₪ David Pescod's Late Edition 7/21-7/25/08
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David Pescod's Late Edition July 21, 2008
NASDAQ $2279.20 -3.60
INDYMAC BANCORP. (IDMC-US) $0.15 +0.01
ITHACA ENERGY (V-IAE) $2.65 +0.25
GLOBESTAR MINING (T-GMI) $1.45 -0.07
Yes, it’s been a while since we’ve seen a market this
bad , but every five or eight years or so, something happens
and it scares the be-Jesus out of everyone and
usually looking back, it was almost always a buying opportunity.
You just hope that it isn’t one of those one in
a hundred-year-type stories…
But a while ago we had the Russian debt crisis that
clipped markets even though most junior players might
have totally missed it. Years ago, the Thailand financial
crisis created waves around the financial world. Once
again, it didn’t make much of an impression on some.
Everyone however, remembers the high-tech bubble
when it seemed that everyone had to have a high-tech
stock—whether it actually had a product or any cash
flow at all was not usually asked and NASDAQ got so
carried away to create one of the biggest financial bubbles
ever. How many decades until NASDAQ ever gets
back to where it was in that silly season is going to be a
good question.
Recently it has been real estate in the United States
and everyone seems to be watching “Flip this House” on
TV and aided by press talk of the real estate boom and
bankers acting like Santa Claus and a tax system in the
United States that seems to help speculators and punish
savers, the silly season looks bad.
Now reality has set in and if you want a home in the
United States, you may actually be asked for a sizeable
down payment. Who would have thought? The problem
is, is that they have affected markets around the world
and who knows when things will bottom...maybe it already
has.
But the real estate bubble has affected every Exchange,
and we are hoping a long list of oil and gas and
mining stocks will now look like bargains 12-24 months
down the road. It seems to be the taste with some of our
favorite analysts who are actually raising target prices
on some of their favorite stories while the market gives
some of these stories an even bigger bath.
With recent reserve numbers, Fred Kozak, Canaccord’s
oil and gas guy has had to increase his target on
Ithaca Energy to $5.25. But with a take-over attempt being
yanked in an ugly market, Ithaca heads to the basement.
We buy some anyway.
The same for Canaccord’s mining guy Wendell Zerb
as he ups his target for Globestar Mining. He notes the
bad news, “Head grades have decreased, strip ratios
have increased, cash and operating costs have increased…”
But he also notes though, “throughputs
have increased and our modelled mine-life has increased
by two years to 8.5 years.” He has upped his
target price on Globestar to $3.30 from $3.00, meaning
there is a potential double in this stock. Oh yes. He
has upped his target prices for some commodities including
copper to $2.00 a pound, which frankly, still
looks cheap to us.
He also expects the Cerro de Maimon mine to be in
production by August. Previously we would have
thought that Globestar was a take-over candidate—we
still do—just maybe cheaper. We buy a few more.
If anyone would like to see Fred Kozak’s report on
Ithaca Energy or Wendell Zerb’s report on Globestar
Min ing, just e-mail Debbie at debbie_
lewis@canaccord.com.
NASDAQ
IndyMac Bancorp.
Ithaca Energy
Globestar Mining
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David Pescod's Late Edition July 22, 2008
OILEXCO INC. (T-OIL) $15.98 -0.88
Nothing goes straight up forever, but you would have
thought the price of oil was doing just that until recently.
A dose of reality has hit the commodity that has performed
like a rocket. Today with Hurricane Dolly missing
the important facilities offshore in the Gulf of Mexico,
oil takes a bit of drubbing and over the last few
days, oil prices have had a touch of reality hitting home.
In the meantime, the question is just what are most
oil and gas stocks being valued at? Is it as low as $80 a
barrel as some analysts suggest or as high as $90 to
$100 as others suggest? Either way, in a gloomy market
full of fear, oil stocks probably aren’t getting their just
valuations. It will be interesting to see how some oil
stocks could correct if oil does go as low as $100 as
some people suggest a correction could see.
In the meantime, there are stocks that have good
news out that down the road still have to be watched,
and one of our favorites remains Oilexco. Yesterday they
announced some successful testing at their Moth prospect
and we note some comments by Fred Kozak who
has been following this story and had it as one of his
top picks since it was $3.00 a share.
Yesterday he writes, “On July 21, Oilexco announced
that it has successfully flow-tested the Moth exploration
well. The well flowed gas at a maximum flow rate of 24.4
mmcf/d and 2,460 bbl/d condensate. Management believes
that due to the equipment restrictions and the
high pressure and temperature flow conditions of the
reservoir, this well may have the capability of producing
approximately 44 mmcf/d and 4,400 bbl/d of condensate.”
