Author Archives: prosperitysaskatchewan

BHP won’t rush to follow Rio to automate as its manned trucks beat robots

BHP won’t rush to follow Rio to automate as its manned trucks beat robots

  • by: Matt Chambers
  • From: The Australian
  • October 20, 2014 12:00AM

BHP Billiton’s mining truck drivers are outpacing their robotic counterparts when it comes to efficiency and loading at West Australian iron ore mines, indicating the miner is a long way from any decision to follow rival Rio Tinto in a large-scale driverless truck rollout.

For a little more than a year, BHP has been trialling Caterpillar autonomous trucks at its newest Pilbara region iron ore mine, Jimblebar.

The trial was recently extended to March and a decision to add three more trucks to the nine-truck fleet was taken.

But despite autonomous Caterpillar trucks making up a little over a third of the 25 trucks at the overperforming Jimblebar — the mine came on early, ramped up quicker than expected and will now produce more than flagged — they are only moving 16 per cent of the dirt and ore.

The fact annual truck hours in the manned fleet across BHP iron ore have grown from 4500 to more than 6000, a one-third improvement, is a big factor.

“We’ve seen a very material improvement in the manned truck productivity level,” BHP iron ore mines boss Eduard Haegel said at the company’s Perth office last week

“Every time the autonomous truck improves a little bit, the manned truck improves just as much, so, as it stands today, the manned truck team is out-­competing the autonomous fleet.”

BHP has been a slower mover on autonomous haulage than the more technology-embracing Rio.

Rio began its program in 2008 and now has a fleet of 53 Komatsu trucks working in the Pilbara. It plans to lift that number to 150, or nearly half its entire fleet, by the end of next year. One difference between the Caterpillar trucks (which Fortescue Metals Group is also trialling) and Rio’s Komatsu trucks is that there is more on-board intelligence in the Caterpillars. Jimblebar mine manager Tim Day said it was a matter of pushing on with the trials. “It is showing positive signs but there is still a way to go for autonomy,” he said. “It has some inefficiencies in some areas compared to manned (trucks) … so we’re very deliberately trying to figure out how to make it smarter.”

One issue was that the autonomous trucks turned more slowly than trucks with drivers.

JPMorgan analyst Lyndon Fagan, who toured Jimblebar earlier this month, said the key problems appeared to be truck speed and that the safety systems on the trucks meant they were often “spooked”, meaning too many stoppages.

Autonomous drilling of holes for explosives was going better, Mr Haegel said. “We’re very happy with how that’s going.”

Fuel energy density

Uranium paper

Sask. growth slows in 2014, expected to rebound in 2015

  • 18 Oct 2014
  • Leader-Post
  • LEADER-POST

Sask. growth slows in 2014, expected to rebound in 2015

Saskatchewan’s economy will slow to 1.0 per cent growth this year, down from a healthy 4.8 per cent in 2013, but rebound to 2.7 per cent growth next year, according to the latest economic forecast by BMO Economics.

A fall in crop production is the major cause of the precipitous drop in economic output, as measured by real gross domestic product (GDP), BMO said.

“The farm sector enjoyed a bumper crop in 2013, with a near 40 per cent jump in crop production to a record 38.4 million tonnes,” said Robert Kavcic, senior economist with BMO Capital Markets.

“This year, however, production is expected to fall sharply back toward more normal levels, with recent estimates pegging wheat and canola down more than 20 per cent for the year. That could cut almost 1.5 percentage points from real GDP growth.”

In addition to the volatility in agricultural production, the province is also dependent on the oil and gas industry and mining sector for a significant portion of its economic activity and government revenues.

“The oil sector continues to expand, accounting for nearly 20 per cent of the province’s real GDP with direct royalties alone accounting for 13 per cent of total government revenues,” Kavcic said. “This is good news given uncertainty and softening activity in the potash sector, which faces weaker demand in China and India, as well as a shift to a lower pricing environment after the breakdown of a major joint venture between Uralkali of Russia and Belaruskali of Belarus.”

But Kavcic added that “downside risks have opened up with the recent slide in oil prices,” especially for oil and gas-rich Alberta, but all provinces with exposure to oil prices. “Pound for pound, Saskatchewan would likely be hit somewhat less hard … while Newfoundland and Labrador will face the steepest revision.”

The labour market continues to perform well, and the province is making a case to be crowned the new Canadian leader. “Employment has popped 3.3 per cent in the past year — leading the country,” said Kavcic. “The jobless rate fell back down to 3.5 per cent in September — lowest in Canada — and the employment rate hit a record high at just under 68 per cent, second among all the provinces. Median hourly wages trails only Alberta, but its growth is actually running faster.”

Population growth remains strong in the province — close to the fastest pace in 60 years — at 1.7 per cent year over year in the third quarter of 2014. “Saskatchewan continues to see steady, albeit modest, inward interprovincial migration,” Kavcic said. “That continues to support the demand side of the housing market — sales are currently near record levels — but ample supply has softened the pricing environment.”

