Wednesday, September 26, 2012

Augmented Reality: The Coming Reality

Once existing only in the realm of science fiction, augmented reality is becoming . . . a reality. It is making its way into popular media as apps for smartphones, like the iPhone, and tablet PCs begin using augmented reality to overlay contextual graphics and other information onto real-life images and objects using these devices in an interactive fashion.

The industry was rather tiny and was really just a collection of smartphone apps which generated only a few million dollars in revenues in 2010. But now, by reaching out to the media and advertising companies, the augmented reality industry is on the verge of becoming a real business and estimated to be worth perhaps $600 billion by 2016. Semiconductor research firm Semico Research say that more than 864 million mobile devices will be equipped with augmented reality by 2014 and more than 103 million vehicles could have some form of the technology embedded in them by 2020.

Investors can see that the industry is for real by the number of large companies which have moved into the sector. Take Intel (Nasdaq: INTC), for example. It has invested $14 million into a Dutch company, Layar, through its venture capital arm. Layar has the world's most used consumer augmented reality application, a reality browser that helps find services nearby on anything from restaurants to real estate to networking opportunities. Its app has been downloaded more than 20 million times, has 3 million active users and is actually making money.

Intel is also looking to add augmented reality features to its chips, as have some of its competitors including Qualcomm (Nasdaq: QCOM). The company's Vuforia platform allows developers to plug augmented reality into their applications. Its latest version of Vuforia now has cloud recognition. So now when you hold your device's camera over an image, it connects to the web and rifles through a database of more than one million images.

This week saw news from Europe on this front too with mobile telecommunications giant Telefonica S.A. ADR (NYSE: TEF) selecting Aurisma and its technology as its partner to expand its mobile advertising worldwide. Aurisma is the augmented reality business now owned by Hewlett Packard (NYSE: HPQ) after its acquisition of British firm Autonomy. Telefonica will use Aurisma technology across its operations in 25 countries (and 300 million consumers), starting with the United Kingdom. Financial terms were not disclosed but it is believed that this is the biggest-ever deal between a telecoms company and an augmented reality company.

Telefonica believes that augmented reality may be the solution to the main problem that mobile advertisers face . . . users are less tolerant of traditional internet-style ads on their smart devices. This fact has held back the sector with mobile advertising accounting for less than 1 percent of total advertising spending in the United States. Telefonica plans to build the technology into its mobile advertising platform, alongside location-based advertising services and mobile coupons.

Google (Nasdaq: GOOG) and are also investing in their own in-house augmented reality projects, but they are considered long shots in this industry. Google's project, for instance, is called Project Glass and its goal is to develop a head-mounted display which would allow the hands-free displaying of information currently available to owners of smart devices and also interaction with the internet through voice commands.

The tentative leader for now in augmented reality seem to be Hewlett Packard with Aurisma and its TEF deal, but it is still very early days with lots of start-ups in the sector which could surprise.   This article originally appeared on the Motley Fool Blog Network. Make sure to read all of my articles for the Motley Fool at

Monday, September 17, 2012

Shale Gas Companies: Big Writedowns Coming

For any investors in the energy sector who have not paid attention for the past few years, Hurricane Isaac should have taught them a lesson...the economics of the U.S. energy industry has changed drastically thanks to the shale revolution brought about by hydraulic fracturing (fracking).

Hurricanes in the Gulf of Mexico used to send natural gas prices soaring due to the supply disruptions from the region. But no longer. Now the Gulf of Mexico produces only 7 percent of total U.S. natural gas as opposed to the 20 percent it produced as recently as 2005. Fracking has led to such a boom in gas production in the continental United States that there is now a huge glut of gas on the market. This glut has pushed down the market price of natural gas so low that it is leading to problems for the gas production companies.

This gas glut will lead to, when full-year results are revealed in 2013, a great number of natural gas firms taking large writedowns in their reported reserves. In other words, these companies will be revising downward (some more than others) the commercial prospects for their natural gas assets. This is important in many cases because many oil and gas agreements with banks link borrowings to reserves. The hit may be exceptionally hard, and catch investors off guard, at gas companies which were too aggressive in booking reserves.

The weakness in natural gas prices has even affected the big energy companies like ExxonMobil (NYSE: XOM), which after its purchase of XTO Energy is the biggest U.S. producer of natural gas. Poor results from its gas division led Exxon CEO Rex Tillerson in June to say that energy companies were “all losing our shirts” thanks to the very low gas prices.