The impact, Kozak suggests is positive and he writes,
“The impressive test rates of the Moth exploration well
support a material gas-condensate field discovery. However,
the size remains to be determined with at least one
more appraisal well. It is unlikely that this appraisal well
can be drilled prior to mid-2009. The Moth prospect requires
a High Temperature/High Pressure capable drilling
rig. With the Ocean Guardian going into dry dock
from scheduled maintenance and the other Oilexco drilling
priorities through the end of 2008, this rig will not
likely be available until early 2009.”
Of interest to us is Kozak’s valuation of Oilexco as
he suggests, “The company currently trades at 3.5
times our estimated 2008 debt-adjusted cash flow per
share.” His target price of $28.50 is based on 6.2 times
2008 debt-adjusted cash flow per share….but... (and
this important), only 2.6 times 2009E debt-adjusted
cash flow per share.
Up next for Oilexco is drilling around their Balmoral
area and also Shelley, but I suspect for a lot of people
who have been on board this story for some time, when
they actually experience some big cash flow increases
as some of their plays come on stream later this year,
will be a very important event.
The one question will be, what will be the price of oil
at that time?
For those who would like a copy of Fred Kozak’s
latest report on Oilexco, just e-mail Debbie at debbie_
lewis@canaccord.com.
Oilexco Inc.
ANDINA MINERALS (V-ADM) $3.30 -0.22
It almost feels as if gold is making another charge to the
$1000 an ounce barrier, but it’s the big guys like Barrick,
Goldcorp and the like, that are participating.
Today is a down day for gold and some news out of
Andina Minerals is surprising in that no one cares about this
junior, despite the fact that they’ve announced that in all
three category groups, they now have 9.3 million ounces of
gold grading 0.87 grams per ton.
This is a big revision to their grade and resource and
you would think people would care. So far it appears they
don’t, although several analysts have expectations of an
$8.00 price target on it. In the meantime, they have a hidden
gem as their sulfur project in Chile was given historical
resources by the Chilean Government in 1988 of 4.7 million
tons grading 40% sulfur.
These days, with the demand for sulfur because of the
need for potash, you would think people would at least care
about that! Oh well, sooner or later…
Notice to the left, the huge increase in sulfur prices over
the last while and for those who would like a copy of a report
by Canaccord’s Steven Butler, e-mail Debbie at debbie_
lewis@canaccord.com.
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David Pescod's Late Edition July 23, 2008
OILEXCO INC. (T-OIL) $15.37 -0.59
CAL-MAINE FOODS (US-CALM) $34.84 -1.71
POINTS INTL. (T-PTS) $1.00 +0.02
GRANDE CACHE COAL (T-GCE) $6.08 -0.52
We’ve been in an ugly market for a while now and with
that in mind we go to Peter Hodson of the Sprott Growth
fund, which had been one of the better performing funds
over many of the last few years, for a little hand-holding,
idea swapping, and looking for a light at the end of the
tunnel. He starts off joking that the markets have been
so bad that he just recently bought some of his funds for
his kids for their education funds thinking that it was so
low, it was the time to do so. Now he jokes with this market,
they might still have to get a job at Starbuck’s to get
themselves through school.
He also points out that the Canadian market is actually
only down just a bit compared to many markets around
the world down 20% such as south of the border or in
Asia and Europe and several of the countries in Asia and
Europe are down much more than 20%. He suggests that
as un-fun as some of the markets have been so far, the
Canadian market could still see a 10% correction by yearend.
So much for hand-holding and spreading joy!
We ask Hodson to haul out his crystal ball and make a
few projections for down the road. A year from now, we
ask, where will the price of oil be, natural gas and gold?
For oil, he is pretty adamant of roughly $140 a barrel
and doesn’t say much more about it. As far as natural
gas, he says it depends on hurricanes. It’s a reminder
that natural gas prices are always weather-dependent...a
warm summer and high temperatures means big demand
for power for air-conditioning. A cold winter—heating
will up demand and prices.
Based on that, he’s predicting $8.00 an mcf for gas a
year down the road with no hurricanes. However, if we
get a couple of hurricanes that create supply problems in
the Gulf of Mexico, he comes up with $15.00 an mcf.
That’s quite a range and his $8.00 target is lower than
many these days.
As far as gold, he figures that that is probably the safest
bet and is looking for $1000 on gold a year down the
road, possibly as high as $1100.
