₪ Pescod's Late Edition 3/31/08-4/4/08
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David Pescod's Late Edition March 31, 2008
At a time like this, when we all realize that we are in something that hits you about every decade or so, one has to have an idea of what’s next. Or at least someone who seems to have figured out the markets in the past, is someone to follow for the future. For that role we kind of pick on Jeff Rubin, who is the deep thinker at CIBC these days and he has made some amazing calls in the past. We’ve been following him mainly because of an outrageous call he made almost two decades ago when he suggested real estate in Toronto was too high and would correct by 20%. Needless to say, he made a lot of enemies with that call, but he was about as correct as you can get.
Obviously our stink bids were a little too high as they all have been easily met over the last few weeks, but it is interesting to look at the chart that Rubin has been drawing and giving out over BNN and other financial sources as what he is seeing for the markets down the road.
From the chart, obviously we still have a couple of more weeks and months of heavy going before things get better (at least according to Rubin), but we are certainly hoping he’s right for the rest of the year. Meanwhile, he is still leery of financial stocks, but quite hopeful for energy stocks. Here’s hoping he’s right!
RESULT ENERGY (V-RTE) $0.50 +0.05
We note that Jeff Rubin is keen on energy stocks and one surprise over the last few weeks has been the very strong pricing for natural gas, courtesy of a very cold winter for much of North America. So what next?
Well this could be interesting because we are going into the shoulder season when natural gas prices and gas stocks tend to sell off. And when you put that together with the general weak market, maybe this is one sector to be looking at.
Looking down the road for natural gas, it might be better than some had expected as many of the big coal plants and nuclear plants people expect it to be built in North America, simply aren’t being okayed by regulatory approvals. Meanwhile gas plants get built quickly, relatively cheaply and they do use lots of natural gas.
One cheapie is Result Energy, which will shortly be selling off some of its assets in Saskatchewan and looks like they may be a big player in the huge Horn River basin discovery in northeastern BC, that has attracted so much attention. We suspect that this junior can be acquired cheaply in the next couple of weeks for next winter when it will be attracting attention. It could be quite rewarding. But then, we hope that that’s the same for the bulk of most natural gas stocks out there that will benefit from higher prices next winter.
You are probably looking for a light read to take to the beach or to escape the ugly markets or to inspire you in the coming months and one book that you should consider is, “When All You Have is Hope” by Frank O’Dea.
Now a successful businessman who has seen it all and was founder of the “Second Cup” coffee chain, he had spent much of decades walking the streets of Toronto looking for $0.99 for a bottle of sherry and $0.50 so he could get into a flop house.
Rather than us talking about the book, how about a couple of exerts:
1) “I didn't care what or who had turned a basically good kid from Montreal West into a drunk on Jarvis Street. Nothing could be gained by blaming my plight on my distant parents or voluptuous Lana or Murphy the Cop or the predatory priest. My guilt and my shame could not be passed along to others like a hot potato or washed away in a shower stall. It was my duty to dispose of them. I have been repeating, tomorrow, tomorrow … over the years. Tomorrow finally arrived two days before Christmas.” Which is referring to his decision to give up alcoholism. Meanwhile as to getting into the business life and founding the Second Cup coffee chain, we just love this tid-bit:
2) “Our existing capital was too slim to cover the costs of building and equipping this new site, so we visited our bank, the one with the green sign for a loan. The Branch Manager listened to our proposition, studied our financial records for a few moments and then shook his head. We think he said, with the expression bankers display when turning down a loan, that your seven stores have saturated the market for coffee in Canada. We just don’t believe there is room for more outlets like yours. Sorry.
Yes folks, you heard that right. A bankers in the late 70’s thought seven coffee shops in Canada would saturate the market! A great light read for the summertime.
David Pescod's Late Edition April 1, 2008
METALLICA RESOURCES (T-MR) Closed yesterday: $6.05, up from previous day of $5.60 Volume: 26,318,035
METALLICA RESOURCES (AMEX:MRB) Closed yesterday: $5.89, up from previous day of $5.48 Volume: 1,511,752
NEW GOLD (T-NGD) Closed yesterday: $7.15, up from previous day of $7.01 Volume: 7,185,648
NEW GOLD (AMEX:NGD) Closed yesterday: $7.00, up from previous day of $6.78 Volume: 215,800
PEAK GOLD (V-PIK) Closed yesterday: $0.68, up from previous day of $0.61 Volume: 34,254,418
Above this article, we have the prices and volumes of three companies that are involved in a consolidation attempt in the junior mining sector that was announced yesterday. Notice the volume, as all three became some of the most active stocks in North America, if not the world.