Oil prices not troubling Wall

7 Oct 2014
The StarPhoenix
EMMA GRANEY egraney@leaderpost.com Twitter/LP_EmmaGraney
LEADER-POST
Oil prices not troubling Wall
Slumping value could affect budget
REGINA — The global oil glut is offering a sweeter deal at the gas pump, but it may not be so great for the province.
Premier Brad Wall is keeping his eye on the slump in oil prices which, over the past two weeks, has driven down prices for Canadian consumers by more than 15 cents per litre.
Per barrel, the slide saw prices fall from around $95 on Oct. 1 to $85.82 on Thursday.
When the budget was released in March, the province banked on $94.25 per barrel.
That was upped in August to $99.89 and, given that the first six months of the budget year saw higher oil prices than expected, Wall didn’t seem too concerned about the lost revenue side of things on Thursday.
But if prices remain low, Wall said the government is going to have to “work hard to contain costs” to maintain a balanced budget.
He didn’t say what exactly that would mean for the province, nor could a Finance ministry spokesman guess what steps the government might take if the situation continues.
Another point of concern is possible job cuts in the oil sector if the price of oil remains low and production stalls.
“Right now, we’re watching it carefully,” Wall said.
Around 11 per cent of Saskatchewan’s revenue, $1.56 billion, comes from oil sector royalties. Other nonrenewable sources — potash and uranium, for example — make up another eight per cent.
That’s less than the $6.8 billion taxes bring in, but cash from non-renewables helps provide the provincial budget with some flexibility.
And that “wiggle room,” says Ken Rasmussen, professor of public management at Johnson-Shoyama Graduate School of Public Policy, is incredibly important.
When asked how Saskatchewan would fare with lower oil prices, Rasmussen said one word without hesitation: “Badly.”
“This is not good news,” he said.
“Our governments — both the NDP and this government — staked a lot on resource royalties in terms of funding the budget, and that’s the danger.”
Jeff Welke, spokesman with the Ministry of Finance, was more cautious in his assessment of the impact of oil prices, saying “it’s difficult to make entireyear projections based on a couple of weeks.”
The mid-year projections due at the end of November, he said, would provide a clearer picture for the province.
If oil prices do continue their slump, Rasmussen hopes it doesn’t result in a “slingshot budget,” which could throw uncertainty into the economy.
Wall remains confident that a combination of factors — the higher-than-expected oil prices early on, the value of the Canadian dollar and Saskatchewan’s “diversified economy” — mean the province is “still on track” for a balanced budget.

Three ways to play uranium: Dundee’s David Talbot names his top draft picks #uranium

Three ways to play uranium: Dundee’s David Talbot names his top draft picks

The Energy Report | October 16, 2014

Investors in the uranium space are like Goldilocks: They have three major ways to play, says David A. Talbot, senior mining analyst at Dundee Capital Markets. The Athabasca Basin entices with high rewards for high risks. U.S.-based in-situ recovery offers stable cash flow from stable operations. And companies challenged by current market prices that are positioning themselves smartly for an upswing also provide opportunity. In this interview with The Energy Report, Talbot explains the turbulent currents roiling the uranium space, and names eight players he thinks are positioned just right.

The Energy Report: David, the uranium spot price has recovered to a 52-week high of about $35 per pound ($35/lb) after nearly three months in the doldrums. What drove the rise?

David Talbot: This uranium price rally is due to a few temporary news items, and perhaps one real supply/demand story. The Cameco Corp. (CCO:TSX; CCJ:NYSE) strike was a driver, as it was headline news, but now the strike is over. It wouldn’t have impacted the market anyway, unless it had lasted for several months, but investors did get excited.

There is risk with regard to Russia due to increasingly harsh sanctions, but this is simply a worry at this point. We have a hard time believing that Europe and the U.S. are going to cut off 24% and 18%, respectively, of their own nuclear fuel sources. If the cuts do happen, the impact might be huge, however.

Finally, ConverDyn Corp. (private), the U.S. uranium converter, is suing the U.S. Department of Energy to stop it from dumping stockpile supply into the spot market to the detriment of uranium companies and converters.

But the spot market is tighter due to a decrease in spot supply. Paladin Energy Ltd.’s (PDN:TSX; PDN:ASX) Kayelekera Mine, which used to sell 3.3 million pounds (3.3 Mlb) of U3O8 in the spot annually, is now closed. Paladin sold a 25% interest in Langer Heinrich Mine to the Chinese. That 1.3 Mlb used to be sold in the spot, and now it’s going directly to the China National Nuclear Corp. Uzbekistan has annual production of 6.2 Mlb of U3O8. I believe only 1 Mlb of that was contracted previously, and most of the rest had been sold into spot. Combined, that’s about 10 Mlb removed from annual spot sales, not to mention lower spot sales from Uranium Energy Corp. (UEC:NYSE.MKT), Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT) and other producers that have curtailed production at these prices. I think the longer prices stay down, the less incentive there is to develop projects or continue mining at some operations.

TER: The price is back up to where it was stalled for a number of months earlier. Do you think it’s going to continue to rise?

DT: We’re not confident that we are in a sustainable price rally. We might see a leveling off or rebalancing in the $30–35/lb range. We really don’t expect the price to sink back down below $30/lb. Until we see meaningful supply cuts and Japanese restarts spurring uranium purchases, the market remains oversupplied, perhaps through 2017, by our estimates.

TER: The spread between spot and contract price is shrinking. What’s your estimate for 2015 for both of those prices?

DT: The spread shrank as the spot price rose, and the term price remained stagnant over the same period. Historically, there was no spread between these two prices, but starting about 2005–2006, when investors started to buy spot uranium, we did see a separation. It’s likely that utilities won’t contract as much uranium with such a large spread, and that’s why term volumes are down so much, in part.

