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Magnegas Stock News

MagneGas Corporation’s (MNGA) outlandish hype and financials remind us of those lurching, snarling, misunderstood zombies populating the horror film “Night of the Living Dead.”

At the center of the company is founder, Ruggero Santilli. The controversial nuclear physicist has been called everything from brilliant to a fringe scientist.

In a manuscript, “HHO gas” was presented as a new form of matter by Mr. Santilli shortly before he started the Tarpon Springs, Florida company.

A Brown University professor wrote in the International Journal of Hydrogen Energy of Mr. Santilli’s “many serious misinterpretations and, misunderstandings of the “data” presented in this (Mr. Santilli’s) manuscript.” Mr. Santilli responded to the professor’s criticism here and built a reputation as a scrappy scientist who used the legal system to attempt to force detractors to take his ideas seriously.

MagneGas is built on Mr. Santilli’s machine designed to gasify pig manure or other liquid waste into fuel.

This “Magnegas” results when the waste is passed through an electric arc and heated. The alternative fuel is primarily used in welding.

But the technology is unproven on a large-scale industrial basis and might not work well on that basis – according to regulatory filings – or produce a fuel able to compete against standard acetylene.

MagneGas has only been able to claim revenue of ~$584,000 last quarter after acquiring Florida welding gas distributor, Equipment Sales and Services, in 2014. Today, the company announced the subsidiary “Lands Largest Single Customer in Company History.” But it is just so much more hype. The touted $400,000 per year customer “has indicated they will be purchasing all of their industrial gases and welding products throughout the year from E.S.S.I and their initial orders have been placed and delivered.”

There are only two months left in this year. Running the math, then, that order for the entire year would amount to just about $66,000 revenue.

And, while there could be something to this announcement, there’s no guarantee the order will be renewed and the word “indicated” is worrisome.

While investors may find other viewpoints here, TheStreetSweeper presents in this ongoing investigation the first six reasons MagneGas hands out downside risk like candy.

*Bought and Paid For Hype

MagneGas is so overvalued and its prospects so low, wise investors would normally run as if zombies really were after them.

So the company buys investors’ love.

In the last few years, MagneGas stock has been hyped by stock promoters an astounding 52 times at a cost to MagneGas and a third party of over $260,000.

Indeed, our analysis of stockpromoters.com data reveals eye-popping details.

*MagneGas itself paid stock promoters roughly $59,000 and 650,000 shares of its own stock.

Yet those payments are just the beginning.

*MagneGas friend ACS Financial Consulting Group pitched in hundreds of thousands of dollars for these stock promoting sites to hype MagneGas through newsletters and other means.

Here’s a snapshot:

(Source: stockpromoters.com. Click on “view” for more details)

These little newsletters and email blasts have a name – and we think you know what that name is.

*Inadequate Hype Disclosure

Another massive issue is this: Securities law requires disclosure of these promotions.

Let’s look at this huge red flag:

A company that engages a stock promoter should disclose in SEC filings the terms of the stock promoter’s engagement, including compensation, in order to avoid becoming a target of securities enforcement actions under the Securities Act.

But here is the MagnesGas incredibly vague disclosure:

“In the current quarter, as in prior quarters, we used common stock as a method of payment for certain services, primarily the advertising and promotion of the technology to increase investor and customer awareness and as incentive to its key employees and consultants.”

The SEC-mandated annual report simply states:

“Investor relation and public expense expenses increased $881,600 in 2014 due to the costs associated with our funding and for the increase in regulatory compliance and the promotion of the public awareness.”

And:

“We use restricted common stock as a method of payment for certain services … to increase market awareness …”

The promotional arrangements are not clear, by any means. This is an absolutely significant sign of a highly risky stock.

*Massive Insider Selling

Another jolt to investor psyche comes when one looks at key hype dates and insider selling.

MagneGas hype hits in a series of blitzes. Below, the stars show the number of promotions that occurred on any given date in 2015.

The chart below indicates several things.

First, note the five insider sells in May. These were quickly followed by six big promotional efforts that month (indicated below in yellow), coinciding with a stock price increase.

(Source: Nasdaq.com)

Second, insiders unloaded big-time during July. Then a big promotional blitz hit in July. And a couple more insider sales (highlighted in yellow) occurred shortly afterward.

Third, after a quiet month in August, more promotional efforts occurred in late September and this month, as shown by the last four yellow dots on the graphic above.

Fourth, more insider selling will likely become evident soon, when insiders report this month’s sales.

Most of the shares were sold by a director who is also the founder’s wife, Carla Santilli and another director, Christopher Huntington. Since both people likely have a good sense of the stock’s true value, these sales are worrisome for investors still holding stock.

*Horrifying Financials

Outlandish insider selling and paid promotions call for a little more perspective on what is driving all this activity.

All figures below are from the company’s regulatory filings, here and here.

$$$ MagneGas revenues –primarily from acquiring welding gas distributor ESSI- were just $1 million for all of 2014.

$$$ Selling, general and administrative costs were $3.5 million.

$$$ Stock-based compensation, stock used for services reached $2.7 million!

$$$ Those stock costs exceeded R&D expenses by almost 7 times!

$$$ Total net loss increased 13% to ~$7.2 million.

$$$ Net loss last quarter reached $4.3 million.

$$$ Company losses are now ~ $30 million.

And filings say the only significant sales in its history consisted of a one-time, $1.85 million refinery sale to China in 2010.

*Cash Position, Deadly Accident Suggest Imminent Stock Offering

The sole analyst covering MagneGas hasn’t paid attention since 2012 and institutional interest is almost non-existent at 2 percent.

So almost no one has noticed that the company’s cash – produced by three stock offerings in 2014 – has dwindled down to about $4 million. Yet MagneGas burns through about $1.5 million per quarter.

Cash burn will likely jump significantly. A tragic accident during the gas filling process killed one employee and injured another in April, potentially leading to additional regulatory scrutiny and costly litigation.

So the company will almost certainly need to raise capital – likely through an offering that will dilute stock held by today’s shareholders.

*Fire-Breathing Indicators

Investors can see that there are no bullish indicators for MagneGas but the bearish indicators are mighty, shown below:

(Source: Nasdaq)

*Conclusion:

MagneGas’ spook fest has risen to cataclysmic proportions … and, unless someone drives a stake into the heart of the problem, earnings losses will continue long after Halloween night.

Indeed, trademark qualities such as a short-term rally and high volatility … as shown by the stock chart below … plus bought-and-paid-for hype, inadequate disclosure, insider selling, virtually non-existent upside and financial gloom make MagneGas a great stock to avoid at all costs.

(Source: Yahoo Finance)

We believe MagneGas should be more realistically valuated at about 25 cents per share.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in MNGA and stand to profit on any future declines in the stock price.

* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to scolberg@thestreetsweeper.org.

[Image Courtesy of Sunset Filtration]

Gold Price News

What gold and silver investors want to know above all is when the bull market will resume. In a very real sense, it already has resumed. Futures market prices aside, evidence abounds that a raging bull market in physical precious metals is now underway.

In the third quarter (ending September 30th), coin demand went through the roof. Mints literally couldn’t keep up with demand. The dysfunctional U.S. Mint rationed deliveries of Silver Eagles, failing to fulfill its mandate under law of keeping the market supplied. Even so, investors bought up a record 18.59 million ounces’ worth of silver Eagle coins in the past 4 months.

Steve St. Angelo of SRSRoccoReport.com compared the 2015 Silver Eagles shortage situation with the infamous 2008 incident. He found the current shortage occurred even as the U.S. Mint produced three times as many Eagles this time around!

Extraordinary conditions in the silver market are causing the mainstream media to sit up and take notice.

As Reuters reported, “The global silver-coin market is in the grips of an unprecedented supply squeeze, forcing some mints to ration sales and step up overtime while sending U.S. buyers racing abroad to fulfill a sudden surge in demand.”

Record Demand for Coins Sends Premiums Soaring

Record demand for silver coins has driven premiums on virtually all bullion products substantially higher. Some of the biggest premium spikes are being seen on pre-1965 90% silver coins. These premium increases represent real gains in value for holders of physical silver. During periods of elevated premiums, national dealers such as Money Metals Exchange have and will pay prices up to several dollars above spot on buy-backs of most silver products from customers.

Market conditions will eventually normalize. But since this great public buying spree in physical silver was spurred by low spot prices, it may take significantly higher spot prices to lessen demand-driven shortages and backlogs. Buyers who wait for premiums to come down may, in turn, end up having to pay higher spot prices.

