₪ David Pescod's Late Edition May 16, 2006
IVANHOE MINES (T-IVN) $7.68 -0.35
WESTERN PROSPECTOR (V-WNP) $2.65 -0.35
We go to Canaccord’s senior mining analyst Graeme Currie for his
thoughts on the potential for correction and he points out that for 12
months, we’ve gone without so much as a hiccup, so we are probably
about due for one. He wouldn’t be surprised if we have a few weeks of
correction and then a few months of base-building and then get right
back to buying sometime in mid to late July. Volume will be key for the
resource sector and so many financing currently overhang the sector.
He expects high commodity prices to continue to make for good times in
the junior resource sector.
As far as potential buys, he says until you have the sell-off, he won’t
know which are the bargains and as far as stocks to short or be worried
about, he suggests that some of the stocks recently listed on the Frankfurt
Exchange might not represent all that much on value for many of
them.
But today, as long as you are not a shareholder of Ivanhoe Mines,
Western Prospector or many other junior based companies operating in
Mongolia, there is another reason to be hopeful for longer term, high
commodity prices. The Mongolian Parliament in a move that’s got to be
described as daft, but typical of some politicians everywhere has decided
to introduce a windfall tax on mining operations, despite the fact
that the country has yet to have many mines built to get around to taxing.
Their windfall tax begins at 68% when copper hits a mere $1.18 a
pound or gold hits $500 U.S. Needless to say, with billions in cost to
build some of these potential mines, a lot of accountants would suddenly
look at the high cost of energy, the doubling in the cost of cement
and steel and suddenly some of these mines go from quite economic to
maybe not so. Obviously, a kick in the you-know-what for the companies
that took the risk and decided to go there in the first place. (Today,
PetroEcuador seized or nationalized or whatever you want to call it
some of the significant oil & gas assets in the country owned by Occidental
and have announced that they are going to either auction up solvents
to interests in Venezuela out of Brazil. We now no longer own any
oil & gas or mining stocks in Latin America other than in Chile or Brazil
where ultra-nationalism still seems to be in check).
The scary part is that other countries such as those in Latin America
that would never decided to add windfall taxes if Microsoft started making
money, or Cisco, but seem to be geared towards oil and gas companies
or mining companies that for the first time in their lives, might suddenly
make some real money.
If mines are delayed, that simply means that commodity prices could
stay higher all that longer. Mongolia has lots of promise as potential for
future mines, but currently there is little infrastructure to be had, although
it is right close to one of the world’s biggest markets of China.
BEAR CREEK MINING (V-BCM) $5.10 +0.30
ANATOLIA MINERALS (T-ANO) $3.30 +0.06
MOTO GOLDMINES (T-MGL) $6.70 +0.10
We weren’t the only ones expecting a correction in the
junior mining market, which has been so hot of late and
has gone virtually straight up.
Mining analyst Andrew Kaip of Haywood Securities has
been expecting a correction as well and for some time. He
is expecting a 10% drop in gold prices and 15% to 20%
drops in many share prices associated with those gold
stocks, but with the big drop down yesterday, he figures
we are almost halfway there. He could see gold trading in
a range to set a base of between $630 and $650 an ounce,
and then he seems to think the good times are back.
When it comes to picking stocks, he just can’t be
shaken off of his three favorite stories. Bear Creek Mining
remains his top pick right now, despite the political risk.
He points to a drilling program just started and potential
for ever new discoveries and he points to political polls in
Peru showing that Alan Garcia may win the election over
the ultra-nationalist Ollanta Humala. (We should note that
Garcia is not a hero to all, as when he was President of
Peru in the past, he bankrupted the country, tried nationalizing
the banks and all sorts of things that he now suggests
he won’t contemplate in the future).
The chart shows the big correction Bear Creek has had
because of the political concerns, but Kaip suggests that
with the results out soon on some of their drilling, this
stock could (in a better political climate) be a lot higher.
His second pick is a story that has served him well in
the past, but in the last few days with the correction in
gold, Anatolia Minerals with its Copler gold project in Turkey
- it has been hit like all the golds. Down to the $3.25
level, way off the $4.00 plus area. He suggests there is
lots of value in this story.
Moto Goldmines is another one of his leaps into dangerous
areas as Moto is headquartered in the Democratic
Republic of the Congo, which is anything but democratic
and not the kind of republic you’d normally think of. It’s a
dangerous place. But still he suggests that the opportunity
is there and he points to the management team that
could probably bring it into production by themselves. He
notes one of their directors is a former executive COO
with Anglo Minerals and that’s about as high up in mining
circles as one can get. They no longer need a take-over
he suggests, to maximize shareholder value as the current
management can probably accomplish it themselves.
PANTERRA RESOURCES (V-PAN) $0.34 -0.01
We’ve called Panterra one of our “lottery ticket” selections
for the coming year, as this little oil & gas company
has no production, no revenue, but they still have a million
acres of land in Saskatchewan, some of which people such
as Canaccord’s Clive Stockdale and The Big Picture Speculator
Jim Letourneau have high hopes for some unconventional
gas to be discovered there.
Today this little company, which had to shut down it’s
early drilling program (earlier than expected), because of
early spring break-up announces that they are planning
and licensing 16 wells for their Foam Lake area and 16 in
the Moose Jaw area.
Needless to say, if they find the sweet spots in this big
chunk of land, it will keep them very busy and keep us very
happy, but if they don’t it will be like so many of the “lottery
tickets” out there…...very few are cashed in.
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