₪ David Pescod's Late Edition 4/29-5/2/08
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David Pescod's Late Edition April 29, 2008
GOLDSOURCE MINES (V-GXS) $2.37 -0.23
HATHOR EXPLORATION (V-HAT) $1.95 -0.11
Sometimes in the exploration business you stumble across stories that a Hollywood script writer in his wildest dreams couldn’t have touched upon such as what’s maybe occurring with Goldsource, formerly a penny-ante diamond explorer in a sector that no one cares about, with a company that has a paltry 18 million shares outstanding, but folks this Hollywood story is just starting.
One group following this story is the Hard Rock Analyst which put out an HRA Special Delivery, Sunday night on April 27th and they wrote, “Goldsource appears to have turned diamond into coal during exploration for the sparklers in east central Saskatchewan. Two of the drill holes testing its Border project cut seams of black coal averaging 30 metres thickness and beginning just 80 metres below surface; the two drill holes are located 1500 metres apart, so the tonnage potential is already in place.
Though coal is held in a separate tenure to diamond exploration projects, two of the GXS insiders have coal experience and the company has applied for the appropriate claims after they had looked at the core. The area is not known for its coal potential so this is a true discovery story that is fortuitously timed to a coal hungry market place.
The project is within good power and transport infrastructure (near existing rail lines), which is as important as any other factor for this type of story. That said, the company is still waiting for initial analytical results needed to determine what sort of potential valuation the deposit might garner.
Our best guess, or more correctly hope, would be something akin to the deposits in Wyoming of the same age that supply about 1/3 of US coal consumption despite having somewhat weaker thermal properties than eastern North America coal has, because the western coal is low in both sulphur and ash. Wyoming’s coal is often blended with coal from eastern North America deposits so that the mix will meet emission standards at electricity generators.”
Plus they add, “Goldsource has had an incredible run in the past three trading days but the company is still valued below the potential indicated by the admittedly still scanty data on the coal find. GXS has only 17.7 million shares out and only 1.2 mm shares of dilution in options, so as Friday’s trading evidenced there is little in the way of the stock moving higher if traders feel they have to own it.”
“We could envisage a reasonable bottom line potential for the discovery using last year’s benchmark pricing for thermal coal of around $50 per tonne, assuming that (importantly) in-fill drilling demonstrated a continuity of the deposit similar to the first two holes and that the deposit required little by way of extra processing for an operation with a reasonable scale. At current list pricing of closer to $150 per tonne for thermal coal, the deposit could be a very significant money spinner. Should the deposit include at least some added value material (coking coal for steel making commands about twice the price that thermal coal does), it could have a very good shot.”
They also add, “We must caution however that that if there is a fly in this coal ointment by way of poor thermal or pollutant characteristics, the share price will fall as quickly as it rose, even if further testing of the deposit were in the offing. It’s a buyer beware situation but our outlook for GXS is speculative buy on weakness/ trade ahead of laboratory results for its Border coal discovery.”
When we caught up with Eric Coffin on Monday night for an update after several days of hectic trading activity, Eric tells us that “all we know is that 1600 metres apart results appear flat as a board and very importantly it is very close to rail and transportation for coal movement is key” he suggests. “You have to go over the rail track to actually get to the project” and “remember,” he points out, “this is in the middle of absolutely no where.”
As to what next for the markets, the Coffin Brothers are more than a little disappointed that with these high commodity prices, stocks don’t seem to appreciate those numbers at all and Eric wonders whether we are going to have a summer rally...or not.
As far as the two stories he would watch/buy given today’s market, he suggests Goldsource mines would be one, speculating on what the lab results will be when they come in in one to two weeks time and Hathor Exploration which he suggests the financial/mining markets don’t seem to think we’ll have a summer drilling program, but he suggests they should be able to find a way to get some drilling done also in Saskatchewan to keep the market interested/hopeful.
To contact the Hard Rock Analyst: hra@publishersmgmt.com or www.hardrockanalyst.com.
