Advanced Energy TrendWatch – Q3 2016

Introduction

Welcome to the latest issue of the Advanced Energy TrendWatchreport. I’m adding three new companies from two different sectors in this quarter’s report.

The first sector is a little controversial. It combines two of my favorite things, technology and cars. I’m talking about the booming driverless car industry.

The second sector I’m watching is one that’s been dominating headlines lately: mining and precious metals. Right now, the metals sector is experiencing a resurgence, and I like copper, gold and silver.

Later in this report, I’ll profile and add the junior miner that acquired Reservoir Minerals Inc. (OTC: RVRLF), our Serbian junior mining copper play. Subscribers banked as much as 120% gains on that deal. I believe there are additional profits hiding in the miner that gobbled Reservoir Minerals up.

Before we get to that, let’s talk about a topic I’m personally familiar with: electric vehicles.

Several weeks ago, my family and I took delivery of a Tesla Motors (Nasdaq: TSLA) Model X P90D. This is our second all-electric vehicle.

Prior to the Model X, we leased a Nissan Leaf for three years. The Leaf performed flawlessly the entire time we drove it.

The only things we had to replace were a set of tires and wiper blades. The car required zero maintenance for 36 months.

That’s incredible, especially when compared to the average internal combustion engine vehicle. No oil changes, no air filters, no timing belts and, best of all, no gas.

The only issue with the Leaf was its 80- to 90-mile range. If we wanted to go on a long trip, we had to use our gas-hogging Nissan Titan truck.

The Model X, with its 270-mile range, solves that problem nicely. Plus, Tesla’s Supercharger network allows Tesla owners to travel just about anywhere in the U.S. for free.

There are thousands of destination chargers at hotels, restaurants and other resorts, too. The Model X is the finest example of automotive engineering I’ve ever seen. The fact that it’s electric makes it even more impressive.

The number of driver-assistance features in the car would warrant a separate article to describe them all. And Tesla is not alone in including these in its Model S and Model X cars.

Nearly every car manufacturer is moving in the direction of driverless, also called autonomous, vehicles. On the way there, these manufacturers are adding all kinds of driver assistance, including parking, cruise control, automatic lane changes, navigation and more.

I’m adding two companies that are figuring to be big players in this market. And remember, this market is just getting off the ground.

So let’s get to it. First, let me bring you up to date on the exciting driverless car market.

Driverless Cars Are Just Around the Corner

Imagine a day when there’s no car in your garage… And I’m not talking about turning 90 and having your license revoked.

I’m talking about five years from now. Or possibly even sooner.

You won’t have a car because you will almost entirely depend on a self-driving car service. You’ll summon it the same way you summon Uber today.

There’s just one big difference: There won’t be anyone behind the wheel. There may be other people in the car or you may be by yourself.

Why on Earth would you agree to give up your car? The biggest reason is cost.

That monthly car payment is a significant portion of a car owner’s income. So are insurance and fuel costs.

The money saved by not owning a car can be put to other uses, like college tuition, travel or investments.

Think about it. The average car sits in a garage as much as 95% of its life.

During the 5% of the time when you need one, why not just pay for that? According to an MIT study, driverless cars could eventually take as many as 80% of the current fleet of vehicles off American roads.

It’s All About the Technology

So how far off are they? According to the website Driverless-Future.com, most manufacturers are less than five years away from offering an all-driverless or semi-driverless model.

• Volkswagen expects to have one by 2019.
• General Motors expects to have its first model by 2020 or sooner.
• BMW already announced it will launch the iNext, a self-driving vehicle, in 2021.
• Ford expects to have driverless vehicles by 2020, but they may not go everywhere.
• China’s Baidu expects large numbers of self-driving cars by 2019 and full production two years later.
• Elon Musk says the first fully autonomous Tesla will be available in 2018, but Department of Transportation approval could take one to three years more.
• Uber expects its entire fleet will be driverless by 2030, since Uber will be so inexpensive that car ownership will make no sense.

Self-driving cars aren’t exactly a new idea. At the 1939 New York World’s Fair, one of the biggest exhibits was “Futurama,” a futuristic city where all the cars were remotely controlled by radio.

