July 30th, 2015

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Torchlight Energy - A NewCo Turnaround Story That's Been Derisked
  Jul 22  

Opportune Time for Oil & Gas Exposure
Stephan Bogner  May 21  

Oil Market Update
Clive Maund  May 06  

Innovation and Efficiency Drive U.S. Oil Supply and Demand
Frank Holmes  Apr 01  

Oil Market Update
Clive Maund  Mar 29  

»» more editorials in the archives

market data

Ux U3O8 Price (Uranium)July 27th, 2015
$36.00 -$0.25

»View Commitment of Traders.

expert analysis & newsletter briefs

Hemisphere Energy Corp.

"Hemisphere Energy Corp. announced that upon annual review, its credit facility has been maintained at $15M, a positive sign in this timid market, and one that reflects the strength of the company's current asset and the potential for increased recoveries through optimization efforts. . .we maintain a Buy recommendation and a $1/share 12-month target price." (7/28/15) - David Ricciardi, Mackie Research Capital

Input Capital Corp.

"Input Capital Corp. is a public company in Canada that has taken the streaming model and adapted it to become the first-ever agricultural streaming company, using canola as the underlying crop initially. The business is off to a great start and is proving that farmers are demanding alternative forms of financing such as streaming. In FY/15, which ended in March, Input deployed ~$49M into new streaming deals, up ~100% year over year; generated $19.3M in revenue, up ~280% year over year, and $9M in cash flow (before changes in working capital), up from $1.5M in FY/14. The stock has been a little weak recently on concerns regarding the health of its farmer clients in western Canada; however, Input's exposure is predominantly in the eastern prairies where conditions are much better. This does bring a key issue to light—the benefit of diversification, both by geography and product. The company's recent announcement about exploring the addition of soybean streaming is an example of how Input can add further diversification to the model, by adding a different crop and gaining more exposure to eastern Canada." (7/28/15) - The Energy Report Interview with Spencer Churchill

Renewable Energy Group, Inc.

"The Senate Finance Committee markup of tax extenders included positive changes to the biodiesel blenders credit that could support a material uplift to Renewable Energy Group Inc.'s 2016 and late 2015 profitability. . .after the blenders credit is signed into law, the benefit will be recognized in GAAP earnings, instead of accumulating for retroactive recognition, and should materially benefit profits and sentiment." (7/22/15) - Craig Irwin, ROTH Capital Partners

Energy Fuels Inc.

"Following the previously granted approvals from the U.S. Nuclear Regulatory Commission and the Wyoming Department of Environmental Quality, the issuance of the final environmental assessment and the approval of the plan of operations represented the final major regulatory approval required for Energy Fuels Inc.'s Hank Unit. The approvals at the Hank Unit demonstrate the near term scalability of Energy Fuels' assets. We continue to forecast production out of Hank to begin in 2017." (7/21/15) - Rob Chang, Cantor Fitzgerald

Input Capital Corp.

"Input Capital Corp. has an excellent streaming model for its canola business. . .the company provides a farmer with an upfront cash payment in return for a share of the farmer's crop production. . .the farm then delivers Input's share of the crop and is paid a discounted contract price per tonne. If the crop yield has improved, Input can buy additional tonnes at the same contracted price, so both the farmer and the company benefit from an improved crop. Input then sells the crops at the market rate and can invest the proceeds into new streaming contracts. . .the company deployed $49.1M in capital during the 2015 financial year and now has 78 cash-producing streams in place, with 10 more being added in Q1 of the 2016 financial year. The company generated $11M in streaming revenue during 2015, which is a 258% increase over 2014. That's a beautiful business model. In terms of the profit margin, Input Capital's total costs per tonne of canola are around $310. It sells the stuff for around $500/tonne. Not bad for a hard day's work, is it? Input gets canola price upside, production upside, compounding cash returns and diversification without the need for heavy management. . .less than a month ago, the company was trading at around $3/share, now it's at about $2.50/share. These are the buying opportunities that investors should be taking advantage of." (7/21/15) - The Energy Report Interview with Tom Wallace

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from the publisher
  Robert J. Moriarty

Welcome to 321energy.

Tesla Could Be Changing The Dynamics Of Global Energy

Michael McDonald
April 30th, 2015

Tesla's announcement last week about creating a new line of batteries for use by businesses, consumers, and the electrical grid at large is a game-changer for the industry. Currently, when individuals or companies need back-up power, they usually rely on generators. Effective battery storage for large amounts of energy would be a game changer in that it would enable a separation of generation and use of energy produced through clean fuels like solar and wind power.

The big problem with solar and wind right now is that the energy is only useful when it is actually produced and, because a company cannot modify generation to correspond with demand needs, any excess power has to be sold back to the market for immediate use. Tesla's new batteries could go a long way towards solving this problem. It is likely that Solar City, for example, would be very interested in any home application for large scale battery technology.

The unique differentiator here is not necessarily Tesla's technology. The company certainly has state of the art tech, but what might make battery production feasible is the economies of scale that Tesla is looking to capture in battery production. Tesla's new gigafactory will be an enormous production facility when it is completed and the facility should be able to produce 50 GWh of annual battery production eventually. This level of production should enable mass production of batteries at a fraction of the current cost.

But beyond Tesla, these economies of scale could also have benefits for other firms in the same industry. To the extent that Tesla's production capabilities create new demand for component parts, the result would be lower costs for inputs in batteries. As supply costs fall, battery production costs across the industry would fall also leading to increased quantity demanded by consumers and businesses.

Put differently, when Edison invented the light bulb, the standard method for producing vase shaped glass vessels was very different than what it is today. Producing a vase by traditional glass blowing is expensive and time consuming. So if a person had to make just one or two light bulbs, it would likely take hours of work. Once millions of light bulbs are needed, the process becomes industrialized and the cost per bulb falls to pennies. The same principle applies to the economics of battery production, and that already has even competing producers salivating.

Batteries already may be much more profitable than most people realize, and so if Tesla can open up new markets for its products, it could drive the company's earnings dramatically higher. The exact level of profit will depend on many different factors of course, but assuming that Tesla can sell its batteries based on charge capacity, then the profits could be astronomical. Tesla recently increased the price on some of its vehicles by $4,000 in concert with a 10KWh increase in battery capacity.

This implies that the company thinks 1KWh of battery capacity is worth roughly $400. 1 GWh is equal to 1 million KWh and Tesla's new factory should be able to produce 50 GWh annually when at full production. This would, in turn, imply $20B in annual revenue from output produced by the factory. Of course this value will vary dramatically based on many factors including battery size and usage, but the raw figures are mind-boggling nonetheless and suggest the magnitude of the market potential here. Even if Tesla ultimately ends up selling battery capacity for one-tenth this amount, then the result would still be a huge boost to the company's bottom line.

Michael McDonald
April 30th, 2015

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