Rick Rule, President and CEO of Sprott on Uranium Markets

Interview with Rick Rule, President and CEO of Sprott U.S. Holdings Inc.

CEO.CA

Sept 24 2017

Rick Rule CEO of Sprott

Once again I had the pleasure of catching up with Rick Rule, and in this interview we talked about the Uranium market, Bitcoin, Gold, and the lessons he learned from his early mentor Peter Cundill. Enjoy!

Hi Rick, welcome back to The Next Bull Market Move. I’d like to start the interview with a question about one of your early mentors, Peter Cundill.

I understand he was an early mentor of yours at the beginning of your career, and I have recently been reading the book ‘There is always something to do’ which is about his investments and how he invested. What were the most valuable lessons your learned from him?

During the period of time that I was learning from Peter, he was focused on deep value opportunities of two primary types; net nets (companies where current assets exceeded all liabilities, and market cap) that were operationally cash flow positive, and companies with hidden, mispriced or redundant assets.

Peter loved closely held timber companies whose forest lands were selling for half of market value, or had real estate development potential. He called the cash flow positive net- nets, free bonds, meaning that you got the cash generating for free, after subtracting current assets from enterprise value.

Peter was of the habit of looking for extraordinary value, which was enabled by a tolerance for pain (a declining share price) and remarkable patience. He was not afraid to be right. Those bargains were seldom available in popular sectors, or favorable markets

‘Investors tend to follow trends and fashion rather that taking the trouble to look for value.’

This was a common theme of Peter’s, and a reason behind the long term success of most value investors. Most investors (maybe most people) believe themselves to be very cogent, rational beings, surveying the information landscape, accumulating facts, and weighing them objectively to reach reasoned conclusions.

Wrong! Most folks search for information that affirms their existing paradigms and prejudices, they look for justifications for comfortable narratives. Hence, trends in motion stay in motion, long after the circumstances that caused the trends cease to exist.

Value investors, including Peter, and certainly myself, are repeatedly guilty of the same sin, but we are taught to try to recognize it and guard against it. Peter’s guard was particularly successful, he was a pathological cheapskate, so he had a quantitative guard against fashion.

What are your thoughts behind Bitcoin and cryptocurrencies as a speculation? Will this space eventually turn into a dotcom mania like the late 1990’s?

Kerem, I’m the wrong one to ask, I don’t own a TV, and I can’t dress myself in stuff that matches! As a judge of popular culture, I’m your last choice.

That being said, I love the sector, in many regards. The technology, the “block chain” and the distributed ledger have the possibility to make many aspects of human culture, but particularly commerce and trade, much more efficient, while eliminating many of the supposed needs for government regulation and taxation.

As currencies, I’m a consumer of currencies, and mediums of exchange, and stores of value. A multiplicity of choice, competition between various currency systems to serve me better, is something I enjoy!

The ability to create and market an algorithm, and market it as a dream, converting the promoters ability to market the dream, in return for other peoples earned wealth will attract some very smart, and likely stupendously successful scam artists, who just like central bankers, will bill savers and investors out of billions of other currency units. Governments hate this, they want a monopoly on fraud and extortion, but in this circumstance, they are entering into a battle of wits, under armed.

Once again, the sentiment surrounding Uranium has fallen into pessimism and despair. Speculators have left the scene since the big run up we had at the beginning of the year. It seems to me that for the most part, investing early in bull markets involves patience and being able to handle a certain amount of boredom. When a market does nothing, no one is interested. When a market is rising, everyone is interested. Is Uranium following a similar path to the previous bull market you speculated in?

The early run up in uranium equities was a very interesting phenomenon in that it occurred on very low volume. I think two forces were at play. One, I believe a three year “bear market” wore out the sellers, they were out of inventory, and the shares had moved to stronger hands. At the same time, speculators with longer memories, of the last bull market, began to accumulate, in hopes of a repeat. The companies, stumbling on a funding window, which could and did save the sector from extinction, drowned the buyers in an avalanche of freshly issued equity.

I believe we need a period of sustained Japanese reactor restarts in order to have a uranium price response in the next two years. By 2020, the problem takes care of itself. Ironically, the longer it takes for the market to re-balance, the wilder the probable upside ride is on recovery. When you destroy productive capacity, which is what extended “bear markets” do, the industry is unable to respond to price increases by increasing supply, and we get those spectacular price spikes, like we did in the early part of the last decade.

What are your current thoughts on gold? Is the pullback we had over the last few years over?

My belief is that the most important factor in the gold price, is global faith in the purchasing power of the US dollar, and faith in US Treasury securities. The most important measure of this faith, that I’m aware of, is the US 10 year treasury yield, and more importantly, the delta between the 10 year, and the TIP.

