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Alternatives and Energy

Jim Letourneau
The Big Picture Speculator
March 27th, 2005

Alternatives and Energy

There is an upper limit to the long term oil price trend channel but we aren’t there yet. High energy prices open the doors for a myriad of alternative energy sources be developed. Last weeks oil shakeout created some great buying opportunities. I believe the “easy money” has been made in the oil names but there is a fresh pile of momentum money looking to get out of technology stocks.

If you like to buy low and be patient, there are some nice non-extended entries available in precious metals stocks. This makes for a great time to register for the Faber College “double secret” leverage opportunities in gold company warrants.

If you like to buy high and sell higher (its all relative) then oil companies are great place to be. The possibility of a nice “melt up” in the energy names exists. Looking ahead I’m expecting someone to use the terms “melt down” and “uranium” in a headline before the summer solstice. However, current activity indicates that the uranium theme is not dead yet. One man’s demoralizing price plummet is another’s great entry point and oil/ uranium/coal continue to look interesting.

There are some nice “alternative energy” plays out there. They are backstopped by the current high oil prices and OPEC’s impotence to do anything to lower them. Over the past 20 years, any large capital investment in alternative energy sources risked the wrath of OPEC. By simply opening the taps of their seemingly infinite oil reserves they could drop energy prices and render alternative energy sources uneconomic. That is no longer the case and big money is going to be spent on alternative energy projects.

Alternative Energy Portfolio

These former sideshow dwellers are moving into the main tent as people start looking for solutions to the world’s energy needs. In some cases “alternative” is a misnomer as the companies have proven technology that can be sold at a profit. Our newest portfolio includes a nice mix of alternative energy companies.

CanWest Petroleum Corporation (CWPC) - US$0.51

CanWest’s Pasquia Hills oil shale deposit in NW Saskatchewan is of great interest. Sun Oil evaluated the property back in 1964-65. This resource consists of the outcrop of the First and Second White Speckled Shales, which are major source rocks in Western Alberta. Over most of Saskatchewan these oil shales were never buried deeply enough to generate any hydrocarbons.

They typically have 7-10% TOC (Total Organic Carbon) and have a hydrocarbon yield 30-50kg/t. This company was previously known as Uranium Power Corporation (URMP) and while there is a long list of red flags associated with this company, the oil shale resource is significant. As of December 23, 2004 there were ~28 million shares outstanding. With a market cap of only ~US$14 million and a raging energy bull market this makes for a nice speculation.

QuestAir Technologies Inc. (QAR.TO) - C$1.72

In a hydrogen economy (see Jeremy Rifkin’s book), companies that can efficiently purify and recover hydrogen should do well. QuestAir provides advanced gas purification systems for refinery, industrial and fuel cell markets. I don’t see many hydrogen powered cars scooting around downtown Calgary yet, but I do know that there is a large amount of heavy oil that needs upgrading at refineries and while the gory geochemical details escape me, the addition of hydrogen makes for lighter oil.

Recently announced contracts/partnerships with Exxon- Mobil Research, Fuel Cell Energy, and ChevronTexaco is comforting.

Dynetek Industries (DNK.TO) - C$2.16

More on the hydrogen economy. Dynetek manufactures lightweight gas storage cylinders. Hydrogen gas tanks if you will. Vehicle manufacturers like Mitsubishi, Ford, DaimlerChrysler, and Nissan are clients.

Vestas Wind Systems (VWSYS) - US$15.75

Vestas is the worlds leading wind turbine manufacturer. Headquartered in Copenhagen, Denmark the company is benefiting from mammoth wind power builds in Europe. High energy prices and looming Kyoto obligations (for those who choose to participate) will raise demand for their proven technology.

"In the mid-1980s, it cost about 10 cents per kilowatthour to produce electricity from windmills. Today, thanks to technological advances, the cost has shrivelled to about five cents, which is equal to the cost of producing electricity from a natural-gas-fired utility now that natural gas prices have surged above $6 per British thermal unit, or BTU." Barron’s May 31, 2004

Western Wind Systems (WND.V) - $C1.79

Western Wind Systems are early adopters of wind power technology and are acquiring “windy” real estate suitable for wind power generation projects. They recently announced that Southern California Edison Company fad committed to a 20 year purchase agreement of up to 120 megawatts of wind-powered electrical generation.