Recently, the spread between spot and term dropped to about $7.50/lb. That’s almost a three-year low. Over the past decade, the average has been about $10.50/lb. Our price forecast for 2015 is $40/lb for spot U3O8, and $58/lb for term U3O8. We expect to start seeing an influx of term contracting to cover future uranium requirements by the nuclear utilities, which is very important. Term contract volumes have only been 85 Mlb combined over the past two years, versus about 350 Mlb that has physically been used in the reactors. Term volumes have more than tripled over last year, but still, something has to give.

The Ux Consulting charts of uncovered uranium requirements at reactors show a steepening slope on the graph, suggesting that the urgency of procuring fuel is increasing. This happened in 2005–2007, when many utilities rushed to the market at the same time and prices rose dramatically. When the heavy contracting was done, the line on the chart flattened and prices fell. As we’re seeing an increasingly steep uncovered requirement trend line again, we believe when contracting does begin, it will feed off itself, specifically for 2017 and beyond, and prices could take off.

TER: The term price on the charts that I’ve seen has fallen to $44/lb. If that continues, what would it mean for the economics of mining?

DT: It doesn’t look good for the economics of mining. Broadly speaking, only about 100 Mlb of annual supply is economic at the $34/lb level. Considering corporate costs, debt and other reasonable returns on capital, that number would probably be lower. Very few operating companies can actually make profits, except perhaps ultralow-cost mines in Kazakhstan, and maybe some U.S. in-situ recovery mines (ISRs) as well. Most will rely on long-term contracts at higher prices to generate positive cash flow.

World averages for production costs are about $50/lb for open-pit mining, about $45/lb for underground mining, which tends to be higher grade, and $38/lb for low-cost ISR. We see potential for further shutdowns, like the Rossing uranium mine in Namibia (Rio Tinto), if prices persist at these levels. The lack of margin also eliminates much of the incentive for investors to finance projects.

TER: What is the progress on the restart of the Japanese nuclear power sector?

DT: Kyushu Electric Power Co. Inc.’s (9508:TKY) two Sendai reactors have been approved by Japan’s Nuclear Regulatory Agency (NRA). On Sept. 10, the NRA said that the two reactors met safety requirements for restart. The reactors still have to pass operational safety checks and win the approval of local authorities. While there are hurdles, this is the closest we have been to restarts post-Fukushima, and many expect first restarts in Japan early next year.

We believe that 13 of the 19 Japanese reactors that have applied for restart have some degree of local support; those should be easier to get back online. Many investors are focused on the negative, but it’s important to note that Japan represents only 10% of world demand for U3O8. Germany, the poster child of Western powers getting away from nuclear, would have been down to 2% of demand anyway by 2020, even before its decision to exit. The other 88% of the world still needs uranium to run its nuclear power plants, and the number of plants being built continues to rise.

Japan is still taking delivery of much of its contracted uranium. Although it is lending some, large inventories have been built up. I expect that the contracts will be renewed in some fashion. The Japanese are relationship-driven, and probably won’t risk losing personal connections or access to product. Security of supply is important to the country.

People are interested in the long-term fundamentals of the industry. Almost everybody believes that demand for energy will continue to grow. Clean energy is preferred, as the effects of global warming become more prominent. Even oil-rich nations, such as United Arab Emirates and Saudi Arabia, are diversifying into nuclear. We expect several other nations to do the same as the need for low-cost, baseload energy increases—especially as electric vehicles begin to take hold. Initial capital for nuclear isn’t cheap, but solar, wind and other intermittent alternatives simply cannot provide baseload stability or cover large energy requirements. There should be a mix, and nuclear should be in that mix.

TER: What developments should investors be concerned about in the uranium space?

DT: People should be worried about underfeeding. For those who aren’t familiar with underfeeding, it’s a matter of keeping the centrifuge machines turning and putting more work into enriching uranium. The lower enrichment prices get with this technology, the less natural uranium the utilities require, which is not good for the producers. The utilities get their desired amount of enriched uranium, and what follows can be sold by the enricher without losing any additional U3O8.

With the U.S.–Russian Highly Enriched Uranium Agreement (HEU/Megatons to Megawatts Program) gone, enrichers have available capacity and have been enriching their own supplies. Just as worrisome, HEU supplies were sold into long-term contracts, but underfeeding supplies are being partially dumped into the spot market.

Underfeeding has always been around, but it appears that underfeeding supplies have increased by about 50% this year, to an estimated 5–15 Mlb worldwide. This underfeeding is the main reason why the HEU agreement end hasn’t had the market impact that many thought it would.

TER: What would you expect the effect to be on spot and term prices if underfeeding continues?

DT: It’s certainly going to slow down any rally in the uranium sector. The problem is, as long as uranium prices are low, enrichers are going to have excess capacity. As long as they have excess capacity, they’re going to continue to do enrichment work and provide more of a product that’s coming into the market at low prices. It’s an ongoing issue. Do I see that changing in the short term? Not necessarily. Before we see a fix in the underfeeding issue, I believe that the utilities need to get back to purchasing uranium, thereby using up much of this available enrichment capacity.

TER: What Canadian companies do you find interesting?

DT: Cameco is a top-tier exploration-producer. Essentially, it’s the only blue-chip stock in the uranium sector. We currently recommend Cameco with a Buy rating, high-risk. We have a $23.50/share target price on the stock, although Cameco’s share price has come off recently.