This of course was yesterday, when people still cared about gold. Gold today having lost over $30.00 while oil is down over $0.54. We figure sooner or later people will care about commodity prices again, probably in the second half of the year, but in the meantime, if this consolidation does go through it could affect junior miners everywhere.
Canaccord analyst Wendell Zerb points out that the consolidation has to be successful mind you, but if it is so, then there are a lot of junior companies out there that could amalgamate to become intermediates and suddenly attract a much higher market valuation. We’ve been whining for a while now about the low valuations many of the junior golds attract, and as to why they would be so cheap is open to debate.
Maybe the bigger companies like the Kinross’s and Goldcorp’s that do have nice prices, have one management team spread over many operating mines and makes them cheaper to operate. They also have less country risk as they have several mines operating in several countries, so if one of those countries suddenly becomes a Venezuela or a Newfoundland, you are not as much at risk.
If this consolidation goes ahead, what are the next potential candidates for the merger game? Aurelian Resources is one name that is at the tip of most people’s tongue for a potential consolidation, but other companies from Aurizon Mines to Andina Minerals to you-name-it, could all be put into the category of “who could be next.”
In the meantime, what next for gold might be the question of the day for the next couple of months.
CORRIDOR RESOURCES (T-CDH) $6.80 +0.16
We’ve been following Corridor Resources for a while because it has a combination of the “steady-eddy” development on their McCully play in New Brunswick plus the potential of the Dawson Settlement deep play that could change the Company’s possibilities down the road dramatically.
Unfortunately, with the market correction, just about everything is trading for half price these days as is Corridor. However, with their latest deep test well, it looks like the Dawson Settlement is a dream that is much farther in the distance.
Meanwhile, one of the home-town analysts, the good folks at Acadian Securities out of Nova Scotia who have been following this story for a long time have a new report out. Yesterday they write, “Corridor reported that its second McCully deep test well, the McCully E-67, has failed to reach the Dawson Settlement. The well was drilled to a total depth of 4,130 metres and drilling and logging operations have been completed. The original target depth of the E-67 well was 4,500 metres, but Corridor stopped drilling at 4,130 metres after encountering red beds consisting of siltstone and shale, which are less prospective for gas than grey beds. It is unlikely that Corridor will be pursuing the Dawson at the McCully field for the foreseeable future.”
Which of course is the bad news. The report continues, “Corridor is encouraged with gas shows and pressures encountered within the Frederick Brook section of the E-67 well and plans to tie the well into the gas gathering system to facilitate long-term testing of the production potential of this extensive shale section. This will entail producing from the Frederick Brook, and shut in the Hiram Sands ‘B’ Sands for the time being.”
The bottom line though on the report is that they reiterate their buy rating for Corridor and maintain a target price of $12.00, which considering the stock is already seen that level when people last cared about resource stocks in general, makes that target sound almost reasonable, don’t you think?
David Pescod's Late Edition April 2, 2008
INTL. FRONTIER RES. (V-IFR) $0.295 n/c
The trouble with those high risk/high reward wells that could change your lifestyle is that they are not kidding when they say they usually have a one in ten
chance of success. International Frontier Resources is now basically zero for four in the North Sea and today they announce another miss on their Dahadinni B-20 well up in the Northwest Territories and is abandoned and a dry hole as well. Yuck! That’s zero for six by our calculations.
Meanwhile they do have their assets in the NWT that were successfully drilled years ago, but just when and where is there going to be a pipeline up there that gives them the potential for cash flow anytime soon.
ENERGULF RESOURCES (V-ENG) $3.82 +0.02
As we noted above, International Frontier has just gone zero for six on a high risk/high reward/high impact well, showing once again, that they aren’t kidding when they say about one in ten actually hit.
One play that is finally about to start that has to be in that high risk/high reward place is Energulf Resources as it looks like it is finally going to receive the drillship needed to drill the high risk Kunene well offshore Namibia.
What has caused the delays—was it paperwork in Angola or problems in Namibia—we don’t know and does this mean we should be worried about something down the road as other potential paper work problems in Namibia. Once again, we simply don’t know.
Once again, this is one of those big plays that could make a big difference to a stock about 40 or 50 days down the road.
URANIUM ONE (T-UUU) $3.45 +0.29
AURORA ENERGY (T-AXU) $5.48 +0.22
UCORE URANIUM (V-UCU) $0.42 +0.075
HATHOR EXPL. (V-HAT) $2.35 -0.05
We have certainly been in the doldrums in the resource sector over the last few months, despite the fact that many commodities are still near historic highs. One sector that has definitely been absolutely brutalized is uranium and the uranium exploration sector, which has seen uranium prices almost halved and definitely a lot less interest in it.
