Baltimore — (TFN): Sometimes you just know it is going to be a rough couple of days. As you read this, my soft-hearted, pregnant wife is recovering from a fairly significant surgery. That alone is enough to raise the blood pressure.

But at the same time my better half is asking for a stronger morphine drip, the weatherman is calling for a foot of snow. And worse yet, the phone is ringing off the hook with long-time friends wanting to take advantage of perfect waterfowl hunting conditions.

I think we all know where my obligations lie, but it is going to be real hard to be sitting in that duck blind, knowing my wife could use some help.

Just kidding. I’m off to the hospital.

In the meantime, I’ve asked for some additional assistance for today’s issue of notes. With Obama touching down in Copenhagen, I think you will like it.

Dr. Marc Bustin is an editor at Casey’s Energy Report. When he is no writing for the popular service, he’s a professor of petroleum and coal geology at the University of British Columbia.

Like I said, you will enjoy what he has to say. Here it is:

“Over the last couple of years, consideration of the effect of climate change has become increasingly important in analyzing a company or market trend — particularly in the energy sector.

“For example, our very bearish view on the thermal coal producers in North America is due exclusively to the high levels of carbon dioxide that coal-fired power plants generate, and the widely held belief that these emissions contribute to global warming.

“As researchers who like to chase down facts, we know that credible scientists continue to debate whether and how much humans really do contribute to global warming. However, it’s the rare politician who acknowledges this controversy.

“Instead, they join the herd of scientists and pseudo-scientists who tend to cherry pick among the findings to fit their preconceived conclusions. An unfortunate state of affairs, but, alas, a consequential one, because these same politicians are awfully fond of regulation — and they’re becoming more so.

“So it’s not surprising that we are on course for a real mess in terms of government regulations concerning carbon emissions, taxes, tariffs, and such. Detrimental results are likely for certain sectors of the economy, such as the oil and coal sectors and associated refiners, heavy industry, and the transportation sector.

“As a scientist, I currently accept the near-unequivocal evidence that Earth is in a warming spell, but I also know that in past geological times, there have been many such periods of warming and cooling. I remain on the fence as to what impact anthropogenic (human-sponsored) emissions are having on the global trend.
“Perhaps more importantly, at some level I am haunted by the belief that even if we are responsible for global warming, we are too late, and there is nothing we can do about it.

“Pragmatically, our job at Casey is to point our subscribers toward prudent investments, and it is pretty clear that there is opportunity and danger in industry that is regulated, subsidized, and penalized by government.

“It’s also clear we are just now at the beginning of what will be pronounced government intervention — for example, the U.S. House of Representatives bill (H.R.2454) aimed at reducing U.S. greenhouse gas emissions 17% from 2005 levels by 2020 and 83% by 2050.

“The bill allows tariffs on carbon-intensive goods (such as steel, cement, paper, and glass) if they are produced in countries the United States judges to be shirking their responsibility in reducing greenhouse gas emissions.

“Herein lies the problem, even if you believe cutting emissions will make a difference: the new big greenhouse gas emitters (i.e., China, whose growing use of coal recently pushed it to the #1 spot in greenhouse emissions, with India rushing to catch up) must curb their emissions… but in doing so, they will be denied the standard of living that in theory those of us who screwed up the atmosphere in the first place enjoy.

“This is hypocritical, and the hypocrisy is not lost on the developing nations. That’s why I think that global accords on emissions are not going to work.

“Going forward, I see the impact of climate change regulations – tariffs, taxes on emissions, subsidies, carbon credits, and carbon trading – becoming a major factor in not only the energy sector but also the associated technology sector. And since governments tend to be rather fickle and make decisions that defy logic, our job at Casey Research has gotten that much more titillating.

“Every month, we’ll bring you analysis of everything that’s pulling at the energy sector — logic-defying governments included —in Casey’s Energy Report. With a subscription, you’ll also get Casey’s Energy Opportunities and, until December 18, a free subscription to Casey’s Extraordinary Technology. To top it off, you get all this at 40% off the regular price and with a no-risk 90-day trial. Click here to learn more — and be sure to do it before or on December 18!”

