A transformative vision of a post-Fission/Denison merger uranium world

November 9, 2015 10:38 AM

TER: While we're talking about mergers and acquisitions, what does the possible Suncor Energy Inc. hostile takeover of Canadian Oil Sands Ltd. mean for the other players in the Canadian oil sands?

MK: Suncor has been a partner in Canadian Oil Sands' project and would know it better than anyone else. It believes that Suncor can operate it better and, more importantly, it has the balance sheet to make the changes that are required. That's why it's going to get involved. What does it mean for the other players? The market took it initially as a positive, and now it's selling off. The reality is that these oil sand projects are not low-cost production projects. They are very expensive projects. Building these massive cokers and other infrastructure takes billions of dollars.

In the sub-$50 barrel of oil world where Canadian oil sands are discounted to West Texas Intermediate because it is heavy oil, investors have to be very cautious. If you want to play it, Suncor probably is the safest way. That's why Berkshire Hathaway Inc. and Warren Buffett are invested in Suncor. Canadian Oil Sands popped big time on the news, but some of the other producers have not enjoyed the same attention. Suncor is not going to pay more for these other assets because it has its hands full right now.

"Tim Young had incredible vision when he staked the properties NexGen Energy Ltd. holds today."

TER: If, as you wrote in the article on your web site, Suncor becomes the OPEC of domestic Canadian oil, how might it use that power position to its advantage?

MK: Suncor becomes the OPEC of Canada by controlling the large infrastructure in the oil sands. Suncor merged with Petro-Canada some years ago, which was a child of Pierre Trudeau's national energy program. That gives Suncor an advantage over the other companies because of the vertical integration of upstream and downstream. Plus, Suncor is Warren Buffet's largest oil play.

He was against the Keystone pipeline that would have taken oil to the U.S. refiners because Canada hasn't built the alternative pipelines east or west that it should have. That leaves Burlington Northern Santa Fe, which is owned by Buffet's company, Berkshire Hathaway, to transport all that oil. Coincidence?

TER: Staying on oil, you recently returned from visiting Africa Oil Corp. What got you interested in that story again?

MK: I was in it very early, going back to the private company Turkana Energy in 2007. I was involved in a sale of the 10BB Block to Africa Oil back in late 2008. We were very large shareholders. We had over 300% gains, but it turns out I sold a little too early. We got out around the $3/share range, and then within nine weeks it went to $12/share. Then I waited years. I'm very close to the management team. I think the world of Keith Hill and Lukas Lundin. Let me be very clear here, Africa Oil has a world-class oil deposit.

This is going to be a multibillion-barrel oil basin. There are fewer than 100 oil basins of that size in the world. It has multiple deposits within its basin. If you look at the money raised in the last 18 months for oil exploration by TSX-listed companies, Africa Oil alone has raised more money than all of the exploration-focused companies combined.

It put $1B into the ground to derisk these assets. Because the price of oil has fallen so low, the price of Africa Oil's shares have gone down as well, so it is a great deal right now. Ironically, if you're a big oil company like Exxon Mobil Corp. or ConocoPhillips or Chevron Corp., the assets of Africa Oil are more appealing at sub-$50 oil because they are such low-cost production assets.

They are world-class assets and they're not controlled by the OPEC nations. This type of asset becomes very appealing to large international oil companies. I believe within the next 12–18 months, Africa Oil will be able to attract a joint venture partner to fund the capital cost to put these assets into production.

TER: You are helping to produce the Silver Summit & Resource Expo in San Francisco at the end of November. What can energy investors learn from that conference?

MK: A few producing uranium companies we think are great opportunities will be on hand. Ross Beaty will be there with Alterra Power Corp. Also, Ross Beaty will be inducted into the Hall of Fame on the Sunday night—a great tribute for a great man. I asked Ross to come down and speak at the conference, because investors focused on silver and gold will also likely see the opportunity in Alterra and, more importantly, learn from Ross, as he is one of the greatest Canadian resource entrepreneurs of all time.

He will also be participating in an energy panel I am moderating with Amir Adnani from Uranium Energy Corp. and Frank Curzio from Disruptors & Dominators. Not to mention, there will be many fund managers and brokers in the Institutional portion of the conference. I am really looking forward to this conference.

TER: Marin, thank you for your time.

Read Marin Katusa's thoughts on the metals mining space here.


Marin Katusa is the author of the New York Times bestseller, "The Colder War." Over the last decade, he has become one of the most successful portfolio managers in the resource sector, such as his 2009 Fund Partnership (KC50 Fund LLC), which has outperformed the comparable index, the TSX.V by over 500% post fees. Katusa has been involved in raising more than $1 billion in financing for resource companies. He has visited over 400 resource projects in more than 100 countries. Katusa publishes his thoughts and research at www.katusaresearch.com.
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