₪ David Pescod's Late Edition 5/12-5/16/08
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David Pescod's Late Edition May 12, 2008
ZINC
BREAKWATER RES. (T-BWR) $0.80 -0.04
SELKIRK METALS (V-SLK) $0.40 -0.03
BLUE NOTE MINING (V-BN) $0.29 n/c
There has not been a lot of joy in the mining sector over the last while, a combination of the general market setback plus political problems in a long list of countries and much higher costs for many miners (only Yamana has recently had pleasant surprises).
Breakwater Resources, has just announced their financials ... or lack of financials. They go from making four cents a quarter to losing two cents a quarter and while mining these days is certainly a lot more expensive than a year or two or three ago, because of increases in supplies, labor etc., the main reason for Breakwater’s problems and for the other stocks miss is the price of zinc.
While many commodities such as copper, gold, oil and gas, flirt with highs, two commodities—uranium and zinc are a fraction of where they used to be. Zinc in particular has stumbled from $2.00 to currently a little less than $1.00 a pound and that makes a huge amount of difference.
When is that going to change? Well that’s a good question and you are not interested in buying any of these stocks unless you are a believer that zinc prices are going to turn around anytime soon. Sometime in the era of 2010 to 2012, several of the world’s big mines will probably be exhausting their reserves and zinc at that time is expected to have a nice run. But exactly as to the date as to when that occurs, is still open to debate.
ZINC
BREAKWATER RES. (T-BWR) $0.80 -0.04
SELKIRK METALS (V-SLK) $0.40 -0.03
BLUE NOTE MINING (V-BN) $0.29 n/c
There has not been a lot of joy in the mining sector over the last while, a combination of the general market setback plus political problems in a long list of countries and much higher costs for many miners (only Yamana has recently had pleasant surprises).
Breakwater Resources, has just announced their financials ... or lack of financials. They go from making four cents a quarter to losing two cents a quarter and while mining these days is certainly a lot more expensive than a year or two or three ago, because of increases in supplies, labor etc., the main reason for Breakwater’s problems and for the other stocks miss is the price of zinc.
While many commodities such as copper, gold, oil and gas, flirt with highs, two commodities—uranium and zinc are a fraction of where they used to be. Zinc in particular has stumbled from $2.00 to currently a little less than $1.00 a pound and that makes a huge amount of difference.
When is that going to change? Well that’s a good question and you are not interested in buying any of these stocks unless you are a believer that zinc prices are going to turn around anytime soon. Sometime in the era of 2010 to 2012, several of the world’s big mines will probably be exhausting their reserves and zinc at that time is expected to have a nice run. But exactly as to the date as to when that occurs, is still open to debate.
CAPSTONE MINING (T-CS) $4.18 -0.12
GLOBESTAR MINING (T-GMI) $1.94 -0.01
On the previous page, you’ve seen a chart of Breakwater Resources and how it’s doing so poorly because of what the price of zinc is doing. Take a look at this chart on Capstone Mining and it shows you how well it’s doing because it is involved in a much better place to be...copper.
Copper prices are continuing to flirt with all-time highs and Capstone just happens to be coming on stream over the last year with their Cozamin mine in Zacatecas State, Mexico, which is a good place to be coming on stream with mining operations. In Mexico, there is none of this scary-hairy stuff like you see in Ecuador, Bolivia or wherever and mining is an honorable place to be.
These days in mining it’s ugly if you are a junior explorer hoping to find the next big hit over the next hill, you’ve seen your stock clobbered in the latest market correction.
Meanwhile, for many juniors, your ability to raise money which is an ever ongoing battle, has just disappeared and hundreds if not thousands of mining stories are trading at or near their lows for the year.
Meanwhile, Capstone continues to flirt with new highs. A cynic might note that because Capstone needs no money and is throwing off great cash flow (they’ve just reported operating profit of $15.9 million or $0.20 per share for their latest quarter) few analysts are writing it up. No underwriting fees needed at all these days folks! The only analyst coverage we can see on Capstone is by PI with a target of $5.10 which we figure won’t be too far away if they can continue to report numbers like they have recently.
In the meantime, the Company continues to be in the rumor mill as what do they do to get bigger and get a little more respect in the marketplace? The merger/takeover of Globestar Mining continues to be in the rumor mill and yes folks, it would make sense with Globestar starting up their Cerro de Maimon Mine in the Dominican Republic over the next 30 to 90 days.
