BALTIMORE, MD -- Even though the Calgary Resource show is generally focused on minerals, there was still a lot of talk about oil and energies. And it wasn't just because Calgary is an oil town.
The truth is, there are still scores of fundamental indicators that support much higher oil and natural gas prices...geopolitical tensions in major oil producing regions, supply constraints elsewhere, and the ever increasing demand for the black stuff are just a few. However, there is almost no valid rationale that would suggest significantly lower prices in the coming years.
Yes, it's true that there are still discoveries being made as new technologies make finding crude a bit easier, cheaper, and less time consuming. But these discoveries are really insignificant in the big picture.
The last noteworthy discovery was made late last summer by Chevron at the company's Jack oil well in the Gulf of Mexico. The press had a field day splashing, New Oil Field in Gulf May Yield Billions of Barrels (The New York Times) and U.S. Oil Reserves Could Grow by 50 Pct. (Houston Chronicle) touting that this new discovery could contain "up to 15 billion barrels of crude".
But even if there really are 15 billion barrels of oil in the ground down there...which is still left to be proved...it certainly doesn't mean that a huge supply of cheap oil will be hitting the market anytime soon. It will undoubtedly take several years and tens of billions of dollars to bring this oil to the open market. This is a deep sea well, and it's going to take a lot of capital to get that oil out of there.
The truth is global oil discovery peaked in the early 1960s. Since that time the number of elephant oil fields being found has declined dramatically. And it doesn't take a rocket scientist...or a petroleum geologist for that matter...to figure out that without new major discoveries, world production simply won't be able to keep up with ever increasing demand.
Many of the world's new energy technologies are being developed in countries outside the United States. Germany, for example, is mother to the modern solar industry. The Danes have all but cornered the wind industry with the now-famous Vestas Wind Systems. Green Chip International is taking full advantage of this phenomenon. Its latest German solar recommendation is up about 11% in under two weeks. Everyday, international renewables companies are delivering monster gains.
So, in general, I'm very bullish on energy in the long-term.
Of course I don't have a crystal ball, but I think it's completely realistic to assume that crude oil will average around $70 a barrel this year and may even top $80 if* the U.S. gets itself in a scuffle with Iran. (*Most people that I talk with would exchange that "if" with "when". But speculating major geopolitical events is not my business.)
Natural gas should have a strong year too. I expect prices to range between $8 and $9/Mcf in 2007. And the fact is, I think the fundamentals for higher natural gas are even stronger than oil.
One of my major concerns with natural gas right now is imports from Canada to the U.S. About 95% of U.S. natural gas imports are from Canada. However, Canada will need to divert much of this supply...which accounts for about 3.8 trillion cubic feet of gas per year... to run the country's oil sands operations. So currently trading for about $7.60/Mcf, I think the upside potential to natural gas and natural gas producers and explorers is huge right now.
Uranium
Oil and gas aside, the big talk at the Calgary conference was of uranium. No big surprise, right?
Uranium is the flavor of the month and there's no denying it. So it's expected that everyone will be cheerleading the energy metal. If the price of lima beans increased 1,087.5% in the last five years, like uranium has, everyone would be talking about them. And public companies would have or would be in the process of acquiring lima bean farms.
Now I have get credit to all who spoke on uranium. The general attitude towards junior firms that explore for uranium was cautious at best. Because the truth is, even though UXC.com reports the spot price of uranium is $95/pound right now, the radioactive metal sells based on long-term contract prices, which are nowhere near $95 a pound.
So when evaluating junior uranium firms your best bet is to evaluate their resource based on a much lower figure...say $40 or $50 a pound. If a company can't make it at those prices, then you might want to reconsider.
Truth is, there's a lot of crap out there. Many...but not all...companies are just trying to take advantage of ignorant investors by hyping their uranium properties. In fact, one of the things I noticed at the Calgary show was that most of the companies exhibiting had some sort of uranium property.
