₪ David Pescod's Late Edition 10/20-10/24/08
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.
_____________________________________________________________________________________________________________________________________
David Pescod's Late Edition October 20, 2008
DOW JONES IND. AVERAGE 9265.43 +413.21
BIRCHCLIFF ENERGY (T-BIR) $6.50 +0.72
While investors around the globe have seen their portfolios
and savings butchered over the last weeks, suddenly
those financial writers and commentators in the Post, The
Globe, BNN and elsewhere, suddenly have some big, big
audiences. Because financial writers tend to have a good
chunk of their own money in the markets they are suddenly
in a similar position to many of us.
Some comments of note...Diane Francis of the Financial
Post writes, “In this market meltdown, many of us have
gone from a ‘Freedom 65’ retirement strategy to the
‘Freedom 85’ variety. But this will get fixed.”
Jonathan Chevreau who writes the Wealthy Boomer also
for the Post writes, “Of course, this catastrophic meltdown
is actually good news for young investors just starting
down the road to building portfolios of bargain-priced bluechip
stocks. But for Boomers, it’s a disheartening setback.
Time is running out. If you’re like me, you may conclude
that you’d better keep working and pick a date further out
in the future to retire or semi-retire.”
Yes, the financial planning for many of us has definitely
been altered in the last few weeks, but ironically, some
people in the midst of this gloom can actually find some
good news...well for the country and the economy maybe,
but not for some of us.
Dave McGinn writes in a column entitled “Cash-strapped
Boomers a gift to employers” writes, “For several years
now, human resources professionals and others have been
predicting a major knowledge gap that will affect companies
when huge numbers of Boomers retire, taking with
them a vast amount of knowledge and experience and leaving
significant talent shortages.”
He continues, “The longer Boomers delay retirement,
the more time companies will have to fill that impending
gap.” Mind you, there is the concern that there is going to
be a lot of people still working that are not happy to be
there.
Mind you, not everyone is doom and gloom as usually
when there’s a half price sale at your neighbourhood Safeway,
you tend to make sure you grab some bargains.
Diane Francis has some writing of that vein as she writes,
“One of Canada’s smartest investors, a friend of mine, said
what he did last week while the rest of us were worrying. ‘I
was a major buyer all last week of commodity stocks. For
a two-year play, I’m buying aluminum, oil and gas and copper”
said Seymour Schulich of stock market fame.
He continued, “On the equity market collapse” I love
the smell of fear in the morning.”
Schulich, the billionaire philanthropist who wrote a beautiful book called “Get Smarter, Life and Business Lessons”
(which we highly recommend) is a person we’ve mentioned in past issues because he had been over the past
year, a huge buyer of Birchcliff Energy and the chart on Birchcliff shows you that it has fared like many other oil and
gas companies over the last while...it hasn’t been great.
But then it looks like Schulich (like a few others) are thinking that these are bargain-hunting times and it’s time to
get at it.
We should quote from a piece we did on him back on January 10, 2008 (in the good old days) because Schulich has
previously said that Birchcliff could hit $50 over the next few years as gas reserves are proven and commodity prices
rebound…the only difference now is that Birchcliff is half price (please note from company news releases that Schulich
now owns 19.6% of the company and has in the past paid prices much higher than current levels) and courage in
the current market tends to be/can be rewarded.
BLUE NOTE MINING (T-BN) $0.01 n/c
TSX VENTURE EXCHANGE 984.94 +38.82
Blue Note Mining announced this past weekend that it
is closing its Caribou Mining Complex in New Brunswick
and about 270 folks are out of work.
The company has blamed low zinc and lead prices
and the suggestion is that their break-even point for zinc
is about 80 cents a pound and with zinc currently at
$0.53, that’s not the way one makes money.
Meanwhile industry sources according to the Financial
Post are suggesting that Breakwater Resources’ Langlois
and Myra Falls mines are also probably in trouble.
Which brings up the whole junior mining sector right
now which is probably going to get clobbered with taxloss
selling as folks take a look at financial planning for
this time of year. The big concern of course is that with
producing mines having trouble existing, how can the
juniors out there, many of which have trouble raising
any money at all to continue to exist, survive with the
hope of a new discovery when those guys who already
have something in production are facing steep odds.