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David Pescod's Late Edition April 30, 2008
AURELIAN RESOURCES (T-ARU) $4.10 n/c
CRYSTALLEX INTL. (T-KRY) $0.92 -0.69
GABRIEL RESOURCES (T-GBU) $1.93 +0.21
Reality seems to be setting in with Aurelian Resources and its stock, battered and bruised like many others such as Dynasty Metals and Corriente because of the Ecuador government announcing the 180-day settling out period as they change their mining laws.
The reality setting in means many things. For those who own the stock, you’ve seen it halved or worse in the last couple of days, but it also is now having a real impact for those involved with the operations in Ecuador itself. Because of what the government has requested, Aurelian’s work force of approximately 450 employees has been reduced by 80%. And that’s a lot of people that had some relatively decent jobs that are now doing without.
What else will Aurelian do because they have supported basic health services and the like in the local community to show that they are a decent corporate citizen? That’s probably more than you can say about the Ecuadorian federal government which obviously isn’t going to be able to make up for the decent jobs lost anytime soon.
At this time, Aurelian with its Fruta del Norte Project remains one of the world’s biggest undeveloped gold deposits and it was interesting today that Crystallex, the Toronto-based company with the huge assets in Venezuela of something like 13 million ounces (about the same size as Aurelian) announces that the Administrative Office of Permits at the Ministry of the Environment and Natural Resources of Venezuela was denying a request to carry out exploration activities in the mining area of Las Cristinas, Bolivar State. The stock crashes and once again, one is suspicious about who will end up with this project.
Meanwhile in Romania, Gabriel Resources with its Rosia Montana project is also flirting with numbers such as 10 million ounces and the “Greens” and environmentalists are opposing its development with names such George Soros amongst the group. That means three of the biggest potential biggest mines in the world are having troubles getting built.
One commentator looking at the ongoing mess in the mining business and how long it takes to get projects built and how expensive these days suggests, “as people realize how little gold and copper there is going to be added to the system in the coming years, maybe that could be what helps create a summer rally for the beaten up and bloody junior/midcap mining market.
COPPER $3.90 +0.02
GLOBESTAR MINING (T-GMI) $1.76 -0.03
While copper prices are flirting with new highs, it’s still getting little appreciation in the mining markets these days, but it is interesting to see some of the work being done by Codelco, the huge Chilean state copper giant in finding alternative uses for copper. They are one of the biggest producers in the world, but it is amazing to see the implications for some potential new uses.
Hospitals are one thing they are looking at because it’s been shown that research has demonstrated that fungi, viruses and bacteria, including such troublemakers as E. coli and golden staph that rests on uncoated, oxidized copper surfaces die in a matter of hours. These same microbes continue to thrive when left on stainless steel, brass or silver-coated surfaces.
With the use of copper to kill these bacteria is proven on tests that Codelco is having over the next few months, it could develop a whole new demand for copper as suddenly everything in a hospital from a door knob, to the gurneys to operating tables, might suddenly not be stainless steel, but copper to make sure that diseases are killed on surface.
A recent article carried by the Dow Jones Newswires suggests that Codelco thinks that potential copper demand for public health purposes could reach 500,000 tons a year. That’s an enormous number and of course it’s going to take years for the concept of copper being used in medical facilities to catch on, but it is just interesting to note the ongoing potential for copper.
The article in the Dow Jones Newswires also refers to potential for copper-coated fabrics and plastics to produce products such as towels, pillowcases, socks and underwear for hospital garments.
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David Pescod's Late Edition May 1, 2008
OILEXCO INC. (T-OIL) $15.50 +0.13
ACCRETE ENERGY (T-GZ) $5.35 -0.05
CDN. SUPERIOR (T-SNG) $3.09 +0.02
SOLANA RESOURCES (V-SOR) $3.90 n/c
The theory was simple...let’s see if Josef Schachter knows his wines as some people suggest he does ... can he tell the difference between a bottle of 1997 Amarone Della Valpolicella and a bottle of Box wine...or not?