But the poster child for these upcoming writedowns has to be the most aggressive of the natural gas companies, Chesapeake Energy (NYSE: CHK). In its second quarter results, the company already wrote off 4.6 trillion cubic feet of natural gas reserves. That was 24 percent of its reserves and equivalent to more than two months of U.S. consumption of gas! However, that was offset somewhat by reserve additions to make the net decline only 7 percent. Its full-year 2012 results, which should have some massive writedowns, will certainly have its suffering shareholders on edge.

Chesapeake has hardly alone in announcing reserve writedowns in its latest earnings reports. One of Canada's major natural gas producers, Encana (NYSE: ECA), took a second quarter loss of $1.48 billion after it took a $1.7 billion charge on some of its gas assets thanks to the low prices. And it warned that further writedowns were to come in the months ahead.

Natural resources giant BHP Billiton ADR (NYSE: BHP) also announced a major writedown. In August, it took an impairment charge of $2.84 billion against its Fayetteville gas assets that it acquired from Chesapeake Energy in February 2011 for $4.75 billion. The company ended up entering the U.S. gas market in a big way just before the major downturn in gas prices. BHP also wrote down the assets thanks to lower than expected production from the gas fields.

Smaller gas producers have also been hit, such as Ultra Petroleum (NYSE: UPL) which announced a $1.1 billion writedown on its natural gas assets, resulting in a $1.2 billion loss in the second quarter. Its average selling price for gas fell plunged 22 percent from $5.17 a year earlier to $4.04 in the second quarter of 2012. The company owns gas fields in Pennsylvania and Wyoming.

The only way for this situation to turn around in the long term for the natural gas producers is to see a substantial cutback in drilling activity. Some cutbacks have already occurred...the number of working gas rigs in the U.S. has fallen by almost half in the past year. However, figures from energy consultancy Bentek Energy show that gas production still rose by about 5 percent in the first half of 2012 due to increased rig efficiency.
Translation? A lot more drilling activity has to be cut back before natural gas prices can enjoy a sustainable rise, ending the writedowns and the troubles for gas companies' shareholders.

This article originally appeared on the Motley Fool Blog Network. make sure to read all my articles for the Motley Fool at,

Tuesday, September 11, 2012

New US Vehicle Fuel Standards Off Target

The Obama Administration has announced that it is adopting new rules concerning vehicles' fuel efficiency. The Administration will demand a near doubling of the Corporate Average Fuel Efficiency Standards (CAFE) by 2025. Automakers will have to improve the overall fuel efficiency of their fleet from 27.5 miles per gallon to 54.5 miles per gallon by 2025, saving the United States a supposed 2 million barrels of imported oil a day.
Also included by the Obama Administration are incentives for the introduction of natural gas-powered vehicles in addition to further incentives for both all-electric and hybrid vehicles. It remains to be seen whether these incentives for electric vehicles work any better than previous ones as electric cars have been a tough sale to the consuming public.

Automakers including General Motors (NYSE: GM), Ford (NYSE: F), Toyota Motor ADR (NYSE: TM) and Chrysler – majority-owned by Italy's Fiat S.p.A. ADR (NASDAQOTH: FIATY.PK) will all be affected by the new rules. General Motors and Ford, for example, are launching major initiatives to drop the weight of their cars, all with goal of improving their fuel economy. Toyota is developing hydrogen-powered vehicles which, if successful, will easily allow them to meet the new standard. In addition, automakers are downsizing their engines. The V8 used in cars like the Dodge Charger, in the words of Chrysler chairman Sergio Marchionne, will become “as rare as white flies”.

Eleven of the major automakers, including those mentioned above, have all publicly “endorsed” the standards put forth, perhaps happy that now these nationwide standards will avert California setting its own even tougher standards. But privately, executives at some leading automakers are warning that these new standards will distort the U.S. vehicle market and will likely not deliver the projected reductions in overall fuel demand.

The most outspoken automaker, which has not not endorsed the new fuel standards, is Germany's Volkswagen AG ADR (NASDAQOTH: VLKAY.PK). It rightly points out that initially the standards do not demand as much improvement from gas guzzlers like SUVs and pick-up trucks than from smaller cars, which are already fuel efficient. The regulations count these vehicles as 'trucks' which are subject to less stringent requirements.

