₪ David Pescod's Late Edition 11/17-11/21/08
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David Pescod's Late Edition November 17, 2008
URANIUM ONE (T-UUU) $1.00 -0.10
FORSYS METALS (T-FSY) $6.00 +1.36
Take a look at the charts on some of the uranium
stocks to the left and Uranium One shows you just how
beaten up that sector has been. After running to $18.00
because of the value of some of the uranium stocks and
uranium running from $10.00 to over $130, uranium some
time ago, was one of the stories of the day.
Then over a year ago, uranium prices started to crack
as it became obvious more uranium was hitting the market
than at the time was needed. Uranium prices crashed
from $130 to $45, that we saw recently. But now we are
suddenly seeing some interesting developments in the
uranium market.
First of all, with the credit crisis some mines simply
aren’t going to get built. In the meantime, several mines
that were up and running (some for many years) in Canada
and Kazakhstan such as Cigar Lake, are having huge
production problems and are probably not going to meet
anywhere near some of their production gains.
So in the meantime, with India needing ever more uranium
and Asia as well for that matter, uranium prices
seem to be starting to recover. We’ve seen the first
moves up in uranium prices in ages and now the talk is
that while the short-term pricing is roughly $48 a pound,
longer-term contracts are closer to $70, it is expected by
many that we are going to see $70 for the longer-term
contracts be made to all providers at this time.
Going forward though, what happens to uranium
prices is open to debate because while demand is going
to increase dramatically in Asia, there is also the possibility
to reuse American nuclear weapons for fuel. But in the
meantime, the momentum definitely seems to be shifting.
The question remains, could this be what’s going to happen
for oil down the road as suddenly, courtesy of the
credit mess, all of a sudden big projects in Canada, Venezuela
and elsewhere, aren’t going to be built, companies
are going to have to use their cash flow because brokers
aren’t going to be able to lend them any money and while
there is a recession and demand does go down, supply
destruction seems to be the bigger concern. The question
for many remains, if the economy is going to revive
next year some time, what can happen to the price of oil?
Well it’s been hard to find some analysts that have
been ahead of the game, but it’s obvious by all press reports
that many analysts expect that we could yet test
$50.00 oil and possibly in the $40-ies before things turn
around.
But there was one analyst we mentioned last week
that you really have to listen to and that’s Henry
Groppe. The crusty 79-year old veteran of 50 years in
the oil patch, many years of which were spent in places
like Saudi Arabia, has been predicting oil and gas
prices for years. It was him, back in the spring, that
was predicting the current high oil prices wouldn’t hold.
What we are hoping, is that he just might have a handle
on what next for the oil patch as he is suggesting that
with the much lower oil prices, sooner or later demand
picks up.
He is suggesting we could see $85 oil as early as this
coming spring and possibly $95 oil next fall...but then
he thinks it might sell off from that level, yet again.
The point is that if we see $85 and $95 oil anytime
soon, the much beaten up/brutalized oil sector could
have one heck of a run again…
In the meantime, the BNN piece is so interesting because
of the tidbits of the oil and gas business that
Groppe is able to explain in interesting detail, and while
it’s a dual of veteran Groppe and a younger guy talking
about specific stocks, it’s Groppe and his tidbits of the
oil patch that you will find absolutely fascinating.
Go to www.bnn.ca. Watch past videos from Thursday,
11/13/08. Market Call at 12:30PM.
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A sign of the better times in the uranium patch was
announced last Friday when Forsys Metals is apparently
going to be bought out by George Forrest International
Afrique, in a $7.00 offer to Forsys. Obviously, you are
not looking to buy a company like Forsys whose project
development could take five years or so, unless you
have big faith in uranium for down the road.
That’s why we are starting to follow Hathor Exploration. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition November 18, 2008
COXE COMMODITY FUND (T-COX.UN) $5.64 -0.10
PENN WEST ENERGY (T-PWT.UN) $18.60 -0.09
POTASH CORP. SASK. (T-POT) $86.10 +1.54
SUNCOR ENERGY (T-SU) $23.22 -0.06
One piece of work that we always look forward to receiving
monthly is that put out by Don Coxe called
“Basic Points” and sponsored by BMO Nesbitt Burns.
Coxe, part philosopher part historian and always the
market watcher, was one of the first and biggest proponents
of the boom in commodities and was always interesting
to read his facts and figures of that boom and
what he thought would happen next.
Unfortunately, he too, was caught offside by the incredible
credit crisis that has hit the world economy and
led many to believe we are on the verge of Armageddon,
or something just as bad. Either way, the commodity
sector has been absolutely clobbered.
