CHRIS TAYLOR’S TEAM TOOK GREAT BEAR TO $14–WHAT’S NEXT?

By
Keith Schaefer
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In 2019 Chris Taylor’s Great Bear Resources (GBR:TSXV, GTBAF:OTC) was the single biggest success story in the junior mining sector; a huge winner.
 
Great Bear’s share price went from 15 cents to over $9 in not much more than 20 months. That is a 60-Bagger in the blink of an eye. 
 
Most people don’t own a stock that goes up that much in a lifetime. Taylor’s Great Bear did that in just over a year. Then it kept going to $14!
 
That meant life changing wealth creation for ground floor investors, even those that had a modest investment in the company. A 60-Bagger turns a $1,000 investment into $60,000. A 60-Bagger turns a $10,000 investment into $600,000. 
 
And the stock made that kind of run just on drill results, and Taylor’s credibility. There isn’t even a maiden resource yet, yet they have $27 million cash and a 300,000 metre drill program underway!
 
This is why investors like us love the junior resource sector. You don’t have to risk much to make a lot. This is the best sector for people interested in intelligent speculation. 
 
We know that these kinds of junior stories happen in this sector. We also know how to find them……..by following the top entrepreneurial teams who repeatedly find the great deals.
 
Great Bear had the perfect setup for a huge win. I recently sat down with Chris in his office to get the full story–and find out what his next deal will be.
 
Great Bear is a fabulous story story. They started at a very low share price, and a tight share structure. That means big leverage to good results.
 
The asset itself was ideal located in a nice safe location—northern Ontario, Canada, near infrastructure and literally on the edge of a highway. That meant low costs for exploration.
 
And importantly, the property was in a known gold camp—the prolific Red Lake district, where Goldcorp made their name.
 
What I liked the most about the Great Bear story was—Taylor was thinking outside the box. The type of discovery he made that took the stock to $9 was NOT the traditional high-grade, Red Lake style gold mineralization, as I’ll explain.
 
That’s why the footprint of the project was SO big — the hunt was on for something with scale, not a small-but-high-grade operation.
 
As far as junior mining deals go this was one where all of the important boxes were ticked.
 

A One Way Ride Straight Up With Zero Stops On The Way

 
The biggest gains here in this run went to the early investors—pre-discovery. In this business the first successful drill results provide a big portion of the ultimate return; it’s the point of maximum wealth creation.
 
Taylor’s first target was the Dixie Zone. The geology in the Red Lake gold district here is known to be spotty and if you get a 50% success rate drilling you are doing very well.
Great Bear’s first drilling campaign in 2018 at Dixie was successful. They hit almost one ounce gold per ton—26 g/t for just over 16 metres! It was A Big Hit. The follow-up drilling campaign…successful again. 
 
Then they moved onto the Hinge Zone which is classic high grade Red Lake district geology. This time they hit over TWO OUNCES per ton—68g/t over seven meters. And it was very near surface! That means low mining costs and high profits!
 
By then this stock that had been $0.15 prior to drilling at Dixie was now $2.00. Investors who had been waiting to get in on a pullback were out of luck.
 
Anybody else would have been VERY happy with all that—but Taylor had something even BIGGER in mind—something with HUGE scale in mind. This time they had staked a much larger property than needed.
 
But his idea was so out-of-the-box, he couldn’t have sold his board or his investors on trying something completely different. He needed the momentum of the success of the Dixie and Hinge Zone discoveries to try a low grade, broadly disseminated gold target called the LP Fault.
 
I want you to understand how off-the-wall this sounded to everyone. This is almost heresy in Red Lake geological thinking. When Taylor told the Market they were now going to focus on the LP fault, the market had paused….really?
 
Yes, really. Taylor hit again. In early September 2019, Taylor and his team reported “Multiple Gold Discoveries Along 3.2 km of the LP Fault”. The stock jumped from $6 – $9 in just that one day!
 
Since then, the LP Fault has increased to 4.5 km of steady mineralization with an 11 km long structure, with gold down to 300 m depth and widths of 5-50 m depending on cutoff.
 
There are cross-structures in the fault that carry high grade. The LP Fault is a HUGE system—the Market quickly realized that it could be another major discovery in this 30 million ounce gold camp.
 
No wonder the stock rocketed up! A company that started with a $200k investment a year prior was now a business with a $400 million market cap.
 
Ground floor investors were sitting on a 60-Bagger.
 
It’s an incredible story.
 
Could this stock hit new all-time highs after a resource? Sure, but in terms of percentage gains those investors will never beat the 6000%–15 cents to $9 in 20 months—that early investors made.
 
The key was getting in right from the start.
 

Chris Taylor’s Next Deal Is Here — NOW

 
It took Taylor some time to convince the Market there would be consistent mineralization through the 4.5 km to make a simple large deposit. He had a different idea from the start—that’s why he staked such a huge property. 
 
He’s an original thinker.  He has the geologic brain to look at things in a different way. He’s bringing that to his next deal—which only trades at 36 cents. Bet you would like to know the symbol of THAT ONE, eh?
 
Well…..don’t go far. Tomorrow I’m giving you the name, ticker symbol and every bit of info you need about Chris Taylor’s next deal.
 
The stock price is still only 36 cents but the company has already had one big drilling result — if they get one more the stock COULD be like Great Bear. That would be a life changing win. I put $75,000 into the company.
 

DON’T MISS MY NEXT EMAIL—TOMORROW!!!

 
Taylor’s next junior has MANY similarities to Great Bear in the early days:
 
1.    It’s in Canada
2.    It’s in a prolific known mining district
3.    It sits right beside a highway. 
4.    There is lots of historical data that Taylor and his team are working with
5.    But previous work was focused on shallow targets, and little modern work has been done on it
6.    Taylor has a very different perspective than previous operators
7.    He acquired a large property
8.    It has a tight share structure (Less than 40 M shares out) and low valuation
9.    Exploration legend John Robins in an advisory capacity.
 
The development of this asset couldn’t get any simpler. They just need that first BIG HIT. 
 
This 36 cent stock might have an advantage that Great Bear did NOT have—you see, Taylor is actually a porphyry deposit specialist. He was outside his specialty at Great Bear. In this new project, he is in his element.
 
There’s one more advantage—he has already drilled a discovery hole. He knows what he has, he just doesn’t know where the higher grade core is yet. This upcoming drill program will hopefully reveal that.
 