Market tightness is less of a problem for gold bullion products. For the most part, supply is keeping up with demand. That’s not to say that gold bullion hasn’t experienced a demand surge of its own. It definitely has. Sales of gold American Eagles surged to 397,000 ounces in the third quarter, up from 127,000 ounces for Q2.

When Will the Physical Bull Market Kick Off a Bull Market in Prices?

Will Q4 produce more explosive demand figures for gold and silver bullion? It’s possible. In the meantime, bullion investors will be looking for evidence that the bull market on the physical side is stimulating a bull market in the spot prices set by highly leveraged futures exchanges.

The price action in gold and silver futures so far this year has been disappointing – and, frankly, baffling from a fundamental standpoint. Metals prices shouldn’t be falling given what’s going on in the world. Central banks across the globe are desperately trying to stimulate weak economies. A worried Federal Reserve backed off on purported plans to raise rates.

Although industrial demand for silver is down, so is mine production (as discussed more fully below).

The falling supply and through-the-roof investment demand for physical gold and silver are more than enough to pick up the slack.

Unfortunately, while fundamentals matter to investors, they don’t matter to the traders and the large financial institutions that have cornered the gold and silver futures markets where paper metal is in ample supply. Several big banks hold outsized short positions on precious metals. The trade has worked out well for them lately, and that’s all they care about.

Shorting precious metals won’t be profitable forever. When the market for gold, silver, or any commodity gets depressed in price for an extended period, the forces of supply and demand start pressuring prices back up. The pressure may build for months before it starts showing up on the price charts.

But eventually, something will break. Artificially low prices encourage increased consumption and discourage production – a veritable recipe for higher prices at some point down the road.

To be sure, low prices for gold and silver have absolutely decimated the mining industry. That means that supplies in the months and years ahead are headed for a decline that will not be easily reversed.

In a recent interview on our Money Metals Weekly Market Wrap, mining industry analyst David Smith talked about an emerging global supply squeeze. He said, “We’re seeing a fairly substantial fall off in production, not just in one country, but in several – in Australia, in Mexico, in Peru, and even in the United States. And most recently Canada. These are very large falloffs in supply production, right at the very moment when demand is going through the roof. Those two things don’t make for lower prices. They make for higher prices…”

Keeping It Simple and Looking Long Term Will Pay Off in the End

These fundamental supply and demand forces will make for higher precious metals prices – perhaps starting in the final three months of 2015; perhaps not until a bit further out on the calendar.

Long-term investors should leave the short-term market timing to day traders. When the stealth bull market in precious metals shifts into a full-fledged bull market on the charts, those who hang on for the ride will do better than most of those who try to trade in and out. And those who own physical precious metals will have more security, and more ways to profit, than those who hold paper contracts.

[Image Courtesy of Wikipedia]

Debt Ceiling

It’s campaign season, and that means non-stop media coverage of candidate polls, quips, gaffes, tweets, emails, controversies, lies, and scandals. It all makes for a good soap opera. Unfortunately, it’s almost all irrelevant in the big picture.

The media prefer to focus on the sideshow rather than the 800-pound gorilla in the room: the looming debt crisis. Nothing that comes out of a pundit’s mouth or a Hillary Clinton email will close the $210 trillion long-term fiscal gap the U.S. now faces.

More immediately, Congress faces a likely debt ceiling debacle in the next few weeks.

First up, Members of Congress are considering full funding for Obama’s budget, and the fiscal year begins October 1st. Not surprisingly, the Obama administration’s new budget calls for spending much more than the federal government will take in. So Congress will need to raise the statutory debt limit within a few weeks in order to make that spending possible.

Disgraced Speaker Boehner Vows to Ram through More Deficit Spending before Exiting

To their credit, fiscal conservatives have just forced Speaker John Boehner (R-OH), a proponent of runaway deficit spending, to announce his resignation. But Boehner is defiantly vowing to ram through Obama’s budget and a higher debt limit before his exit in 30 days.

Meanwhile, the chief Republican in the Senate, Majority Leader Mitch McConnell, recently called efforts to rein in Obama’s spending proposals “an exercise in futility.”

If enough members of Congress raise enough of a fuss, they can still prevent a debt limit increase from going through. But the Treasury Department says the “extraordinary measures” it’s taking will only keep the government funded into November. So the threat of a default are already getting played up by the Obama administration, its apologists, and the media.

But the debt ceiling drama isn’t the debt crisis that Americans should be most concerned about. There is a near 100% chance that the government’s borrowing limit will ultimately be raised – just like it has been every other time Congress faced the specter of default. Despite some tough talk, enough politicians can be counted on to capitulate just in time to spare the country from having a government that lives strictly within its means.

Assuming the debt ceiling is eventually raised, the move will make the coming debt reckoning that much bigger. Officially, the national debt now comes in at $18.1 trillion – about equal to the nation’s total economic output for a year. Adding in all projected unfunded liabilities brings the total to about $210 trillion, as calculated by economist Lawrence Kotlikoff.

Meanwhile, demand for U.S. debt obligations appears to be on the wane. China, formerly the largest holder of U.S. government bonds, recently trimmed back its Treasury holdings by more than $140 billion. It also boosted its gold bullion reserves.

This could be the early stages of a longer-term trend that would not bode well for the bond market. “If Beijing dumped hundreds of billions of dollars of Treasuries, U.S. yields would skyrocket,” warns

Bloomberg View columnist William Pesek.

The world’s largest holder of Treasuries is now Japan. Japan itself is one of the world’s most indebted nations, making its leveraged Treasury position precarious. How much longer will the Japanese be able to continue issuing debt in yen in order to fund purchases of dollar-denominated Treasuries?

And who will be able or willing to fill in the void left by waning demand from Japan and China? Europe is broke, and most of the rest of the world’s countries are too small, too poor, and/or too indebted to be a major financier of Uncle Sam’s massive spending habits. It’s difficult to see private investors flooding into Treasuries en masse without the incentive of significantly higher real interest rates.

The Fed Is Eager to Buy Government Bonds with Negative Real Yields

The problem is that the government’s financing model depends on issuing debt with a negative real yield – which is to say, an interest rate below the actual rate of inflation. The only institution with an outsized appetite for bonds that sport negative real returns is the Federal Reserve (whose balance sheet has swelled from $1 trillion to $4.5 trillion since the 2008 financial crisis). The Fed is Uncle Sam’s lender of last resort and has been the great enabler of runaway debt spending.

Since 1971, the federal government has failed to run a balanced budget 91% of the time. It’s no mere coincidence.

As financial analyst Mike Patton tells Forbes readers, “In July 1971, President Nixon ended the right to convert U.S. currency to gold and caused what became known as the ‘Nixon Shock.’ Without a gold standard, there was nothing to back the dollar, and the door was opened for increased Congressional spending.”

Absent a return to sound money and a gold standard or some other form of independent, objective restraint on Congress and the central bank, there’s little reason to believe a debt crisis can be averted. The temptation to paper over excess spending with excess currency creation is simply too great.

As the debt grows and the currency supply grows along with it – both at higher rates than the rate of economic growth – the debt crisis will likely morph into an epic inflation crisis. Prepare accordingly.

[Image Courtesy of Outside The Beltway]

For smart investors watching the gold-Dow ratio rather than mainstream media headlines, this is an exciting time to be a precious metals investor. The world seems to be conspiring to push the price of gold higher, with continued zero interest rates, Chinese stock market volatility and more unrest in the Middle East. In this interview with The Gold Report, Gold Stock Trades Editor Jeb Handwerger lays out his short list of junior mining companies that have been actively adding value, and that will be in demand when all eyes are on the sector.

The Gold Report: In your last interview with The Gold Report, you said that a Federal Reserve interest rate hike would be the best thing for gold. As we now know, the board decided to keep rates at almost zero. How does that impact your projections for precious metals?

Jeb Handwerger: It was almost a done deal that the Fed was going to raise interest rates in September, but then the Chinese market began to crash and just the threat of raising interest rates caused a price decline in the S&P 500, the likes of which we haven’t seen in a long time. It was a record drop, breaking a major four-year uptrend and forming a technical bearish pattern. The Fed announced on Sept. 17, when it was expected to raise interest rates for the first time since 2006, that it is uncertain about the economy, that the equity markets are too volatile, and that there are too many dangers of another recession. Now the Fed is doing whatever it can to prevent a recession.

jebcharrt1

The global stock markets are beginning to roll over, something I predicted in that same interview, due to fear of a rate increase before the end of 2015. The reality is we have a slowing global economy with the threat of higher interest rates, and that sparked a rally in the precious metals. The gold-Dow ratio is now beginning to turn in favor of precious metals, which are once again seen as a safe haven to preserve capital and protect against markets that are completely overinflated and experiencing record volatility. That is why I have always advocated for a diversified portfolio, including precious metals commodities and high-quality junior mining equities. I would not be surprised to see gold at $1,600/ounce ($1,600/oz) and the S&P500 at around 1,600 before the end of the first half of 2016.

