#8362 David Pescod's Late Edition 7/28-8/01/08
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David Pescod's Late Edition July 28, 2008
GOLDSOURCE MINES (V-GXS) $9.95 +1.06
In the wasteland that is the junior mining exploration market these days, there is one story that has been standing out and that’s Goldsource Mines. More importantly, the Coffin Brothers, Eric and David were the first to discover this play and have been following it closely in their Hard Rock Analyst publication. Most importantly, they have actually been playing it very successfully, saying to get in at $2.00, take money off the table on the way up to $20.00, and then after it crashed after two holes couldn’t find the coal, actually reinstated a buy at $6.00.
Today, drill hole BD08-02 intercepted 23.2 metres of hard black coal and the play is back on. Today, the Coffin Brothers write, “As we noted in SD #338, this is still very much an exploration story with a long way to go, but evidence of a serious tonnage potential is confirmed by this hole and we expect GSX to be priced to that reality.”
Their comments in today’s HRA-Special Delivery #341 are must reading, but later this week, we hope to do an interview with the Coffin Brothers on what they think of this play and how big it can be and possibly and more importantly, when will people care about the junior mining exploration game again. Or for that matter, any areas of the general markets that have been so pummeled of late.
CONNACHER OIL & GAS (T-CLL) $4.33 +0.16
PETROLIFERA PETROLEUM (T-PDP) $7.01 -0.10
On Wednesday last, Connacher came up with some pretty decent expansion of its reserves/resources and the like, and I guess the best thing you can say about their stock prices is that it has held in relatively well, compared to some others in this huge correction we’ve had in the last few weeks.
The Company announced total proved resources/reserves up 108% to 110 million barrels (or $4.26 per basic share) and total proved and probable reserves were up 109% to 372 million barrels (or $9.66 per common share). And then of course you get to the wishing and hoping and praying number of total proved, probable and possible reserves which was up 83% to 440 million barrels or $14.20 per share. Not bad, but the markets didn’t care for more than a few minutes.
The brokers cared a bit, as Macquarie upped their target on Connacher to $7.00 from $6.00 (and we note that RBC Securities had started coverage on this stock just a few days before as they started it as an outperform with a $6.25 target).
But we get to Dick Gusella with our one big question. Exactly when will they finally get regulatory approval to start on their next project, the Algar, which could hopefully bring in additional 10,000 barrels a day of production on stream with a look-a-like project. “We are still waiting” he says “and hoping it’s only minutes away as we’ve had our paperwork in now for 13 months and have basically answered all the stuff they’ve required.”
While we had Gusella though, we thought we’d take advantage of the opportunity and ask him just how much longer do you think this bear market/recession/credit mess is going to hang over things? Gusella responds, “If I was smart enough to answer questions like this, I think I’d be a lot richer than I am.” But he suggested if the banks are having trouble, we all do and the trouble could easily last until the elections in the United States are over.
“It’s a sign of the times” he suggests because of the financial strain as the number of people that are scared and many investors and speculators are simply sitting on the sidelines until the mess gets sorted out.
In the meantime though, he is a believer that we are into an era of $100 oil and it should be here for quite some time.
He figures a range of oil between $100 and $130 is what we will see for at least the next two or three years.
Meanwhile as far as natural gas, he isn’t quite as hopeful and suggests the ratio of 10 to one is a more practical than the six to one ratio. With natural gas he says, “there is always problems with pipelines and with new discoveries finding a significant mass to get pipelines built to ever new opportunity.”
Meanwhile, Connacher has an investment on Petrolifera Petroleum which recently closed a financing and the chart on Petrolifera (at least over the last short while) has shown its stock rapidly going downhill. He suggests that some recent financings still overhang the stock, but that water floods currently ongoing on their projects in Argentina, should boost production over the next year. How much? He won’t give us any numbers, but he is looking for a boost.
In the meantime, Argentina seems to be working in never, never land as Argentina works in its own little world offering producers only $45 to $47 a barrel. Gusella suggests that this is probably a businessman’s risk, but he would be disappointed if he didn’t see $75 oil some time in the next 12 months being offered to producers there.
Meanwhile, Petrolifera will be gearing up for some rather exciting exploration plays in Columbia over the next while and the big one in Peru, sometime early next year.