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David Pescod's Late Edition May 13, 2008
PAN ORIENT ENERGY (V-POE) $12.30 -0.01
COASTAL ENERGY (V-CEN) $4.50 n/c
With the huge success last year of Pan Orient Energy we found ourselves more than occasionally, looking for another junior player that might have some of its luck offshore and onshore Thailand and came upon Coastal Energy, another story that seems to be attracting the attention of more than a few analysts.
Why don’t we leave the comments today to analyst Melanie Van Den Berge with Paradigm Capital when she writes this about Coastal Energy, “Gentlemen, Start Your Engines!”
She writes, “The barge mounted jack-up rig Swiber JU-1 is booked for 12 months, extendible for an additional 12 months at Coastal’s option. The rig is currently undergoing refurbishment and will arrive in late Q2/FY08. Opportunity: Comes in three forms – a drilling inventory of 40+ locations with rig in hand; a large, underexplored block of 8,500 km2 provides ample occasion for ongoing G&G work to generate prospects; capacity at Songkhla platform for 10,000 Bbl/d means quick tie-in for nearby drilling successes. Expertise: Coastal controls the pace of the program as the 100% owner and operator. A strong technical team is in place, having previously worked in this area and on similar developments. With booked reserves coupled with a strong commodity price outlook, we reiterate our Buy recommendation and $7.00 price target, slightly ahead of a 1.0x multiple of our $6.93 NAV.”
Needless to say, her target price depends on drilling success and with so many targets available, a year from now, Coastal could be just about anywhere...but we are dreaming big.
S&P/TSX VENTURE COMPOSITE INDEX:
We’ve gone through one heck of a correction in the major markets over the last six months...it’s been ugly. But many of the major markets have had a bit of a bounce back...but not so with the Venture Exchange where the junior mining stories hang out and it’s ugly and it looks like it could get worse. The big concern is that many of the junior mining companies have not been able to raise money lately in this ugly market...and it could get worse.
In this week’s Junior Mining Weekly, Wendell Zerb writes, “The old adage, “Sell in May and go away”, could have some merit this year with respect to some junior mineral exploration stocks. Our thoughts on this go somewhat deeper than just assuming the best quarter for junior stock is typically Q1 and, now that we are heading into the late spring/early summer, thinking that investors should simply go away (until early September). We believe some additional and fundamentally important factors will affect our industry over the next three to six months.
It comes down to capital: How far can it stretch in the current environment? What actions will companies take as cash is depleted? Where will new capital for exploration come from?
Over the last six months, mineral explorers have not raised as much capital as they have in recent years, owing to poor market conditions. For the first time in several years, many companies may have difficulty raising capital for general exploration activities. We are not referring to companies that have made a recent, exceptional discovery and that require cash for further work. Our concerns relate to those companies that have acquired exploration properties, conducted some work and are looking for follow-up capital. Being property rich and cash poor is not the most advantaged position in the current market. These companies’ situation becomes even more difficult because their share prices are probably at recent lows and, as such, management is wary of equity dilution.”
The bottom line right now folks is that if you are in a junior mining story, be very aware of whether it’s got money in the bank to work with.
It’s probably the closest thing we thought to an indicator of panic in the general markets and it’s called “The Tedspred.” For those who are into exact numbers, it’s the difference between the yield on three-month treasury bills and the rate on dollar-denominated loans in London and is an indication of credit risk that is known as the “Tedspred.”
It kind of shows you how panicky the markets have been over the last several months because of the sub prime mortgage mess in the United States and it shows you that over the last 14 years, it has been one of the biggest things to hit markets everywhere. It’s been ugly.
Those little squigglies you see back in 1998 and 1999 are the Russian financial crisis and the Asian currency kafuffle which at the time, seemed to be a big deal. But nothing compared to what we’ve gone through lately. The good news is that it seems to be subsiding ... we all hope!
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David Pescod's Late Edition May 14, 2008
BANKERS PETROLEUM (T-BNK) $2.00 +0.10
DELPHI ENERGY (T-DEE) $2.77 -0.03
Today Abby Badwi of Bankers Petroleum is making appearances on BNN and obviously the market cares. We’ve been following Bankers ever since Abby Badwi joined the Company as he has had previous success with Rally Energy and their heavy oil projects in Egypt. That was a triple in relatively short order and obviously, Badwi knows his way around heavy oil. Hopefully, he can repeat that success in Albania.
Today, Bankers hits new highs because the board of directors of the Company has approved the proposal to split Bankers into two separate public companies and suddenly both of those public companies are in vogue. One will be a shale gas play based in Oklahoma and the other company will be heavy oil in Albania.
A lot of the attraction today was because of his appearance on a couple of shows on BNN and it’s probably worth your while to listen in and get a take on his suggestions of what next.
