Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Crazy Fools LightHouse -- Ignore unavailable to you. Want to Upgrade?

To: ms.smartest.person who wrote (3144)	8/26/2008 2:35:37 PM
From: ms.smartest.person	Read Replies (1) \| Respond to of 3198

#8362 David Pescod's Late Edition 8/05-8/08/08 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 August 5, 2008 HATHOR EXPLORATION (V-HAT) $ 3.21 -.18 AMERA RESOURCES (V-AMS) $ .0750 n/c COLOSSUS MINERALS (T-CSI) $ 2.60 + .03 We’ve been mentioning over the last while how the junior mining sector has become an absolute wasteland. Most juniors these days, can’t raise money or if they can, it’s at such dilutionary levels that the leverage is gone. Volume is way down, prices are a fraction of what they used to be and the base metals stories are getting killed. It’s hard to believe, but Breakwater Resources (BWR) is now trading at less than a tenth of where it was eight months ago. And those are producing mines! Still, it is interesting to see that Wendell Zerb has decided to take a different path in this ugly market and look for those handful of junior explorers that have potentially big drill targets. In a piece titled, “Bill Drill Targets—Not for the Weak-Kneed” he writes, “we are entrenched in the summer doldrums and the junior stocks are getting hammered. July has been a hard month, but then again June wasn’t a lot of fun either. We’ve been pretty negative on the sector over the last several months so we decided a change of direction was necessary. In this week’s Junior Mining Weekly, we outline some of the riskiest and potentially highest-reward companies in the sector. These are junior explorers with pending drill programs that are testing new high-profile targets. Companies that make discoveries have the potential to achieve unmatched returns even in these depressed markets. We highlight a few companies that we believe are drill testing potentially rewarding targets.” On the list are Amera Resources (which is a cheapie folks—it’s yours for a mere $0.10); Blackstone Ventures which is trading at about a quarter of where it was when people last cared about mining explorers; Colossus Minerals and Commander Resources, another super-cheapie. Condor Resources isn’t that expensive either. On Zerb’s list, we find Hathor Exploration, one of the few uranium stories that is attracting attention for its high profile play in Saskatchewan. We should add that Hathor is one of the favorite stories of the Coffin Brothers. We will be publishing an interview with the Coffin Brothers of the Hard Rock Analyst fame shortly. If you would like a copy of the Junior Mining Weekly, just e-mail Debbie at debbie_lewis@canaccord.com. Hathor Exploration (V-HAT) Amera Resources Colossus Minerals INDYMAC BANCORP. (US:IDMC) $ .06 + .02 GENERAL MOTORS CORP. (US:GM) $10.66 +.56 For those of us looking for a sign that there might be some confidence coming back in the market or maybe some form of bottom and that things will turn, the headlines still aren’t that friendly. Indymac Bancorp declares bankruptcy, one of the biggest financial collapses in American banking history; General Motors announces one of the biggest losses of any corporation ever and suddenly unemployment levels in the United States are going the wrong way ... big time! However, there is the odd tidbit out there such as some rather large American institutions such as Merrill Lynch showing that they will be around as they re-finance themselves. The thing that has created this entire mess though has been the blow up of the real estate bubble in the United States after everyone decided to get into the real estate racket, aided and abetted by American tax policy that seems to reward foolish speculation. But Bloomberg news out of California might get a person hopeful as it is showing that numbers in California which led the U.S. into the worst housing recession since the 1930’s, are starting to show some interesting numbers. Bloomberg reports that “In Stockton, the U.S. metro area with the highest foreclosure rate, homes sales more than doubled in the second quarter” showing that prices might have hit a level where realistic valuations are attracting buyers. That of course is the good news. The bad news is that prices have fallen by an average of 37% and the suggestion is that almost 40% of these housing transactions might be foreclosures. One commentator suggests, “California is having a wrenching decline in wealth, but this is a cathartic event that will lay the foundation for a recovery” says Bloomberg quoting Mark Zandi, Chief Economist at Moody’s. Bloomberg suggests an “almost $1.3 trillion of homeowner equity was lost in California since home prices peaked in December 2005.” Now sit back and figure out how you would feel if the value of your house just dropped 37%. _____________________________________________________________________________________________________________________________________ David Pescod's Late Edition August 6, 2008 AN INTERVIEW WITH THE COFFIN BROTHERS, ERIC AND DAVID (As of July 31, 2008) The mining markets have been a