₪ David Pescod's Late Edition December 11, 2006
BLUE PEARL MINING (T-BLE) $9.77 +0.52
HAPPY CREEK MINERALS (V-HPY) $1.05 n/c
NAUTILUS MINERALS (V-NUS) $6.50 +0.85
It was a lot of fun in the junior mining sector for the first three or four months of this year and then, well, most metals corrected and took the index down with it. But there are still a couple of stories here and there that have had a very impressive time, despite the overall malaise.
Blue Pearl Mining is one of those success stories that has engineered through takeovers of Thompson Creek and development of its Davidson property in BC in becoming one of the world’s premier molybdenum producers. In this world of hot commodity markets, molybdenum has soared from $3.00 a pound to roughly $24.00 a pound, which makes things an awful lot easier to make a buck.
Today Blue Pearl is included on the S&P/TSX Composite Index, which gives it a little bit more oomph. If one was to worry about moly, it’s not a very liquid market and there is always concerns about big former producers that have shut down, that if they ever started producing again…
Another story that’s attracted the markets imagination is Nautilus Minerals, which is probably going to be the first company to commercially explore the ocean floor using ships, barges and the like for copper, gold, silver, zinc, seafloor massive sulphide deposits mainly offshore Papua New Guinea, Tonga and Fiji. What has really attracted the interest has been the major companies that have decided to invest in it. Teck Cominco recently bought a 9.2% interest in the company on a recent private placement, which means they are joining industry biggie Anglo American, one of the world’s biggest mining companies with a market cap of $66 billion which owns 10%. Barrick Gold, one of the world’s biggest gold miners owning 5.8% and Russian-based firm Epion, owns 19.9%. Epion is owned by Alisher Usmanov, who is a prominent Russian investor in major Russian mining and metals industries.
If you wanted to worry about it, this story now has a pretty impressive market cap and it’s a long way before they actually start working, or for that matter, finding out if the technology works.
Okay, Wendell Zerb, Canaccord’s mining analysts, if one was looking for something that could have a chart like that, where would you look?
“It’s a really high risk play” Zerb tells us “and it’s definitely a long shot—but it has to be watched”. He mentions Happy Creek Minerals which is drilling just a few miles away from Highland Valley, in an area of BC that has been copper rich in the past.
They should have drilling results out in the next couple of weeks and Zerb tells us that what the market should be looking for on this company that doesn’t have a big market cap, is good lengths with copper ranging from .4% and .5%. If it’s there...
NATURAL GAS $7.39 -0.171
DELPHI ENERGY (T-DEE) $2.61 +0.04
How nervous should one be? We are referring again to natural gas and how it seemingly is in abundance these days, which could be quite scary if you are in natural gas stocks and we don’t have a winter up here sometime soon.
The top chart shows that over the last two years, the average range of natural gas in inventory in the United States and you can tell by the squiggly lines that for much of the last six months, there has been much more natural gas sitting in inventory than usual.
This last year we had a winter that simply never appeared, so demand for gas was down. We had a summer with no hurricanes to cause problems with distribution of gas and a cool summer that didn’t have the usual demand for air-conditioning through much of the warmer areas of the southern United States.
Now we are going into yet another winter where so far, winter has not appeared except for here in Alberta. Yesterday, one of the American Weather Services suggested the next six to ten days will be unusually warm. If we don’t have the appearance of winter some time soon, natural gas prices (which had a big bump a few weeks ago and have been weakening lately) could see huge drops come spring when demand really goes through the floor.
The chart that shows the storage, also shows that we do have several months left for winter to appear and that March is usually the bottom for the amount of gas in storage, but suddenly it’s getting a little more risky. We featured over the last few months, several high profile/high risk natural gas exploration plays, all of which, we think, have huge potential. But if gas is suddenly $3.00 or $4.00 an mcf, no one will care.
We also do a chart on Delphi Energy, which shows how when gas went up last year between summer and Christmas, Delphi managed to double. Delphi is used by several analysts such as Josef Schachter as an example of a gassy stock that if gas does go, has lots of leverage...there’s lots of debt on the books, but lots of gas production.
So if gas should do well, Delphi could climb significantly. On the other hand, if gas declines terribly, that debt is going to look pretty big.
But the same could be said about many other gassy companies out there. Even the big high risk/high reward plays people won’t care about if gas declines too far.
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