There is some suggestions in print that as many as a
third of the junior miners might cease to exist in the next
six months. So it’s definitely time to start looking at taxloss
selling now. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition October 21, 2008
STERLING RESOURCES (V-SLG) $0.88 +0.03
OILEXCO INC. (T-OIL) $5.27 -0.57
In the new world of oil and gas given lower oil prices
and the credit crisis where it is suddenly tough to find
money for oil and gas companies, and where cash flow is
suddenly extremely important to sustain oneself, money is
key to survival these days assuming that down the road
when times are better, you will be around to enjoy it.
Which gets us to two of Josef Schachter’s perennial
favourites which while they are both trading at a fraction
of where they used to, are both in the news.
Sterling Resources which Schachter tells us is currently
sitting on $70 million in cash, announces today that their
East Breagh well in the U.K. North Sea flowed at controlled
rates of up to 10.2 million cubic feet a day which is a rather
tasty test and the suggestion is made that it could be as
much as 12.5 million cubic feet.
Schachter says that while this is good news, he’s got
more questions for the company than answers at this time
as the Breagh field could be anywhere between 100 and
500 BCF, he suggests and it would be interesting to see a
lot of angle drilling into the Breagh to see just what kind of
production numbers they could maintain.
Meanwhile, Sterling does have some pretty aggressive
drilling scheduled for down the road and particularly at the
West Breagh and the high-profile 2-10 Project and
Schachter does remind us that for some of the projects
that they hope to have on stream by 2010, there is project
financing available on sale lease back arrangements and
users of the natural gas where they can pre-sell product
for up to two-thirds of the cost necessary to build some of
their projects.
Seeing as they hope to have the Breagh on stream by
the fourth quarter of 2010, that cash flow is something
some people are counting on, at least those that are bullish
on the story. “Wait for more definitive news on the
Breagh drilling” Schachter suggests.
In the meantime, he points to the big volume on Oilexco
and the fact that the stock is bouncing back a bit. He suggests
there are many of those that believe Art Millholland
finally has a deal to make sure that all their financing is in
place to continue Oilexco’s big inventories of drilling projects.
Schachter himself, is very hopeful that Millholland does
have a deal in his pocket and hopefully/wishfully will be
able to announce it within a week.
He also suggests that it will be important to finally get
Shelley on stream so people realize that these projects do
finally get done.
REECE ENERGY (V-RXR) $1.50 -0.09
Ah yes, the good ole days when oil was close to $100, the
credit crisis was something way off in left field and the world
was good. Now we are very much in a new world and if you are
in the oil and gas business, you better have cash flow or access
to capital to make sure you can survive the next year so that
when things do get back to normal times (assuming the normal
market cycle) one can thrive.
Lorne Swalm and his team at Reece Energy was a story we
have to admit we found quite attractive as they had spent a few
years playing with natural gas, never making much money at it
and then moved their emphasis to oil in Saskatchewan with
plays in the Dodsland, Viking and Bakken areas and suddenly
their production soars from 500 barrels a day to 1600 barrels a
day and starts attracting a bunch of market attention to this
Lethbridge-based company with its assets in Saskatchewan.
Now a days, Swalm tells us that production is currently flirting
with 2000 barrels a day (still on a nice growth spurt) but he
admits that given the new parameters of the world, they’ve run
some hypothetical studies based on where oil prices might be
and what they think they can produce. They ran those studies
right down to the disastrous scenario of oil getting as low as
$40 a barrel and needless to say, he suggests, not a lot happens
at that time. In fact, he thinks that they will have enough
cash flow to make sure that at least they don’t have declining
production.
At what he hopes is the more realistic number of $70 U.S. or
$80 CDN., he suggests that they should be able to throw off
cash flow of $46 million and if that is the case, they hope to be
up to 3000 barrels a day by the end of next year. Actually, that
exceeds what his plan had originally been back in the good old
days and in those good old days, Swalm actually had an exit
plan of hitting 2500 to 3000 barrels a day and then selling the
company as the 51-year old (who owns 20% of the company)
wouldn't be adverse to early retirement or at least a couple of
years off.