*** For next week, keep an eye on the dollar and especially gold. After yesterday’s mega-drop, the precious metal is precariously close to my prescribed buying range. Now that the bears managed to shake off the “commoners,” it’s time to re-evaluate the value of gold.

We’ll tackle the subject in depth over the next few days.

For the tale of the tape, the TSX Exchange gave back a modest 0.09%, while the TSX Gold Index surged 2.6% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, added 0.93% with the advancing issuers beating the decliners by a 571 to 447 margin on good volume of nearly 248 million shares traded.

It was a good day for shareholders of Cash Minerals as the company announced a strategic review to reassess the economic potential of the Division Mountain coal property in the Yukon, which hosts a measured resource of 52.5 million tonnes of high-volatile B bituminous thermal coal. Cash ended the day up C$0.055 at C$0.27.

Shares in Potash North Resource rallied for the third straight day following news that the Saskatchewan Mines Branch has issued a potash permit covering 91,000 acres. The company added C$0.48 to close at C$2.55.

Canplats Resources moved C$0.02 higher to close at C$4.92 after investors digested the latest results from the Represa zone on the Camino Rojo project in Mexico. Highlights included 292 metres running 1.16 gram gold, 11.65 grams silver per tonne, plus 0.4% zinc.

X-Terra Resources remained halted at C$2.21 but the company did table news that Brownstone Ventures will acquire a 50 percent interest in applications for some 150,000 hectares of land in the Quebec lowlands, prospective for gas shales. Brownstone will issue two million shares and two million warrants, which are exercisable at a price of C$2 for two years. Brownstone also agreed to purchase 850,000 units in X-Terra.

It was a strong end to the trading week as investors are banking that the junior market is ready for a Summer rally. We will see what Monday trading has in store.

Source: Resource Stock Roundup: Saturday, June 7th, 2008

For almost five decades, Indonesia held a unique position as the only Asian member of the OPEC oil-exporters’ cartel. When it joined OPEC in 1962, it was Southeast Asia’s undisputed energy giant. But yesterday marked the end of an era for the country. Indonesia has formally withdrawn from the oil cartel.

You see, the country’s oil production hit a peak in 1976. And In the early 90’s it was still producing about 1.7 million barrels per day. But ageing oil fields and a lack of investment has seen falling production since 1995. The country now produces about 800,000 barrels per day and it’s been a net oil importer since 2005. Its days in OPEC were obviously numbered.

It’s big news in the oil industry, but I think that the country’s withdrawal from OPEC is really a bit of a non-event — at least from an investor’s point of view. Indonesia is still a major energy exporter. The country is the world’s biggest exporter of thermal coal, which is widely used in the power sector. It is the world’s second biggest exporter of liquefied natural gas (LNG) after the Gulf state of Qatar. And it has recently overtaken Malaysia as the world’s biggest producer of palm oil as well.

Global oil demand is expected to increase by 1.03 million barrels per day this year. And about 70 per cent of that additional demand is going to come from Asia. But it’s not just oil. Asia’s growing economies are fuelling demand for just about all forms of energy. And Indonesia is well placed to profit from it.

Coal is gold…

The country is sitting on about 90.5 billion tons of coal. And demand for the stuff is surging. In fact, Indonesian companies are now selling coal to Japanese buyers at double last year’s prices. So, investors have been flooding into the sector. Indonesia’s biggest coal miner, Bumi Resources, has seen its share price soar by about 431 per cent in the last year. Its market cap is now $16.4bn

Now the country’s second and third biggest coal miners are planning on floating on the markets as well. Number two producer, Adaro Energy, is planning a Rp12,000 billion ($1.3bn), public offering. That will make it the biggest IPO in Indonesia’s history. And it’s going to be the world’s 8th biggest IPO this year.

Adaro has already pulled in top international investors. 64% of the company is controlled by two Indonesian strategic investors. But 36 per cent of the shares are owned by major global investors, including Goldman Sachs, Citigroup and the Government of Singapore Investment Corporation.

