₪ David Pescod's Late Edition January 15, 2008
CITIGROUP (NYSE:C) $26.99 -2.07
For many of us who have been playing the commodities game and associated mining and oil and gas stocks, this whole correction we’ve experienced courtesy of the lads on Wall Street, who so poorly packaged the asset-backed mess, has certainly thrown a curve ball at our game. Who knew it was going to be this bad?
For months, people thought Citigroup might have a two or three billion dollar loss coming their way, then they moved it to $5 billion. Lately they’ve even been talking about a $10 billion kiss, but today, Citigroup announces they are cutting dividends, laying off 6000 plus people and taking an $18 billion kiss! $18 billion!!! This is a huge chunk of change and if Citigroup is doing this, the assumption is there are a lot of banks and other financial institutions that might have worse than expected numbers coming out shortly as well.
We were hoping at some point this would reach a point and sooner or later be behind us and counting on the strong Asian economies, our commodity game will come back.
We are still believers in that story when you see a day like today, with the Dow down 277 points and Toronto down 378 points and taking gold, oil and everything down with it, tests your nerves.
Meanwhile, we are glad we interviewed Josef Schachter today who is as bullish as ever on commodities thinking there is at least six years left to go and with some pretty aggressive expectations for natural gas, oil and gold. That interview should be running in the next few days. (It’s great hand holding.)
FARALLON RESOURCES (T-FAN) $0.65 -0.04
IAMGOLD CORP. (T-IMG) $9.35 -0.59
ANDINA MINERALS (V-ADM) $4.94 -0.11
ARGENTA OIL & GAS (V-AZA) $0.39 -0.01
It’s the time of year that many of the brokers have their top picks out for the coming year and many of them are quite intriguing, but we find one of the best, both for some of their picks and for their easy-to-read presentation is Paradigm Capital with their look at the coming year.
We look at their picks for the past year and notice that despite an ugly market, last years picks which featured a couple of huge winners such as Timminco and Enablence were up 27% for the year.
Looking at the year ahead they write, “As we sit here on January 14th, the markets are having their worst start to the year in almost 20 years. Weakness is across the market, save for gold, which recently hit an all-time high and is dragging many gold stocks with it.
More than ever, therefore, Paradigm Capital believes 2008 will be a stock pickers market. We understand our job is to try to find those stocks that provide our clients with enough alpha for them to outperform the market. As such, we understand and accept that our “portfolio” will have much more beta than many of our clients’ portfolios…”
The top picks in the resource sector for this year included such names as Farallon Resources (FAN). “We estimate Farallon should generate approximately $75m in free cash flow this year and $130m in 2009.” They have a 12 month target of $1.25. IAMGOLD (IMG) at $9.50, they have a $14.00 target and suggest that the big increase in gold should boost IAMGOLD’s earnings per share to record levels, post the Cambior merger. Or Mansfield Minerals (MDR), they have a spec buy with a $6.00 target and they believe the company has two significantly undervalued assets.
For the oil and gas sector they have Vero Energy (VRO) with an $11.00 target and suggest it represents value in sustained growth. The company reported its 2007 exit production of 5700 boe/d equivalent which represents 46% growth over the previous year and points to Vero recently increasing production guidance to between 6000 and 6400 boe/d down the road.
They have two picks that we own chunks of and on both of them we hope their targets are quite low. Andina Minerals (ADM) which they suggest “potential takeout candidate with leverage to the price of gold” and point to significant exploration upside.
“Andina’s Dorado Zone plays host to 100% of Volcan’s current 7Moz resource. The current Phase IV drill program will be split between infill drilling and Dorado and exploration drilling at the prospective Ojo de Aqua zone.” They have a $6.40 target, which we hope is way too low.
They also like Argenta Oil and Gas (AZA), a cheapie with a top-notch management team. Paradigm writes, “Argenta’s management team comprises approximately 300 years of experience in the South American energy industry, with extensive experience in Argentina with Repsol YPF.” They have a $0.75 target and once again, this company which is a favorite of CGX’s Kerry Sully, we hope could see much higher.
They have 516,000 net acres of undeveloped land in Argentina and Columbia, with some significant drilling results expected
shortly.
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