Back in 2004, the Defense Advanced Research Projects Agency sponsored a contest called “Grand Challenges.” Entrants had to design and build a driverless vehicle capable of navigating a challenging course.

In that first contest, no car was able to do it. So the agency held the contest again.

By the third go-round in 2007, six vehicles successfully completed the course. Most of them used mapping techniques to memorize the course.

Fast-forward to 2016 (technology marches on). Two key industry trends have emerged.

Increasing Driver and Passenger Safety

The first trend is one of the most rapidly growing areas inside the exploding automotive electronics sector. The industry calls it advanced driver-assistance systems (ADAS).

The addition of ADAS to more and more models is happening for several reasons. The first is growing public acceptance of ADAS technology.

Today’s drivers are keenly aware of this new driver safety technology. Carmakers have been quick to show it off in television advertising.

Many of these systems are available as options, but some come as standard equipment on a few popular models. In Europe, Ford Focus drivers can use their cars’ cruise control to keep a safe distance from the cars in front of them. (My wife likes that feature in our new Tesla.)

The car can also check out a potential parking space. If it’s large enough, the car will steer itself into it.

The Focus can even read road signs. If you have a lead foot, watch out. The car will gently alert you if you exceed the speed limit.

In an emergency braking event, the Focus will make a split-second decision to hit the brakes and avoid a crash.

The second and main reason for an increasingly higher number of ADAS-equipped vehicles has nothing to do with consumers. It’s the growing influence of national and international regulators and safety organizations.

Those folks continually issue safety ratings on vehicles. It’s a constant incentive to manufacturers to add more and more ADAS options to keep model ratings on the increase.

Automobile manufacturers have a big incentive to make their cars the safest on the road. Safer cars will mean higher sales.

ADAS technology is getting even more sophisticated. A number of European cars now have something similar to the “black box” data recorders found in aircraft.

Just like the plane version, the car black box records what was happening moments before a crash. European insurance companies are already offering motorists discounts on their policies if they agree to have the box continuously monitor their driving.

Drivers can expect that in the future, insurance companies will increasingly frown upon manual driving. The more you’re on autopilot, the less your insurance will cost.

Getting Rid of the Driver

The second trend is no driver at all. It’s known as full autonomous driving. These vehicles contain even more sensors, software and high-speed computer chips.

The road to autonomous driving is really made up of three steps. The first one is increasing the number of sensors and communication between vehicles.

Starting in 2017, General Motors plans to equip all new cars sold in Canada and the U.S. with a fast 4G mobile broadband connection. Eventually, all new cars, both with a driver and without, will have this connectivity.

That will enable ADAS-connected vehicles to communicate with each other regarding hazard warnings. In addition, a constant data stream of information on weather and traffic will enable vehicles to reroute or even interact with traffic signals.

The second step is developing increasingly detailed maps. This is a redundancy to the car’s sensors and a validation of what they are telling the computer.

Mapping software engineers still have a few technical obstacles to deal with. Computers need to record details of every road, intersection and traffic signal.

This is already underway and rapidly improving. The mapping software in the Tesla Model X is far superior to that in the Nissan Leaf, and the Model X is just three years newer.

A pilot program that began with 2,800 ADAS cars, trucks and buses is underway in Ann Arbor, Michigan. Every vehicle can inform others of its location, direction and speed.

A few vehicles can detect if another car in the program is just out of sight and has made an emergency stop. A lot of different carmakers are involved in this experiment.

In the Ann Arbor experiment, humans receive and act on alerts. However, future studies will allow vehicles to respond directly to each other, eliminating the possibility of human error.

Having vehicles connected to each other and to sensors along roadways has plenty of advantages. There will be fewer accidents and less traffic congestion. Car thefts will be nearly impossible.

Brazil is another country on the forefront of driverless vehicles, ADAS and vehicle connectivity. It is currently preparing a law that will require every vehicle to broadcast its make, model, license plate number, model year and fuel level.

Self-driving software won’t be entirely fixed. It will learn about roads and gain knowledge the more the vehicle is driven.

