The Nuclear Option

In This Issue: The Nuclear Option What's Your Oil Company Worth? IPO Record In Sights Get 5 of My Favorite MLP Picks Right Now for Free Perfectly positioned to reap the rewards of the U.S. energy boom, these 5 rock-solid partnerships yield an average of 7.6%. Buy them now and they will repay you with rising income for years to come. Click here for more. The Nuclear Option 11/20/2014 By Thomas Scarlett The search for cleaner sources of energy is one of the most important long-term trends of our time. For all the fuss raised by anti-nuclear activists, the fact remains that nuclear power is a lot cleaner on a day-to-day basis than oil or coal. So the demand for uranium should remain steady in coming years. One company that is well-positioned to profit is the little-known Canadian firm Cameco Corp. (TOR: CCO). Cameco is the world's third-largest uranium producer, providing about 15% of the world's production from mines in Canada, the U.S. and Kazakhstan.It holds about 443 million pounds of proven and probable reserves, extensive resources and about 4.9 million acres of the world's most promising uranium exploration properties. The company is also a leading provider of nuclear fuel processing services, supplying much of the world's reactor fleet with the fuel to generate one of the cleanest sources of electricity available today. Cameco is in fact the world's largest publicly tradeduraniumcompany, and is based inSaskatoon, Saskatchewan. The company was formed in 1988 by the merger and privatization of two corporations: the government-ownedEldorado Nuclear Limited(known previously as Eldorado Mining and Refining Limited) and Saskatchewan-basedSaskatchewan Mining Development Corporation(SMDC). The initial public offering (IPO) for 20% of the company was conducted in July, 1991. Government ownership of the company decreased over the next eleven years, with full privatization occurring in February, 2002. In 1996, Cameco acquired Power Resources Inc., the largest uranium producer in the United States. This was followed in 1998 by the acquisition of Canadian-based Uranerz Exploration and Mining Limited and Uranerz U.S.A., Inc. Last year, Cameco produced 24.8 million pounds of uranium from five operating mines. McArthur River, based in Canada, is the company's single largest mine with Cameco's share of 2011 output totaling 13.9 million pounds. The ore mined from the McArthur River site is extremely rich in uranium with an average ore grade of 16.89 percent. To put that into perspective, the ore grade at the mine is 100 times higher than the global average for producing uranium mines. Consequently, Cameco has to move far less pay dirt and ore to produce the same amount of uranium as most other producers. McArthur River is not only one of the world's largest mines but it's one of the world's cheapest to produce, allowing Cameco to earn profits even when uranium prices are weak. That's one reason Cameco was able to survive the long downturn in uranium prices through much of the 1980s and 1990s. Cameco's second-largest mine is Rabbit Lake, also located in Canada. With an ore grade of less than 1 percent, Rabbit Lake is not as rich a deposit as McArthur River but the mine has been in production since 1975 and continues to produce around 3.7 million to 3.8 million pounds of uranium per year. Cameco is spending capital on the exploration of areas just outside the current mine site and is also working to upgrade the mine to boost output. Rabbit Lake is an old mine but should continue to produce as the firm's exploration and upgrade work extend the life of the mine. The company plans to mine around 2 million pounds of uranium from its Smith Ranch-Highland mine site in Wyoming this year. Unlike the firm's larger McArthur River and Rabbit Lake mines, Smith is an in-situ project, which means water is pumped underground where it dissolves the ore and is pumped to the surface. On the surface, Cameco separates the uranium oxide from the water pumped through the mine. Cameco is the 60 percent owner of a joint venture called the Inkai Limited Liability Partnership to mine a site in South Kazakhstan. The firm has partnered with Kazakhstan's state-owned uranium company, Kazatomprom, on this project. The company has a long-term goal called "Double U," a plan to boost production to around 40 million pounds per year by 2018. It's unclear if Cameco will actually meet that goal or be forced to push back the timetable but it is one of the only uranium companies in the world with the capacity to grow mined output in the near-term. Central to that task is the development of 50.025 percent owned Cigar Lake, a mine project in Canada with an average ore grade of 18.3 percent, even higher than McArthur River. Cameco employs a conservative marketing strategy, selling around 40 percent of its production under long-term contracts at fixed prices that provide a cushion when uranium prices are low. The company issued a somewhat disappointing earnings report in October and the market overreacted, sending the stock down by more than 20 percent. The recovery of the stock price is already under way, as investors focus again on the firm's strong fundamentals. But it's not too late to profit. Cameco is a buy up to 28. Tom Scarlett is an investment analyst with Personal Finance. It could happen tomorrow… Will you be ready? In the mid-1970s, the U.S. had negative real interest rates for 13 consecutive quarters. It set the stage for an inflation crisis with prices soaring 13.5% a year by 1980. Today, the U.S. has had a negative real interest rate for a record 19 consecutive quarters. If history repeats itself, will you be ready? The good news is that there's a way for shrewd investors to protect and even grow their wealth during difficult times. Don't sit around while the government's fiscal recklessness slowly siphons money from your bank account. Take action today by going here. What's Your Oil Company Worth? 