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David Pescod's Late Edition July 29, 2008
MERRILL LYNCH (US:MER) $26.12 +1.79
INDYMAC BANCORP. (US:IDMC) $0.146 +0.01
BANK OF COMMERCE (T-CM) $60.39 +2.81
As we’ve said before, we should be having fun with $120 oil and $925 gold...we aren’t. The junior mining sector is an absolute wasteland and we’ve recently seen the oil stocks, whether it was Suncor, Canadian Natural Resources or Reece Energy, all plunge as oil has corrected a bit in the last few weeks. It makes no sense, but then we’ve had this credit crisis overhanging the markets for a year now and you can feel the fear.
How long is this going to last? We’ve been asking just about everyone we talk to and the answers are varied. Dick Gusella, President of Connacher Oil & Gas who has been around financial circles for almost 40 year (or is it 50) suggests this could drag on until the election.
Peter Hodson who runs one of this country’s best performing mutual funds is not having fun this year either and he suggests it could go until the end of the year.
Bruce McLeod is one of the executives with Sherwood Copper, but is on the board of almost a dozen mining companies and when we talked to him yesterday, he suggested at least in the mining sector, we could see the bottom in September ... when people get back from summer vacations, take a look at the ugliness that is their portfolio, ask why do I own this?, and then decide to turf the ones they no longer like. But McLeod and many others sing the same song—that when things turn, with record amounts of cash sitting in pension funds and individual accounts, when the markets turn it could be a sharp one with more than a few people just standing there saying, “what happened and why wasn’t I part of it?”
But maybe some of the news out today just shows that there might be an end in sight for the credit crisis...just maybe. The news today is all centered around Merrill Lynch and the wheeling and dealing they’ve done to save their souls. The company just sold 380 million of its own shares to raise an additional $8.5 billion to preserve their rating and make sure they are going to be alive for down the road.
Meanwhile, they’ve also recently sold a 20% share of Bloomberg they owned for $4.4 billion and sold and in-house mutual fund service (Financial Data Services) for $3.5 billion.
Today, at least for many followers of the financial sector, Merrill might be getting rid of all the problems it has as they’ve decided to sell $30.6 billion worth of CDO’s for $6.7 billion.
Yes folks, they’ve just returned $0.22 on the dollar from their investment.
We all remember the IT bubble blowing up just seven or eight years ago when everyone seemed to think their technology company with maybe a product, certainly no cash flow, suddenly had a valuation in the billions of dollars. Things got stupid. We’ve just gone through another era in the last two to three years when it seems that everyone in the United States had to have a chunk of real estate (and watch “Flip this House” on TV) and there were all those brokers and banks that were more than willing to finance it.
Now housing prices are down 20%, obviously closer to what they were probably worth in the first place and it’s suddenly tougher to get a mortgage, so we are probably closer to the bottom than before, but probably not quite there yet. At least we are closer to real valuations.
What people are writing today is that Merrill has been able to raise the capital to rescue themselves (although it certainly has been dilutionary to shareholders) and they probably will be alive to fight another day. Which is the good news. If the banks and brokers are going to be around, sooner or later life might return to normality. At least for some of us.
Meanwhile, there are still a couple of things that Wall Street does that just make us shake our heads. Stan O’Neal, the former leader of Merrill Lynch who to many was responsible for getting Merrill into all this problem stuff, left Merrill with a severance package of almost $140 million. Right! It makes you shakes your head.
ASCOT RESOURCES (V-AOT) $0.58 +0.03
For those who didn’t think that the housing market in the United States can affect Canadian mining stocks, just take a gander at the chart on Ascot Resources, which had some rather unpleasant news out in the last few days.
Ascot is currently suspending construction of their ship loading facility at its Swamp Point Aggregate Mine which is in northwestern B.C. It was being developed to provide high quality aggregates to California and other Pacific Coastal markets for the construction and home building industry.
The main focus of the Company and its ship loading facility was to accommodate vessels up to 70,000 DWT to service mainly the California market. But with the turn in U.S. housing and the negative effect on demand for aggregate products in California, it looks like Ascot will have difficulty trying to secure profitable sales contracts for near-term delivery.
