₪ David Pescod's Late Edition 6/16-6/20/08
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David Pescod's Late Edition June 16, 2008
RYLAND OIL CORP. (V-RYD) $2.38 -0.02
Ryland Oil is now getting to be one of our own bigger holdings, so we were more than a little pleased to see the news announcement out of Ryland on Friday that they have “acquired 100% working interest in additional Saskatchewan crown petroleum and natural gas licenses covering 45,980 gross and net acres of land.” Which is a good chunk of land. They paid roughly $7.4 million for the ground or $161 per acre.
“The acquisition has increased the Company’s total gross and net holdings in southeast Saskatchewan and North Dakota to approximately 360,000 acres.” Which is a big chunk of land and they hope to post exactly where these holdings are on their website sometime shortly.
The big excitement these days of course in Saskatchewan is on Bakken land and they seem to think (or hope) they’ve got a huge chunk of that.
In the meantime, for those who don’t own shares in Bakken or already do, the bad news about this story is that this is a company with next to zero production, so they now have a market capitalization of over $400 million and yet next to zero production. For those of us who are shareholders, we better be hoping that a big chunk of this is Bakken land.
We published an interview on May 30 with the Chairman of Ryland, Dick Findley, who is a former oil man of the year south of the border where his ability to be one of the first to discover and make the Bakken productive south of the border. We hope he has the same ability way up here as well.
SOLANA RESOURCES (V-SOR) $5.47 +0.28
Solana Resources has long been one of Josef Schachter’s favorite stories and it’s getting to make him even more popular these days. On Friday, Solana announced that their “Costayaco-4 well, which was a 540 metre step out to the north of the Costayaco-2 well, has been successfully drilled, cored, logged and cased as planned.”
From the press release they suggest, “Initial evaluation indicates that Costayaco-4 has in excess of 200 feet of potential net oil pay, which is over 25% more than any of the previous three wells in the field.”
The Costayaco field was discovered in the second quarter of 2007 and is located in the Chaza block, southern Columbia. The field is currently producing approximately 7000 barrels of oil per day gross with 3730 barrels of oil per day net of royalty to Solana.
BREAKWATER RESOURCES (T-BWR) $0.485 -0.015
BLUE NOTE MINING (T-BN) $0.165 -0.005
Today, Bloomberg reports that “Lead fell to the lowest in 16 months in London as stockpiles jumped 12% in two days, signaling sagging demand in Asia.” While copper and aluminum actually rose.
According to Bloomberg, the “Lead stockpiles monitored by the London Metal Exchange rose 5.1% to 83,000 metric tons, bringing inventories to their highest since August 16, 2006.” They also continue, “The increases were in Singapore, the exchange’s largest Asian warehouse. It suggested Asian demand is slowing a bit, David Thurtell, an analyst at BNP Paribas in London, said today by phone. The market has become much better supplied now.”
The bottom line is that base metal prices for both lead and zinc continue to get hurt and the charts to the left show you the direction for stocks in warehouses for lead and because of the big increases in supply, it shows that the price of lead has been halved over the last six months. Ugly, ugly, ugly.
The Bloomberg articles were also wondering with costs at both mines higher and with lead prices suddenly much lower, how soon some smaller or more high cost operators will be closing their doors down the road.
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David Pescod's Late Edition June 17, 2008
CRUDE OIL $133.85 -0.76
OILEXCO INC. (T-OIL) $18.94 +0.69
It’s one thing for Jeff Rubin of the Bank of Commerce to make predictions on oil like he did several months ago, suggesting oil was in such supply and demand mode that we were going to see $125 for oil down the road. He was bangon. (Rubin has a reputation for sometimes making some outrageous forecasts, that usually come true. Our favorite was still nearly two decades ago when he suggested real estate prices in Toronto were too high and he predicted a 20% to 25% correction. He was right...but not too popular)
Lately though, it seems every Tom, Dick and Harry seems to predicting ever-higher prices and now, even some folks from Gazprom, the Russian gas monopoly are suggesting $250 for oil. This is getting stupid and it has attracted the attention of people such as George Soros, the billionaire and he’s suggesting that maybe we are in a dot com craze with the current oil rally.
There hasn’t really been that much of a change in supply and demand figures for oil to justify such a huge move, but there sure has been in psychology and it seems with all the money going into commodity funds, a bunch of it is heading for oil and gas.
The Bloomberg article said, “Billionaire investor George Soros and Stephen Schork, President of Schork Group Inc., say oil is ready to tumble because prices aren’t justified by supply and demand.” One thing is for certain, nothing ever goes straight up and the chart to the left on the price of crude oil over the last year shows you that it has in fact gone almost straight up without hardly a correction. A correction for sure is long overdue and the question is, how low that correction could take the price the oil.