This is no different from how humans learn to drive. It’s also how these vehicles learn about their driving environments (roads, potholes, lane closures, etc.).

The beauty of self-driving software and connected cars is that everything every car learns will be instantly available to every other car. Traffic congestion, accidents and other road conditions will alert vehicles to immediately reroute.

The third and final hurdle in autonomous driving is one of policy. Autonomous car computers have to take into account the “human behavior” aspect of driving.

This will enable autonomous cars and human drivers to “negotiate” on the road. I don’t see an end to road rage, but it’s a big step.

The Tesla Model S and Model X already allow hands-free, autonomous driving at highway speeds and in congested traffic. It’s not yet available on two-lane secondary roads.

So far, Alphabet Inc. (Nasdaq: GOOG) self-driving cars have driven more than 1.7 million miles. Their computers never get tired or distracted, and they are more aware of everything around them than a human would be.

As Elon Musk noted, driverless vehicle technology will be here far in advance of liability and regulatory issues that need to be resolved. The issue of driverless vehicle accidents is bound to attract liability lawsuits.

This Company Is Watching You

There’s one company that’s been working on ADAS and autonomous driving technology since it was formed in 2001 in the Netherlands. I’m talking about Mobileye NV (NYSE: MBLY).

It is the world leader in ADAS development, including computer vision, data analysis, machine learning, mapping and localization technologies.

Mobileye’s software is able to locate roadway markings such as lane markers, barriers, road edges and similar items. It can read and identify traffic signs, traffic signals and directional signs.

This incredible technology has enabled Mobileye to create and continually update a database it calls Roadbook. The database consists of localized, drivable “paths” and associated visual landmarks.

Its software, when installed in vehicles, uses crowdsourcing. That is, each car’s sensors and software contribute real-time information to the Roadbook database.

The more vehicles that drive on a roadway, the more accurate the Roadbook database becomes. As a result, Roadbook is a very fluid and constantly changing database.

Right now, Mobileye’s software is already (or will soon be) built into car and truck models from more than 25 vehicle manufacturers from around the world. Mobileye’s products are also available on the aftermarket.

The company’s technology keeps both drivers and passengers safer on the roads. It reduces the risk of accidents, which saves lives.

Mobileye’s software is a disruptive force in the auto industry. In addition to proprietary software algorithms, the company designs its own proprietary EyeQ semiconductor chips.

Together, the EyeQ chips and software algorithms are able to create a detailed model of the visual field around the vehicle. Like a human, but faster and more accurate, Mobileye’s system anticipates possible collision scenarios with other vehicles.

However, it’s also on the lookout for cyclists, pedestrians, debris, animals and other obstacles. Its systems consume very little energy and are tough enough to operate in an automotive environment.

And Mobileye has been constantly refining and improving its products since 2007. Through the end of last year, the company estimates that more than 9.7 million vehicles had Mobileye’s technology installed.

Right now, it’s available in more than 221 different car models from 19 manufacturers. Our Tesla Model X is one of them. By the end of next year, Mobileye expects those numbers to grow to 287 models and 23 manufacturers.

Mobileye is continuing to build out a massive moat around its business. Here’s why: It’s been doing research and development for 17 years.

It’s gathered a huge amount of data from millions of miles of driving (and driver) experience. That’s something the competition doesn’t have.

The company has been manufacturing its EyeQ chips since 2007. It took five years to ship the first million chips.

As of the end of last year, Mobileye had shipped 4.4 million EyeQ chips. The company has design wins from four car manufacturers to launch some autonomous driving features in the next few years.

It also has ongoing development programs with nine more manufacturers for future autonomous feature launches. Mobileye is currently working on the significant algorithmic advances needed to support country road and city driving.

Mobileye Solutions

I’ve shown you the current state of ADAS and its future market potential. You should now have some idea of how big this sector is going to become.

I’d now like to share with you some of the specific solutions that Mobileye believes give it a huge competitive edge in the market. Professor Amnon Shashua is Mobileye’s chief technology officer, co-founder and chairman.