mess – it’s been a wasteland over the last while, but the Coffin Brothers – David and Eric have still been able to pick out a couple of winners such as Goldsource Mines in last while. But there are couple of questions that are obvious for the industry veterans... David Pescod: This is a terrible mining market, when do you see it turning and what could lead us out of it? David Coffin: The when is more difficult I think. It’s a matter of either perceptions about the role of the U.S. economy leading the global economy changing, or simply an assumption that the U.S. economy has turned a corner and is healing again, would do it. The other possibility is even without seeing perceptions about the US role changing you do eventually reach a point where people start stepping up to the sector for its own sake. We are starting to see takeovers happen, certainly in the gold sector and I think the same thing is coming with base metals. As that happens the undervaluation of a lot of assets-rich juniors will be taken into account and people will start buying them again. David Pescod: Eric? Eric Coffin: My thoughts are much the same as Dave’s. I thought some of the news out of Wall Street this week was positive. It was nice to see Merrill actually managed to do a deal although it was admittedly a really crappy deal. But I was pleasantly surprised to see a sovereign wealth fund was willing to put any money into Wall St. Since I don’t know anybody else that has those kinds of cash pools around, it’s probably going to have to be sovereign funds that refinance those guys. The simple fact is, the US financial industry is going to have to come up with another couple of hundred billion dollars and that’s going to take a bit of time. Until people feel more comfortable with the major markets having bottomed, it’s obviously not going to be easy to talk people into buying stuff at the spec end of the market. I’d like to say I can give you a date too, but obviously it is going to take a while longer because it has to wash through the market. The comments we’ve always made is that the U.S. hasn’t been the world’s growth engine for a while. We need the market to come around to the idea that the world hasn’t necessarily come to an end even if things are lousy in the U.S. for another few quarters. David Pescod: One of the ironies about this whole wasteland problem right now is that commodity prices other than zinc and lead are actually quite good. We have gold prices and silver prices doing quite well, some of the others aren’t bad and oil prices are near record highs too. What are your thoughts? Dave Coffin: Zinc is a good case in point. Zinc producers are not making money at current prices of $0.85 a pound range. Zinc production, on average, is becoming a losing proposition again. That will resolve itself since, eventually, low prices will start to dry up supply and its price will pick up. As for the others, yes, we are definitely at record prices for copper, and for most precious metals. But, while we still have punters in the junior space they have refocused away from traditional juniors’ spaces and onto coal, onto fertilizers, onto iron ore, which areas that traditionally don’t have many, if any, junior players. The refocusing is for the simple reason that right now these are the spaces where you can make money. Eric Coffin: It’s something that we’ve noticed several times in the past year, that there is more than a little irony to the fact. I’ve seen headlines left, right and centre over the last three or four months about the commodity “bubble” bursting and how the speculative money is out of this stuff and that shows you that those run-ups were just speculation. But, the parts of the sector that don’t actually have openly traded markets where you basically have contracts between buyers and sellers, i.e.: potash, coal, iron ore – those things are all at record prices. There is a big disconnect here - the market doesn’t seem to recognize the fact that part of the commodity market that’s the least affected and has the highest prices is the commodities with little or no price input by speculators. David Pescod: In your crystal ball, what kind of prices do you have in mind for commodity prices down the road? Eric Coffin: I think it’s going to depend on how much the rest of the world can keep growing. As far as the U.S. goes, the housing markets have pretty much gone into the basement. It might go a little bit lower, but probably not a lot but the turnaround won’t happen quickly. Asia has managed to hold up reasonably well. Exports will be the one bright spot for the U.S. so obviously there will be people buying stuff somewhere. We haven’t seen big supply expansions inventory levels aren’t climbing that quickly for most metals. It looks like most of the base metals will stay at about the levels we see now. We might see a little more weakness in copper going forward because it’s the one that held out the longest ... Zinc, nickel, lead are all back to levels where Dave pointed out miners aren’t making much money. I think this cycle is different from previous