We ask the question as we notice some of Coxes'
stocks might be putting in a bottom. We will reiterate
that—might.
Don Coxe just happened to set up his Fund, not too
far from the top of the market to invest in some of the
commodities and stories that he was a big believer in.
As we mentioned though, he started it near the top of the
market and the thing that has saved his performance
compared to other money managers has been that he
has a huge component of cash...At least he did up until
the latest public note of his holdings on September 30th.
Three of his biggest holdings at the time were companies
such as Penn West Energy Trust, Potash Corporation of
Saskatchewan and Suncor Energy. As we look at the charts
on those three stocks, we notice something interesting,
or at least we hope it’s interesting...they appear to be
putting in a bottom...at least the chart looks like that to
us...what do you think?
Meanwhile, in Coxes' latest issue of Basic Points just
issued he writes, “If, as we believe, the current rescue
campaigns worldwide succeed, by late next year, the
global commodity boom will enter its third—Presto or
Allegro Molto—Movement of the Great Sonata. There will
be new highs at least for gold, grains and metals, and oil
prices should move back to low triple digits.”
Coxe continues, “Equity prices could stage a brisk
rally any time soon, but thereafter they will await positive
economic news.
The bank stocks appear to have double bottomed at
New York, and have outperformed the S&P since the Midnight
Massacre by one of their widest margins on record.”
As far as specific investment recommendations,
amongst the eight ideas was:
1. It is definitely too late to sell stocks, and it is still too
early to do more than nibble at bargains. Investors
should be opportunistic buyers, because today’s
prices for quality stocks will look ridiculously cheap
within two years—or less.
2. When the time comes to begin re-accumulating equities,
buy banks and diversified financials. If there is
going to be a global economic recovery, these former
pariahs should perform well—under mostly new management.
3. At the same time, buy commodity-oriented stocks.
They are oversold to depths we could not have imagined.
When, not if, there is a global economic recovery,
these stocks will once again be the winning asset
class.
As far as gold he writes, “Gold has been a disappointment.
It has outperformed stocks since the S&P’s peaks,
but not enough to be profitable. As deflation fears ebb, it
will once again be lustrous.”
One comment he makes in his conclusion is of interest,
“But the Era of Fear will probably end soon. Perhaps in
time for celebrating the inauguration of a fascinating new
President.”
For those who would like to see the latest issue of Bas
i c P o i n t s , e - m a i l D e b b ie at debbie_
lewis@canaccord.com.
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UXC: $53.00 +5.00 (Long-Term Price $70.00)
Uranium was the first commodity to crash over a year
ago, so it’s interesting to see that it appears to be putting
in a bottom as mines around the world are not able to
produce what was expected and other mines look like
they won’t be financed or developed. Other commodities
might be putting in bottoms as well...hopefully, oil is! _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition November 19, 2008
SUNCOR ENERGY (T-SU) $22.20 -1.05
NEXEN INC. (T-NXY) $18.20 -0.56
ANDINA MINERALS (V-ADM) $0.53 -0.06
DETOUR GOLD (T-DGC) $3.80 +0.09
Markets around the world have been smashed and it
doesn’t matter what sector you’ve been specializing in,
whether it’s been financials, oils, golds, pipelines, you
name it, they’ve all been beaten up many to a level that just
a few months ago would have seemed incomprehensible.
Assuming that there is a future for the world and at least
the financial section thereof, we think that our own Canaccord
has done a very interesting piece called “Winter Harvest”
and they write: “it takes strategic investors time to
ascertain the true long-term value of assets. However, we
believe strategic investors are about to draw a line in the
sand on fundamental values…we have examined our coverage
universe for synergistic opportunities, and offer a
number of intriguing scenarios.”
Basically they look at companies that have been so
beaten up in the market that they may become an obvious
buy-out candidate. The report continues, “We continue to
believe the current market environment has increased the
likelihood that M&A activity will return to focus over the
coming year. Major oil companies have come through the
recent period of high energy prices flush with cash, while
reinvestment in the core business has lagged...Share performance,
which has been bolstered by share buybacks
and high earnings, will increasingly need to be driven by
underlying growth in production and reserves. Unfortunately,
new growth opportunities are often found in highrisk
areas of the world…”
And hence, the report looks at some obvious potential
take-over candidates in Canada’s oil patch. Of all the companies
mentioned in the take-overs, in the oil and gas sector,
Suncor Energy is one featured with a potential $54.00
target and they list the likely acquirers as ExxonMobil,
Royal Dutch Shell, Total S.A. or Chevron. The rationale:
“Potential buyers saw reserves decline 5% in 2007 and production
decline by 2%. At the same time, the potential buyers
are listed as debt-free and generating free cash flow…
Each of the potential acquirers listed are already active and
have exposure to the Canadian oil sands business.”
