Category: Energy

Rotating Into Mining: The Overlooked Opportunity in Natural Resources

Posted on by slightbourne@noblecapitalmarkets.com

In the investing world, money often rotates between different sectors over time. After a long period of technology stocks dominating, we may now be entering a new cycle where mining and natural resource stocks start to outperform other industries and sectors. There are several compelling reasons mining could be the next big thing for investors.

First, demand is soaring for the critical minerals and metals used in electric vehicles, batteries, and clean energy. Metals like lithium, nickel, cobalt, and copper are essential for manufacturing electric car batteries, solar panels, wind turbines, and other green technologies. With many countries pushing for faster adoption of EVs and renewable power, demand for these key minerals is skyrocketing. Major automakers have announced ambitious electric vehicle plans, which requires secure access to raw materials. This imbalance between booming demand and limited supply bodes well for mining firms.

Additionally, the pandemic exposed risks of relying on a few countries for critical minerals. It revealed the need for domestic mining capacity to ensure stable access to essential inputs like lithium. For instance, the U.S. aims to boost domestic production of strategic minerals and reduce dependence on China. The EU also has a new plan to secure rare earth supplies within Europe. This focus on mineral independence is a plus for miners in North America and Europe.

Rising inflation and gold prices also bolster the case for mining stocks. With central banks printing huge amounts of money, many investors see gold as an inflation hedge. This has helped push gold prices to an 8-month high around $1900/ounce. Higher inflation tends to lift gold and silver prices as people flock to hard assets. Many miners produce both precious metals alongside base metals. They benefit from rising gold and silver prices.

Additionally, gold often rises when risks are high, like the current Russia-Ukraine and Israel-Gaza crises. Its safe haven appeal attracts buyers during geopolitical tensions. Between high inflation and geopolitical uncertainty, the macroeconomic environment seems favorable for both precious metal and base metal prices. This could kickstart a broad recovery across the mining sector.

The recent wave of mergers and acquisitions in mining also signals a positive shift. . In November 2023, Newmont Corporation completed its acquisition of Newcrest Mining Limited to create a leading global gold mining company with robust copper production. Just this month, Rio Tinto announced an $825 million lithium project purchase to support its battery materials business. These deals indicate big miners are positioning to capitalize on the electric vehicle revolution. Other companies like Century Lithium Corp. aim to produce lithium for the electric vehicle and battery storage market.

Additionally, mining stocks have held up well compared to the broader market’s decline. The global lithium stock index has surged over 110% in the past year. Many mining stocks linked to EVs have shown resilience amidst the tech stock plunge. This relative strength highlights the bullish outlook for miners enabling the energy transition. Noble Capital Markets’ investment banker Francisco Penafiel shared that “In the recent past, battery minerals have been getting the attention from investors, especially  critical metals such as lithium and cobalt. However, base metals like copper and nickel should also gain a healthy traction from the investment community, narrowing the existing valuation gap for junior miners,  due to the expected increase in their market demand as those are essential in the creation process of more efficient battery technologies”.   

After years of underperformance, mining stocks also look attractive relative to potential growth. For instance, the price-to-earnings ratio for diversified mining giant Glencore is under 6x, a bargain compared to high-flying tech stocks. While mining is volatile, long-term investors could be rewarded handsomely for their patience. The time seems ripe for mining stocks to revert upward after years of neglect.

Of course, risks exist like policy changes, permitting issues, cost inflation, and ESG concerns. But the overarching trend toward electrification seems unstoppable. While mining is cyclical, we appear to be entering an upcycle driven by underinvestment in new supply and exploding demand for the minerals needed to power the green transition.

Noble Capital Markets’ Senior Research Analyst, Mark Reichman states, “Our outlook for the mining sector remains favorable, particularly for the precious metals mining sub-sector. We believe growing electrification among developed nations and increased infrastructure spending bodes well for the long-term outlooks for metals such as copper, lithium, rare earths, and nickel. We think M&A activity will continue as large mining, energy, car manufacturers, and battery makers seek to de-risk their long-term strategies by ensuring long-term supplies of raw materials.”

In summary, mining stocks check many important boxes right now – strong demand drivers, favorable macro conditions, M&A activity, and reasonable valuations after a prolonged slump. The long-overlooked mining space seems poised for a renaissance, offering investors exciting opportunities. The winds appear to be shifting in favor of mining stocks as we embark on the new year and beyond. After years stuck in the doldrums, mining finally looks set to retake the spotlight.

Take a moment to take a look at Haynes International, a leading developer, manufacturer, and marketer of technologically advanced, nickel and cobalt-based high-performance alloys.

Sunoco’s Blockbuster $7.3B Acquisition of NuStar to Reshape Energy Landscape

Posted on by slightbourne@noblecapitalmarkets.com

The energy sector experienced a major shakeup today as Sunoco LP announced it will acquire NuStar Energy in an all-stock deal valued at approximately $7.3 billion including debt. The blockbuster acquisition aims to create a more diversified and vertically integrated energy company with an expanded footprint across the value chain.