ones. I think one of the ways it is different is that I don’t think large mining companies will accepts years of loss making production. There is not going to be a lot of base metal production coming on stream at current price levels. With coal and iron ore, a lot of the pricing behind that stuff comes back to infrastructure build out. I’d like to think there will be more infrastructure expansion in the developed countries in the next few years – certainly most of them need it desperately and historically, infrastructure is one of the best public investments there is. You can actually make the argument that part of the reason for China’s success is the fact that they recognized that and have thrown tons of money at infrastructure for the last few years and intend to keep doing it. If that continues, we will see pretty good prices for iron ore and coal. Coal might see a bit of a pullback in the next coal year. There were some weather effects in terms of this year’s pricing in terms of terrible storms in Australia. But even so, they are close to capacity in terms of shipping. Potash is the same story. For all intents and purposes the potash sector is an oligopoly. The few companies that produce over half the world’s potash have made no bones about the fact that they are not planning to build more mines unless current high prices are sustained. As for precious metals the story is the US dollar and gold production has actually been falling for the last three or four years. As far as the dollar goes, it’s had some bumps lately on better economic news and so have oil prices. And we might see a little more of that, but still, given the fact that the Feds just announced they are going to extend their lending window into January, I find it hard to believe you are going to see that on the one hand and interest rate increases on the other hand. I don’t see a lot more upside on the dollar in the short term and I think we are likely to have prices more or less where they are right now for a while and there may actually be a bump up in precious metals prices if there is more nasty news out of the U.S. economy. David Pescod: It’s time to get to some of your success stories. Goldsource was an amazing discovery that you guys have featured over the last few months in the Hard Rock Analyst. With their accidental discovery of coal in Saskatchewan, it’s had a huge run; you’ve had your subscribers take profits, what next? David Coffin: I think we continue to watch the progress. It’s still very early. The specifics for the region in terms of what the basins in which the coal formed look like are still being determined. The quality of the coal has had a first pass which indicates it is “reasonable to good” if you will, similar to Wyoming which ships about 300 million tons a year. So our basic take is how much of a Wyoming-like commodity might be available for development, and then is there any higher quality coking level coal that could be sold on an international basis? In short, right now it’s a matter of how big will it get? Understanding the geometry of the subbasins will come together with Goldsource’s work and, eventually, other people’s work. As this proceeds we will get a better handle on the overall potential of Goldsource, and also what the potential of other players might be. David Pescod: How would you rate it right now? A buy or a hold? David Coffin: Right now it’s a tricky situation. It’s literally a hole by hole equation. We know they are testing a third point on a triangle, which is a start for some proper sense of how large the potential could be and what the geometry looks like, but you are still going to need to do more work to really understand the scale. The stock has had a very rapid run, but that’s the nature of new discoveries. You tend to get a series of ups and downs in the discovery company until the market gets a firmer sense of what the project should be worth, and then it will settle in a bit. We are not telling people to rush in at this point. We have taken profits, and then for our traders told them to come back in last week. Right now the message is we have to wait and see what the next few holes look like to get a firmer sense of where we are at before we could say much else. David Pescod: Another story you guys have been quite fond of and has done well for you is Hathor Exploration, ironically one of the few uranium players left that’s having any fun. Eric Coffin: Hathor is one we like a lot and continue to like a lot. It’s another one of these great discoveries and its impressive both in terms of the holes they’ve pulled, but it’s also impressive in terms of the way it developed. They applied some new technology in terms on 3-D seismic on top of all the other surveys they did. They are drilling right now. There was a lot of consternation about summer drilling because of apparently it’s not an easy place to do it, but we talked to them and they say the drillers don’t seem to have any complaints or big problems in terms of getting recovery or getting holes done. The last hole was a great step-out. We remind people as