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James Passin: Betting on Beryllium

By: The Energy Report and James Passin



-- Posted Thursday, November 19 2009 | Digg This ArticleDigg It! | Discuss This Article - Comments:


Admittedly pro-uranium, James Passin, co-founder and manager of Firebird Global Fund and Firebird Global Fund II, says "it is important to acknowledge that the uranium bubble is dead." In this exclusive interview with The Energy Report, James discusses beryllium and its energy, military and industrial applications, as well as a burgeoning beryllium-uranium mix oxide fuel technology with the "potential to revolutionize nuclear power by creating a safer and more efficient fuel."

The Energy Report: James, last December, you commented on the low interest rates that the government had on bonds. You said you thought that would spur inflation and an increase in commodity prices. Now that we're in the last quarter of '09, how do you feel about your predictions and what do you see going forward into 2010?

James Passin: It was clear to me at the end of 2008 that we were at the beginning of a powerful and lasting recovery in commodity prices and resource stocks. I think that the structural fundamentals are in place to support further increases generally in commodity prices.

TER: This year we saw, basically, all positions and all sectors increase. What would cause just an increase in the commodity pricing going forward vs. all the other sectors?

JP: We have had a rally in all assets, but hard assets also are benefiting in particular from extraordinary loose monetary conditions. Surplus liquidity is flowing into commodity products like exchange-traded funds (ETFs) that are buying commodity futures and physical commodities, creating a feedback loop, which is driving up the price of resources. But what we thought is that this would be a great year for resource stocks based on our view that capital markets would start to reopen. Resource companies tend to be capital-hungry. So as the cost of capital comes down and as capital becomes available, resource stocks tend to outperform resource prices. At the same time, last year there was a dramatic reduction in issuance of stock by resource companies. This has resulted in a highly bullish environment for resource stocks. But we are concerned about the recent changes in the nature of market sentiment.

TER: You say you note a changing tone, generally. What's changing?

JP: It's interesting to ask how long these extraordinary loose monetary conditions will continue to exist. At what point will the Fed take the view that the financial system and the economy can withstand tighter monetary conditions? Perhaps it seems unlikely with unemployment at 10%. It is also clearly in everyone's interest to allow asset bubbles to develop to enable banks to rebuild their equity through generating profits. But any significant tightening of monetary conditions could undermine the commodity markets in the short-term. There is also a dangerous structural element to the market represented by the ETFs.

TER: What other commodities or resource areas are you following?

JP: We're very interested in strategic metals and minerals, which would include not only rare earth metals, but other metals and minerals that have critical applications in the energy, military, and industrial sectors. There's been renewed investor interest in rare earth metals, but several commodities with similar fundamentals have been completely ignored by investors.

TER: What are those and why haven't they received the attention? Is the market place too small for it? Are they just not well known enough?

JP: Oddly, there has been tremendous interest towards very small markets, so I do not believe that size is the issue. We anticipate that investor interest will continue to move across the periodic table. One of our key areas of interest is beryllium. Beryllium is needed in certain parts inside nuclear reactors. It's also used in various industrial and military applications.

Purdue University has teamed up with a company to develop beryllium-uranium mix oxide fuel technology, which has a potential to revolutionize nuclear power by creating a safer and more efficient fuel.

Mixed oxide fuel has the potential to solve the two major issues of nuclear fuel, one of which is the tendency of nuclear fuel rods to crack before all of the energy is extracted. The other issue addressed by beryllium is improving safety by eliminating the theoretical risk of overheating. By reducing wasted fuel, this technology could offer nuclear utilities the means of saving billions of dollars on a cumulative basis.

TER: Is there a government regulatory process that this new fuel would need to go through?

JP: Absolutely. In the United States it's governed by the Nuclear Regulatory Commission. It's going to take several years to test it in a test reactor and to get the licensing and permitting. I don't anticipate that this is going to be a commercial product before four to five years.

TER: I'm going to switch over to uranium here. In the past you've been very pro-uranium. Uranium seems been put on the back burner. What's your feeling about uranium now?

JP: I'm pro uranium in the sense that I believe in its merits economically and politically and we do have some investments in uranium exploration in mining companies. But it is important to acknowledge that the uranium bubble is dead.

TER: How does an individual investor play the boom through the Mongolian stock market?

JP: There are no restrictions on foreign ownership of stock and the currency is freely exchangeable. It's easy to open up a fund brokerage account. The hard part is finding shares to buy because the market is very thinly traded. It's possible to get a small amount of stock from time to time, although the entire market capitalization is only $500 million and the free float is much smaller. I think that it's certainly worth taking time to do a little bit of research and look at some of the larger stocks that are listed on the Mongolian stock exchange.

TER: You mentioned there are 24 mineral projects—and the biggest one is copper. With the recession worldwide, would we expect to see any return from anything in Mongolia for the next five years?

JP: The copper prices had a massive recovery. And Mongolia has other commodities, including coal, uranium, and iron ore.

TER: Thanks James. Interesting to talk with you, as always.

Describing him as "the Indiana Jones of frontier stock markets," the Financial Times praises James Passin for visiting "rough, difficult places…rather than swanning around the more comfortable nightclubs…" A graduate of St. John's College, James majored in philosophy and classical literature. He is a former editor and research director at investment newsletter Taipan. Passin co-founded and manages Firebird Global Fund and Firebird Global Fund II. James serves on the Board of Directors of National Investment Bank of Mongolia; Vangold Resources, Ltd., a company listed on the Toronto Venture Exchange; Sharyn Gol, a coal producer listed on the Mongolian Stock Exchange; and Maghreb Minerals PLC, a mineral exploration company listed on AIM. He also serves as a director of several private, venture-stage international resource companies.

 

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-- Posted Thursday, November 19 2009 | Digg This ArticleDigg It! | Discuss This Article - Comments:



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