And demand for the IPO has been huge. In March, the company announced that it planned to raise $500 million. Then, earlier this month, they raised that to about $1 billion…and then $1.3 billion…

The Adarco IPO is scheduled for next month. The country’s second biggest coal miner Indika Inti Energy plans on raising $300 million through selling an 18 per cent stake in an IPO shortly before the Adarco float. Both these IPOs are probably going to do well. Investors and speculators who missed out on Bumi Resources’ rally will probably try to get in early this time… a move I see as being quite sensible.

Bumi Resources is one to watch…

The two new coal IPO’s might take some of the wind out of Bumi’s sails. And if we see that happen, a fantastic buying opportunity will present itself.

Just consider: China is building new coal-fired power plants at a rate of about one per week! And then there is India. Asia’s other giant plans on adding more than 400,000 Megawatts of new capacity by 2030 — and the bulk of that is going to be powered by coal. So, the coal story still has a long way to go. In the months to come there could be moves to be made… and a second chance for anyone who missed out the first time around.

I’ll keep you posted.

Regards

Manraaj Singh
Profit Hunter
Editor

PS If you liked what you read here — you can become one of my regular subscribers and receive all our new Profit Hunter recommendations the moment we make them.

Source: Careful Timing Could Mean Big Profits From The Worlds No.1 Coal Exporter

In consequence of price caps on electricity rates, soaring coal prices have forced many power plants to run at a loss. Among 4,773 large-capacity power plants in China, almost 42% recorded losses in the first two months of 2008. This is 6.35% more than a year earlier. The losses totaled 13.79 billion yuan ($1.97 billion), or more than triple the year-earlier figure.

Zou Yiqiao, director of the price and financial supervision department of the State Electricity Regulatory Commission (SERC), has advised major power companies to merge with or acquire coal producers and transporters to help stabilize costs and supplies. Zou reportedly stated that utilities should slow the expansion of their thermal-power capacity and instead invest in coal transport firms and mines.

According to a SERC spokesman, the Chinese government will “allow power costs to reflect coal prices” some time in the future. In addition to thermal coal plants, China has a major program to build out renewable energy sources and boost electricity output.

Until we meet again,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

When you get right down to it, though, the resource sector has a much better chance to grow earnings this year and next than the financial sector. The resource boom is, “generating an enormous amount of income for the Australian economy and it is not obvious that it is going away any time soon,” Reserve Bank governor Warwick Mckibbin told David Uren in today’s Australian.

Treasury economist David Gruen agrees. He points to the larger contributions to global growth from countries like China, India, Brazil, and Russia. “At this stage, there is every indication that this pattern of relative contributions to world growth will be repeated in 2008.”

The big drivers are agricultural exports (recovering from the drought) and mineral and energy exports, driven by Asian growth and high global energy prices. The charts below from ABARE show the total dollar value of select Aussie exports to various countries in 1996-1997 (the grey line) and 2006-2007 (the orange line).

Gold to India, iron ore to China, aluminium and thermal coal for power to Japan. What’s not to like about that earnings picture? Lucky country indeed.

Barring a total collapse in resource prices-something we addressed earlier this week-we agree with the basic thesis that these sectors and these mineral, energy, and farm exports will drive earnings growth in the resource sector. But what we’re after is what to do about it.

Deeds, not words!

We feel more optimistic about the smaller resource stocks in the market that we have at any time since we moved to Melbourne in 2005. The combination of bad news at Opes and the gloomy outlook from Bernanke makes for a lot of negative sentiment and frankly, despondence, hopelessness, despair and (if we’re really lucky) capitulation. That’s perfect.

Not that we are taking pleasure in other people’s misfortune. But this really is the time when you want to be a buyer: when other investors must sell. You have a relatively positive earnings outlook for select commodities (especially energy and energy alternatives). And you have an open playing field, where most investors have fled to cash and blue chips. You also have a lot of forced selling (see Opes note below).

The risk is obvious. Markets as a whole could go down. But as we’ve learned, even in down markets, companies that grow earnings tend to do well. Going against the earnings trend isn’t easy. But it does happen.

