₪ David Pescod's Late Edition 10/07-10/10/08
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David Pescod's Late Edition October 7, 2008
HATHOR EXPLORATION (V-HAT) $1.91 -0.26
It was awfully early in the morning we thought for David Coffin of the Hard Rock Analyst to be thinking this deep, but when we ask him for his thoughts on the credit crisis and what’s happening in the United States he answers, “It’s the classic end of empire.” You saw it in Britain” he says “when the British empire fell apart because debt kills empires.” And we certainly know that the Americans are covered in debt.
First is their national debt which is actually small compared to many countries of the world, but then you add on the average American’s habit of having an average of 12 credit cards with $39,000 in debt, the huge amount they carry on their mortgages and you’re looking at a very in debt individual and country.
Meanwhile, Coffin says the Chinese are all “cashed up.” It’s kind of a deep statement when you think about it and maybe it is, showing that there are significant changes going on in the world.
As far as the beaten up mining markets (and we do mean absolutely beaten up) Coffin who has made a couple of good calls over the past year, not the least of which was Goldsource Mines (GXS) and its coal discovery, but Coffin says, “I wish instead of making statements like taking some money off the table after some interesting times, that we had just said a year ago, just sell everything.”
At these times though, he is still focusing on gold and he points out that gold is still up considerably today from when it first starting attracting interest a year ago at $600. When we point out that this is the worst crisis we’ve seen in years and gold is actually down from its peak, he suggested that the real purpose of gold was liquidity in bad times. He points out that if you would have had a big stake in Lehman Brothers and had been wiped out and needed something, you had your gold to sell to get you through.
The real reason we were trying to get a hold of Coffin though, was that one of his current stories now, Hathor Exploration has just received a monster analyst report by analyst Patrick Donnelly of Salman Partners on Hathor Exploration. The 30-page report is headlined, “What Looks Like the Next Big Uranium Discovery in the Athabasca Basin.”
Donnelly writes, “World class discovery!” He points out that “On February 26, 2008, Hathor Exploration Ltd. Announced that it had encountered anomalous uranium mineralization
at the “Roughrider Zone” at its 90%-owned Midwest NorthEast property in the prolific Athabasca Basin.” At the time, they announced 11.9 m grading an awesome 5.29% U308.
“On August 27, 2008, Hathor announced additional results from its summer drilling program, including 69 m grading 2.33% U3O8.”
Donnelly continues, “Hathor appears to have a deposit! How big is it? Based on discussions with management, we roughly estimate that the Roughrider Zone has approximately 828,000 tonnes at an average grade of 2.4% U3O8, containing approximately 43.8 million lbs of U3O8. We expect the Roughrider Zone could get much bigger.”
Donnelly also points out the “Great Neighborhood” of the discovery in that it “is located only 10 km from the McClean Lake mill which is currently awaiting word on when it might receive ore from AREVA Resources Canada Inc. (“AREVA”) and Cameco Corp.’s (CCO – TSX) Cigar Lake mine.”
Donnelly suggests that Hathor is a great takeover candidate and writes, “Given the Midwest NorthEast’s proximity to the McClean Lake mill, we expect that AREVA, Cameco or Denison Mines Corp. (DML – TSX) could attempt to take over Hathor.”
Donnelly suggests a 12-month target price of $6.40 and rates it as a “Speculative Buy” and the maps and scenario enclosed in the report shows how he expects it could get to becoming a takeover candidate.
Coffin, commenting on the Salman report (which is getting a lot of respect in the mining community) says…“His $12.50 per pound valuation base is a little higher than mine (I am using $10) but while he is assuming a 20% gain to the resource I point out that only half the geophysical anomaly that first spotted the deposit has so far been tested. That could/would imply a +60 million pound potential, which is well into the big category and would likely get a bidding war underway for the company that could well garner a better price per pound than either of us is using.”
He points to the sketch that Donnelly used showing there is actually potential trend extension greater than 50%. “It doesn’t show however” Coffin says, “a second anomaly behind the drill.” What to expect from this story from Coffin? He calls it under $3.00, just a “straight buy” and above $3.00, a speculative buy, but believes that if they can come up with the 60 million pounds of ore, he figures it’s worth $8.00 per share.
When we take the report for other people’s comments, mining industry veteran Brad Cooke suggests that he’s been involved in the stock since the first discovery was announced and what gets him excited about the Hathor play is that these uranium deposits tend to come in clusters and if there is a cluster, you see a takeout target in double-digits. A fourth person suggests that’s “It’s the only mining story out there these days that is creating any interest” and has a price target that well, we aren’t even going to write about.