As a matter of fact, the plan was something like ‘let’s see if we can’t feed Schachter a little bit too much wine and see if we can’t take advantage of him’ ... get the dirt on Arthur Millholland of Oilexco. Find out what his real target was onDelphi Energy and anything else as a matter of fact that we figured we could squeeze out of the affable oil and gas guy.
It didn’t work quite that way...three and a half hours later, Schachter is as fresh as a daisy and for us, well, our left foot wanted to go right and our right foot left...if you get the drift.
While some people were sniffing the wine, swirling it in their glasses, looking for legs and all that kind of stuff, some of us were guzzling. So if we did get some good dirt, we’ve long since forgotten it.
Which of course gets us to Schachter and the work he does for the Maison monthly report for Maison Placements Canada. Something always to be looked for mainly because of their easy to read format he puts out. He headlines this monthly report dated April 29th, “Our 2008 Energy Index Target Has Been Reached. The Risk of Seasonal Correction is High.”
He writes, “Our downside target for the Index in the instance of a correction is the 370 level, with 330 being the worse case scenario” (the Index has already reached his 400 point target). “We believe oil prices will retreat as well, with a maximum downside to the $90/barrel level.”
Having said that, he adds, “Over time this gasoline excess will be cleaned up and consumers can expect continued rising gasoline prices. Late this year we believe that oil prices will exceed the $125/barrel level.”
As far as natural gas, he writes, “In our models we are carrying an average natural gas price of $9/mcf from Q4/08 into the foreseeable future. The potential for rallies beyond $12/mcf during the high usage Q4/08 period is high, with the strong possibility of a euphoric price spike >$20/mcf if we see an unusually active hurricane season or bitterly cold 2008/2009 winter season.”
His list of favorites seems to change positions from time to time and while he maintains buys for many on his list such as Oilexco (which he has a $25.00 target for) and Solana (which he currently has under-review, but with two significant wells coming up shortly could have quite a pop).
For this issue though, his top picks for the month include Accrete Energy for its natural gas plays in Alberta and Canadian Superior Energy, which should have results in the coming month offshore Trinidad that could have dramatic effects on the company.
However, if you are looking for leverage and that high risk/high reward play, you would want to take a look at his calculations for the high impact/high reward plays that Sterling Resources has, albeit later in the year. Some of those numbers are mind-boggling and just remember folks, other companies have gone against the one in ten odds in the North Sea and haven’t had a lot of fun.
For those who would like to receive a copy of the report, email Debbie at debbie_lewis@canaccord.com. For oil and gas folks, it’s must-reading!
YAMANA GOLD (T-YRI) $13.10 +0.19
This could be an ugly couple of months if Schachter is right and see the correction in oil prices testing the oil and gas producing stocks.
Meanwhile, RBC Securities has written an interesting report suggesting that after a climb from $600 to $1000 in gold, gold is due for some consolidation. Some suggest that consolidation could see gold hitting $800 to $850. That would mean a couple of months of consolidation in the gold sector as well.
Between these two, if they are right, times that have not been very generous of late could get even scarier. We are hoping of course that Jeff Rubin, the CIBC deep-thinker that is right so frequently, is correct again suggesting the second half of this year to be much better for natural resources than the first hand.
As far as this consolidation in gold prices, look at the chart on Yamana, a gold biggie. That looks more like a crash than a consolidation, doesn’t it?
GMP Securities currently has a target on Yamana of $21, CIBC of $23, Salman of $22 and Canaccord of $22. Hopefully we will see that number again later this year.
MARCH RESOURCES (V-MCF) $0.51 +0.075
Yesterday March Resources announced some results on the Pica #1 play in Chile and all it produced was confusion … but then, this is perfing, which tells you whether there is gas in a zone or not. Basically it’s suggested that of the many zones they tested there was gas in some and not in others.
The confusion is you have no idea how much or whether it’s a commercial well or not. But the Company is planning to move fracturing equipment into the country to properly stimulate and evaluate the potential zones in Pica #1.