For Sunoco, the deal provides a number of key benefits that will strengthen its operations and financial position. Most notably, it will gain NuStar’s extensive pipeline and storage terminal network which spans over 9,500 miles across the United States. This will provide greater scale and diversification to Sunoco’s current focus on fuel distribution and retail. As pipeline assets generate steady contracted revenues, the acquisition is expected to add stability and predictability to cash flows.

The larger cash flow base will also improve Sunoco’s credit profile and enhance its financial flexibility. This will enable accelerated deleveraging while also supporting steady distribution growth. Management estimates the deal will be immediately accretive to distributable cash flow per unit by 10%+ within three years. Ongoing synergies of $150 million annually will also boost the bottom line.

Vertically integrating NuStar’s transportation and storage activities with Sunoco’s strengths in distribution and retail is another major strategic benefit. This will help optimize operations across the integrated value chain and lead to further efficiency gains over time. Cost savings are forecasted at $50 million per year.

For the energy sector overall, the deal also has important implications. The combined entity will control critical infrastructure delivering refined products across the United States. With its expanded footprint, Sunoco will play an even more pivotal role ensuring energy supplies are reliably transported to end-users nationwide.

The acquisition also arrives at a challenging time for the industry. Many energy companies are facing pressure from the transition towards renewable power. By combining forces, Sunoco and NuStar can cut costs, leverage their size and scale, and invest in new growth opportunities. This will ultimately strengthen their competitiveness and staying power.

However, the deal does raise some regulatory concerns. With its extensive control over pipelines and storage capacity, the merged company could potentially restrict competitors’ access. Watchdogs will want to ensure open access at fair rates. Still, management emphasized the acquisition will have a positive financial outlook and support continued distribution growth. This should benefit both sets of unitholders if the deal is approved as expected.

Looking ahead, the acquisition positions Sunoco and NuStar to play a pivotal role in the future of US energy infrastructure. Their integrated network will be crucial for delivering traditional and renewable fuels as the industry evolves. With enhanced financial strength and flexibility, the combined giants now have greater capacity to adapt and seize new opportunities in the years ahead.

Take a look at Noble Capital Markets’ Senior Research Analyst Michael Heim’s coverage universe to take a look at some emerging growth energy companies.

Chesapeake Acquires Southwestern in$7.4 Billion Natural Gas Deal

Posted on by slightbourne@noblecapitalmarkets.com

Chesapeake Energy is making a massive bet on the future of natural gas with its just-announced $7.4 billion all-stock acquisition of rival Southwestern Energy. The deal, announced Thursday morning, will create a natural gas behemoth and make Chesapeake the largest natural gas producer in the United States.

The deal reflects Chesapeake’s bullish outlook on natural gas amid a wave of consolidation in the U.S. energy sector. Major players like Exxon and Chevron have recently snapped up Permian Basin leaders like Pioneer Natural Resources and Hess Corporation with multi-billion dollar deals. Now Chesapeake is looking to cement its dominance in natural gas production through its purchase of Southwestern’s assets primarily located in the Haynesville basin of Louisiana and the Appalachian shale formations.

Chesapeake itself emerged from bankruptcy just two years ago in 2021 and has been aggressively rebuilding under CEO Nick Dell’Osso. It has honed in on natural gas assets and production, believing gas will play an integral role in the global energy transition away from dirtier fossil fuels. Natural gas emits 50-60% less carbon dioxide when combusted compared to coal, but still faces criticism from environmentalists.

The Southwestern deal doubles down on this gas-focused strategy. The combined company will churn out a mammoth 7.9 billion cubic feet per day of natural gas production. That is enough to rocket Chesapeake past EQT Corporation as the top natural gas producer based on volume. Chesapeake already boosted its gas position last year with the $2.5 billion purchase of Chief E&D.

Chesapeake is offering Southwestern shareholders $6.69 per share, representing a slight 3% discount to Southwestern’s last closing share price. The deal values Southwestern at around $7.4 billion. Chesapeake shareholders will own approximately 60% of the merged entity, with Southwestern shareholders owning the remaining 40%.

Southwestern gives Chesapeake key positions in two of the most prolific U.S. natural gas plays. Its Marcellus Shale assets in Pennsylvania and West Virginia dovetail perfectly with Chesapeake’s existing Northeast presence. Southwestern also brings over 700,000 Haynesville acres, solidifying Chesapeake’s status as the dominant player in the basin.

Take a moment to take a look at Noble Capital Markets’ Senior Research Analyst Michael Heim’s coverage universe.

The merger is expected to unlock $350-400 million in annual cost synergies within the first two years, a major boost to cash flows. Chesapeake predicts the deal will be accretive to all relevant 2023 per-share metrics. The combined company will retain Chesapeake’s investment grade credit rating and chop net debt to EBITDAX from 1.5x to under 1.3x in 2023.

Chesapeake CEO Dell’Osso will stay on as chief executive of the merged entity. He called the deal “highly compelling” and said it will “further enhance free cash flow growth and return of capital to shareholders.”