“Now in the new scenario, we just keep working at it” he
says. Maybe it will go for longer than we expected and hit
higher production numbers, but he has a target in mind of when
he does hope to sell the company. Either it hits a certain price
that he has in mind, or they are at the point where two-thirds of
their land holdings are in the process of being exploited and
might be a good time to sell out.
Who to sell to these days in Saskatchewan? It used to be
Crescent Point as one of the potential buyers as they were big
players, but mainly in Bakken-type plays which is their forte and
also Penn-West is the big accumulator of resources in the area.
Either way, with Reece’s new low price over the coming year,
we think it will continue to be a story to follow. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition October 22, 2008
CDN. OIL SANDS TRUST (T-COS.UN) $27.75 –2.89
CRESCENT POINT TRUST (T-CPG.UN) $24.25 -1.83
CRUDE OIL (.OIL-IL) $66.75 –5.43
The chart on Canadian Oil Sands Trust shows you that it
has suffered like most other oil companies over the last
while. Although many have dropped 60%, 70% or 80%, Oil
Sands has dropped a mere 50ish percent. How come you
ask? Well, they pay a huge dividend of $1.25 on their last
quarter and based on their last year, it’s currently yielding
roughly 18% yield, which these days when most people
are happy with 1% comfortably tied up in safe, secure government
securities, suddenly might look good to the adventurous.
If a person was scurrying around looking for yield these
days and fearless (and you would have to be fearless) all
of a sudden there are more than a few oil trusts that are
offering huge yields. You probably guessed that the catch
is with oil prices weaker (and there’s the old question of
how much weaker they could get) the stock prices on the
associated trust units could drop even further.
Also, there’s the concern that given time and lower
prices, those dividends might be dropped as well, but as
the moment and at first glance, it’s awfully appealing isn’t
it?
While the basis is still where you think the stock is going
to go next, Canadian Oil Sands has suddenly seen its
stock price lowered significantly by several brokers that
follow the stock and Raymond James now has a target of
$53.00 on the stock, BMO $45.00, Genuity Capital $38.00,
Credit Suisse $59.00 and CIBC $53.00. There is always the
chance that one of them might be right.
It’s not just Canadian Oil Sands Trust that is offering
some of those phenomenal yields and once again, remember,
as oil prices go down the ability to pay these dividends
is definitely compromised.
But take a look at Crescent Point Energy Trust. It used to
be one of the “darlings” of the oil and gas patch because
of its consolidation of so many companies in the Bakken
area of Saskatchewan—one of the best places to be looking
for oil over the last while. Crescent Point is now offering
a yield of approximately 11%. Yes 11%. Once again
though, the ability to maintain their dividends is open to
debate.
Some of the analysts thoughts on Crescent Point?
Well, CIBC has cut their target from $52.00 to $42.75; BMO
from $43.00 to $33.00; GMP from $56.00 to $44.00 and Dundee
from $42.00 to $35.00.
For a person with a long-term view that oil will be say,
$85 to $90 a year from now, these are interesting speculations.
BLUE NOTE MINING (T-BN) $0.010 +0.005
FIRST NICKEL (T-FNI) $0.0450 –.0050
VMS VENTURES (V-VMS) $0.2500 –0.030
It’s a recession out there, if not a depression in the
base metal markets these days as the lead/zinc prices look
like they are doing a swan dive off a tall cliff. Not a lot of
new cars or homes being bought these days.
Just in the last few days, Blue Note Mining announced
that they are shutting down their Caribou operations in
New Brunswick and First Nickel announced that it was putting
its Lockerby mine in the Sudbury Basin area of northern
Ontario on a “care and maintenance” basis due to low
metal prices and a challenging financial environment.
Adding onto the scale of lay-offs is Toronto miner North
American Palladium, which will temporarily place its Lac des
Iles mine in Thunder Bay on a “care and maintenance”
basis effective October 29th and that will lay off 350 employees.
At the same time, FNX Mining another Toronto mining
company has suspended commercial production from its
Levack nickel contact deposits at its complex in the Sudbury
Basin, although mining could continue to produce
35,000 tons of metallurgical production in the next quarter.
It’s a sign of the times and once again, we mention that
if these are producing mines in trouble, it’s a tough time
for the junior explorers out there that in this environment,
will find it impossible to raise money, create excitement
and many simply won’t be around. We are definitely well
into another part of the business cycle and the question
is, how many quarters until we have a little joy again?