He leads a team of more than 400 engineers, and other research and development personnel. Under his direction, Mobileye started developing single-camera-based vehicle detection in 2000. Pedestrian detection followed two years later.

From the start, Shashua and his engineers believed that using a single camera was the best solution. Having a single camera as the primary sensor keeps costs low and simplifies vehicle packaging. All applications use the single camera.

It turns out Shashua and his team hit a home run. Carmakers find it a simple and compelling solution.

They can get all their ADAS technology from one supplier. That’s important, as it would be difficult to integrate and manage technologies from multiple suppliers.

In Europe, New Car Assessment Program rules are requiring new car manufacturers to add autonomous emergency braking as standard equipment on all new models. Having all applications available through its single-camera system gives Mobileye big upselling opportunities with carmakers.

The beauty of Mobileye’s system is that adding more functionality requires a simple software update. No hardware changes are necessary.

In cars with internet access, manufacturers can download updates wirelessly to vehicles. This eliminates trips to dealers or service centers.

Some of the other reasons carmakers gravitate to Mobileye are that it has 17 years of ADAS research and development, and the largest number of programs launched in the industry. But the biggest reason is cars already deployed with Mobileye’s products have given it tens of millions of miles’ worth of data.

It covers roads in more than 60 countries in highway, city and country scenarios at every hour of the day. The data spreads across hundreds of vehicle models and all weather conditions.

Mobileye’s huge data set gives it the unequaled ability to optimize, train and improve its proprietary software algorithms. This helps it to fully validate safety functions.

That’s important, as a false positive actuation in an autonomous emergency braking situation could be dangerous. However, Mobileye’s forward collision warning algorithm has demonstrated an accuracy of 99.99%.

The company believes it has the deepest and broadest global data set of any company in the business. And it shows in the company’s sales results.

For the last eight years, Mobileye has won more than 85% of the business for which it has provided quotes. That’s an outstanding track record.

It’s a result of Mobileye’s relationships and validation from 25 global carmakers. As more regulatory agencies in more countries continue to require more active safety features, more car models will have cameras.

Mobileye is the global leader in camera-based ADAS systems. That puts it in the driver’s seat (pun intended) when it comes to benefiting from this trend.

The company’s EyeQ proprietary semiconductor chip has the computing power necessary to run multiple algorithms in parallel. This is key to implementing advanced ADAS features.

Its newest EyeQ3 chips process visual data 36 times per second. Every new generation of EyeQ chip is many times faster than the one before.

For instance, the current generation of chips is the EyeQ3 family. It is eight times faster than EyeQ2.

Five car manufacturers are currently testing the next-generation EyeQ4 chips. They will have computing power eight times more powerful than the computing power of EyeQ3 devices.

EyeQ4 can process data from as many as 10 cameras simultaneously. Talk about multitasking.

And EyeQ4 is low on power consumption, an important issue in cars. It draws less than 4 watts of power.

But technology marches on, and Mobileye is already designing its fifth-generation chip, the EyeQ5. However, many new ADAS features on existing chips will require a software upgrade, not new hardware.

That’s the beauty of Mobileye’s highly scalable business model. It results in great operating margins.

In Q1 2016, the company generated operating income and net income for the first time. Q1 2016 revenues were $75.2 million, a 65% increase over $45.6 million in Q1 2015.

Q1 2016 gross profits were $56.7 million, a 69% increase over the $33.5 million it generated in Q1 2015. Q1 2016 net income was $161,000, a 127% increase over its loss of $594,000 in Q1 2015.

I expect Mobileye to continue to rack up profits. Here’s why: Mobileye can easily grow sales without corresponding increases in capital expenditures.

That’s because of its strong relationships with all of the major car manufacturers, most of which are already customers. As a result, the company doesn’t have to rely on traditional sales and marketing practices to further develop its business.

Its semiconductor partner, STMicroelectronics NV, is a leading integrated circuit supplier. It’s more than capable of increasing production to keep up with increasing EyeQ chip sales.

In summary, Mobileye is the “leader of the pack” when it comes to ADAS and autonomous driving capabilities for new vehicles. I expect this will be one of our fastest-growing positions in the months ahead, and it’s why today I’m adding it to the Advanced Energy Strategist portfolio.