We’ve acquired a new research tool at the Old Hat Factory and have been putting it through its paces to prove the point to you. We asked Gabriel to run a simple report on the best performing ASX-listed shares over the last 52 weeks with a market capitalisation over A$100 million.

We excluded the micro-caps not because we don’t love them (they were, in fact, our first love in 1998 when we ran a Penny Stock Tip sheet in America), but because we wanted to prove that you can still make money in stocks even if you aren’t trading illiquid penny dreadfulls.

Top Performing ASX shares with a mcap of A$100m or better in the last 52-weeks

Forget Macquarie Bank. The real millionaire factory in Australia is resource prices, West Australia and all that gold, iron ore, and uranium!

“Minemakers is a little explorer, mostly a mine developer,” Diggers and Drillers editor Al Robinson said as we hunched over the desk, scanning the results for a little penny stock gold.” It’s also a phosphorous play. Phosophorous prices are way up with global fertilizer prices. Yeah… that’s a good little story. Lots of earnings potential.”

You’ll see a lot of other miners on the list. There’s one share tip from the Australian Small Cap Investigator on the list. We aren’t saying which one, out of respect for paid up subscribers.

We will tell you it has something to do with coal, which has lately been in the news owing to the fact that Australia gets 80% of its electric power from coal and that oil is still above US$100 and looking like it will stay there for quite some time.

You also have a few iron ore plays on the list. Mount Gibson jumps out because just this week Australia’s Takeovers panel quashed an attempted takeover of the company due to what the panel said were, “unacceptable circumstances.”

Chinese steel-maker Shougang loses out on the decision. But the panel is not trying to discourage Chinese companies from investing directly in Australian companies. In this particular case, Shougang already owned a sizable position in Mount Gibson due to its stake in Hong Kong-based APAC Resources Ltd. which owns 20.2% of Mount Gibson’s shares.

Under Australian law, a shareholder must make a formal takeover bid once it acquires more than 19.9% of a target’s shares. Shougang already had a 9.3% stake in Mount Gibson, courtesy of a January deal with Russia’s Gasmetal Holdings Ltd. Shougang’s association with APAC would have given it a back-door holding larger than 19.9% in Mount Gibson, triggering the necessity for a takeover bid.

So this bid didn’t go through. But don’t expect it to be the last. Sinosteel is still pursuing the first ever hostile Chinese bid for an Aussie company with its $1.2 billion offer for Midwest. And keep in mind that Mount Gibson produces a small amount of ore, just six million tons (compared to 120 million for Rio Tinto).

The desire by Chinese steel markers for Aussie ore is a long-lasting one. It should animate the juniors in the iron ore sector for the next few years. There are lots of good trades and investments to be made. And not just iron ore, but coal, bauxite (for alumina and aluminium), and other Aussie minerals. It will be a good time to own tangible assets, or the shares in takeover targets.

By the way, we’ll keep playing with our new research tool and let you know what we find as we find it.

Finally, we don’t have anything to ad to the Opes story that you can’t read in the other papers. It’s shocking, though, that’s for sure. Today’s Financial Review reports that the liquidation of the Opes’ $1.2 billion portfolio has affected almost one quarter of the stocks listed on the Australian Stock Exchange.

“Australia and New Zealand Group is already almost a third of the way through its sell-off of 677 different securities, including shares, options, and warrants in 579 companies ranging from blue chips to market minnows.”

The legal system is firing up, with Opes client’s seeking to block the sale of their share portfolios. These investors are challenging whether ANZ and Merrill Lynch actually own the shares. At least five companies went into trading halts yesterday as ambiguity over who owns big blocks of their shares set in.

What a mess. Word for the week: transparency. Earnings transparency this year will come from companies with real assets on the balance sheet and rising prices for those assets. Yes, it sounds so simple a fifth grader could figure it out. But right now, keeping it simple-in a world of complex financial instruments-is not a bad strategy.

Dan Denning
The Daily Reckoning Australia

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