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Source: Peter Byrne for Streetwise Reports’ Special Situations (3/27/14)

http://www.streetwisereports.com/cs/special/print/na/15917

And now a word from Europe: Investment advisor and author Alfred Maydorn publishes the Maydornreport in Kulmbach, Germany, where he researches disruptive high-tech companies with great growth prospects. In this interview with Streetwise Reports’ Special Situations, Maydorn reveals his top North American picks in the exponentially expanding media and big data spaces, highlighting firms with low profiles, remarkable products and what look to be explosive futures.

Special Situations: The ability to introduce technological innovations that disrupt established markets has long been a hallmark of capitalist success, as new firms with cutting-edge technologies overtake older, less-nimble companies tied to outmoded systems. What are some notable examples of innovations that have changed the way information and data services are sold?

Alfred Maydorn: The major technological transformation of our time is in how information is created and distributed on the Internet. Within that historic disruption there continue to be multiple disruptions and opportunities for gutsy investors. Never forget that Amazon.com Inc. (AMZN:NASDAQ) and Google Inc. (GOOG:NASDAQ) began as small, disruptive start-ups. These companies are now e-commerce giants, rivaling Wal-Mart Stores Inc. (WMT:NYSE) for market share.

Another disruptive innovation in information technology was the advent of the smartphone, which, incidentally, was not developed by a small company. It was invented by Apple Inc. (AAPL:NASDAQ) and launched in 2007, with incredible results. At the time, cell phones manufactured by BlackBerry Ltd. (BBRY:NASDAQ) and Nokia Corp. (NOK:NYSE) dominated the talk and texting industry. It did not take long for the iPhone to take over and spawn countless imitators.

Apple brings to mind a great example of disruption in the high-tech realm: the film industry. Pixar was cofounded by Steve Jobs when he left Apple—temporarily, as it turned out. Risking all its capital, Pixar entered the multibillion-dollar film business market with a fresh technology, and quickly produced major motion pictures that captivated audiences. At the time, The Walt Disney Co. (DIS:NYSE) was a big player in the film production space. At first, it took no notice of Pixar. But then Disney not only noticed, it became very afraid and, in the end, it bought Pixar at a premium.

Large or small, a truly innovative company will risk everything to fundamentally disrupt the status quo with a breakthrough product. The smaller firms are usually more eager to challenge the status quo, since they have nothing to lose.

SS: Speaking of Pixar, filmmakers are increasingly dependent upon using the latest developments in advanced graphics technology, such as three-dimensional technology (3-D), to make the next blockbuster even more spectacular than the last one. What companies are realizing success in the virtual-reality creative space in Hollywood?

AM: Because moviegoers absolutely love special effects, the film industry is focusing more on creating snazzy, spectacle-filled shows with state-of-the-art computers. The 3-D film business is growing fast, and several small, specialized companies in this space are gaining market share.

For instance, Gener8 Media Corp. (GNR:CNX) is a Vancouver-based company that works in 3-D for most of the big Hollywood studios. Its proprietary software, G83D, can transform two-dimensional (2-D) movies into 3-D movies after the film is shot. It can also enhance the quality of films originally shot in 3-D format. Gener8 essentially created the content of The Amazing Spider-Man and Harry Potter and the Deathly Hallows: Part 2 inside its computers.

SS: Would Gener8 be able to take a movie like, say, Gone with the Wind and turn it into a 3-D film?

AM: Yes. Even large parts of new movies are filmed in 2-D and then converted to 3-D. It typically takes six months to turn a 2-D film into 3-D, working scene by scene, frame by frame. It requires a lot of human sweat and advanced technology, but the final product is worth it, since 3-D is the future of film entertainment.

SS: Given its massive computational abilities, is Gener8 able to diversify into other types of technology markets?

AM: Gener8 recently started up a new division specializing in visual effects called The Feder8tion. The company already employs 200 people, and is growing very fast. It is based in Vancouver, where many film companies are relocating because of the well-educated people who live there. Gener8 is constantly hiring programmers to keep up with the increasing demand for its services. And it is branching out into other functions in the big data field.

SS: Please explain what you mean by big data.

AM: Gener8 was originally set up to focus on 3-D film technologies, which require huge amounts of data to generate every scene. It invented special big data software to make sense of very large, cinematic, pixelated data sets. It turns out that this software can also be used for other businesses, which is very exciting. Thus, Gener8’s second venture is building big data software for a variety of business applications. It has entered the cloud-based data management business with its Cumul8 product. The cloud is taking over the information world as we speak.

SS: Wikibon author Jeff Kelly estimates that the total market for big data will be $47 billion ($47B) by 2017. How much of a role will this part of the business have in moving Gener8’s stock forward?

