Posted by Michael Kane on August 29, 2008

One of the cool things about the "Reporter Business" is that you regularly stumble across information that helps broaden the story telling. That occurred for me this week when I interviewed the CEO of a junior mining company.

He told me that one of the problems he's working on involves trying to compensate for short supplies of sulfuric acid. (The amount I know about sulfuric acid, you could put into a teaspoon.)

He explained how it's used in the production of copper, during the extraction process. The problem is that, as you will know by watching BNN, there is huge global demand for fertilizer. And sulfuric acid is used in the production of fertilizer.

Connect the dots.

So what we're being told is that for all the market forces that are driving up crop demand, it's creating a challenging environment for copper producers. In the case of this particular CEO, he was forced to explore other geographical regions of his property in order to find a different grade of mineralization … one that did not need as much sulfuric acid for extraction.

The interconnected physical world reveals some fascinating stimulus for business opportunity.

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Posted by Mark Bunting on August 27, 2008

Is it time to buy China? That's the constant, gnawing question surrounding Chinese stocks these days.

After an over-60-percent drop on the Shanghai Composite and other China-related indices from the heady peaks of late last year, emerging market investors are wondering whether it's safe to wade back into Chinese stocks, and exchange traded and mutual funds. Strategists at Credit Suisse say yes. They're raising Chinese stocks to "overweight" from "underweight."

The strategists point out that the price/earnings ratio on the Morgan Stanley Capital International China index, made up primarily of Hong Kong-listed stocks, is now at a reasonable 13 after hitting 28 in March.

But, the big reason Credit Suisse says Chinese stocks are appealing is that it expects the government to introduce a $54-billion US fiscal stimulus package. The head of China research for J.P. Morgan concurs and expects the package to be even larger that that.

Credits Suisse says the announcement from the Chinese government will come sooner rather than later.

The government is also mulling a plan to allow holders of shares in state-run companies whose lock-up periods are ending to raise funds through bonds that the buyer would be able to convert into shares. The idea is to prevent massive selling of state-run company stock once investors are free to do so.

Credit Suisse admits that it's still concerned about a slowdown in the Chinese economy. But eight-percent growth, compared to 11 or 12 percent, is still fairly robust.

In addition, Beijing-area factories that were forced to close leading up to and during the Olympics are up and running again. And, Chinese companies may find metals prices more reasonable now after a sharp pullback, which could trigger more economic activity.

A good way to access Chinese stocks is through an exchange traded fund with the ticker FXI-N. It tracks an index called the FTSE/Xinhua 25, which is made up of all the Chinese heavyweights, such as China Mobile and ICBC, the big bank.

The Chinese government was active in cooling off the economy and stock market through, among other measures, interest rate hikes. Now, it appears as if it thinks it's time to reflate the economy and stocks.

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Posted by Brett Harris on August 26, 2008

As a kid growing up in Alberta, I was a beneficiary of the province's last big energy boom. In the late '70s, the economy was well lubricated with oil, and for students looking to make a little beer money, high-paying summer jobs were a dime a dozen.

Of course, by the time I finished university, the boom had gone bust and suddenly geologists and engineers were driving cabs instead of Cadillacs. Anyone remember the bumper sticker that said, "Please Lord, give us another boom and I promise not to piss it away"?

Well, a quarter century later Alberta got its boom back and now that boom is petering out, too. After an unprecedented run-up in the real estate market, Alberta had the steepest drop in housing prices anywhere in the country in July, down nearly 8% from 2007. Home sales slid 13% year-over-year and new home starts were off nearly 30%

To make matters worse, retail sales in Alberta barely grew from June 2007 to June 2008. And over the last year, Alberta had among the biggest increases in credit card debt and personal bankruptcies.

And if that's not enough, take a look at what's happening to oil and gas land sales. So far this year, B.C. has raked in a record $1.8 billion selling new exploration rights, while Alberta has earned less than a third of that. Even Saskatchewan's doing better.

Two years after it peaked, Alberta's latest energy boom is over.  But if that's true, why do things still seem so good in Wild Rose Country? Where's the bust?

The truth is, Alberta's economy isn't much more diversified than it was the last time the oil taps ran dry; energy is still the major industry. What has changed is that the energy industry itself is more diversified this time around.