we do in the publications that these sorts of deposits in Athabasca are quite small in terms of footprint, so when you get a 20+-metre step out with radiation counts they put out a couple of days ago, that’s a very impressive hole. We have to wait for chemistry just like they do, but counts like that, it’s pretty apparent that’s going to be a very good hole. They are still drilling and moving towards the northeast. Essentially, they are moving along a fairly large registivity gravity anomaly and just getting to the guts of it now, so I would say hole 30 and 32, the two long intersections, those are very encouraging. If they can pull a few more holes anything like that, they are rapidly going to build some pounds there. I think it’s a really good story. One other thing I would add to the Goldsource thing is that that just isn’t enough coal analysis yet, but I think they’ve done the first two holes and it’s probably grading better than Wyoming, but I’d also point out (as we have in the publications) that you are dealing with a pretty big area here and it’s going to be quite interesting to see what happens when the other players get into their drill programs. It doesn’t seem to be an area that has seen a lot of exploration even in oil and gas. It’s really an open book, and hence the reason for the interest in it. David Coffin: The two discoveries are a nice contrast in how exploration gets paced in mining and how the juniors operate within it. Goldsource is a company that was very light on stock, and had a major discovery, as you said, accidentally during a diamond exploration program. Fortunately, it also had the right people in the executive office who had a coal background and who quickly did the research to figure out if there was potential with this. They decided there was, and carried on and were able to finance at a high price because there was very little stock out – the valuation did grow quickly, but that is because the corporate structure positioned the company for an extraordinary price gain on a discovery revaluation. They are now in a very broad-brush pattern of testing a new district. The stock is in a very volatile, up and down pattern because nobody knows what the ultimate valuation is going to look like. On the other hand, Hathor is working in one of the most established uranium camps in the world, and the world’s most important high-grade uranium mining district. They have put a lot of money up front to establish targets by, to some degree, rethinking the exploration process, and they have had to put stock out to do that. They made their discovery and are now moving away from the original discovery area, step by step, to determine the overall size and quality of the deposit that they’ve discovered. They have a ready-market for the deposit – it’s a matter of saying how large it is, what the quality is, and with that determining its bottom line value and therefore share pricing. The company does huge volumes every day, so I think the other thing about Hathor is, with uranium prices seeming to have bottomed (again the opposite of coal pricing), that Hathor is going to start to move up simply because it’s one of the few juniors that the market will go to for gains in conjunction with a rise in uranium prices. The market knows the Hathor asset exists and it is more just a matter of finding out what Hathor’s ultimate value should be as the discovery is fully evaluated. David Pescod: You two are an amazing combination…the Coffin Brothers, because Eric stays home in Vancouver, watches all the paperwork and stock trading, while David is out on the road visiting country after country and taking first-hand looks at the mining projects around the world. So Dave, we are curious, which countries would you consider a safe investment these days because I suspect there would be a couple on your “avoid” list? David Coffin: Most of the Western hemisphere is comfortable at different levels. There are a few countries in Central America that I avoid because of potential versus hassle value. David Pescod: Which country would you avoid? David Coffin: Venezuela. I’m cautious about though not totally avoiding Columbia, but the markets just aren’t ready to be there yet. I avoid Russia. I avoid places like Romania, Bulgaria and a number of African countries, for now, in part because they are still pulling legal frameworks together. But with all of that said, with a place like the DRC, the Congo, which is extremely mineral rich and therefore offers up a good longer term potential, their issue of just coming out of civil war and are still forming the law might be viewed as an advantage. Being there now in a small way while the risk is high means you get an opportunity for a very large gain once things are functioning well. You do have to look at both sides of that coin. While there are avoids, there is also a legitimate, high risk, investment perspective that you go to places that are in the dumps, just as you want to be going and buying commodities when they are cheap. Countries can be viewed the same way, as long as you are willing in