Meanwhile, there are a handful of junior explorers out
there coming up with some phenomenal drilling results,
but in this market getting no respect at all. Heck, if they
are closing producing mines, who would care about what
a little guy is discovering?
VMS Ventures in the last few days has been announcing
drilling results on their Reed Lake discovery zone in Snow
Lake and has announced results like 14 metres of 3.2%
copper, 100 metres of 3.59% copper and the like. In ordinary
times of a year or two ago, this little junior would be
flying on numbers like that. Ah, the good ole days! _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition October 23, 2008
CRUDE OIL $67.84 +1.09
SPROTT INC. (T-SII) $ 2.91 - .09
The folks at Sprott Securities have had quite a run over
the last few years, up until their bet on commodities hit a
steel wall a few months ago and they and everything else
because of the credit crisis has gone into the sewer.
But many of management team from Sprott including
Eric Sprott himself were on a cross Canada tour talking to
brokers to try to give them a little bit to cheer about and of
course, sell some of the Sprott Funds, which like every
other mutual fund lately has faced big-time redemptions.
It was a bit of a shock when Peter Hodson first told us
that he thinks this could be a two-year recession...which
sounded scary, but then he quickly said that time will
probably prove that we’ve already been through one year
of that recession. He said if you are looking for the hopeful
scenario, if there is a year left, the markets will always be
looking forward another six months hoping to see growth
on the horizon and respond earlier than the economy actually
does.
As far as oil which many of us follow, he says he would
not be surprised to see oil on a spike, even in the next two
months get as low as $50. (We are only $15. away now!),
but he suggests by Christmas of 2009, he wouldn’t be surprised
to see it back to $90.00 a barrel as he assumes that
sooner or later growth comes back. Hitting the exact date
for that, he suggests we could have another six to 18
months of recession. Ouch!
Hodson who last year had one of the top-performing
funds in the country is a little humbled by what the market
has done to him recently and he suggested “it has made
you feel like an idiot”. But one thing he is suggesting is
that this is not the first crisis we’ve had in the history of the
economic world...there’s been a long list of them. Although
this has been deeper and maybe a longer lasting
than several of the previous, and he guarantees, crisis’
eventually end.
One of the themes of the Sprott presentations is a continuation
of their belief that over the next while the world
will de-leverage significantly as debt is suddenly something
to be feared, particularly with the credit crisis and
their views of areas of the world to invest in is rather explicit.
They are big believers in gold and that down the
road inflation (within the next four years) move gold to
$2000 and silver to $40.00. And we note they prefer the
bullion through the Central Fund to some gold stocks.
They are also believers that infrastructure is one of the
places to be as well as stocks that key on one large demographic
and that’s the large aging population around the
Western World that will need ever-more services.
One sector they don’t like is consumer discretionary
as the average guy is probably going to put off purchasing
that new car, Ski-do or travel plan until they feel a
little safer with some savings in the bank. The Sprott
Group is also still very leery of financials and again are
emphasizing anything to do with debt should be avoided.
It was interesting to note that of the several presentations,
all of the Fund and Money Managers mentioned
that is was the worst crisis they had ever been in, but
there was one common theme to them...that this would
probably be the buying opportunity of a lifetime, although
the idea on just when exactly that day might be is
open to debate.
Hodson takes the idea that you should with fresh
money these days be putting in a little bit of money one
month and a little bit of money the next month and
spread over the next while. Once again, emphasizing
that crisis's do end.
The Sprott Group is also a big believer in commodities
which they expect to come back strongly when the economic
crisis is over. The suggestion is that there are
going to be a lot of mines not be built because of the fear
of debt and also the economic crisis that we’ve just gone
through means that ordinary decisions to build mines
will simply be deferred longer than normal.
As far as oil and gas, they are also big believers in a
recovery for the energy sector and they give the visual
example of an orange that they give one poke and suggest
that was the equivalent of the world back in the late
1800’s when the first oil well was sunk. A little bit of
juice comes out of the orange. Then the oil industry gets
at it, drilling around the world with thousands of rigs and
suddenly there is lots of oil squirting out of the orange.