Natural gas prices face near-term headwinds, having plunged over 60% last year due to ballooning inventory levels and mild winter weather. But long-term projections remain bullish, especially if more coal generation is retired and replaced by gas. LNG export facilities continue expanding along the Gulf Coast, offering producers prime access to higher-priced global markets.

Chesapeake is betting big that natural gas will retain a substantial role in the global energy mix even as zero-carbon sources like wind and solar grow. If gas demand rises as expected, Chesapeake will be sitting pretty as the largest U.S. producer. But execution risks remain, as the two companies integrate operations and work through the challenges of joining two complex businesses.

The deal is expected to close in Q2 2024, pending shareholder and regulatory approval. But Chesapeake is already taking a victory lap, believing the tie-up cements its status as a premier U.S. natural gas producer for decades to come.

Hemisphere Energy (HMENF) – Estimates finetuned to reflect weak December quarter energy prices

Posted on by cpereira@noblefcm.com


Tuesday, January 09, 2024

Michael Heim, Senior Vice President, Equity Research Analyst, Energy & Transportation, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

As indicated in our recent energy industry report, energy prices were weak in the quarter ended December 21, 2023. WTI oil prices averaged $78.41/bbl. below our $80/bbl. estimate. Henry Hub natural gas prices averaged $2.74/mcf. versus our $3.25/mcf estimate due to warm weather. The C$ to US$ exchange rate was 1.35 times versus our 1.33 estimate.

We are adjusted our estimates modestly to reflect updated energy price and exchange rate numbers. We now project December quarter revenues of C$27.1 million, down from C$27.7 million. Our EBITDA estimate for the quarter is now C$16.7 million versus C$17.2 million and our Adjusted Fund Flow estimate is C$13.2 million versus C$13.4 million. Our earnings per share estimate remains $0.11. We have not made any changes to our 2024 estimates. 


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*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

InPlay Oil (IPOOF) – Estimates finetuned down to reflect weak December-quarter energy prices

Posted on by cpereira@noblefcm.com


Tuesday, January 09, 2024

InPlay Oil is a junior oil and gas exploration and production company with operations in Alberta focused on light oil production. The company operates long-lived, low-decline properties with drilling development and enhanced oil recovery potential as well as undeveloped lands with exploration possibilities. The common shares of InPlay trade on the Toronto Stock Exchange under the symbol IPO and the OTCQX Exchange under the symbol IPOOF.

Michael Heim, Senior Vice President, Equity Research Analyst, Energy & Transportation, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

As indicated in our last energy industry report, oil and natural gas prices were weak in the December quarter. WTI oil prices averaged $78.40/bbl. in the quarter, below our previous estimate of $80/bbl. Henry Hub natural gas prices average $2.74/mcf., below our previous estimate of $3.25/mcf. due to warm weather. The C$ to US$ exchange rate was 1.35 times, slightly higher than our 1.33 estimate. We have adjusted our InPlay models to reflect updated results.

We are fine tuning our estimates to reflect lower energy prices and a higher exchange rate. Our revenue estimate for the 2023  December quarter has been lowered to C$44.7 million from C$47.2 million. Our EBITDA estimate for the quarter is now C$23.3 million, down from C$25.5 million and our Adjusted Fund Flow estimate is C$18.9 million, down from C$20.6 million. Our EPS estimate for the quarter drops to C$0.08 from C$0.09. We have not made any changes to our 2024 estimates. With this report, we are initiating 2024 quarterly estimates.


Get the Full Report

Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Oil Major APA Corporation to Acquire Callon Petroleum in $4.5 Billion All-Stock Deal

Posted on by slightbourne@noblecapitalmarkets.com

Independent oil and gas producer APA Corporation has agreed to purchase rival Callon Petroleum Company in an all-stock transaction valued at approximately $4.5 billion including debt. The deal expands APA’s operations in Texas’ prolific Permian Basin as the company continues building out a diversified oil and gas portfolio.

Under the definitive agreement announced Thursday, each Callon share will be exchanged for 1.0425 shares of APA common stock. This represents a purchase price of $38.31 per Callon share based on APA’s closing stock price on January 3rd.

APA expects to issue around 70 million new shares to fund the acquisition, leaving existing APA shareholders with 81% of the combined company. Callon shareholders will own the remaining 19% once the deal closes.

Strategic Fit

According to APA CEO and President John J. Christmann IV, Callon’s Delaware Basin assets perfectly complement APA’s existing Permian footprint.

He stated the deal “fits all the criteria of our disciplined approach to evaluating external growth opportunities.” It provides additional scale across the Permian while increasing APA’s oil mix.

Notably, Callon holds nearly 120,000 net acres in the Delaware Basin, an oil-rich subsection of the larger Permian. APA’s Delaware acreage will expand by over 50% after absorbing Callon’s properties.

Meanwhile, APA’s Midland Basin presence will continue driving natural gas volumes. The combined Permian portfolio increases APA’s total company oil production mix from 37% to 43%.