The last ride this team took shareholders on started in the pennies and went to more than $9 per share. Now, this proven team has put an incredibly sexy geologic target into a very tight public company and funded it. It’s only 36 cents. It’s ground floor. And the drills are ready to turn.
 
Tomorrow I’m going to tell you everything you need to know about this stock so that you can go fact check everything for yourself.
What you will learn is:
 
–        The name and ticker symbol of Taylor’s new deal
–        Details of the huge asset he has once again lined up
–        The key drilling result that he has already had
 
If you missed his last deal, you missed a 60 bagger. This next deal has striking similarities—infrastructure nearby, not had recent work done on it, good tight share structure, in Canada
 
Tomorrow you get a chance to get on board at the ground floor on a project that is already looking like it is well on the way to being another big win.
 
Open that email quick!

THE IMPACT OF ALGOS

By
Keith Schaefer
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The rise of the machines – that was what went through my head after my conversation David Awram, Senior Executive VP of Sandstorm Gold (SSL -TSX, SAND – NYSE).

I’ve known David for years and one day just talking he mentioned how he had to write press releases to get—or not get—the attention of algorithmic trading bots (algos).

It turned into a fascinating conversation—and a real dilemma for public companies. 

Now, I knew automation and algos were invading the financial industry.  But I sure did not understand just how pervasive it had become.

Awram says he has to draft Sandstorm’s press releases with the algos in mind.  It prepares its financial statements knowing that they will be read by bots and scraped into databases.  They even time their earnings reports to avoid being excessively targeted by algos.

You do not just tell your story to investors anymore.

Nope.   Nowadays you have to make it appealing to the machines.
 

Rise of the Quant
 

When it comes to determining stock prices, computers are now more important than human beings.

A recent study by Deutsche Bank estimated that 80% of equity trades are executed by algos – with no human input.

Last year Morningstar published that for the first time passively invested assets exceeded actively managed assets.

This shift means that to get a positive reaction to a news release or financial filing, the content must be curated to the tastes of the machine.

Those machines are run by quantitative funds (“quants”).  Their rise began in the 1980s.   

Their success has led to a proliferation of machine-based trading strategies. These strategies are devised by mathematicians, often with little knowledge of the underlying companies.

Quants base their investment decisions on pre-defined rules – an automation of the decision-making process – or more recently, rules that evolve as the machine “learns”.

When quants started out the rules were straightforward.  Buying stocks on fundamentals metrics, technical indicators or comparisons to other stocks and indexes.  Common strategies are now well known: 

  • Trend following strategies
  • Mean reversion strategies
  • Arbitrage trading strategies
  • Statistical arbitrage
  • Index arbitrage
  • Volume-weighted-average price algorithms

But as time has passed the strategies have become more sophisticated – and more opaque.  Quants have entered a fuzzier world – one where the rules are based on sentiment – which is not so black and white. 

Algorithms scrape through filings, blogs, newspapers and press releases, looking for words and phrases that they can trade on.
 

All about Patterns


Algorithms don’t look at a stock like a human investor would – they are only interested in patterns. 

Algorithms use pattern and trend recognition to correlate numbers, words and phrases to big moves in stock prices.   They back test their strategies to find what has worked best in the past.  Then they prowl the newswires, regulatory filings, and blogospheres for the next similar set-ups.

When you put out a press release in the United States, you have to code it.  The SEC’s documentation system, EDGAR, requires that every line of the press release be coded into the database language XML.

As soon as that code is released to the public, groups like Reuters, Bloomberg and other news analytics companies “scrape” the data within milliseconds of its release.

Their databases are populated and the algos instantly pick up on any key terms that they might be looking for.

As Awram says, if you want to catch the attention of the algos (or not catch it, as the case may be), you have to play the game.

“You try to make sure that you are picking up on keywords and key items. For instance, when we are writing press releases we want to highlight the “records”.

When we have record revenue or record cash for the quarter, you want to put the word “record” in the press release a few times. You want to put it in there an annoyingly numerous amount of times.”

As Awram admits, the resulting press release may sound silly to a human being.  But that is not the primary audience anymore.
 

Self Re-enforcing
 

The primary audience are companies like RavenPack – a news analytics company.  RavenPack scrapes through newswires and company filings, processing the content for their subscribers.  Each batch of content is curated into a sentiment score.

A paper last year by the Federal Reserve used RavenPack’s data to study the influence of algos on the market.   Among the observations was that algorithmic sentiment can become self fulfilling.

“Algorithmic traders learn dynamically about the precision of RavenPack, and they rely more heavily on RavenPack’s sentiment scores if these scores have been more informative in the past.”

Of course, this has a snowball effect.  More confidence in the trade begets more trading – which begets more confidence.

I am not trying to single out RavenPack.  They are merely as easy example.  The point is this – algorithmic trading almost always comes down to doing what has worked in the past. 

You can see where this leads to.  The essence of momentum is buying something simply because it is going up.  Not because there is a fundamental reason to.

Such strategies work very well, until they don’t.  It is easy to see how algos could exaggerate trends and lead to bubbles.

With companies having no choice but to play along, tailoring their press releases to what the algo wants to see, you gotta wonder – where does this end?
 

These are not Stock Pickers


Lost in it all is the business.  Quants usually know very little about the industry or company they are investing in.

As Awram described his discussions with quantitative funds:

“It’s so weird having a conversation with them, because they don’t know anything about your company.”

It does not help that the big data aggregators, like Bloomberg, SAP or Thomson-Reuters, rely on automation as well.  Their fact sheets and ratio tables are populated by a process that is entirely automated.

These processes don’t know or care if they are reading the financial statements of a software provider or a gold company.    As a result, it is not uncommon for their tables to be incorrect. 

One particular headache are mark-to-market assets.   Price changes of a debenture or warrant, or the currency impact of a foreign debt, can make the numbers published by the aggregators wildly different than the underlying reality.

But trying to get those results changed can be a real headache, even though the data can be, as Awram put it, “totally wrong”.

“It’s not easy, and they never ever disclose what their methodology is, as to how they might come up with some of these ratios and these numbers. And so, you try to walk them through it, and they’re not terribly responsive. You never get the same person.

“You want to make a complaint about the content of your company on those sites – they say, “We can’t do anything about it.”
 

Getting Help from the Dark Side


A whole new industry is arising out of the confusion.  Consultants are looking to help companies traverse the algo landscape.

Awram says he gets emails from “consultants” (who he suspects are traders or principals from failed funds themselves).    Their pitch goes something like this:

“Hey, I realize you’re trading on New York stock exchange. You have good values and algos are really trading a lot. I used to be algo trader. How could I hire up my services to you to help you manage your data, give you advice?”