And later, when they take two hands to the orange to
massage it strongly, lots more juice comes out of the
orange and that, they consider to be enhanced recovery
and other techniques of the day. Sooner or later they
suggest that the orange is out of juice and so is the
world, running out of oil.
That was quite a popular theme just a few months
ago. It will be interesting to see how long it might take to
become popular once again. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition, October 24, 2008
AN INTERVIEW WITH STEPHEN STANLEY
PRESIDENT AND CEO WITH HATHOR EXPLORATION
(As of October 9, 2008)
The world markets have been smashed, commodity prices have
been beaten up and mining stocks recently have been leading the
way down. It’s ugly. For commodity prices to be decent, we need a
good economy. We don’t have it. The next six months could be
difficult for resource stocks until the next resource cycle starts.
But even in an environment like this, there are some stories or
special situations that probably deserve following by the speculator
and the Coffin Brothers tell us that Hathor Exploration has got
to be one of them. Hathor is a uranium play in northern Saskatchewan
that just happens to be in the neighborhood of three
other significant players, some of which need uranium feed for
their processing facilities. Over the next few months, exactly what
Hathor has, will become more apparent, so we talk to Stephen
Stanley, the President of Hathor.
Dave Pescod: Steve, is it true that you used to be a football fan
before kids and Hathor? Of course we are referring to the name of
your deposit in Saskatchewan.
Stephen Stanley: That would very much be correct, yes. Obviously
life is a little busier and Hathor, well, it takes up the majority
of my time now.
D.P: The Roughrider zone in northern Saskatchewan…if you could
tell us about it.
S.S: The Roughrider zone is in our Midwest Northeast Project
which is our smallest project. It’s probably the project that not a
lot of people paid attention to; they mostly considered Hathor to
be about our Russell Lake Projects due to their size and location.
In February on Hole #12, we discovered the Roughrider zone which
many have called the best discovery in 15-20 years by a junior; it
might actually be the best discovery ever by a junior. Most deposits
are discovered by the majors because they have the longevity,
they have the time and energy to put into these discoveries. If you
look at how most juniors explore for uranium, they will conduct an
airborne survey, drill three to five holes and if they don’t find anything
they will either walk away or try and figure out where to go
next.
Our philosophy has always been, to do as much exploration work
as possible before we drill, and then hit it with a massive drill program.
Hole #12 is where we hit our discovery, if we had only done
the typical three to five holes, we would have missed what
is considered the best discovery by a junior in a very long
time.
D.P: Now what are your current estimates for the size and
grade because it’s the grade that’s attracting the attention?
S.S: We certainly can comment on the grade and yes, the
grade is spectacular and if you look at the CPS numbers,
Hole #37 and Hole #40 – our feeling has been that these
are the two best holes as far as grade that we’ve drilled to
date. We have yet to release assays on these holes. As
far as size, Raymond James and Salman Partners both
have put out research reports on Hathor and there has
been a lot of talk of 30 to 44 million pounds as far as size.
Internally, we have not released any numbers. We know
that this summer we drilled from what most considered an
impossible angle (45 degrees at a target 250 metres away)
and we hit uranium in 11 of 13 holes. So we may not know
the size of it yet, but we certainly have been able to continue
to hit high grade uranium under very difficult conditions.
D.P: It seems to be hard to get some of the numbers out
of you, but 2.33% uranium is about as high as you can get.
Could you put that in perspective?
S.S: In that the rest of the world a high grade deposit is
1%, in the Athabasca Basin it’s 20%. There was a comment
made at a Toronto uranium conference back about a
month ago stating that when the last uranium mine is
standing, it will be in the Athabasca Basin.
It is the premier place in the world to look for uranium.
And not only are we getting the grade, which is so key,
but our discovery sits at approximately 200 metres depth,
which is very, very shallow. We are right next door to
AREVA and, Denison’s Midwest Deposit which is planned
to be an open pit.
So we know Hathor has high grade, we don’t know the
size but we know it has very good potential to be open pit
and it sits right next door to the McLean Lake mill facility
which is basically running on empty.
D.P: Now that’s what some people are looking at down
the road – expectations that you have three major companies
in the neighborhood that one of them might be looking
to pluck up little Hathor for reserves and I suspect if
the price is right, you wouldn’t mind that at all?