Action to Take: Purchase shares of Mobileye NV (NYSE: MBLY) at market. Use a 25% trailing stop to protect your principal and your profits.

Another Big Player in Automotive Electronics

In researching this sector, it became obvious that I couldn’t add Mobileye without adding this next company as well. Most analysts think of this semiconductor graphics processor manufacturer when they think of gaming.

After all, NVIDIA Corporation (Nasdaq: NVDA) is the undisputed world leader in visual computing. Today, visual computing is becoming more important – and even a disruptive force – in everything from cloud services and virtual reality gaming to enterprise virtualization and autonomous vehicles.

NVIDIA is focused only on visual computing. Its strategy is to leverage a singular core investment that pays off with deep domain platforms.

This singular investment is paying off in spades. NVIDIA used to be a small PC graphics chip company.

Now its business has morphed into one with specialized platforms for its four large segments. They are Gaming, Datacenter, Enterprise Graphics and Auto.

Using a platform strategy is not only smart, but also the only way to address complicated visual computing challenges. It’s easily upgradable with new software releases.

For NVIDIA, the graphics processor unit (GPU) platform strategy has created a tremendous growth opportunity. Its revenue growth in fiscal year 2015 over fiscal year 2014 was a record, growing 13% to $4.7 billion.

The company had a 70-basis-point rise in its gross margin, to 55.8%. This was another record.

NVIDIA’s earnings per share growth is in the fast lane. Fiscal year 2015 EPS of $1.12 is 51% higher than fiscal year 2014’s $0.74.

Over the last three years, the entire company has undergone a big transformation. You can see below how most of NVIDIA’s business is coming from its four big segments.

In just three years’ time, the company’s focus on the four segments has paid handsome rewards. That part of its business has grown from a little more than half of its fiscal year 2013 revenues to about 85% of its revenue mix in its most recent quarter.

All of NVIDIA’s four segments grew between fiscal year 2014 and fiscal year 2015. What excites me the most is the growth in its Auto segment.

As you can see above, NVIDIA’s Auto segment had the lowest sales. However, it had incredible year-over-year growth of 85%.

There’s no question in my mind that the Auto segment revenues will be its largest in just a few years. I’ll get to the Auto segment in a moment. First, let’s look at the other three.

Video Gaming Controllers: A $20 Billion Market

The total addressable market for graphics processors in the Gaming segment is $20 billion. For 2015, NVIDIA commanded an 80% share of the gaming market.

Its Gaming segment revenues for fiscal year 2015 totaled $2.06 billion, a 36% year-over-year gain. NVIDIA expects PC gaming will grow 5% to 10% annually.

Its future gaming plans include leveraging its mobile and cloud architectures. It sees big growth ahead in what it calls “gaming’s cloud and mobile era.”

One of the big gaming growth areas is virtual reality, or VR, headset gaming. This will be transformative and disruptive to current games.

VR is truly gaming’s next-generation experience. According to a study done by Business Intelligence, 2016 will see 3 1/2 million VR headsets shipped.

By 2020, that number will be at least 26 million and growing. That’s good news for NVIDIA.

Its GameWorks VR is a software platform for VR headset and game developers. All that graphics rendering needs even higher-power GPUs.

NVIDIA is ready with even higher-performance graphics chips. It expects mobile and cloud power to take the gaming experience to billions of people.

High-Definition Designer Software

Imagine designing something using rendered images based on photos. Then throw in VR so you can move your object around in space – just make sure you’re sitting down. That process is exactly what designers who use NVIDIA’s Enterprise Graphics solutions can do.

NVIDIA’s next segment is Enterprise Graphics. NVIDIA has been the leader in this market segment for a long time.

Now, it’s bringing new technology to enterprise designers worldwide. Its Grid software platform allows users to work at a much higher level of realism.

In fiscal year 2015, Enterprise Graphics segment revenues were $833 million, a 4% year-over-year growth. The company recently launched Grid 2.0, and it’s a winner with customers and partners alike.