AM: Gener8’s big data software business could be even bigger than its bread-and-butter 3-D business. Big data is an exponentially growing market because society generates so much new information every day. The trick is not so much about collecting this data; the disruptive issue is to be able to analyze data to find meaningful behavioral patterns. Gener8’s patented software performs this task within a convenient user format.

A lot of companies are in the business of developing big data analytics, but the space is growing so fast there are seemingly no limits to growth for true disrupters. For a lot of tech guys, big data has become their sole obsession.

SS: What attracts you to a particular start-up company in this arena?

AM: In the end, only a few start-ups will get really big. The current situation with big data is comparable to the first days of the Internet. In the late 1990s thousands of companies were competing for market share, but only a few survived the shakeout of 2001. It will be the same in the big data business.

SS: What is the key to survival?

AM: To survive, a junior firm needs a great product—a unique, disruptive, saleable and friendly product. Gener8’s big data software is not only powerfully competent, it is user friendly.

SS: Gener8 has a corporate interest in Reelhouse Media Ltd., an online entertainment distribution start-up. How does Reelhouse compare to giants like Netflix Inc. (NFLX:NASDAQ) and Redbox, which is owned by Outerwall Inc. (OUTR:NASDAQ)?

AM: Reelhouse is Gener8’s third business, existing alongside its big data and the 3-D/special effects lines. It owns a 66% share of Reelhouse, which is an online movie platform. Reelhouse is not directly competing with Netflix, Amazon, Hulu LLC (private) or the other platforms. It started out presenting small, private, independent movies for online streaming, and now it has a pilot project with Warner Bros. and a working pay-to-watch model.

The Reelhouse concept is unique because it allows customers to not only watch movies, but also extras, such as special scenes and interviews with the stars. It is a flexible platform that allows the big studios to market their movies online, which they had tried to do on their own unsuccessfully. The basic idea is to grow Reelhouse’s market share, and then sell it to a big studio for a profit.

SS: Is Gener8’s customer base international?

AM: The company has plans for Reelhouse to broaden internationally, and it also plans for the big data component to go international. But Gener8 is currently focused on North America, except for the 3-D business, where it is working very closely with a Chinese partner. China is poised to be one of the biggest markets for 3-D movies, so that is a really good combination.

SS: Will Reelhouse and Gener8 play the same kind of disruptive role in the film business that, say, iTunes played in the music business?

AM: iTunes is focused on promoting the interest of Apple, as we all know. And Apple wants 30% of the revenues. The big film studios want their own online distribution platform, and Reelhouse could be the solution that they seek.

SS: Any business with a retail consumer base needs to parse the big data tied to their customers’ purchasing behaviors. Vast streams of mobile data have overwhelmed the ability of cyberspace to extract useful information from white noise. Are you following any firms using new technological innovations to collect, sort, tag and visualize these mammoth data sets?

AM: I follow them avidly. A lot of junior companies are in the big data space because the big, established companies are not eager to disrupt themselves. I particularly like Splunk Inc. (SPLK:NASDAQ), which went public two years ago. Its stock price doubled on the first trading day, to $34. Splunk stock is now worth about $74/share. Splunk is a fast-growing company—valued at an amazing $7.9 billion—and investors are paying a high valuation for it. That valuation is about 20x its annual revenue.

SS: What is so special about Splunk that it has attracted all of this capital?

AM: Splunk is tech-focused. It is not so much concerned with data presentation issues as it is with discovering new ways to analyze unfathomable numbers of data points. It is an expensive stock, but well worth buying.

SS: Are there firms similar to Splunk in North America?

AM: Two highly valued juniors in the space are Tableau Software Inc. (DATA:NYSE) and Qlik Technologies Inc. (QLIK:NASDAQ). The valuations of these companies are also very high. Tableau is valued 16x this year’s revenue, and Qlik is valued at 5x revenue. Tableau is still not profitable, and the 2014 price/earnings ratio of Qlik is more than 100.

The best way to think about this special situation with big data is that people who invest in a wide range of the newest information technologies are positioning themselves to make a lot of money when one or several of the smaller firms finds its feet and becomes a Splunk, Tableau or Qlik.

SS: Is there still room for Splunk, Tableau or Qlik stock to move up?

AM: Splunk, Tableau and Qlik are not cheap, but they are also not overvalued. On the other hand, Amazon has been overvalued for the last 16 years. And its stock is up 5,000%. In the end, if an investor wants to make money in this fast-growing space, he or she has to take on some high valuations alongside the riskier but cheaper companies.

SS: Are these firms paying dividends?

AM: Most of the smaller companies of this type are not generating profits right now. It is like in the old days of the Internet. This is a thought worth repeating: Some companies will survive, and will make big money for early investors, and some companies will disappear in the inevitable shakeout.

SS: Who are the primary customers for young firms inventing and developing power apps to negotiate the oceans of big data collected every hour by billions of interlinked devices located all over the planet?

