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Thom Calandra's StockWatch
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METALS MELT-UP MANIA COMING
LONDON (CBS.MW) - The line of deep-pocket investors waiting to worship
at the temple of hard assets is growing.
Hardened investors such as Paul Tudor Jones, Marc Rich and Lewis Moore
Bacon; commodities-savvy institutions, like fund manager Capital
Research Inc.; and even aggressive metals and energy giants Abu Dhabi
Investment Authority and China International Trust & Investment Corp.
are all finding they don't have enough exposure to the melt-up in the
prices of metals, grains, petroleum products. For more, see
The Calandra Report.
(http://cbs.marketwatch.com/commerce/theCalandraReport.asp?siteid=mktw&dist=hfdtab&pname=tcr)
Kneeling at the temple's main altar is China, voracious in its need for
zinc, copper, nickel, platinum, alumina, grains and oil. "There is no
doubt China will be forming partnerships with large and small companies
that can help supply raw materials," Hans H.C. So, vice chairman of
China's CITIC Gold Group and CITIC Energy Group, told me in Beijing this
past week.
It's a feverish feeling, as an individual investor, knowing the big
names are all seeking avenues into the current price melt-up in metals,
energy and other hard-good equities.
This once, I'm going to give you a peek into my search of the metals
and energy melt-up, via subscription service The Calandra Report
(http://cbs.marketwatch.com/commerce/theCalandraReport.asp?siteid=mktw&dist=hfdtab&pname=tcr).
The alert reprinted here in italics, first went to subscribers of The
Calandra Report late last week. Is it still a good idea to pursue
hard-asset equities, especially in metals and energy? Are there albino
two-humped camels in Mongolia's Gobi Desert? (The answer to both is
yes.)
There was a telling moment, at this week's Beijing banquet for China
and Canada executives, when the top folks at PetroChina International
Ltd., SinoChem and state-run giant CITIC (CITIC's Wang Jun, PetroChina's
Chen Gong and SinoChem's Zeng Xingqui) were huddled with Sunwing
Energy's Chairman Patrick Chua and other geologists, engineers and
executives of the natural gas and oil exploration and production
company.
Chua, along with majority owner Robert M. Friedland of Sunwing's
parent, Ivanhoe Energy
(IVAN), were discussing ripening plans for further mapping and
development of oil and natural gas properties across both the Sichuan
Basin and China's lush Dagang oil fields.
_______________________________________________________________________
At the banquet's lead table, China Premier Wen Jiabao, CITIC's Wang Jun
and Canada Prime Minister Jean Chretien were expanding plans for
exploiting what has become a thriving exchange of goods and services in
the 25 years since Deng Xiaoping told the world, "Bring it on, baby."
The mood at the dinner
cbs.marketwatch.com
, which marked a quarter-century anniversary of robust relations between
Canadian companies and the Chinese, was confident. See:
The C-to-C connection.
cbs.marketwatch.com
China's demand for energy products, along with raw materials such as
foodstuffs, metals and energy products, is bordering on mania levels.
Ordinary Chinese, eager to invest their long-imprisoned capital, the
yuan they have stuffed into their mattresses and in China's state-run
banks, are lining up for miles to subscribe to IPOs in freshly minted,
state-run gold mines and other resource plays. One fresh report notes
that 98 percent of the worldwide growth in copper demand last year
derived from China, pushing the price of fully processed copper cathode
to premiums of 20 percent and more to the raw commodity.
Agricultural products, like maize, rice and wheat, are rising 25
percent and more year to year in price across China's wholesale markets.
Even General Motors is saying China will soon top Japan to become the
world's second largest market for automobiles.
On the energy front, China, like the United States, is seeing its net
imports of oil and gas products rise dramatically. The nation's business
and political leaders are taking aggressive steps to develop the
trillions and trillions of cubic feet of natural gas, some of it
stranded in remote locations, their country holds beneath its native
soils and sea and to form partnerships with aggressive Canadian
companies that are becoming expert at locating fresh sources of oil and
gas in the Middle East and across Central Asia.
In between the prawns and the roast pork, a cell phone rings. It is a
Singapore trader, a big one, asking me -- of all people -- just why
shares of Ivanhoe Energy, the Canadian company (IE) whose shares, in
full disclosure, I am a large holder of, were weakening after weeks and
weeks of heady gains. "Could it be the report you did about their
shelf?" said the trader.
