Peak Oil
An article this morning titled ‘Welcome, “Peak Oil”‘ – reading time 4 minutes – is one I suggest resource equity investors take the time to read and consider carefully. Note that neither the article title, nor my own title for this commentary, has a question mark added to the term Peak Oil. The article’s author sees Peak Oil (where oil demand exceeds oil supply) as inevitable, as do I. The article suggests that world output of ‘conventional crude‘ peaked in 2005, and that Peak Oil could be upon us as early as 2 -3 years from now. My caveats to this time frame are (1) I think reversion to recession or depressive conditions in the developed countries (the U.S. and EuroZone countries in particular) in the next 1 – 3 years would extend that time period since demand for oil would drop in such circumstances, and (2) if developing technologies to efficiently extract oil in large quantities from the Canadian Oil Sands prove to be commercially successful in the near term that could go some distance to extend that time period.
In any event, the article’s author (a Hong Kong based money manager) is bullish on the price of both crude oil and uranium, and says he has 30% of his client’s money invested in assets that “will benefit from the looming energy crunch” through exposure to (1) upstream oil companies, (2) integrated energy giants, (3) oil services firms, (4) renewable energy stocks, (5) uranium, and (6) electric car/rechargeable battery manufacturers.
An article worth reading, or so I think.
Caterpillar’s 2010!
‘Caterpillar Worries About Central Bankers, Global Divergence‘. I think those of you who trade and invest in resource stocks ought to spend some serious time reading and considering Caterpillar Inc.‘s Q4 2010 Earnings Release – reading time 30 minutes. You can find it by linking to the WSJ article, and then clicking on the underlined segment offered its extensive forecast for the world economy (in PDF format) found in the article’s first paragraph. The Wall Street Journal article is a summary of what its author took from Caterpillar’s release – reading time 3 minutes. I strongly suggest you take the time to read both the WSJ article and Caterpillar’s 4th Quarter Release yourself, with particular emphasis on pages 1, 2, 16, 17 and 28 – 30 of the latter. My comments on the Caterpillar release follow.
Caterpillar is a (if not the) world’s leading manufacturer of construction and mining equipment, hence my interest in the company as one monitor of the Resources Sectors. Caterpillar’s 2010 results strike me as highly noteworthy. Measured against 2009, in 2010 its sales were up 31%, and its reported profit was up 202%. Caterpillar added about 19,000 to its world workforce in 2010, to end the year with about 104,000 employees. About 7,500 of those 19,000 jobs were added in the U.S., representing a 15% increase in the U.S. based workforce. Based on other disclosures in the Earnings Release I calculate Caterpillar’s U.S. based workforce to have been about 73,000 at the end of 2010, and its ‘outside the U.S. workforce then to have been about 31,000. If my calculations are correct, this means Caterpillar increased its non-U.S. based workforce in 2010 by just under 60%. In 2010 Caterpillar announced 8 new plants, 5 of which are outside the U.S. In 2011 Caterpillar expects make capital expenditures of about U.S.$3 billion, with over half that to be spent in the U.S.
Caterpillar’s sales numbers are interesting. 2009 consolidated sales were (rounded) U.S.$32 billion and increased to U.S.$43 billion in 2010 – largely attributed to increased sales of machinery. 2011 sales are forecast to be over U.S. $50 billion. I say the sales numbers are ‘interesting’ because they do not reflect what I thought they would. Caterpillar reports its sales breakdown by four world ‘regions’ – North America, Latin America, Eurozone/Africa/Middle East (EAME), and Asia/Pacific. I was expecting to see a large proportionate increase in Caterpillar’s 2010 sales in the Asia/Pacific region, but that wasn’t the case. As a % of Caterpillar’s total sales North America accounted for 38% of sales in both 2009 and 2010, Latin America accounted for 12% in 2009 and 14% in 2010, EAME accounted for 27% in 2009 and 24% in 2010, and Asia/Pacific accounted for 23% in 2009 and 24% in 2010. Detailed sales information is provided in the Earnings Release.