We believe that if uranium turns, Cameco is the go-to name for big money in the sector. The company has a large portfolio of high-grade, long-life, world-class and relatively low-cost operations. This top defensive play realizes uranium prices that are about 33% higher than spot prices at current levels. Cigar Lake is now operational, and we are waiting for it to ramp up, and risk does exist with the ongoing Canada Revenue Agency litigation, but the company’s low sensitivity to uranium price is important at these low prices.

Second, we like Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT), a highly liquid, well-capitalized, well-respected exploration and development play. We recommend Denison with a Buy rating, high-risk, with a $2.10/share target price.

Denison hosts about 174 Mlb of resources in total. It has significant high-grade U3O8 located predominately in the Athabasca Basin. The Phoenix project, for example, hosts 71 Mlb, and at 18.5% U3O8, is the highest-grade uranium resource anywhere in the world. Gryphon, its new discovery at Wheeler River, is a joint venture (JV) with Cameco. That suggests additional catalysts through the winter drilling months. Denison owns a portion of the McClean Lake Mill, and the startup of toll milling at Cigar Lake should add minor cash flow. In summary, Denison’s large, high-grade projects and access to the McClean Lake mill make the company a potential takeover target.

TER: The Gryphon Zone looks very promising. What is the significance of that discovery for Denison Mines?

DT: The Gryphon discovery is important for Denison, and helped buoy its stock earlier this year. Gryphon has reinforced the perception that Denison’s Wheeler JV with Cameco is a world-class project, and holds potential beyond the spectacular Phoenix deposit. Recent drilling helps add physical dimensions to this important discovery. It now measures about 350 meters (350m) long and about 60m wide. Downhole gamma probe results add to evidence of the existence of several stacked and parallel uranium zones. Assays confirm previously announced probe grades, but in many cases the assays come in significantly higher. Gryphon could be one of the better discoveries from the Athabasca Basin in recent years. It’s near mill infrastructure, it’s on the haul road between McArthur Mine and Key Lake Mill, it’s near some of Cameco’s most interesting exploration projects, it’s in basement rocks, which are preferred, and it could provide even more critical mass to the Phoenix deposit.

TER: “One of the better discoveries in the Athabasca”—that’s high praise given what I’ve heard about the basin.

DT: It certainly is. There has been a rash of discoveries in the basement in the past several years. In the past, not much attention was paid to the basement rocks, and basement rocks are more competent. They’re easier to work with, especially when they’re shallower. Unconformity deposits, hands down, are the highest-grade deposits, but it’s easier to work with basement deposits. Exploration for basement deposits has not been as prevalent, especially outside the Athabasca Basin, on the fringes beyond the limits of the sandstone. You wouldn’t find an unconformity deposit where the sandstone has eroded away, but you can find basement deposits in those areas, and that’s what we’re seeing at Patterson Lake South (PLS) and the Arrow discovery. It’s part and parcel of the evolving exploration methodology that people use to test the basement with these days.

TER: Do you have other top picks in the exploration and production space?

DT: These largely depend on clients’ needs, and how they wish to play the sector. We see three main categories of investors. Some like to see the high risk/reward ratio of the high-grade Athabasca Basin exploration. This investment doesn’t depend as much on current uranium prices, as timelines are well off in the future. Investors are more interested in how big these deposits might get. Denison and Fission Uranium Corp. (FCU:TSX.V) fall into this category.

Second, investors might be interested in a couple of U.S. ISR producers in the sweet spot of the development cycle. The exploration, development, permitting and financing of their new mines are complete, and they’re in the process of ramping up initial production. Ur-Energy started up last year, and Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.MKT) started up recently. Companies like these are, hopefully, going to provide increasing cash flow. That’s useful for investors.

Finally, investors with a view that uranium prices will rise may wish to get into the names that might be challenged at lower uranium prices, or companies preparing for that inevitable uranium price rise by responsibly advancing their portfolios of projects without spending too much money right now. This might include companies like Paladin Energy, Energy Fuels Inc. (EFR:TSX; EFRFF:OTCQX; UUUU:NYSE.MKT) and Uranium Energy.

I’ll start with the Athabasca explorers: Our top pick is Fission Uranium. We recommend Fission with a Buy rating, speculative risk, and a $2.10/share target price. The PLS deposit is a potentially world-class discovery. It’s shallow, high-grade, continuous, remains open in essentially all directions, and it’s a basement-hosted deposit. We believe the project hosts about 80 Mlb at about 1.6% U3O8, but with increased cutoff grades, its average grade rises dramatically without shedding that many pounds. At less than a buck per share trading, Fission seems like a no-brainer. The stock hasn’t been at this level since August 2013, and the company’s added perhaps 40 Mlb to its deposits since then. Fission’s also started contemplating mining scenarios. It significantly derisked the project, plus all 61 of its summer drill holes were successful at PLS. The company cannot miss. It’s likely that many investors are waiting for an initial resource, which is due by year-end 2014.

TER: What about ISR producers?

DT: As far as the U.S. ISR startups go, we recommend Ur-Energy with a Buy rating, high risk, with a $1.80/share target price. Production at Lost Creek in Wyoming has gone well in year one. Wellfields are performing nicely at the lower end of our cost curve at $20/lb. Due to current uranium prices, production was tapered back to accommodate selling exclusively into long-term contracts. Thus the operation is largely insensitive to price movements, as the company sells its uranium for more than $60/lb. Management is pretty excited about its Shirley Basin project. This is a recent acquisition from AREVA SA (AREVA:EPA) that should have even higher grades and better properties suitable to ISR mining.