Accretive Metrics

APA expects the deal will prove accretive to key financial and value metrics. Management sees over $150 million in annual overhead, operational, and cost of capital synergies resulting from the increased scale.

The company will also benefit from Callon’s inventory of short-cycle drilling opportunities in the Permian. APA believes the deal enhances its portfolio of low-risk, high-return investments.

What’s more, the transaction stands to improve APA’s credit profile. The company will retire all of Callon’s existing debt after closing, replacing it with $2 billion in APA term loan facilities. This is expected to provide flexibility for near-term debt pay-down.

Conditions and Close

The definitive agreement has received unanimous approval from the boards of directors at both companies. The deal now requires customary regulatory clearances along with a thumbs up from Callon shareholders.

APA anticipates the acquisition will close during the second quarter of 2024. Upon closing, a representative from Callon will join APA’s board of directors.

APA’s current executive team led by Christmann will continue managing the expanded company. Headquarters will remain in Houston, Texas.

Diversified Portfolio

According to Christmann, the deal aligns with APA’s strategy of maintaining a globally diversified oil and gas portfolio. The company runs both legacy and exploration assets across the United States, Egypt, the UK, and offshore Suriname.

Post-acquisition, 36% of APA’s total production will come from international plays. The remaining 64% stems from U.S. assets, with the bulk supplied by the newly expanded Permian footprint.

Callon Brings Strong Permian Position

Founded in 1950, Callon Petroleum has grown into a leading independent Permian producer. The Houston-based company focuses on acquiring, exploring, and developing high-quality assets across the prolific West Texas basin.

As of September 2022, Callon reported net production of over 106,000 barrels of oil equivalent per day. Its portfolio includes a mix of productive acreage, infrastructure, and upside opportunities in both the Midland and Delaware Basins.

According to Callon President and CEO Joe Gatto, the combination with APA will enhance value for Callon shareholders. It also provides increased capital flexibility and potential from APA’s robust Permian operations.

The proposed acquisition marks the latest move in APA’s ongoing growth strategy. The company continues positioning itself as a diversified, large-scale independent oil and gas producer able to drive value across business cycles.

Take a moment to take a look at Noble Capital Markets’ Senior Research Analyst Michael Heim’s coverage list.

Energy Industry Report – Energy Stocks Fell Alongside Energy Prices But Remain Attractive Investments

Posted on by cpatches

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Friday, January 5, 2024

Michael Heim, CFA, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the bottom of the report for important disclosures

Energy stocks declined in the fourth quarter in response to falling energy prices. Energy stocks declined 7.2% during the 2023 fourth quarter. The movement of the XLE is similar to that of near-month oil future prices.

Oil prices declined sharply in the fourth quarter after a runup in the third quarter. West Texas Intermediate oil prices declined 21.1% in the fourth quarter to $71.65 per barrel. Domestic oil production continues to grow (up 7% year over year through October) even as the number of domestic oil rigs has decreased 20% since this time last year. Natural gas prices declined 14.2% during the quarter to $2.51 per thousand cubic feet (mcf) of gas. Weather was 13% warmer than normal in the December quarter. As a result, natural gas storage levels are at five-year seasonally high levels as they have been for the last twelve months. 

Merger Activity is heating up. More than $100 billion in acquisitions were announced in the last three months as APA, Exxon Mobil and Chevron all announced transactions. The acquisitions come as major energy companies seek to expand production during a period when production growth from technological improvements seems to be slowing. 

Energy Companies continue to generate high cash levels at current energy prices. Despite the drop in energy prices, operating netbacks (revenues less royalties and operating costs) remain high. With debt levels low, energy managements have raised capital budgets, increased dividends, and repurchased shares. 

Valuations remain attractive. With the decline in energy company stock values, many companies are trading at enterprise values that are less than five times free cash flow. Given our belief that energy prices are entering a period of relative stability (oil prices trade in a range of $60-$10/bbl) and that stock prices have already reacted to energy price declines to the lower end of this range, we see limited downside to investing in energy stocks and large upside should energy prices rise.

Energy stocks declined in the fourth quarter in response to falling energy prices.

Energy stocks, as measured by the Energy Select Sector SPDR Fund (XLE) declined 7.2% during the 2023 fourth quarter. The decline stands in sharp contrast to an 11.2% increase in the S&P Composite index. The decline in the XLE began early with the index dropping almost 10% in the first week of the quarter before regaining its losses in the next two weeks. After peaking on October 18th, the index fell sharply over the next two months and never recovered from its losses. The movement of the XLE is similar to that of near-month oil future prices.

Oil prices declined sharply in the fourth quarter after a runup in the third quarter.

West Texas Intermediate oil prices declined 21.1% in the fourth quarter to $71.65 per barrel, offsetting a 30.0% increase in the third quarter. For the year, WTI declined 10%. The oil price spikes of 2022 that sent prices above $120 per barrel shortly after Russia invaded Ukraine seem a distant memory. Energy production disruptions and political sanctions have changed the direction of the flow of energy but not the overall global demand and supply of energy. We are keeping an eye on political developments in the Red Sea, but to date there has been little impact on oil prices. Domestic oil production continues to grow (up 7% year over year through October) even as the number of domestic oil rigs has decreased 20% since this time last year. The biggest decline has been in the Permian Basin. Almost all wells being drilled are now horizontal wells.