It seems just a few months ago when we had asked one analyst if they could buy only one uranium stock, what would it be? Uranium One was the answer. Then it was $10.00, just look at it now, proving it doesn’t matter what sector you are in, things can go wrong.
Meanwhile, Uranium One released financials in the last few days and there are not a lot of happy brokers. GMP has lowered their target from $8.50 to $7.40; Paradigm from $9.50 to $6.75; Cormark to $3.80 from $5.00; BMO from $11.50 to $9.00; RBC from $6.00 to $4.00; UBS from $8.00 to $5.00 and Raymond James from $6.40 to $4.40.
Obviously, expectations are going the other way as production looks like it is going to be less than had been previously expected and the bottom line going the same way.
In the beaten up uranium sector, Hathor Exploration is about the only story creating any excitement and for that matter, hope.
David Pescod's Late Edition April 3, 2008
FISSION ENERGY (V-FIS) $1.18 -0.07
HATHOR EXPLORATION (V-HAT) $2.24 -0.11
Wasn’t it just yesterday that we were whining about how things aren’t going all that well in the uranium sector due to a number of reasons? First of all, uranium prices which soared over the last three years have suddenly seen the price for the commodity halved from close to $140.00 to almost $75.00, although the long-term contracts are a little more tasty.
The other uncomfortable news has been that many companies have found out that in several jurisdictions around the world, it takes years to get the government okay to get work done on their projects, meaning it is going to take that much longer to find out what they have or haven’t got on their properties.
Yesterday we had mentioned that if it wasn’t for Hathor Exploration, the entire sector would be dead or near-dead and now we get this today...It’s a tiny little announcement, but it says all you need to hear as Fission Energy suggests that they, and their joint venture partner KEPCO Consortium takes the position that Hathor Exploration and partner Terra Ventures, are currently drilling on their Company’s Waterbury Lake Property.
Hathor has a very small property, but strategically placed in this hot bed of uranium exploration in Saskatchewan and now they’ve got a border dispute.
I guess anything that’s bad news continues to happen in the uranium game and I suspect we are going to be hearing a lot more about this little border situation.
Don Coxe’s monthly newsletter is out and it’s one that we always think highly of. There are three points that he makes in the monthly dissertation that we suspect people should pay attention to.
First of all, he says under his investment recommendations, “While US real estate prices plummet, Canadian real estate prices continue to climb. Apart from the special attractions of Saskatoon and some other Prairie communities, we wonder whether such hot spots as Vancouver and Toronto can stay torrid for much longer.”
We would add our own voice to that, as when we look at the percentage of family’s income that goes to supporting prices in Vancouver, we just wonder how much longer Vancouver goes without some sort of real estate correction.
A second point Coxe makes is, “This is a bear market on most of the world’s leading stock exchanges. Clients should therefore be wary.
Ursine conditions will remain until the bank stocks stop underperforming the market and the Fed can go back to being something resembling a staid central banker.”
A third comment he makes refers to gold and his recommendation is, “Gold reacted violently to its failure to hold $1,000. It will doubtless take some time to consolidate, but it remains a recommended portfolio overweight, both in the bullion ETF and in the companies whose production and reserve profiles are of above-average quality.”
PETROLIFERA PETROLEUM (T-PDP) $9.90 +0.30
CONNACHER OIL AND GAS (T-CLL) $3.26 +0.05
Today we get an update from Connacher Oil and Gas and its associate/offshoot Petrolifera Petroleum and so far the numbers look like they are going the right way.
Petrolifera announced that it continues to grow production in Argentina and during March 2008, the company estimated sales volumes rose according to their press release roughly 40% from January levels and are currently edging into the 9,000 barrels a day level. Mind you, Petrolifera had a drop in production over the last few months that was a little bit of a surprise for many of our followers. So it’s nice to see production now going the right way.
It was estimated that in January it was 6,400 barrels a day; February 8,300 barrels a day and March—now hitting 9,000 barrels a day.
For people following Petrolifera, you are looking for the big, big, big play and that’s in Peru where the targets based on seismic are somewhere between enormous and gigantic.
Meanwhile with Connacher, they today also gave an update and it looks like their bitumen production from their Great Divide Pod One oilsands project in Fort McMurray has now hit 7000 barrels a day, so they are well on their way to the target of 10,000 barrels a day. When you combine their conventional oil and gas production of roughly 3600 barrels a day, you now have a junior that’s over 10,000 barrels a day and the big question for Connacher now is when they do get approvals to start Pod 2, which will be another big day in the Company’s history.