This in effect penalizes companies that concentrate on passenger cars like Volkswagen. In addition, the new fuel standards may have a perverse effect on fuel consumption by having some vehicle makers pushing sales of fuel-inefficient pick-ups and SUVs at the expense of other smaller, fuel-sipping vehicles. Also companies that have fuel-saving technology such as clean diesel receive no extra credits under the rules. There are substantial credits for hybrid technology and “stop-start” technology which turns engines off even when vehicles are stopped for a moment.

Even supporters of the new regulations have their doubts about them. The vice-president of technical and regulatory affairs at Toyota Motor North America, Tom Stricker, told the Financial Times “Whether or not they will lead to the level of reductions and improvements that the regulations hope and expect is an open question.”

That is an understatement. Without tough regulations on SUVs and pick-up trucks, what is the incentive for automakers to switch to producing fuel-efficient cars or for Americans to switch away from driving their gas guzzlers? Look for sales of big Ford and GM pick-ups to continue unabated in the years ahead, albeit with smaller engines.

Thursday, September 6, 2012

China Looking to Africa for Gold Riches

In 2010, Barrick Gold (NYSE: ABX) floated its African subsidiary African Barrick (NASDAQPTH: ABGLY.PK) on the London Stock Exchange while retaining a 74 percent majority interest in the company. African Barrick is Tanzania's biggest gold producer with 17 million ounces in gold reserves. Despite this, African Barrick's stock has performed badly since listing – down about 30 percent.

The poor performance is due to poor production numbers – only about 700,000 ounces this year versus the expected nearly 1 million ounces – thanks to being forced to mine low-grade ores. African Barrick also has had to constantly battle power disruptions in Tanzania which have also pushed up costs (forced usage of diesel generation for power). The company struggling to keep costs within its $790-$860 per ounce range, well above the parent company's target of $550-$575 an ounce. Costs were only in the $530 per ounce range in 2009.

The decision to possibly unload poorly performing African Barrick should come as no shock to investors. New Barrick Gold CEO, Jamie Sokalsky, is in a tightening mode and a few weeks ago the company signaled that it was reining in its aggressive expansion plans, a review of vast portfolio of assets, and announced a renewed focus on disciplined spending. Mr. Sokalsky said during his first earnings call “Assets that do not generate target returns or significantly impact our ability to generate long-term free cash flow will be either deferred, shelved or divested.”

So, with the help of investment bank UBS, the parent company is looking to unload its stake in African Barrick as quickly as possible. The good news for Barrick Gold is that there seems to be no shortage of suitors for the firm.

Foremost among the suitors are the Chinese, who are hungry for more international gold assets. It is believed a Chinese buyer will substitute African Barrick's high-priced expatriate workforce with its own cheaper workforce. State-owned China National Gold is rumored to be at the front of the line and in preliminary talks currently with Barrick Gold about its African subsidiary. Another Chinese state-backed mining company and major gold producer, Zijin Mining Group, has also expressed an interest in African Barrick. But it is believed that its offer was too much of a low-ball offer and is not being seriously considered by Barrick Gold.

However, Zijin's interest in African Barrick has now sparked interest in the company from other gold mining companies. These companies are said to include AngloGold Ashanti ADR (NYSE: AU), Gold Fields ADR (NYSE: GFI) and Randgold Resources ADR (Nasdaq: GOLD). Gold Fields' main focus is on the deep mine shafts in South Africa's troubled gold industry and is interested is diversifying further into Africa on top of its existing open pit gold mining operations in Ghana.

Perhaps the better fit with African Barrick would be either Randgold Resources or AngloGold Ashanti. Both firms have been named as possible buyers of African Barrick in the past because they do mine geologically similar projects in greenstone belts in Africa. Randgold Resources, which has had a track record of building and running gold mines very successfully, has its operations mainly in the African nation of Mali. AngloGold Ashanti is a gold producer with operations in 10 countries including in South Africa, Namibia, Ghana, Guinea, Democratic Republic of the Congo, Mali and Tanzania.

The main attraction for all of these miners with African Barrick has to be its latest project in Tanzania, the Nyanzaga project. It is believed there are approximately 4.2 million ounces of gold located, in the Lake Victoria region, in higher-grade ores. It is this project which may turn African Barrick back into a growth story again. At least that is what the eventual buyer of the company must be hoping.

This article originally appeared on the Motley Fool Blog Network. Please make sure to read all my articles for the Motley Fool at