The decline in natural gas prices was not as sharp and was largely explained by warm weather.

Natural gas prices declined 14.2% during the quarter to $2.51 per thousand cubic feet (mcf) of gas. After sharp spikes in 2022, natural gas prices have settled into a narrow range between $2.00/mcf and $3.00/mcf. Weather was 13% warmer than normal on a population-weighted basis in the December quarter. As a result, natural gas storage levels are at five-year seasonally high levels as they have been for the last twelve months. Gas production continues to increase steadily, mainly to feed an increased demand for natural gas for power generation.

Merger Activity is heating up.

On January 4, 2024, APA Corporation, parent of Apache Corporation, agreed to acquire Callon Petroleum for approximately $4.5 billion in a stock-swap deal. The acquisition follows Exxon Mobil’s $59.5 billion agreement to buy Pioneer Natural Resources and Chevron’s $53 billion deal to buy Hess Corporation in October 2023. The acquisitions come as major energy companies seek to expand production during a period when production growth from technological improvements seems to be slowing. The acquisitions, while all three stock transactions, may also represent improved balance sheets and cash flow. As we have discussed in the past, energy companies have used recent energy price upcycles to pay down debt and repurchase shares as opposed to previous cycles when management expanded drilling efforts that eventually drove down energy prices. The result has been more muted energy price cycles that extend for longer periods of time.

Energy Companies continue to generate high cash levels at current energy prices.

Despite the drop in energy prices, operating netbacks (revenues less royalties and operating costs) remain high. With debt levels low, energy management have raised capital budgets, increased dividends, and repurchased shares. Management is always reluctant to raise dividends to levels that are unsustainable in a down cycle. As a result several energy companies have begun to institute special dividends. We expect manage to continue to invest in growth and reward shareholders even at current energy levels. Should energy prices rise, these activities should accelerate.

Valuations remain attractive.

With the decline in energy company stock values, many companies are trading at enterprise values that are less than five times free cash flow. We view this multiple as unsustainable given an increased use of cash flow to repurchase shares. This is especially true of companies with slow production decline curves such as the companies we follow in western Canada. Given our belief that energy prices are entering a period of relative stability (oil prices trade in a range of $60-$10/bbl) and that stock prices have already reacted to energy price declines to the lower end of this range, we see limited downside to investing in energy stocks and large upside should energy prices rise. We believe this is especially true for smaller cap energy stocks that have ample drilling opportunities and that could be takeover targets for larger energy companies that do not.

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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
FINRA licenses 7, 24, 63, 87

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This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of
transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc..

RESEARCH ANALYST CERTIFICATION

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Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

Oil Heads for First Annual Decline Since 2020 as Oversupply Weighs

Posted on by slightbourne@noblecapitalmarkets.com

Oil prices are on pace to decline around 10% in 2022, which would mark the first annual drop since the pandemic-driven crash of 2020. After a volatile year, bearish sentiment has taken hold in oil markets amid fears that surging production outside OPEC will lead to an oversupplied market.

With the global economy slowing, especially in key consumer China, demand growth is stalling. Meanwhile, output has hit new highs in the United States, Brazil, Guyana and other non-OPEC countries. This perfect storm of sluggish demand and robust non-OPEC supply has tipped the balance into surplus, putting downward pressure on prices.

West Texas Intermediate futures are trading near $72 per barrel, down from over $120 in June. The international Brent benchmark is hovering under $78, having fallen from summertime highs over $130. Despite ongoing risks, including escalating Iran-related tensions in the Middle East, oil is poised to post its first yearly decline since the Covid crisis cratered prices in 2020.

Supply Surge Outside OPEC Upsets Market Balance

Much of the extra crude swamping the market is coming from the United States. American oil output averaged 13.3 million barrels per day last week, a record high. Exceptional production growth is also happening in Brazil, Guyana, Canada and other countries.

The International Energy Agency expects this non-OPEC supply surge to continue, forecasting growth of 1.2 million barrels per day next year. That will more than satisfy the world’s modest demand growth projected at 1.1 million barrels per day in the IEA’s base case scenario.

With non-OPEC, and chiefly U.S. shale, filling demand, OPEC and its allies have lost their traditional grip on balancing the market. Despite cutting output targets substantially, OPEC+ efforts to lift prices seem futile.

Traders anticipate more discipline will be required to bring inventories down. But further significant cuts could simply provide more space for American drillers to increase production, replacing any barrels OPEC removes.

Tepid Demand Outlook Adds to Gloomy Price Forecast

On top of the supply influx, oil bulls are also contending with a deteriorating demand environment. High inflation, rising interest rates, and frequent Covid outbreaks have slowed China’s economy significantly.