Thirty years ago, conventional crude was king in Alberta. Today the province produces a stronger mix of oil and natural gas, both conventional and unconventional. And the real strength in the economy lies in the oil sands, a staggering resource that's likely to keep the economy afloat for decades to come.

So, while the boom of two years ago may be over, don't start cashing in your Alberta investments just yet. The economy may be slowing, but it's slowing down from breakneck speed.

At least for now, there's no sign of a bust on the horizon. And while the streets of Calgary and Edmonton may not be paved with gold anymore, they're still being paved. And that's a sign of a resilient economy.

Click here to watch Brett's full report, Alberta's Big Boom.  

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Posted by Andrew Bell on August 22, 2008

Shares in Eric Sprott's money manager Sprott Inc. (SII – T) may have slid to less than $7 from their IPO price of $10 in May as commodity stocks flag, but the stock has risen over 4% today. One analyst says the planned takeover of U.S. coal miner PBS Coals Corp. shows how Sprott's fee deals can produce big payoffs.

Jeff Fenwick of Cormark Securities says Sprott investment vehicle Sprott Resource Corp. (SCP – T) will harvest gross proceeds of about $325 million from the purchase of PBS Coals by Russian steelmaker OAO Severstal for  $1.3 billion US.

Sprott owns about 32% of PBS Coals and it seems to have been a canny buy.

"Management at Sprott Resource indicated that the total initial investment was equivalent to $55 million [Cdn], resulting in a net gain of approximately $270 million," Fenwick says.

Sprott Inc., the money manager, gets a performance fee based on Sprott Resource's profits.

Fenwick estimates that this one deal "will translate into a performance fee to Sprott Inc. of approximately $52 million. This reinforces our thesis that Sprott, through the fee structures on both its funds and management contracts, has the ability to generate financial outperformance across virtually all market conditions."

He says the windfall for Sprott Inc. "equates to nearly half of our full year estimate of Sprott Inc. performance fees of $106.3 million."

Fenwick is sticking with his "buy" on Sprott Inc. and a $10.85 target.

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Posted by Andrew Bell on August 21, 2008

No doubt investors in Allen-Vanguard Corp., the maker of electronic "jammers" for foiling roadside bombs, will be reassured to hear that CEO David Luxton and CFO Peter Allen are being compensated for their tireless efforts.

Last week, the company reported an EBITDA loss of $12.2-million on sales of  $31.2-million in its latest quarter.
 
Salman Partners analyst Naser Iqbal has a "sell" on the stock and a target of 90 cents (it’s been trading at $1.35 today.) He cites "a lack of significant new orders from the U.S. Department of Defense as well as the company’s high level of fixed costs."

Seems overall expenses lately have included goodies for senior management.

In his report on the quarter, the Salman analyst says "the company recorded stock compensation expenses of $2.5-million, which was $1.5-million higher than our estimate, although management indicated that this was a one-time event due to bonus payments made to the CEO and CFO."

We've asked Allen-Vanguard what the executives were being rewarded for, considering that stock has dropped 85% in the past year, and we'll pass on the reply.

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Posted by Andrew Bell on August 12, 2008

Looks like investors in solar-power play Timminco Ltd. (TIM-T) are hot under the collar today about what CEO Heinz Schimmelbusch called "production challenges" in the second quarter. The stock has slumped almost 25% to trade just above $15.

The company shipped 221 tonnes of solar silicon in the latest period. Raymond James analyst Andy Nasr says that was about "70 tonnes below consensus due to phosphorus refractory and contamination issues."  He calls the stock a Hold and this morning cut his target to $23 from $27.

Cormark analyst MacMurray Whale, a perennial bear on Timminco and its process for increasing the purity of silicon metal to levels suitable for solar cells, says, "revelations of contamination issues, delays to ramping volume and high costs in the $32/kg range … point to formidable challenges, and at the very least, suggest the production team has over-looked some key scale up issues that leave us wondering how easy the problems will be to resolve."

He has a Sell on the stock and slashed his target today to $11.50 from $19.50. 

Carolina Vargas, an analyst at Clarus Securities, remains chirpy, however.

"The Company reported significant improvement in its purity levels," she says, reiterating her Buy rating and $50 target. Clarus was lead underwriter on a $42.6-million Timminco stock issue in September.     