“I’ll help you construct your financial statements and your news releases in order to accommodate these things.”

But are they really helping?   

You could easily imagine these consultants playing both sides.  Sure, they will help your company match the algos.  But what is to stop them from turning around and selling their services back to the algos, filling them in on what they just recommended for you.
 

What’s best for the company –
What’s best for the algos

 
My concern is that the business is going to get lost in the muck.

Awram gave me two examples of how simple accounting can really mess with algos and make the stock price go awry of fundamentals.

First, Sandstorm pays 30% of their interest costs through a Turkish subsidiary, as they actually have one operating interest besides all their royalties.    As a result, the value of that equity depends partly on the Turkish lira.

If the Turkish lira goes down, Sandstorm must book a loss on the value of the equity.  It’s an accounting charge – nothing more.  In fact, the reality is the opposite – a cheaper lira means lower costs (while their gold is sold in US dollars) – the business is better!

A seasoned investor or analyst would note this and ignore the accounting relic.  But algos don’t understand the business.   They don’t know what a Turkish subsidiary is.  All they know is that earnings have gone down.  Sell!

Same thing happens with convertible debentures, which Sandstorm holds several of from their partners. 

These need to be mark to market each quarter and this non-realized revaluation of assets impacts earnings.  If the stock price is down at the end of the quarter compared to the last quarter, the drop in value of the convertible debentures counts against the company’s earnings.  Even worse if they are in Canadian dollars as that currency exchange needs to be marked as well. Warrants that are not priced in the functional currency of the company can also cause a crisis to earnings results as well.

A warrant mark may totally wipe out earnings for a quarter.  Again, an investor would pay this no attention.  But an algo scouring the entire NYSE and running an earnings-based strategy will not be so shrewd.

 

Changing the Minds of Machines

 
Sandstorm, like all companies, is doing everything in their power to moderate the impact of algos. But as Awram says, “it takes a lot of work”.  Guidance is another point of contention.

“You have to spend a lot of time thinking about what your guidance is going to be, because that’s one of those items that they end up pulling out of there.”

It is even to the point where Sandstorm will only notify investors of an upcoming earnings release a few days in advance.  The shorter the notice, the less the chance that they will get marked on the algos schedule.
It is all about being a step ahead – or your stock price will suffer.

The problem is – none of this has anything to do with the business.  The algos don’t know the business.  The mathematicians that build the algos don’t know the business.  The big data aggregators like Bloomberg and Thomson and their data scrapes and article writing algorithms don’t know the business.

If so few know the business, at what point does the business cease to matter?

I don’t know if it ever comes to that.  But there is no question that machines are taking us a step more removed from what is actually happening on the ground.

And that, in my opinion, is not a good thing.

Editor’s Note:  Companies have been mining gold at a cost of $1,000 per ounce and selling it for $1,200 per ounce, booking $200 per ounce of profit for years. 

In 2020 they are suddenly going to be mining it for $1,000 and selling it for $1,700 per ounce, which is a profit of $700 per ounce……350% higher. Get great gold leverage right here in the USA— Click HERE

Keith

Psychedelics Are A New Important Tool For Mental Health

By
Keith Schaefer
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0
In Ernest Hemingway’s The Sun Also Rises one character asks:

“How did you go bankrupt?”

The reply comes:

“Two ways, gradually then suddenly.”

According to Champignon Brands (SHRM-CSE) CEO Dr. Roger McIntyre as Chief Executive this “gradually and then suddenly” quote describes perfectly what is happening in the psychedelic medicine field right now.

This space had been progressing slowly for several years, and now everything is happening suddenly.

That’s why I wanted to speak with Dr. McIntyre, a high profile expert in this field.  I see psychedelic stocks as being a huge opportunity over the next 12 to 24 months as all of a sudden hundreds of millions of dollars in clinical R&D will be spent here for the first time in history.

Folks, mental health is finally getting the serious attention it deserves both in society, and in research spending.  Not only is our fast-paced, more-more-more culture driving us crazy, but most of us are allowing a horrible new disease that appears incurable–social media—into our lives.  

With a little bit of self discipline and some new medicines—which you’ll read about below—humanity could make a big leap forward in mental health.
 

Shelved For 50 Years – Psychedelics Are Finally Coming Back

 
For people who are still getting used to legal marijuana, the idea of publicly traded companies working with psychedelic drugs like MDMA and psilocybin (which comes from magic mushrooms), may sound a bit trippy man….

Believe me, I hear you.

Until I took an interest, my perception of psychedelic drugs was wrapped up with images of the 1960s — tie-dyed shirts, hippies in San Francisco and Woodstock.  Peace, love and no interest in working!

In the 1960s the face of psychedelics became a very controversial Harvard psychologist named Timothy Leary.  Leary wanted everyone to “turn on, tune in, and drop out”.  

Leary’s high profile association was bad for psychedelics, the man spent time inside of 36 different prisons worldwide.  Equally bad was the fact psychedelics were tied to the widespread cultural upheaval of the 1960s.

In 1970 President Richard Nixon called Timothy Leary, “the most dangerous man in America….” and the majority of psychedelics were declared illegal.

Thanks to the Nixon Administration —LSD, psilocybin, MDMA and were all declared “Schedule I” drugs which deems them to offer no medical value and have high potential for abuse. 

Schedule I is the same grouping as destructive drugs like heroin and bath salts, and is the most risky possible class for a drug.  Cocaine and crystal meth are deemed less risky Schedule 2 drugs.

As a result all public research on psychedelics was stopped despite the fact that in the 1960s psychiatrists had seen astounding results using them to treat people with diseases ranging from crippling depression to alcoholism, with few to no side effects.

Now after a 50 year pause progress in this field is finally happening again.
 

Baby Steps at First – But Momentum Is Clearly Building

 
The name psychedelics comes from the Greek for “mind manifesting,” since these drugs are known for expanding the mind and dissolving the ego.

A growing number of companies have recently received the blessing from the U.S. Food and Drug Administration and are conducting clinical trials of psychedelic treatments.  Many of these companies are gearing up to list on the TSX.

What those trials aim to treat with psychedelics includes:
  • Depression
  • Post-traumatic stress disorder
  • Alcoholism
  • Smoking cessation
  • Opioid addiction
  • Anxiety
Name a type of psychedelic and it is probably now in trial for treating something.  Psilocybin, ibogaine, LSD, MDMA, DMT/Ayahausca, ketamine……it is remarkable given the reputation these drugs have had for 50 years.