their case to take the risk that things never do improve. David Pescod: Now comes the best part of any interview such as this…what would be the two stock picks both of you would have that would be at the top of your list at this time? Eric Coffin: Two each? You usually just ask for one? David Pescod: We just want to see which brother is the better stock picker ... Eric Coffin: I guess it depends on timelines. Dave and I will probably agree on some of them. One of them certainly has to be Hathor Exploration(HAT). Even with the current $3.00 price, I think it’s probably one of the safer bets out there. We are very comfortable with the way the exploration is advancing. It’s a great looking project. More drill holes to come and I think it will get to the point where it will just get lifted to a higher level. Another one that we talked about recently that I like but it is a longer term one because it’s going to have deliver some more results and the market is probably going to have to care a little more about gold explorers which it doesn’t seem to at the moment, but for that reason it’s cheap and that’s Riverstone Resources (RVS), which is one we started following a while back. It’s still trading at about the same level. They have a good deal with Teck on one of their projects that’s funded them. They don’t have any money issues in the short-term and they should see another transfer of money from Teck in the next couple of weeks from that same deal. They are drilling on one project; they just finished drilling on another. They have started a 43-101 calculation and we are expecting a million ounces plus in one of their projects. I think that if the market comes around a little bit, exploration stocks like these guys, could start generating results and new flow and I don’t think you are going to get hurt buying it at this level. David Coffin: You know that I hate this question! But I will do it anyways. One, getting back to the Goldsource discovery area, is a company called Bitterroot Resources (BTT). Bitterroot has picked up some of the right geology for that coal play, on the Manitoba side of the border. Manitoba is a little different than Saskatchewan in terms of acquiring the coal tenure in that Manitoba has a much larger seriousness bond that goes up front with the application, so staking there has been somewhat more limited. But as important as the regional coal potential is that Bitterroot is drilling at a very high-grade gold situation on Vancouver Island and doing a bulk sample at the same location to look at near-term cash flow potential from a small portion of the deposit. Bitterroot has two or three other projects that will get drilled this year, both for gold and on a uranium project in Michigan that Cameco is funding at a grass roots level. In terms of another pick, I would actually suggest a general look at the juniors that are undervalued and begin thinking in terms of averaging down as a strategy. Focus initially on new producers that are showing you good cash flow numbers but have had share price deflation due simply to the market’s risk aversion. That, on our list, would be stocks like Sherwood Copper (SWC) and Minera Andes (MAI) which is a gold/silver play in Argentina. They have both pulled back with the other juniors despite having generated their first few initial quarters of good cash flow. I would say let’s call these two a pair – a base metal/precious metals pair – since you’ve got two companies that are showing the cash flow they had anticipated but have share prices pulled back much below the bottom line expectations for them as each pays off its development capital costs over the next six to 12 months. David Pescod: Okay, the Hard Rock Analyst is having a little get together we understand in about a week or so in Vancouver. Eric Coffin: We are doing a subscriber-only afternoon with ourselves and Lawrence Roulston who has been a good friend of ours for many years and David Morgan. It’s taking place at the Metropolitan hotel in Vancouver on the afternoon of August 8th. Basically we are just going to give individual presentations on where we think things are at in the market right now. It will be a question and answer and some panel stuff and take questions from subscribers. It is just a little get together and a thank you for our subscribers. We realize its local to Vancouver and short notice so I am hoping to organize having it audio taped so we can post audio from it on hraadvisory.com and pass it on to Lawrence and David so our and their other subscribers can listen in. Subscribers of ours, David’s or Lawrence’s who want to register or need more information should contact Sabrina at info@newsstandexpress.com who is organizing things for the event. David Pescod: Thank you very much Eric and David. _____________________________________________________________________________________________________________________________________ David Pescod's Late Edition August 7, 2008 OILEXCO INC. (T-OIL) $15.90 +0.31 DELPHI ENERGY (T-DEE) $2.78 n/c BANKERS PETE. (T-BNK) $4.00 +0.11 We caught up to Josef Schachter again (on Tuesday) for a little hand holding, and suggest to him that it’s a service that could probably be quite profitable, what with the sudden sharp correction we’ve seen in so many oil stocks as if oil had hit $70.00 a barrel not just breaking under a $120.00. Schachter’s immediate response is that everyone suddenly is suggesting that the U.S. dollar has bottomed, and the commodities run is all over, he giggles. He has actually enjoyed this market malaise as he points to drop in the energy index he follows in the last few months from 470 to the current level of around 365, which he suggests nearing the bottom 10 per cent of his expectations of where his list of his favorite stocks should be. We’ve gone he suggests, from the time when only 10 per cent of his favorite oil and gas stocks could be brought to right now (or make that on Tuesday), when he figured 90 per cent his stocks should be brought, or once again one extreme to another. It’s the perfect time and place he suggests, to be a buyer. And no, he is not a believer that the commodities run is over, or that the U.S. dollar has bottomed any time soon. He does admit that for the American financial and bank stocks do appear to be putting in bottoms and it’s helpful for everyone. He also reminds us that a year ago, who would have been worrying about oil at a mere $119.00 a barrel, or that many oil and gas stocks are still trading as if oil was valued at closer to $80.00 than where it is today. He also reminds us that compared to the finding and operating costs of many Canadian Juniors they are still in the business where they can make an awful lot of money and none of the stocks he follows have problems with survivability. He doesn’t think we are going to see oil trade under $100.00 any time soon. But, as it does get closer to the level it’s the tar sands stocks that would be leveraged to some unpleasantness there…Again the juniors with low costs can make great money at current oil prices. Ok we ask, in this current market, with the big correction and many of his favorites such as Delphi, and Bankers Petroleum down big time, if you could only buy one stock what would it be? He sticks with Oilexco and mentions that they have the company golf tournament, at Wolf Creek, on Thursday (today) and apparently expects to be spending some time around the beer cart to see what else he can learn. SPROTT INC. (T-SII) $7.78 -0.10 Sprott Securities is led by Eric Sprott and widely admired in Canadian investing circles and one of the big believers in the commodity boom. Well some of that boom has gone a little bit bust as base metals have been in the tank lately and with the correction of oil and gas prices recently, even that sector has been pounded. But if you are looking for examples of how ugly the market has been over much of the last year, just take a look at the brief chart on Sprott’s history as the company only went public a few months ago and at the time there was big demand for shares at a $10 issue price. The stock is now yours in relatively short order for just a little under $8.00 a share, which tells you more than anything what kind of a market we are in. If that doesn’t tell you what kind of a market we are in, how about on Wednesday, the 23rd of July when we noticed of Toronto’s notable stocks, 65 were hitting new lows while one (count em—one) was hitting new highs. As Peter Hodson mentions, the only thing good about a year like this is that usually when you finally pull out of a bear market/recession, you are rewarded with incredibly good times ... if you haven’t packed your bags and left. _____________________________________________________________________________________________________________________________________ David Pescod's Late Edition August 8, 2008 Much has been said about the commodities boom over the last while and particularly in the case of Don Coxe and Eric Sprott, two of the biggest proponents of the boom. But now that we are having a bit of a recession courtesy of the folks on Wall Street and their credit crisis, it certainly looks and smells like a bear market in commodities as well. Traditionally the suggestion is that when you see a 20% drop -— that -— whether it’s the Dow or the price of oil, is a bear market. Whatever it is, it certainly feels like one. As we’ve said more than a few times, with oil prices where they are and gas, copper and a whole bunch of other commodities, we should be having the time of our life ... we aren’t. At a time like this it’s probably good for a reflection on what it is Coxe, Sprott and others are talking about. They use the analogy of the 1940’s and 1950’s in North America, when fresh from the War and a growing economy in North America, the average family had expectations of a bigger home, a fridge, a stove, their first TV, a car in the garage and all of this needed commodities. It grew over the 1950’s and 1960’s as highways were built as ever more cars were purchased and we witnessed in North America, one of the biggest commodity booms in a while. Now the suggestion is, that instead of the 20, 30 or 40 million North