AM: The big e-commerce companies are most in need of the new technologies that start-ups are developing. They want to analyze the kinds of products and services people are looking at in definite places and at specific times. For instance, the ability to crunch big data allows the large e-marketers to target special offers to people at the point of purchase.

But the applications for big data platforms are endless. For example, mining companies can collect and analyze immensely complicated, nonlinear data about drilling operations to better predict pay-offs. And nonprofit organizations engaged in social engineering are jumping to purchase big data analytics and cloud-based data platforms. Governments everywhere are contracting with companies that can provide big data services. And so is the military. Not to mention the National Security Agency.

In short, all business pursuits need software to parse and model growing streams of data, or they will be left behind. Information is the oil of the 21st century, and the trick is to learn how to drill for it quickly and profitably. In the end, there is so much space for young companies to grow in this market that a truly innovative and disruptive technology is almost guaranteed success.

SS: What about applying big data technologies in the life science sector, such as investigating the huge data sets in cancer-related genetics? Is there an opening there for the smaller companies?

AM: Yes. A huge opportunity lies ahead in medical research, as you can well imagine. Also in healthcare. Doctors are getting much better about computerized record keeping. Thousands of hospitals across the country generate incredible amounts of information about their clients, which can be invaluable for research if it can be collected, collated and patterned into user-friendly formats.

SS: Are there any other companies that you would like to bring to our attention today?

AM: Frankly, while there are a lot of private companies in the big data space, there are not many public companies available at this time, although that will change. The big plays right now are comparable to Splunk, Qlik and Tableau. Gener8 is a real find. It is an established 3-D company that is branching out as a big data start-up.

Big companies are working hard to find their market niches in this space. Amazon is very active in the cloud arena, as are EMC Corp. (EMC:NYSE) and International Business Machines Corp. (IBM:NYSE). But the young, dynamic companies, like Gener8, have the potential to truly disrupt the status quo and become the next Apple.

SS: How much longer will Gener8 stock remain cheap?

AM: Gener8’s current valuation is for its core 3-D business, and its big data business is getting a free ride. If the big data unit gets really big for Gener8, which is a real possibility, the company will be a fantastic growth story. But it is still in a very early stage compared to its potential. It is clearly a worthwhile play.

SS: Thank you, Alfred, for your expertise.

AM: You are welcome.

Alfred Maydorn is a German journalist and newsletter writer. He began writing about the stock market 20 years ago and is the cofounder of Der Akionär. With a weekly circulation of about 40,000, it is Germany’s top-selling stock magazine. In his own newsletter, Maydornreport, he focuses on fast-growing technology stocks, mainly from North America. Maydorn appears regularly on German financial television as a stock market expert.

DISCLOSURE:

1) Peter Byrne conducted this interview for Streetwise Reports’ Special Situations and provides services to Streetwise Reports’ Special Situations 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 Streetwise Reports’ Special Situations: Gener8 Media Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Alfred Maydorn: 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: None. 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.

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CAD/CHF followed through on the bullish tone set last week. The first major hurdle was the combination between the resistance at 0.7930 and the trendline based on the most recent swing highs. The makings of a new higher high lead to a serious bullish acceleration and the 200 Simple Moving Average on the 4H timeframe was crossed without any rejections whatsoever. A second previous high was also exceeded during the first half of the European session, as CAD/CHF climbed as high as 0.8084.

After such a strong rally, a pull back was inevitable, and the weight of the resistance around 0.8060 eventually took its toll. This area is confluence to previous lows from February, a trendline dating back to November 2013, 100 SMA on the Daily timeframe and multiple fibonacci retracements lines, including 0.8059 (61.8% between 0.8218 – 0.7803) and 0.8082 (38.2% fibonacci retracement between 0.8534 and 0.7803).

The current retracement has stopped just above the 0.8000 handle. A daily bar close below 0.8030, which looks extremely probable at this point, will lead to the formation of a Pin bar price action pattern on the Daily timeframe. This bearish signal would suggest the retracement will continue next week if price will manage to break below today’s low.

The first support below 0.8000 is very near, since the 200 SMA on the 4H chart and 38.2% Fibonacci retracement on this bullish upswing are clustered near 0.7977. Even lower, the resistance at 0.7928 could flip and act as a pivot zone, providing support for the . CAD/CHF will remain bullish as long as the search for a higher low remains confined by the levels we’ve previously mentioned.

Towards the upside 0.8218 is the first important pivot zone, followed by 0.8333.