Paradigm Capital Inc. also helped sell the stock. Analyst Marvin Wolff says today that Timminco purity is "very high" and "price realization stellar." The company's silicon "will become a dominant material in the solar market," he says. Wolff stuck with a Buy on the stock although he trimmed his target to $45 from $50.

Timminco and Clarus have another connection. Former Clarus analyst David Tomljenovic is now with Sprott Asset Management, where he's been credited with finding Timminco. Sprott, which has ridden the stock up from around 40 cents, is the company's second-largest shareholder.

 The sell-off in Timminco may be hurting Sprott's own stock. The asset manager's shares, first sold to the public at $10 in May, hit a new low of $6.94 today.

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Posted by Brett Harris on August 8, 2008

If you’re looking for a way to get ahead of the curve on alternative energy stocks, here’s something to keep an eye on – geothermal power. It’s still early days in this sector, probably too early to start buying in, but according to a couple of recent studies, geothermal power has tremendous potential as a new source of clean energy.

Geothermal literally means "heat from the earth." Driven by radioactive decay in the earth’s core, that heat radiates its way out towards the surface where it breaks through from time to time in the form of geysers or volcanic activity. Generally speaking, the deeper you dig into the earth's crust, the hotter the temperature gets.

A growing number of homeowners around the world are already tapping into this vast resource by drilling a few hundred metres into the earth, pumping in water to gather the ground's heat and using that water to warm or even cool their houses. That "geothermal heating" technology is already well established.

The next frontier is "geothermal power" – using the earth’s heat to generate electricity on a large scale. It’s already being done on a limited basis in places like Iceland, where near-surface volcanic activity is easy to tap into and in Northern California, where power companies have drilled into a shallow underground network of natural geysers. Steam from these rare geologic anomalies is used to drive generating turbines with virtually no greenhouse gas emissions. Currently, geothermal power accounts for 25% of Iceland’s electricity and nearly 20% of California’s.

Two recent studies – one done at M.I.T. a couple of years ago, and one just published at the University of Calgary – suggest that geothermal heat could be harnessed on a much larger scale to replace dirtier coal and gas-fired electricity in North America. The studies identify a series of hot zones in the U.S. and Alberta that could be tapped by drilling deeper into the earth’s crust, up to five or six km where temperatures reach well above 150 degrees C.

While no one’s really done that yet on a commercial scale, the studies argue that the technology for it has already been pioneered by the oil and gas sector. A lot more study is needed, but with proper support and funding, some experts suggest this could become a reality in as little as ten years.

There are already a number of companies popping up in this space, including Calpine Corp. (CPN NYSE), which operates 19 out of the 21 operating geothermal power plants in Northern California.

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Posted by Andrew Bell on August 8, 2008

Shares in insurer Kingsway Financial Services Ltd., which specializes in covering risky drivers and taxis, have spun off the road in the past year, but analysts say management might be finally be getting a grip on the wheel.

Better results from its U.S. unit, Lincoln General Insurance Co., helped Kingsway post a Q2 profit of 11 cents U.S. a share, compared with a year-ago loss of 62 cents per share.

The stock has rallied more than 9% in the past week, touching a high of $7.93 on the NYSE, but it’s still down 60% in a year.

Management has admitted that Lincoln grew too fast and that outsourcing of claims management was a bad idea. The company has been dumping unprofitable lines.

"We believe that the worst is past for the problems that have plagued Lincoln," Desjardins analyst Michael Goldberg says in a report this morning.

He calls the stock a "Buy" but he cut his target to $13 from $16, citing soft markets.

BMO analyst John Reucassel lifted Kingsway to a "Hold" from "Sell" today.

Kingsway, based in Mississauga, Ont., offers a yield of 3.7% and Desjardins’ Goldberg says the "dividend remains secure and we expect more stock buybacks."

He says Kingsway president and CEO Shaun Jackson, who was interviewed on BNN this morning, has at least got the company’s investment portfolio right. 
 
 "Kingsway’s strong investments have been carrying the company. Its capital and liquidity also remain solid, enabling recent debt reduction," Goldberg said.

Kingsway may be reducing its risk profile but more Canadians are taking on the thrills and spills of a two-wheeled lifestyle.  Kingsway’s motorcycle premiums in Canada are up 18% as folks seek fuel-efficient vehicles.

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