The reason he believes it’s safe is that while the
American government is talking boldly about strengthening
the American dollar and maybe increasing interest
rates to battle inflation, he looks at what American
10-year bonds are trading at these days and just doesn’t
believe it. He suggests with the weak economy,
instead of an increase in rates, he wouldn’t be surprised
to see an actual decrease in interest rates. If
they did increase rates, he would contemplate selling
his gold.
As far as stock picks at this time, he doesn’t have all
that much conviction on too many stories and that’s
what a bear market can do to you...it beats you up.
But there are three stories he very much likes and a
fourth that he can’t talk about because it is currently in
registration.
The first pick he goes with is Oilexco, a favorite stock
of many, particularly in the oil and gas sector. He uses
the analogy comparing Oilexco to Petro-Kazakhstan
which was bought out in 2005. At the time he said,
Petro-Kazakhstan was a cheap stock that was going to
see huge increases in production. He thinks the same
is true for Oilexco and though its reserve life is relatively
modest, he points to immense increases in cash
flow for the Company that two years down the road
could be 100,000 to 120,000 barrels a day.
If there is a buy-out we ask, what could it go for? He
suggests $25.00 anyway and possibly as high as
$30.00. Needless to say, it’s a little dependent on
where oil actually is down the road.
For a second pick he goes with something a little
different and that’s Cal-Maine Foods, which is an egg
producer in the United States, of all things. He points
to the fact that the stock has been hit by shorts and
there is an enormous short position out on the stock.
But he says that in the egg business right now, new
rules means that farmers have to provide more room
for their chickens and hence he wonders about how
many eggs are going to be produced. In the meantime,
the shorts are there because traditionally in summer,
egg sales drop considerably (there is not a lot of barbequing
of eggs in the summertime) so he believes that
with the enormous short position, there is probably a
short squeeze going on or about to go on.
Grande Cache Coal is another of his favorite stories
and the chart shows you just how it’s been beaten up
over the last while. Hodson points out that at the same
time that Grande Cache Coal has seen its stock getting
swacked, the Chinese are once again, announcing that
they are facing shortages of coal supply.
Meanwhile, about bad markets, Hodson tells us that
he remembers (not fondly) a year when the fund he ran
lost 12% and he was worried about his job, being relatively
new to the business, and wondering where his
next pay cheque would come from. But that’s what
bear markets and recessions are like.
The good news he reminds us is that after the bear
market if you are positioned, you can reap huge dividends.
It’s not uncommon he suggests, to see markets
bounce 25%, 30% or 40%. If that happens needless to
say, his kids could be taking limousines to
school...down the road.
In the meantime, he also points out that in all the
scenarios being talked about by market prognosticators
these days, there is one scenario that absolutely
no one is talking about. What happens, he asks, if
Americans suddenly start buying cars again, start buying
houses again and start spending? What happens
with that scenario is you could have 5%GNP growth
and while that would be good for everything from financials
to you name it, it could be huge for commoditybased
stocks.
In the meantime, he notes the reallocation of resources
in the Toronto market over the last week or so
with some selling of commodity-based stocks and the
oils and purchasing of banks and financials. He is not
too sure about that move currently.
Also, if you ever bump into him in a bar these days,
buy him a few drinks and then ask him what he thinks
of Points International. That’s a small company involved
in the travel-trading program that he was quite fond of.
But he had some rather harsh comments about what
has surrounded the stock over the last while. He suggests
it is suffering like many other stocks from “smallcap-
itis” and it will take a bull market to once again, get
this story going. But he remains fond of it.
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David Pescod's Late Edition July 24, 2008
OILEXCO INC. (T-OIL) $15.48 +0.11
DELPHI ENERGY (T-DEE) $2.50 -0.02
WESTERNZAGROS RES. (V-WZR) $2.47 -0.17
Yesterday in our Late Edition, Peter Hodson was suggesting
that with Oilexco on the verge of significant increase
in production, he believes Oilexco becomes a takeover
candidate and the company could be gone at $25.00
or better some time soon.
No better person to check with than Josef Schachter at
this time, particularly since Schachter who had suggested
a correction in the oil and gas stocks has had that—plus
in the last couple of weeks. (His latest monthly was titled
“Buy Favorite Ideas on Market Weakness”)
As far as Oilexco, he doesn’t believe management of
Oilexco will allow the company to be sold at the present
time as he believes management can get a much higher
price if they wait for down the road when they see production
that could hit as much as 100,000 barrels a day if not
more. Schachter suggests that if the company was going
to be sold, it would probably be by management deciding
that they can no longer incrementally increase production
with their projects and at that time, would seek to sell the
company themselves at prices much higher than some
people seem to be suggesting now.
