Marin Katusa Values Viable Technologies and
Source: Karen Roche of
The Energy Report
The Energy Report
Casey Energy Opportunities
Senior Editor Marin Katusa shares his perspectives and
predictions on the direction in which the energy sector is
headed-from popular green alternatives like geothermal,
run-of-river hydro and natural gas to the oil sector all the way to
the less-popular, but very viable, uranium sector.
The Energy Report
caught up with Marin at the New Orleans Investment Conference
for this exclusive interview.
Casey Energy Opportunities The Energy Report
caught up with Marin at the New Orleans Investment Conference
for this exclusive interview.
The Energy Report:
Marin, one of the things you mentioned here at the New Orleans
Investment Conference and at the Casey Conference is that the
current focus on gold means a lot less attention for the energy
sector. Can you talk about the overlooked energy stocks you have
Let's start with the geothermal sector. Two years ago, geothermal
was the buzz and hot sector in the junior resource sector. Today,
nobody's talking about it. That's beautiful and fine by us because
now these companies have developed projects and explored at a much
lower cost of capital for present investors. But the investors got
bored and sold the stocks. Now these companies are 50% cheaper than
they were 16-18 months ago, but they have so much more value today
than they did 18 months ago.
What's unique about the geothermal?
Of all the green energies, geothermal is by far the most economic.
It makes sense. It works without government subsidies. But, when
you include the government subsidies, it's like taking candy from a
baby (or from Obama, not sure which is easier). The government's
providing the construction loan guarantees and refinancing the
projects at around 4% debt versus a year ago when companies were
doing it at +14%. That's a big difference on the bottom line for
cash flow. You can cheaply buy geothermal companies that actually
have positive cash flow. I think it's the cheapest sector
One of the downsides of geothermal is it's a relatively small
sector. There aren't a lot of players in it. What will really take
it to the next level?
That's actually the upside. Because there are so few players and it
is so front-CAPEX extensive, consolidation will have to happen to
create the size. The key number to get the attention of a big firm,
MidAmerican Energy Holdings Co. (NASDAQ:MDPWM;
, which is Warren Buffet's energy company, is 500 megawatts (
) of production. Whether it's
Ram Power Corp. (
Nevada Geothermal Power (TSX.V:NGP)
, Nevada Geothermal taking over Ram, Nevada taking over
Magma Energy Corp. (TSX:MXY)
, Magma taking over Nevada or a merger between Ram and
Magma-there's going to be consolidation. But the question of who
will be the consolidator is still up in the air.
You want to be in the company that's going to have the largest
upside. We put Nevada Geothermal, Ram and Magma as buys because
they're run by excellent people. They're undervalued compared to a
year ago. In January, Nevada Geothermal was over $1. We recently
wrote about it trading in the $0.50 range. Now the company's
refinanced its debt and had a recent equity financing in which very
smart money like Rick Rule participated in (as did we). It's
producing close to 50 MW now and will be growing production in the
very near future; and, better yet,
Ormat Technologies Inc. (
just bucked up some big money to farm into one of its other
projects. A year and a half ago, it wasn't producing; so it's so
much cheaper today and is a much better company.
We've seen some consolidation. Over a year ago, you had Ram and
Magma. . .
Ram was created when Polaris Geothermal and Sierra Geothermal Power
Corp. merged with Hezy Ram's private company. Magma is purchasing a
lot of the Iceland production and it purchased Soda Lake in Nevada.
Consolidation is going to continue.
Why haven't these consolidator plays seen any market appreciation
since the IPOs?
Well, frankly, a lot of upside was already priced into the IPO of
those two. We stated very clearly to be patient and wait until the
"mojo" and "excitement" of the IPO weakened and both companies hit
our buy targets, which they are currently at; both are great buys
today. There's a lot of sex appeal to these companies.
Geothermal is a very difficult business-you have to produce
results. It's not like gold where you can do some geophysics, some
trenching, pop a couple of holes and say, "I think I've got 5
million ounces of gold here," then wave your hands and have a +$100
million market-cap company. In geothermal, when you pop in that
hole it's going to cost you US$4-$6 million per well and you know
what you have.