Nexen Inc., with a $32.00 target is suggested as a potential
buy-out by BP, ConnocoPhillips, ENI S.p.A, Total S.A.
The rationale: “Buyers face similar reserve and production
issues with 2007 reserves declining 3% and production
by 2%. All would be interested in Nexen's Long Lake oil
sands assets, while BP and ConnocoPhillips would also be
interested in Nexen's unconventional CBM gas and Horn
River shale gas.”
In the metals and mining sector, Andina Minerals is also
suggested as a speculative buy and lists Kinross, Yamana
and Barrick as potential buyers.
The rationale: “Future production growth potential in
proximity to existing operations/development projects dependant
upon potential acquirer.”
Detour Gold is listed as potential buy-out candidate by
Goldcorp as it has future production growth in proximity to
existing operations. A target is given of $13.60.
Even Yamana Gold is mentioned as a possible take-over
now that it’s at roughly a quarter of its previous price. Potential
acquirers are Barrick, Kinross or Newmont and the
rationale being, “Production growth, capture of flagship El
Penon assets, regional synergies dependant upon acquirer.”
It’s a very interesting report and the discussion on the
potential take-overs are worth a read. For a copy, e-mail
Debbie at debbie_lewis@canaccord.com.
S&P/TSX COMPOSITE: 8490.56 -345.17
DOW JONES IND. AVERAGE: 7997.28 -427.47
How bad is it out there on the markets? Well, this fiveyear
chart on the Dow Jones shows you that it’s not even
long enough until the last time that we saw levels on the
markets this bad.
Today, the TSX hits a six-year low. These are definitely
historical times and one is almost afraid to ask what
next... _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition November 20, 2008
BOW VALLEY ENERGY (T-BVX) $0.38 -0.04
ITHACA ENERGY (V-IAE) $0.23 -0.08
OILEXCO INC. (T-OIL) $1.46 -1.03
The North Sea area features tough conditions for the oil
and gas business as the winter storms feature 40 and 50 foot
waves. Much of the infrastructure in Scotland for getting
things built and delivered seems to take much more time than
many Canadians suggest they are used to and labor rates
over there aren’t cheap. But still, if oil is $80 a barrel, you can
make some pretty decent money.
The bigger pools in the North Sea have long since been
drained or much of them drained, but it has been small Canadian
companies that have gone in aggressively, finding
smaller pools and then doing a decent job of finding an exploiting
other assets.
Until of course oil collapsed and suddenly they can’t borrow—
with the emphasis being on much, much lower oil
prices and if you need money from your bank...best of luck.
The charts on many of the junior Canadian players in the
North Sea now all look the same. The only positive out of this
is with the delays in getting so many projects to fruition and
cut-backs, there is going to be a lot less oil coming out of this
area of the world very shortly and the same thing is happening
in other areas of the world. If the economy ever does
bounce, suddenly oil, just might have an interesting time.
Tristone Capital today in an analyst report suggests that
maybe Oilexco should try and sell themselves and that
“Oilexco needs to address its short term funding obligations
and is doing so, but we feel it should also be running a simultaneous
process to sell itself to maximize value for
shareholders.”
They assume that Oilexco could be worth as much as
$7.00 a share and we hope that Morgan Stanley (now their
advisor) is able to accomplish something near there to save
shareholders from what has been an ugly ride.
CONNACHER OIL & GAS (T-CLL) $1.02 -0.20
When you visit the amazing complex that is Pod 1 of
Connacher’s development up in Fort McMurray, you realize
right away that SAGD oil and gas is a lot different from
conventional oil and gas. This is much closer to manufacturing
gas than traditional methods. Which means of
course, it’s also a lot more expensive than conventional
oil and gas.
So the big question for a company like Connacher with
its SAGD process at a time like this is exactly what is your
cost of production given the fact that oil is currently at
$50.00 and looks like it is going to test lower numbers before
it might head up.
Dick Gusella, the company President tells us that they
simply haven’t been at production long enough to be able
to tell what their costs would be, but he does inform us
that the studies suggest that at $65.00 oil, they should
have a nice, sweet 15% rate of return.
He also points out that with the Canadian dollar under
$0.80, that with costs in Canadian dollars and revenue in
American dollars, that’s giving Connacher currently an
advantage.
Obviously there are some though, that have long-term
belief in Connacher as Resolute Trust has now picked up
close to 35 million shares of Connacher, meaning they are
getting very close to 17% ownership of the company.