He also mentions that with production estimates for
Oilexco near year-end, he figures they would be looking at
annualized cash flow numbers of as much as $6.00 a
share. As far as the correction in the oil and gas stocks
that he had suggested, it occurs from time to
time...nothing ever goes straight up...he suggests with his
TSX Energy Index now correcting from 470 to 370, we are
in the range that makes his whole list of favorites “tablethumping
buys” with names such as Niko Resources, Galleon
Energy, Tusk Energy, Vero Energy, Bankers Petroleum,
Bow Valley, Canadian Superior and most of the
names you see in his regular publication.
The only stocks that have held up he says, are the Columbian-
based stocks that aren’t quite as cheap as some
of the others.
If he had to pick three favorites, he would go with
Oilexco in the oils, Delphi in the gas’s, and WesternZagros
for their potential home-run hit in Iraq.
When we asked him jokingly if he could tell us the exact
date and time that this oil and gas sector would bottom,
he was actually considering doing so.
He suggested that the financial stocks such as the
banks and the like, probably bottomed between July
14th and 15th when you had Wells Fargo announcing
decent numbers and increasing their dividends and
forcing a turn-around in most of the banks and financials
in the United States. Also at the same time, oil
started petering out and the market saw a reallocation
of resources in the market. Now, he suggests, with the
TSX index falling from 470 to 360 to 380, over the next
week to two weeks, his whole list of favorites becomes
a table-thumping buy.
We listen, we hope he’s right and we add to our
holdings on Delphi Energy and Tusk Energy.
Meanwhile, one of Schachter’s previous top picks,
Accrete Energy was just involved in a deal with some
of their assets being bought by Pengrowth Energy
Trust. Schachter is a fan of the deal as he suggests
that Peter Salamon and his crew are selling some of
their more mature assets for top dollar and will probably
take the smaller company and Exploreco (probably
to be called Argosy) and then Salamon and his crew
will take the new company and move it from 1100 barrels
a day to 3000 barrels a day and make some more
money for followers.
He remains a fan.
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David Pescod's Late Edition July 25, 2008
AURELIAN RESOURCES (T-ARU) $6.30 -0.01
DYNASTY METALS (T-DMM) $3.28 -0.05
CORRIENTE RESOURCES (T-CTQ) $4.35 +0.14
IAMGOLD CORP. (T-IMG) $6.52 +0.32
The pain started in the general markets about a year ago
and there hasn’t been a lot of joy over much of the last
while, particularly in the junior mining sector where there’s
an awful lot of stocks (thousands in fact) that are hurting in
this general down draft. The ones that could really be hurt
near term, are those that don’t have a lot of money and may
have to still raise money in a market that would definitely
hurt the junior’s leverage.
In the meanwhile, even some of the good news isn’t all
that good. Aurelian Resources has had a major discovery on
its hands for some years with lots of gold—up to 10 to13
million ounces worth at fairly decent grades on their Fruta
Del Norte deposit, which is the good news. The bad news
is of course, it’s in Ecuador, where President Rafael Correa
one day seems to be a little bit pro-business and then the
next day, we get reminded that he seems to be best buddies
with Venezuela’s Chavez and that ilk.
The big question for many mining companies in Ecuador
that have decent projects such as Dynasty Metals and Corriente
Resources, is what are the terms going to be if and when
the country ever decides that mining could provide an awful
lot of good jobs for a country that needs them.
Yesterday, Kinross decided to take-over Aurelian in a
friendly deal and it gave the stock a bounce, although the
chart tells you it’s no where near as high as it used to be
and even farther from targets market people have had some
time ago.
At least it’s offering Aurelian shareholders right now a chance for liquidity and when we talk to major mining executives,
many of them suggest that Kinross just might be making a mistake. Maybe Correa and his people are simply leading
the mining companies along, letting them build mines, only to sooner or later take them over. Time will tell.
In the meantime, for the thousands of junior mining stories out there whose major story is just trying to exist
through these brutal times to thrive when things hopefully get better, one of the major concerns is money in the till.
Those that have it at least, will be able to take advantage of opportunities. Those that don’t have it...oh, oh!
Wendell Zerb and his cronies in the mining sector at Canaccord have taken a look at some of the junior mining and
intermediate mining stories that they follow that have the cash and those that don’t. It’s a very interesting list.
For those who want a complete look from the “Junior Mining Weekly” e-mail Debbie at debbie_lewis@canaccord.com.
To receive the Late Edition and be on our daily circulation simply e-mail Debbie at Debbie_lewis@canaccord.com and give your address, phone number and e-mail and we’ll have you on the list tonight. |