Additional drilling results from Hathor are expected in the next few weeks and then a big drilling program starts in January when the lake is frozen.
In the meantime, we will mention that this is the speculative mining business and it seems anything that can go wrong...does. Either way, we are picking up a few.
On Friday, Hathor announced some drilling results of a massive 46 metres grading a huge 3.25% U308, into a market that was panicking. We suspect leading up to this winter’s drilling program, this will be the main mining story on beaten up mining brokers screens. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition October 8, 2008
SUNCOR ENERGY (T-SU) $29.46 +0.30
UTS ENERGY (T-UTS) $0.95 -0.05
OPTI CANADA (T-OPC) $7.25 -0.35
OILSANDS QUEST (BQI-US) $1.72 -0.08
What a difference a couple of days or weeks make, at least in the oil and gas business. We’ve gone in almost no time from an era when commodities around the world was the hot sector of the day to concerns that the credit crisis in the United States gives us a recession/depression, which could clobber all commodity prices. The question of course, is just how badly could they be clobbered?
There is one sector though that is very much leveraged to the price of oil and that’s the huge oil sands and heavy oil plants in Northern Alberta. It’s gone through boom and bust in the past and one wonders if it’s about to repeat that cycle as many projects up there have relatively high costs in their manufacturing processes.
Now that oil is heading the other way, the analysts are quickly changing their directions. Phil Skolnick of Genuity Capital has changed targets dramatically on some of the stocks he follows as the hold rating on UTS Energy remains in place, but their target is now $1.50, down from $4.00. His target on Opti Canada which still has a buy rating and is now ranked ‘speculative’ has seen its target price decrease from $35.00 to $12.00. That’s right...you saw it right...from $35.00 to $12.00.
Meanwhile, Oilsands Quest is now considered ‘speculative’ and listen to this...their target has been decreased from $8.50 to $3.00! They reiterate a buy rating on Suncor Energy, but their previous target of $82.00 is now $52.00. Look at the charts on some of these big plays and the chart on Suncor in particular causes a whole bunch of grief for those currently in the booming Alberta economy. This could suddenly change very quickly.
OILEXCO INC. (T-OIL) $4.35 -0.32
It’s not just the blue chip oil sands projects that are getting absolutely annihilated in the sudden change in the oil market...some of the juniors have been annihilated as well and one story that has been followed probably by more Canadians and international investors than anyone has been that of the story of Oilexco.
It was hard to turn on BNN and watch a show without being asked for the hosts opinion of Oilexco and virtually everyone loved it...except one of course. Peter Hodson of Sprott Asset Management, Fred Kozak of Canaccord Capital and of course the big push behind it came from Josef Schachter of Maison Placements. With the Royal Bank of Scotland, one of the biggest banks in Britain suddenly in trouble and having to be rescued itself, there was less chance of Oilexco getting the extra $200 million that could have pushed their projects quicker. And now there is very much a question of whether Oilexco would need to do a small financing at an absolutely terrible time or if they can efficiently manage their expansion, out of cash flow.
Today Josef Schachter updates his model on Oilexco and writes, “We have updated our Maison Model for Oilexco to take into account the production data update Art gave at this week’s investor conference in London, UK and taking into account the financial crises and the concern about where oil prices will go in the near term. We have stress-tested OIL at Brent US$85/b as well as at our long term forecast rate of US$100/b. We continue to believe oil prices will firm up once winter starts in earnest and that our forecast price of US$100/b will be conservative (YTD Brent >$110/b). OIL needs to extend its PDF loan (US$200M) in the coming months and until this is completed or until Shelly has ramped up, the stock may not lift materially. The company will need to manage its cash resources expeditiously in the near term but once Shelly ramps up it should be net cash flow positive in even the stress case of US$85/b for Brent. The stock is very, very cheap and we recommend investors take advantage of this distress selling. A year from now when volumes have doubled, we should see the stock price at new all time highs.”
Just remember, Schachter is still very bullish on oils at a time a recession or worse probably means many commodities in the world are going to get weaker, not dearer.