Meanwhile, we do some charts to the left here of both Bankers Petroleum and Delphi Energy. We have a little bet with Josef Schachter that goes back some time, when we both picked a stock that we thought would be the best performing for the coming year.
He had picked Delphi Energy, which had been beaten up over the last two years as natural gas prices went down and is now heading up nicely as gas prices hit levels we thought would have been impossible just four months ago.
So far on our bet, we are doing just about even, but the one thing about Schachter is that he pays off his bets and his last bottle of wine was both rare (1997 Amarone) and expensive. For those of us who are not up on our wines, it was worth winning. We, on the other hand, wouldn’t know what kind of wine to pick up whether we were losing a bet or not and currently this bet at least, looks pretty close.
Meanwhile, many of the analysts have recently had targets raised on Bankers as T. Weisel upped their target to $2.50 from $2.20; Genuity from $2.40 from $1.95 and Tristone to $2.25 from $1.75 over the last several weeks.
We suspect that the analysts might once again, have to sharpen their pencils and raise some of those targets, as the two new companies are going to attract two totally different audiences for two totally different reasons.
So far so good!
GASTEM INC. (V-GMR) $2.41 -0.17
QUESTERRE ENERGY (T-QEC) $3.23 -0.20
One oil and gas analyst who had a great year last year and not quite as much fun so far this year, made a prediction a few days ago that when the analysts start writing up the players in the Quebec shale gas play, they won’t be able to give targets on the stocks … and sure enough, the analysts are starting to come up with the research on the Utica shale gas play in Quebec.
In one of the best reports we’ve seen is by Fraser Mackenzie and analysts Patty Shao and Vic Vallance entitled, “Est ce que La Belle Province est La Nouvelle Province du Gaz?” In the introduction they write, “The Utica shale gas play in the St. Lawrence Lowlands is a “sleeping giant” that was awakened by Forest Oil’s (FSTNYSE) announcement at an analyst meeting in New York on April 1, 2008. Forest Oil revealed that it had successfully fracture stimulated and tested two vertical wells drilled in the Utica shale formation in Québec: the St-Francois-du-Lac #1 well on the Yamaska permit, and the Bécancour #8 well on the Bécancour permit. Based on the core data and production tests, Forest Oil believes that the initial results are encouraging as the Utica shales exhibit excellent rock properties comparable to other more established shale gas formations, such as the well-known Barnett Shale in Texas. Forest also indicated the economics of the Utica shale could be more attractive than other similar shale gas discoveries, because of its shallower depth and close proximity to gas markets. Forest Oil’s comment that the Utica has “Barnett-type” rock attributes attracted significant attention to this potentially massive shale gas play in Québec.
The Utica shale play encompasses an area of some 1.5 million acres in the St. Lawrence Lowlands south of the St. Lawrence River between Québec City and Montréal. An EnCana study completed in 2007 (prior to the drilling of the two vertical wells) estimated the Utica shales could contain up to 24 trillion cubic feet (tcf) of recoverable reserves. The analysis was based on historical cores and cuttings from wells previously drilled in the area.”
Of interest to us in the report which was a great background to the play in Quebec and to its possibilities of what the heck shale gas is in the first place (plus the two benefits—it’s shallower than the Barnett gas and closer to the big markets with the higher gas prices) is that there were no price targets for their two picks, Gastem and Questerre.
The reason the previously announced analyst didn’t think price targets would be given was because if this shale play works out, the targets he suggests, would be so high as to be not believable by the investing public ... once again the little phrase...if it does work.
GASTEM INC. (V-GMR) $2.41 -0.17
QUESTERRE ENERGY (T-QEC) $3.23 -0.20
One oil and gas analyst who had a great year last year and not quite as much fun so far this year, made a prediction a few days ago that when the analysts start writing up the players in the Quebec shale gas play, they won’t be able to give targets on the stocks … and sure enough, the analysts are starting to come up with the research on the Utica shale gas play in Quebec.
In one of the best reports we’ve seen is by Fraser Mackenzie and analysts Patty Shao and Vic Vallance entitled, “Est ce que La Belle Province est La Nouvelle Province du Gaz?” In the introduction they write, “The Utica shale gas play in the St. Lawrence Lowlands is a “sleeping giant” that was awakened by Forest Oil’s (FSTNYSE) announcement at an analyst meeting in New York on April 1, 2008. Forest Oil revealed that it had successfully fracture stimulated and tested two vertical wells drilled in the Utica shale formation in Québec: the St-Francois-du-Lac #1 well on the Yamaska permit, and the Bécancour #8 well on the Bécancour permit. Based on the core data and production tests, Forest Oil believes that the initial results are encouraging as the Utica shales exhibit excellent rock properties comparable to other more established shale gas formations, such as the well-known Barnett Shale in Texas. Forest also indicated the economics of the Utica shale could be more attractive than other similar shale gas discoveries, because of its shallower depth and close proximity to gas markets. Forest Oil’s comment that the Utica has “Barnett-type” rock attributes attracted significant attention to this potentially massive shale gas play in Québec.