If you have observed what I have observed, that gold trades inversely with the US 10 year treasury, and you observe that the US 10 year treasury has been in a 35 year “bull market”, with the yield falling from 15% to 2%, you might believe that the bond “bull market” is closer to the end, than to the beginning. If that is the case, gold, which I believe trades inversely, may be in a “bull market” which is closer to it’’s beginning, than it’s end.

Applying Cundill’s logic to the US 10 year treasury, it is simply not cheap enough to be attractive. Jim Grant refers to it as “return free risk”. I think gold will prevail over that type of competition.

Better yet, the gold quote has done better over the last twelve months, that the gold equities, and I believe the gold equities are poised to catch up.

And finally, give us an update on what Sprott is up to, and how investors can get in touch?

Sprott continues to refashion itself as a global merchant bank, and investment manager focused on natural resources and precious metals. We sold our broader market Canadian mutual fund business to that unit’s employees, which freed up a lot of capital, and sharpened our focus. We have a superb balance sheet (over $300,000,000 in working capital, with no debt), a very resilient business (we generated free cash flow in a sector where the most relevant measurement metric, the TSXV index declined by almost 90%,) and we manage to pay a 5.5% dividend on our common stock. Imagine what we can do in a favorable market.

We manage or administer in excess $10,000,000,000 on behalf of individuals and institutions worldwide, focusing on the sectors where we have spent three decades building our knowledge, and our brand; natural resources, and precious metals.

We would love for investors to visit our website sprottglobal.com and to stay subscribed to our free blog, “Sprotts Thoughts”, a journal of the best ideas inside and outside our organization.

As an added inducement to visiting us, if your readers will email me (rrule@sprottglobal.com) a copy of their natural resource portfolio, in text, not as an attachment, with both security name, and symbol, I will rate and comment on those portfolio companies, for free, and send my response back, by email.

Many thanks Rick.

Thanks for the visit.

The Next Bull Market Move

As Rick mentioned, feel free to contact him at rrule@sprottglobal.com for a no obligation portfolio ranking.

Here is Rick’s full Bio : http://sprottglobal.com/our-team/rick-rule/

Rick’s twitter account: @RealRickRule

Here is the Sprott US media YouTube channel: https://www.youtube.com/user/sprottglobal

 

 

 

Wall believes progress made on pipelines, but worried for Energy East

Varcoe: Wall believes progress made on pipelines, but worried for Energy East

CHRIS VARCOE, CALGARY HERALD

Published on: September 22, 2017 | Last Updated: September 22, 2017 8:03 AM MDT

wall ckom

After nearly 10 years at the helm, Premier Brad Wall announced Thursday that he is stepping down and retiring from politics at the Legislative Building in Regina. 

BANFF — As Brad Wall heads into the home stretch serving as Saskatchewan’s 14th premier, he continues to defend Canada’s energy sector, fight Ottawa’s plan for a national carbon price and speak out about the need for new oil pipelines.

Wall, who announced in August he will retire from the job early next year, will speak Friday about energy issues at the Global Business Forum.

Wall spoke Thursday to the Herald about his concerns that pipeline projects such as Energy East are in jeopardy, that the energy debate in the country has become more polarized, and why he feels the need to defend the sector.

Q: Has Canada made any progress on the pipeline front in the past year?

Wall: Some. I do think we’ve made some progress, to be sure. There will be a lot of people that will say, ‘Hey we’ve priced carbon provincially in some places and nationally and so this has finally got the social licence for whatever progress has been made.’

And I categorically disagree with that. For example, next door in British Columbia, we have (the) Trans Mountain (pipeline expansion) and I think there is still doubt that hangs over it because a provincial government has a number of different ways to kind of throw sand in the gears, if they want. So I worry a little bit about that.

Energy East is not in a good spot right now. And Keystone has gone ahead, but that doesn’t have anything to do with policies in our own country … So I’m still worried about this issue of moving energy across the country to tidewater.

Q: Do you believe the dialogue in the last 12 months has become any less polarized?

A: I don’t believe that it has become less polarized … The fact that we now have, in the last 18 months, added an overlay onto the already existing rigorous NEB process for pipelines approval — the overlay and the additional measure being upstream and downstream greenhouse gases — this is a real concern.

We don’t do that to any other industry that needs to move its product across the country. We don’t do that to the car business. And cars are very much a part of the whole greenhouse gas story, not just their usage by Canadian drivers, but how you make (them), the carbon footprint of making them in the first place. And I wouldn’t want to see that.