Evergreen Solar Inc. (ESLR) - US$6.87

Evergreen Solar is a leading manufacturer of solar photovoltaic cells. For the three months ended December 31, 2004, product revenues were $9.3 million, compared with $1.4 million for the same period in 2003.

Carmanah Technologies (CMH.V) - C$2.60

Carmanah Technologies Corporation combines solar power with energy efficient LED lighting in a variety of commercial applications including runway, railway, marine, roadway and transit shelter lighting. The recent drop in share price makes a nice entry point.

Storm Cat Energy Corp (SME.V) - C$4.00

Coalbed methane projects generally require large landholdings that allow economies of scale to lower production costs. Storm Cat Energy has a natural gas from coal license in Mongolia that covers ~50,000km in the South Gobi region. Wow!

They are currently mapping the coals and measuring them for gas content. Commercial production is a few years off but they have a mammoth resource to work with.

This portfolio is by no means complete but all of these companies are at attractive technical levels and have the “wind at their backs” in a high energy cost environment.

Warrants Portfolio

We have written about warrants in the shares of mining companies several times. They do have the potential to become completely worthless but the long term leverage in metal producing companies could lead to outstanding returns. I am using the first mention of the warrant as the starting date for return calculations.

The average return for this group is 7%. You’ll notice that the warrants mentioned in January 2005 are showing better gains than those from March 2004. This is simply the result of my early/bad timing last March. If you believe gold prices will rise in 2005, this group of warrants is worth a serious look. Most of them offer several years to expiry which provides a more forgiving environment than a shorter duration call option. I think the current pullback in the gold price is a good time to start accumulating some of these warrants. I’m adding Silver Wheaton Resources Warrants.

Letters

if you have a chance, would you mind sharing your thoughts on aflease, technically? AFL SJ. they will be in ny 2/28, 3/1, appearing at BMO conference and visiting institutions ny/sf. unlike vast majority of "uranium equities", this one actually has sizable proven reserves, and has mined them before…
R.M

and no AFLEASE AFLUY? the best
C.P. People like AFLEASE and for good reason. Uranium companies with reserves (or even reasonably qualified resources) have been kicking the behinds of their exploratory brethren. This recent pullback looks like a great time to make an entry.

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I am a new subscriber and am interested in relatively pure tin mining plays. Any suggestions would be appreciated.
M.

Tin is extracted primarily from cassiterite, SnO2. The world’s chief producers are Malaysia, Thailand, and Bolivia. Tin prices have risen sharply in the past two years to $7,000 a ton from $3,500 a ton (yet another commodity with a better price gain than gold). It took some digging but I found a couple of tin companies: Goldtech Mining (GMNC) has a tin project in Spain and Centurion Gold Holdings (CGHI) is acquiring Zaaiplaats Tin Mining Pty, in South Africa.

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It would be great to see your chart analysis of PDL based on long (1997) and short term charts. Either to Subscribers or as a blog. Thanks,

G.S.

Platinum and palladium companies are enticing at current levels. No shortage of subject matter for the Big Picture Speculator.

Jim Letourneau
The Big Picture Speculator
March 27th, 2005

While I cannot provide personalized investment advice or recommendations, I welcome feedback and observations by subscribers. You can email me at jim@thebigpictureguy.com I am not compensated by any of the companies featured. This newsletter is not intended to offer investment advice. It is meant to illustrate and educate readers on a variety of approaches to market speculation. No mention of a particular security is a recommendation to buy, sell or hold that or any other security. Any advice is impersonal and not tailored to the investment needs of any specific person. Before buying or selling any stock you should consult with a qualified broker or other financial professional to solicit advice as to the suitability of a given investment. Holdings in securities mentioned at time of publication: CBJ.WT.D, BWR.WT, GSC.WT.A, MVG.W, MR.WT, MDN.WT, NGX.WT, RNG.WT, SLW.WT

My holdings may change at any time