*********
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets

By CentralBankNews.info
    Zambia’s central bank raised its policy rate by a further 175 basis points to 12.0 percent on persistent inflationary pressures and said it expects “the passthrough effects from the depreciation of the exchange rate will impact on inflation.”
    The Bank of Zambia, which has now raised its rate by 225 basis points this year after raising it by 50 basis points in 2013, added that the increase in the supply of select food items in the coming harvest should have a moderating impact on inflation.
    “The Committee expects that this adjustment (to policy rates) to buttress the measures implemented in the recent past and consequently contribute to moderating inflationary pressures,” the bank said.
    Zambia’s inflation rate rose to 7.7 percent in March, up from 7.6 percent in February and the fifth consecutive month of rising inflation.
    Last month the central bank said the rate rise and recent increases in reserve ratio to 14 percent from 8 percent should help put inflation on the path toward the bank’s 2014 target of 6.5 percent.
    Zambia’s kwacha currency has been depreciating since late October due to lower copper prices – which account for some 60 percent of the country’s exports – in reaction to slower growth in China.

    The kwacha’s exchange rate has been volatile this month, hitting a low of 6.43 to the U.S. dollar on March 20 compared with 5.83 end-February. Today it was trading at 6.21, down 11.3 percent this year.
   In January the central bank held an emergency meeting with lenders to examine the decline in the currency and on March 6 the bank issued a statement, saying it was continuing to pursue a flexible exchange rate policy, but this did not imply the absence of intervention by the bank in response to “disorder and panic among market participants.”
    The central bank attributed the decline in the currency to a combination of domestic and international market developments with the growing integration of the country in the world economy having the effect that it is affected by foreign developments.
    “Specifically, the Federal Reserve’s course of action has led to fears of slower growth of major emerging economies, particularly China,” the bank said, and as a consequence the price of copper has remained subdued and there has been a slowdown in portfolio flows that help finance the country’s current account deficit.
     “The Bank observes at this stage that panic has gripped market participants, thereby undermining the smooth operation of the foreign exchange market. Left unattended to, such panic sentiments might eventually undermine the Banks efforts of delivering low an stable rates of inflation,” the bank said.
    On March 13 the bank said it had sold $178 million of foreign exchange to moderate the currency’s volatile exchange rate.

    http://ift.tt/1iP0FNb

By Chris Vermeulen – ETF Trading Newsletter

The bitter truth about what may happen to gold is not all that exciting and likely don’t want to know, but you need to understand what is unfolding as we speak…

Long story short, the prices of bonds look as though they are about to rally once again. Mounting fears of a stock market correction has money flowing into bonds which in turn will drive interest yields lower yet gain. But the BIG PICTURE of what he FED said the other week about how they plan to raise rates in 2015 and cut QE down to $55 billion per month hurts the long term outlook for gold.

This news may not sound that important, it actually is and undermines the price of miners, silver and gold in a big way.

Find out why gold is falling and the threat that could trigger a much larger meltdown in the long run with my gold forecast video.

Chris Vermeulen

ETF Trading Newsletter

By CentralBankNews.info
     Romania’s central bank maintained its policy rate at 3.5 percent, as expected, and said its latest assessment confirms that inflation should remain subdued in the months ahead, in line with the bank’s forecast that inflation will return to and remain inside the bank’s tolerance range.
    The National Bank of Romania (NBR), which last month cut its rate for the sixth time in a row, said the risks in its outlook stem primarily from external sources. This includes capital flow volatility, which  is linked to investors’ risk appetite and driven by geopolitical developments, faster cross-border deleveraging by banks and the overall changes to investors’ exposure to emerging economies.
    Romania’s inflation rate fell to a historic low of 1.05 percent in February from 1.55 percent end-2013, with the average annual HIPC rate, which can be compared with EU countries, declining to 2.6 percent from 2.9 percent in January. In January 2013 the inflation rate hit 6.0 percent.
    Last month the the NBR revised upwards its 2014 inflation forecast to 3.5 percent from 3.0 percent and forecast 2015 inflation of 3.2 percent. The central bank’s vice governor said in New York on Feb. 6 that the central bank had ended its rate cutting cycle.

    The central bank targets inflation of 2.5 percent, plus/minus one percentage point.
    Romania’s Gross Domestic Product expanded by 1.5 percent in the fourth quarter of 2013 from the third quarter for annual growth of 5.1 percent, up from 4.2 percent.
    The central bank attributed the pick-up in economic activity to a favorable performance of exports and improved domestic demand.
   
    http://ift.tt/1iP0FNb

In the last three months GBP/JPY has formed a large triangle pattern which can be best observed on the Daily timeframe, Price action from the last two weeks has confirmed the validity of the support trendline, which coincides perfectly with the 100-day Moving Average.

A bullish engulfing pattern formed as yesterday’s candle tested the support once more, yet this time the pair rose above the previous highs between 169.55 – 169.70. The afore mentioned resistance  succesfully acted as support throughout the day. For short term traders, this pivot is the new support besides the triangle trendline.

