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Opportunities in adversity

June 9th, 2016

John Kaiser talks Trump, turmoil, gold, scandium and the juniors

by Greg Klein

It’s said to be an ancient Chinese curse: “May you live in interesting times.” Much about our own epoch obviously interests and probably fascinates John Kaiser. But he might be accused of ambivalence for the silver linings he sees among the gathering clouds. The analyst and creator of Kaiser Research Online spoke with on a range of subjects, but with mineral exploration always in mind.

On gold’s rally

This one has a stronger foundation than previous upswings, Kaiser believes. Chinese aggression, Russian expansionism, Middle East volatility, Brazilian instability, the possible Brexit and the chances of a Donald Trump U.S. presidency all mean “we’re looking at an extremely turbulent world,” he says. “There’s good reason to expect gold to go higher as capital starts to hedge against all these gloomy scenarios.”

John Kaiser talks Trump, turmoil, gold, scandium and the juniors

That could push prices between $1,600 and $2,000 in the next year, he maintains. “And if that’s happening in the absence of any inflation, that really leverages those ounces in the ground that the juniors have and makes operating mines more profitable. Even for exploration companies it lowers the bar for what counts as a new discovery.”

On the juniors’ rally

Kaiser attributes this year’s rebound partly to gold, but also to renewed interest in discovery exploration.

“I’m very pleased that the rally that started the third week of January did not succumb to the PDAC curse and slow down,” he says. “By May everything’s usually in the garbage can before the summer doldrums. We’re not seeing these substantial gains continue that we saw from February to April, but we haven’t seen the markets give up the gains either.

“We’re probably not going to see a roaring global economy driving up demand and catching supply off guard like we did during China’s supercycle. However, as this world gets more belligerent, we could see massive disruptions of supply.”

John Kaiser talks Trump, turmoil, gold, scandium and the juniors

John Kaiser: “I’m very pleased that the rally
that started the third week of January did not
succumb to the PDAC curse and slow down.”

That would bring greater concern about jurisdictional risk for vital commodities. “An opportunity for the juniors would be to seek out existing deposits of these metals. They might not be worth developing now, but they could be treated by the market as leveraged bets on these big-picture geopolitical outcomes.”

On the Donald

A Vancouver native who’s spent 26 years in the U.S., Kaiser’s firmly among those who consider that country’s anti-establishment presidential contender an outrage.

“He’s basically touching on all the latent prejudices and biases of the country,” says Kaiser. “But another reason people will vote for him is he is not an anti-Keynesian. He and Hillary Clinton both understand that to get America cranking again we need fiscal stimulus in the form of infrastructure renewal. The Republicans have blocked anything along those lines….Trump could prove to be a giant wrecking ball for the stalemate that characterizes Washington. That could put him into power.”

But Kaiser wonders if Trump has a hidden motive to his campaign strategy.

“This guy is an extremely smart person and it’s possible that everything he says is just BS designed to manipulate the public. It’s like he’s satirizing everything. And if he ever did get into power, well first he’d have to deal with the limitations that congress imposes, but once he’s in power he might change his tune and discover all these reasons why it’s not practical to do all the stupid things he said he would do.

“The frightening thing is, what if this sub-narrative is wrong, that the man is indeed insane or worse. Or that he ends up being co-opted by the truly insane in the background, who make him the lever on all the insane stuff that he said, because he is just a human being and he has no true power structure. It would be a reverse takeover of Trump.”

Kaiser downplays the possibility of a Trump presidency meeting an extraordinary end—for example assassination, an establishment putsch or a distinctively American court order annulling the election.

But “whether it’s Hillary or Trump, tensions with China and Russia are on an increasing trajectory,” he says. “That would be good for gold and good for the juniors.”

On the scandium Field of Dreams

“The problem with scandium—and it makes me want to tear out my hair that the market doesn’t get it—is that the uses for scandium have been understood for 30 or 40 years.”

By being able to demonstrate that these deposits have long-term supply, they can produce as much scandium as you want if you’re willing to pay $1,500 or $2,000 a kilo. That will coax demand off the sidelines.

Used for aluminum-scandium alloys and solid oxide fuel cells, the rare earth element also finds its way into ceramics, electronics, lasers, lighting and radioactive isotopes, according to the U.S. Geological Survey. The stuff is widely abundant, but rarely in concentration. As a result it’s mined as a byproduct in China, Kazakhstan, Russia and Ukraine, producing just 10 to 15 tons a year, the USGS states.

But if supply could grow, so would demand, Kaiser says. The aerospace and automotive industries would be prime customers. “The highest-grade deposits have been around 70 or 100 ppm, as in the Zhovti Vody mine in Ukraine, where the Soviets got scandium to build their airforce fleet. But nobody else has been able to produce a very meaningful supply that is scalable.”

That’s changing as two advanced Australian projects lead the way, Scandium International Mining’s (TSX:SCY) 80%-owned Nyngan project and Robert Friedland-backed, ASX-listed CleanTeQ Metals’ Syerston project.

“The difference these discoveries made is their 400-ppm grades are well above the 200 or 250 ppm you need to produce the stuff at $2,000 a kilo,” Kaiser explains. “At $2,000 a kilo it starts making sense to use a scandium-aluminum alloy. By being able to demonstrate that these deposits have long-term supply, they can produce as much scandium as you want if you’re willing to pay $1,500 or $2,000 a kilo. That will coax demand off the sidelines.

