Editor's note: This column was submitted by Stockpickr member Winston Kotzan.
Kazakhstan has been making the news lately, and this time it's not just because of Borat.
A recent article in
on emerging markets cited this rising star in central Asia as a prospective addition to Progressive Asset Management's Advance Frontier Markets Fund, a fund of funds that makes pioneer-type investments in hinterland nations.
Much like neighboring China, Kazakhstan sustains a 9%-plus GDP growth. But unlike resource-hungry China, Kazakhstan is a supplier of raw materials. Its vast reserves of oil, natural gas and uranium near the Caspian Sea are the reason for a flood of foreign investment.
There are several Western companies pioneering this emerging land. Investing in their stocks offers what I like to call a "Borat" trade.
Early in the next decade, Kazakhstan is expected to become the world's fifth-largest exporter of oil. It currently ships 1.3 million barrels of oil daily, and that number is expected to increase tenfold over the next 10 years.
is the early bird to this bull market.
As the first Western oil company to arrive in Kazakhstan, Chevron has become the nation's largest private oil producer. About 20% of its net proven oil and natural gas reserves are in Kazakhstan.
According to its 2006 annual report, about 10% of its daily oil production came through its TengizChevrOil subsidiary in Kazakhstan. The subsidiary is a joint venture between Chevron,
and Kazakhstan's state-owned oil company. Currently, its oil fields are under expansion plans, expected to increase capacity between 53% and 83% by 2008. The Tengiz oil field is one of the world's largest with an estimated 6 billion to 9 billion barrels of recoverable oil.
In addition, Chevron has vertically integrated itself in the oil supply chain, managing pipelines along the Caspian Sea and selling oil-based products within the country's borders.
For a more speculative play, try
( TMY), an oil company whose principal asset is the South Alibek Field in Kazakhstan. This oil field has estimated proven reserves of 72.9 million barrels of oil equivalent and 108.2 million barrels of probable resources.
Just last April, management retained a financial adviser to wade through strategic alternatives such as a sale of its interest in the Kazakh oil field or a sale of the entire Houston-based company.
Analysts anticipate that if a deal to sell the company were to take place, this $117 million market cap company could sell for as much as $600 million. The possibilities and low valuation of this company even landed it a spot on Jim Cramer's
"Mad Money" speculative-stock index
A third U.S. company to benefit from Kazakhstan's increasing oil production is Houston-based
. This small international driller currently operates in 13 different countries, and some of its primary operating grounds are in Libya, Mexico and Kazakhstan.
Just last April it received new contracts commissioning an additional two rigs to its current Kazakhstan jobs, and the contracts on its existing two rigs have been extended by three years.
Finally, my No. 1 stock pick for profiting from Kazakhstan is not an oil, but a uranium play:
SXR Uranium One
( SXRZF), a Canada-based company that trades on the Pink Sheets.
As the uranium bull market rages, driven by a wave of new international nuclear reactors coming online, this company has been building itself into a uranium-mining powerhouse.
In April, SXR closed an acquisition for Kazakhstan-based UrAsia Energy, giving it 70% ownership of Kazakhstan's Akdala mine. In addition, it will also be exploring and developing two new sites: the South Inkai and Kharasan projects.
According to its latest quarterly report, SXR now has 48.7 million pounds of uranium content in proven and probable reserves. While this is small compared to the 513 million pounds in uranium giant
reserves, SXR is building itself into a notable contender.
Last month SXR announced new plans to acquire
( EMU). If the deal is successful, SXR will have the second-largest portfolio of uranium reserves in the world.
Better yet for SXR, production at Cameco's Cigar Lake mine is impaired due to a flooding accident. Without Cameco able to access one of its biggest assets, SXR will enjoy high uranium prices from tight supply and has a chance to fill Cameco's lost market share.
Kazakhstan is one emerging market that we will be likely to hear more about in upcoming years. Its recent development is a boon for mining and mineral exploration companies. A few of these stocks are likely to produce long-run returns that are, as Borat would say, very "niiiiice!"
This article was written by a member of the Stockpickr community.
Kotzan was long Cameco and Chevron.
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