It might be more so (polarized) because of the policies of the (federal) government …

Q: In the last couple of weeks, we’ve seen TransCanada decide to suspend the regulatory process on Energy East while they determine their next steps. Are you worried Energy East may not be built given what has happened?

A: Yes, I am … The suspension is one (reason). The political timetables across the country … All of those things complicate the matter and I also think the new additions to the regulatory — to the measures that would need regulatory approval — don’t help either, in terms of my optimism for Energy East.

Q: Do you think Kinder Morgan’s Trans Mountain expansion project is going to get built?

A: Any pipeline that has already been approved, I think the chances of it are much greater. And credit the federal government for getting to that point. I maybe reject the rationale that if we only put a price on carbon, that’s why this has happened.

Otherwise, if that were to happen, you’d have more grassroots support in places like British Columbia who would see, ‘Well they priced carbon, so we should all get behind these federal approvals.’

Notwithstanding that, I think there’s greater reason for optimism about those projects certainly than Energy East right now.

Q: You’ve discounted the notion that putting a price on carbon (in Alberta) did help get the Kinder Morgan project approved. Why?

A: Honestly, I think it’s an artificial argument. We’re one country; it’s not like we’re trying to sell to another country who are demanding that we do this, we’re just trying to move it across the country.

And what materially has changed with a brand new tax in Alberta in terms of the environmental rigours we all want to apply to the sector? The environmental sustainability of the different measures within the energy (sector), nothing’s changed ….

I just think this is more about politics for the federal government who desperately want to show that carbon tax, even before it’s implemented, is doing good things …

Q: You’ve been adamant that you think your province can stop national carbon price from coming in and affecting Saskatchewan. What gives you that confidence that you have the legal ability to determine this?

A: We have a level of optimism around (it) — and I’m not going to get into the specifics of why because that will be our case that we make to the courts. But we do have level of optimism that we’ll be able to ensure that the federal government cannot impose a carbon tax.

I think you’ll see us move in the fall with some more specifics around our white paper when we talked about our plan for emissions reduction and hitting targets …

Q: You’re retiring soon. What happens to Brad Wall then?

A: I have no idea. You guys looking for anyone?

 

 

 

Offshore wind 6 times more expensive than nuclear power when wind’s required battery storage is factored-in

The key item is, “The headline “Offshore wind now cheaper than nuclear power” is very much in the UK news following the latest offshore wind auction in the UK where the lowest bids came in at £57.50 / MWh, well below the Hinkley C strike price of £92.50. But baseload nuclear, which delivers all the time, can’t be compared directly with intermittent wind, which delivers only when the wind blows. To make an apples-to-apples comparison we have to convert wind generation into baseload generation by storing the surpluses for re-use during deficit periods. Doing the math, offshore wind works out to be 6 times more expensive than nuclear power.”

The real strike price of offshore wind

September 20, 2017 by Roger Andrews

http://euanmearns.com/the-real-strike-price-of-offshore-wind/

 

Hinkley still scores on reliability and low carbon ….. but the extent to which its costs are obscene is now plainer than ever. In Monday’s capacity auction, two big offshore wind farms came in at £57.50 per megawatt hour and a third at £74.75. These “strike prices” …..  are expressed in 2012 figures, as is Hinkley’s £92.50 so the comparison is fair. As for the argument that we must pay up for reliable baseload supplies, there ought to be limits to how far it can be pushed. A nuclear premium of some level might be justified, but Hinkley lives in a financial world of its own, even before battery technology (possibly) shifts the economics further in favour of renewables …..

Thus spake the Guardian in a recent article entitled Hinkley nuclear power is being priced out by renewables.

What the Guardian says is, of course, nonsense. Comparing non-dispatchable wind directly with dispatchable baseload nuclear is not in the least “fair”. Barring Acts of God baseload nuclear is there all the time; wind is there only when the wind blows. We can level the playing field only by comparing baseload nuclear generation with baseload wind generation, and the only way of converting wind into baseload is to store the surpluses generated when the wind is blowing for re-use when it isn’t. To compare offshore wind strike prices directly with nuclear strike prices we therefore have to factor in the storage costs necessary to convert the wind into baseload, and this post shows what happens to wind strike prices when we do this using the “battery technology” favored by the Guardian. It finds that battery technology does not “(shift) the economics further in favor of renewables”. It prices wind totally out of the market instead.

