explore for copper, in young volcanic rocks, in Peru!

In my experience, more than half of the management teams you interview will have no history of success that shows that they are apt at executing their current project.

Management must be able to identify the most important unanswered question that can make or break the project. They must be able to say how that question or thesis was identified, explain the process by which the question will be answered, the time required to answer the question, how much money it will take. They also need to know how to recognize when they have answered the question. Many of the management teams you interview will be unable to address this sequence of questions, and therefore will have a very difficult time adding value.

The resource sector is capital intensive and highly cyclical, and we expect that the current pullback is a cyclical decline from an overheated bull market. The fundamental reasons to own natural resource and precious metals have not changed. Warren Buffett says, “Be brave when others are afraid, be afraid when others are brave.” We are still “gold bugs.” And even “gold bulls.”

Rick Rule is the chairman and founder of Sprott Global Resource Investments Ltd., a full-service brokerage firm located in Carlsbad, CA. He has dedicated his entire adult life to different aspects of natural-resource investing and has a worldwide network of contacts in the natural-resource and finance worlds.

Watch Rick and an all-star cast of natural-resource and investment experts—including Frank Giustra, Doug Casey, John Mauldin, and Ross Beaty—in the must-see video “Upturn Millionaires,” and discover how to play the turning tides in junior mining stocks, for potentially life-changing gains. Click here to watch.

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Source: Kevin Michael Grace of The Gold Report  (2/24/14)

http://www.theaureport.com/pub/na/benjamin-asuncion-and-geordie-mark-six-gold-and-silver-leaders-at-todays-prices

Benjamin Asuncion and Geordie Mark of Haywood Securities forecast 2014 gold and silver prices of $1,300/ounce and $21.50/ounce, respectively. In this interview with The Gold Report, they argue that the gold and silver companies that will thrive in 2014 will be those blessed with the prudent but aggressive management that can post good margins at today’s prices. And they suggest a half-dozen gold and silver miners poised to do just that.

The Gold Report: Gold is up for the year. Do you expect this trend to continue?

Benjamin Asuncion: For 2014, we’re officially forecasting an average gold price at $1,300/ounce ($1,300/oz). We’ve elected to err on the side of conservatism in our commodity forecasts, which leaves company valuations to be more reflective of operating performance than reliant on higher metal prices.

TGR: Ambrose Evans-Pritchard of the Daily Telegraph says if the Federal Reserve “has to back off [tapering] again, gold will have a fresh lease on life.” Do you agree, and do you think the Fed is committed to tapering?

Geordie Mark: I agree that if the Fed backs off tapering, it’s a total game changer for sentiment. Janet Yellen, the new Fed chair, has certainly been quite cautious as to how she’s going to approach monetary policy, so right now we’re in a wait and see period, but that being said, the market now appears to show a certain positive sentiment for precious metals companies.

TGR: We’ve seen various currency panics around the world in recent weeks. Will this lead to a flight to safety in the U.S. dollar?

GM: Ultimately, strengthening of the U.S. dollar likely will be based on a strengthening U.S. economy rather than capitulation of other major currencies. The outlook with regard to tapering demonstrates broader directional strength in the U.S. dollar. We might be able to expand on that.

TGR: For several years, what’s been good for the U.S. dollar has been bad for gold and vice versa. Is this a new iron law, or could it change?

GM: That’s definitely been the argument in the past. However, the big thing here is that we’ve got another player that could firm up the gold price: China.

BA: The Chinese typically take a longer view on investing in gold. Last year we saw outflows from exchange-traded funds (ETFs) in the order of roughly 30 million ounces (30 Moz). That amount was quite close to the amount of gold being imported by China from Hong Kong.

The amount of gold being replaced annually is growing significantly slower than the money supply. So we are seeing support for higher metal prices, and the ounces out there are in demand, given the lower prices that are reducing production.

TGR: What’s your 2014 forecast for silver?

BA: We’re currently using US$21.50/oz in our valuations, based on a gold price of $1,300/oz, which implies a silver-gold ratio of about 60:1. This ratio is fairly consistent with the ratio we’ve seen from 2000 onward. Looking at the relationship between the two metals, historically silver has correlated closely with gold but demonstrated roughly twice the volatility.

TGR: Unlike gold, silver has industrial uses. How does the supply-demand question in silver look?

