The Global Warming Resources Boom - Invest in Uranium, Gold, Silver and Diamonds
Commodities / Investing Jan 28, 2007 - 08:27 PM
Seeping Giants and Untold Riches! - Look out your window and see if pigs are flying.
Why? Because the impossible is happening: Major corporations are joining forces with environmental groups in an unprecedented, unholy alliance to push for quicker action on global warming. A decade ago, if you'd placed bets on this kind of partnership emerging, you probably could have gotten 100-to-1 pay-offs in your favor.
No one dreamed it would be possible. But it's happening. And its creating a unique situation for early investors that also comes with incredible leverage. Probably not 100-to-1. But possibly a lot more than 10-to-1.
The alliance of greens and Corporate America is called the US Climate Action Partnership, and we're talking some really BIG names here: Alcoa, BP America, DuPont, General Electric, FP&L Group and more. They know things are getting too warm to waste any more time on hot air! They know they've got to move — and immediately.
Trouble is, almost all the alternate energy solutions people talk about are decades away. They're too immature, too small, or too expensive. The only solution that packs both the volume and the power to make a difference immediately is atomic power. There's simply no other that even comes close.
Total greenhouse gas emissions from nuclear power plants, including plant construction and mining uranium, are a meager one-twelfth of those produced by gas-powered plants. And they're about one-thirtieth the amount produced by coal-fired power stations.
A while back, I told you the day would come when the public eventually demands nuclear power to battle global warming. Now, with this new alliance, that day is one giant step closer, and investors, seeing the handwriting on the wall, are jumping in — big time. But uranium isn't the only red-hot metal. It's just the leading edge of a huge commodity bull market. Gold and silver are also surging. And base metals, including nickel, zinc and tungsten are close behind.
Ground Zero for Natural Resources
Now here's my favorite part: One of the best ways to buy these stocks on the cheap is by picking up Canadian-listed natural resource stocks. The facts as I see them:
Fact #1. Canada is ground zero for uranium exploration.
Fact #2. There are junior gold and silver miners listed on Canadian exchanges that are sitting on mountains of metal.
Fact #3. These juniors are trading at pennies on the dollar!
Sometimes these stocks co-list on U.S. stock exchanges. If not, you can pick up the Canadian shares through your broker pretty easily. One thing's for sure in my view — you're getting a bargain. Canada is what miners and geologists call “elephant country” — a place where you can still find enormous treasure troves of resources, resources that hold out the potential for untold wealth. Plus, the Canadians are exporting their mining expertise all over the world, making Canada a center for the commodity bull market, and a place where you can find tomorrow's A-list stocks trading for a fraction of their real value, based on their proven and probable reserves.
What are the advantages of these small-cap stocks? I'll tell you in just a bit. First, let me give you my outlook for each of these resources — uranium, gold, silver and diamonds.
Uranium — The White-Hot Metal: Demand is Outstripping Supply
In 2005 (the most recent complete statistics), uranium mines supplied 102.5 million pounds of uranium, but demand was 171 million pounds. The gap of 68.5 million pounds was filled by rapidly dwindling stockpiles. Uranium demand probably hit 180 million pounds in 2006, and is going higher yet. Supply just can't keep up. Then, in October, uranium kingpin Cameco reported that its Cigar Lake Mine, which was scheduled to go into production in 2008, suffered a disastrous flood. Water is still pouring into the mine so fast that some miners joke that Cameco should convert Cigar Lake into a hydroelectric plant.
Cigar Lake was supposed to ramp up production to 18 million pounds of uranium a year; 18 million pounds — that's more than a tenth of last year's total global demand. One expert said: “It's like the oil industry losing Saudi Arabia.” Cameco is trying to stem the flooding at Cigar Lake, but this project is probably delayed for years. The biggest challenge of all: Right this very moment, there are over 100 nuclear reactors under construction or in the planning stages, a huge 25% increase over the number of existing reactors. Japan has 11 in the works. China, 30. India, 20. A typical 1 gigawatt nuclear reactor requires around 200 tonnes of natural uranium per year.
Bottom line: Demand is going to soar, and supply can't keep up.
Gold — Ready for the Next Leg Up
Last year, we saw gold soar to $732 per ounce before pulling back. Now, it's moving back up again, and there is a lot telling me that gold prices now are an incredible bargain ...
First, production is falling. Despite soaring prices, gold mine production in 2006 fell by 2% to 2,467 metric tonnes, according to GFMS. South Africa, Australia and the United States all saw production go down — even though prices are going up!
Second, official sales are tumbling. Selling of gold by central banks dropped by half in 2006 to 330 metric tonnes. Market watchers expect those sales to keep falling.
Third, we have the next wave of gold ETFs. Recently, three companies rushed to launch gold ETFs or funds in India as the laws changed favorably in that country. So a billion people will suddenly have access to gold funds. Sounds bullish to me!