McIntyre says that right now, synthetic ketamines are the new prime time drugs getting attention, but natural psychedelics like psilocybin look very promising.

Unlike cannabis which remains federally illegal in the U.S., the FDA approved work psychedelic companies are doing is legal. This is going to allow for more access to growth capital from private investors in the U.S. who wouldn’t touch cannabis.

The ability to get exposure to psychedelics will also be concentrated amongst fewer companies because the barriers to entry are much higher.

Back to Champignon Brands CEO Dr. McIntyre who is a psychiatrist and has been treating people with depression for more than 20 years in very high numbers — he runs one of the highest volume treatment centers in the world.

Using conventional depression treatments Dr. McIntyre believes that for 10-20% of depression patients conventional methods work perfectly well.  For the other 80% though, a better solution is desperately needed because they aren’t getting helped.

McIntyre told me that when he started using a ketamine infusion depression treatment at his Canadian Rapid Treatment Centre of Excellence (CRTCE), he saw his success rate jump from that 10-20% to more like 60%-70%.

“And what was particularly astounding,” he continued, was that “patients got better within a couple of days rather than having to wait six to 12 weeks. These observations alone provided the impetus for the FDA to declare treatments like psychedelics and ketamine as breakthrough drugs.”

“And that also did something especially important, and that is it created a political environment that’s favorable to this area. It began the process or added to the process of de-stigmatization and created a regulatory pathway forward.”

You can’t ignore that kind of data and that is why psychedelics are finally coming back to life after being buried for decades. 

This isn’t about people drinking some beers and then dropping some acid at the park, this is about the drugs being administered in a structured, clinical setting.

It took McIntyre about two years to get through all of the regulatory hurdles in Ontario and get the CRTCE up and running.

The clinic opened mid-2018, and is now open four days a week and moving to a six-day-a-week model very soon.

They have about 40 people on staff…. psychiatrists, pharmacists, anesthetists, family doctors, nurses, coordinators, researchers. It is the world’s largest center that is doing this kind of work.

The clinic has been treating adults, 18 and over and getting sick people back to work in a week or two. McIntyre said that he wouldn’t have believe the results if he hadn’t been watching it happen in front of him.

To me, that is incredibly positive, if you’re diagnosed with a mental health issue.

The protocol driving the positive results are:
  1. a patient comes in for four ketamine infusions,
  2. and then some come in again later for monthly boosters (kind of a touch up).
McIntyre has primarily used ketamine but he believes psilocybin (the magic mushroom compound) is equally effective.  Both can be produced in a lab and in the case of psilocybin there is a natural mushroom derivation.

When I asked “how” the psychedelics work, McIntyre explained that when people experience depression, post-traumatic stress, anxiety, and drug and alcohol addiction, it’s because the brain’s motherboard is disconnected

What ketamine and the psychedelics do, is that they reset it. And they reset it within one to two days. So, this is a bit like your computer at home. It’s not working. There’s something wrong with the circuit. You turn it off and on. I guess that’s what we all do. Or you reset the circuit. And that’s what the treatment does.

I left my chat with McIntyre even more convinced this is an exciting field.

Being an investor, I have to explain a bit about the business side of all this. Mental health is being taken much more seriously by business and industry.  So insurance companies are funding “stress” which is often a euphemism for depression. Often times “long term disability” is another euphemism used.  These are very expensive conditions for business to pay! 

The point is, there is a lot of incentive for new treatments, and this is a large and growing market that is pretty much virgin territory for innovative groups.

McIntyre says Champignon Brands is in a great position because he is a pharmacologist as well as a psychiatrist.  With the CRTCE having a large amount of patients, he can do clinical studies in-house, saving hundreds of thousands of dollars and months if not quarters of time in developing new strains and delivery mechanisms for ketamines and psylocibins.

A company like Champignon can develop ketamine derivatives—at less cost and with less time than competitors–which have tremendous opportunity.

But even before all the potential new drug trials get underway, McIntyre plans on expanding the number of clinics across the US and Europe.

“The plan is to have five to seven clinics acquired in total before the 2020 is completed,” McIntyre says.
“Then, next year, 2021, we’re looking at approximately 20 more clinics, and then we’re looking into a 100 clinics the year after. It’s important for people to be aware that the US for us is clearly where we’re putting a lot of our emphasis right now. But we already started discussions with opening clinics in Europe, as well as in Asia.”

“So in Europe–the European Union has a population of about 500 million people, and not one single clinic exists. So, imagine not one single Starbucks in all of Europe. That’s kind of what it’s like.”

Champignon Brand has had no problem attracting investors or capital.

Early treatment results do look incredibly impressive and there are no side effects from the drugs.  That is much better than the weight gain, nausea and sexual dysfunction current treatment options bring.

Stay tuned.  You will be hearing more from me on this subject in a couple months.

Things are still moving gradually, but I expect we are going to get to suddenly really quick.

Keith

GREENING THE GRID AND THE SOIL Calgary Junior Solves Many Problems with Its ONE Technology

By
Keith Schaefer
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0

A Calgary company is greening the power grid with large amounts of cow manure—and solving three other large problems along the way.

EarthRenew Inc. (ERTH-CSE) has a patented technology that can heat, dry and pelletize cow manure, transforming it into high-end, certified organic fertilizer—and with much higher nitrogen. 

And because it’s in pellet form, its fertilizer can be put into the ground not just in the traditional short windows during spring and fall, but also when farmers work the land.

The process—which will be first showcased just 30 minutes east of Calgary near Strathmore AB–also creates extra electricity that can be sold into the grid.  The company earned over $100,000 in revenue in January 2020 as they sold their renewable power into Alberta’s grid during a cold snap.

But while the organic fertilizer and renewable electricity are very positive, the biggest benefit of this process may go to European and American farmers that have much more intensive agriculture than wide-open Canada.

With cattle herds in the tens of thousands in the US and dairy farms in the hundreds in places like Holland (and the US), there is a huge concentration of chemicals like phosphorus in the animal manure that gets spread out over a small area.  The phosphorus seeps into groundwater or streams and ends up in rivers & lakes and creates algae blooms.

In Holland the problem is so bad, nearly 600 of 16,000 dairy farms had to close down just for this reason.  More than 190,000 cows were culled, and over 300,000 calves and heifers were as well.

(The Dutch actually had phosphate credits like North America has carbon credits!)

The same thing is happening with dairy farms in Washington State, California, Ohio and Wisconsin—too much manure and not enough land to spread it on without causing problems.