GM: On the supply side, the majority of silver production comes as a byproduct of other mining operations (i.e., lead and zinc), therefore, the silver price doesn’t necessarily dictate the economic viability of these mines. This results in an appreciable amount of silver supply that’s fairly agnostic to the silver price, which translates to greater fluctuations in prices, particularly on the downside.

On the demand side, we have industrial applications accounting for roughly half of the total demand, followed by jewelry, coinage, photography and silverware. Investment demand accounts for the remainder, for which the silver ETF holdings are a significant source. On the ETF side, we see a different picture compared to gold, with gold ETFs shedding ~30% last year, in contrast with a more optimistic picture of silver ETFs posting a marginal increase.

TGR: Gold and silver equities have lagged prices significantly in recent years. Is this changing?

BA: So far this year, we’ve seen this change as gold and silver have been relatively lackluster with each posting gains around 10%, a stark contrast to the equities that have risen upward of 30–40%, pointing to improving sentiment.

TGR: What’s your opinion of Goldcorp Inc.’s (G:TSX; GG:NYSE) hostile takeover bid for Osisko Mining Corp. (OSK:TSX)?

GM: Well, we’re starting to see an increase in the overall merger and acquisition activity levels from producers through developers and even exploration companies. Producers are looking to augment their production profile through production consolidation and the shedding of marginal operations. This is what we’re seeing with Goldcorp’s bid for Osisko—improving Goldcorp’s geopolitical risk profile (through increasing its exposure to regions with lower geopolitical risk) and bolstering its projected consolidated cash costs.

Other examples of producer consolidation includePrimero Mining Corp.’s (PPP:NYSE; P:TSX) bid forBrigus Gold Corp. (BRD:NYSE.MKT; BRD:TSX). We’ve also seen the majors shed non-core or marginal operations, namely Silver Standard Resources Inc.’s (SSO:TSX; SSRI:NASDAQ) acquisition of the Marigold mine in Nevada (jointly owned by Goldcorp and Barrick Gold Corp. [ABX:TSX; ABX:NYSE]). Moving further down the food chain, we’ve seen examples of producers picking up stranded development-stage projects (i.e., B2Gold Corp.’s [BTG:NYSE; BTO:TSX; B2G:NSX] takeover of Volta Resources Inc.).

TGR: The crisis in precious metals equities is almost three years old. What must junior gold and silver mining producers do to ensure their survival?

BA: To ensure survival in the paradigm of declining metal prices, companies have trimmed non-operational expenditures (i.e., corporate general and administrative, and exploration) and deferred significant capital projects to preserve the balance sheet. We’re also seeing some signs of more selective mining (i.e., focusing on higher grade and higher margin production). However, the latter requires a longer-term outlook.

One of the criteria we evaluate companies on is their ability to endure at current metal prices—those without significant burdens like hedges or onerous amounts of leverage or debt. We’re focusing on companies with attractive valuations that we see have the opportunity for lower cost growth profiles with the means to fund development plans. Having said that, given the current equity valuations, sometimes it’s cheaper or less risky to wait and buy ounces than drill them.

TGR: What must junior explorers to do survive?

GM: Juniors need to differentiate themselves from their peers. Right now these companies need to take a step back and take time to assess or re-assess their portfolios. Exploration targeting metrics need to be cognizant of prevailing commodity prices and thus look for mineralized systems capable of potentially operating in a lower commodity price environment. Such strategy also follows for those companies with defined assets that need to be re-examined in light of a lower commodity price environment. Such strategies likely will make those companies capable of attracting available capital in the markets. Above all, companies must continue to move forward rather than to stagnate.

TGR: What are your top picks among the gold companies you follow?

GM: We recently returned from a site visit to B2Gold’s Otjikoto gold project in Namibia. This company’s management has a track record of capitalizing on acquisitions by adding ounces and expanding production. Otjikoto should be in production by the end of 2014.

B2Gold has a significant production growth profile, which we estimate production of approximately 400,000 (400 Koz) this year at cash costs of US$725/oz, growing 60% over the next two years to around 630 Koz in 2016 with lower cash costs. This is what we like: producers with margins and growth potential.

TGR: What’s your rating for B2Gold?

GM: We’ve given it a Buy rating and a target price of $3.50.

TGR: B2Gold took over Volta, and Asanko Gold Inc.’s (AKG:TSX; AKG:NYSE.MKT) takeover of PMI Gold Corp. has just closed. What do you think of Asanko?