The Utica shale play encompasses an area of some 1.5 million acres in the St. Lawrence Lowlands south of the St. Lawrence River between Québec City and Montréal. An EnCana study completed in 2007 (prior to the drilling of the two vertical wells) estimated the Utica shales could contain up to 24 trillion cubic feet (tcf) of recoverable reserves. The analysis was based on historical cores and cuttings from wells previously drilled in the area.”
Of interest to us in the report which was a great background to the play in Quebec and to its possibilities of what the heck shale gas is in the first place (plus the two benefits—it’s shallower than the Barnett gas and closer to the big markets with the higher gas prices) is that there were no price targets for their two picks, Gastem and Questerre.
The reason the previously announced analyst didn’t think price targets would be given was because if this shale play works out, the targets he suggests, would be so high as to be not believable by the investing public ... once again the little phrase...if it does work.
CORRIDOR RESOURCES (T-CDH) $9.34 +0.34
With all this talk about shale gas, one play has got to be watched very closely and that’s Corridor Resources, with a management team that seems to be ultraconservative (and they are making all their cash flow production based on $7.25 gas).
Some time this fall, they do a horizontal test on their shale play in New Brunswick and the importance of this is significant. They already know they have shale ... how productive it is and how extensive it is, they don’t know. But they have a huge chunk of it. It’s not like in Quebec where lots of small guys have small interests in different areas of the play. Here, the bulk of 225,000 acres is owned 100% by Corridor and if this shale is the sweet stuff ... this becomes one of the plays of the day.
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David Pescod's Late Edition May 15, 2008
PETRO ANDINA RES. (V-PAR) $11.50 -0.20
ARGENTA OIL & GAS (V-AZA) $0.24 +0.005
Notice the slide a while ago with Petro Andina when the Argentinean government changed the rules on how things work for oil and gas companies.
Meanwhile the news out of the Company though, is going the right way as they reported their first quarter and production was at 9,700 barrels a day with cash flow of $0.37 a share.
Blackmont Capital and Alexander Klein write, “Production growth continued into Q2/08 exceeding 11,200 bbls/d for April …. Petro Andina continues to guide to an exit production rate for 2008 of 14,000—15,500 BOE/d.”
Blackmont has a target price on Petro Andina of $15.00 and if you are following this stock, the huge land holdings they have in Argentina is a major reason to be doing so. Another junior in Argentina is Argenta Oil and Gas with experienced management, but so far they have faced a lot of delays and some technical problems, but now it looks like they finally figured out the LEDO x-2 well.
Paradigm Capital analyst Dan Payne writes, “The first in the four well Loma El Divisadero program, has confirmed commercial oil. The well is currently flowing at about 30 bbd/d with the potential to produce up to 90 bbl/d of 24 degree API oil.” Payne adds, “New 3D seismic evaluation provides an improved subsurface image indicating a thick Chorreado Member and a larger reservoir of oil in place of between 56 and 162 mmbbl.”
Payne has a target on Argenta (which has really been battered over the last while) of $0.75 a share, which looks a long way away right now.
These two companies have one thing in common ... they are in Argentina, a country that was once the richest in the western world back in the 1900’s, but it seems the country has been mismanaged in every which way in the intervening 100 years. Right now, despite the fact that there is a severe shortage of natural gas in the country, they still treat oil and gas companies terribly. Which is the bad news.
The good news is that there are more than a few, suggesting that sooner or later, there is going to have to be some common sense prevail in Argentina like many other Western countries and they may have to increase what it is oil and gas companies receive, which is currently a paltry $42/barrel. If Argentina does change the rules and accept some common sense, these would be two stories that could benefit.
KIRKLAND LAKE GOLD (T-KGI) $8.83 +0.93
The chart to the left is that of Kirkland Lake Gold which shows you, at least over the last few months, which way most gold stocks have been going. Actually it’s been a shorter period than most of the senior golds have been correcting as this sudden drop from $1000 an ounce to $850, has hurt everything in the sector.