The bottoming process for the juniors could be taking place now, after a seven-year decline. All of these factors make this a phenomenal time to find assets not correlated to the stock market, the bond market and the U.S. dollar. The best assets inversely correlated to those things are precious metals commodities and junior miners.

Now, the junior miners are even cheaper than they were in the late 1990s, when gold was below $275/oz. This could be a once-in-a-lifetime value proposition that may not last much longer. The safest havens during these periods of deleveraging are assets trading near their intrinsic values or at liquidation levels, which we’ve seen. Many of these miners are trading even below their cash values.

Integra Gold Corp. would be an attractive takeover target; it’s only a matter of time before a major wants to add this high-grade asset to its portfolio.

The U.S. stock market and the U.S. Treasury markets went straight up for more than four years, boosted artificially by record low rates. They could be due for a possible 30–50% decline. The recent decline was just about 10%. Any rally may be short-lived until the markets return to realistic levels. As soon as that uptrend in equities is broken, we will see a massive rotation into the inversely correlated sectors, which include precious metals commodities and the gold juniors.

TGR: You’re not the only one saying this. J.P. Morgan just called a bottom for gold. Are you watching the same indicators as the big investment banks?

JH: I’m not a fan of big-house reports. I usually look at them as a contrary indicator, but this could mean that the upturn has just become undeniable.

The key indicator I watch is the gold-Dow ratio. That is evidence that the trend may be changing. Investors need to look at the relationship between stocks and gold. When that ratio breaks down, it’s better to be in precious metals.

I also look at the cycles. The decline really began in 2007. This is one of the longer declines, even factoring the bounce after the credit crisis between 2009 and 2011. Over this seven-year period, a drastic reduction in mineral exploration and development due to capital chasing social media and biotech stocks has caused a major shortage of mineral supplies. The recent volatility and increase in the Chicago Board Options Exchange Index (VIX) will send investors back to the junior miners as a way to diversify out of overvalued stocks and bonds. That is why a portfolio of choice junior mining investments is more valuable than a statement might show today.

TGR: What kind of junior mining company can do well in this upward-turning environment you’re describing?

Pershing Gold Corp. is positioned for outperformance in the coming new bull market.

JH: I look for companies actively drilling. I don’t waste my time with companies that don’t really have a game plan for building fundamentals and creating value for shareholders. You have to know the management team, and it has to have clear, set goals with news flow and guidelines.

TGR: What are some top stocks you’re watching that fit those criteria?

JH: Integra Gold Corp. (ICG:TSX.V; ICGQF:OTCQX) recently announced a major $14 million ($14M) investment from Eldorado Gold Corp. (ELD:TSX; EGO:NYSE). Integra is getting impressive, high-grade results from its current drill program. It is getting validation from a major mining company and major investors during a bear market. That’s exciting.

TGR: Could Integra be a takeout target?

JH: The validation from Eldorado, plus the increased funds to advance this project and continue making discoveries, makes me think Integra would be an attractive takeover target. As this company develops, it’s only a matter of time before a major wants to add this high-grade asset to its portfolio to get rid of some of the crap causing problems to the bottom line. We’re already seeing a number of major mining companies doing that. They’re getting rid of their uneconomic projects in risky jurisdictions and they’re looking for lower capital expenditure, high-grade, extremely economic, robust projects like Integra and Pershing Gold Corp. (PGLC:NASDAQ).

TGR: What makes Pershing attractive to a major?

JH: Pershing is continuing to drill at a record pace. It has a huge, strong treasury. It is fast-tracking a great project that is continuing to build value in Nevada. This is an exciting time because this state has been ignored due to the strength of the dollar. Most investors like the Canadian assets because they can get better margins if their costs are in Canadian dollars and their sales are in U.S. dollars. People thought the dollar was going to go higher if the Fed raised interest rates. Now that the dollar is beginning to turn over, that might reignite interest in Nevada gold mining.

Pershing Gold has a fully permitted mine and mill at Relief Canyon. It is getting exceptional results with four drills currently on the property. It has a great shareholder base. The largest shareholder is the billionaire Dr. Phillip Frost. Pershing has a strong treasury, and has newly uplisted to the NASDAQ with a share rollback. It has a clean balance sheet and an excellent share structure. It is positioned for outperformance in the coming new bull market.

Red Eagle Mining Corp. is in construction of an extremely high-grade, underground and robust economic mine.

Another Nevada company, Corvus Gold Inc. (KOR:TSX), just received a $2M investment from Resource Capital Fund VI L.P. in a tough market. That tells you something about the credibility of exploration at the North Bullfrog project, located an hour’s drive from Las Vegas. Management came out with a preliminary economic assessment showing impressive numbers, but it’s trading at an all-time low. Corvus has Tocqueville Gold Fund, AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) and Van Eck Associates Corp. as major shareholders. That is a lot of institutional capital in this company, which is led by Jeff Pontius, who has decades and decades of exploration experience leading AngloGold Ashanti’s gold exploration team in North America.

Staying in Nevada, NuLegacy Gold Corporation (NUG:TSX.V; NULGF:OTCPK) has earned into the Iceberg project with Barrick Gold Corp. (ABX:TSX; ABX:NYSE). It is right next to Barrick’s Goldrush discovery. NuLegacy has hit some impressive holes over the past few months. Barrick will have to decide by the end of the year whether to take this forward or stay a minority partner. Barrick has had a lot of problems in other areas. Its best mines are in the Cortez Trend in Nevada, where NuLegacy is. I think the best move is to secure those assets before a midtier swoops down and picks up that position. That’s an exciting project that has seen some results in Nevada.

TGR: Is there another company that is well positioned?

JH: Red Eagle Mining Corp. (RD:TSX.V) owns the Santa Rosa deposit near Medellin; it is the first mine that’s been permitted in Colombia in over 20 years, a significant announcement. Red Eagle is in construction of an extremely high-grade, underground and robust economic mine that is coming into production over the next 12–18 months. That is an exciting project that should be on the radar of investors.

TGR: Is the market taking notice of that announcement?

JH: Red Eagle has outperformed the juniors. It’s still holding up there near its 52-week highs, but it hasn’t broken out. Nothing in the entire sector on the development side has been breaking out yet. But this is one to watch.

TGR: Can you leave us with one more name to put on our radar?

JH: Carlisle Goldfields Ltd. (CGJ:TSX; CGJCF:OTCQX) just announced an exciting discovery at the Lynn Lake gold camp in Manitoba. Carlisle is partnered with Alamos Gold Inc. (AGI:TSX) to develop a feasibility study. Alamos may consider Carlisle a takeout target, especially as the junior mining sector turns around. One of the things that I like about Carlisle is very few juniors have a major company like Alamos operating and funding exploration and development and drilling. It is kind of getting a ride on the development from Alamos, which took over AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE). I expect to see more progress in the next few months.

TGR: Based on the macro-picture you have painted for us, how are you adjusting your portfolio for the rest of 2015? What is your strategy?

JH: I’m continuing to build positions in high-quality companies. I think now is an excellent time, especially when companies are offering three- to five-year warrants and financings. For accredited investors who haven’t yet had exposure to the junior mining sectors, that is an opportunity to diversify out of stocks and bonds and general equities.

We are already beginning to see the beginning of a bottoming process in the junior miners and a breakdown of the stocks. If you have a three- to five-year window, there could be an exceptional amount of wealth created.

TGR: Thank you for your time, Jeb.

Jeb Handwerger is an author, speaker and founder of Gold Stock Trades. He studied engineering and mathematics at University of Buffalo and earned a master’s degree at Nova Southeastern University. In 2014, Jeb was the first to highlight the top two performers of the Best OTCQX 50. Handwerger began investing in junior mining equities in the late 90s, avoiding the dot-com crash. In early 2009, at the depth of the credit crisis, Handwerger began the Gold Stock Trades website for investors to become more aware of exciting developments in the mining and natural resource sector. He has remained active in pursuing his professional career in TV, film and theater. He has performed in numerous award-winning Broadway/off-Broadway productions, several well recognized feature films and dozens of worldwide commercials. In addition to finance and acting, Handwerger is passionate about education, and taught business to lower socioeconomic students from seventh grade to adults in the Broward County Public School System.

Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:
1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Integra Gold Corp., Red Eagle Mining Corp., Pershing Gold Corp. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Jeb Handwerger: I own, or my family owns, shares of the following companies mentioned in this interview: Integra Gold Corp., Red Eagle Mining Corp., Pershing Gold Corp., Carlisle Goldfields Ltd., NuLegacy Gold Corporation and Corvus Gold Inc. The following companies mentioned in this interview are advertisers on my website: Integra Gold Corp., Red Eagle Mining Corp., Pershing Gold Corp., Carlisle Goldfields Ltd., NuLegacy Gold Corporation and Corvus Gold Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

Source: These Six Gold Companies Could Create Exceptional Wealth Sooner Than You Think: Jeb Handwerger

Monday, September 21, 2015, the SHEMITAH – the 7 year cycle started its reign.
Yesterday, Tuesday, September 15, 2015, The US Treasury market suffered a steep sell-off.   This was primarily due to the fact for the first time in 9 years The FED is going to raise its benchmark interest rate.
The Fed must pull the trigger on a rate hike tomorrow, or it will lose all credibility.  It will risk “negative interest yields” on more of their trading securities in the US Securities Market as currently in place in Europe. The yield of the two-year Treasury had jumped by 8 basis points to a new four-year high of 0.8 per cent and the 10-year Treasury climbed 10bp to a six-week high of 2.29 per cent.  The fear and reality of the downturn in liquidity have unfortunately spread to what was before considered the most liquid bonds in the world.bondliquiditytlt

NYSE MKT Stocks – ISHARES 20 YEAR TREASURY BOND ETF – 16-Sep-2015 02:42
Every seven years is a Sabbath year also called a Shemitah year.  This is a year of rest, just as the seventh day of the week is a day of rest.  Every seventh Shemitah (7×7=49) is followed by a Jubilee year, a year of celebration. This Shemitah of Shemitah’s has also had a Tetrad of four Blood Moons all occurring on Jewish feast days, which has not happened in 2000 years!

During a Shemitah Year, God can raise up nations or tear them down. These raising up or tearing down effect all sectors of a country.  It can effect a countries’ economy and wealth, its military preparedness, its leaders, and the health and wellbeing of its people.

Elul is the last month of the Jewish calendar year.  During this month of a Shemitah year, God declares all debts must be forgiven: the financial ledger wiped clean. This forgiving of debts often causes the Stock Market to fall.  The first week of Elul (Aug. 17-21, 2015) the Stock Market dropped 1061 points.

Sept. 28, is the last Lunar Eclipse of this Tetrad which occurs on a Jewish feast day.  This Blood Moon will also be a Super Moon meaning it will appear at its largest possible size in the sky. The Eclipsed Super Moon ends setting in the west as seen in Jerusalem, Israel in the early morning of Sept. 28, 2015.
In early October 2015, Brazil, Russia, India, China, and South Africa, The BRICS Nations, will have an economic summit where they plan to set up an alternative monetary standard to the U.S. petro-dollar.  Shanghai, China will be the location of the headquarters of this new banking system.  If the Chinese Yuan becomes the new world standard of exchange, it will have disastrous effects on the U.S. economy.

This Shemitah of Shemitah’s year could change the economic global power causing greater shifts in our future.  China has toppled America to become the biggest economy in the world.

The US has been the global leader since it overtook Britain in 1872, but has now lost its status as the #1 global economy. The Chinese economy is worth £11 trillion compared with £10.8 trillion for the US.

You certainly do NOT want to miss a day without our market updates.  I will do it slowly so you can follow along. This is bareley the tip of the Iceberg.
Get My ETF Trade Alerts And Profit With Me: www.TheGoldAndOilGuy.com
Chris Vermeulen

Global Uranium Supply
A Grand Canyon of supply deficit is opening up in the uranium markets, with 66 nuclear reactors under construction globally and more restarting in Japan. As Russia and China shore up their supply chains in Kazakhstan and elsewhere, the rest of the world could be scrambling for new sources to keep the lights on. In this interview with The Energy Report, Thomas Drolet, head of Drolet & Associates Energy Services, illuminates junior companies in the Athabasca Basin, southern Alberta and South America that could be strategic sources for countries shoring up domestic supply and for majors that need replacement resources.

The Energy Report: We have heard for years that Japan could be restarting its reactors any time. Is it really happening now?

Thomas Drolet: It is happening; one has just restarted. The intelligence I have gathered from my visits and telephone conferences with Japanese utility people since the Fukushima-Daiichi accident indicates that the restart will be measured, formal and slow. Only 25 of the original 54 reactors will eventually be restarted, in my opinion. The reasons are varied, but include local opposition, proximity to fault lines, regulatory barriers and excessive capital reinvestment needs.

TER: Once they are restarted, how long will it take to work through Japan’s uranium supply backlog?

TD: Utilities—and Japanese utilities are no different than North American, European or Canadian utilities—prefer to buy in the long-term markets. They usually buy somewhere between two and five years’ forward supply. That has left the nine Japanese utilities that have nuclear reactors on their systems stockpiling inventory to fulfill long-term contracts. A few of those utilities paid a penalty to get out of the contracts. But the majority stuck with them, so they do have a lot of inventory on hand.

An average utility that restarts four reactors would burn through excess uranium inventory in about five to seven years. Some reactors will start sooner than the average of the 25, and work through supplies faster, but some will take longer.

TER: In the meantime, how much of an impact can Chinese and Indian nuclear construction have on demand in the uranium market?

TD: Several hundred reactors are being planned or are under construction in China, India, Russia, Saudi Arabia, Argentina and the United Arab Emirates. That doesn’t include the smaller reactor business in places like Turkey, Jordan, Bulgaria, Bangladesh and Vietnam. That means a Grand Canyon of a deficit in supply from known sources—approximately 30-35 million pounds per year (30-35 Mlbs/year) in what is currently a 155 + Mlbs/year market—will open up by 2020-2022. The way in which the deficit gets filled is going to be a complex process.

drolet2

TER: If it takes decades to develop a uranium resource, that puts the focus on the junior space, where we have seen a flurry of mergers and acquisitions (M&As) lately. Is that a good sign for uranium mining equity prices for the rest of this year?

TD: First, we have to get through this doldrums period of oversupply over the next few years. We have the big existing suppliers right now in Kazakhstan, in Canada— AREVA SA (AREVA:EPA), Cameco Corp. (CCO:TSX; CCJ:NYSE) and Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT)—and in Australia. Some smaller in situ recovery (ISR) suppliers work the U.S. and Australia, but that is not going to be enough to fill the approaching canyon. All of this current supply is going to be gobbled up by U.S., European, Chinese, Canadian and Indian users. We’re going to have to look for new supplies from Canada, South America, Europe, the U.S. and Africa.

We are indeed headed for a deficit situation, and it is going to be a real problem for baseload electricity supply in the world. As much as 16% of the world’s electricity today is generated by nuclear reactors, and over the next decade or two, that will ramp up toward 20+%. The supply of last resort would have to be to gain access to some national strategic stockpiles which, in and of itself, would have major geopolitical implications.

TER: Will that mean more M&A, as majors look to replenish resources? Or perhaps exploration for fresh sources?

TD: I think both. M&A is the way of the world in the oil, gas and mineral exploration and production (E&P) game. The juniors find the uranium, prove its existence and its economic extraction potential, and then, because the juniors don’t have the capital, the bigger companies step in to put their finds into operation. This process will continue in the future world of uranium as well.

TER: One of the biggest deals recently was the Denison acquisition of Fission Uranium Corp. (FCU:TSX). Do you see that deal as a benchmark for future acquirers and premiums?

TD: In Fission’s neighborhood in Canada’s Athabasca Basin, well-managed juniors like Lakeland Resources Inc. (LK:TSX.V) and Skyharbour Resources Ltd. (SYH:TSX.V) are developing many properties. The biggest challenge faced by Fission/Denison and the nearby juniors is eventual access to milling of the ore. It is a long and expensive process to drill in hard rock, and then to invest the capital for the mill itself. We are talking in the billion-dollar-plus range to develop and operate a mill. That said, the very high U3O8 concentrations being found make the Athabasca Basin one of the best, if not the best, long-term supply regions in the world.

TER: Lakeland just announced a strategic merger with Alpha Exploration Inc. (AEX:TSX.V). Is that indicative of what is to come?

TD: I call that a merger of two juniors to strengthen the balance sheet, increase resource science capabilities, and bring together experienced management teams and board members. That is a different kind of M&A. It is more a merger of two juniors that want to stay in the E&P extraction business, get on with drilling and strengthen their balance sheets.

