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No One Knows About This Bull Market

By Tom Dyson, publisher, The Palm Beach Letter
Monday, February 25, 2008

The mud was so thick, I had to pull up my pants legs and walk on my toes to keep the cuffs of my slacks dry. The dozens of contractors on site all wore rubber gumboots. So did the engineer showing me around the plant. I thought I saw them laughing at me as I picked my way through the mud to the entrance of the plant like a New York society lady who had just stepped from the stagecoach into the Albuquerque dust.

The plant was shiny and new. I could tell it was state of the art, even though I knew nothing of the equipment or the process. It was still under construction... hence the mud, the contractors, and the construction cranes. Production would begin in the next three months, the engineer told me.

"This plant is the first of its kind," he said. "Not only is it the biggest in the world, but it's the cleanest and the most efficient, too. We'll run at full capacity with only nine staff on site."

The engineer took me all over the plant and showed me the driers, the chippers, the pelletizers, and the scrubbers. The machines had European names on them. For example, a Swiss company – Buhler Group – made the plant's 13 pelletizers.

"These are the biggest pelletizers money can buy," said the engineer.

Two weeks ago, I visited Green Circle Bio Energy's pellet plant in Jackson County, Florida. Once it's in production it will receive 120 truckloads of logs per day... or 1 million tons of logs every year.

The total cost of this plant will exceed $120 million. But the owners are already scouting for a new location to build a second plant. The corporate website says even more plants are coming over the next few years.

In the next months, two more enormous plants just like the one I toured, but run by different companies, will start production... one in Georgia and one in Alabama. Two large plants also are under construction in Maine... Quebec and Pennsylvania have two already up and running. 

The bull market is in wood pellets. And yet, not one American in a thousand knows about this bull market... .

I haven't seen articles in any major newspapers or newsletters. And no one has any idea what I'm talking about when I mention this business. In fact, I wouldn't have discovered this opportunity myself if I hadn't stumbled on it by accident during one of my international research trips last year...

I was in Canada investigating the destruction of the sawmill industry there when a frustrated sawmill owner told me he wanted to close his mill and build one of these plants for himself. He wanted to know if I could help him with the financing. I told him I couldn't help... but I started researching the opportunity as soon as I got back to my hotel. Since then, I've trawled the Internet for leads, spoken to numerous industry contacts, and traveled across the country looking for information.

Now I believe the bull market in wood pellets will soon morph into a bubble...

Wood pellets have many different uses. Bedding for animals is one use. They are dry and comfortable for horses to sit on. Another common use is in home heating systems. I've heard two-thirds of new houses in Austria use wood-pellet heating systems.

Now there is a new use for wood pellets. The new demand comes from European coal-fired power stations. These power stations mix wood with coal in their furnaces. If the wood comes from sustainable forests, they earn carbon credits. Carbon credits convert into cash. Right now, European power plants are paying big bucks for these U.S. pellets. I think U.S. power plants will enter the field within the next two years when the United States implements a carbon trading system.

"We'd eat through some seriously large tracts of forest," said the tour guide at Plant Scherer when I asked him about using wood pellets in his furnace the day after I visited the pellet mill. Plant Scherer is the largest coal-fired power plant in the Western Hemisphere... and
the single-largest source of carbon emissions in North America.

I'd put it differently. When carbon-credit trading comes to the U.S., the price of timberland is going skyward like an atomic mushroom cloud. Do not invest your money in wood pellets. It's too risky... and there isn't enough liquidity yet. Buy timberland instead.

Good investing,

Tom





Market Notes


NEW HIGHS OF NOTE LAST WEEK

Cleveland-Cliffs (CLF)... iron ore
Mechel (MTL)... Russian steel
Goldcorp (GG)... gold mining
Agnico-Eagle (AEM)... gold mining
Walter Industries (WLT)... coal
Fording Canadian Coal (FDG)... coal
CF Industries (CF)... fertilizer
Chunghwa Telecom (CHT)... telecom
Helmerich & Payne (HP)... oil drilling
Petrobras (PBR)... deepwater oil drilling
Companhia Siderurgica Nacional (SID)... Brazilian steel
Potash Saskatchewan (POT)... world's largest fertilizer producer
PowerShares Agriculture (DBA)... you can buy corn in the stock market
Crude Oil, Natural Gas, Coal, Gold, Silver, Platinum, Palladium, Corn,
Soybeans, Canola, Rice, Oats, Cotton, Sugar, Coffee, and Tea

NEW LOWS OF NOTE LAST WEEK

UBS (UBS)... Swiss bank
Gannett (GCI)... USA Today
Timberland (TBL)... shoes
Heelys (HLYS)... roller shoes
Blackstone (BX)... private equity
Louisiana-Pacific (LPX)... lumber
Books-a-Million (BAMM)... books
Collectors Universe (CLCT)... collectibles
Morgan Stanley (MS)... investment bank
Sara Lee (SLE)... battered food stock
Lumber

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