S.S: As management, that has been our exit strategy. We
are not miners, we are explorers. For us in a perfect case
scenario, a year from now there is a bidding war for
Hathor.
As you mentioned, three uranium majors that are sitting
right next door to us, but we are also looking outside of
that. You have the Koreans, the Chinese, the Japanese,
you have the non-uranium majors – all showing interest in
the uranium market and a lot of them would love to get in
the Athabasca Basin because it is the premier area for
high grade uranium.
D.P: I suspect you wouldn’t have a preference as to who
you’d dance with?
S.S: We certainly DO have a preference….whoever brings
the highest bid!
D.P: I like that! Now the big debate of course, is how many
pounds of uranium you’ve got down the road, which will
give different valuations of course. So the next phase of
your drilling starts with wintertime?
S.S: Correct. Our plan is to have a minimum of three drill
rigs on the property. Two rigs will continue to drill the
Roughrider zone and one rig will test targets elsewhere on
the property. We want to grid-drill the Roughrider zone,
continue to step-out to the Northeast as well as test the
large gravity low to the southwest of the currently defined
zone Also, we have yet to test the unconformity target.
Everything we have drilled so far has been in the basement,
we really want to get on top of the unconformity target and
put some holes in to see what we are looking at. Next door
at the Midwest A, AREVA has stated that every time they
found uranium mineralization in the basement, they were
always able to follow it up to the unconformity where they
got the best grades. For us, that is a big target still untested.
D.P: Well you must have dreams at night about what it is
you are chasing here and what potential the size could be.
So without getting into trouble with authorities, what is
your dream?
S.S: I will give a couple of examples. Next door at the Midwest
deposit, you could almost fit the majority of their high
grade Pod into what we’ve drilled off already. We’ve drilled
about 116 metres of strike by about 80 by 40. You could
also fit, within that area, Pod 2 at McArthur River which
holds more than 200 million pounds. So when you are talking
Athabasca Basin and these grades, 116 by 80 by 40, is a
very large size and could contain a lot of pounds. Now, we
are not saying we have 200 million pounds, analysts are
saying, they feel comfortable we could be looking at 30 or
40.
If we can come in somewhere between 40 and 200, I would
be very happy. I think a lot of people feel we probably have
a deposit. We like to think we can take it a lot higher than
what the analysts have given us as conservative numbers
right now. It will come down to testing the unconformity
target and testing that gravity low to the Southwest. If we
put holes in there and start hitting, it could blow this thing
wide open.
D.P: On your schedule, you have a couple of more assay
results to be released and of course winter drilling starts
probably in January, is that right?
S.S: Correct. We have five or six holes left which will
probably come in two separate traunches some time in the
next 4-6 weeks, but no guarantee. They seemingly and
quite often surprise us…all of a sudden we get the call and
they’re ready. So assays will come over the next 4-6
weeks, we start making ice in December and then we are
on the property hopefully by the first week of January.
D.P: And you could get a couple of assays, or at least
eye-ball estimates that you are onto something right
away?
S.S: I would say we could start getting an idea on what we
are seeing in the first 45 days. The infill drilling will be
interesting just to see how it all comes together, but testing
the unconformity and that Southwest target will be the
exciting part.
D.P: The price of uranium has been volatile over the last
few years, what do you see happening there?
S.S: The fundamentals for uranium are still very strong,
but currently the markets have thrown fundamentals out
the window and are selling everything that has a bid. The
bottom line is the world has embraced nuclear power as
tomorrows green energy and therefore it is a sector I want
to be involved in. In volatile markets, actually in any market
“Grade is King”, we may not know where the price of
uranium will be tomorrow but with grades as high as 58%
Hathor certainly has a buffer against the possibility of
lower prices.
D.P: Now we always ask this question in these interviews.
If you had to buy one stock today, other than you own and
with which you have no conflicts of interest in, what would
it be? Of course, we are looking for doubles…
S.S: In this market, I feel like I could almost just throw a
dart! UR-Energy (URE) I guess is one that seems quite beat
up and has more cash than its current market cap. If I
have to choose one outside of Hathor I guess I could
choose Terra Ventures (TAS) because they own 10% of the
Roughrider.
D.P: Thank you very much for your time Steve. |