TER: Skyharbour is in the midst of a drilling program. How did the Fission deal impact that company’s profile with investors?

TD: A deal the size of Fission-Denison impacts everything in the area. I don’t think Skyharbour’s share price got a bump, because all the uranium juniors are on the floor right now.

“Only 25 of the original 54 Japanese reactors will eventually be restarted, in my opinion.”

I am an advisor to Skyharbour, and I know the company has an adequate amount of money to invest in its current drilling program. It also has, I believe, access to capital to make progress on a subsequent drilling program. Skyharbour and its syndicate partners are well managed and have a wide variety of properties. I would assume we would see an announcement about this summer’s results later this fall or in early winter.

TER: What else in the Athabasca should investors be watching?

TD: I think we should be watching for investor interest to come from outside of the normal sources used to date—not from the current players. The Chinese and Indian governments and their agencies and other business enterprises are looking for long-term sustainable supplies. I think Russia will concentrate on a closer relationship with Kazakhstan to supply its turnkey projects in Turkey, Pakistan, Bangladesh and Vietnam. This shift could limit what Kazakhstan sells on the general market in the future.

TER: What about outside of the Athabasca? Are you watching any projects in South America?

TD: I am watching one company in particular. U3O8 Corp. (UWE:TSX; UWEFF:OTCQX) is managed by CEO Richard Spencer, who has a great staff working with him, including a noteworthy complement on the board of directors.

U3O8 Corp. has a number of project possibilities in South America. First in line is in Argentina, which, by the way, has a very active nuclear reactor building program. A third Argentinian reactor has just come online, and the country has announced programs to build three more starting later this year. By 2025, the government hopes to source 21% of its electricity supply from nuclear reactors, and is eager for a domestic supply of uranium to close out a nationally driven fuel cycle. Argentina is also developing a small reactor supply business for export potential (potentially to power desalination plants in Saudi Arabia, for example). Argentina already has this prototype reactor under construction as proof of concept for this export-oriented business model.

“Price increases usually show up first on the spot market, and then the long-term market follows fairly quickly. That market may start to move up by the end of 2016.”

U3O8 Corp. has found a very shallow deposit in which the uranium is in the sandy component of loose gravel in the Laguna Salada region of south-central Argentina, which can be easily and cost-effectively extracted—the cash cost of extraction is about $22/pound, which is in the lower quartile of the uranium industry. There are also expansion possibilities into the adjacent La Susana and La Rosada discoveries. The amount of capital required is, because of the ease of extraction, fairly low per million pounds of uranium in the ground. The loose gravel would be scooped up, washed with water to remove the sandy component from the pebbles, and the separated sand would be treated with washing soda and baking soda in an alkaline leach process to remove the uranium—a very simple process.

The ease of mining and extraction, coupled with the resource expansion capabilities, makes this company one of the very best emerging smaller juniors to watch in the new supply world of uranium. U3O8 Corp. also has uranium projects in the pipeline in Colombia and Guyana.

TER: Are there upcoming catalysts we should be watching that might have an impact on the stock price? I saw that the company just released some radon test results.

TD: Radon measurements for some of the areas adjacent to the deposit—La Susana and La Rosada—say that a lot more uranium, some of it at even higher concentrations than in the Laguna Salada area, are possible. The company’s business development model calls for U308 Corp. to take a non-majority equity position in the projects and look for a third-party injection of capital for development. I think that model is the right way to go for a couple of reasons. The Argentine government and its associated business groups are possible sources of financing that could move the project along in a number of ways. Third-party financing from China or India is also a possibility.

TER: Are there other companies that our readers should be watching?

TD: Ualta Energy Ltd. (private) of Canada is managed by a couple of geologists—Michael Fox of Calgary and Paul Pitman of the Toronto area—who have decades of experience in mineral exploration, including the extraction of uranium. They have discovered two potentially very large bodies of uranium mineralization hosted in porous remains at fairly shallow depths in the plains region of southern Alberta, a mining-friendly jurisdiction ranked highly by the Fraser Institute. The two zones of uranium mineralization each measure more than 15 miles in length and 2 to 8 miles in width, and have been defined by down-hole gamma ray logging in 55 drill holes drilled by oil and gas companies in southern Alberta, southeast of Calgary. The two mineralized zones show low concentrations of uranium, but the mineralization is fairly evenly distributed in the sandstone over a very extensive area. Ualta’s management proposes to extract the uranium using an innovative, low-cost combination of horizontal drilling and proven ISR techniques. The size of the zones has led to estimates of U3O8 in the 500+ Mlb range, which management considers could be extracted at costs in the near-$20+/lb range. The surface ISR plans would be simple and of very low capital cost. Ualta Energy is a start-up company looking for capital. This is a new, promising company to keep our eyes on.

TER: Do you envision it going public at any time soon?

TD: Not until it gets private capital financing to prove out in the ground what it’s seen from the oil and gas drilling core data. But soon after that, I think it’s a distinct possibility it will list on the TSX.V.

TER: What words of wisdom do you have for investors who’ve been waiting for uranium prices to turn around?

TD: I’m starting to notice that some of the big suppliers, faced with low spot and long-term prices, are entering into shorter-term user contracts because they do not want to be locked into longer-term contracts at the current very low price. This is a sign that producers expect uranium prices to rise. I believe the whole supply system will soon recognize the looming demand pressure from the 66 reactors under construction worldwide. Price increases usually show up first on the spot market, and then the long-term market follows fairly quickly. That market may start to move up by the end of 2016. We will have to wait and see.

TER: Thank you for your time.

Thomas Drolet is the principal of Drolet & Associates Energy Services Inc. He has had a 44-year career in many phases of energy—nuclear, coal, natural gas, geothermal and distributed generation, with expertise in nuclear commercial aspects, nuclear research and development, engineering, operations and consulting. He earned a bachelor’s degree in chemical engineering from Royal Military College of Canada, a master’s degree in nuclear technology/chemical engineering and a DIC from Imperial College, University of London, England. He spent 26 years with North America’s largest nuclear utility, Ontario Hydro, in various nuclear engineering, research, international commercial and operations functions.

Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:
1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, and The Life Sciences Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: none.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Fission Uranium Corp. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Thomas Drolet: I own, or my family owns, shares of the following companies mentioned in this interview: U308 Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: Skyharbour Resources Ltd., Lakeland Resources Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

Source: Thomas Drolet Warns of a Coming Grand Canyon of Uranium Supply Deficit and Shares Three Ways to Profit by It

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Dajin Resources, the Right Place and Time in Nevada’s Lithium Hub

Last week, Tesla Motors announced that it had agreed in principle to an off-take agreement with Bacanora Minerals Ltd. (located in Sonora Mexico) and to a lesser extent, its joint venture partner, on a portion of their properties, Rare Earth Min. Since then, Bacanora’s stock is up approximately 40%. At first, I was surprised Bacanora’s stock didn’t soar even higher. It turns out that the off-take agreement has a number of contingencies and no financial commitment from Tesla. In fact, Tesla’s Elon Musk was quoted as saying, “this lithium deal is not exclusive (and) has many contingencies. The press on this matter is unwarranted.” 

Screenshot (1)

The point of the opening paragraph is not to marginalize the good fortune of Mexico’s Bacanora, they have certainly staked a coveted spot! Instead, I believe it has significant and important ramifications for lithium juniors in Nevada. There’s Dajin Resources [(DJI.V) & (DJIFF)] Pure Energy Minerals [(PE.V) & (HMGLF)] the proposed [Western Lithium  / Lithium Americas] merger and of course the currently producing Rockwood Lithium brine operation.

Clearly, more than one of the above will get the green light. In fact, I’m laying out a thesis that, over time, all existing Nevada lithium companies will be keenly sought after. I find it noteworthy that Tesla’s first move to secure lithium supply was choosing a company that remains years from production. To be fair, Bacanora is more advanced than Western Lithium, Dajin Resources and Pure Energy. However, the fact that Tesla is looking so far in advance and might soon announce deals in Nevada, is telling of Musk’s longer-term strategy. Remember, Musk believes, “the need for lower-cost batteries for autos and power storage means there will need to be hundreds of, “giga-factories…” 

Can Long-Term End Users Avoid Tapping Every Viable Lithium Source? 

If Tesla is largely confined to North America for his its raw materials, as is reported to be the case, Nevada is surely a great place to be. The State offers security of supply not just for Tesla, but for giga-factories sure to follow. There are not that many lithium juniors, except a dozen or two with little more than a potential deposit, in places like Serbia, with no cash or the ability to raise capital. Hope is not a strategy.