The bullish engulfing pattern will be confirmed if GBP/JPY rises above 170.30 today. This move also puts price above the 100 and 200 Simple Moving Averages on the 4H timeframe, adding to the general idea of bullishness. Above 170.30 buyers will set their eyes on 171.34 – 171.60 area, where a confluence between 61.8% fibonacci and four recent swing highs could easily cap further gains. If that doesn’t happen, the triangle resistance is slowly heading towards 173.00 and will represent the secondary resistance.

Failure to achieve new highs will lead to pull-backs towards 170.30 and of course the trendline resistance around 168.80.

*********
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets

Podcast By Casey Research

Former Comptroller General of the United States David Walker talks about the trouble with Obamacare and the sky-high national debt… how much to spend on national defense… and outlines his top 3 reforms to fix the US government.

Want more insightful talk on your money and investments? Subscribe now to Sound Money in your email, in iTunes, or via RSS. Email iTunes RSS

Here are a few highlights:

“America can definitely be made great again. It’s not too late, but what we need is a wakeup call, a call to action and a specific course correction to try to be able to make sure that we don’t repeat history.”

“President Obama promised … that he was going to be a uniter rather than a divider, and unfortunately, he hasn’t done that. Our financial condition today is much worse than when President Obama took office. Frankly, from George Washington, who was our first president, to William Jefferson Clinton, who was our 42^nd president, we only accumulated $5.5 trillion in debt—and now we’re up to $17.5 trillion.”

“The government is going to always do more for the poor, for the disabled, and for the military, but … promises way too much and it subsidizes way too many people, and the result of that is that it creates a system that is unaffordable and unsustainable.”

“What a lot of people don’t realize is built into the Affordable Care Act, is a bailout provision for insurance companies. So that taxpayers are probably going to be on the hook for, you know, some large payments due to meet those guarantees.”

By HY Markets Forex Blog

Oil prices extended gains on Friday as supplies in Cushing, Oklahoma declined and the tensions in the Ukraine remains in the spotlight.

The Northern American West Texas Intermediate (WTI) crude climbed 0.28% at $101.57 a barrel on the New York Mercantile Exchange at the time of writing. While futures for Brent crude, added 0.03% to $107.88 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude was at a premium of $6.38 to WTI.

US Crude Supplies

Reports from the Energy Information Administration showed that crude inventories in the US advanced by 6.62 million barrels to 382.5 million, higher than analysts’ estimates of a rise of 2.5 million.

According to the Energy Information Administration, supplies at Cushing, Oklahoma, the delivery point for WTI crude; dropped to the lowest in two year. Supplies fell by 1.33 million barrels to 28.5 million in the week ending March 21.

Gasoline consumption climbed by 5.8% in the last week to 9.002 million barrels a day, the highest since December 20, according to reports from EIA. Distillate supplies, including heating oil and diesel, rose by 1.56 million barrels to 112.4 million.

The Organization of the Petroleum Exporting Countries (OPEC) said it would reduce oil production by 620,000 barrels a day to 23.78 million a day in the four weeks ending April 12 in response to the weaker seasonal demand from Asia.

Analysts from Standard Chartered are expecting oil demand growth in the US to slowdown this year as well as demand from India. While China and Europe are expected to slightly boost the demand for oil.

Oil – Ukraine Crises in Spotlight

While the ongoing tension between Ukraine and Russia continues to be in focus, European leaders met with the US President Barack Obama to discuss tougher sanctions on Russia which could have an impact on oil supply to Europe.

The Western nations are working with military, economic and finance sanctions for Russia for its annexations of Crimea from Ukraine.

On Thursday, the International Monetary Fund said it agreed to a $14 billion – $18 billion standby agreement with Ukraine, with an international fund of $27 billion available to the country over the next two years.

Visit www.hymarkets.com   to find out more about our products and start trading today with only $50 using the latest trading technology today

The post Oil Prices Trades Higher as Ukraine Crises Remains in Focus appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By HY Markets Forex Blog

The 18-block euro currency weakened against the greenback on Friday, dragged lower by the disappointing retail sales data from Spain while reports revealed that the consumer-price inflation in Germany’s Saxony region slowed.

The euro weakened against 13 out of its 16 major currency peers as forecasts that inflation in the region will prompt the European Central Banks to add stimulus.

The euro weakened by 0.20% at $1.3712 against the US dollar at the time of writing, the lowest level since February 28.

Retail sales in Spain declined by 0.4% in February from on an annual basis, compared to the 0.2% fall recorded in the previous month, the Spanish National Statistics Office said.

Meanwhile in Germany, the consumer price inflation in the country’s Saxony region slowed to 0.9% from a year ago, compared to the previous figure of 1.2% seen in February, according to the German Statistics Office of Saxony.

The bearish pattern has been happening since the Federal Open Market Committee posted its statement earlier this month, in which it stated the Federal Reserve would continue with reducing its asset purchases by trimming $10 billion at each monthly policy meeting.