On pages 16 – 17 of the Release Caterpillar management provides its ’2011 Economic Outlook’. Highlights include:
· forecasted world economic growth at more that 3.5%;
· improvement of construction activity in most countries;
· expectation that most governments and central banks will regard job creation rather than inflation as the dominant economic issue;
· 2011 average prices for copper, West Texas Intermediate oil, and Central Appalachian (thermal) coal of (U.S.$) 4.25, $92.00 and $72.00 respectively; and,
· world production of key (I assume ‘base’) metals will increase in a range of from 2% for copper to 9% for iron ore.
Caterpillar management cites economic risks to include:
· possible ‘too quick’ tightening by developed country Central Banks; and,
· differences in trade and currency policies that are increasing the potential for ‘trade frictions‘.
Caterpillar is a world business run by experienced and successful managers who can be assumed from operating and business forecasting/planning perspectives be focused every day on the very industries resource investors are focused on. The Senior Executives of Caterpillar and of its major competitors are dealing ‘hands-on’ with things that I think make both their company results, and their forecasts and prognostications things to be understood and thought about by traders and investors in resource equities. I hold to this view because I strongly believe that business operators with hands-on experience have knowledge, exposure and ‘real world based’ judgment that technical analysts and ‘high level’ commentators frequently do not have. Again, I suggest you take 30 minutes of your time to read the Caterpillar Earnings Report.
Additions to Stock Research Portal’s Company Universe
Today we added the following Companies to our Company Universe:
BE Resources Inc. (TSXV:BER). We currently categorize BE Resources Inc. as a beryllium explorer operating principally in the United States (New Mexico). BE Resources Inc.’s current market capitalization is approximately Cdn$15 million. Review research data on BE Resources Inc.
Sama Resources Inc. (TSXV:SME). We currently categorize Sama Resources Inc. as base metals explorer (Copper, Nickel, Gold) operating principally in Africa (Cote d’Ivorie) and the United States (Arizona). Sama Resources Inc.’s current market capitalization is approximately Cdn$20 million. Review research data on Sama Resources Inc.
Whitecap Resources Inc. (TSX:WCP). We currently categorize Whitecap Resources Inc. as an oil & gas explorer and producer operating principally in the Canada (Alberta and Saskatchewan). Whitecap Resources Inc.’ s current market capitalization is approximately Cdn$265 million. Review research data on Whitecap Resources Inc.
Press Release Highlights
The following table summarizes the companies in Stock Research Portal’s Company Universe who yesterday issued Press Releases and whose shares increased in price from the previous day’s close by more than Cdn$0.05, more than 10%, and whose share volumes yesterday exceeded their trailing 3 month average trading volume. You can research each of these companies by clicking on the company name in the table.
| Company |
Symbol |
Sub-Industry |
Closing Price* |
Price Change* |
% Price Change* |
% Vol / 3 Mths Avg* |
|
|
TSX:AVK, DB:A1V
|
Gold
|
0.53
|
0.07
|
14.0 |
442.9 |
|
|
TSX:DML, TSX:DML.WTA, AMEX:DNN, DB:IUQ
|
Uranium
|
3.75
|
0.37
|
11.0 |
114.1 |
|
|
TSXV:GMN, DB:31T
|
Base Metals
|
0.86
|
0.09
|
11.7 |
812.3 |
|
|
TSXV:NML, DB:36N
|
Base Metals
|
3.70
|
0.40
|
12.1 |
125.1 |
|
|
TSXV:PSL, DB:POU
|
Silver
|
0.46
|
0.06
|
15.0 |
120.7 |
* Yesterday’s data, or latest trading day’s data, as applicable
Insider Trading Highlights
The following table summarizes the companies in Stock Research Portal’s Company Universe for who our system yesterday reported insiders who filed reports indicating they had acquired shares through ‘purchase’ transactions. You can research each of these companies by clicking on the company name in the table.
| Company Name |
Symbol |
Sub-Industry |
|
|
TSXV:AIX
|
Gold
|
|
|
TSXV:SPI, DB:HP4
|
Focus on Gas
|
|
|
TSX:NGQ, DB:6CG
|
Gold
|
|
|
TSXV:VR
|
Gold
|
|
|
TSXV:WER, DB:HN3N, BST:HN3N
|
Coal – Met
|
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