The two offshore wind farms in question are Hornsea Project 2 (1,386MW) and Moray East (950MW). The project cost for Moray is given as £1.8 billion, or £1,895/kW installed. The project cost of Hornsea Project 1 is given as £3.36 billion, which relative to the 1,218 MW capacity gives £2,759/kW installed. N0 project cost is given for Hornsea Project 2. Moray is 77% owned by EDP Renewables (EDPR) and 23% by Engie. Hornsea is 100% owned by DONG. The locations of Moray and Hornsea are shown below:

wind map

To conduct an analysis we have to estimate how much storage will be needed to convert the wind generation from Hornsea and Moray into baseload generation, and to do this we need to know what wind output from these wind farms will be. There are no readily-accessible data for operating UK offshore wind farms, but on the other side of the North Sea are Denmark’s offshore wind farms, and the P-F Bach data base provides hourly generation data for them. So I used Bach’s Denmark data to simulate generation from Hornsea, the larger of the two wind farms, assuming that the results would be reasonably representative. I picked January 2015 as an example month and factored the generation from Danish wind farms in that month up to Hornsea levels relative to installed capacities, which in this case aren’t very different (1,271MW total in Denmark at the beginning of 2015 and 1,386MW at Hornsea). The results are shown in Figure 1:

wind generation graph 1

Figure 1: Hourly generation from Denmark’s wind farms in January 2015 factored up to match Hornsea 2

Strong winds during the first half of the month were largely responsible for the overall 60% capacity factor during the month – respectable for a wind farm. However, the wind blew less strongly in the second half and died away almost to nothing on the 21st and 22nd.

The next step was to convert the spiky wind output into baseload, which requires that surplus generation during windy periods be stored for re-use during deficit periods so that the generation curve comes out flat. Surpluses and deficits were quantified relative to an 825 MW threshold, which is the amount of continuous baseline power Hornsea generates when generation is flat-lined. Figure 2 shows wind generation surpluses and deficits relative to this threshold:

wind generation graph 2

Figure 2: Hourly wind generation surpluses and deficits relative to 825MW of constant baseload output, January 2015

How much storage, which according to the Guardian will be supplied by batteries, will be needed to flatten out these surpluses and deficits? I estimated this in two ways. First I simply accumulated the surpluses and deficits, starting with the batteries discharged, and came up with the battery charge status plot shown in Figure 3. Driven by the generation surpluses in the first half of the month the batteries charge up, reaching a maximum capacity of 95,800 MWh on January 18. Thereafter the deficits set in and the discharges begin, and by the end of the month the batteries are back to being 100% discharged:

wind generation graph 3

Figure 3: Hornsea hourly battery charge status based on accumulation of hourly surpluses and deficits, January 2015

Next I ran the hourly wind generation data through Dave Rutledge’s more sophisticated storage balance algorithm, which starts with the batteries fully charged. The resulting battery charge status plot is shown in Figure 4. 95,800 MWh of battery charge – the same amount as before – is needed at the beginning of the month to keep the batteries charged up until the end of the month, although by the time the end of the month arrives they again have no charge left:

wind generation graph 4

Figure 4: Hornsea hourly battery charge status based on Rutledge storage balance algorithm, January 2015

Beginning with the batteries fully charged, however, creates a complication. During the first half of the month the batteries remain fully-charged for most of the time, and any surplus generation when they are fully-charged has to be curtailed because there’s nowhere to put it. Figure 5 shows the impacts. The curtailment that occurs during the first half of the month amounts to 16% of total monthly generation, and as a result Hornsea delivers an average of only 693MW to the grid instead of the 825MW it would have delivered if the batteries had been discharged rather than charged at the beginning of the month:

wind generation graph 5

Figure 5: Hourly wind generation sent to grid and curtailed based on Rutledge algorithm, Hornsea, January 2015

How to handle this complication? Strictly I should go back and tweak the algorithm until I get an optimum combination of baseload output and battery storage, but in this case it isn’t worth the effort. Why not? Because as we shall shortly see the impacts of the added cost of battery storage on the strike price are so large that even crude approximations are meaningful. So I will run with the 95,800 MWh storage estimate (although it’s almost certainly an underestimate. It assumes 100% charge-discharge efficiency and no battery degradation with time and there is also a high probability that it would increase if time-frames longer than a month were considered.)

Now to economics, and another approximation.

A wind farm gets its fuel for free and maintenance costs are comparatively low; the lion’s share of downstream costs comes from servicing the debt on the initial investment. Here I assume that effectively all of these costs come from debt service, meaning that there will be a direct relationship between the strike price and the initial investment. With this assumption all we have to do to estimate a “batteries included” strike price is add the cost of the batteries to the initial investment and factor the strike price up in proportion. When we do this for Hornsea this is what we get:

Initial wind farm investment = £3.9 billion:  I factored the Hornsea Project 1 cost (2,759/kW installed) up in proportion to the increase in installed capacity (1,396 MW for Hornsea 2 vs. 1,218 for Hornsea 1). This gave a total project cost for Hornsea 2 of £3.85 billion, which I rounded up to £3.9 billion.