As Federal Reserve’s (Fed) Chair Janet Yellen said the US Central bank’s asset purchases could possible end around October this year and benchmark interest rates may increase in the next six months.

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The post Euro Dragged Lower by Weak Retail Sales in Spain appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

Source: Tom Armistead of The Energy Report (3/27/14)

http://www.theenergyreport.com/pub/na/conjuring-profits-from-uraniums-resurgence-david-sadowski

It doesn’t take a Ouija board to predict a rebound in the price of uranium: Global fuel stocks are insufficient, and unmet demand for uranium is growing. In this interview with The Energy Report, David Sadowski, a mining research analyst at Raymond James, explains the forces that will push the price of uranium, and the companies that are likely to benefit. Being selective, he says, will provide the greatest rewards.

The Energy Report: David, the uranium price remains below the cost of production for many producers and the forecasts for uranium production are flat. Why are you optimistic about the uranium space?

David Sadowski: In the current price environment, supply won’t be able to keep up with demand growth. That’s really the core to the uranium investment thesis. The cost of uranium production spans a pretty wide range, from the mid- to high-teens per pound for the cheapest in-situ leach mines in Kazakhstan, to $50–60/pound ($50–60/lb) for some of the lower-grade, conventional assets in Africa, Australia and East Asia. So we’re looking at about $40 to produce your average pound of uranium. That number is climbing on cost inflation and depletion of the best mines.

The current spot price is under $36/lb, so many operations are underwater right now. That’s why we’ve seen numerous deferrals of projects and even shutdowns of existing mines, the most significant of which was Paladin Energy Ltd.’s (PDN:TSX; PDN:ASX) Kayelekera at the beginning of February. That’s on top of operations that are at risk for other reasons. In just the last few months, we’ve seen four of the world’s largest mines owned by Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) and AREVA SA (AREVA:EPA) shut down on operational and political hiccups. Then you look at where the supposed growth is coming from over the next several years— Cameco Corp.’s (CCO:TSX; CCJ:NYSE) Cigar Lake and China’s Husab. Those are technically very challenging, too. All of this is occurring in a world no longer benefitting from a steady 24 million pounds per year (24 Mlb/year) supply of uranium from downblended Russian warheads. In short, the supply side is a basket case.

Yet demand growth keeps chugging along. European Union (EU) and North American growth perhaps isn’t what it was a couple of decades ago. Pressure from competing energy sources like liquefied natural gas (LNG) in the U.S. is causing some operators to switch off their older, smaller reactors. But reactor retirements are being more than offset by new reactor construction not only in the U.S. and EU, but much more important, in Asia and in Russia. China, India, Korea and Russia are collectively constructing 70 reactors right now.

TER: Japan and the United Arab Emirates (UAE) just announced a program to cooperate in developing nuclear technology. What’s the market significance of that?

DS: There is a push toward nuclear in many of these nations in the Middle East. Not only do they have pretty strong population growth and urbanization, thus electricity growth is strong, but some of those oil-rich nations have cited a preference to sell their petroleum into the international markets rather than domestically. The UAE is a very large potential source of demand growth. It is constructing two nuclear power plants at the moment and is imminently going to break ground on two more. There are an additional 41 new nuclear reactors on the drawing board in the Middle East. So in the context of 434 operable reactors today, that’s a very meaningful amount of growth potential.

Demand growth remains resilient, and supply is lagging behind. In just a few years, we think this will lead to a deficit that will quickly grow to crisis levels. That’s why we’re bullish. Uranium prices have to go higher to incentivize more supply to meet this looming supply gap.

TER: Why hasn’t that happened yet?

DS: There are just a few forces working against the price. Since the Fukushima accident in Japan, there has been a supply glut in the marketplace. There has been a decrease in demand, with a lower level of buying by some countries, like Germany, Switzerland and, of course, Japan. Additionally, some extra supply was coming out of the U.S. government. There is an extra amount coming from enrichment underfeeding. If you add all that up, there has been essentially more supply than is required, and that puts downward pressure on prices. It’s caused the utilities to take a step back from the market.

TER: So do you think conditions in the market itself will materially improve? What will that look like?

DS: For us, it comes down to when the utilities start getting involved again. While the utilities have been sitting on the sidelines over the last couple of years, high-fiving each other for not buying uranium in a declining price environment, their uncovered requirements in the future have actually risen quite dramatically. At some point, they have to resume long-term contracting to cover all those needs. Japan is a key catalyst.

Japan’s reactors were slowly shut down after the Fukushima accident. Right now, none of them are operating. The country’s inventories have piled up to probably around 100 Mlb. Many of these utilities have asked their suppliers to delay deliveries of fresh uranium. That material ends up in the marketplace one way or another, so it’s having a price-dampening effect. In late February, however, the Japanese government announced its final-draft energy plan. Japan will restart at least some of its reactors to stop spending a ludicrous amount of money on imported fossil fuels. There are other economic and environmental benefits, but it’s the country’s trade balance that is really driving the restart push.