Adobe, Honda, Pixar and Harley-Davidson are just a few of NVIDIA’s Enterprise Graphics customers. They’re all using NVIDIA’s new DesignWorks software toolbox.

Right now, the number of NVIDIA’s Grid platform users is 225 million and climbing. That includes more than 300 companies, seven of which are Fortune 100 companies.

Hyperscale Data Centers

NVIDIA’s third segment is its Datacenter segment. Its fiscal year 2015 revenues totaled $279 million, a 53% growth over fiscal year 2014’s.

Its data center GPU devices are now in use by “Hyperscale” data centers. These high-end centers are used for deep learning, a branch of artificial intelligence (AI), and video transcoding.

It turns out NVIDIA’s “Tesla” (no relation to the car company) computing platform is completely scalable. While Tesla is based on NVIDIA’s GPU chips, its parallel processing capabilities are useful in general-purpose computing.

This is the birth of what industry experts are calling the era of “accelerated computing.” NVIDIA commands an 84% market share in this segment.

NVIDIA’s Tesla GPUs power the world’s fastest supercomputers. The U.S. supercomputer, nicknamed “Titan,” has 18,000 NVIDIA Tesla GPUs inside.

Fortunately for the U.S. government, the Tesla GPUs are the most energy-efficient in the world. In fact, NVIDIA powers 20 of the 25 most energy-efficient supercomputers.

Not too long ago, President Obama issued an executive order. The bottom line is, he wants a U.S. supercomputer that’s 30 times faster than the ones the government has now.

The U.S. Department of Energy awarded a contract to IBM and NVIDIA. Together, the two companies will construct an interim-generation computer that’s 10 times faster than today’s supercomputers.

NVIDIA’s Tesla GPUs and its Deep Neural Network software are being used extensively in AI applications. Our brains have neural networks, and it turns out AI software does too.

Suffice it to say that the inner workings of AI software are beyond even the understanding of most engineers. However, for those who are involved in AI, NVIDIA’s GPUs and its software aid them in the development of very complex AI algorithms.

Those algorithms are used in voice and image recognition, medicine, and autonomous cars. Some of NVIDIA’s Tesla GPU customers who are using the platform for deep learning are Amazon.com Inc. (Nasdaq: AMZN), Facebook Inc. (Nasdaq: FB), Microsoft Corporation (Nasdaq: MSFT), Alphabet Inc.and Twitter Inc. (NYSE: TWTR).

The Future of Driving, in a Chip

That brings me to NVIDIA’s last and most exciting segment, Auto. As I mentioned above, the auto industry is on the verge of a big disruption.

That disruption is coming in the form of ADAS and, eventually, autonomous driving platforms. Auto customers are using NVIDIA’s powerful GPUs to handle the intensive video processing required to bring ADAS features into the driver’s seat.

Car computing is expected to grow into an $8 billion annual opportunity, according to NVIDIA. For fiscal year 2015, NVIDIA’s Auto segment revenues were $183 million.

That’s a far cry from $8 billion. But here’s the best part: NVIDIA’s fiscal year 2015 Auto segment revenues grew 85% over those of fiscal year 2014.

That was the fastest growth rate of any NVIDIA sector in fiscal year 2015. And the company expects this segment will have the fastest growth rate in fiscal year 2016, too.

I’m not surprised. Visual computing is the “next big thing” when it comes to driving and the future of cars. Today, NVIDIA GPUs are powering infotainment and the digital instrument clusters in 8 million cars.

Twenty-five million more are on their way, based on contracts with its customers. NVIDIA GPUs are helping driver displays evolve into virtual digital cockpits, not unlike those used in fighter jets.

These displays require that all hardware and software systems in the car be completely integrated. Only with the computational power found in NVIDIA GPUs is this even possible.

My family’s Tesla Model X uses NVIDIA to power its infotainment system. This is the giant 17-inch-high display in the front center of the car, as shown below.

I can tell you that having nearly every aspect of the driving experience controlled on one screen makes for a very uncomplicated and beautiful dashboard. However, I must confess
I am just a little biased.