So there are LOTS of benefits from this patented low tech process.  They can even supply surplus cheap electricity to bitcoin miners on-site if the grid doesn’t want their excess power.
 

“High intensity farming is actually a big problem in Europe and the States,” says EarthRenew CEO Keith Driver. “You wouldn’t know it, but all these nutrients are being flushed into the system off the land, and it’s killing waterways and we’ve got a win-win-win, nobody loses solution, to this problem.  It’s unbelievable.”


Driver says the process had about $70 million in R&D put into it in the 2000s, but then the Alberta inventor died and the price for the product dropped.  It fell into bankruptcy.

In 2019, a group of Toronto venture capitalists recruited Driver to update the technology and make it commercial.

The prototype facility is on a 25,000 head cattle farm near Strathmore Alberta.  The plant must be where the manure is, and the market for the product is usually a 40 km radius.  However, that could be extended with higher nitrogen ratio fertilizer.

“The plant itself is really simple,” says Driver. “The whole technology is you can take manure and put it through a dryer and turn it into fertilizer. If you do it at the right temperature for the right amount of time, you can invert it from conventional manure into organic listed and approved fertilizer.”

There are two revenue streams.  Driver says they buy natgas and produce electricity with it through a Rolls Royce turbine. 

Driver hesitates to call theirs a renewable energy, as it does require some natural gas to create 4 MW of electricity.  He says their process would be best described as co-generation or waste heat.

The electricity is sold back to the grid or to bitcoin miners on site, and the waste heat from the turbine thermally treats the waste to make it ready to be mixed into organic fertilizer.

“That’s how we’re going to make the money,” Driver says, “because you get the manure for free, you get the heat for free, you’ve got some equipment and some people to turn it into pellets but otherwise it’s pretty low marginal cost of production at that point because the power in the province, the power price more than covers the cost of making electricity.

The turbine fits in a small bungalow, and the rest of the equipment fits in a small barn.

Organic fertilizer is definitely a growth trend—see the stats below:
 
Organic products need organic soil which need organic fertilizer.

Driver says that from scratch, an EarthRenew plant could cost CAD$17 million, with payback of roughly 3.5 years. With a simple process and very little maintenance costs, he expects each plant to be long term cash cows (pardon the pun).

The Strathmore facility is being upgraded now to produce commercial product for spring 2021.  New seed formulations have already been certified organic, but EarthRenew is working with several commercial and university groups to develop an organic formulation that is much higher value-add, with higher nitrogen levels.
 

Both private and public monies are being raised to not only get Strathmore fully operational, but also source the second plant.

Their timing could be very good, as “green” stocks and renewable energy stocks are in vogue.  It’s a unique business model that has multiple revenue streams,  and it solves A LOT of problems.

Keith Schaefer

DISCLOSURE–I do own some shares in ERTH.

RED HOT SPACs MEET RENEWABLE GREEN ENERGY

By
Keith Schaefer
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0

This might not seem like a very good time to bring a company public.

But a small corner of the initial public offering (IPO) market is actually booming right now–and the biggest renewable energy company since Tesla (TSLA-NASD) is now involved.  They’re called Special Purpose Acquisition Companies (SPACs).

You may not recognize the term, but there have been several high profile ENERGY-related SPACs. Very few have worked out. 

Maybe the most successful oil company SPAC was Mark Papa’s Centennial Resource Development (CDEX – NYSE).  In 2016 CDEV raised $500 million.  While things recently went south (its now trades at under a buck), the stock did trade as high as $20 in mid-2018.

One of the biggest flops in the SPAC world also came from the E&P world.  Alta Mesa Corp (symbol was AMR-NYSE before bankruptcy) was a shale producer and midstream operator focused on the STACK formation in Oklahoma.  But the stock fell flat on its face eventually filing for bankruptcy last year.
Alta Mesa has the added infamy of also being the largest SPAC by IPO proceeds – over $1 billion raised.

Now we’re seeing SPACs in renewable energy.  Take VectoIQ Acquisition Corp (VTIQ – NASDAQ).  The stock price of this SPAC has risen by over 150% since the beginning of March.

Source: StockCharts.com

Investors piled into VectoIQ after they announced that they would merge with Nikola (as in Nikola Tesla), a private Arizona start-up developing a fleet of electric/hydrogen fuel cell vehicles – semi-trucks, pickups and power sport vehicles.

At the close of the transaction the surviving company, which will be called Nikola, will trade publicly on NASDAQ.

 SPAC’s: A Different Kind of IPO
 

VectoIQ’s bid for Nikola is typical for a SPAC. 

A SPAC is a large pool of money—often $100 million or more–looking to merge with a private company and bring it public.

Think of a SPAC as kind of a backdoor entry to the public markets. 

Unlike a traditional initial public offering (IPO) a SPAC merger doesn’t require a roadshow.  There is no broker/dealer underwriter.  The SEC documents are not as extensive.

For private companies not looking to raise new capital (or for those looking to cash out), it can be a preferable route to the public market.

SPAC IPOs are gaining momentum.  The number and dollar value of IPO’s have been rising for 10 years.  So far 2020 looks like another record breaker.

Source: Euromoney
 

The SPAC Structure
 

VectoIQ, like all SPACs, went public at a price of $10 per unit (in May 2018).  23 million units were issued for $230 million. 

Also typical was the SPAC structure of shares and warrants.  For VectoIQ, each unit consisted of one share and one warrant.  The warrants gave investors the ability to purchase a share at $11.50. 

Each SPAC comes out with a share and warrant IPO and most price the warrants at $11.50.  The variable is usually warrant fraction.  Sometimes investors get a full warrant, sometimes they get half, sometimes less.  It all depends on demand for that SPAC.

After the IPO, the shares of VectoIQ did nothing for almost two years.  The company was just a shell, holding cash in short term treasuries.

But behind the scenes the managers of the SPAC were looking for a deal.  When they found the right one (Nikola), they made it happen.
 

The Rules of SPACs

 
SPACs are also called blind capital pools or “private investment public equity” (PIPES).  The SPAC is usually run by private equity sponsor who is already neck deep in deal making. 

The word “blind” is appropriate.  At the time of the SPAC IPO, investors do not know what the deal might be (in fact it would be illegal if they did).

So why would someone invest blindly? 

It comes down to the SPAC rules.

First, the SPAC has a deadline to find a deal.  Maximum of 3 years but usually capped at 24 months.

If the SPAC does not find an acquisition in that timeframe the investors get their money back – with interest. 

