Gold Stock Bull

I have been watching Renesola (SOL) since it was first listed on the New York Stock Exchange back in late January. I bought my first round of shares at $11.60 and watched the stock price drop below $8 without breaking a sweat. I believed in the fundamentals of the company then and I still do now. Of course, Renesola stock did not stay below $8 for very long and when it broke toward the $9 mark, I bought a significant number of shares for $8.90, recommended the company in the April edition of my newsletter Road Less Traveled and alerted subscribers that solar shares had put in a bottom. In the following three weeks, shares of SOL shot up 74%. While the entire sector has realized a lift in the past month, Renesola, along with SunPower (SPWR), have led the way. Another competing solar wafer manufacturer, MEMC Electronics (WFR), is actually down about 10% over the same time period.

Renesola is engaged in the manufacture and sale of solar wafers and related products, which are integrated into photovoltaic cells, the principal component of crystalline solar panels. Its customers include global manufacturers of solar cells and modules, such as JA Solar, Motech Industries, Solarfun Power, Suntech Power and Topco Technologies.

I like Renesola because they are one of the lowest-cost manufacturers in the industry, have secured long-term supply contracts (mitigating margin risk) and have an impressive list of customers. Their stock is trading at a steep discount to its peers and the company has increased earnings by nearly 70% during fiscal year 2007. They are under-promoted and not nearly as well known as their counterparts in the solar industry and amongst U.S. investors in particular. And lastly, Renesola just announced a 6-year deal to supply two Chinese companies with solar wafers starting in mid-2008. The future is bright indeed, with some analysts setting a price target of $25 or more by the end of 2008. Let’s take a look at the stock’s performance since being listed on the NYSE.

Renesola stock is starting to look overbought, but if the market can hold and break through current levels of resistance, I believe solar stocks will continue upward and outperform all other sectors. However, the markets are coming upon strong resistance levels that could spell the end to this mini-rally. Traders would be wise to have cash on the sidelines and await direction from the market as a break above resistance or another failure at this level will lead to a sharp move in either direction. Take a look at the chart below to illustrate just how important the Dow resistance around 12,750 will be.

If the Dow fails to break this resistance and is turned down again, we will likely see a drop to the bottom line of the trend channel (approximately 11,000) in a hurry. This would represent a decline of 13% from current levels. I bet this is the direction things will turn, but I prefer not to gamble too much and to simply wait for the technical set up and go with whatever direction the market chooses. I am not biased. Yes, we might miss a bit of the action, but the move is likely to be strong in either direction so not much will be missed.

If it breaks through resistance and closes two consecutive days above 12,750, I am going long solar stocks and increasing my position in Renesola. If the Dow is turned away at 12,750 for the fourth time in three months, I will be adding to my positions in the following ultra-short ETFs: SRS, SKF and QID. There are profits to be made in the markets at all times and particularly when stocks are moving so violently up and down. Swing trading opportunities abound in the solar, precious metals, real estate and financial sectors.

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Happy New Year! And there is plenty of reason to be happy with gold posting a 31% gain in 2007 and an explosive start to 2008. While many analysts were calling $800 gold overbought or even an end to the gold bull market, we correctly forecasted that gold would pause momentarily and continue higher. On December 5th, I wrote “there is a strong likelihood that gold will find support at $800 over the next few weeks and enter into the second phase of this upleg.” Gold proceeded to reach new highs, adding $65 or 8% in the following weeks. Hopefully you added to positions and enjoyed the ride. I will be posting a detailed 2008 Gold Forecast in the coming days, but wanted to alert my readers to news from one of my favorite exploration companies - Fronteer Development.

Fronteer Development Group (FRG), who we first profiled back in January of 2007, has announced that they have intersected high-grade gold mineralization at their Long Canyon property in Nevada. The company reported 0.88 ounces per ton gold (30.10 grams per tonne) over a true thickness of 23 feet (7.0 metres), within a broader zone that returned 0.39 ounces per ton gold (13.40 grams per tonne) over a true thickness of 75 feet (22.9 metres). These drill results are a significant improvement over initial results that were closer to 3 grams per tonne.