Americans that wanted those goods two generations ago, suddenly there’s billions in Asia with the same aspirations for a starter home, maybe a motorcycle, hopefully a fridge and stove, certainly a cell phone, a computer and a few other items that just a decade ago would have seemed impossible to afford. It was certainly an eye opener for us on a visit to southeast Asia earlier this year to witness the dramatic change in transportation in Vietnam. Ten or 15 years ago, most of the population got around by bike, but now as you drive down the roads surrounded by what seemed like millions of motorcycles, we realize that there’s been a revolution in the economy in transportation in that area of the world. And with 85 million in Vietnam, you can imagine what’s it’s like in China, India and elsewhere. And all of this needs energy before a wheel turns. Now while commodities had such a dramatic run up over the last four or five years, many are in corrective mode, mainly because of a slowing U.S. economy despite still good growth numbers in Asia and it’s a reminder that the U.S.A. is still the big economy on the block. Many commodities have been clobbered such as base metals where zinc supply has been much bigger than expected (but two zinc mines have been shut down in the last few months) and corn and wheat prices which were booming as part of the expectations of better food supply in Asia grew, has seen their prices halved. While each commodity has its own supply/demand characteristics, oil is one that is basic to any economy anywhere and the question still has to be asked ... exactly what prices are being used by people to figure out what oil and gas stocks should trade at. For sure oil and gas stocks benefited from $150 oil, but they never traded at levels that believed for one minute that it was going to stay there. Now that oil has corrected, are we seeing most oil and gas prices with expectations of $80 built in? Or is it a little higher? While we have about a dozen junior oil and gas stocks that we have faith in over the longer term, it doesn’t matter whether we look at these little guys or the big ones such as Canadian Natural Resources, arguably one of the best run oil and gas companies on the planet. Their chart shows the same thing. A big run up when people cared a bit (how much they cared because of the credit crisis is still open to debate...they certainly didn’t fully benefit from the prices they were at) and Suncor, EOG Resources -— there is a long list of interesting seniors. On our junior list are such stories as Oilexco, which has done an amazing job of lining up all the equipment they need in the North Sea as few operators have been able to and then coming up with discovery after discovery. When cash flow hits big time later this year, hopefully oil prices are somewhere near current levels. The Bakken area of Saskatchewan, Wyoming and North Dakota is becoming one of the most exciting plays to be found anywhere and with Alberta’s foolishness about royalties, most people are only too willing to go and move to Saskatchewan. Reece Energy could double if not triple their oil production from their Bakken plays over the next year, but their chart shows that they too, have suffered in the market over the last while. For those looking for the high risk way to play Bakken, Ryland Oil reminds you a bit of Ultra Petroleum. Ryland has too many shares outstanding (160 million) and next to zero production (at least at this level). But what they do have is land and lots of it—360,000 acres in fact, most of which is assumed to be Bakken-prone and running the company is Richard Findley, who was first able to unlock the secret of Bakken with horizontal drilling in North Dakota. For doing that, he became “Oil Man of the Year”. For junior Connacher Oil & Gas, just when do they get an okay to proceed and continue building Pod after Pod after Pod in the coming years their heavy oil projects near McMurray and hopefully without any further deviations into buying other gas companies or heaven forbid, refineries. Oilexco Ryland Oil Reece Energy Connacher Oil & Gas The big question though for commodities at this time (at least in our view) is that we’ve had a stumble and a significant one courtesy of the credit crisis that Wall Street hatched. It’s put a crimp in the economy and when combined with the real estate bubble bursting, is affecting people’s spending habits. But then, some of those spending habits needed to be corrected. For folks spending $500 or $600 a month in gas bills to maintain cars to get to work in the U.S., suddenly they are discovering scooters, public transit, or heaven forbid, even carpooling! It’s more efficient use of the fuel, but around the world the use just continues to grow. While it might be hard to guess a bottom for base metals or corn or whatever, oil is a product that simply is not going to be replaced by wind power, that only seems to be generated when you don’t need it, or many other alternatives that these days, are still more hyped than anything else. Canadian Natural Resources Suncor Energy EOG Resources