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Trends, questions, covered calls and spreads

In this column Andy Sirski talks about some current energy trends, 
and how these trends will impact his stock portfolio

Some interesting enery trends are developing in North America and around the world.

Uranium

First, recall some issues ago I wrote an article on thorium and how that might reduce demand for uranium.

The supply of uranium to the world was supposed to drop by the end of 2013 because Russia will stop selling nuclear warhead uranium to the U.S. Russia has been supplying about 16 per cent of the total world supply of uranium so if that supply stops, some think the price of uranium will go up.

Is Russia going to keep selling that nuclear uranium to other countries?

Russia is building nuclear reactors but likely not enough to use up all that uranium it’s not selling to the U S. I have not been able to get the answer yet — if you know, get in touch.

The world’s uranium supply may not shrink. The U.S. uses something like five million pounds of uranium per year and has to import a lot of it. It just won’t be coming from Russia. .

In the meantime, Japan has slowed down the process to start up most of its reactors, so Japanese demand will not go up much.

Russia might be trying to keep the price of uranium down for as long as it can which would make it tough on high cost producers and discourage new mines.

This could take some of the glow off the future of the uranium and uranium stocks. I own 1,200 shares of Cameco (CCO) at a cost of around $20 per share.

Oil and natural gas

As you likely know, the U.S. wants to be more energy self sufficient in the years ahead. I don’t think that means it will have enough oil but I think it would mean the U.S. would import a lot less oil from OPEC countries.

In the meantime Canadian oil producers are figuring out how to get more oil to U.S. refineries. One way is by train. CN and CP are both getting their act together to move more oil into the U.S. as the industry waits for the U.S. to decide if it will allow a new pipeline into the country.

A company is building a hub in southeastern Saskatchewan that will speed up the loading and hauling of oil from the Baaken pool.

I also heard that same hub has a system for loading grain cars that could take a million tonnes of grain out of Canada to the U.S. If you know more about this project send me an email at [email protected] or call me at 1-204-453-4489.

In the meantime I also heard that oil producers plan to move oil by pipeline (and maybe train) to the east coast, where Irving has a refinery and a deep ocean port open year round. The plan would be to send oil to the east coast and load it onto tankers that would take the oil to unloading docks in Louisiana. Then the oil would go to refineries in Texas without having to wait for approval of the new pipeline.

The idea seems to be to set up a three-way outlet for Canadian oil: trains, Canadian pipeline and hopefully a new pipeline some day.

Unless there is some big disruption in oil production, to me this looks like the price of oil is not going to go up much and in fact it might have to come down.

The only oil/gas stock I own is Bonavista Energy Corporation (BNP) at an average cost of under $14.50. The price dropped to under $13 since the company cut its dividend, but prices recently come back up almost a buck. Cutting the dividend helps the company have more cash to work with but the lower dividend makes shares less attractive to investors. Still, six per cent yield is decent.

Some of the assets BNP bought lately are supposed to be accretive (make money right away) and combined with the lower dividend BNP might still work out.

Natural gas

As for the trend in natural gas —I think the price is going to stay low for a few years. Sure the new wells drop in production rapidly, fewer wells are being drilled and the supply of natgas in storage has stopped going up. But developers have documented a lot of natural gas in the U.S. so we shouldn’t expect prices to go up much anytime soon.

I think one risk for Canadian producers is that in a few years the U.S. will not need Canadian natural gas. I’m not sure our industry can develop new markets fast enough in that case.

Cheap natural gas also poses a risk to some developers/producers. By accounting laws, if a publicly traded company finds that its supply of natural gas is worth less than it thought, the company will take what is called an impairment charge to reduce the cost on its books down to the lower market price.

In the meantime China is buying natural gas properties. Someday we might be buying natural gas from a Chinese company that drills on Canadian dirt. I didn’t mean to scare you but hey, these things can happen.

Solar energy

Maybe I jumped the gun on this one but President Obama is talking solar and so is China so I bought 500 shares of First Solar (FSLR) for just under $34 a share. Then I sold a call on them for strike price $34 for September and picked up almost 16 per cent on the cost.

I did that just before earnings were announced. Maybe I shouldn’t do that. Earnings came out good but the outlook came out bad so the shares dropped to under $26 and may still be dropping. My cost is around $28.

I bought FSLR because I wanted to get closer to the solar business, but maybe I should have bought just 100 shares.

Solar stocks and in particular FSLR are getting mixed publicity. One analyst figures down is the only way while others figure the shares have potential.

Gold and silver

As I write on February 28, 2013, the price of gold has dropped 20 bucks to $1,575. This should not be a surprise — U.S. labour statistics come out on March 1 and most months the price of gold and silver gets smacked down the week those statistics come out.

I bought 1,000 shares of Yamana Gold (YRI). I owned YRI a few years back at around $12 and sold lots of calls on them. Now the company has started to pay a dividend and has good mining future so I bought some shares. The price of gold has dropped since and so has YRI by half a buck or so.

As for my main silver shares, First Majestic Silver Corp. (FR), a lot of them are in accounts where we have collected $5 worth of premiums from selling covered calls for the past 13 months while the shares have dropped a buck.

I can sell a call on the other shares and pick up a buck or more any time but I have missed out on some cash by being slow. The prices for FR and Silver Wheaton Corp. (SLW) are coming down to summer time lows, which could be a disaster or an opportunity. For now I will wait and watch.

If we buy gold or silver coins, the big question is “Can we sell them at a decent price?” I checked with one coin dealer and he said they would buy coins sold by FR at silver market prices. †

About the author

Freelance Writer

Andy was a former Grainews editor and long-time Grainews columnist. He passed away in February 2017.

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