We also recommend Uranerz Energy. We have a Neutral rating on the stock, high risk, and a $1.50/share target price. The stock has come off fairly strong recently. The company has long-term contracts that help cushion the impact of lower spot prices. Uranerz recently completed its first sale of uranium in the $50–60/lb range, by our estimate. Only about 200,000–300,000 lb (200–300 Klb) of production is hedged into contracts, suggesting that Uranerz might either slow its ramp-up or stockpile uranium in the hopes of higher prices down the road. This stock remains a favorite in the space, especially for some U.S. investors.

TER: What about your third category?

DT: In a rising uranium price environment, I suggest a few producers: Paladin Energy, Energy Fuels and Uranium Energy.

For Paladin we have a Buy rating, high risk, with a $0.60/share price target. This company is doing many things right. It continues to decrease costs, produce above mine design capacity, and improve its balance sheet, although there are a few risks still. The company recently sold 25% of Langer Heinrich Mine for $190 million ($190M). Most production was sold into contracts, but that portion was sold into the spot market. Kayelekera, which also sold in the spot market, is on the shelf until higher uranium prices return. This company has great leverage to rising uranium prices, and has been a top performing producer for the past three months.

Energy Fuels has a Buy rating, high risk, with a $14/share target. Operations feed into its White Mesa Mill in Utah, which is the only fully licensed and operational U.S. uranium mill, and it’s licensed for 8 Mlb of production per year. Energy Fuels is essentially 100% hedged, with sales of 800 Klb this year, opting only to sell into contracts. Most recently, sales were almost double those of spot prices. The company has some excellent contracts. Several operations remain on standby, or construction has been halted. Higher prices are required to unlock its vast pipeline, which includes projects in Wyoming and New Mexico, plus existing mines in Colorado, Utah and Arizona, which could lead to more than 4–5 Mlb of production company-wide. That would provide great leverage for this company.

On Uranium Energy, we’ve got a Buy rating, high risk, with a $2/share target price. While Uranium Energy is officially a producer, as it has some remnant ISR production, we prefer to treat it as a developer with access to a fully permitted and operational ISR plant. What’s overlooked is this company’s growth opportunity, with its Anderson project in Arizona and Burke Hollow and Goliad ISR projects in Texas. The company never overpays for acquisitions and is quite active from an acquisition standpoint. It has tremendous leverage to rising prices, and probably the best growth profile of the U.S. ISR producers. We do expect Uranium Energy to play catch-up as uranium prices rise.

TER: The share price trend for Uranium Energy has been consistently down for almost three years. Is that a cause for concern or an opportunity for an investor?

DT: I think that’s an opportunity. Uranium Energy is entirely unhedged. This is a company that doesn’t want to enter into long-term contracts, that believes uranium prices are going to rise in the future and wants full exposure to those rising prices. It worked last time around.

In 2010, Uranium Energy was the darling of the sector. The stock was a ten-bagger that year. It went from $0.50/share to $5/share as uranium prices rose dramatically. That was a volatile stock going up, and post-Fukushima it’s been a volatile stock coming down. This company will become exciting when Goliad, Burke Hollow, better wellfields at Palangana and Salvo come online. They’ll give it a tremendous growth profile going forward.

TER: Uranium prices are stagnant, but some exploration stocks are doing very well. That seems counterintuitive. Are these two indicators connected anymore?

DT: There are two main issues here: timeline to production and uranium pricing. Some companies have time on their side. Long-term explorers, like Fission Uranium and Denison Mines, are in the limelight due to potentially large high-grade discoveries. High grades are sexy no matter the commodity, but 1% uranium ore at current low prices is still almost $1,000/ton rock. Investors tend to be focused on discoveries, how big they might get, what the grades are, how they will impact economics, and what those economics might be. The projects are likely to be developed well off in the future, when uranium prices are expected to be higher. At least theoretically, these companies should be partially insensitive to short-term uranium fluctuations. Other companies do trade on uranium price movements—near-term developers that require financing and producers—although some mining companies should be more immune because they have the ability to sell their production into higher-priced contracts.

We’ve tracked investor sentiment in the sector for more than eight years now, using Uranium Participation Corp. (U:TSX) as a tool, comparing its share price with the underlying net asset value (NAV). We do recommend Uranium Participation: It’s Buy rated, high risk, with a $5.70/share target price, and is a great way for investors to get into a larger, liquid company that acts as a holding company for physical uranium. We see it as leaving the production risk, the permitting risk, the jurisdictional risks, and just buying the commodity.

Lately, however, this company’s usefulness as a tool has diminished because it has traded at about a 20% premium for most of this year, suggesting huge positive sentiment in the uranium equity market—although the stocks don’t necessarily reflect that. Now, between the recent uranium price rally and Uranium Participation being off slightly, essentially the stock is trading at par with its NAV. This is the first time since late 2013 that the stock has been down at these levels. I think it’s simply a matter of time before the stock corrects to the upside. I don’t think it indicates that investors believe uranium prices aren’t going to rise over the long term.

TER: Great. Thank you for your time, David.