Ross Beaty and Ram raised hundreds of millions of dollars and
they had all these huge projects with a lot of potential. There was
a lot of hype built into the price and a lot of expectations. I
told people just to be patient and not buy the stocks. That was a
very frustrating period for me because we had subscribers asking,
"Why can't we buy it now?" It's a funny thing, we got a lot of
grief for telling subscribers to "BUY under $X" but it was EXACTLY
the right thing to do. So, the price and timing of your purchase
are just as important as selecting the right company in which to
I was on a panel with Ross Beaty at a Casey Conference in
September 2009 when the stock was about $2.25. Somebody on the
panel asked what I thought. My answer was: "Be patient. Buy under
$1.50." Within six months, it got to $1.35. That's because the big
institutions had unrealistic expectations, got bored and, more
importantly, didn't understand the geothermal sector. A lot of
mining investors invested in the geothermal sector, but their
timeframe was much shorter than that needed for the geothermal
sector. Geothermal today is the uranium sector in 2004. Today, gold
is hot and the investors took their money and placed it elsewhere.
Geothermal is getting no love. Like I said before, we look for
undervalued "unloved companies and sectors." And a patient investor
will make a lot of money in a few years by investing today in the
What are the good buys in geothermal?
Right now, we have three buy recommendations: Nevada Geothermal,
Ram Power and Magma.
The big 800-pound gorilla in the geothermal sector is Ormat. Does
it fall into the buy category?
No. It has some issues with the regulators right now. It's a big
company that has undergone a management change. I believe you have
much more upside owning Magma than you do owning Ormat. But I do
believe you will see Ormat involved in the consolidation of, or
investment in, other companies' projects like the one it just
announced with Nevada Geothermal, which by the way, is a fantastic
deal for Nevada Geothermal shareholders.
Magma and Ram are already consolidation plays, but Nevada
Geothermal is not. Does that make Nevada a better opportunity?
If you compare Ram and Nevada, the big difference is that no one
expects Ram to be bought out today. Ram doesn't have enough
production. The beauty of Nevada Geothermal is that not only is it
going to be growing these projects, but also President and CEO
Brian Fairbank and his team are very good and very well respected
on the technical front. They built the plant and will increase
production on Faulkner. The Blue Mountain Faulkner 1 is the largest
plant built in Nevada in more than 20 years and it's one of the
largest plants built in the U.S. over the last 10 years. He will
not only increase the production of project, but he has three
A lot of people are wondering if Magma, Ormat or Ram will buy
the company out. So not only is there near-term growth within the
company, but you also have the speculation: "Will it get bought
out?" That gives you a double-impact speculation. The "hot" money
hasn't even figured out this play yet, but it will. With Ram, it is
just growth. That's the difference between the two.
You also said that oil is ripe for a correction. Can you explain
why you think that?
There's a lot of speculation in the oil markets. In the summer, we
published a research report in the Casey Energy Report, which
showed that when the BP spill happened, it took 15% of America's
supply offline. You would have assumed the spot price of oil
would've corrected upward. What actually happened when all offshore
drilling was shut down in the Gulf was the spot price of oil
dropped 20%. What does that tell you? The speculators didn't know
what to do, so they just got out. They took the money off the
table. There's a speculation premium in the oil markets right now.
However, on the other side, you need to look at how low oil can go.
It's a reflection of the economy and speculation. China will buy up
all the oil it can get at US$40/barrel.
Isn't it more a reflection of supply because you're hearing all
about peak oil?
Yes, there's the peak oil concept. Look at natural gas. America's
been so successful in unconventional shale gas technology, but
that's just starting to hit Europe. The Middle East hasn't even
started doing unconventional exploration. You've got these great,
cheap world-class producers that have been producing the same way
they did before I was born over 30 years ago that haven't seen
modern American technology. When the American innovation hits the
Middle East, you will see a lot more of this supply come
To what technology are you referring?
The unconventional shale primarily uses fracking techniques. The
hottest thing in Europe right now is the unconventional shale
sector. Big funds like the one run by George Soros are investing
millions of dollars in the sector-these wells cost more than
US$8-$15 million per well. But people are worried because each
frack uses 2-5 million gallons of water.