It’s these restarts that we think will spur global utilities outside Japan to resume buying. The signal will be sent that Japan won’t be dumping its inventories, it won’t be deferring deliveries anymore and, by the way, there is not enough supply to go around in just a few years so you better start contracting again. That’s what we think is going to support prices.

TER: That basic energy plan in Japan is a draft, but there is a lot of public opinion against it. You do think its prospects are good?

DS: Consensus is that the plan is going to be approved by the cabinet by the end of March. The opposition is highly regionalized, and many pockets of the country are actually very pronuclear. Nuclear, obviously, provides a lot of jobs and generates a lot of tax revenue in these regions.

TER: Raymond James has revised its uranium supply-demand balance and anticipates a growing supply deficit beginning in 2017. What is the case for investing in the industry today with a payoff so far in the future?

DS: A shortfall beginning in 2017 doesn’t mean prices don’t move until 2017. In fact, in a healthy market, they should have moved already. But, again, it comes back to the utilities. They view the nuclear fuel market and their own fuel requirements as a game of risk management.

Today, many utilities are sitting on near-record piles of material, so there’s not a great deal of risk to the utilities with respect to supply availability over the next couple of years. However, as these groups start to look out beyond that period to 2017, 2018 and so on, they’ll realize that it could become more challenging to get the uranium they need. Given that the utilities typically contract three to four years in advance, we’re very close to that window where we expect buying to ramp up again and prices to move upward. Again, critically, we expect Japanese restarts to be an important catalyst in that resumption of buying. We expect first restarts in H2/14 with a half-dozen units online by Christmas. So from an investor’s point of view, we’re already seeing the benefit of this outlook. That’s been driving the uranium equities upward over the past couple of months.

TER: You’re forecasting spot uranium prices averaging $42/lb in 2014, but three months into the year, the price is still struggling to break $36. What will drive it over $42? When do you expect that to happen?

DS: We think the move this year is likely to happen toward the end of this year, as Japanese restarts spark a return of normal buying levels by utilities. The uranium price should really start moving in 2015.

TER: What indicators should investors look for in watching the uranium price trend?

DS: One of the best indicators is Uranium Participation Corp. (U:TSX). Since the fund’s inception, this stock has been a remarkably accurate predictor of where the uranium spot price is headed. When Uranium Participation’s share price is above its net asset value (NAV), the market is baking a higher uranium price into its valuation of the stock because the NAV is calculated at current uranium prices. For even more precision, you can divide the company’s enterprise value by its uranium holdings for a rough dollar/pound estimate on what the market is ascribing. So right now, we calculate the fund is implying $40/lb, and that’s over $4 above the current spot price. This is by no means a bulletproof measure, but absent a black swan event, history tells us that this could be the destination for the price in the near future.

TER: You have said you see $70/lb as the price that will incentivize new mining. What should investors do while they’re waiting for the price to reach that level?

DS: Buy uranium equities. It’s that simple. We think prices are going higher, so buy uranium stocks well ahead of the upswing.

TER: Do you have a target time that you expect the price to reach that level?

DS: We’re looking for the price to reach $70/lb in 2016. We forecast prices flat forward at $70 from that year onward.

TER: Which mining companies are the best investment prospects in this environment? Which are the weaker ones?

DS: They say a rising tide floats all boats. We think all the uranium stocks are probably going higher, or at least the vast majority of them. But we also believe being selective will provide the greatest rewards. Most investors should be looking at names with quality assets, management teams and capital structures.

Among producers, our preferred companies are focused on relatively high-grade projects with solid balance sheets and fixed-price contracts that can buffer them against near-term spot price weakness. After all, we think the spot price could remain weak for most of the balance of 2014.

On the explorer and developer side, the theme is the same—companies with cash and meaningful upcoming catalysts and, again, in good jurisdictions. But if you can tolerate an increased level of risk, I’d be looking at companies with lower-grade assets in Africa. Those are probably the highest-leveraged names out there.

TER: What other favorites can you suggest?

DS: Our top picks at the moment in the space are Fission Uranium Corp. (FCU:TSX.V) and Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT).

Fission has been a top pick in the space for some time. We have a $2/share target and a Strong Buy rating. We view Patterson Lake South as the world’s last known, high-grade, open-pittable uranium asset. It has immense scarcity value. There are not very many projects in the world that can yield a drill intersection of 117 meters (117m) grading 8.5% uranium, as hole 129 did in February. There is only one project in the world where you would find an interval like that starting at 56m below surface, and that’s Fission’s Patterson Lake South. It’s in the best jurisdiction, has a management team that has executed very well and has huge growth potential. We think that property probably hosts over 150 Mlb uranium. We would be very surprised if the company was not taken out at some point in the next two years.