It is simply amazing how many formerly bullish commentators on gold seem to be giving up on the metal, but still keep looking for the good stuff anyway and earlier this week, Kirkland Lake came up with some absolutely phenomenal drilling results located two thousand feet south of the historical mine workings on the Company’s Macassa Mine. How about 16 Feet True Width of 3.86 Ounces of Gold, folks! No, that’s not 3.86 Grams ... that’s 3.86 Ounces! Another intercept ran 8.1 Feet of 3.24 Ounces. Yesterday the stock was up almost $1.00, but there was a time, numbers like that would have made a huge difference.
OILEXCO INC. (T-OIL) $15.97 -0.23
Oilexco’s quarterly results came out two days ago and now the analysts have started making their comments available.
Jamie Somerville who follows the Oilexco story for Genuity Capital found some good news and some bad news. The bad news was that production of 20,714 boe/d was below expectations of 21,500. Which as we said, is the bad news. However, for those looking for good news, he pointed out that operating costs of $8.43 boe, were significantly below expectations of $12.20 boe. The North Sea is traditionally thought of a high cost area of operation, so this is definitely a step in the right direction.
Somerville adds, “We expect the company’s capital spending to increase over coming quarters as it aggressively pursues its exploration and development program for the year.” Somerville has a target on Oilexco of $21.50.
Meanwhile, Fred Kozak of Canaccord updates his thoughts and maintains a target of $24.00 and of course Josef Schachter has a target of $25.00. It’s a story we will continue to follow, particularly for later this year when production numbers should increase dramatically.
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David Pescod's Late Edition May 16, 2008
Today oil hits new highs as a report out of Goldman Sachs forecasts for oil in the second half of the year to be $141 a barrel from $107, which is one gigantic change in outlook. Which is enormous, but as we look at the chart on the price of oil, we suggest it is due for a correction. The last time oil inventory numbers were this high in the U.S., well, you get the drift.
We thought we would show you a few charts emphasizing the extreme volatility we see in individual commodities of late. Wasn’t it just a few weeks ago everyone was talking about the imminent shortage of rice and how it was going cause starvation in much of Asia? All of a sudden, at the high price, the Pakistanis suddenly found a lot to sell as well as two or three other countries. Rice has had quite a correction.
It wasn’t too long ago that everyone was concerned about the flying price for wheat. Then farmers starting planting a whole bunch more of it, particularly in North America and boom—look at the correction in that commodity?
Meanwhile, there are other commodities that over the last year have shown just how bad things can get when they do turn. Uranium, which was at one point $133, now is yours for $60 a pound on short-term contracts and $90 for long-term. Which is the bad news. But for those that have seen many uranium stocks lose 50% and 60% for the blue chips and 80% or more for juniors, maybe we are approaching a bottom as many uranium stocks seem to not be ever new lows.
Merrill Lynch has just come out with a report suggesting that the spot price of uranium is now close to the marginal cost of mine production and they note that “Uranium’s spot price has fallen 30% in 2008 to U$63/lb as stocked-up utilities defer buying, after US Government sales last year eased supply-side tightness. We believe the spot price is close to the marginal cost of mine production of some newer producers, and expect it will stabilize around current levels.” The Merrill Lynch report is actually quite bullish on nuclear power, suggesting that uranium’s outlook is robust.
There are an awful lot of people who have watched uranium stocks get absolutely devastated and they will be glad to know there is a future for that sector. Uranium and zinc have been the two commodity areas that have been lambasted in the markets.
There are an awful lot of folks that have had their portfolios and net asset values swacked over the last while, courtesy of the recently market malaise, but some people seem to cope.
Forbes Magazine always following those who do very well, note that as far as who has the richest home in the world, is not the individual getting a lot of coverage because of a purchase of close to $100 million in London, England, but in fact it’s Mukesh Ambani of Mumbai, India.
Their modest little maison which is expected to be completed in early 2009 according to Forbes, will stand no less than 27 stories high covering 400,000 square feet. With inflation, the cost which was originally set at $1 billion is now expected to hit close to $2 billion.
The homes amenities? Well, Forbes writes, “include: separate gym for each family member, six stories of parking, four stories of open-air gardens, a ballroom covered with crystal chandeliers, a 65-seat theatre, a spa, a swimming pool and an ice room.” Yes, they write, “The ice room has you sitting while snow drifts onto your head, a nice way to escape from the Mumbai heat.”
Forbes writes jokingly, “So why did the Ambanis decide to go so big? Turns out the ultrarich aren’t so different from the rest of us. They were living in a 22-story building, and it was time to upgrade.”
If you want to look at how the other half lives (well, make that the other one lives) go to www.forbes.com/ambanihouse. |