Genuity cuts their target from $29 to $8; Tristone to $13 from $22; Scotia to $18 from $20 and Canaccord to $20 from $28.50. Those targets are all over the place and one might be right, but right now they look a long way away! _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition October 9, 2008
BANKERS PETROLEUM (T-BNK) $1.38 n/c
WESTERNZAGROS RES. (V-WZR) $1.00 -0.06
For a couple of minutes today on the markets, it looked
like we might finally have a fun day...but that lasted for
only a few minutes as Toronto started very strong, up 300
and some points before reality hit. Leading the way on
the charge were the energy stocks and once again, if you
went to the “boy’s room” for 15 minutes, you missed the
whole thing.
Meanwhile, courtesy of the credit crisis we have a new
world-wide reality in that talk of the commodity boom has
faded as talk of recession and worse now gets most of the
attention. And in recession, traditionally commodity stories
don’t do as well. That’s suddenly got all the analysts
working on their calculators and coming up with new targets
about what to expect in the new reality of the oil and
gas sector.
The good folks at Genuity Capital led by Jamie Somerville
have changed their expectations for oil prices and
with the change in oil prices, you get different expectations
for stock prices. For instance, their old expectation
for 2008 was $112.00, now for this year it’s $107.45 average.
For 2009 you start noticing the difference as their
previous target of $100.00 is now $90.00 and for 2010 their
old target of $90.00 is now $75.00. And needless to say
there have been some big changes in targets for some of
their favourite stocks...not big changes...but huge!
They write, “Although everything looks cheap based
on fundamental valuation, GTE (Gran Tierra Energy) is our
top pick due to a strong balance sheet and high netbacks…”
But their target on GTE has been reduced
hugely, from $10.20 to $5.50.
The report also notes that, “Our favourite stock for
commodity bulls is BNK (Bankers Petroleum) due to expected
production/reserve growth and take-out potential.”
The report continues, “Addax Petroleum and Oilexco both
look remarkably cheap based on current cash flows, but
due to clearly visible security (AXC) and financial (OIL)
risks, we think markets would have to become riskseeking
again before either can achieve higher relative
valuation. Oilexco (if it can remove the financial risk) and
WesternZagros (due to drilling results) stand out as having
spectacular near-term rebound potential, but momentum
is not favouring high-risk investments.”
Their new target on Oilexco has been changed from
$29.00 to $8.00 and WesternZagros from $4.20 to $1.50,
but we should point out that WesternZagros is involved in
a series of up to five, high risk/high reward wells in Kurdistan
that could make that $1.50 target look quite small.
DELPHI ENERGY (T-DEE) $0.99 +0.20
NATURAL GAS $6.79 +.057
Okay, so like what’s with the weather lately? We are
based in Edmonton which is the centre of the universe,
but one look at the Atlas shows you that it’s way up north.
So for the last week here in Edmonton, you would have
thought it was Florida with weather between 26 and 30
degrees Celsius. Unfortunately that was last week, tomorrow
we expect snow! Excuse me? It’s like Florida one
week and the next week it’s like Siberia? What’s with
this? But if you are watching natural gas there is one
thing and one thing only that affects natural gas
prices...well you better make that two because with the
discovery of all the shale deposits in the United States,
suddenly there is increased supplies available with that
gas—it’s just more expensive gas.
The main affect for natural gas is weather. Hot weather
brings in big demand for electricity for air-conditioning in
the summer while a cold winter means the furnaces are
turned on for that much longer.
What seems to be getting people such as Don Coxe
and others excited these days is something you probably
never heard of before but there are others talking about it
as well and that’s the Sun Spot theory. According to this
theory, you can predict what’s going to happen with
weather by the activity of the sun and supposedly solar
storms and sun spot activity tells you that it’s going to be
hot. And the reverse is that if you can’t see any sun spots
or solar storms, it’s going to be cool.
While Al Gore and his type are talking global warming,
there are those that are watching the sun and suggesting
that with the total lack of sun spots, the first time ever for
the month of August, the suggestion is that it’s going to
be cooler. For more information on the sun spot theory,
it’s probably worth your time to simply ‘Google’ sun spot
theory and see the different websites that are available.
Lots of interesting information on this theory and those
for and against it.
In the meantime, take one look at the chart on natural
gas and it looks like so many other stocks you’ve seen
these days, but with that activity in natural gas prices, all
natural gas stocks have been absolutely annihilated. Most
are down 60%, many are down as much as 80%.
The chart on Delphi Energy, one of the favorite picks of
Josef Schachter shows you just exactly how bad it’s been.
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David Pescod's Late Edition October 10, 2008
“If you are going through hell, keep going.”