GM: With Asanko’s acquisition of PMI Gold, the company gained around 4.5 Moz gold in resources, bringing its total to just over 10 Moz. Asanko is a re-invigorated company now with significant potential and financial flexibility having over US$270 million (US$270M) in cash and up to US$150M in undrawn debt. All of Asanko’s assets are in Ghana and we’re looking at the company heading down the development road later this quarter, targeting initial production by 2016 and growing from there. We see the company’s plan of initiating production from the higher-grade deposits at Obotan as a prudent, lower-risk strategy that facilitates organic growth funded from operating cash flow.

TGR: What’s your rating for Asanko?

GM: We’ve given it a Buy rating and a target price of $3.75.

TGR: What else do you like in Africa?

GM: Papillon Resources Inc.’s (PIR:ASX) Fekola project is, in my view, the best gold asset discovered in Africa in the last half-dozen years. It’s in Mali, just over the border from Senegal and close to Randgold Resources Ltd.’s (GOLD:NASDAQ; RRS:LSE) 11.5 Moz Loulo project and AngloGold Ashanti Ltd.’s (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) 13.1 Moz Sadiola project. It is looking for 2017 production.

TGR: How much and at what cost?

GM: Around 320 Koz annually over the first 11 years at an all-in sustaining cost of US$740/oz.

TGR: What’s your rating for Papillion?

GM: We’ve given it a Buy rating and a target price of $1.60.

TGR: How about gold development projects in the U.S.?

GM: Midas Gold Corp. (MAX:TSX) has the Golden Meadows project in Idaho. This is a fantastic asset, a cornerstone asset, and was a site of historic but fragmented production over an extensive period. Midas has strong management led by CEO Steve Quin with experience in advancing projects through permitting, development and into production, as well as remediation. You don’t get that very often at all in a development-stage company.

Midas has more than 7 Moz in resources, of which we estimate 5 Moz would be mined over a 13-year period at a cash cost of about $420/oz gold net of byproduct credits. However, we’re quite conservative on U.S. permitting and the time it will take for its plan of operations to be reviewed and approved. It could take as little as three years, but our valuations are typically generated considering a longer permitting process.

TGR: What’s your rating for Midas?

GM: We’ve given it a Buy rating and a target price of $1.50.

TGR: Any other U.S. development stories?

GM: Midway Gold Corp. (MDW:TSX.V; MDW:NYSE.MKT) has the Pan project in Nevada. The company also has great management, led by CEO Ken Brunk, an operator with a lot of experience at Newmont Mining Corp. (NEM:NYSE). Nevada is a very promising jurisdiction, and Pan has demonstrated that permitting decisions can be rather rapid. We’re looking at it being in production by Q4/14.

TGR: What’s your rating for Midway?

GM: We’ve given it a Buy rating and a target price of $1.20, but note that our financing assumptions call for much greater dilution than would be the case if considering prevailing market prices.

TGR: Your ratings for silver companies are more conservative than for gold companies. Do you give any silver miners a Buy rating?

BA: We have a Buy rating on Mandalay Resources Corp. (MND:TSX).

TGR: Mandalay just bought the Challacollo silver-gold project in Chile from Silver Standard Resources for $16.7M. A good purchase?

BA: I think that’s a question we’re looking to have answered later this year with the 12-month timeline it set for completion of a feasibility study. Historically, Mandalay has a track record of very cheap acquisitions, with the Costerfield mine in Australia and the Cerro Bayo mine in Chile. Challacollo provides Mandalay with a project that has seen quite a bit of exploration and some historic production going back to the 1980s or so.

The property has a defined resource containing 33 Moz silver at a grade of 200 grams per tonne, but my sense is Mandalay will look to tighten up those grades to help boost the economics when the company tables the feasibility in the coming 12 months. The company is planning an 8,000–10,000 meter drill program focused on infilling the deposit, as the majority of those ounces are in the Inferred category.

TGR: You mentioned that Mandalay’s management is good at acquisitions. How about operations?

BA: Brad Mills, the CEO, was formerly CEO of Lonmin Plc (LMI:LSE). He was an executive with BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK), as was President Mark Sander. They have a history of delivering on expectations and we’re starting to see the fruition of a lot of development plans come into place, namely at Costerfield with the high-grade Cuffley Lode. Historically, margins at Costerfield had been lackluster, generating enough to pay for ongoing exploration but not as significant of a contributor to the bottom line. The value driver has been Cerro Bayo, but we saw improved contribution from Costerfield last year and expect that to increase going forward.