In the old days, when you drilled a well for gas, once you
spud-you produce. There's no way to contain it; you have to sell
it. So, you dump it into your pipelines and get the price going at
the wellhead. Today with the shale technology, you can frack it and
it takes you about two days to complete the well. That way, you
know how much gas you have and it's a new natural storage facility.
You don't have to pump it out. The reservoirs can triple-quadruple
if they're successful.
What's the timeframe for getting this unconventional technology
into Europe and the Middle East?
It's already starting in Europe. In fact, Casey Research wrote the
first research report in the business on the potential of shale gas
in Europe. In the Middle East, I think the best potential right now
is a company called
East West Petroleum Corp. (TSX.V:EW)
. It has the people, network, connections, experience and
knowledge. I haven't been as excited about a company as I am about
East West since Cuadrilla Resources Ltd. (which was the leader in
European shale and got bought out) and
Copper Mountain Mining Corp. (TSX:CUM)
East West's property is mostly in the Middle East?
Nope, it has a project in Alberta that is producing. It also has
four blocks in Romania in the Pannonian Basin-a very hot area right
now. I'm hoping the company gets in early and uses other people's
money (OPM) with the Romanian projects. I've met with the
management and it intends to joint venture (JV) that out and get
someone else to spend more than US$60 million on the project. After
that, East West will take a free ride over the next four years.
When we do our due diligence, we always focus on people. If you
look at the management team, President and CEO Dr. Greg Renwick
spent more than 10 years in the Middle East. That's where he was an
integral part of Centurion, which
Dana Gas (ADX:DANA)
bought out. I believe that you go where you know what to do and are
effective at what you do best. Our big speculation here is that
Greg is going to do something big in the Middle East. With people
like Herb Dhaliwal and Dr. Marc Bustin on the board, he's built an
amazing team. Dr. Bustin is one of the best minds in the business
and probably one of the world's top experts in the unconventional
oil and gas sector. Dr. Bustin was the one who educated me on the
potential of the European shale gas sector, and investors can make
a lot of money following him. Remember, the best companies are
always built by great people.
When we spoke at the Casey Conference in San Diego, you recommended
Africa Oil Corp. (TSX.V:AOI)
as one of your top picks at under CAD$1. The company was trading in
the low $0.80s when you recommended it. You put out a Casey Energy
Confidential alert on Africa Oil at CAD$1.05 and told the audience
the company was a perfect example of taking the Casey Free Ride.
It's gone up so much in such a short period, but you're still
recommending it. Also, could you explain the Casey Free Ride
concept again for our readers who might not be familiar with
Sure. Casey's Free Ride is when returns make you feel you want to
take a profit, always take your initial investment out or more if
you want. What remains invested is like playing with the house's
money in a casino. At that point, you can't lose.
And as far as Africa Oil, I went on national TV, in the
newspaper and our newsletter saying, "Buy under $1." It was trading
in the $0.80 range and today it hit over $2. In four months, our
subscribers had a gain of more than 100%. The people at Africa Oil
are amazing and have a pattern of success; perhaps they have
different DNA, but it's in their blood (success, that is). Both
Lukas Lundin and Keith Hill are part of our Explorers League.
They've had success after success; they know what they're
Then you've got
Tullow Oil plc (LSE:TLW)
, which is the largest African oil explorer to come in and farm
into its projects. That's what East West is going to do. You come
in early and see what no one else sees. You develop these projects
to the point where a major can come in and spend hundreds of
millions of dollars on them, and you've just conserved your share
worth. You haven't diluted your shareholder. It increases
shareholder net worth by doing OPM or the JV model. That is what
Africa Oil is doing so successfully, and it's going higher.
Another example is
Stream Oil and Gas (TSX.V:SKO)
. In one of our publications, we recently told subscribers to take
profits on that and we're at a 500% gain. We did the same thing
with Amir Adnani, the CEO of
Uranium Energy Corp (NYSE.A:UEC)
. Our subscribers' gains were over 1,000% on that specific
investment. You have to take some profits off the table. But the
story got so good that we just put it as a buy again. Amir Adnani
is a name people should definitely watch; it's in our "Top 10 Under
40 list," which can be read for free at
Is Africa Oil to the point where institutions are coming in
It's starting to get the institutions in. The company is now
attracting the attention of the biggest and smartest institutions
in the world of oil exploration.