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DIGEST THIS
_______________________________________________________________________
Of course. Ivanhoe Energy investors, digesting 300 percent and more
gains, saw my report a week ago about the company's $100 million shelf
registration, and the arbitrageurs and short-term traders exited the
stock like a flock of Boeing business jets headed to thoroughbred
racing's Breeder Cup. A Bahamas-based money manager at my table, in
touch with the owners or managers of tens of millions of Ivanhoe Energy
shares, nodded his head sagely and whispered to me, "Let them sell --
they'll be buying back at far higher prices very soon."
Ivanhoe Energy's Sunwing story -- which includes the dramatic rise in
cash flows the company will receive from projects in the Dagang oil
fields, as well as those aggressive exploration efforts in the Sichuan
Basin -- is largely ignored by western investors. But not for long. I
expect Sunwing and parent Ivanhoe Energy to express in clear and direct
language just how impressive the China connection is to this small but
rapidly growing company. Indeed, as I outlined in May and June,
investors just might wake up one day to see shares of Sunwing trading
separately on Nasdaq from Ivanhoe, which is also pursuing efforts to
develop oil and gas sources in Iraq, South America and elsewhere.
The next day, in London (yes, that's right), I was talking to Leon
Daniel, Ivanhoe Energy's CEO and a longtime veteran of Occidental
Petroleum, along with Ivanhoe Energy's chairman, David Martin. Leon has
been having marked success in his talks with Iraqi oil and redevelopment
officials, and I would expect Daniel at some point very soon to head to
that war-torn nation, which hopes to improve oil production dramatically
in coming months.
"Nothing much happens in this sort of thing until you get in-country,"
Daniel, who is mindful of security precautions, told me. Daniel,
utilizing his southern Iraq blueprints from the Occidental days, when he
came very close to engineering a development deal with the country just
before the first Persian Gulf war, fully intends to be one of several
companies that will help Iraq reach its goal of pumping almost 3 million
barrels of oil a day by next March.
This morning (Friday), in a follow-up call, Ivanhoe Energy Chairman
Martin told me he would prefer to downplay Iraq right now, but that
fresh news on that front may come as soon as mid-November. If it does,
one mega-sized asset manager in Abu Dhabi, and another one in
Switzerland, will, I am told by professional commodity investors, be
expecting Ivanhoe Energy's shares to triple from their current levels.
They're currently adding to their stakes.
_______________________________________________________________________
"Leon is having some preliminary success with the oil officials there,
and I think we will have something to say sooner than most people might
think," says Martin, who along with Daniel drove Occidental Petroleum's
evolution into a multinational oil company over a 30-year span.
But back to the shelf registration and China. Martin explains that the
company has zero plans to use any of the $100 million shelf at the
stock's current price (now around $4 U.S. a share). "This is evergreen.
We file it and put it away for another day. Robert (Friedland) doesn't
want to see his stake in the company (about 33 percent) diluted, and
neither do our other large shareholders," says Martin.
Friedland, between bites of grilled halibut at a London dinner honoring
Mongolia Prime Minister Nambar Enkhbayar, tells me, "When Ivanhoe Energy
hits $10, the company might think about issuing new shares in that
amount, but only for the right assets in return." (In full disclosure,
let me say, as I always have, that Robert Friedland's holding company,
Ivanhoe Capital, paid for my transportation to the Oyu Tolgoi copper and
gold mine in Mongolia earlier this year. I also received transportation
on the Ivanhoe starship -- to Beijing and London -- for my current
fact-finding mission.) See:
Tien Shan minerals belt to become next Klondike.
cbs.marketwatch.com
But back to shelf registrations. As Newmont Mining has discovered in
the past year or so, these filings for new shares can sit on the shelf
for long, long periods. Companies that file them far in advance can take
advantage of them in a smartly rising market -- when just the right deal
comes along and the appreciating price of equity is far more attractive
on a dilution basis. "Look," says Martin, "if we do any deals, it will
be a total financing basis, or a small placement of a million or two
shares with an individual shareholder."
_______________________________________________________________________
_______________________________________________________________________
CHINA ROAD
Enough on that front. Ivanhoe Energy, after all, is searching for a
U.S. company that will help it expand what has become a rich source of
oil across the oil fields in and around Bakersfield, Calif., and in
parts of Texas. I expect developments on that American front - perhaps
from the Rocky Mountain region -- soon.