Dundee Capital Markets Vice President and Senior Mining Analyst David Talbot worked for nine years as a geologist in the gold exploration industry in northern Ontario with Placer Dome, Franco-Nevada and Newmont Capital. Talbot joined Dundee’s research department in May 2003, and in summer 2007 took over the role of analyzing the fast-growing uranium sector. Talbot is a member of the Prospectors & Developers Association of Canada and the Society of Economic Geologists, and he graduated with distinction from the University of Western Ontario, with a bachelor’s degree in geology with honors.

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Source: Tom Armistead 

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Yara counts cost of failed merger talks with CF #potash

Yara counts cost of failed merger talks with CF

* 50-50 merger would not reflect CF capacity expansion-source

*  Our strategies, outlooks were too different -Yara CEO

*  Yara lost two chief executives during talks

By Soyoung Kim and Joachim Dagenborg

NEW YORK/OSLO, Oct 17 (Reuters) – CF Industries ended merger talks with Norway’s Yara International that would have created a $24.5 billion fertilizer producer, leaving Yara with nothing to show for a short-lived courtship that cost it two chief executives.

Chicago-based CF and Yara failed to agree the terms of a “merger of equals” to create a rival to market leader, Canada’s Potash Corp.

CF concluded that an all-stock deal did not adequately reflect the value of its near-term capacity expansions, said a person familiar with the matter after the breakdown of talks that were announced less than four weeks ago.

CF believed that a deal would require a share exchange ratio that exceeded the levels discussed when the two companies first started negotiations and would have to give it a meaningfully higher ownership than 50 percent, said the person, asking not to be named because the matter is not public.

Yara is likely to have to put large merger activity to one side as it repairs the damage after firing CEO Joergen Ole Haslestad this month who it deemed unsuitable to lead the talks with CF.

Svein Richard Brandtzaeg, who had been due to succeed Haslestad next February, changed his mind and decided to stay at aluminium producer Norsk Hydro three days after the merger talks were announced.

“It (a merger) is not on the table for the next six months. They need a new CEO,” said analyst Per Haagensen at RS Platou Markets, who has a “Neutral” recommendation on the stock.

“For CF, the story may not be over, there could be other candidates. The name Koch Industries keeps popping up.”

Koch Industries is one of the largest privately owned companies in the United States and has a fertiliser unit among its businesses.

DIFFERENT OPINIONS

A successful deal would have given Yara, the world’s biggest nitrate fertilizer maker, major production units in the United States, where costs are lower due to cheap gas.

CF would have gained a global footprint through Yara’s presence in 150 countries with production assets and a well established distribution network.

However, acting Yara CEO Torgeir Kvidal said it had proven more difficult than anticipated to unite the two companies.

“We spent a lot of time discussing our firms’ strategies and how they could be combined,” he told Reuters. “There were still a lot of differences.”

“We also saw that we had different understandings of how we see different markets in different regions and different products.”

Yara shares were up 1.36 percent at 297.5 crowns at 1050 GMT, having closed at 312.9 crowns before the talks were announced last month. Shares of CF, which closed at $253.85 on the New York Stock Exchange on Thursday, had fallen about 4 percent in after-market trading following the announcement.

Analysts said the failure of the talks, though disappointing for Yara, was perhaps inevitable.

“CF is a completely different company with a different culture,” said Daniel Johansson, an analyst at Oslo-based Fondsfinans.

“Yara is state-owned, fairly conservative with its dividend policy and has a very long-term strategy,” added Johansson, who has a “Neutral” recommendation

on the stock.

Acting CEO Kvidal played down suggestions that the Norwegian state’s ownership of a large stake in Yara played a part in the breakdown of talks.

“CF knew what the state had said about ownership. This was not one of the main points of our talks, this was something that was going to be addressed at a later stage,” he said.

The Norwegian government, which owns a 36.2 percent stake in Yara, said in June it would not cut its stake below 34 percent. Any change in that stance would likely require approval in parliament, which could be fraught as the government does not have a majority.

The companies had not revealed any terms of a potential merger. The proposed deal would have seen CF Chief Executive Tony Will lead the combined company as chief executive with Yara’s chairman of the board, Leif Teksum, to serve as chairman, the person familiar with the matter said.

Morgan Stanley and Goldman Sachs advised CF on the merger talks, while Yara was advised by Citi and Norwegian brokerage ABG Sundal Collier.

(Additional reporting by Gwladys Fouche and Balazs Koranyi in Oslo, and Kanika Sikka in Bangalore; editing by G Crosse and Keith Weir)