Denison is another story we like a lot. We have a $2/share target and Outperform rating on the stock. Denison has the most dominant land holding of all juniors in the world’s most prolific uranium jurisdiction, the Athabasca Basin in Canada, the same region as Fission Uranium’s Patterson Lake South. The company will run exploration programs at 20 projects in Canada this year, including an $8 million ($8M) campaign at Wheeler River, the world’s third-highest-grading deposit, which continues to grow in size, and with a new understanding of its high-grade potential uncovered last year.

Denison has a stake in the McClean Lake mill, which is also one of its crown jewels. It’s the world’s most advanced uranium processing facility, and it’s located a stone’s throw from hundreds of millions of pounds of high-grade Athabasca uranium deposits. It’s a big part of the reason why we think Denison will get bought out at some point, particularly given that to permit and construct a new mill in the basin would be a herculean task. Denison has a very strong management team and cash position and, once again, big-time scarcity value. It’s one of the only three North American uranium vehicles exceeding a $0.5B market cap. Denison has been and will continue to be a go-to name in the space.

TER: What is another interesting name in your coverage universe?

DS: UEX Corp. (UEX:TSX) owns 49% of the world’s second-largest undeveloped, high-grade uranium asset in Shea Creek and 96 Mlb in NI-43-101-compliant resources. It’s the biggest deposit with that kind of junior ownership in the Athabasca Basin. It’s a strategic asset and the company’s main value driver. But with the uranium price where it is, the company is also focusing on shallower assets near what is now the southern boundary of the Athabasca Basin, closer to Fission’s Patterson Lake South. We’re really interested to see what comes of the Laurie and Mirror projects this year.

We have a $0.60 target price on shares of UEX.

TER: Is any of that influenced by the fact that it has a new CEO?

DS: The target price is not heavily influenced by the recent change in CEO. I think the outgoing CEO, Graham Thody, did an excellent job. I’m very hopeful that Roger Lemaitre will continue that trend. Under the new CEO, I would anticipate that the company may ramp back up the level of work intensity at Shea Creek, to build on the achievements of AREVA and the UEX team as well as Thody. But given Lemaitre ‘s background, including his experience as head of Cameco’s global exploration, I wouldn’t be surprised to see UEX extend its view beyond the Athabasca Basin as a potential consolidator in some other jurisdictions that may be lagging behind a bit on valuation.

TER: You raised your target for Cameco from $25/share to $26/share. Are you expecting the rise to continue there?

DS: Despite the recent run-up in shares, we think there’s a good chance of further strength. Cameco is the industry’s blue-chip stock. It’s the one everyone thinks of when they think of uranium. Given its size and liquidity, it is the only stock many of the big institutional fund managers can invest in. With that backdrop, we think it’s going to be the first stock for fund flows as the space continues to rerate, especially as we get more confirmatory news about Japanese restarts and as Cigar Lake passes through the riskiest part of its ramp-up. We think it should be a very good 24 months for the company.

TER: What other companies do you like in the uranium space?

DS: We recently upgraded Kivalliq Energy Corp. (KIV:TSX.V) to an Outperform rating. Our target price there is $0.50/share. The company has been a laggard in the last few months, but it has Angilak, a solid asset in Nunavut with established high-grade pounds and huge growth potential. Current resources stand at 43 Mlb, but we think there is well over 100 Mlb of district-scale potential. The company is derisking the asset by moving forward with engineering work, like metallurgy and beneficiation, ahead of a preliminary economic assessment potentially later this year. We’re also excited to see what comes with the newly acquired Genesis claims that sit on the same structural corridor that hosts all the mines of the East Athabasca Basin.

We also like Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT), on which we have an Outperform rating and $2.20/share target price. This stock has been on a major tear. We continue to expect great things from Lost Creek in Wyoming. Early numbers from the mine, which just started up in August, have been hugely impressive to us, a testament to the ore body and execution by management. And the financial results should be equally strong, given the company’s high fixed-price contracts. In all, it’s a solid, low-cost miner in a safe jurisdiction, which we think should be in a good position to grow production organically or, using cash flow, buy up cheap assets in the western U.S., a region ripe for consolidation of in-situ leach uranium assets.

TER: Do you have any parting words for investors in the uranium space?

DS: I would just say we think the uranium price is going higher over the next 12–24 months. So in anticipation of that upswing, we recommend investors take a hard look at high-quality uranium stocks today.

TER: You’ve given us a lot to chew on. I appreciate your time.

DS: It’s my pleasure, as always.

David Sadowski is a mining equity research analyst at Raymond James, and has been covering the uranium and junior precious metals spaces for the past seven years. Prior to joining the firm, David worked as a geologist in western Canada with multiple Vancouver-based junior exploration companies, focused on base and precious metals. David holds a Bachelor of Science in Geological Sciences from the University of British Columbia.

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