Just like NVIDIA has done in its other three segments, it has created a platform and operating environment to make it easier for engineers to use its powerful GPU chips.

Drive PX is NVIDIA’s most advanced ADAS and autonomous car GPU platform. It can handle data from up to 12 cameras, radar, ultrasonic sensors, and light detection and ranging sensors simultaneously.

Its DriveWorks software handles algorithms for deep learning, sensor inputs and computer vision. Right now, there are more than 50 companies designing with NVIDIA’s DriveWorks software platform.

There’s no question that NVIDIA is well on the way to capturing a significant share of the automotive autonomous driving segment. It’s the main (but not the only) reason I’m adding it to the Advanced Energy Strategist portfolio.

Here’s another one: This past May, NVIDIA announced a big jump in the video graphics race. Its new GTX 1080 chip is twice as fast as its current device. Even better, it uses just one-third the power and costs a little more than half what today’s model does.

In an interview with The Wall Street Journal, NVIDIA CEO Jen-Hsun Huang said the GTX 1080 chip was the “culmination of three years of work and billions of dollars of research and development.”

He added, “The 1080 is insane. It is almost an irresponsible amount of performance.”

Huang is apparently referring to the computational speed of the GTX 1080, which is 9 teraflops. That is 9 trillion floating point calculations… per second.

Technology marches on…

But perhaps the most important reason to purchase shares of NVIDIA is the intellectual property it has in the world of graphics processing. The company has more than 7,300 patents of graphics intellectual property, the richest patent portfolio of its kind in the world.

That is an unassailable barrier, in my opinion. NVIDIA shares trade at a P/E ratio of 38.84. While this is higher than many blue chip stocks, it’s not unreasonable for a technology company with the growth prospects that this one has.

Action to Take: Purchase shares of NVIDIA Corporation (Nasdaq: NVDA) at market. Use a 25% trailing stop to protect your principal and your profits.

A Diversified, Mid-Tier Metals Mining Company

I’ll bet if you ask the average person on the street where the country of Eritrea is, they won’t have a clue. It’s a tiny 45,500-square-mile country on the horn of Eastern Africa.

It has a coastline of about 620 miles along the Red Sea. Ethiopia ruled the country for about 33 years, starting in the early 1960s and ending in 1993.

Unfortunately for Eritrea’s population of 6.4 million, Ethiopia’s rule was not a pleasant or peaceful one. When Ethiopia left, there was little infrastructure and almost no economy to speak of.

However, it turns out Eritrea is rich in natural resources, including gold, copper, silver, zinc, granite, marble and potash. That wasn’t lost on a little mining company, Nevsun Resources (NYSE: NSU).

Even though few folks have heard of Nevsun Resources, it’s been around a while. Nevsun started as a mining exploration company back in 1965.

Based in Vancouver, British Columbia, it began exploring Africa in the mid-1990s. Its first two African projects were in Mali and Ghana.

Then Nevsun heard about Eritrea’s bounty of natural resources. In 1998, it began exploring the country.

Unearthed: The Bountiful Bisha District

However, it wasn’t until 2003 that Nevsun saw the potential in the Bisha district. It approached the government, which agreed to allow Nevsun to develop the Bisha Mine.

Nevsun completed the Bisha Mine on time and under budget back in 2011. It spent more than $420 million in capital.

It’s been operating the Bisha Mine for more than five years with a workforce of 1,342, of which 90% are local workers. Over that time, Nevsun has delivered five years of strong earnings, cash flow and dividend growth.

Since 2011, it’s returned more than $130 million to shareholders. The good news is Bisha is still going strong.

Verified by additional drilling, Bisha’s resources have grown 115% over the last five years. Nevsun is the operator, and it owns 60% of the mine’s output. The Eritrean National Mining Corp. owns the remaining 40%.

Nevsun’s life-of-mine estimate for Bisha is 470 million pounds of copper, 1.7 billion pounds of zinc, 240,000 ounces of gold and 8.2 million ounces of silver. Currently, Nevsun believes mining will cease at the end of 2025.

Nevsun expects to mine 40 million to 50 million pounds of copper through the end of June. By then, Nevsun believes it will have completed its $80 million zinc extraction plant at its Bisha site.