Dave Antony, Company President tells us that Pica #2 will shortly be at total depth, an area where they hope to have or expect to have some of the same zones that were tested on Pica #1 that looked interesting. As well, the Company is confident that Pica #2 will also encounter the Majala Formation, which contains the black shale source rock, which is the formation from which the gas which was encountered in Pica#1 originated.
This is the in addition to the upper tight gas zones which were encountered in Pica #1. At that time, they will finally get some fracing equipment into Chile (in Chile with a non-existent oil and gas industry, anything you need has to come from a long way away, so hence some of the many problems they are encountering) as they won’t want the fracing equipment in until they can test both wells.
The bad news is that by the time they get the fracing equipment in through customs, set up, and start testing, we probably won’t see results until sometime in July … It feels like people have met, married, had kids and are still waiting for results, it has been a long haul with this story, but it a story that gives investors the opportunity to be involved in the discovery of a new world class gas basin. Maybe!
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David Pescod's Late Edition May 2, 2008
GOLD $858.70 +7.80
ANDINA MINERALS (V-ADM) $3.59 +0.47
As we mentioned yesterday, it’s been kind of ugly in the gold sector of late as many gold stocks did not participate in the run up when gold hit $1000...it was mainly only the majors. But now that gold is correcting, it seems all the golds are getting hurt and some, even worse than others.Andina Minerals disappointed the market when they didn’t have the reserve numbers for the PDAC Conference which hurt the stock and then of course with the recent correction, it has been beaten up even worse.
Today the Company announces some drilling results that were actually rather sweet, including 176 metres of 1.01 g/t and 256 metres of 1.04 g/t. This is high in the Andes, but in an area where there is some pretty efficient operators and these are considered good grades for that area.
Andina has been considered a take-over candidate for some time, so those numbers, if people care about gold again, are intriguing.
But today, a little tidbit that could become huge for the Company is also added in a report by Steven Butler of Canaccord. Butler writes, “The company also reports that a 20-kilogram sulfur sample has been taken for metallurgical test purposes from a sulfur deposit located on the northern Volcan block. An historical reserve estimate by the Chilean government in 1988 calculated 4.7 million tonnes grading 40% native sulfur.”
Butler continues, “At recent (high) prices of $275/tonne, this represents an undiscounted in-situ revenue potential of $0.5 billion. If test work shows few impurities and material amenable to flotation, this sulfur potential could start to creep into Andina’s share price ($0.5 billion would be worth $6/share).”
You’ve seen the price of many commodities from gold to copper to uranium to you-name-it run over the last while, but that chart on sulphur is definitely a rocket ship and could suddenly start to play a huge role in Andina’s future.
For an updated look on Andina by Canaccord analyst Steven Butler, just email Debbie at debbie_lewis@canaccord.com.
BOSS POWER (V-BPU) $0.15 -0.02
CAMECO CORP. (T-CCO) $35.64 +0.39
URANIUM ONE (T-UUU) $4.60 +0.03
TOURNIGAN GOLD (V-TVC) $0.77 +0.01
Well it’s arguable uranium stocks might have been carried away on the upside when uranium prices flew to $130 a pound, the correction we’ve seen in the uranium prices has caused a sell-off, the likes of which we haven’t seen since the high-tech frenzy subsided. Many uranium stocks are now trading for twenty cents on the dollar, if not worse and it appears anything that can go wrong, has. Short-term uranium prices now flirt with $65 a pound, while longer-term contracts are being signed at $95.
While it is expected over time demand for uranium will go up, there are so many countries and states putting moratoriums or blocks on exploration, down the road supply for uranium might settle down and if Jeff Rubin is right and better times are here for resource stocks in the second half of the year, the much beaten up uranium sector, hopefully, might participate.
This past week more news about anything that can go wrong, did go wrong as Boss Power which happens to have some pretty interesting mining people in its organization received the bad news that the Province of British Columbia will not okay uranium developments and guess where Boss’s deposit is? |