And here's the thing...
There are somewhere between 500 and 600 exploration companies with uranium properties right now. And simple logic suggests that there aren't that many good properties. So just be careful when investing your hard earned money.
I suggest looking for firms with big, high-grade tonnage...anything above 1% would be great.
Now the most important thing with uranium exploration companies is not the property...it's the guys behind it. Without the right management and technical team with good uranium exploration and development experience that know how to take a project from exploration to production, it doesn't matter how big or potentially spectacular a property is. That's like having a brand new Ferrari and not knowing how to drive it...it's no good to you.
I'm not trying to talk you out of investing in uranium stocks. I like uranium and I think there's still some upside. The supply/demand conundrum is still way out of whack and I think we'll continue to see strength in prices during this year. My point is just to be careful. I think...and many other analysts will agree...that the pricing of most junior uranium exploration firms are well overvalued.
So do your research and don't jump into anything half-cocked. I wouldn't buy the first car I drove nor marry the first girl I met. And I don't think you would either. Do your DD.
Panel Picks
A panel of speakers gave their top uranium picks in a discussion on Saturday morning.
- Lawrence Roulston of Resource Opportunities likes Crosshair Exploration & Mining Corp., Pacific Ridge Exploration Ltd., ESO Uranium Corp., and Freewest Resources Canada Inc.;
- John Kaiser, editor of The Bottom Fish Report, is hot on International Wayside Gold Mines Ltd. and Bitterroot Resources Ltd.;
- Big Picture Speculator author, Jim Letourneau, said he likes Trigon Uranium Corp. and Pitchstone Exploration Ltd.; and
- Dr. Michael Berry of Morning Notes likes Energy Metals Corp. and Quaterra Resources Inc.
Now I'd like to talk about a few companies that interested me while walking around.
Happy Creek Minerals Ltd. (TSX-V: HPY)
Happy Creek Minerals Ltd. is a junior exploration firm looking for copper, molybdenum, tungsten, gold and silver, in British Columbia. The company's strategy involves 100% owned mineral properties that are close to existing and past-producing mines, and have infrastructure in place to allow lower-cost exploration, development and production.
East Asia Minerals Corp. (TSX-V: EAS)
East Asia is focused on acquiring and advancing world-class East Asian gold and copper-gold assets. The company is currently exploring a copper oxide project and a portfolio of uranium projects in Mongolia, is completing due diligence on 4 advanced gold and gold copper projects in Indonesia and is negotiating specific, high quality projects in China and elsewhere in Indonesia.
Northern Freegold Resources Ltd. (TSX-V: NFR)
Northern Freegold has a very interesting story. The company began during the bear market in junior mining of the 1990's and focused on the Mt. Freegold area of south-central Yukon. During this period management was able to take advantage of these conditions by assembling a very impressive land package (64 square miles) by way of property acquisition and consolidation. This land package, the Freegold Mountain Project, includes a number of mineralized zones that host established inferred resources totaling 700,000 ounces of gold. Known gold occurrences - in excess of 15 - within this project provide the opportunity to expand this resource plus an excellent environment for new discoveries.
Eagle Plains Resources Ltd. (TSX: EPL)
Eagle Plains is a junior exploration company aggressively exploring for minerals in Western Canada. The company currently controls over 35 gold, silver, uranium, copper, molybdenum, zinc and rare earth mineral projects, two of which contain NI 43-101 compliant Inferred Resources.
MetalCORP Ltd. (TSX-V: MTC)
MetalCORP is a Canadian junior resource company with offices in Toronto and Thunder Bay. Below you'll see some beautiful core from the company's Big Lake property. The 100% owned Big Lake Cu-Zn-Ag-Au VMS property is located in the Mussy Lake map area, approximately 30km southeast of Marathon, Ontario and 300 km east of Thunder Bay. The property consists of 399 claim units covering an area of 15,775 acres.
Until next time,
Luke Burgess
Gold World