Tesla and others will need ALL of the lithium supply from any economic deposit in a known, safe jurisdiction like Nevada. It’s a question of when, not if, investors wake up to Nevada’s small cap lithium opportunities. Even companies in Nevada that might be 5 + years from production are still years ahead of green field prospects. Dajin Resources is an early-stage play, but it has invested capital, drilled holes, and staked some of the most prospective property in Nevada as well as in Argentina. Dajin has a committed shareholder base and the demonstrated ability to raise capital, including from the ongoing exercising of in-the-money warrants.

Yes, Dajin is an earlier stage play than Western Lithium and Pure Energy. However, there will be room for more than just one winner. Dajin controls almost 7,000 acres in Nevada and an enormous land position (roughly 250,000 acres) in Argentina. Investors in Dajin get a long-dated call option in Argentina for free. How large a holding is 250,000 acres? Lithium Americas controls about 200,000 acres, which was no doubt an attractive attribute to Western Lithium’s stakeholders. Although at early stage, in the long run will that matter if lithium demand explodes higher like Musk and others seem to believe? I think not.

The bottom line is that there are probably 10 or fewer pure-play, lithium juniors with a shot of reaching production, (there will be more joint ventures, farm-outs and takeovers). Therefore, green field explorers and higher-cost projects in Australia (and elsewhere) will never see the light of day. In my opinion, Musk tying up a portion of Bacanora’s output would not be a meaningful part of his aggressive long-term demand expectations. Bacanora might end up supplying just 10% (my guess) of its lithium output to Tesla’s first giga-factory. Security of supply means multiple sources for multiple end users.

Conclusion

Tesla and others to follow will demand consistent, high quality, on-time delivery from a wide range of sources. If Musk keeps to his pledge of obtaining raw materials solely from North America, he will likely be all over Nevada’s emerging production, timing unknown. Not to be lost in the analysis is that Musk not only wants to secure his own growing needs, but is likely to be searching for opportunities to thwart competition.

As soon as the likes of Buffet’s BYD, LG Chem, Panasonic, NEC, Samsung, Sanyo, etc. begin announcing off-take agreements, the world will see how critically important the 10 or fewer lithium hopefuls are. Dajin Resources is a favorite of mine, but not my only. There’s ample room for any and all lithium supply, especially secure supply, to meet demand for the next few decades. Yes, I’m bullish on lithium. Yes, I’m bullish on Dajin Resources.

Disclosures:

Several of the companies mentioned herein have small market caps, including Dajin Resources, Pure Energy, Western Lithium and Lithium Americas. Small cap stocks are speculative, not suitable for all investors. I, Peter Epstein, own shares of DJIFF and PE.V. Mr. Epstein, CFA, MBA is not a licensed financial advisor. Readers should take that fact into consideration before buying or selling any stock mentioned. Readers are encouraged to consult with their own investment advisors before buying or selling any stock, especially speculative ones such as Dajin Resources, Pure Energy, Western Lithium and Lithium Americas. Peter Epstein conducts a lot of articles and written interviews that are popular among readers. At the time that this article was posted, Dajin Resources and Pure Energy were sponsors of:  http://EpsteinResearch.com. Please consider visiting:  http://EpsteinResearch.com for free updates on Dajin Resources, Pure Energy and others across a wide range of sectors. While at EpsteinResearch, please enter an email for instant delivery of all my work.  Thank you for supporting my articles & interviews by visiting my website.

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FlowTech Industries FTK Stock News
Flotek Industries (FTK) strives to make money in oddly different areas – the oil field and the cosmetics counter. And it is failing miserably.

The company just reported an astounding $12.5 million quarterly loss or negative 23 cents per share.

This odd business got an even odder reaction to its earnings report. The stock price rocketed!

That’s right. But we’ve drilled into Flotek filings and other publicly available information only to find a dry hole… and a broken perfume bottle.

TheStreetSweeper presents a quick hit zeroing in on the top reasons we think FTK stock should plummet. However, investors may read bullish viewpoints here and financial details on pages 3-7 here.

*What Is Flotek?

First, Houston-based Flotek sells products primarily to oil and gas companies. The flagship “Complex nano-Fluid,” or CnF, is a chemical added to water in hydraulic fracturing operations used to make it easier to pull oil and gas from below ground. Energy Chemistry Technologies accounted for $11.9 million income last quarter. Rig counts and oil prices keep this division on a short, cruel chain.

Second, Flotek buys citrus oil to process and sell to the oil, flavor and fragrances industries. Consumer and Industrial Chemistry accounted for $2.7 million income.

Third, the company builds downhole drilling equipment. Drilling Technologies accounted for a $21 million loss last quarter.

Fourth, Flotek assembles equipment such as rod pump components and valves. This Production division dinged Flotek with a $1.6 million loss last quarter.

 *Why Did The Stock Price Recently Rocket?

Flotek shares flew about a buck beyond the $18.25 average price target – despite the debilitating 17 percent loss – we think primarily because of misplaced enthusiasm.

The SEC quarterly filing points to CnF and hypes the product’s future:

“The increased sales of CnF® during the second quarter of 2015 were due to Flotek’s aggressive promotion of the benefits of CnF® in completions and re-stimulation efforts by leveraging the quantitative evidence provided through the patent pending FracMax™ analytical platform. These strategic sales and marketing efforts are ensuring that Flotek remains a leader in the energy chemistry industry and is poised to take even greater advantage of any market recovery.”

That July 22 announcement and corresponding stock bump follow another one spurred by the April 13 announcement that Flotek and Solazyme would partner to commercialize and market Flocapso – a drilling fluid additive combining Flotek’s “CnF” and Solazyme’s “Encapso.” See the industry details here.

Here is how Solazyme’s recent quarterly filing describes the deal:

Flotek—In March 2015, the Company entered into agreements with certain Flotek Industries Inc. affiliates (Flotek) to jointly commercialize Flocapso™, a drilling fluid additive, and to allow Flotek to market the Company’s Encapso™ product in certain Middle Eastern markets.

Then, Flotek rose again Aug. 31 when CNBC’s Jim Cramer mentioned Flotek, here, during his lightning round.

Look how those items jazzed up the Flotek stock chart in mid-April, July 22 and Aug. 31:

(Source: Yahoo Finance)

Here’s the takeaway: The stock increases appear to coincide with the market’s misunderstood, over-enthusiastic reactions to what boil down to promotional or near-promotional efforts.

Next, let’s look more closely at the Solazyme enthusiasm that we believe is misplaced.

*Solazyme Sets The Trend … Down, Down, Down

So, an overly impressed market overbought Flotek and Solazyme immediately after that April partnership announcement.

Then Solazyme investors apparently began having second thoughts about its partnerships and ability to execute on its business plans, sending the stock down – from about $4 then to about $2 now.

Investors can gauge Flotek’s offering according to how its troubled partner, Solazyme (SZYM) has plummeted, as shown below:

(Source: Yahoo Finance)

*Why Investors Can’t Expect Much From Troubled Solazyme Deal

Since 2014, Solazyme’s “Encapso” products have been made in the Bunge sugarcane plant in Brazil – and the combined Encapso-CnF product is curiously to be marketed to a highly limited market – “certain Middle Eastern markets.”

Limiting the pitch to certain Middle Eastern markets seems odd. Flotek’s CEO John Chisholm told the Oil and Gas Financial Journal in 2012:

“Today about 85% of our business is in the US and Canada due to the heavy concentration of hydraulic fracturing equipment in North America and the fracture pumping company’s dependence on the type of chemicals that Flotek develops.

Furthermore, see what Solazyme’s SEC filing says:

“Both oil and Encapso™ products have been manufactured; production is continuing and is expected to ramp toward targeted nameplate capacity as the Company works to increase efficiency in unit operations, and balances production volumes with operating costs as it focuses on higher value products.”

Despite the described ramp up, sales and adoption of Encapso have actually been “slower” than expected.

From Solazyme’s second quarter conference call:

“We made substantial progress on the commercial development side across our food, personal care and industrial areas and continue to move the business forward. That said there are also some areas of disappointment as revenue for the quarter was below our expectations largely on slower adoption rates of Encapso.”

Understandably, Flotek’s own partner shows little faith in the marketability of their combined products.

*Another Killer: Low Rig Count

The United States – and to a lesser degree the Canadian – rig count drives the market for Flotek products.

Here is a chart clearly indicating that the extremely low rig count further narrows Flotek’s opportunity going forward … from Flotek’s own filing:

(Source: SEC filing)

Here is what Solazyme’s CEO said during the last earnings call:

“On the industrial side Encapso experienced headwinds and slower than anticipated adoption rates in a very tough grilling environment resulting from lower oil prices and a dramatically reduced U.S. rig count.”