Second, if you don’t like the acquisition, you can ask for your money back. 

At the time of merger (this is called the De-SPAC transaction), the SPAC is required to offer SPAC shareholders the option to redeem for $10.

Again – no harm, no foul.

Hedge funds like SPACs because they are what is called “a free carry”.  That is to say – a free shot on goal with an opt-out clause. 

But the biggest winners in a SPAC are the founders – also called the sponsors.  They manage the IPO and look for the deal – and in return they usually get 20% of the SPAC shares – for free!

It is a sweet setup, but only if they get a good deal. Which means their interests are aligned with investors.

But it does create a hurdle – any deal the SPAC finds needs to overcome this 20% free ticket for the founder.

Some of them do.

 Nikola Nuts and Bolts

 
At the close of the transaction between VectoIQ and Nikola the share structure will consist of:

  • VectoIQ SPAC shareholders owning 23 million shares and another 23 million warrants (at $11.50)
  • Founders owning 6.64 million shares of stock
  • 52.5 million shares from an additional financing done at the time of the acquisition (at $10)
  • Nikola shareholders owning 320.7 million shares

In total there will be about 428 million shares outstanding (including in-the-money warrants).  At the current price of $25.75 that values the company at $11 billion.

In this case the sponsors at VectoIQ found a deal that more than made up for the free founder shares.

Is Nikola worth that much?  That is going to depend on your take on the electric/hydrogen vehicle market. 
In their slide deck, Nikola estimates 14,000 BEVs and 30,000 FCEV sales in 2027.  With estimated EBITDA margins of 12.8%, the company forecasts EBITDA could be $1.35 billion at that time.

Source: VectoIQ May Investor Presentation

If that turns out to be right, then maybe Nikola will not look quite so expensive. Regardless, you can’t argue that early investors in VectoIQ did well for themselves. Those investors paid $10 for a unit.  That is one share, one warrant. With the stock now trading at $25+, they are making out like bandits.

 Some Winners, Many Losers

 
Recent SPAC successes like Virgin Galactic (SPCE – NASDAQ), Nikola and DraftKings (DKNG – NASDAQ) conjure up big hopes.  But not every SPAC ends well.  In fact, more often then not, they flop. 
More recent SPACs with an energy bent have struggled to get out of the gate.  Black Ridge Acquisition Corp (AESE – NASDAQ) raised $138 million in 2018 to do deals in the energy sector before doing an about face and buying WPT Entertainment and an esports business called Allied eSports.  The stock last traded at under $2. 

Spartan Energy Acquisition Corp (SPAQ – NYSE), which is sponsored by Apollo, is coming up on its 2-year IPO anniversary in August and still hasn’t done a deal.  It trades at $10.24.

Very recently, Alussa Energy Acquisition Corp (ALUS – NASDAQ), a SPAC targeting oil and gas acquisitions, raised $250 million in an IPO in November.  They have yet to complete a deal.  It trades at $9.65 – so under the deal price.

Pure Acquisition Corp (PACO-NYSE), which raised $414 million in 2018, did complete an acquisition in early May – of HighPeak Energy – a Permian E&P, but only having trying and failing to complete the same deal in October.  It trades at $10.50.
 

How to Play the SPAC Market

There are THREE ways to play the SPAC market. That’s because there are usually THREE listings for each SPAC.

The first is to buy a new SPAC IPO out of the gate.  New symbols will trade with a “.U” extension – this means you are buying the unit – the share and the warrant. The warrant will give this unit some extra value, but often only 10-40 cents. So you if you don’t like the deal, you’re only losing that premium when you return your stock to the company.

But at some point (usually about 30 days) the warrant starts to trade separately; it gets stripped out. When that happens, the leverage–and the risk–is in the warrant. It often trades with FIVE letters in the symbol, and ends in a W. If the deal–like VTIQ–ends up being hot and the stock goes from $10 – $25–well, the warrant is a 10-30 bagger very quickly. But if there is no deal for the SPAC or the market doesn’t like the deal, the warrant can become worthless. Warrants can trade for well over $1 sometimes.

That means be discerning.  Do your homework on the deal making team.  Also check the deal terms and disclosures around the sector they are looking at entering.

Thirdly, you can just buy the stock after it gets separated out. So to repeat, in SPACs you almost always have the choice of buying the stock, the warrant, or the unit with both.

Maybe a better question is–WHEN do you buy it. You can buy it blind right away or the second way to play a SPAC is to wait for a deal. 

Remember, the biggest winners – Nikola, Draft Kings and Virgin Galactic – only traded up modestly after the announcement for a time.  Virgin Galactic actually traded well below the $10 IPO price for a time.

In other words – even with the best of the SPACs, there was no rush to buy.

What is clear is that the SPAC model is gaining momentum right now.  We should expect more companies coming to market through SPAC mergers.  Given that some of these names are catching investor attention, it is a space worth keeping an eye on.


 

Keith Schaefer

VIZSLA RESOURCES–VZLA-TSXV / VIZSF-OTCQB JUMPS THE QUEUE TO PRODUCTION WITH PANUCO ACQUISITION

By
Keith Schaefer
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0

CEO Michael Konnert has positioned his Vizsla Resources to be the next high-grade silver producer in Mexico.
 
And he will do it quickly, in one bold stroke, buying a fully permitted mine and land package—called Panuco—in the same area of northwest Mexico that has spawned some of the most successful silver companies on the board.
 
With this new deal, Konnert gets to leapfrog years of drilling, proving up reserves and permitting and be in a much larger peer group.
 
Today, Vizsla has just a $28 million market cap.
 
I’m going to explain Konnert’s skill and patience in getting this deal done—by merging the assets of two feuding landowners who could not move their very rich silver asset forward. Trust me, Panuco is a property every other silver mogul would love to have.
 
Vizsla’s Panuco property has:
 
a)    the size—miles and miles of rich veins
b)   the high grade–some of it 4-digit (over 1000g/t, or 30 oz/t!!) silver,
c)    the exploration upside,
d)   the mill, power and tailings facility–that is worth some $40 million
 
 
to add incredible value to his $28 million market cap—in an instant.
Panuco is ready to go. It was an incredible find by Konnert. It just didn’t have the development money that Konnert and Vizsla will now give it.
 
Mexico has five other silver mines that compare with Vizsla’s Panuco project in terms of both size and grade. 

Note that those five comparable mines carry a market valuation in excess of $1 billion. Now, that does NOT suggest that Vizsla runs up to a billion dollar market cap quickly after buying Panuco.
 