Josef Schachter and others wouldn’t be surprised if we see $100 again and so the big question is, what are most oil and gas stocks being priced at these days? It doesn’t seem anyone believes $135 is here for a long time, although longer-term commodity prices have recently had a bump.
So are oil and gas stocks currently pricing in $90 oil? $80 oil? Or it is $110? And we do have to acknowledge that prices in the oil patch for everything from labor to rigs are once again, heading up. Once again, the chart says that it’s been going too well for too long and we are due for a correction…
It’s been quite ugly over the last four or five months courtesy of the asset backed mess and wasn’t it wonderful that day that Oilexco fell under $10. Well things are much better now and Canaccord’s Fred Kozak who has followed Oilexco since $3.00 a share and has liked it all the way, has now revised his target on Oilexco and moved his buy target up to $28.50 mainly because of expectations of higher oil and gas prices. For those who would like a copy, e-mail Debbie at debbie_lewis@canaccord.com.
GENCO RESOURCES (T-GGC) $1.53 -0.03
There’s almost no joy in the metal sector these days. Gold has corrected from the $1000 level, the gold stocks have been acting as if gold has hit $500 and the base metals are all seeing real ugly times as both lead and zinc are half of where they were a year ago. Of course the biggest problem with the junior mining sector is they’ve got about 5000 too many junior mining companies out there and any one of them trying to get financed is having a tough time.
Meanwhile, it is interesting to see a couple of specific situations and there are some pretty unhappy shareholders that are complaining about some individual stories and Genco Resources is one of them.
Notice the stock chart on the company has taken quite a bath, but a group led by James Anderson who is the owner and Chief Executive Officer of Tennessee Eastern Gas and Oil and Southwestern Mineral Leasing has come up with an alternative board of directors for Genco Resources. And why is he so upset? I suspect he is a shareholder who doesn’t like the stock performance, particularly because of the huge consulting and management fees that are being paid to company officers while the company’s ability to make money has disappeared.
It is interesting to see a good old-fashioned corporate shindig over a little silver producer that some people think might have a great future. That’s if silver regains its lustre.
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David Pescod's Late Edition June 18, 2008
GOLDSOURCE MINES (V-GXS) $15.80 +2.93
BITTERROOT RES. (V-BTT) $0.52 +0.11
RIVERSTONE RES. (V-RVS) $0.345 n/c
The junior mining market is in about as bad a shape as we’ve seen for years. The uranium sector looks like it’s going through some sort of death throes, gold stocks in the main are ignoring the fact that gold still isn’t that far away from $1000 an ounce and base metal stocks has just seen zinc and lead lose half their value in the last ten months or so. It’s ugly. If it wasn’t for some potash and coal plays in Saskatchewan, the whole sector would be about as dead as a doornail.
Which gets us to Goldsource Mines. It was just roughly two weeks ago that the Coffin Brothers of the Hard Rock Analyst did a piece on Goldsource and brought this “Hollywood story” to the world. Who would have thought a little company with almost no shares out, drilling in the middle of nowhere in Saskatchewan for diamonds, could create such a stir...but they did. They didn’t find any diamonds, but they found something better (as no one cares about diamonds these days) and that’s coal and lots of it.
They’ve only completed two holes so far, but what they found at the near-depth of 80 feet which (would give you an unbelievable stripping ratios) and huge widths of almost 30 metres, is some rather decent looking coal. And a company with very little shares outstanding, Eric Coffin tells us today that he’s amongst those that are more than a little shocked at how quickly this play has worked itself out. It’s nice to see that there was a good story out there somewhere and I wish we had gone for the play as well...but there you go!
So Eric Coffin, fresh from the past weekends Cambridge House Mining Conference in Vancouver was asked again our favorite question...if he could only buy or look at one stock today, what would it be? Right away he decides to gives us a hard time by saying that he’d look at two.
One he suggests is Bitterroot Resources as a tag-on to the coal discovery of Goldsource. He suggests that Bitterroot is run by Mike Carr, who he considers a great geologist, but a rather terrible promoter, but who does have coal experience. He notes that this is on the Manitoba side of the border, but within 10 km of Goldsource, which he suspects is as close as you’re going get for tag-ons to the main play.
They have three of four blocks and Eric does remind us that things are a little bit more expensive in Manitoba, but if the sweet stuff extends onto their land...
As for a second story, he’s followed the Riverstone Resources story for a while and their gold plays in Burkina Faso. One asset this company has Coffin tells us that is worth a lot and most companies don’t have these days, is a lab with quick turn-around...so within as little as 10 days, sometimes they know what they’ve been drilling and finding (or not finding) on their projects in Burkina Faso. That helps them know when and where to drill next and what it is they may be working on.