- Winston Churchill
SUNCOR ENERGY (T-SU) $26.60 -1.16
COASTAL ENERGY (V-CEN) $1.07 -0.13
Part of what’s going on these days is more than a little bit
amazing. Numbers out of Canada today show that they’ve
created 110,000 new jobs, unemployment numbers haven’t
budged at all and a trade surplus was going big-time the
right way. And that markets are crashing!
In the United States, while the economy is weakening,
you can see the fear being spread as all of a sudden you
have stock market commentators of a gloom and doom-type
featured on Oprah and Dr. Phil. It’s that kind of a time and is
of historical proportions. When $82 billion is withdrawn
from mutual funds as what happened in the United States
last week, in one week—that tells you the depth of the fear.
But in a market drop like this, everywhere in the world, people
have been hurt terribly from new investors to experienced
investors to retirees to you-name-it and the question
remains...where does it end?
Some of our favourite market commentators that we’ve
followed for years and in some cases, decades, have obviously
totally missed calling this crisis, but it is still amazing
that a handful of scally-wags on Wall Street can ruin it for
billions of people around the world.
As far as what next, one commentator that we have followed
for decades has been the CIBC top economist Jeff
Rubin. Ever since a few decades ago he had the nerve as a
young economist to predict that Toronto real estate prices
would drop 25%. Needless to say that was a rather bold
move as no one in the markets ever says sell or makes a
prediction like that! He not only made the prediction but he
was very right.
The trouble with Rubin lately has been that while he’s
been wildly bullish on oil, this recession is affecting oil
prices greatly. And it seems every second week he is
changing his targets on things. As of this week his new prediction
is that the S&P/TSX Index will close out 2008 at 9500
points, yet another downward revision. But in the meantime,
he is looking for a 30% turnaround in 2009 to see the TSE
end the year at 12000.
But here is where it gets interesting...this controversial
guy who has a habit of making absolutely, sometimes outrageous
predictions and most of them coming true, is now
suggesting that oil prices could average $150 a barrel over
the second half of next year. To us, that sounds absolutely
outrageous and we would be happy and brave enough to
buy some beaten up oil stocks is we thought we could see
just $90 or $100.
His comment though in the Financial Post is, “If US$90 the price of oil during what is being perceived as a deep global
recession, what is the price of oil in the recovery?” In the meantime, he is concerned “that de-leveraging story is likely to
hold sway for the balance of the year” and he is also arguing that “the recession is neither deep enough nor global
enough to warrant the massive haircut in energy and other resource stock valuations that have taken place over the last
several months.” Once again, that Canadian data on the economy is just wonderful, thank you. The numbers on the market
are brutal.
In the meantime, we notice a whole bunch of our favorite oil and gas stocks are now trading as low as ten and 20 cents
on the dollar in one of the most brutal market corrections we’ve seen in generations. There is a time coming, some time in
the next few months that we suspect will provide an opportunity like we haven’t seen in ages for those that have a little bit
of courage and whatever assets are left. Meanwhile, the G-7 meeting this weekend in Washington will probably be the
most important ever held. The markets on Monday in the U.S. will show if any faith has been restored...
DOW JONES IND. AVERAGE 8485.04 -94.15
GENERAL MOTORS (US:GM) $5.03 +0.27
One quick look at the Dow Jones Industrial Average
shows you that things are ugly as portfolios of everyone
in the market around the world are being devastated in
the biggest market correction since the 1930’s. A few
days ago it was said that we’ve now had the biggest drop
in the Dow since 1937, a couple of days later and it’s simply
getting worse.
Brokers these days, f they weren’t busy giving margin
calls, they seem to be even busier doing mutual fund
redemptions as we discover once again that the much
bigger emotion than greed is definitely fear and one look
at these charts shows that there’s panic in the markets.
It’s easy to say you are supposed to buy low and sell
high, but the chart tells you we should be at a time when
people should be getting the courage to enter the market,
but when all your buddies over beer are talking about
what they’ve lost in the market lately in a historical event,
it’s rather hard to do that.
For those of us who’ve taken a beating in the oil and
gas and mining sector and see many stocks down 40% to
70%, take a look at the chart of a company you might
have heard of. Yes, that’s General Motors which has now
lost about 87% of its value and that just simply puts everything
into perspective folks, and remember, that the
Dow Jones has 30 of the supposedly bluest chip of the
companies in the United States. |