Cost of battery storage = £35.4 billion: 95,800 MWh of lithium-ion batteries at current prices of around US$500/kWh – £370 at current exchange rates – gives a total cost of 95,800,000 kW * £370/kWh = £35.4 billion.

Cost of wind + battery storage = £3.9 + £35.4 = £39.3 billion

Strike price with batteries included = £579.42/MWh: The strike price increases in proportion to the increase in total investment, i.e. from £57.50/MWh to 39.3/3.9 * £57.50 = £579.42/MWh.

Since as noted earlier the 95,800 MWh storage requirement is almost certainly an underestimate – and quite possibly a large one – we can reasonably conclude that Hornsea’s strike price will be at least six times higher than Hinkley’s £92.50/MWh when the two are compared on an apples-to-apples basis using the Guardian’s battery storage option.

What does this factor-of-six difference tell us? Actually not much, because the comparison is academic. No one is ever going to outlay £35.4 billion to install battery storage at a £3.9 billion wind farm. Backup gas, not battery storage, is presently the only option for smoothing out erratic wind generation, and estimating how much this might add to the Hornsea strike price would be a complex undertaking, although I might give it a shot in a later post.

What it does tell us is that adding even a comparatively small amount of battery storage to a wind (or solar) project could kill it economically, which is probably what motivated the Guardian to make the comment about putting limits on how much “we” have to pay for “reliable baseload supplies”. And in the clean, green, environmentally-conscious, demand-managed, smart-meter-monitored, grid-interconnected, one-hundred-percent renewable world of the future the Guardian envisions we won’t need reliable baseload supplies anyway.

 

 

 

PotashCorp – Production Downtime

SEP 20 2017

www.potashcorp.com

PotashCorp Potash Production Downtime

PotashCorp Rocanville storage facility

Consistent with PotashCorp’s strategy of matching supply to market demand and fully utilizing our lowest cost Rocanville facility, we have announced the following potash inventory adjustment shutdowns:

  • Allan will curtail production for 10 weeks, beginning Nov. 19, 2017
  • Lanigan will curtail production for eight weeks, beginning Dec. 3, 2017

The number of temporary layoffs associated with these inventory adjustments has not been determined, as the company is assessing opportunities for reassigning employees during these shutdown periods to essential services, capital projects, and maintenance activities.

 

 

Potash items in BHP’s 2017 Annual Report

BHP jansen at sunrise

In BHP’s 2017 Annual Report released last night – available here – on page 19 of 296 under item 3 they write:

We are also continuing to investigate one of the best undeveloped potash resources in the world in Jansen in Canada. There are many ways we could realise the value of this project, but Board approval will be sought only if the project passes our strict investment hurdles and is in the best interests of our shareholders.

On page 64 of 296 they write:

Overview

Potash is a potassium-rich salt mainly used in fertiliser to improve the quality and yield of agricultural production. As an essential nutrient for plant growth, potash is a vital link in the global food supply chain. The demands on that supply chain are intensifying; there will be more people to feed in future, as well as rising calorific intake comprised of more varied diets. The strains this will place on finite land supply mean sustainable increases in crop yields will be crucial and potash fertilisers will be critical in replenishing our soils.

However, in the near term, overcapacity is likely to get worse. In the 10 years to 2016, the industry added nearly 27 Mt of annual ’nameplate’ capacity. Further greenfield supply will come on-stream over the next five years. As a result, potash prices are currently at their lowest levels in a decade and are likely to get worse before they get better. Although the near-term outlook may be sombre, we expect the peak of oversupply to occur within the next few years. Positive underlying demand fundamentals, assisted by affordable pricing, should see consumption catch up to capacity in the 2020s. Our projections are that demand for potash will continue to grow at a rate of about two to three per cent per year (compound annual growth rate) and that, even taking into account new projects and latent capacity in the industry, demand will outstrip supply within the next decade.

Potash has the potential to create significant value and provide BHP with an opportunity to capture long-term growth and diversification benefits. Our investment in the Jansen Potash Project presents an opportunity to develop a multi-decade, multi-mine business; a potential fifth major commodity offering for BHP. It is consistent with our strategy to own and operate large, expandable assets that deliver value. However, the Project will be presented to the Board for approval only if it passes our strict Capital Allocation Framework tests.

Jansen Potash Project

BHP holds exploration permits and mining leases covering approximately 9,600 square kilometres in the province of Saskatchewan, Canada. The Jansen Potash Project is located about 140 kilometres east of Saskatoon. We own 100 per cent of this Project. Jansen’s large resource endowment provides the opportunity to develop it in stages, with anticipated initial capacity of 4 Mtpa.