Obviously the market was expecting this kind of news and the chart shows you how a gravel miner in B.C. is affected by housing in California.
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David Pescod's Late Edition July 30, 2008
BANKERS PETROLEUM (T-BNK) $4.70 +0.80
We’ve been following Bankers Petroleum for the simple reason that their new boss Abby Badwi has been worth following over the last while. His previous company, Rally Energy did frightfully well so after a performance like that, you wonder what he can do next.
He’s taken over Bankers assets mainly in Albania and hopes to gear up what is potentially an enormous field using technology he has used before in Egypt. In the last while though, Bankers has had a couple of hiccups as the price of oil has corrected and gossip that the Albanians were going change their taxation policies (one of the big reasons people are paying lots more for gas and oil products these days is because the big royalty fees that go into government coffers).
The results are out today as the Albanian Parliament approved an amendment to the fiscal system by establishing a 10% royalty tax to be paid by all contractors. There is also a levied profit tax which remains at 50%.
So it’s another bit of a gouge, but I suspect many thought it could have been worse. Today some of the analyst’s lower their target on Bankers as BMO reduces their target from $12.00 to $9.50 which suggests that there is still a lot of traction left in the stock.
Petroleos Mexicanos, known to most folks merely as Pemex, is the national oil and gas company in Mexico. They are the only company by Mexican law, allowed to own, drill and explore oil and gas properties anywhere in Mexico or offshore Mexico.
Many people use it as the arch-type example of what can go wrong with national oil companies...not facing competition they don’t have to be competitive. Many suggest they have many more employees than they need and that traditional companies in North America would be a lot leaner than what Pemex is.
Also with no competition, their use of technology is way behind the times. Now it looks like Pemex is admitting just as much as they are telling the Mexican Congress that they need foreign help because it simply doesn’t have the technology to drill in water deeper than 500 meters.
Why is this important? Well suddenly you are starting to see numbers that are dear to the hearts of oil bulls, but not to those who worry about Mexico’s financial condition because Pemex supplies a big chunk of revenue to the Federal Government.
And for the month of June, Pemex pumped 11% less oil than a year earlier, according to Bloomberg as production from their massive Cantarell Field, the world’s third-largest, declined 35%. Yes, that’s right ... the world’s third largest field has just dropped its production by 35%.
In the meantime, they have all those offshore targets albeit at deep levels and none of the expertise to go after it.
Pemex officials are hoping to learn the ways of deep water drilling either through joint exploration offshore Brazil or Cuba and with joint ventures in the American sector of the Gulf of Mexico, or looking to be able to hire foreign contractors to assist them in their work offshore Mexico.
Meanwhile, according to a very important Bloomberg article, in the past four years, Pemex has found oil that may be commercially viable in only one of seven deep water exploration wells it has drilled. The article points out that any new products will take up to nine years to pump the first barrels of oil ...
With the Merrill Lynch mess apparently being taken care of, showing that maybe the credit crisis that has been overhanging the markets for the last year might be in its final phase, we decided it’s time to be aggressive. With our own portfolio, we are now in margin positions, assuming that sooner or later, all that cash sitting on the sidelines gets put to work. Our market stance right now is that we would be quite disappointed if we don’t have significant rallies by year-end.
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David Pescod's Late Edition July 31, 2008
REECE ENERGY EXPL. (V-RXR) $3.22 +0.02
RYLAND OIL (V-RYD) $1.94 +0.15
PETROBANK ENERGY (T-PBG) $41.20 -0.80
CRESCENT POINT TRUST (T-CPG.UN) $34.60 -0.40
PAINTED PONY PETE. (V-PPY.A) $6.10 +0.32
Sometimes, other articles from the press give you a pretty good handle of the excitement about what’s going on in a certain area or a certain oil and gas or mining play.
Enclosed please find an article by Richard Foot of Canwest News Service, giving you a handle of what’s going on in Saskatchewan and southeastern Saskatchewan and in particular, the heart of Bakken country.
We also enclosed some charts of some of the companies involved in the area. For those following the junior stories, Reece Energy is one of the players that hopes to increase production dramatically over the next year and Ryland, which has barely any production, but has the father of the Bakken as its chairman. Dick Findley had been working on Bakken and North Dakota for years and when new technology and drilling methods came along, was the first to be able to unlock the potential of the Bakken. He was named “Oil Man of the Year” in the United States and Ryland now owns 360,000 acres of potential Bakken land in Saskatchewan.