With Chinese oil consumption dropping, global demand growth is expected to decelerate in 2024. Major financial institutions like Morgan Stanley see demand expanding at less than 1 million barrels per day. That’s about half the pace forecast for 2023.

Other major economies in Europe and North America are also wobbling, further dampening the demand outlook. Less robust consumption, together with the supply deluge, points to a market remaining oversupplied through next year.

In futures markets, bearish sentiment has sunk in. Both WTI and Brent futures point to prices averaging around $80 per barrel in 2023, barring a major geopolitical disruption. That would cement the first back-to-back years of oil price declines since 2015-2016.

Wildcard Risks – Can Middle East Tensions Shift Momentum?

As oversupply dominates, the greatest upside risk to prices may be conflict-driven outages that take substantial oil capacity offline. Heightened tensions between Iran and the West pose this type of wildcard geopolitical threat.

Recent attacks on oil tankers near the Strait of Hormuz and Arabian Sea occurred after the U.S. killed an Iranian commander. Iran-backed Houthi rebels in Yemen also launched missiles and drones at facilities in Saudi Arabia.

While no significant disruptions have occurred so far, direct hostilities between Iran and the U.S. or its allies could sparks clashes endangering Middle East output. Iran has threatened to blockade the Strait of Hormuz, which handles a fifth of global oil trade. Any major loss of supply through this chokepoint could upend the bearish outlook.

For now, however, the market remains fixated on bulging inventories and the supply free-for-all outside OPEC. As the world undergoes a historic shift in oil production geography, the industry faces a reckoning over whether unchecked growth risks unsustainably low prices. If the supply surge continues outpacing demand, today’s pessimism over prices could last well beyond 2024.

Take a look at more emerging growth energy companies by taking a look at Noble Capital Markets’ Senior Research Analyst Michael Heim’s coverage universe.

Energy Fuels (UUUU) – Energy Fuels signs agreement to secure REE supply

Posted on by slightbourne@noblecapitalmarkets.com


Thursday, December 28, 2023

Energy Fuels is a leading U.S.-based uranium mining company, supplying U3O8 to major nuclear utilities. Energy Fuels also produces vanadium from certain of its projects, as market conditions warrant, and is ramping up commercial-scale production of REE carbonate. Its corporate offices are in Lakewood, Colorado, near Denver, and all its assets and employees are in the United States. Energy Fuels holds three of America’s key uranium production centers: the White Mesa Mill in Utah, the Nichols Ranch in-situ recovery (“ISR”) Project in Wyoming, and the Alta Mesa ISR Project in Texas. The White Mesa Mill is the only conventional uranium mill operating in the U.S. today, has a licensed capacity of over 8 million pounds of U3O8 per year, has the ability to produce vanadium when market conditions warrant, as well as REE carbonate from various uranium-bearing ores. The Nichols Ranch ISR Project is on standby and has a licensed capacity of 2 million pounds of U3O8 per year. The Alta Mesa ISR Project is also on standby and has a licensed capacity of 1.5 million pounds of U3O8 per year. In addition to the above production facilities, Energy Fuels also has one of the largest NI 43-101 compliant uranium resource portfolios in the U.S. and several uranium and uranium/vanadium mining projects on standby and in various stages of permitting and development. The primary trading market for Energy Fuels’ common shares is the NYSE American under the trading symbol “UUUU,” and the Company’s common shares are also listed on the Toronto Stock Exchange under the trading symbol “EFR.” Energy Fuels’ website is www.energyfuels.com.

Michael Heim, Senior Vice President, Equity Research Analyst, Energy & Transportation, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

UUUU and Astron Corp. executed a non-binding agreement to develop the Donald Mineral Sands Project. UUUU will contribute US$122 million in cash and $17.5 million in shares for a 49% interest and exclusive offtake for 7,000 (ramping up to 14,000) metric tons of monzanite sand annually. Energy Fuels has struggled to secure monzanite sand supply as it develops Rare Earth Element (REE) separation ability at its White Plains mill operations. The Donald Project is capable of supplying all of UUUU’s projected supply needs beginning in 2026 and supplements a similar size investment project for Energy Fuels in Brazil currently under development. Our models assume monazite supply of 20,000 metric tons in 2027 and beyond. The combined supply projects could mean Energy Fuels could expand REE operations beyond 20,000 tons faster than previously expected.

A MOU is just a MOU but the potential impact on revenues is significant. UUUU has exclusive investment rights through March 1, 2024 but has no assurances that the agreement will become official. Furthermore, the MOU does not indicate any implied supply costs. Management estimates that the monazite will produce 4,000-8,000 tonnes of TREO. The primary element from TREO is Neodymium currently trading around $56/kg or $56 million per 1,000 tonnes. With 850-1,700 tonnes of NdPr expected to be produced, the project could generate $100 million in sales before we start adding in the value of other elements. Margins are tougher to predict. We have assumed margins of 33% based on the operations of other publicly traded REE companies.

