₪ David Pescod's Late Edition October 2, 2006
OILEXCO INC. (T-OIL) $6.66 +0.20
STERLING RES. (V-SLG) $3.19 +0.09
On a day when oil is down $1.88 to $61.03, there’s not a lot of green on your screen if you are looking at oil and gas stocks. Two that stood out though were Oilexco and Sterling Resources, who shortly should be getting results on their Sheryl well in the North Sea, a well that several people have high hopes for. Judging by the action in the stock, somebody, somewhere obviously thinks they know something that’s good.
Meanwhile, more gossip is coming from analysts regarding the slump in Oilexco’s stock over the last while, that just maybe, some of the hedge funds including Amaranth Advisors which imploded, might have been some of the sellers of Oilexco’s stock that forced it down during or after Oilexco becoming part of the index.
We suspect, we are not too many hours or days away from news on just how big...or not the Sheryl well is for both Oilexco and Sterling. We can’t get a word out of any Oilexco officials today at all.
Meanwhile, partnered with Oilexco in the Sheryl well is Sterling Resources, a little company that’s got a couple of plays expecting results at almost the same time. As well as Sheryl they have their Boar well in Romania, which is currently five to ten days behind schedule, but expecting results near month end.
I’m not too sure who makes up the odds on the chance of success on some of these plays, but we keep hearing that this is one of those “one in five” wells, but it’s important to Sterling as they have a 60% interest in the 2.5 million dollar well and because of the generous fiscal regime in Romania, if this well does hit, it could be as important to Sterling history or even more so than what Sheryl might have in the North Sea.
ALAMOS GOLD (T-AGI) $ 9.00 -0.15
GAMMON LAKE RES. (T-GAM) $12.50 -0.25
AURELIAN RES. (V-ARU) $29.95 +0.20
Last week was the Denver Gold Show, one of the bigger of the mining exhibitions where folks in the industry get together, show their wares, and look at everyone else’s. It is also an interesting time for different commentators and analysts to survey the scene and make prognostications.
Canaccord’s Wendell Zerb was on the spot and suggested to us that of the stories that intrigued him the most, Alamos Gold was one of them as it looks they are coming up with some higher grade on their play and if they are able to increase production, that should look good for the company.
Gammon Lake Resources was another story that caught his attention and it is a story he has followed for awhile. Meanwhile, we find it interesting that several participants at the show, showed their following of Aurelian Resources probably wasn’t as big as we would have expected. We do wonder what big companies might have signed confidentiality agreements to see the property, as we would be surprised if someday, somebody
big doesn’t buy them.
Meanwhile Zerb tells us that one theme in the conference seemed to be mergers and acquisitions and who might fit with whom, but the overlying problem was what next for gold and of course, how do some of the big companies like a Barrick Gold or Newmont get bigger and more importantly, add to shareholder value? Good
question!
In today’s issue of Canaccord’s “Junior Mining Weekly” Zerb writes on political risk, which is a big problem these days and he talks about a presentation by Alex Gorbansky of Frontier Strategy Group, a group that specializes on assessing political/country risk. According to Frontier, Russia, Kazakhstan, Kyrgyzstan and Uzbekistan are considered high on the list for risk for expropriation of mining assets. He points out that Newmont Mining, in its recent talk in Denver, deciding to take a write down on Uzbekistan assets that were “stolen”.
Zerb also writes that Frontier worries about potential for political swings in nationalization and in particular, this might happen in Africa, which has benefited from a robust resource market however, inequality amongst the population opens the potential for backlash...
Frontier suggests “Latin America is one of the best locations to pursue mining opportunities.”
Another always interesting topic, what next for the price of gold? Zerb quotes Martin Murenbeeld the well-known and respected economist who presented his views on that topic—gold in the next 6-18 months. His main argument on the bearish side were:
1) Gold prices historically have not outperformed during a tightening monetary policy.
2) The growing risk for recession and recessions create commodity price weakness.
On the bullish side, his arguments were:
3) The U.S. dollar is poised to decline further.
4) U.S. dollar reserves are too high—diversification to gold is logical.
5) Gold relative to oil, S&P Index is relatively inexpensive.
6) Monetary reflation is likely following an economic slowdown.
7) Gold supply outlook is favorable given the declining mine output and controlled bank selling.
8) Gold demand is on the rise because of opportunities provided by ETF’s.
9) Geopolitical uncertainty favors bullion as a safe haven.
10) Long-term commodity cycles usually spans a decade and currently we are only in the sixth year of that cycle.
Bottom line though, when we ask Zerb of all the stories there, which one would he buy if he had to buy something today? (And he says this is with a six month time horizon).
He picked Gammon Lake Resources.
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