But the longer term potential is obvious. See this slide from their powerpoint, which shows the density and size of their silver veins in the same ballpark as these much larger companies:

Like these other world class silver districts Panuco is huge, with more than 75 kilometers of total vein strike. Again, it compares directly with these five other world class silver mines in the region (see the chart above).
 
 

HOW VIZSLA SCOOPED THIS LARGE SILVER MINE
FROM NEARBY TITANS

 

Look, if this deal would have been easy, one of the silver majors would own Panuco right now.
 
But these rich veins bled into two ownership groups who, for whatever reason, couldn’t seem to work together. Part of it was financing—neither Mexican family had the money to work their part of the veins, nor did they have the money to buy the other partner out.
 
Such a great asset–stalled for years!
 
The map below shows the problem. The orange shading represents one of the historic owners and the white shading the other —— you can see how most of the red silver veins cross the property boundaries. The completely fractured ownership of Panuco has made a real development program a non-starter.

Panuco has some very high silver grades. Prior drilling on the La Colorado vein resulted in a top find of 1,634 g/t silver and 10.4 g/t gold over 2 metres. Further east the Clemens – El Muerto vein has seen 2,235 g/t silver and 9.5 g/t gold over 4.2 metres.
 
At that kind of high grade result will be all it takes in one or two shoots to build up a large resource.
 
“This is a mini-version equivalent of Barrick and Newmont in Nevada,” Konnert says, “just in silver. Even though the synergies were obvious, pride or success or relationships or whatever prevented the union of these two properties for years and years.”
 
Konnert spent a lot of time early in his career working at Pretium Resources, where the legendary Bob Quartermain was CEO. Konnert paid attention, learning patience and tactics from a very strong team.
 
Konnert and a prospector worked with the two Mexican families for almost two years—he was down there every two weeks. Then silver and gold prices started rising—silver went from $14-$18/oz during the final negotations. It was tough getting everyone to the table to sign off.
 
But Konnert did get it done. Now—for the first time ever—one well capitalized owner (Vizsla) has consolidated this entire huge, high-grade project and will see that it is developed using modern, best mining practices.
 
 

INVESTORS ARE NOW CHASING
SILVER AND GOLD STOCKS


 
Konnert’s timing is excellent. The Market is now moving down-market to junior producers and developers in precious metals.
 
I like silver’s fundamentals. Supply is down–primary mine source is declining the last few years–for the very first time! Scrap silver is declining. Government silver supplies are at all time lows.
 
And yet silver demand is near record highs. People think of silver being used in photography, which is obviously way down, but it’s also used in solar panels, and that market gets brighter by the day.
 
The Gold/Silver ratio hit an all time high of 124 recently–the average is roughly 60 since the 1970s. That ratio tends to compress as a bull market precious metals ages–and I expect that to happen now. 

I think Vizsla will be Konnert’s second big win. Previously, he co-founded and ran Cobalt One Energy Corp—a private company where he used only $100,000 of capital to consolidate an entire cobalt district and eventually sell to Blackstone Minerals Ltd. (ASX-BSX) in 2017 for $10 million–a huge win!
 
His partner on Cobalt One was Craig Parry—Chairman of Vizsla. You will know Parry as co-founder of NexGen Energy which he built into a $1 billion company. Lots of shareholder success here.
 


CONCLUSION—VIZSLA CAN RAPIDLY
BECOME A HIGH GRADE SILVER PRODUCER

 

These are the types of silver stocks I want to own as this silver and gold bull market matures.
 
Vizsla is a $28 million market cap company that can quickly transform into a high grade silver producer.
 
Vizsla’s Panuco asset has miles of underground workings, a mill, tailings facility, power, a highway runs through it—and high grade silver that could generate strong cash flow at today’s prices.
 
I’ve made this sound easy. Trust me, it’s not. Konnert and his team have a lot of work in front of them. But money is the easiest part of a bull market. 
 
As soon as Konnert gets the $42 million he needs to purchase Panuco, and it will almost instantly transform Vizsla into a producer.

Look, getting the best assets as prices are moving up—that’s the real skill. CEO Michael Konnert has pulled off an amazing coup here—giving his shareholders the ability to quickly take advantage of rising silver prices. 
 
IF IF IF he executes properly, there is incredible leverage here for investors. So far he’s shown he’s very good. He has a strong team and has negotiated a world class asset for little money. That’s why Vizsla is my play for silver prices.
 
I’m long Vizsla Resources–VZLA-TSXV/VIZSF-OTCQB FRANKFURT 0G3



Vizsla Resources has reviewed and sponsored this article. The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons.  Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom.  Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements.  No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.

Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity.  He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.

I HAVE LOTS OF GOLD–NOW I WANT SILVER

By
Keith Schaefer
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0


There is a BIG move afoot in the gold and silver market right now–investor demand is stepping up. The smaller plays–junior producers and developers–are now getting funded for millions of dollars, setting the stage for bullish news flow for months on new discoveries and production announcements.
 
I have lots of GOLD plays in my portfolio, and that has been the best performing sector for subscribers. Fosterville South has been a quadruple in just a couple weeks, K92 Mining is a triple in a year and both Gold X Mining and Teranga are up 40-50% in the last few months. And I think the gains only get bigger as investors make the big move to smaller companies.
 
The one thing I DON’T have –is a silver play. But I just found one, and it ticks all my boxes:
 
1) Big upside
2) Small valuation
3) Near term catalyst
4) Management team that can raise BIG money
5) Less than 100 M shares out
6) In the Americas
 
My new Mexican silver play is district scale, a former producer with high grade ore AND with a 500 ton per day mill on site.
 
It has one of the best locations in the world, in a regional area with some of the most successful silver producers on the planet. They are buying the entire play–right from under the noses of nearby Silver Titans.
 
The company gets to leapfrog years of drilling, and building social license and potentially permitting by acquiring this land–and potentially become a highly profitable silver producer. Nearby mines have just $4/oz cost–and silver trades today at $15.50!
 
There’s a good reason my silver play was able to get this land package–it wasn’t easy! It’s an amazing story.
 
It starts with management. This CEO had just come off a big win. He and several key investors bought a cobalt play for only $100,000—then sold it for $10 million before it even went public.
 
That’s the kind of CEO I want managing my junior plays! His main partner is a founder/director of another resource company–that went to a $1 billion market cap (25 cents – $4.25).
 