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*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Comstock Inc. (LODE) – Comstock Metals Achieves a Major Milestone

Posted on by slightbourne@noblecapitalmarkets.com


Friday, December 22, 2023

Comstock (NYSE: LODE) innovates technologies that contribute to global decarbonization and circularity by efficiently converting under-utilized natural resources into renewable fuels and electrification products that contribute to balancing global uses and emissions of carbon. The Company intends to achieve exponential growth and extraordinary financial, natural, and social gains by building, owning, and operating a fleet of advanced carbon neutral extraction and refining facilities, by selling an array of complimentary process solutions and related services, and by licensing selected technologies to qualified strategic partners. To learn more, please visit www.comstock.inc.

Mark Reichman, Managing Director, Equity Research Analyst, Natural Resources, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Supply contracts secured. Comstock Metals has secured enough end-of-life solar panel supplier commitments to begin commissioning its first demonstration photovoltaic (PV) recycling facility upon receipt of required permits. Comstock Metals is negotiating agreements with major customers for industry-scale supply agreements. Comstock’s technology and renewable solutions provide a better alternative to land fill disposition of these materials. Comstock’s solution ensures safe deconstruction, decontamination, separation, and productive reuse of metals contained in end-of-life photovoltaic materials.

Demonstration PV recycling system. Comstock Metals is readying a demonstration facility that commercializes technologies for efficiently crushing, conditioning, extracting, and recycling metal and mineral concentrates from photovoltaics and other electronic devices. Comstock Metals previously received a storage permit and expects to receive the remaining air quality and solid waste permits shortly and expects to begin receiving, commissioning, and then processing the end-of-life panels in early 2024. Because Comstock Metals will likely receive a tipping fee for handling the end-of-life solar panels, Comstock Metals could begin generating cash flow with revenue recognized once the waste is processed and recycled.

Get the Full Report

Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Energy Fuels (UUUU) – Uranium production timeline accelerates with uranium price spike

Posted on by slightbourne@noblecapitalmarkets.com


Friday, December 22, 2023

Energy Fuels is a leading U.S.-based uranium mining company, supplying U3O8 to major nuclear utilities. Energy Fuels also produces vanadium from certain of its projects, as market conditions warrant, and is ramping up commercial-scale production of REE carbonate. Its corporate offices are in Lakewood, Colorado, near Denver, and all its assets and employees are in the United States. Energy Fuels holds three of America’s key uranium production centers: the White Mesa Mill in Utah, the Nichols Ranch in-situ recovery (“ISR”) Project in Wyoming, and the Alta Mesa ISR Project in Texas. The White Mesa Mill is the only conventional uranium mill operating in the U.S. today, has a licensed capacity of over 8 million pounds of U3O8 per year, has the ability to produce vanadium when market conditions warrant, as well as REE carbonate from various uranium-bearing ores. The Nichols Ranch ISR Project is on standby and has a licensed capacity of 2 million pounds of U3O8 per year. The Alta Mesa ISR Project is also on standby and has a licensed capacity of 1.5 million pounds of U3O8 per year. In addition to the above production facilities, Energy Fuels also has one of the largest NI 43-101 compliant uranium resource portfolios in the U.S. and several uranium and uranium/vanadium mining projects on standby and in various stages of permitting and development. The primary trading market for Energy Fuels’ common shares is the NYSE American under the trading symbol “UUUU,” and the Company’s common shares are also listed on the Toronto Stock Exchange under the trading symbol “EFR.” Energy Fuels’ website is www.energyfuels.com.

Michael Heim, Senior Vice President, Equity Research Analyst, Energy & Transportation, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Energy Fuels announces that is has commenced production at three mines. During the third-quarter earnings’ discussion six weeks ago, management indicated that it was hiring personnel and upgrading facilities at four mines with plans to restart production at one or two of the mines in 2024. Today’s announcement would appear to be an acceleration of previous plans. Management also indicated previously that it plans to produce 1,000,000 lbs of uranium in 2024 and stockpile the uranium until a mill campaign is completed in late 2024 or early 2025. It is unclear whether these plans have changed in light of today’s announcement.

Uranium prices are surging. Uranium prices were below $40/lb. most of the last ten years causing domestic producers to idle production. Prices started to rise in 2022 reaching a price in the mid seventies just six weeks ago. Since then, uranium prices have soared to a level near $90/lb. It has been our investment premise that cheap uranium from Kazakhstan sold on spot would eventually dry up, and that when that happened, uranium prices would rise quickly. With utilities (and the government) now rushing to shore up supply, the log jam appears to have been broken.

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Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Oil Prices Drop on Angola OPEC Exit, US Production Increases Amid Red Sea Worries

Posted on by slightbourne@noblecapitalmarkets.com

Oil prices fell over $1 a barrel on Thursday after Angola announced its departure from OPEC, while record US crude output and persistent worries over Red Sea shipping added further pressure.

Brent crude futures dropped $1.30 to $78.40 a barrel in afternoon trading, bringing losses to nearly 2% this week. US West Texas Intermediate (WTI) crude also slid $1.19 to $73.03 per barrel.