Key developments during FY2017

Over the year, our focus was on the safe excavation and lining of two 7.3 metre diameter shafts. Both shafts were safely excavated through the Blairmore formation (which lies about 450 metres below the surface), with steel tubbing in place to prevent water inflow and provide structural support. By the end of FY2017, the production shaft had reached a depth of approximately 730 metres of the design depth of 975 metres and the service shaft had been excavated to approximately 710 metres of its eventual one-kilometre depth. Capital expenditure in the Jansen Potash Project in FY2017 was US$162 million. During the year, we awarded the detailed engineering design contract studying the feasibility of Jansen Stage 1 to Hatch Bantrel, which formed a joint venture partnership to complete this work.

Looking ahead

Jansen is in the feasibility study phase and we continue to assess how we can reduce risk and unlock value. The current scope of work was 70 per cent complete at the end of FY2017. Work on the shafts will continue in FY2018. Once shaft excavation is complete, the shafts will be connected underground and shaft infrastructure will be installed. This falls within the current approved scope of work.

Construction beyond the current scope of work will require Board approval. With a later market window now anticipated, the Jansen Potash Project will not be brought to the Board in CY2018. In the meantime, we are considering multiple options to maximise the value of Jansen, including further improvements to capital efficiency, further optimisation of design and diluting our interest by bringing in a partner. Board approval will be sought for the project only if it passes our strict Capital Allocation Framework tests.

 

Encanto Potash secures commitment for C$100 mln funding facility​

SEPTEMBER 20, 2017 / 7:21 AM / UPDATED 35 MINUTES AGO

BRIEF-Encanto Potash secures commitment for C$100 mln funding facility​

Reuters Staff

Gensource

Sept 20 (Reuters) – Encanto Potash Corp :

* Has secured a commitment for a CAD $100 million funding facility​

* Under funding agreement GEM Investments America, LLC and GEM Global Yield LLC SCS undertake to invest up to CAD $100 million over next 3 years​

* Proceeds will be used to commence engineering, design phase of mine in anticipation of a shovel-ready construction date of Sept 2019​

* Upon a drawdown notice issued from company shares will be issued at a price 90% of market price subject to a $.05 per share minimum​ Source text for Eikon: Further company coverage:

Hurricane rebuilding in U.S. drives push to ease softwood tariffs

Hurricane rebuilding in U.S. drives push to ease softwood tariffs

lumber piles
Stacks of lumber are pictured at NMV Lumber in Merritt, B.C., Tuesday, May 2, 2017.

JONATHAN HAYWARD/THE CANADIAN PRESS

SHAWN MCCARTHY AND ADRIAN MORROW

OTTAWA/WASHINGTON

9 HOURS AGOSEPTEMBER 14, 2017

 

The U.S. government is facing increasing pressure to reach a deal with Canada on softwood lumber, as demand for construction materials is expected to spike higher in Texas and Florida in the wake of hurricanes Harvey and Irma.

While the U.S. lumber industry is dug in on its demand for tariffs, its customers argue that domestic supplies cannot meet their needs, which will drive up the cost of reconstruction in the states that sustained many billions of dollars in storm damage in recent weeks.

The Canadian government is hoping the added domestic pressure resulting from the hurricanes will help pave the way for a deal, Natural Resources Minister Jim Carr said on Thursday.

“We know that [the looming reconstruction] has an influence on markets and on demand,” Mr. Carr said after speaking at the Council of Forestry Ministers meeting in Ottawa.

“And we also know that Canadian producers offer a very good supply of softwood lumber in the United States. That’s an economic reality. Market forces are important, so we think that will almost certainly have some impact on thinking.”

However, during a visit to Washington on Thursday, Ontario Premier Kathleen Wynne said that a resolution to the softwood stand-off currently looks unlikely.

Ms. Wynne met with U.S. Commerce Secretary Wilbur Ross at his office in Washington.

“He didn’t hold out, I would say, a clear hope that there is an easy resolution on the horizon,” the Premier said in an interview at the Canadian embassy.

The two sides were close to a deal over the summer, in which Canada would have agreed to a cap on the amount of softwood it would export to the United States. That quota, one source said at the time, would have been a little more than 30 per cent of U.S. market share to start, falling to slightly less than 30 per cent over five years, then holding steady for another five.

But talks deadlocked over whether Canada would able to exceed its cap in the event that U.S. industry couldn’t produce enough to meet the rest of the demand.