And here is what Flotek CEO John Chisholm said during his second quarter earnings call:

“So, we had just, as kind of a history, had said that by the time 2016, we would be exiting ‘16, we felt we’d be penetrating 30% of the wells completed in the U.S. with Complex nano-Fluid, those comments were made when the rig count was at 1,800 and certainly no expectation by us or anyone else that it would be at 850.”

*Fracker CEO: Half Of Fracking Services Providers Dead By Year End

Both Flotek and Solazyme depend heavily on the future of the debilitated oil industry. While it’s impossible to predict exactly how long or how much deeper the oil patch pain will go, one expert spoke up recently about fracking and pressure pumping … and it doesn’t sound pretty.

A fracker CEO warned that over 100,000 energy jobs would be lost this year.  The chief executive of Weatherford International – the fifth largest US fracker – added that half of the 41 fracking companies (down from 61 since last year) in the U.S. – the world’s largest market – would be dead or sold by year-end because of oil companies’ budget cuts, according to zerohedge.com’s Tyler Durden.

“While ‘stability’ in oil prices remains the status quo, it appears the industry cannot manage on that alone,” Mr. Durden wrote, “(and given the pricing of recent resource-related junk bond offerings, they will not have the luxury of cheap financing to enable them to keep running).”

It all links back, of course, to the price of crude oil today ~$45 per barrel, compared with $95 a year ago.

*Fierce Competition

The competition is rigorous for the dwindling customers for drilling fluids. A rigzone.com search shows that Flotek is competing with 104 manufacturers of drilling fluids.

(Source: rigzone.com click to see full list)

*Insiders Yell, “Sell!”

All insider trading in the past three months has been selling – no open market buys whatsoever.

Indeed, have sold a whopping 462,088 shares just since June and more than 1 million in 12 months.

(Source: Nasdaq.com click here for complete list)

Insiders seem to be telling investors that the company stock is awfully expensive.

*Conclusion:

While quarterly revenue rose from $82 million to $87 million ($105 million the same quarter 2014), Flotek’s cash has dwindled to $2.5 million, even as it struggles with an $18.6 million operating loss.

Yet Flotek sports an absolutely astounding market valuation of $1 billion. And investors are paying 64 times the past year’s earnings.

Flotek looks highly challenged to deal with the miserable oil market upon which it depends for most revenue. Whether investors are intrigued with the company’s oil business or its cosmetics business, we don’t believe it is a good stock to get into right now. Watch out! TheStreetsweeper expects this $19 stock will soon come screaming down to about $10 to $11 per share.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in FTK and stand to profit on any future declines in the stock price.

* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to scolberg@thestreetsweeper.org.

Image Credit

On Sunday, June 29, the Associated Press ran the following headline: “Greek Banks will not open Monday.”

After a lengthy cabinet session, it was decided that Greek banks would remain closed for 6 working days, along with restrictions on cash withdrawals. In addition, financial sector officials confirmed the Athens Stock Exchange would not open the following week.

ATM withdrawals were capped at 60 euros ($66) per day. Web bill-paying banking was allowed, but moving money out of the country was prohibited. A side notice reported that Greeks could not remove cash from safety deposit boxes.

A Goldseek.com column at the time commented presciently that “the convenience of ease of access to a local safe deposit box can be offset by the fact that governments and banks can lay claim to their contents at the stroke of a pen. It would be unwise to view Greece as an exceptional case.”

Greeks who paid attention were aware months beforehand that a “bank holiday” could be in the cards. But for most people (ourselves included?), there is an inertia in the human condition. It tends to express itself as “deer in the headlights,” a feeling of being overwhelmed, or just plain denial.

According to the Financial Times, “Greek deposits are guaranteed up to €100,000, in line with EU banking directives…” But with few deposits over €100,000 left in the banks after six months of capital flight, an analyst quipped, “it makes sense for the banks to consider imposing a haircut on small depositors as part of a recapitalization… It could even be flagged as a one-off tax.”

One bank spoke of withholding (stealing) at least 30% on deposits above 8,000 euros ($8,800). This is known as a bank “bail-in,” and it’s a scheme that our own FDIC now has at the ready to rob depositors if needed in the next crisis.

Think it can’t happen here? Think again.

The Cyprus accountholder “haircut” two years ago paved the way for what’s taking place now in Greece… and for what could take place HERE in the near future. Many observers regarded Cyprus as a “test case” to see how the public would react – a first attempt for such a procedure in a public setting.

Right into the weekend, politicians and bankers said everything was under control. However, bank employees and others “in the know” were getting their funds out. Then, on Sunday, the powers that be revealed their true intentions – closing for a “bank holiday” and taking “bail in” money from account holders whose balance exceeded a certain amount.

The stated rationale was that most of the money to keep the banks solvent was taken from illegally sourced Russian accounts.

But the recently revealed truth is that much of the penalty theft fell upon British, French, Germans, and Cypriots – many of whom had been building retirement accounts for decades.

Public shock about what happened in Cyprus blew over fairly quickly. Meanwhile, others – the U.S. (2010), Canada (2013), and the EU (2014) – either had already passed similar banking “bail-in” language or proceeded to add it soon thereafter.

Right now, YOUR bank almost certainly limits what you can withdraw per day. It establishes conditions wherein it can refuse to let you have your own money “without good reason.” It even allows for a “bail in” in the event the bank could not otherwise remain solvent.

And banks are now starting to tell customers what they can and cannot keep in a safety deposit box.

Welcome, involuntary shareholders!

You have now become an involuntary “shareholder” in your bank – potentially obligated to help fund their mismanagement through crippling loss of your capital. That a European analyst would dare say in public that “it makes sense for the banks to consider imposing a haircut on small depositors as part of a recapitalization…” should be a shock to your financial core.

In 2013, one of Mexico’s wealthiest industrialists, Hugo Salinas Price (born in Pennsylvania), wrote an open letter to the Greek government suggesting issuance of a one-tenth ounce silver unit. It would circulate alongside the country’s primary currency – be it the euro or a re-issued fiat Drachma. The un-denominated silver coin, which he proposed naming the “Owl,” would have a guaranteed never-to-be- reduced valuation, set daily by the central bank.

Several years ago, Price proposed that Mexico introduce a one-ounce silver coin, the “Libertad.” As with the Owl, it would circulate as a parallel currency to the Peso, priced initially at about 15% over spot. Even though every Mexican state representative voted Si, the central bank refused to mint and issue it!

The best line ever from The Magnificent Seven

Perhaps you’ve seen a 1960 western – now available in stunning Blu-ray format – titled The Magnificent Seven. Starring Yul Brunner, Eli Wallach, Charles Bronson, and Steve McQueen, it chronicles a group of hired gringo gunslingers employed in a Mexican village. They work for little pay in order to rid the town of a band of outlaws who periodically swoop down from the hills, robbing the unfortunates of most of their food and meager finances.

In an immortal line that so poignantly speaks to the coming events for many Americans, the bandit chief, Calvera (Wallach), responds to the Seven’s leader, Chris (Yul Brunner) when he expresses concern about the peasants’ plight:

“If God had not meant them to be shorn, he would not have made them sheep!”

This, folks, may be your fate, lest you take steps soon to acquire sound money in the form of precious metals. That portion of your wealth represents survival insurance – and yes, even potential profit.

Gold and silver are free of counterparty risk and provide protection from the ravages of incompetent, untrustworthy financial houses, cynical politicians, and government agencies at all levels. Like the bandit leader in the movie, all they want from you and yours is “Just a little bit more.”

As the global and domestic situation continues to unravel, will you be an eagle – or a sheep?

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GAS Stock News
Introduction

Utility stocks are generally low-growth high-yield investments.  As I will soon illustrate, both Southern Company (SO) and AGL Resources Inc (GAS) neatly fall into that category.  These low-growth and above- average dividend yield characteristics have led me to only invest in utility stocks when two important conditions are met.

First and foremost, when considering utility stocks I am even more of a stickler for fair valuation.  My logic is simple; since long-term historic and future prospects for growth are low, I consider it imperative to only invest when utility stocks can be bought at fair value or below.  There is typically not enough growth available to produce an attractive enough total return if you overpay even slightly.  With most utilities, the dividends are consistent, but also grow at low rates in conjunction with the utility’s earnings growth.

Second, I like to utilize utility stocks when current and dependable income is my primary investment objective.  Although many utility stocks can be classified as dividend growth stocks, I tend to like them more for current income than total return.  However, when purchased at or below sound valuation, investments in utility stocks can produce acceptable levels of long-term total return.  On the other hand, when investing at sound valuations, utility stocks do tend to produce significantly more cumulative dividend income than the average company.