They were approached by a prospector who had spent a lot of time cajoling and negotiating with two Mexican families–who each owned half of an incredible, high-grade silver asset–but couldn’t work together. Whether it was pride or money or timing–this Tier 1 silver producer could not get developed.
 
They spent months working with the prospector and the families to put all this land–with miles of underground workings and mill in place– into one big package for the very first time.
 
Tomorrow I’m going to give you the name and symbol of this company.
 
Their timing is impeccable–this is all happening just as big financings for small juniors are happening every day. The junior mining sector is now attracting A LOT of investor attention–both retail and institutional.
 
For a company with just a $28 million market cap, investors get a district scale silver play with $40 million worth of infrastructure, including a mill! And a CEO coming off a big win for shareholders, and a Chairman who has already grown one company to a $1 billion market cap.
 
I have lots of gold exposure. I want silver now. I think that a great play like this, with proven management, in this very silver-rich area of Mexico is THE BEST way to create fast and enduring wealth for silver investors.
 
When this Mexican play became available, it was no slam-dunk. I think you will marvel at the deal the CEO cut to rapidly become a high-grade Mexican silver producer.
 
Once on-site, this CEO’s team quickly realized that this property contained a field of silver rich veins that really only have a few (much larger) comparables. This property is huge…….more than 75 kilometers of veins. And as I said the four digit silver equivalent grade is superb.
 

 It Took Months (And One Liver) To Put This Deal Together

 
 I made how this deal came together sound way too simple.
 
This wasn’t a deal done in a few days. This was months of grinding to make the transaction come together. But that was the opportunity, not the problem.
 
The two owners weren’t at war with each other, but they also didn’t communicate much. Each of them were content to develop their portion of the project just enough to allow them to live comfortably. 
 
Split ownership of a great asset has meant two things:
 
1 – Despite being high-grade, the property is very much under-developed. Just one of the 26 mineral veins have been touched. Many of the veins cross the property boundaries between the two owners several times, so both parties haven’t even looked at them.
 
2 – Existing mining operations are very inefficient. The two owners haven’t used modern mining methods, and were not getting nearly enough out of what they are doing.
 
Negotiations went on and on–all the while silver prices were moving up!!
 
Management told me that even on the very last day that they were signing, it was stressful. They weren’t sure whether or not everyone would come to the table. There were lots of ups and downs.
 
But they got it done. And the result is this district scale (almost 50 sq miles!) high grade silver asset–with mill in place–will finally get the attention it deserves.
 
Just as investor demand for small cap precious metals plays heats up to a boiling point.
 
I’ve been successfully pounding the table on gold stocks for months, but it may very well be that this silver stock beats them all.
 

 Do Not Miss My Next E-Mail!!!

 
The bullish news flow this year will come fast and furious, with many releases on expansion drilling and return-to-production updates.
 
The asset and the team here are first class. Both the CEO and the Chairman have made shareholders A LOT of money in the recent past. This area of northwest Mexico has spawned many successful silver producers. To get all this in a $28 million market cap company is what I search for night and day.
 
Tomorrow you will learn:
 
First, the name and ticker of this junior miner.
 
Second, all of the details of this silver project.
 
Third, the management team who painstakingly put this deal together for shareholders.
 
Fourth, the string of catalysts that are coming that investors need to be in front of.

Watch for my e-mail tomorrow!


 
Keith Schaefer

HAS THE ELEPHANT LEFT THE ROOM?

By
Keith Schaefer
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0

What’s good for oil prices is bad for natural gas prices—and vice versa.  So the negative oil prices that investors saw mid-April should be good for natgas supplies (down) and natgas stocks (up!).

But will that really be the case—can this rally in natgas stocks be for real?  The charts of some Canadian producers have looked good, as the Market anticipates large scale shut ins of both Canadian but mostly US oil production—and all the associated natgas production that goes with it.



And of course, the theory goes that with lower supply come higher prices—especially as natgas demand is for a lot more basic infrastructure, i.e. it should not have near as big a drop in demand as oil.

Let me explain.  In the last decade there has been a HUGE rise in associated natgas production in North America—more than 12 bcf/d across the five big US oil basins.  This does impact Canada and Canadian natgas stocks as the North American natgas market is quite well integrated.

The market calls natgas produced from these “oil” plays associated gas.  And it has played havoc with North American pricing—for both the producers and their shareholders.

(Canada has the same thing except it’s condensate (a very light oil) that carries the economics of production up here, not oil.  Natgas often accounts for 10% or less of revenue despite being nearly 50% of production stream.)

Natgas in the Permian went to negative pricing several times in the last 18 months as Permian oil production surged.  The Permian produced so much oil, that they flared 1 billion cubic feet of associated natgas PER DAY!

So when oil prices go negative, and oil production gets shut in fast and the oil rig count falls off a cliff—natgas supply should go with it.

(In 2018 Texas reported 8 bcf/d of natgas production with ZERO natgas rigs—that’s a lot of associated natgas production!)

And—just in the last couple days, literally–natgas supply in the US fallen below 90 bcf/d from a high of just over 96 bcf/d earlier this year.

Is this the turn—for real? Could we be witnessing is a change in the narrative – specifically: that the elephant (forever low natgas prices) has left the room and may even be out the building.

I confess I’m not a believer just yet—for a few reasons.  One is the dramatic bounce-back increase in the price of oil.  Will that really mean much oil gets shut in?  Both Diamondback (FANG-NYSE) and Parsley Energy (PE-NYSE) said on their Q1 conference calls this week that they would bring oil production back at just US$30/b WTI.

And Plains All American (PAA-NYSE) noted yesterday on their Q1 call that they expect overall Permian volumes to be down 15-20% exit-to-exit this year.

In other words—I’m just not sure US oil production will fall as much as people think.  That means natgas production won’t drop that much either.

I still think natgas inventory levels fill up this year—there is already more gas in storage than both last year and the last 5 year average. 

And the Market is expecting that surplus to get bigger in the next three weeks. This week’s natgas injection into storage (based on last week’s weather) is expected to be +110Bcf; last year this week was +96Bcf on the same week.  The following two weeks are also expected to show slightly larger increases in natgas storage builds, despite lower production.
 
And global LNG cargoes are being returned as demand has dropped everywhere on earth.  So far LNG exports out of the US are only down about 2 bcf/d—a bit less than what production is down, so that’s bullish natgas.  But if that relief valve on US production was to be shut for a few months—OUCH!  The Elephant is BACK!
 
Once again, investors will be waiting to see what natgas pricing does—based on oil pricing.  What’s good for oil is bad for natgas.



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