11/20/2014 By Robert Rapier Understanding the Standard Measure There are a number of important metrics that go into determining a fair value for an oil and gas company. Near the top of the list is the value of its oil and gas reserves. There are plenty of other considerations -- such as quality of management, geographical locations of the reserves, level of debt, and success at replacing reserves -- but without a good metric for comparing the proved reserves of different companies we would be flying blind. The Securities and Exchange Commission (SEC) requires oil and gas companies to estimate the year-end value of their proved reserves in the annual 10-K filing. Recall that proved reserves can be either proved developed (PD) or proved undeveloped (PUD) -- and both are used in this yearly calculation. PD means the resource can be produced with existing or minimal investment, while PUD may be booked as "proved reserves" if the development plan for those reserves provides for drilling within five years. The calculation required by the SEC is called the "standard measure," and is the value of the proved reserves after production and development costs and future tax obligations have been deducted. Most companies also report something called a PV10, also sometimes called "future net revenues," in which future tax obligations have not been deducted. This pre-tax PV10 is a non-GAAP measure, and so there can be differences in how different companies arrive at their conclusions. (GAAP stands for generally accepted accounting principles, the most formal and inflexible set of rules for assessing a company's finances.) But the standard measure allows for a more apples-to-apples comparison between companies. The way this is calculated is that companies estimate the relative percentages of oil, natural gas, and natural gas liquids in their proved reserves and then make some pricing assumptions about each of these fractions. Finally, future net cash inflows are discounted using a 10% annual discount rate to arrive at a final value. Obviously the pricing assumptions that go into these calculations are critical. If prices change substantially relative to the assumptions made, or if a company's production and development costs are different than projected, this will change the standard measure calculation. For example, if oil prices fall sharply and a company becomes unable to justify the five-year development timetable then it may be required to reduce its reserves estimate. This reduction in proved reserves can occur even if though the resource still exists. But the reverse is true as well. Sharp increases in price can cause some resources to be moved into the reserves category. An Example As an example, let's take a look at the discounted future net cash flow for ConocoPhillips (NYSE: COP) for 2013: ConocoPhillips' discounted future net cash flow. Source: company 10-K The calculation shows that the net future value of the company's global reserves was $77.5 billion at the end of 2013. The company's current Enterprise Value (EV) is $103 billion, which is just slightly ahead of where it was at yearend. But note the assumptions that go into the calculation. From the document: "Twelve-month average prices are calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period. For all years, continuation of year-end economic conditions was assumed." For most of the company's global operations, the average price for crude oil was over $100 per barrel (bbl). The company notes the following sensitivities to oil and gas prices: ConocoPhillips' income sensitivity to commodity prices. Source: 2014 company presentation With global oil prices down some $30/bbl since the end of 2013, it's clear that the impact of lower oil prices on the annual earnings is around $5 billion. This trend will lower the discounted future net cash flow of most oil companies (which is also affected by changes in production), and it may result in reductions of proved reserves for some companies at year end. Conclusions While oil stocks have taken a beating since the summer, the extent of the losses varies greatly. Our goal is to find those that have been disproportionately and unfairly discounted relative to competitors. One way to compare companies is to look at their standard measure value relative to the enterprise value, the sum of market capitalisation and net debt. In the next Energy Strategist, I will be comparing a number of smaller oil and gas companies using such a measure. This article originally appeared in the The Energy Letter column. Never miss an issue. Sign up to receive The Energy Letter by email. Take This Panic to the Bank! The Great Energy Stock Panic of 2014 offers a golden windfall opportunity for investors. The last time oil stocks bottomed like this, they bounced back up by 56% in less than 24 months. I