As oil prices plunge, the global oil showdown begins

As prices plunge, the global oil showdown begins
Jeffrey Jones
CALGARY — The Globe and Mail
Published Thursday, Oct. 16 2014, 9:34 PM EDT
Last updated Friday, Oct. 17 2014, 8:55 AM EDT
A plunge in world oil prices is forcing the producing countries of the Middle East, former Soviet Union and North America to rethink forecasts for output and what that might mean for their economies. The drop has suddenly brought into sharp focus an increasingly intense high-stakes battle for market share in an energy world that has gone from scarcity to abundance in less than a decade.
 OIl share
OPEC
Saudi Arabia, along with Kuwait and United Arab Emirates, will oppose any moves within the Organization of the Petroleum Exporting Countries to hold back production, even if they would help prop up prices, the Wall Street Journal reported on Thursday, quoting a Gulf OPEC official. The 12-country cartel is due to meet next on Nov. 27.
Saudi Arabia, OPEC’s most influential player, and its fellow producers have watched market share erode as a revolution in oil from shale formations has allowed the United States to sharply reduce imports. In September, their combined production hit a 13-month high amid weaker-than-expected demand in Europe and Asia, causing a glut that has put pressure on prices, according to the International Energy Agency.
Saudi Arabia’s production rose slightly to 9.73 million barrels a day. Its officials have long told nervous markets that the country is comfortable with Brent crude between $90 and $110 (U.S.) a barrel, though it has never promised to defend the range, according to FirstEnergy Capital Corp. analyst Martin King.
It has been resolute in defending its franchise, especially in Asia, where it reduced its official selling prices to customers. Market share is crucial to Saudi Arabia as it in the midst of a spending spree at home to improve living standards and diversify its economy, according to The Economist.
Iran, tied for third in OPEC production capacity, has struggled with weaker Asian demand. That and skidding prices put it in a precarious economic position, as it requires oil at nearly $140 a barrel to erase its budget deficit. Crude has not come close to that price since months before the financial crisis took hold in 2008.
Mr. King has projected that Brent crude could bottom out in the high-$70s a barrel if the OPEC members move toward co-ordinating to reduce supplies and the high-$60s by year-end if they do not.
Russia
It is the world’s third-largest oil producer behind Saudi Arabia and the United States, and revenue from its crude exports has fuelled President Vladimir Putin’s increasingly militaristic ambitions along its borders. So far, the fall in crude prices has not blunted them, despite worsening damage to the economy.
Russia derived half its federal budget revenue from mineral extraction taxes and export customs duties on oil and gas in 2013, according to the U.S. Energy Information Administration. That makes its economy highly sensitive to movements in crude markets. Global benchmark Brent oil, which sold on Thursday for $85.02 a barrel, has lost about a quarter of its value since the start of the year.
The country requires oil prices of $100 a barrel to balance its budget, according to The Economist.
Russia has flirted in years past with acting in concert with OPEC to take production off the market to rescue prices, but has shown no signs of doing so intentionally this time, even as global demand slows.
However, third-quarter production slipped from a year earlier, the first time that had occurred since the financial crisis nearly six years earlier, according to the IEA’s October Oil Market Report.
In mid-September, the United States and European Union announced their latest round of sanctions against Russia, prohibiting U.S. and European companies from providing goods and services to Russian deep-water, Arctic or shale projects.
The IEA predicted that the sanctions would have minimal impact on short-term production, but will hamper the country’s ability to offset declining output from older oil fields. As a result production is expected to average 10.9 million barrels a day in 2015, which would be down from this year’s estimated volume.
North America
A renaissance in oil production in the United States has brought dramatic change to the global oil movements. Output has surged to 8.5 million barrels a day from five million in 2006, and the U.S. Energy Information Administration has predicted output of 9.5 million next year. At the same time, imports have dwindled to 7.6 million (b/d) from 10.1 million. Canada is the only foreign supplier to have boosted U.S. market share.
As much as 70 per cent of the annual U.S. output gains come from three major shale deposits – the Bakken in North Dakota and the Eagle Ford and Permian in Texas, according to Manuj Nikhanj, managing director at ITG Investment Research.
The plays require active horizontal drilling and hydraulic fracturing, or fracking, operations to keep the oil flowing, with well costs running between $6-million (U.S) and $12-million each. Break-even oil prices for most of the major shale fields are between $60 and $70 a barrel, Mr. Nikhanj said.
It is doubtful crude prices in the current range will force producers to curtail operations, though reduced cash flow may prompt them to trim capital spending, especially as shaky capital markets make it tougher for companies to raise extra money by issuing shares or debt. The eventual result could be a slightly flatter profile for overall production gains.
In Canada, the Alberta oil sands have generated the bulk of new production. In recent years, developers expanded multibillion-dollar projects as congested pipelines backed supplies up within the province, at times leading to deeply discounted prices. Currently, that discount is unusually narrow. That, and the weaker Canadian dollar, have combined to keep realized prices for domestic heavy oil relatively steady in comparison with world prices. According to BMO Nesbitt Burns, it takes oil at $90 a barrel, on average, to develop and operate oil sands mines profitably, though well-established projects can run at much lower prices. All-in costs for steam-driven projects, which comprise most new developments, average $65 a barrel.

U.S. farmers seen cutting fertilizer use as crop prices slide #potash

U.S. farmers seen cutting fertilizer use as crop prices slide

By Rod Nickel

Thu Oct 16, 2014 1:49pm EDT

(Reuters) – U.S. farmers are cutting back on spreading fertilizer this autumn in response to a drop in crop prices to multi-year lows and a delayed harvest, dealers say, warning of a pullback that will be felt from grain markets to Canadian potash mines.

Ten of 12 U.S. farm retail companies surveyed by Reuters say fertilizer sales this autumn are lower than they were last year. The dealers, which span the country’s main growing areas, sell fertilizer, seed and chemicals.

Reductions in fertilizer use of an estimated 10 to 50 percent by volume could hit profits of producers such as Potash Corp of Saskatchewan (POT.TO) and Mosaic Co (MOS.N) since U.S. buyers typically pay a premium for some fertilizers such as potash.

Lower fertilizer use in the world’s biggest corn-growing country could also point to smaller yields and reduced U.S. corn production in 2015, depending on weather and the size of the planted area.

Some U.S. dealers say there is still time for fertilizer sales to recover to last year’s levels once farmers complete the harvest. But others fear a slump that could stretch into 2015 as low crop prices push purchases out of reach.