David Pescod's Late Edition April 4
METALLICA RESOURCES (T-MR) $6.76 +0.30
The chart on Metallica Resources shows an incredible pop over the last couple of days. Have they discovered something big and huge in Mexico? No. Are they the subject of a take-over? No, although things are definitely changing with the company and we suspect that if more than a handful of analysts are right, it’s going to be the start of a trend.
As we mentioned a few days ago, Metallica is involved with a merger with New Gold and Peak Gold. It’s been more than a little frustrating over the last year, despite the bullish trend on commodities, that so many projects and junior companies did not get appreciation in the market.
At the same time though, the big companies such as GoldCorp, Kinross and to some extent Yamana and others, did have a lot of fun and were charging nicely.
If all you have to do to get a market capitalization is do a merger, I suspect you are going to see a lot more down the road. Trying to find a couple of companies to fit together though is going to be a little more difficult, but these mergers offers diversity of country risk as well as potentially interest in different metals and once again, the chart on Metallica says that the market does like this and is probably hoping for a lot more of the same.
When we ask around for companies that might be next to consider for this game of consolidation, Aurelian Resources is one name that pops up as well as Globestar Mining.
ARISE TECHNOLOGIES (T-APV) $2.24 +0.39
No, there is no news out on Arise Technologies today, but Arise was one of the stories that we had followed and written up a lot about, way back when it was $3.00 and even better.
To think that a stock in the market correction could drop as badly and be as bruised as Arise did, has given you a taste of what kind of a market we’ve been through. It’s been fearfully ugly and everyone has felt some pain somewhere.
Arise, we think, is one of the more intriguing of the stories for alternative energy projects and we get ever closer to them actually starting production on their plant in East Germany. We don’t doubt that those announcements are within weeks of occurring.
HATHOR EXPLORATION (V-HAT) $2.17 -0.07
FISSION ENERGY (V-FIS) $1.16 -0.02
We’ve mentioned over the last few days that there aren’t too many uranium stocks having any joy these days, but because of recent discoveries, Hathor Exploration was enjoying that. And then all of a sudden, there is a border dispute which means the only uranium out there having fun suddenly isn’t.
We have to go to the veterans of the Hard Rock Mining Analyst, David and Eric Coffin for some comments on what they think of this entire border game and the Hard Rock Analyst featured this piece just the other day.
“Fission Energy (FIS-V; off 7 cents on 894K at $1.18) announced before the open this morning (Thursday) that Hathor’s Roughrider discovery hole was within 10s of metres of the claim boundary with Fission’s holdings, and indicated that subsequent drilling by Hathor is within a fractional claim recently staked by Hathor but that is actually within the Fission holdings. Note firstly that Fission is not saying that the discovery is within its ground, but rather that some work done by Hathor near the discovery since then appears to have been done within Fissure’s holdings.
Hathor Exploration (HAT-V; off 11 cents on 4.3 mm at $2.24) has responded to this by stating that it has continued the work within its own claim boundary, as confirmed by a third party survey it had done after the discovery, and that it was that confirmatory survey that lead HAT to stake a fractional claim between its property and Fission’s adjacent Waterbury Lake claims.
At this point we can only lay out some broad brush notes on process. The original staking was done, in 2004, by noting the claim-staking details on a series of “claim posts” cut from local trees and/or erected using timber brought in for the purpose. Lines would be marked between the posts, other than where this is not possible going over a lake (as in this case) or other impassable terrain, but it is the positioning of the posts that determines the precise location of the area staked. Where terrain is impassable, special rules are used to describe where the posts should be. Location information is plotted on maps in the claims recording office, but to the extent there is a difference between the actual position of posts and the map plotting it would still be the physical location of the posts that determine the claim boundaries.
The precise location of a claim is finalised by having a survey done of where those posts are, then matching this information to the staking regulations and with regards to pre-existing claims. When Hathor recently surveyed its claim a wedge shaped piece of open ground, known as a fraction, was indicated and Hathor has claimed this. We realise the above may be confusing. This is an old system designed to minimise on-going disputes when compasses and maps to guide claim staking were rare. We have been involved in this process in a number of other Canadian jurisdictions, and can say that a dispute about precisely what is owned by who is not unusual within this type of system. The means to resolve disputes are fairly tried and true. The usual first step is to ask a government official who keeps track of claims to examine the situation and make a determination. Usually that is the full resolution and everyone gets on with their business. Court cases are rare since a court would need a very good reason to over-ride an official who knows the rules in detail. How quickly that process can complete we don’t know, but we hope sooner rather than later and that it indicates a misunderstanding both sides can live with.”
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