You also wrote about uranium making a comeback. There are several
uranium companies in the booths at this conference. Please tell us
about what you're seeing.
The most recent recommendation in our newsletter was
Denison Mines Corp. (TSX:DML; NYSE.A:DNN)
. We said buy under $1.30. The company popped over $2.30. Most
recently, we said to take a Casey Free Ride. We've had big success
Hathor Exploration Ltd. (TSX.V:HAT)
. And Uranium Energy has been a free ride.
Some of the best management teams in uranium are Ted Trueman
Pitchstone Exploration Ltd. (TSX.V:PXP)
and Rick Kusmirski with
JNR Resources Inc. (TSX.V:JNN)
. These guys have spent their lives in uranium. But they are not
good promoters-they're good explorers. They will make a discovery;
it's just taking time, but that's the exploration game.
Uranium is still not loved. It's unpopular but we've had big
success with Hathor, which is a free ride. But if I were to buy a
uranium company today, it would be the small micro caps like JNR
What do you see for JNR, which is still looking for uranium,
compared to Hathor and Denison, which are producing?
Hathor's not producing. Denison has facilities in the Athabasca and
in Utah. I see the next near-term producer being Amir Adnani's
Uranium Energy Corp. It's going to start out producing about 1
million pounds (Mlb.) uranium a year. Within three or four years,
it'll get to 3 Mlb.
Unfortunately, JNR and Pitchstone have uranium but not in large
economic numbers. Until they get to the magnitude of Hathor, which
found a great discovery, JNR and Pitchstone won't get that type of
promotion or value in their stock. Right now, Pitchstone is trading
2x-3x cash in the $0.36 range.
Another company is
Ur-Energy Inc. (NYSE:URG; TSX:URE)
. When I spoke with the company, I learned that, in the U.S., we've
burned something like 55 million tons (Mt.) of uranium. We produce
only about 12.5 Mt., so a lot of that uranium is being
The year 2013 will be a very important year in the energy world.
That is when the HEU Agreement for uranium will be renegotiated. It
is also when the government will take another look at the American
Recovery and Reinvestment Act for the green energy companies.
The HEU Agreement involves the Russians taking their nuclear
warheads, blending them down and converting them into fuel. People
forget that the U.S. has 3x the number of warheads as Russia. Will
America down blend its own warheads? I don't know. America doesn't
have the actual physical, logistical infrastructure to do it within
the country. Russia has that infrastructure. America would have to
send its warheads to Russia to get uranium back. What a funny
result of the Cold War. But in all seriousness, I think you're
going to see uranium going sideways. If you're a long-term
investor, start picking up these companies on the cheap because
they are cheap right now.
If the U.S. decides to downgrade its nuclear weapons, wouldn't that
drop the bottom out of the uranium price?
It would; but, as I said, the infrastructure is not in place to do
so. I'm pretty sure that every American is going to stand up and
say, "No, we're not sending our weapons to Russia to get down
If we're importing most of our uranium, is there any distinct
investment advantage to investing in U.S. uranium?
Yes, there is. Look at Uranium Energy Corp. When we first
recommended the company, it was $0.25. It's at $4.45 now. That's a
nice win. Why? Because Uranium Energy Corp. is going to be
America's next in-situ recovery (
), low-cost producer.
America's problem is that most of the prior production was
conventional hard rock. That costs about US$40-$45 to produce. ISR
is unconventional; it's an unconventional technique. You can do it
for under US$30/lb. There's upside there. You will see a lot more
of the word "unconventional," which means it's not the standard or
"old" way of doing things. Rather, it uses new, more-proven modern
techniques and, eventually, the newer unconventional techniques
will replace the older ones.