Canada’s Ambassador to the United States, David MacNaughton, said this is still the sticking point in a deal. He pointed out that, as it stands, the United States is importing more lumber from Germany and Russia because it cannot produce enough to fill the market gap left by its punitive duties on Canadian wood.

“We’re right down to the last issue that needs to be resolved, which is what we call a ‘hot-market provision,'” he said in a panel discussion at a Washington event hosted by online news source Politico. “Rather than taking lumber from Russia, why wouldn’t you take it from Canada?”

Mr. MacNaughton accused the U.S. industry of deliberately stonewalling a deal “because they’re making a lot of money right now.

“It’s unfortunate that we’re in a situation where the price of lumber right now is sky-high. It is to the benefit of a few lumber barons. We are ending up in the United States with people not being able to afford to buy new homes or to construct new homes,” he said.

The National Association of Home Builders – which has long opposed tariffs – testified at hearings in Washington this week that the proposed trade action would undermine the reconstruction efforts and drive up the cost of housing.

In a hearing this week, Texas home builder Eddie Martin – an executive of the builders’ association – said that the U.S. industry cannot even meet current demand for some key softwood products. Based on strong demand, average prices for softwood lumber have risen 22 per cent since the beginning of 2016 and some prices are at historic highs, the association notes.

“Moving forward, there is going to be a lot of rebuilding,” Mr. Martin, the chief executive at Tilson Home Corp., said in his testimony. “Tens of thousands of people, like my employees, are going to be in a bad place financially and increases in material costs will have a real and lasting effect on their ability to have homes.”

The chief executive of the U.S. lumber coalition accused Ottawa of using the hurricanes as a “political ploy.”

“American towns, cities and, communities should be rebuilt using American products, American workers, and the American spirit of coming out stronger in the face of adversity,” coalition CEO Zoltan van Heyningen said in an e-mail. “To the extent that softwood lumber is needed to rebuild, there is ample capacity in the United States to supply American wood to rebuild American homes affected by these storms.”

Moody’s Confirms Saskatchewan’s Aaa Credit Rating

Moody’s Confirms Saskatchewan’s Aaa Credit Rating

Released on September 12, 2017

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Moody’s Report States Saskatchewan’s Debt Burden Lowest Among Canadian Provinces

Moody’s Investors Service has confirmed Saskatchewan’s Aaa credit rating, the agency’s highest rating for Canadian provinces.

In its credit opinion update, Moody’s states, “Saskatchewan’s Aaa rating benefits from very strong debt affordability… Saskatchewan’s fiscal planning is supported by comprehensive and transparent financial reporting,” and also commends the province for multi-year fiscal planning.

“Saskatchewan received its first ever Aaa credit rating from Moody’s under our government in 2014,” Finance Minister Donna Harpauer said.  “And Moody’s has confirmed that Aaa rating today.  Some difficult choices had to be made this year as part of our three-year plan to get back to balance, but these decisions were necessary to keep our finances and our province strong.”

Only two provinces in Canada enjoy a Aaa rating from Moody’s, British Columbia and Saskatchewan. Alberta used to be one of three provinces in the country with a Aaa rating but was recently downgraded.

Saskatchewan continues to have the second-highest overall credit rating among provinces behind only British Columbia, when the ratings of the three major agencies (Moody’s, Standard and Poor’s and DBRS) are considered.

“Saskatchewan’s economy is performing well so far, and for the first time in two years is projected to post positive growth,” Harpauer said.  “We will continue to work very hard as a government keep our economy growing because a growing economy benefits all people in Saskatchewan.”

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For more information, contact:

Jeff Welke
Finance
Regina
Phone: 306-787-6046
Email: jeff.welke@gov.sk.ca
Cell: 306-536-1185

 

 

 

Canada competition watchdog will not challenge Agrium, Potash merger

Canada competition watchdog will not challenge Agrium, Potash merger

Reuters Staff

Sept 11 2017

OTTAWA (Reuters) – Canada’s competition watchdog said on Monday it will not challenge a proposed merger between Agrium Inc (AGU.TO) and Potash Corp (POT.TO), saying the transaction was unlikely to substantially lessen competition in the fertilizer industry.

The Competition Bureau said it had issued a “no action” letter to the two companies, which announced their plan to combine last year in an all-stock merger valued at $25 billion.