Mandalay also stands out among the juniors given its alignment with shareholders, both in terms of returning value to shareholders through dividends and management owning a significant stake in the company.

TGR: What’s your rating for Mandalay?

GM: We’ve given it a Buy rating and a target price of $1.30.

TGR: What other silver companies would you like to discuss?

BA: Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), which has two assets: Caylloma in Peru and San Jose in Mexico. San Jose is the big value driver here, especially given the recent Trinidad North discovery Fortuna has made there. What makes Trinidad north so interesting is the high grades and proximity to underground development, which means Fortuna will be able to go from discovery drill hole to production and cash flow in just over two years. At San Jose, we see growth from 2.5 Moz silver in 2012 to 5 Moz in 2015. The company also has a strong management team with a track record of successful and prudent acquisitions.

TGR: What’s your rating for Fortuna?

BA: We currently have a Hold rating and a target price of $5.00.

TGR: What do you think are the sources of optimism for investors in 2014?

GM: Ultimately, turnarounds in operator performance. We’re looking for mining companies to deliver on costs and to improve margins. Commodity prices will do what they do; they are out of our control. But solid operations performance by the companies is expected to be returned in equity valuations as the market regains confidence in individual companies, as well as in the sector as a whole.

BA: The story going into Q1/13 was declining cost profiles from operators. Some delivered on that last year, and some didn’t. However, across the board most are still pointing to improved performance in 2014 relative to 2013. That’s one source of optimism.

The other thing we’ll be looking for in 2014 is companies that can execute on acquisitions and consolidate stranded assets. Even companies that operate and execute may be constrained by other considerations, such as being laden with more debt than they can service in the current metal price environment.

TGR: Since the bear market in gold and silver equities began in April 2011, a fair number of investors have been holding on to battered stocks with the view that there has to be a turnaround. Some stocks have continued to fall. Should investors cut their losses, cull these stocks and consolidate in companies that look like better bets?

BA: I think this consideration really has to be taken on a position-by-position basis. Our consensus here is generally evaluating all project merits, but companies that are not advancing their projects and just whittling away at their treasuries are not good bets.

I think that investors still looking for exposure within the exploration side should examine companies that still have plans to expand their projects, companies that are still in some sense moving forward. From an investment point of view, if investors are holding onto an explorer that isn’t doing anything to advance its project or is overburdened with debt, they really aren’t getting anything by holding on to that company. Looking forward 12 months, what will be different with that company? Investors should review their portfolios with a view to determining which companies can survive with reasonable commodity price expectations.

GM: Ben is saying that investors should become more company specific in their investments. What’s crucial is dynamic management in creating value, whether it’s by additional discovery, augmenting production or undertaking cost control and improving operating margins. All of those factors are exceedingly important components of creating future value for shareholders. They are the positive milestones to put equities in a more positive light.

TMR: Ben and Geordie, thank you for your time and your insights.

Benjamin Asuncion is a research analyst with Haywood Securities. Asuncion was previously involved in the management of a $10 million endowment fund at Simon Fraser University. He holds a Bachelor of Business degree from Simon Fraser University.

Geordie Mark is the co-head of mining research at Haywood Securities. He was previously an analyst with Passport Capital. In an earlier period he was vice president of exploration for Cash Minerals. Prior to joining the exploration industry full-time, he lectured in economic geology at Monash University, Australia, and served as an industry consultant. He holds a Ph.D. in geology from James Cook University.

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DISCLOSURE:
1) Kevin Michael Grace conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Primero Mining Corp., Mandalay Resources Corp. and Fortuna Silver Mines Inc. Goldcorp Inc. is not associated with The Gold Report. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Benjamin Asuncion: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Mandalay Resources Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Geordie Mark: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Midas Gold Corp. and Midway Gold Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
5) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
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By CentralBankNews.info

• Sri Lanka holds rates, sees minimal hit from Fed tapering
• BOJ holds QE target, doubles bank and growth facilities
• Turkey holds rates, repeats tight stance till inflation falls
• Hungary cuts rate by 15 bps, to review stance in March
• Chile cuts by 25 bps, further cuts may be necessary
• Namibia holds rate, slow credit by targeted measures