As for China, this is where Ivanhoe's Martin, along with the team at
Sunwing in Beijing, are cooking with gas. "People will see these numbers
on natural gas that we put up in the next few days, trillions and
trillions of cubic feet of it in these locations where we have exclusive
rights in China, but they don't know what it means to us as a company,
and I have to fix that. People are going to be pleasantly surprised on
the impact all of this will have on our cash flow," he tells me.
"You know, if there was news of a 1 trillion cubic foot field of
natural gas in the United States, it would make front-page headlines in
the newspapers. And we're talking 5 trillion cubic feet or more," Martin
says. One asset manager based in London, having contributed to the
enormous explosion in trading activity of Ivanhoe Energy's shares in
recent months, told me today, "I expect this to be a $5 billion company
one day, I just can't tell you how long that will take." (Current market
capitalization: less than $625 million.)
That's about it for now. I intend to stick with the Ivanhoe Energy
story for some tim. I fully expect strong price rises in the stock in
coming days, weeks and months.
That doesn't mean I will be ignoring several other fronts in The
Calandra Report. The metals equities' melt-up, as I have been
forecasting for some time, will continue. (That's melt-UP in price,
folks.)
Subscribers, for instance, should be thrilled with the performance of
Nevsun Resources
(NSU), the gold and copper company whose Bisha project in Africa's
Eritrea just might near that of Mongolia/China mining house Ivanhoe
Mines (IVN) in terms of the size of the resource. "Copper," CIBC analyst
Jack Jones told me over dinner in London, where I was rubbing elbows
with the prime minister of Mongolia and a flock of high-powered asset
managers, lords and ladies, "is the place to be for the next few years
at least." See:
Ivanhoe's tidal wave to sweep copper and gold markets.
cbs.marketwatch.com
Shifting continents, to the Africa front: I expect shares of Nevsun
sister company Sunridge Gold (SGC) to continue their sharp gains as the
company, commandeered by Ashanti Gold veteran John Clarke, begins to
unveil fresh data on the extension of its Bisha complex, and the depths,
widths and grades of copper and gold in that revived African nation.
Nesvun's already robust shares sometime in the next three weeks will
stage a considerable move higher, most likely a $3 Canadian gap-up in
price, based on what almost surely will be lush mineralization at the
Bisha project. Along for the ride: Sunridge, whose tiny market
capitalization will swell as Canadian and American fund managers look
for other Eritrea alternatives.
I am also doing intensive research on yet another Mongolia exploration
and development company, Pacific Minerals
(PMZ). As those who have followed The Calandra Report know, the Tien
Shan mineral belt across central Asia is likely the next Klondike, in my
book, anyway. And until I am proven wrong, I will continue to do what I
can to allow commodities believers to find the correct ways to
capitalize on the region's proximity to China and the richness of vast
stretches of mineralized land across the Gobi and into Inner Mongolia,
China and the Indochina regions as well.
_______________________________________________________________________
Shares of Pacific Minerals, deeply linked to Friedland's Ivanhoe
complex, already are surging in the wake of a reworking of its capital
structure and a brisk fund-raising effort. Pacific Minerals, perhaps
more than any micro-sized exploration outfit, is mapping out China,
Mongolia and Inner Mongolia gold and copper projects that have instant
rail and highway links to China's major manufacturing centers. The
company's land holdings across Central Asia, along with partner Ivanhoe
Mines, are the largest of any Canadian, Australian or South African
exploration effort in the region.
Also on the commodities front: shares of agricultural producer Cresud
SA from Argentina (CRESY), my safest real-stuff equity for conservative
investors who subscribe to The Calandra Report, has made a massive move,
in part thanks to a recommendation, more seven months after The Calandra
Report's endorsement, by highly regarded service The Oxford Club.
_______________________________________________________________________
Finally, on the technology front, I expect new developments in terms of
customers and contracts at electronic software manager Intraware
(ITRA), and I see the $2 shares (now $2.50) reaching $3.50 in short
order. (Disclosure: I own shares of Intraware.)
That's it for now. I'll have the next full edition of The Calandra
Report out to paying subscribers in a day or so, just before I head to
New Orleans for the contrarian investing conference of the year, The
New Orleans Investment Conference.
_______________________________________________________________________
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