“Long Canyon defines a totally new gold trend in Nevada and ranks as one of the most significant greenfield discoveries made in the state in the last several years,” says Fronteer President and CEO Mark O’Dea. “This emerging deposit shows encouraging grade and tonnage potential and remains open for expansion in all directions.”

Investors responded by driving up the price of Fronteer stock by nearly 7% on more than double the average trading volume. What is more impressive is that the gain occurred on a day when most mining stocks were down 2-5%. At $10 per share, Fronteer could gain 50% on a run back to its 2007 high of $15.

We are very bullish on both gold and uranium for 2008 and think Fronteer, with an impressive portfolio of exploration projects, could be a takeover target for one of the majors. While their net loss has increased as a result of an aggressive exploration program, they still have $100 million in cash on hand and recently acquired Newwest Gold Corporation and 19 new precious metals exploration properties in Nevada.

I have traded in and out of Fronteer over the past few years, buying on dips below $10. I took a new position today just under $10 and expect Fronteer to make new highs this year. As always, perform your own due diligence on Fronteer as you are solely responsible for your investment decisions. Best of luck in 2008!

Nuclear energy use is growing and will be a huge part of future power production. Environmentalists have mixed opinions about nuclear energy. On one hand nuclear power is potentially dangerous energy source with the problem of storing radioactive waste. On the other hand, nuclear power is a sustainable energy source, reduces carbon emissions, produces no greenhouse gases and decreases dependence on foreign oil.

Both sides of the arguments are valid and the drawbacks must be considered along with the benefits. But what if a nuclear reactor could be built that offered no possibility of a meltdown, generated its power inexpensively, created no weapons-grade by-products, and burnt up existing high-level waste as well as old nuclear weapon stockpiles? It may sound too good to be true, but such a reactor is indeed possible, and a number of teams around the world are now working to make it a reality. What makes this incredible reactor so different is its fuel source: thorium. And many are optimistic that thorium could be the key to unlocking a new generation of clean and safe power.

Thorium promises what Uranium could never deliver - an abundant, safe and clean energy. India, having about 25% of the world’s thorium reserves, has planned its nuclear power program to eventually use thorium exclusively, phasing out uranium as a feed stock. They believe it to be the “fuel of the future.” Norway also has large deposits of thorium and has recently been debating whether to focus on thorium plants.

Thorium has another remarkable property. Add plutonium to the mix - or any other radioactive actinide - and the thorium fuel process will actually incinerate these elements. That’s right: it will chew up old nuclear waste as part of the power-generation process. It could not only generate power, but also act as a waste disposal plant for some of humanity’s most heinous toxic waste. So thorium might just be able to kill two birds with one stone. Not only does a thorium-fueled reactor produce significantly less high-level waste, but it can also dispose of the decommissioned nuclear weapons and highly radioactive waste from nuclear reactors using more conventional fuels. Oh yes, it can also generate electricity and is estimated to be 10 times cheaper than current nuclear energy production.

There is three times as much thorium in the Earth’s crust as uranium (thorium is about as abundant as lead), and much of it is easily accessible, such as in the monazite beach sands lying on the shores of southern India and Brazil. Apart from its abundance, thorium has other advantages over uranium, a major one being that all of the mined thorium is usable in a nuclear reactor, whereas only 0.7% of natural uranium is the fissionable U-235 isotope. After all the factors are considered, a unit mass of thorium contains about 40 times as much available energy as compared with uranium.

One company that has already begun developing thorium-fueled nuclear power is the aptly named Thorium Power (THPW), based just outside Washington DC. Thorium Power is a nuclear energy pioneer and the leading developer of thorium-based nuclear fuels. They are producing technology to overcome the main drawback to thorium, which is the fact that it is not vigorously fissile, and it needs a source of neutrons to kick off the reaction. Unlike enriched uranium, which can be left to its own devices to start producing power, thorium needs a bit of coaxing. The way Thorium Power gets around the sub-criticality of thorium is to create mixed fuels using a combination of enriched uranium, plutonium and thorium.