S&P/TSX COMPOSITE: 7734.52 -756.04
Market levels in Toronto and the Dow gave way yesterday
so here we are in even worse terrain and oil continues
to plummet. When is this all going to end...it can’t possibly
get any worse, can it?
We go to one of our sources that was actually afraid of
something like this and although he got a bit beaten up too,
he has a simple scenario for what’s next down the road.
We go from one President who got the United States into a
bad war and then with slack oversight on Wall Street those
bad boys have created a credit crisis that has crippled the
world. Despite the fact they’ve been given access to unprecedented
amounts of cash to fix the problem, they’ve
only used a small chunk of it and one day they are giving it
to the banks and the next day they aren’t. The credit crisis
remains.
Our man suggests that pretty soon, someone new takes
over the scene with gifts for communication and consolidation
and access to probably all the money he wants. He
suggests they had some money, threw it at the problems, it
hasn’t worked, there will be all that more money available
with a better leader down the road who will finally be able
to restore a little bit of hope and faith. And right about now,
that’s what the world needs. He is looking for a much better
market in the spring. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition, November 21, 2008
BERKSHIRE HATHAWAY (US:BRK) $88,000 +10,500.
He is considered one of smartest guys in the world and
Warren Buffett is a name recognized by virtually everyone
in the markets. But as the chart shows, he’s having his
tough times too, as many of the stocks and companies
he’s invested in are getting clobbered as well.
Just a few months ago he was complaining that he was
sitting on almost $50 billion in cash and couldn’t find investment
opportunities. Now he is in the process of investing
most of it.
In the meantime, with the crash of the markets and the
weakening yields in the bond market as well, there are a
lot of people who weren’t in the markets that think they
are going to totally miss that devastation. Not so. Right
about now, there are so many pension funds around the
world that are so underwater, we wouldn’t be surprised
over the coming months or so to hear about people having
to work a few extra years because of those pension
problems.
After all, if so many people are living longer and healthier
lives, it was getting expensive to fund those pensions
before... now…
GOLDCORP. (T-G) $31.18 +6.41
YAMANA GOLD (T-YRI) $5.65 +1.03
DETOUR GOLD (T-DGC) $4.99 +1.09
GOLD $799.80 +51.10
Today it looks like the gold bugs are having their revenge
as reports have been suggesting for weeks now,
shortages of gold coins from Canadian Loonies to American
Eagles to Australian whatever’s and now reports of are
even suggesting people desperate for the metal are even
willing to pay premiums to get some. Suddenly in the crisis,
gold is reacting and doing what many people thought it
should have some time ago and the sector has its first
bounce in ages.
Mind you, many of the gold stocks are at levels that are
only a fraction of where they were three and four months
ago like all other sectors.
Meanwhile, Don Coxe makes an interesting suggestion
today in his weekly conference call suggesting that one of
the first things Obama could do to give the IMF and the
treasury department some liquidity would be to officially
value gold at $1000 an ounce, giving the treasury and IMF
and their vast gold holdings sudden significant asset values.
(Shades of F.D. Roosevelt and the dirty thirties?)
LAS VEGAS SANDS (US:LVS) $3.23 -0.67
You are probably getting e-mails or brochures in the
mail these days about one heck of a deal to fly to Vegas
and stay in beautiful, posh rooms for a fraction of
the prices of not too long ago. Yes, the deals are out
there folks because Las Vegas right now is almost deserted
as people who are worried about jobs, putting
food on the table, and what next for the economy, certainly
aren’t taking frivolous trips to Vegas.
How bad is it? Well, just when you thought a stock
couldn’t get any worse, it does and one wonders how
many of the Las Vegas hotel chains are going to be in
the same hands as they were a while ago.
HUDBAY MINERALS (T-HBM) $3.16 -2.07
LUNDIN MINING (T-LUN) $1.05 +0.04
Trying to figure out what is the appropriate thing a
person should be doing in the market these days is the
biggest test you are going to face. This morning it
looked like Toronto and the Dow were heading to yet
new record lows despite Toronto having had its biggest
fall since the Great Depression and one is ready to purchase
canned goods and find a good place to hide out
the next two years. Then the markets turn and Toronto
today has a huge 400 point move and the Dow is up almost
500 points, suggesting that life might resume. Go
figure!
In the meantime, HudBay Minerals which is a big Canadian
miner that also is sitting on a lot of cash, makes an
offer for Lundin Mining, which like other miners these
days, is having a lot of trouble.
The suggestion has been in many sectors from mining
to oil and gas, that when the big guys with money in
the till start making purchases and buying out those that
look weak, should be telling you we are getting near or
close to the bottom in the market.
This is one of the first deals and works out to be
about $820 million, but the reaction in the market tells
you something...it doesn’t like the deal! |