The declines came after Angola’s oil minister said the country will be leaving OPEC in 2024, saying its membership no longer serves national interests. While Angola’s production of 1.1 million barrels per day (bpd) is minor on a global scale, the move raises uncertainty about the unity and future cohesion of the OPEC+ alliance.

At the same time, surging US oil output continues to weigh on prices. Data from the Energy Information Administration (EIA) showed US production hitting a fresh peak of 13.3 million bpd last week, up from 13.2 million bpd.

The attacks on oil tankers transiting the narrow Bab el-Mandeb strait at the mouth of the Red Sea have forced shipping companies to avoid the area. This is lengthening voyage times and increasing freight rates, adding to oil supply concerns.

So far the disruption has been minimal, as most Middle East crude exports flow through the Strait of Hormuz. But the risks of broader supply chain headaches are mounting.

Balancing Act for Oil Prices

Oil prices have stabilized near $80 per barrel after a volatile year, as slowing economic growth and China’s COVID-19 battles dim demand, while the OPEC+ alliance constrains output.

The expected global demand rise of 1.9 million bpd in 2023 is relatively sluggish. And while the OPEC+ coalition agreed to cut production targets by 2 million bpd from November through 2023, actual output reductions are projected around just 1 million bpd as several countries struggle to pump at quota levels.

As a result, much depends on US producers. EIA predicts America will deliver nearly all new global supply growth next year, churning out an extra 850,000 bpd versus 2022.

With the US now rivaling Saudi Arabia and Russia as the world’s largest oil producer, its drilling rates are pivotal for prices. The problem for OPEC+ is that high prices over $90 per barrel incentivize large gains in US shale output.

Most analysts see Brent prices staying close to $80 per barrel in 2024, though risks are plentiful. A global recession could crater demand, while a resolution on Iranian nuclear talks could unlock over 1 million bpd in sanctions-blocked supply.

The Russia-Ukraine war also continues clouding the market, especially with the EU’s looming ban on Russian seaborne crude imports.

Take a moment to take a look at some emerging growth energy companies by looking at Noble Capital Markets’ Senior Research Analyst Michael Heim’s coverage list.

Impact of Angola’s OPEC Exit

In announcing its departure, Angola complained that OPEC+ was unfairly reducing its production quota for 2024 despite years of over-compliance and output declines.

The country’s oil production has dropped from close to 1.9 million bpd in 2008 to just over 1 million bpd this year. A lack of investment in exploration and development has sapped its oil fields.

The OPEC+ cuts seem to have been the final straw, with Angola saying it needs to focus on national energy strategy rather than coordinating policy within the 13-member cartel.

The move makes Angola the first member to leave OPEC since Qatar exited in 2019. While it holds little sway over global prices, it does spark questions over the unity and future cohesion of OPEC+, especially if other African members follow suit.

Most analysts, however, believe the cartel will hold together as key Gulf members and Russia continue dominating policy. OPEC+ still controls over 40% of global output, giving it unrivaled influence over prices through its supply quotas.

But UBS analyst Giovanni Staunovo points out that “prices still fell on concern of the unity of OPEC+ as a group.” If more unrest and exits occur, it could chip away at the alliance’s price control power.

For now OPEC+ remains focused on its landmark deal with Russia and supporting prices through 2024. Yet US producers are the real wild card, with their response to higher prices determining whether OPEC+ can balance the market or will lose more market share in years ahead.

Release – Hemisphere Energy Announces Management Appointment and Grants Incentive Stock Options

Posted on by aweinsoff@channelchek.com

Research News and Market Data on HMENF

Vancouver, British Columbia–(Newsfile Corp. – December 18, 2023) – Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) (“Hemisphere” or the “Company”) is pleased to announce the appointment of Ashley Ramsden-Wood as Chief Development Officer.

Ms. Ramsden-Wood has served as Vice President of Engineering at Hemisphere since 2014 and has been instrumental in the successful growth and development of the Company. Along with her technical engineering strengths, Ms. Ramsden-Wood provides invaluable contributions to corporate affairs, capital planning, business development, strategic growth initiatives, and financial performance analysis.

Additionally, in accordance with the Company’s stock option plan, the Company has granted incentive stock options to purchase up to 1.37 million common shares to directors, officers, and investor relations personnel at an exercise price of $1.27 per share until December 15, 2028.

About Hemisphere Energy Corporation

Hemisphere is a dividend-paying Canadian oil company focused on maximizing value per share growth with the sustainable development of its high netback, low decline conventional heavy oil assets through polymer flood enhanced recovery methods. Hemisphere trades on the TSX Venture Exchange as a Tier 1 issuer under the symbol “HME” and on the OTCQX Venture Marketplace under the symbol “HMENF”.

For further information, please visit the Company’s website at www.hemisphereenergy.ca to view its corporate presentation or contact:

Don Simmons, President & Chief Executive Officer
Telephone: (604) 685-9255
Email: info@hemisphereenergy.ca

Website: www.hemisphereenergy.ca

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.