Time will tell whether they’ve got the good land or not…
Sleepy city to bustling boomtown
Weyburn has undergone massive change as southeast Saskatchewan
becomes a burgeoning energy frontier
Richard Foot
Canwest News Service
Monday, July 21, 2008
“Doug Maurer drives his pickup down a strip of asphalt
that runs, straight as an arrow, across the windswept
plains of southeast Saskatchewan.
On his left, a long row of steel pumpjacks, pulling oil from a kilometre below the surface, guards the roadside as far as the eye can see.
On the right-hand side the wheat fields sit empty, for now. "That will eventually be lined with pumpjacks too," says Maurer, a local manager for the Calgary-based oil firm Petrobank Energy. "Everything we've driven through today that doesn't have oilwells on it, you're going to see one well every quarter mile, within three or four years, no question."
Welcome to the Bakken oilfield, Canada's hottest petroleum play, where a frenzy of land sales, well drilling and investment is turning this once-modest corner of the country into a burgeoning energy frontier and transforming the sleepy farming city of Weyburn into a bustling boomtown flush with jobs, newcomers and high expectations.
Grain elevators and farm silos once dominated the prairie horizon around town. Today, drill derricks, the orange flares of natural gas towers, and row-on-row of pumpjacks now dot the landscape all the way to the North Dakota border.
"Older houses in Weyburn that were vacant or asking $30,000 two years ago, are now trading for $150,000 or more," says Maurer, who has lived and also farmed in the area all his life. "The city is out of building lots. The municipality around Weyburn has 200 applications from people who want to put acreages in around the outside of the city. It's affecting the local economy big-time -- and nobody really knows how big it's going to get."
It's a similar story across Saskatchewan, where record-high prices for oil, potash, uranium, wheat and canola are driving an economic resurgence built on commodities.
Saskatchewan supplies a quarter of the world's potash and a third of its uranium, and has a plethora of new coal and diamond discoveries to tap. It also produces half of all Canadian wheat, and is now the country's second-largest oil producer. Numerous forecasts say it will lead the nation in GDP growth in 2008, while also becoming an official "have" province -- a contributor to equalization.
Bruce Leech, a Saskatoon engineer with AMEC, a project management firm overseeing mine expansions across the province, says for decades he wondered why his home province, endowed with such natural riches, struggled as an economic backwater.
"I knew there were lots of resources and always felt things were never quite right," he says. "After 20 or 30 years, you begin to lose your optimism.
"But now there's an attitude change and the average person -- whether they work for AMEC, or McDonald's or they're a school teacher -- the optimism is back."
Saskatchewan's awakening was triggered by an extraordinary convergence of events over the past three years.
The growth of the middle class in China and India and the sudden surge of the corn-fuelled ethanol market has prompted an explosive demand for potash-based fertilizer and also led to "crop fever" on the Prairies, where wheat and canola prices have nearly tripled since 2006. At the same time, soaring prices for oil, coupled with new pressures to solve the climate change crisis, have sparked renewed global demand for uranium as a source of fossil-free power.
Meanwhile, the Alberta government's decision to raise its oil and gas royalties by roughly 20 per cent has triggered an exodus of drilling and exploration activity, much of it into Saskatchewan.
The effect of all this has been a flood of new money into the province, along with the return of tens of thousands of interprovincial migrants, many of them coming home from Alberta, to fill the burgeoning local demand for labour.
"For the first time in several generations, people expect their children to be able to find careers in Saskatchewan," says Leech. "I have two children, both in their 20s, both making their careers here. Five years ago, I thought I'd be travelling to Calgary and Edmonton to see them."
The Bakken boom lured Grant Stinson home to Weyburn this year after more than a decade in the Alberta oil patch. He'd heard that companies were hungry for skilled workers but he never realized how much until his first morning back in town, when he dropped his resume off at the Weyburn offices of Petrobank Energy.
He was offered a job that same afternoon. "I've never had that happen to me before," he says, grinning. "This was a Friday, and they wanted me to start on Saturday. I said I needed a week."