Coffin points to the cheques that Teck-Cominco seems to be handing them and suggests he would be disappointed if they can’t be looking at 1 to 1.25 million ounces of gold by year end and this, he says, for a company with a mass market capitalization of a mere $20 million. Interesting story.
SHARON ENERGY (V-SHY) $0.205 -0.005
AVERY RESOURCES (T-ARY) $0.50 -0.04
It’s hard to believe that it was just six months ago that natural gas prices were in the toilet and many gas stocks were half of the prices where they are today. At that time, one of the people bold enough to continue screaming that there was a future for gas was that of Bobby Lamond.
In the old days, Lamond ran some sizeable companies like Orbit and Czar, but these days, they seem to be penny-dreadfuls such as Sharon and Diaz. Ironically, when gas prices were low, Sharon was getting financed at $0.40 and now that gas prices have doubled, Sharon is yours for $0.20.
When we go to Bobby Lamond yesterday for an update, he suggested that they will be able to give some updates on at least three of their prospects within the next week. (Today, Sharon announced some pretty weak production numbers). But while we had him, we asked him for a stock to be following these days and what he sees on the horizon.
First of all, he points to the upcoming royalty changes in Alberta and suggests not everyone is going to be able to move to Saskatchewan or northeastern B.C. and he suggests it may be time to start looking at some of the international explorers again. Avery Resources, drilling in Australia and India is one that he would be looking at, at this time.
He also points out the huge difference because of the royalty change in Alberta that it’s making to the governments. We note that Saskatchewan has had an enormous increase and Alberta is just a fraction of what they used to get for land sales.
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David Pescod's Late Edition June 19, 2008
CGX ENERGY (V-OYL) $2.01 +0.06
We’ve been following the CGX Energy story now for what feels like a decade, ever since the gun boats came out from Suriname and a border clash put tiny CGX’s history on hold. Now that they finally know where their 9 million acres lie, they continue to work further to find their targets and most who have looked at their data, suggest they’ve got as many as a dozen targets from a small as 100 million barrels to as much potentially one billion barrels.
The other day however, a Noble/Repsol well that was being drilled offshore Suriname came up with disappointing results and had CGX smashed in the market.
Jennings Capital analyst Gregory Chornoboy took a look at the news on the well in Block 30 and writes, “The well was not dry – we understand that there were indications of gas, just not sufficient quantities. While the well is clearly not a commercial success, it does verify source rock and migration. West Tapir-1 and the old Shell Abary-1 well now establish source rock and migration to both the east and west of CGX’s main prospects on the Corentyne block. In a new basin, source is usually the most difficult element to establish.”
He also points out that, “West Tapir-1 was targeting a different formation than CGX is pursuing.” Chornoboy points out, “3D seismic programs is to be shot over Corentyne and Georgetown blocks this summer.” And the bottom line is that “Results of the joint venture solicitation process should be finalized by Q3.” And this is what everyone has been waiting for.
We must admit to having sold half our CGX holdings some time ago because we figured it would be so boring and so long before they finally do start drilling, that something could go wrong and the stock could sell off. Well, that’s now happened and for those who aren’t in the story, it might well be a buying opportunity or for those who want more. Chornoboy is a fan of the story and has a $12.00 target for the stock.
When we finally get the results on their further seismic program, it will be interesting to see just how many targets and how big they think they are and that is expected in the third quarter. Also, just when will we know about drilling plans for next year?
CAMECO CORP. (T-CCO) $37.56 -0.31
FORSYS METALS (T-FSY) $4.17 -0.23
TOURNIGAN ENERGY (V-TVC) $0.65 +0.01
While the junior mining market is in the toilet with base metal stocks being hammered, the worst-affected of the whole bunch though has been the uranium stocks. After a phenomenal run in uranium from under $10 to as much as $135, uranium has now dropped off to around $57 in the spot market and $90 for long-term contracts. It’s been ugly!
The blue-chippies like Cameco have lost 50% and the little guys have lost as much as 80%. Of the 400-600 juniors out there, the question is how many will survive?
However if you haven’t given up totally on uranium, maybe you might want to listen in on a presentation done by Scott Finlay, the London-based mining analyst with Canaccord who is now suggesting it might be time for a bounce in uranium stocks as he is looking for a bounce in the uranium price over the next 12 months.
He has an interesting take to present and it’s happening at a time with natural gas prices and coal prices going through the roof, that electricity is obviously going to be more expensive down the road and maybe now is a good time to contemplate how many nuclear plants could be built around the world in the coming decades.