Fourth, producers are de-hedging like crazy. “Hedging” is when miners sell forward gold production to lock in prices. With gold prices strong and getting stronger, miners are buying back those forward sales. Net producer de-hedging in 2006 hit 400 metric tonnes — FOUR TIMES the volume of 2005.
If anyone knows where the price of gold is going, it should be gold miners. And they're giving a big vote for “UP!” Gold should charge back to $732 this year on its way to $750 per ounce.
Silver — Hotter Than Hot!
The facts in a nutshell ...
Potential jewelry demand: A spokesperson for the World Jewelry Confederation recently said that Russia, China and India “are expected to stand at the center of the expected double-digit growth in silver consumption in the coming years.”
Industrial demand: According to the Silver Institute, industrial demand for silver rose 11% in 2005 and represented 47% of total demand, up from 37% in 1995. As emerging-market nations continue to rapidly industrialize, demand for silver will keep pace.
Low stockpiles: According to CPM Group, a commodities-research firm, there are roughly 300 million ounces of silver in above-ground stockpiles, a 50-year low.
Silver ETF: The iShares Silver Trust holds physical silver to back its shares, and currently it holds over 116 million ounces and recently filed papers to add 168 million ounces to back the issuance of new shares. Just as the gold ETFs are driving gold sales, the silver ETFs should do the same for silver.
I expect silver could hit $16 an ounce in 2007, and then it will set its sights on $20!
Diamonds — an Investor's Best Friend
The “4 Cs” of diamonds are cut, color, clarity and carat. To this I would add one more “C” — China.
Indeed, the diamond market is about to be reshaped by enormous demand from China. In the last half of 2006, China's refined diamond imports jumped 194% year on year! For the full year, China's imports and exports of diamonds hit a record high of 610 million U.S. dollars in 2006, jumping 44.4% year on year. In other words, China's diamond purchases are accelerating.
Rising wealth in Asia is fueling demand for the $70 billion diamond jewelry industry. The global diamond jewelry market should expand 6% to 7%.
Okay, I've told you about these amazingly undervalued companies in Canada, and the enormous growth ahead for each of these sectors. And while I expect uranium to lead the way, gold, silver and diamonds —virtually ALL natural resource prices — are taking off again.
I believe this action is signaling the next phase in the natural resource explosion, a phase when investors all over the world begin to pile into the shares of smaller companies that specialize in these ever scarcer resources.
In this phase, the new surge of investor demand could send the share prices of many natural resource stocks flying higher than you can imagine.
And this is especially true for small caps ...
When Big Money Starts Pouring Into
Small Companies, Their Share Prices
Can Blast Off To The Moon.
So how do you trade these stocks?
With small caps, you can't just say “buy 10,000 shares at the market.” You need to know how many shares to buy ... how much to pay. Plus, it's even more important to know how and when to sell.
My recommendations:
1. Figure out how much money you want to invest in small-cap natural resources.
2. Split the funds three ways — money to invest now or very soon, money to invest on pullbacks, and money to invest when the stock has already given you a nice, handsome profit.
3. When you have a double, often seek to take half your money off the table. That gives you a free ride on the balance.
4. Rarely give “at the market” orders. Always place orders with the price you want, “ or better. ” (That means “or lower” when you're buying and “or higher” when you're selling.)
4. Focus on Canada. But don't limit yourself exclusively to Canada.
The beauty of Canada is the best miners from all over the world are headquartered there. On the Canadian stock market, you can buy companies that have the best Canadian management and the best resources in Brazil, Argentina, Mexico — heck, I'm even looking at Canadian stocks that work in China.
Four Ways Small-Cap Natural Resource
Companies Can Knock It Out of the Park
Small caps are not for all your money. They're aggressive investments that should be bought in moderation. But there are five reasons why I like small-cap natural resource companies right here, right now ...
Reason #1. Everything is signaling that another explosive phase of the natural resource boom is just beginning. So I believe the timing is great.
Reason #2. Many of these companies are trading at a fraction of what their reserves are worth. So you get huge upside leverage! Once they become more widely known and have a track record of profits, their resources will become more fully valued.
Reason #3. You can never lose a penny more than you invest (plus any commissions you pay your broker). So just like options, your risk is limited to the small amounts you put up.
Reason #4. Unlike options, small-cap stocks never expire. You can hold them as long as you want. Provided the company remains solvent, no one can place a time limit on your opportunity. That's why I can go into these stocks with a long-term view. If they pay off in three years, I'm happy. If they pay off in three months or three weeks, I'm even happier!
Reason #5. Small-cap natural resource stocks are very cheap, with most trading for less than $5 a share. So you don't have to be Rockefeller to start playing this market.
Learn all you can about natural resources, especially in Canada. Find out more about small-cap stocks. And stand by for more details to come.
Yours for trading profits,
By Sean Broderick
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