“The next few years will be interesting because those companies are going to try producing 35 to 40 tonnes a year. If they can succeed in demonstrating that they’ve got the recoveries figured out, they’ve got the costs figured out, they can scale these things each to about 150 to 200 tonnes of output, that will set the stage for all kinds of plans to utilize it. It’s really a Field of Dreams where if you build it, they will come.

“But you have to understand that there are all these applications for scandium that can’t be commercialized unless there’s a reliable, scalable supply.”

John Kaiser addresses the Vancouver Commodity Forum on June 14. Click here for free registration.

Ukraine to pay 80% more for Russian gas

March 28th, 2014

by Ana Komnenic | March 28, 2014 | Reprinted by permission of

As of next week, Ukraine will pay nearly 80% more for Russian gas.

This means Moscow might charge Ukraine “close to $500 for 1,000 cubic metres of gas,” according to the New York Times.

Ukraine to pay 80% more for Russian gas

Ukraine uses gas for about 40% of its energy needs, and more than half of that supply comes from Russia.

Earlier this month Russia said it would no longer provide Ukraine with discounted gas. Under the agreement signed in 2010, Russian gas flowed cheaply into Ukraine and, in exchange, Russia was allowed to extend its lease on a military base in Sevastopol, Crimea. Now that Russia controls Crimea, it doesn’t need the gas deal.

“Russia, because it committed armed robbery of Ukraine, and in this way in fact destroyed our bilateral agreement, wants to raise the price of gas for Ukraine,” Ukrainian Prime Minister Arseny Yatseniuk told reporters, as reported by the New York Times.

Ukraine has since secured a $27-billion financing deal with the International Monetary Fund to help stabilize the economy.

Reprinted by permission of

The Fukushima effect

February 14th, 2014

Nuclear expert Thomas Drolet discusses the disaster, the aftermath and the outlook for uranium

by Greg Klein

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This is part one of a two-part interview. Read part two here.

Paladin Energy TSX:PDN had no sooner consigned its Kayelekera mine in Malawi to care and maintenance when Cameco Corp TSX:CCO scrapped its 2018 production target of 36 million pounds U3O8. Both companies attributed their gloomy February 7 announcements to uranium’s pathetic price. Discouraged producers, however, contrast sharply with optimistic explorers. With that in mind nuclear energy expert Thomas Drolet granted a wide-ranging interview covering several aspects of the uranium space. Part one focuses on Japan.

With a “big electrical utility background,” the chemical engineer’s CV shows an impressive 42-year list of qualifications, positions and achievements. “About half my career has been spent in nuclear energy,” he says. “I also have a background in natural gas, combined cycle gas turbines, coal-fired generation, hydro-electric and geothermal….. I’ve covered the whole area of energy.”

Nuclear expert Thomas Drolet offers his insight into the disaster, the aftermath and the outlook for uranium

Both an expert and an advocate, Thomas Drolet
has devoted half of his career in energy
to nuclear power.

Among other career highlights, he served as president/CEO of Ontario Hydro International, where he gained considerable insight into nuclear’s global picture. His work has taken him around the world, including Chernobyl, Three Mile Island and Fukushima. A sought-after consultant and public speaker, he also serves on the advisory board of Lakeland Resources TSXV:LK.

Not surprisingly, Drolet attributes uranium’s current price woes “almost entirely” to the Fukushima Daiichi disaster. “Some 20% of the world’s major large reactors are lost to production,” he points out. All 55 Japanese reactors have been shut down, six permanently. “That caused a huge inventory of unused fuel and contractually committed fuel for long-term supply with nowhere to go. They can repackage that, and some has been repackaged and used elsewhere. But excess inventory caused by Japan is the number one reason for low uranium prices.”

Related to that is “the absolute pause that happened in the world after March 2011. There was a gigantic pause button pushed in China, in India, and to some limited degree in Russia. That meant a lot of the long-term supply contracts were leading to excess inventories in other countries.”

Drolet’s first-hand experience emphasized to him the “truly catastrophic” nature of Fukushima Daiichi. “The design and configuration was woefully wanting,” he says. The seawall couldn’t block the wall of water, even though a tsunami of that height had already been predicted as a potential hazard. The emergency power system, located below the seawall, crapped out. Backup power failed too. Battery power sustained some systems, but only for a few hours. Meltdowns and explosions caused enormous destruction.

Drolet maintains “that particular location” was the wrong place for that particular model, a Mark I BWR (boiling water reactor) of 1960s vintage. Japan has about a dozen similar models “but none of them are in risky locations like Fukushima.” The United States has several more “but they’re well inland and have undergone major NRC regulatory-demanded design changes,” he adds.

The Mark I was a Generation II reactor. The 1990s and early 2000s saw strong improvements with Generation III models in China and elsewhere, Drolet explains. Now Generation III-plus features passive safety shutdown systems that don’t require electricity or even operators to continue cooling if an accident causes a shutdown.

Still, past mistakes have left Japan with a cleanup task nothing short of astonishing. “It will take 12 to 15 years to totally bring Fukushima Daiichi back to a brownfield condition. Of the government and TEPCO cost estimates, the biggest I’ve seen in print is about $60 billion. My opinion? Double that.”

Yet he’s convinced the country will return to nuclear energy, although not as quickly as some predict. “My experience in Japan suggests there’s a gigantic tug of war happening,” Drolet says. “At one end is the Abe government and its ministries, which are determined to try to bring the reactors back. Why? Because of the sheer cost of replacement fuels, of having to build LNG plants, coal-fired power plants and to some limited degree renewable power plants. All of that means they want to bring back viable power sites.”

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