Once again, the key may be China and Finlay points out that China may be looking for as much as 90 gigawatts of power plants to be built over the next 30 years, which could involve as many as 50 to 100 nuclear plants. He also makes an interesting point about how long it takes to build nuclear plants as the world average is about 8 1/2 years. He points out though, that there is a big difference between Asia, where the average plant can be built within five years and the Western World, where it takes as much as 13 to 14 years.
The one big benefit of nuclear power these days is its low cost in proportion to running its plant compared to coal, where as much as 50% of the cost of production can come from the coal or gas, nuclear can be as little as 3% to 5% of the ongoing production costs once it’s up and running. And of course it leaves a much healthier environment in the area than the dust, dirt and grime that you can receive from coalfired plants.
To listen to the presentation if you are curious and we suggest it is worthwhile to hear the arguments on uranium, simply dial, 877-245-4531. Reference: 623193#.
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David Pescod's Late Edition June 20, 2008
ITHACA ENERGY (V-IAE) $3.06 +0.70
ANTRIM ENERGY (T-AEN) $3.33 +0.03
The charts to the right show you how Ithaca Energy and Antrim Energy have fared over the last while and it is something we have referred to over the last while as ADD affecting the North Sea.
After a few years of work, investors/speculators have realized that if you are looking for a way to play the North Sea, Oilexco is probably the way to do it...They have tied up two rigs and they have such a portfolio of projects that they’ve always got something to talk about.
The little guys like Ithaca and Antrim, many speculators are simply tired of waiting six months or eight months or even longer for the next well to be drilled and we seem to be waiting for forever, for some reason to get excited about. The charts on both Ithaca and Antrim have shown you how investors have reacted, despite much higher oil prices.
With these kinds of prices though, with the work Ithaca and Antrim have done over the years, obviously, these companies are going cheap and someone woke up to that today as Endeavour International Corporation confirmed Friday, has made a non-binding proposed offer to acquire the entire issued and to be issued share capital of Ithaca for a combination of cash and shares of Endeavour with an indicated price of $3.25 per share.
It’s an interesting development and one wonders if people are now going to start looking at how cheap Antrim might be.
CONNACHER OIL & GAS (T-CLL) $4.42 -0.06
It was on a February day that we visited Connacher’s Great Divide project with a group of analysts and interested investors and the day we were up there, it was plus two in Edmonton. With the wind-chill at a minus 25 around the Great Divide and in Fort McMurray, it gave you a taste of how much more difficult it is to get work done on the project up there in winter than it might be during summer.
So it is a little disappointing that permits haven’t been given to Connacher for a leg-up on getting work done during the summer, when we suspect people are a lot more efficient.
Dick Gusella, President of Connacher tells us yesterday that they are in constant contact with the appropriate government agencies and he suggests it’s probably just a when, not if they get their permits and reminds us that there have been no SAGD projects that have not been given permits.
What’s next on the list for Connacher is a resource estimate from GLJ that should be arriving on the door step within the next 30 days.
Meanwhile, it’s nice to see another brokerage house start following Connacher as RBC Capital Markets is now following this stock and they give an interesting price target on the stock and we quote, “Target Price Rationale”...
Our un-risked NAVPS (futures) estimate (which includes future growth prospects) is over $13/share, with a risked NAVPS (futures) estimate of ~$8.50. We are not yet willing to set our price targets for long-lived assets off of strip pricing. Therefore, we are initiating coverage of CLL with a target price at $6.25/share, which is approximately 25% below our risked NAVPS (futures) estimate and consistent with our target price methodology for other longlived assets.”
GOLD $903.90 -0.30
ANDINA MINERALS (V-ADM) $3.72 +0.06
The chart and comment to the left that you see is that of well-thought of market technician Dennis Gartman who appears to think there is a major turning point coming for gold.
In the meantime, one of our favorite gold stories that certainly hasn’t enriched us like we had thought—Andina Minerals, comes up with more drilling results on its Volcan Project in Chile.
We have quoted Canaccord sources before who are bullish on the story and have an $8.00 target, but Paradigm Capital and analyst Don Blyth also today writes positively on the Company saying, “Andina released the final assays from its 41,500m Phase IV drill campaign...The results are neither exciting, nor disappointing, but it appears that the West deposit is now well defined to the East and no further extensions are expected. Step out drill results to the Northwest zone were strong, and the zone could become an important source of near term resource additions...We believe the Volcan deposit is positioned to grow considerably, and we expect an updated resource estimate to show an increase to 9Moz-10Moz, based on drilling success in the current drilling program.” Blythe has a target price of $8.00.
To receive the Late Edition and be on our daily circulation simply e-mail Debbie at Debbie_lewis@canaccord.com and give your address, phone number and e-mail and we’ll have you on the list tonight. |