At the center of the fuel rod is the ’seed’ for the reaction, which contains plutonium. Wrapped around the core is the ‘blanket’, which is made from a mixture of uranium and thorium. The seed then provides the necessary neutrons to the blanket to kick-start the thorium fuel cycle. Meanwhile, the plutonium and uranium are also undergoing fission.

The primary benefit of Thorium Power’s system is that it can be used in existing nuclear plants with slight modification, such as Russian VVER-1000 reactors. Seth Grae, president and chief executive of Thorium Power, and his team are actively working with the Russians to develop a commercial product by the end of this decade. They already have thorium fuel running in the IR-8 research reactor at the Kurchatov Institute in Moscow.

“In the first quarter of 2008, we expect to have lead test assemblies in a full-size commercial nuclear power plant in Russia,” said Grae.

CNN wrote an article on Thorium Power stating:

“Licensing the technology to firms that win the U.S. contracts to eliminate the Soviet warheads could generate tens of millions of dollars in royalties for Thorium Power. An even larger market would be commercial nuclear power plants, which today spend hundreds of millions of dollars in the U.S. alone to store highly toxic plutonium waste. Using thorium technology, Grae says, they could turn their waste into more fuel that would leave far less radioactive material behind it.”

Nuclear-technology giant Westinghouse evaluated Thorium Power’s system as an option for burning surplus military plutonium, and the company predicted that this would be “substantially” cheaper, quicker, and more effective than the alternative method - burning plutonium with uranium.

Thorium Power believes there is a market for about four thorium-powered reactors each in Russia and United States just for plutonium disposal. It’s also aiming for reactors dealing with commercial plutonium by-products in Europe, Japan, Russia and the USA. It is estimated that 225 of the 444 commercial nuclear power plants in operation worldwide are suitable candidates for conversion to Thorium/uranium fuel.

Grae is also enthusiastic about the benefits thorium fuels offer the environment. “All nuclear compares well to coal, in terms of no emissions into the atmosphere, including no carbon dioxide,” he said. The environmental credentials of his company are also boosted by the presence of environmental lawyer and former member of the Centre for International Environmental Law, David MacGraw, he added. Grae muses that Thorium Power may be the “only nuclear company in the world with an environmentalist on the board”.

There is also significant political backing for thorium, with Senators representing several Western states, including Utah’s Orrin Hatch and Senate Majority leader Harry Reid, of Nevada, working on legislation to promote thorium. They say it’s a cleaner-burning fuel for nuclear-power plants, with the potential to cut high-level nuclear-waste volumes in half. Senator
Hatch is currently proposing the “Thorium Energy Independence and Security Act of 2007,” which aims to ease concerns about nuclear waste by requiring DOE to develop standards for reactors to use thorium fuel rather than uranium.

Thorium could also be a solution to several international disputes, such as Iran and Egypt’s desire to develop nuclear energy. If they were to use thorium, with no weapons-grade byproducts, this would eliminate any concern from Western nations about intentions to build nuclear weapons.

Thorium Power has been receiving more press lately, including an article in the India Business Insight - Priming For Power (11.24.07) - The newspaper reports that Thorium Power Inc. is among the companies vying for construction and equipment contracts worth $100 billion in India’s efforts to raise nuclear power production.

While the possibilities are blue-sky for Thorium Power, we view this as a speculative investment. The company is listed as an “over the counter” stock and comes with all of the additional risk associated with OTC securities, so do you own due diligence and proceed with caution.

However, with a market cap under $100 million and billions in revenue up for grab, this stock could easily be a 10-bagger over the next few years. But they still must prove that their technology is ready for commercial implementation and overcome some political hurdles.

Thorium Power stock has broken out over the past week, doubling from the October low of $0.16. As the promise of thorium reaches more investors, the stock could see a sharp increase in value even without significant news. At these prices, it might be worthwhile to take a small position if you have a portion of your portfolio allocated to speculative plays and extra cash to invest. I do not currently have a position in THPW, but will be considering taking one in the near future.

Happy investing.

Information sourced from:
http://www.thoriumpower.com/
http://www.cosmosmagazine.com/node/348
http://en.wikipedia.org/wiki/Thorium
http://www.acceleratingfuture.com/michael/blog/?p=212