You look at Denison's White Mesa Mill, and the company can't
really make money at $40/lb. uranium. That's its cost. What's
saving Denison is the vanadium byproduct-it's getting quite the
upside there. So you're completely right. You want to invest
because companies like Denison and UEC are going to be the
cornerstone of American production. But, at US$50/lb., Denison
starts making some real money-especially with its vanadium as a
A theme throughout our discussion is unconventional technology. You
Reservoir Capital Corp. (TSX.V:REO)
, which has run-of-river hydro, the last time we chatted.
That's not really unconventional; run-of-river hydro has been
around for a long time. It's an old technology-a proven technology.
Run-of-river is my second favorite green energy. It's also economic
without government subsidies. The difference between run-of-river
and geothermal is that geothermal has a larger baseload. However,
run-of-river is a lower upfront cost.
We had a very successful run with three run-of-river companies
in our newsletter.
Plutonic Power Corp. (
was a more than 100% gain; Swift Power Corp. got bought out at a
nice gain and Reservoir also has been a huge success. We've more
than doubled our money in Reservoir and recently recommended the
company again through our alert service and our newsletter.
Reservoir is a run-of-river developer in Serbia with geothermal
projects in Bosnia and mining projects in Serbia. The company will
likely spin out its mining projects, as well as its geothermal. The
big upside for Reservoir Capital will be when it signs its power
purchase agreement (
). If it can do that within the next six months, you will see a lot
of institutional interest in the company.
So what do you invest in? You want to invest in juniors that
don't really have the attention of the big institutions because,
when institutions come in, it'll be like Africa Oil, Copper
Mountain or Cuadrilla. These companies will be 4x, 5x, 6x or 7x the
value because the institutions come in and want to do a big
financing. If that happens, Reservoir will be well north of $1. I
could see it doing the next institutional financing north of $1.50
if it can get a good PPA.
How close is Reservoir to a PPA?
I think you'll see that within the next six months; but, really, I
have no idea as these things can take a long time.
What's the probability that it won't happen?
These juniors are all high-risk ventures. What is the risk? Well, I
think there's a better chance that it will happen than it
One of the pieces of advice you give investors is to sell and take
a Casey Free Ride. But you also say to play only with money you're
willing to lose. So, what do you put your money in if it's not in
the risk part of your portfolio?
It's difficult for me to compare myself to someone who doesn't
live, eat and breathe this business the way I do. Outside of my
real estate holdings, I have cash. All the rest is in junior
resource stocks. I believe that if you invest in companies that
don't yet have the institutional interest but do have great
management and people, you will do well. That's the key. You have
to invest with people who've done it before and who invest heavily
in these companies personally. When you look at the winners like
Ross Beaty, Lukas Lundin or Robert Friedland, they are always the
largest shareholders in their deals. That's what winners do. It's
important to follow that formula.
Very good Marin. Thank you for your time.
Investment Analyst Marin Katusa is the senior editor of
Casey's Energy Report
Casey's Energy Opportunities
Casey's Energy Confidential
He left a successful teaching career to pursue what has proven
an equally successful-and far more lucrative-career analyzing and
investing in junior resource companies. With a stock pick record of
19 winners in a row-a 100% success rate last year-Marin's
insightful research has made his subscribers a great deal of money.
Using his advanced mathematical skills, he created a diagnostic
resource market tool that analyzes and compares hundreds of
investment variables. Through his own investments and his work with
the Casey team, Marin has established a network of relationships
with many of the key players in the junior resource sector in
Vancouver. In addition, he is a member of the Vancouver Angel
Forum, where he and his colleagues evaluate early seed investment
opportunities. Marin also manages a portfolio of international real
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1.) Karen Roche of
The Energy Report
conducted this interview. She personally and/or her family own
shares of the following companies mentioned in this interview:
2.) The following companies mentioned in the interview are sponsors
The Energy Report
The Gold Report:
Ram Power, Nevada Geothermal, Copper Mountain, Uranium Energy Corp
and Reservoir Capital.
3.) Marin Katusa: I personally and/or my family own shares of the
following companies mentioned in this interview: Copper Mountain,
East West Resources, Nevada Geothermal, Reservoir Capital. I
personally and/or my family are paid by the following companies:
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