know 4 companies in terrific position for a substantial profit jump – ranging from 30% to 74%. That's an AVERAGE PROFIT UPSIDE OF 52% for the group. What's more, all four companies possess special capabilities that make them excellent candidates for rebound profits. Time is of the essence. Investors will soon wake up and realize they panicked and sold energy stocks low. They'll start buying again and our bounce-back bargains will melt away as these stocks rise. Claim your share of this windfall opportunity now. Start here. IPO Record In Sights 11/19/2014 By Robert Rapier This is threatening to become another record year for MLP IPO filings. The mark to shoot for was set last year, when 21 new MLPs went public. So far, this year has seen 18 (one of them outside the energy sector) and more than a dozen more have filed paperwork with the Securities and Exchange Commission. Last week saw the announcement of two new filings:Azure Midstream (AZUR) in a $175 million filing and Smart Sand Partners (SSLP) filing to raise up to $100 million. Azure actually filed its IPO paperwork confidentially on Oct. 3, but it was just made public last week. The partnership provides natural gas gathering, compression, treating and processing services in North Louisiana and East Texas in the Haynesville and Bossier shale formations, the Cotton Valley formation and the Travis Peak formation. Its midstream assets come mostly from the November 2013 acquisition of TGGT, a joint venture formed in 2009 by two of Azure Midstream's largest customers, BG Group (London: BG) and EXCO Resources(NYSE: XCO). At the same time, Azure Midstream also acquired ETG, which comprises the remainder of its initial assets, from Tenaska Capital Management. Initial assets will consist of a 40% limited partner interest in Azure Midstream Operating, as well as the general partner interest in Azure Midstream Operating. Through the ownership of Azure Midstream Operating's general partner, the partnership will control all of Azure Midstream Operating's assets and operations. Azure Midstream has a right to acquire the remaining 60% limited partner interest in Azure Midstream Operating from Azure Midstream Holdings prior to that interest being sold to a third party. Azure Midstream Operating's gathering systems include pipelines spanning 1,365 miles, which gathered nearly 1 billion cubic feet/day of natural gas during the nine months ended Sept. 30. During the same period, more than 90% of revenue was generated under long-term, fixed-fee and fixed-spread natural gas gathering and sales agreements. Contracted revenue under minimum volume and revenue commitments represented approximately 57% of revenue. For the 12 months through Sept. 30, the partnership had revenue of $183 million and distributable cash flow attributable to Azure Midstream Partners of $18.7 million. For the 12 months through next September, the partnership projects distributable cash flow to rise to $29.5 million. Fracking sand MLPs Hi-Crush Partners(NYSE: HCLP) and Emerge Energy Services (NYSE: EMES) soared following their IPOs, and despite sharp corrections for both they are still up triple digits from their respective 2012 and 2013 IPOs. Smart Sand Partners is hoping to follow in their footsteps (minus of course the sharp correction). Like the previous two fracking sand MLPs, SSLP produces Northern White frac sand from sand mines and a processing facility in Wisconsin. Its integrated facility has on-site rail infrastructure and wet and dry sand processing facilities, enabling the delivery of approximately 2.2 million tons of frac sand per year. As of June 30, SSLP had approximately 217 million tons of proven recoverable sand reserves and 64 million tons of probable recoverable sand reserves. SSLP has contracted 96% of its production capacity under fixed price contracts with weighted average remaining contract life of 2.7 years. For the 12 months ended Sept. 30, the partnership had revenue of $52 million and estimated distributable cash flow of $16 million that would have been available to investors. For the 12 months ending next September the partnership projects that distributable cash flow will explode to $71 million. This increase is primarily attributable to the anticipated sale of 2.4 million tons of frac sand, up from just 500,000 tons sold in 2013. This article originally appeared in the MLP Investing Insider column. Never miss an issue. Sign up to receive MLP Investing Insider by email. The Shocking Robot Technology You're Not Hearing About Fourteen time zones away from most Americans, a stunning new robot technology has been unleashed. When it hits full stride, I fully expect the companies using it to deliver gains of up to 737%… maybe more. If you've been looking to get in on the "next big thing" before it happens, this is your chance. Get the profitable details here. You are receiving this email at benjamart.ss.stock@blogger.com as part of your subscription to Investing Daily's Stocks To Watch, published by Investing Daily. To ensure delivery directly to your inbox, please add postoffice@investingdaily.com to your address book today. Email Preferences | About Us | Premium Services | Contact Us | Privacy Policy Copyright 2014 Investing Daily. All rights reserved. Investing Daily, a division of Capitol Information Group, Inc. 7600A Leesburg Pike West Building, Suite 300 Falls Church, VA 22043-2004 U.S.A.