Reporting by Leah Schnurr; Editing by Sandra Maler

 

Trudeau’s sad legacy: $60-billion in energy infrastructure spending, scuttled on his watch

Trudeau’s sad legacy: Billions in energy infrastructure spending, scuttled on his watch

Claudia Cattaneo: The last time there was so much heavy handed, poorly thought out federal interference was during the failed NEP in the 1980s when Trudeau’s father was in charge

The Financial Post

Claudia Cattaneo

September 8, 2017
6:33 PM EDT

 Trudeau Saskatoon 20170901

Prime Minster Justin Trudeau THE CANADIAN PRESS/Liam Richards

The Northern Gateway pipeline ($7.9 billion), the Pacific Northwest LNG project ($36 billion), and now likely the Energy East pipeline ($15.7 billion) are three privately funded infrastructure projects that would have materially strengthened the economy for decades — and all were scuttled under Prime Minister Justin Trudeau’s watch in the past year.

It’s sad to say, but the last time there was so much heavy handed, poorly thought out federal interference into the energy sector was during the failed National Energy Program in the early 1980s, when Trudeau’s father Pierre was in charge.

The first two projects are gone for good, after frustrated proponents moved on to less-intrusive jurisdictions.

The Energy East project remains in play after proponent TransCanada Corp. said Thursday it would suspend its application for 30 days, however the company suggested it may not build it at all. It’s a reaction to the National Energy Board’s unprecedented decision to widen its study of the project to include the upstream and downstream greenhouse gas impacts of the whole oil industry.

“I believe this was the last straw that broke the camel’s back,” given the many changes already imposed on the project and the $1 billion spent to date, said retired TransCanada executive Dennis McConaghy.

On Friday, the NEB said it has suspended its review of the Energy East and Eastern Mainline projects for 30 days, following the company’s request. During this period, the regulator will not issue further decisions or take further process steps relating to the review of the projects, it said in a statement.

With the 30-day time out, TransCanada may be sending a signal to the federal government to get the NEB to reconsider, and/or to its shippers “that we are closing this thing down and KXL is the last thing out of town,” he said.

TransCanada is waiting for shippers on Keystone XL to recommit after the project was revived by U.S. President Donald Trump, and is also waiting for a route decision by the Nebraska Public Service Commission, the last hurdle before proceeding with construction.

The ball is now in Ottawa’s court to figure out whether the benefits of choking oil and gas development by limiting pipeline construction to meet the Paris agreement greenhouse gas reduction commitments are worth the costs, including continuing harm to the oil and gas sector from Alberta to New Brunswick and to Canada’s reputation as an investment destination.

The blowback Friday suggests many have had enough.

Trudeau should be particularly concerned that Alberta is breaking ranks on Energy East, after making the biggest sacrifice to support his climate change agenda, capping oilsands emissions, accelerating the phase out of coal, and imposing carbon taxes. Clearly, with 100,000 oil and gas workers out of work, Energy East was a step too far even for the left-leaning provincial government.

In a strongly worded statement, Alberta NDP Energy Minister Marg McCuaig-Boyd accused the NEB of “a historic overreach and has potential to impact the future of energy development across Canada.”

“Deciding the merits of a pipeline on downstream emissions is like judging transmission lines based on how its electricity will be used,” she said. “This is not an appropriate issue to include in the review. Additionally, Alberta’s Climate Leadership Plan should satisfy concerns about upstream emissions. Prime Minister Justin Trudeau directly cited this climate plan in his approval of two new pipelines last fall.”

Conservative MP Shannon Stubbs, who shadows natural resources minister Jim Carr, said the Energy East suspension is another hit for workers and their families who depend on energy jobs.

“Throughout the past year, investors have frozen or abandoned Canadian projects and taken all potential jobs with them,” she said. “Uncertainty has pushed capital to south of the border, with less red tape and lower costs. The Liberals’ risky policies are hindering Canadian energy. This is yet another example of how government can literally put oil and gas companies out of business. Minister Carr has commented on this situation, claiming this is a ‘private sector decision.’ But it is actually a direct outcome of Liberal decisions.”

Calgary senator Doug Black, who is also a senior energy lawyer, said the NEB “stumbled” on Energy East and allowed “regulatory creep.”

“I simply do not believe it’s realistic to assess in any meaningful fair way both the upstream and downstream greenhouse gas emissions,” he said. “I don’t know how you do it. I certainly don’t know how you do it fairly.”

Black said there is a real risk that TransCanada will drop the project because it can’t get it done under the NEB’s new rules.

Carr is expected to unveil his government’s final overhaul of the regulatory process, including reforms to the NEB and to environmental assessments, later this fall.

His spokesman, Alexandre Deslongchamps, said in a statement TransCanada’s decision is their own to make.

It’s true that Energy East was once offered an alternative to Keystone XL and that given the oilsands’ investment pullback — due in no small part to Trudeau’s policies — production may not reach the levels once expected.

Yet it’s also true that industry is pursuing many initiatives to reduce its carbon footprint and that the market, not politicians, should have final say on whether to support such a long-term project.

 

 

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