Buy Lynas in my long-term Jubak’s Picks portfolio

I added Lynas (LY.AU in Sydney or LYSDY in New York) to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13 (See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ on January 13 for all the changes to the portfolio.) Please note that most of the volume in Lynas is in Sydney. The New York shares are relatively thinly traded.

I can think of three reasons to add shares of Australian rare-earth miner Lynas to a long-term portfolio now.

First, the bubble (if there was one) has collapsed in rare earth minerals so investors can buy into Lynas cheap. Way back in 2009 and 2010 the worry was that China, which produces more than 90% of the world’s supply of rare earth minerals, was slapping on stringent export quotes. With rare earth minerals critical to the manufacture of hybrid cars, wind turbines, flat screen displays, and other fast-growing technology products, the fear was that high technology companies would have to move manufacturing to China to assure a supply of rare earths. That made the stocks of the few rare earth companies outside of China rare and valuable commodities. New York-traded shares of Lynas peaked at $2.57 in April 2011.

But now the global economic slowdown has produced a big drop in the short-term demand for rare earths and has sent prices of rare earth minerals plunging. The average price for the 17 different rare earth minerals fell 46% in the fourth quarter of 2011. The eight rare earths found at Lynas’s Mount Weld mine sold for $193.21 a kilogram in the third quarter, according to Lynas. That’s a big increase from the $31.50 price in 2010 but prices have since dropped back to $103.76 a kilogram currently. For 20112 China has announced that it will keep export quotas unchanged but no one is much riled by that since exporters used only half of the allotted quotas for 2011. New York-traded shares of Lynas are trading near $1.10 today, January 18.

Second, on January 5 Lynas announced that it had completed its application to the Malaysian Atomic Energy Licensing Board for a temporary license for its rare earth processing plant in Gebeng, Malaysia. Read more

Sell Kinross Gold (KGC) in my long-term Jubak Picks 50 portfolio

My ideal gold mining investment would be a company that was expanding gold production and that was keeping costs low.

Kinross Gold (KGC) only fits half that description, which is why I sold it out of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13. See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/on January 13 for all the changes to the portfolio. (Today, January 17, shares of Kinross Gold fell 18.8% after the company announced that it would record a goodwill writedown on its Tasiast mine in Africa. Kinross acquired the mine as part of a 2010 acquisition of Red Back Mining. As of September 2011 the project had a book value of $7.1 billion of which $4.6 billion was goodwill.)

For the third quarter Kinross gold reported production of 648,000 gold-equivalent ounces, a 13% increase from the third quarter of 2010. That’s exactly what you’d like to see at a time of rising gold prices.

But production costs soared. Read more

Sell Encana (ECA) out of my long-term Jubak Picks 50 portfolio

The December 2009 split into two companies was supposed to highlight the value of the U.S. and Canadian natural gas assets that EnCana (ECA) kept. (The new company Cenovus (CVE) got the Canadian oil sands and refining assets.) Instead it has wound up emphasizing EnCana’s exposure to a glut in North American natural gas that could keep prices depressed for years.

Now EnCana looks like it has decided to invest in reversing that 2009 split by putting about 20% of its capital budget into developing reserves that are rich in natural gas liquids and oil. Read more

I added Pioneer Natural Resources to my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13 (http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ )

To understand why I’m picking this oil and gas company from a long list of alternatives you have to get deep inside the U.S. oil boom going on now.

That boom is a result of oil companies bringing new technologies to bear on fields that were thought to be near the end of their lives or on fields that were thought to be impossible to drill.

Pioneer’s Spraberry field fits that first category. The field is one of the oldest—and largest—in the Permian Basin and despite having drilled in the area since the late 1980s, Pioneer continues to expand production by using technology to drill into deeper formations that has almost doubled estimated ultimate reserves. Pioneer has 900,000 Spraberry acres under lease.

Those estimated reserves don’t include what looks like it will turn out to be a major new Permian play from the deep Wolfcamp Shale formation. Read more

My apologies for the very delayed posting today. I had a major uploading glitch, which now appears to be fixed. Tomorrow’s schedule should be something like normal.

The bears are in a big majority in the commodity markets right now. So much so that net long positions across 18 U.S. futures and options fell by 9.6% in the week ended December 13, according to the Commodity Futures Trading Commission. That took net long positions to a 31-month low. The Standard & Poor’s GSCI Index of 24 commodities dropped by 4.5% last week. The S&P GSCI Index closed last week down 19% from its April high.

It’s easiest to summarize the thinking of the few remaining bulls. Barclays Capital argues that supply in key commodities is so tight that even modest demand in 2012 will push up prices in the early months of the year. Goldman Sachs, similarly bullish, has maintained its overweight rating on the sector and sees a 15% gain in the commodities index over the next 12 months.

The bears are having none of it. Read more