“We’re having customer after customer telling us they’re having trouble with their banks,” said Randy Stephens, president of Texas-based SureGrow Ag Products. He sees farmers cutting back by as much as 50 percent on autumn fertilizer usage.

Farmers also face dwindling credit availability based on projections that prices for next year’s crops will remain weak, he said.

Chicago nearby corn futures Cc1 earlier this month touched their lowest price since 2009 on expectations for the biggest harvest ever.

Dealers said farmers are likely to cut back on all three major nutrients – potash, phosphate and nitrogen – but especially potash and phosphate, which are not typically applied every year.

Joe Dillier, director of plant food at Growmark, a cooperative organization that spans 30 states, said fertilizer orders have been “non-existent”. But he expects a sales drop of only 10 percent as big yielding crops strip the soil of nutrients.

Farmers apply fertilizer from late October into early December, depending on the region, once the harvest is complete. The U.S. Department of Agriculture said on Oct. 14 that only 24 percent of corn was harvested, compared with the normal pace of 43 percent.

While corn, wheat and soybean prices fall, wholesale prices for granular potash and granular urea in the U.S. corn belt were up 7 and 13 percent year over year as of Oct. 10, according to data posted by Mosaic.

“There’s going to be some cutbacks because (crop) prices are poor and inputs are too high,” said Ralph Price, agronomy manager at Meadowland Farmers Co-op in Lamberton, Minnesota, who expects orders to fall 20 percent this fall.

Not all dealers are so bearish. The reduction in sales is likely to be modest because farmers will have good cash flow after the harvest, said Bill Wolf, president of the plant nutrient group at Andersons Inc (ANDE.O).

CUTTING BACK RISKY

Fertilizer producers have acknowledged the possibility of a demand drop-off, but emphasize that farmers risk smaller crops and profits by cutting back.

“This was a gigantic crop produced in the U.S. With that, there was a lot of phosphate and potash taken out of the soil,” Mosaic Chief Executive Jim Prokopanko said in a Sept. 30 interview. “That has to be replenished.”

Agrium Inc (AGU.TO), which produces fertilizer and operates North America’s biggest farm retail network, expects a normal fall application season, depending on when harvest wraps up, spokesman Richard Downey said.

Mosaic recently cut phosphate production due to rising costs, and Agrium warned its final two quarters of 2014 would miss profit expectations.

Potash Corp will be the first North American fertilizer company to report third-quarter results, on Oct. 23. Analysts expect earnings similar to those of a year earlier, when the potash market was reeling from diving prices.

“We see the pressure of lower grain prices building (and) that should slowly erode nutrient prices and share value,” Cowen Securities analyst Charles Neivert said in a note on Oct. 10.

A possible shift in planted acres next year from corn to soybeans, a crop that uses less fertilizer, may also crimp demand.

When sales to farmers dry up, retail dealers usually stock less inventory from wholesalers, a group that includes CF Industries Holdings Inc (CF.N) and Koch Industries Inc [KCHIN.UL]. But with huge crops backing up the transportation of many commodities, some dealers are buying supplies when they can.

“I’ve never seen a year where you can’t get product into our places and then once you get it here, you don’t know if you can sell it to anybody,” said Meadowland’s Price.

(Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Jeffrey Hodgson; and Peter Galloway)

Saskatchewan’s side of Lloydminster’s population growth leaps past Alberta’s

From Brad Wall’s Facebook page this morning:

Population growth in Lloydminster

SASKATCHEWAN CROP REPORT FOR THE PERIOD OCTOBER 7 TO 13, 2014

CROP REPORT FOR THE PERIOD OCTOBER 7 TO 13, 2014

Released on October 16, 2014

DETAILED REPORT AT Crop Report Backgrounder

Significant harvest progress was made this past week thanks to warm and dry weather, according to Saskatchewan Agriculture’s Weekly Crop Report.  Eighty-nine per cent of the 2014 crop is now combined and eight per cent is swathed or ready to straight-cut.  This is right in line with the five-year (2009-2013) average of 91 per cent combined and seven per cent swathed or ready to straight-cut.
Harvest is furthest advanced in the northwestern region, where 96 per cent of the crop is combined.  Ninety-five per cent is combined in the northeastern region; 94 per cent in the southwestern and west-central regions; 83 per cent in the southeastern region; and 79 per cent in the east-central region.  Many producers have finished harvest operations while others will need at least another week or more of warm and dry weather.
Ninety-four per cent of lentils, 93 per cent of mustard, 92 per cent of canola, 90 per cent of durum and barley and 88 per cent of spring wheat have been combined.
The majority of the province did not receive any rain this past week, although the Kindersley area reported 12 mm over the weekend.  Across the province, topsoil moisture conditions on cropland are rated as 11 per cent surplus, 83 per cent adequate, five per cent short and one per cent very short.  Hay land and pasture topsoil moisture is rated as seven per cent surplus, 82 per cent adequate and 11 per cent short.
Very little crop damage was reported, although high levels of fusarium head blight are being reported in many areas.
Livestock producers are indicating adequate amounts of hay, straw, greenfeed and feed grain for their winter feeding supplies.
Farmers are busy harvesting, hauling bales, moving cattle and completing fall work.
Follow the 2014 Crop Report on Twitter at @SKAgriculture.
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For more information, contact:
Shannon Friesen Agriculture Moose Jaw Phone: 306-694-3592

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