In the second half of this year, it expects to mine 40 million to 60 million pounds of copper and 70 million to 100 million pounds of zinc. In addition, it expects to produce 80,000 to 100,000 ounces of gold equivalent (gold and silver) from its ore stockpile.

Even though its current mine reserves will run out in 2025, Nevsun has an active exploration program in Eritrea. So far, it has determined that there is the potential to extend the Bisha Mine by continuing to mine deeper.

In addition, it has drilled 12 exploration wells in the Noranda district. Results analyzed so far indicate more than 200 million tonnes of copper equivalent.

It has also drilled eight exploration wells in the Flin Flon district. Primary analysis of drill cores there indicates a potential resource of more than 180 million tonnes of copper equivalent.

The Timok Project

Half a world away, Nevsun is working in another small country. It turns out Serbia has a world-class copper and gold deposit called the Cukaru Peki.

As luck would have it, Serbia is a great place to build a mine. First of all, Nevsun’s proposed mine, the Timok Project, is located in a district with a long history of mining.

The Serbian federal government not only is supportive of mining, but also welcomes foreign investment. The municipal district in the area of the Timok mine already has an experienced and educated labor force.

Even better, the Timok Project is in close proximity to existing infrastructure needed for mining. This includes water, rail lines, power, roads, ports and two metal smelting facilities.

The Upper Zone of the Timok Project holds 35 million tonnes of ore, containing 2.9% copper and 1.7 grams per tonne of gold. A smaller but more highly concentrated zone holds 1.7 million tonnes of ore, containing 13.5% copper and 10.4 grams per tonne of gold.

The company estimates that the deposit is potentially worth $1.5 billion. Nevsun figured that estimate using copper prices of $3 per pound and gold prices of $1,200 per ounce.

The Timok is expected to have a mine life of at least 12 years. However, the Lower Zone of the Timok Project indicates extensive copper and gold mineralization. Nevsun would potentially mine this area for 15 to 20 years after initial production.

Reservoir Minerals Acquisition

Back on June 23, 2016, to the delight of some of my subscribers, Nevsun agreed to purchase Reservoir Minerals Inc. We recorded an official gain of 119% on the purchase.

That acquisition gave Nevsun its current significant growth potential. In this era of global uncertainty, the Serbian Timok Project provides Nevsun with geographical diversification of its mining assets.

It grows Nevsun’s total contained copper 51%, from 857 million pounds to 1.299 billion pounds. It also grows the company’s inferred copper resources 517%, from 426 million pounds to 2.631 billion pounds.

Nevsun will use its debt-free balance sheet, combined with strong operating cash flows, to finance the Timok Project. Cliff Davis, the president and CEO of Nevsun, commented on the Reservoir Minerals acquisition: “Given our experience as a mine developer, the strength of our balance sheet and the ongoing cash flow generation from Bisha, we have the financial capacity to move the Timok Project to production in a timely manner and create value for shareholders and all stakeholders.”

To close the deal, Nevsun issued additional shares to former Reservoir shareholders. They now own approximately 33% of the 299 million outstanding shares.

Doing the deal in this fashion enabled Nevsun to keep its strong balance sheet. It currently has more than $200 million in cash and no outstanding debt.

Longtime shareholders know I’m a fan of great balance sheets. They also know I’m a big fan of dividends.

Nevsun delivers on that count, too. It currently sports a nice dividend yield of 5.59%. Not bad for a company the size of Nevsun. That’s why I’m adding Nevsun Resources to the Advanced Energy Strategist portfolio.

Action to Take: Purchase shares of Nevsun Resources Limited (NYSE: NSU) at market. Use a 25% trailing stop to protect your principal and your profits.

Well, there you have it. I hope you enjoyed reading the latest edition of Advanced Energy TrendWatch. The three companies profiled above are poised to add to some of the gains we’re currently sitting on.

We’ll continue to track our new picks, as well as the rest of the Advanced Energy Strategist portfolio stocks, in our regular Advanced Energy Weekly.

Good investing,

David Fessler