As the following two announcements and reports indicate, Southern Company will become the second-largest utility company in the U.S. by customer base after buying AGL Resources.  Importantly, Southern Company’s management expects the transaction to accelerate earnings growth in the first full year from its traditional 2% to 3% rate to a higher but still moderate 4% to 5% earnings growth rate.

“Southern Co. to buy AGL Resources in $12B deal

Aug 24 2015, 07:49 ET | By: Carl Surran, SA News Editor

  • Southern Company (NYSE:SOagrees to acquire AGL Resources (NYSE:GAS) for $66/share in cash, a 38% premium over Friday’s closing price, in a deal with an enterprise value of ~$12B including debt.
  • SO says the deal will create the second-largest utility company in the U.S. by customer base, with 11 regulated electric and natural gas distribution companies providing service to ~9M customers with a projected regulated rate base of ~$50B.
  • SO expects the deal to increase EPS in the first full year after the close and drive long-term EPS growth to 4%-5%”

MARKET PULSE

Southern Co. agrees to buy AGL Resources in $12 billion deal

Published: Aug 24, 2015 7:41 a.m. ET

By Ciara Linnane

CORPORATE NEWS EDITOR

Shares of AGL Resources Inc. GAS, +28.52% surged almost 9% in premarket trade Monday, after Southern Co. SO, -3.14% said it has agreed to buy AGL in a deal with an enterprise value of about $12 billion. Southern Co. said it expects the deal to boost earnings per share in the first full year after the close, and to drive long-term EPS growth to 4% to 5%. AGL will become a wholly owned unit of Southern Co., creating the second-biggest utility in the U.S. by customer base. AGL shareholders will receive $66 in cash for each share, a premium of 36.3% over the volume-weighted average stock price over the last 20 trading days through Aug. 21.

We believe the addition of AGL Resources to our business will better position Southern Company to play offense in supporting America’s energy future through additional natural gas infrastructure,” Chief Executive Thomas Fanning said in a statement. The deal is expected to close in the second half of 2016. Southern Co. shares were up slightly in premarket trade, but are down 6.7% in the year so far, while the S&P 500 has lost 4.3%.”

Here is a link to a report on Reuters that outlines the deal:

The Southern Company Purchase of AGL Resources by the Numbers

As a shareholder of both Southern Company and AGL Resources I immediately wanted to know what I might expect from this transaction.  In other words, does the deal make economic sense and will it benefit shareholders over the long run?  Therefore, I looked at the deal through the lens of the F.A.S.T. Graphs fundamentals analyzer software tool and the FUN Graphs (fundamental underlying numbers) in order to evaluate the value to me as a Southern Company and AGL Resources shareholder.

From The Perspective of an AGL Shareholder

I was quite content with my position in AGL Resources as I considered the company fairly valued with a blended P/E ratio of 14.3 and I appreciated the 4.3% dividend yield.  Additionally, since my cost basis was approximately 39, I was enjoying a reasonable level of capital appreciation coupled with its current above-average yield that had been growing at about 2½% to 3% per annum.  The following earnings and price correlated graph illustrates my contentment.

Of course the approximate 30% premium over fair value significantly improves the total return I will receive when the transaction is complete.  Therefore, from the perspective of an AGL Resources’ shareholder, I am quite pleased with the windfall.  The following forecasting calculator on the day of the announcement and based on AGL Resources’ expected midterm future earnings growth illustrates the premium that Southern Company is paying.

This is what the same graph looks like as of 8/24/2015, which shows the premium price that Southern Company is paying for AGL Resources.  This would indicate that technically speaking AGL Resources has become overvalued as a result of the premium paid by Southern Company.

On the other hand, when looked at from the perspective of expected future cash flows, the premium price that Southern Company is allegedly paying does not look so enticing.  Cash flows are expected to increase significantly this fiscal year.  Therefore, on the basis of price to cash flow, the apparent premium that Southern Company is paying based on earnings, looks like a bargain based on cash flows.

When reviewing the cash flow per quarter growth (cflq) that AGL Resources has generated thus far in fiscal 2015, those fiscal year 2015 cash flow projections appear to be on track.  So now I am partially conflicted.  I like the premium market valuation, but I’m not so sure that I’m truly receiving a premium price for my AGL shares based on potential cash flow growth.  I have circled the last three quarters of cash flow highlighting the cash flow growth over the last three quarters.

Furthermore, when I evaluate AGL’s historical annual dividends paid per share (dvpps) coverage based on cash flows per share (cflps) I am confident that my dividend was secure.  Of course, I am even more confident considering the recent quarterly cash flow growth presented above.

Furthermore, upon reviewing other valuation ratios, it appears that Southern Company instituted the transaction when AGL’s price to sales (ps) was at reasonable levels.  However, the premium price they had to pay is common when a company is purchased outright.

Additionally, AGL’s price-to-book value (pb) at the time the transaction was initiated was within historical norms as well (the red line).

The bottom line is that as an AGL shareholder I have mixed views about the transaction.  I like the premium market valuation, but I was also content to continue holding my AGL shares for the high-yield they were providing.

From The Perspective of a Southern Company Shareholder

The following long-term earnings and price correlated graph on Southern Company supports my contentment as a shareholder.  Although my cost basis in Southern Company was approximately at the same level that the company was trading at prior to the announcement, I was quite happy with my 4.7% dividend yield and believed that the company was fairly valued.  Consequently, I was committed to continuing to own this high-quality utility company for many years to come.

Moreover, even the approximate 5% price drop as a result of the transaction did not concern me very much because I felt the dividend was secure, above average, and had the potential for a modest amount of future growth.  However, I was now faced with the issue of whether my Southern Company investment would continue to make sense after they purchased AGL.

At this point, I decided that I would give credit to management’s assertion that the transaction would in fact accelerate Southern Company’s future earnings, and therefore, along with it – future dividend growth.  Therefore, I reviewed the Forecasting Calculator based on consensus estimates from S&P Capital IQ prior to the AGL transaction.  Here I discovered that consensus expected Southern Company’s earnings to grow at a very modest rate of 2.7%.

Based on those consensus estimates and assuming that Southern Company would trade at a reasonable P/E ratio of 15 out to fiscal year-end 2018, I came up with a total annual rate of return expectation of 5.22%.  Of course, that is nothing to write home about as it only represented capital appreciation of $.85.  On the other hand, the $7.70 of projected dividend income was very attractive considering today’s low level of interest rates.  Clearly, this is purely an income play and I had no delusions of anything different.

This is what the expected returns look like after Southern Company’s price drop as a result of the announcement.  The announcement brought Southern Company’s stock price into better alignment with fair value.

For additional insight, I felt the forecasts prior to the transaction announcement were reasonably reliable considering the historical record of analysts forecasting Southern Company’s earnings.  As the following analyst scorecard indicates, when making 1-year forward and 2-year forward estimates since calendar year 2000, the record of analysts following Southern Company has been consistently accurate at over 93%.

Then I ran a similar calculation using the custom Forecasting Calculator based on management’s expectation of earnings growth accelerating to between 4% and 5% as a result of the transaction.  I split the difference and ran a calculation based on Southern Company’s 5% drop in price and a forecast 4.5% growth rate.  Based on those calculations I was pleased that my Southern Company investment offered the potential for significantly more capital appreciation of approximately $11.11 versus the $.85 based on growth prior to the transaction.

However, I was even more pleased to discover that my dividend income of $13.19 would be close to double what I expected prior to the transaction.  Note: all these calculations are made and based on purchasing one share of the stock.

The bottom line is that I have concluded that my Southern Company investment holds the potential to be much more attractive after the AGL transaction than it was prior to it.

As a bonus, I have prepared a free analyze-out-loud video on my website MisterValuation which provides a more in-depth and detailed look at Southern Company and AGL Resources’ transaction.

Summary and Conclusions

From the perspective of a Southern Company shareholder based solely on the numbers, I am enthusiastic and pleased with the AGL transaction.  From the perspective of an AGL shareholder, I am disappointed that I will lose the company as a separate holding, but pleased that I will still benefit from its potential as a Southern Company shareholder.  Of course, the premium over current market price is also a plus.

However, I am now also faced with the challenge of what I will do with the proceeds received from the AGL shares.  At this point, I am not yet certain whether I would reinvest the proceeds into Southern Company, or look for another opportunity.  However, I have time to assess the situation.

Disclosure:  Long GAS,SO at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

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