Stinson now monitors Petrobank's expanding base of producing wells in the Weyburn area.
"I think we've got at least five years of steady boom here. We've only touched a fraction of what they want to drill. Of course, it all depends on oil prices staying up, and the longevity of the wells."
In the last fiscal year Saskatchewan earned a record $419 million in Crown land oil drilling rights sales, more than double the previous record, including $132 million alone spent by Petrobank and other players in the southeast.
Today at least 65 oil rigs, many of them locally owned, are drilling and finishing wells on the Bakken, at a cost of $2 million per well.
The money and the economic activity it generates is fuelling a real estate explosion in Weyburn. In previous years the city annually sold about 10 residential lots for development. This year, Mayor Debra Button predicts sales will top 100.
New hotels are under construction, new subdivisions are pushing into the surrounding prairie, and all across town retailers are expanding their stores.
Weyburn is one of the few places in Canada where most people are happy to see oil prices stay high, including Doug Maurer, who has no desire to revisit the difficult years of slow investment and stagnant incomes.
Two years into the Bakken boom, he says he never imagined the economy here could reach such heights.
"People never believed this would happen -- that the price of their farms or houses would go up, or that people would ever want to move here from other provinces," he says.
"I think a lot of people's lives in Saskatchewan are turning out quite different than what they imagined."
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David Pescod's Late Edition August 1, 2008
ITHACA ENERGY (V-IAE) $2.15 +0.25
MAGINDUSTRIES CORP. (V-MAA) $2.55 n/c
The incredibly weak markets over the last while has caused more than a little grief for some companies that have simply had to raise capital to get projects built. It has certainly ticked off more than a few investors and placed corporate management in awkward positions.
As a shareholder in both Ithaca Energy and MagIndustries, we are long for the ride on both of them. As far as Ithaca, to an outside observer, it almost looks like a raping and pillaging of a company that had an apparent take-over being offered at $3.25 one week and then just several weeks later, management decides to do a financing at $1.50 — diluting the company horrendously!
In response to the questions, Lawrie Payne, CEO of Ithaca answers this way:
“I recognise your concern about Ithaca Energy’s decision to raise equity funds at a significant discount to market when in fact Ithaca Energy recently rejected an approach from Endeavour at a substantial premium. In response to those concerns, I offer the following:
1. Ithaca Energy’s primary and near-term requirement was for cash; for the purchase of the Beatrice oilfield, for the purchase of the Stella discovery and for the payment of long-lead items required for the development of Athena.
2. The approach from Endeavour caused us to expend time and resources when we would have preferred to raise capital. Incidentally, it was not an offer, but a vague proposal. We took it seriously, established a Special Committee of independent Directors and contracted two firms of financial advisors, all of whom came to the conclusion, that the combined company would not be as attractive as the existing one.
3. Having dispensed with that distraction, we proceeded to raise capital. By the time we were ready to market, the equity market had deteriorated to the very difficult state it is in now.
4. Given our financial requirements, we decided to proceed with the issue because we believe it was the best way to unlock shareholder value in the longer term.
I hope that this gives you a feeling for the rationale of the Company. We are as disappointed as you with the discount suffered in the share issue but raising the capital was far more important in the long run than not. We are now sufficiently financed to develop all of our existing properties without coming back to the market. The future is bright.”
Meanwhile, MagIndustries went through some of the same problems as they were trying to raise $80 million in the same poor market and decided to yank their financing rather than go ahead with trying to raise money in a market that was falling apart.
The chart shows you how the market reacted when they found out that the financing was going to be yanked (almost panic selling).
Meanwhile, analyst Keith Carpenter of Canaccord who follows MagIndustries, still reiterates an $8.25 target for down the road and writes, “In our opinion, the company did a poor job of managing expectations for the timing and structure of the third phase of financing. This resulted in the market’s initial reaction of pushing the stock down more than 20% ...” Carpenter points out that the company has raised $101 million in private placements in April and a further $70 million in June. And they will have to raise another $80 million in the near future.
He further writes, “We continue to believe MagIndustries will be the first Canadian-listed junior potash company to enter production in 2011.”
For those who would like a copy of Carpenter’s report on MagIndustries, just e-mail Debbie at debbie_lewis@canaccord.com. |
