₪ David Pescod's Late Edition 8/25-8/29/08
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David Pescod's Late Edition August 25, 2008
Cameco Corporation (CCO-T) $30.47 -.49
Hathor Exploration (HAT-V) $ 3.35 -.15
Forsys Metals (FSY-T) $ 4.30 +.05
If there is a waste land out there, it’s the uranium sector, where the seniors are probably down 40 per cent to 70 per cent and there is many juniors that have been if not totally wiped out down seventy, eighty, ninety per cent, its been brutal.
Uranium over the last several years ran from ten dollars to hundred and fifty dollars, only to see a spot prices drop to as low as fifty five dollars recently. Over the last year a lot more has been learned about the uranium exploration business such as with so many safe guards in United States it would take so long to explore and develop a mining situation now in the United States you would be lucky if the next generation could ever benefit. We have also learned that there is very few areas of the world to expect good uranium results from such as Canada, Australia, and Kazakhstan, and in a few places in Africa. Also, while there is only a handful of nuclear plants built every year, that will shortly ramp up particularly in Asia, where the demand for energy is going through the roof and nuclear plants can be built in four to five years. That’s big, because these days between all the environmental studies and lawyer business stuff that goes on, its estimated that it would take between eleven and fifteen years to get a similar plant built in the United States.
But we have to admit, after being so beaten up, this might well be opportunity now that things are so cheap. The only good news is actually bad news for Cameco, and that’s with Cigar Lake production possibly not coming on stream until 2012, or for that matter never being able to handle their water problem, just where is future production going to come from.
After that news came out two weeks, we were surprised to see that uranium spot prices haven’t reacted positively yet…
Once we get into September and some major conference in London, we are actually going to see more trading done on the very illiquid uranium market and then we’ll see whether things start tighting up or not.
Two stories of note in the junior sector, Hathor Exploration (HAT-V) and their Roughrider project in Saskatchewan is going to have a very interesting visit next week, as analysts, and mining types from all over North America get on some small planes in Saskatoon and go visit the Hathor site. Eric Coffin, who has been a big believer in this story is also on that flight and calls it is his top pick in the mining sector, and suggests the simple truth is that they are not that far into their anomaly so far.
He is also a believer that the big conference in London coming up could create a tighting up in the uranium market, and he is one that doubts Cigar Lake will ever happen.
Meanwhile another junior that’s recovering a bit is Forsys Metals (FSY-T), which in the last week announced that the Minister of Mines and Energy in Namibia has granted a twenty five year mining license to Valencia uranium which is the subsidiary of Forsys Metals allowing full scale development to proceed.
August 26 (Bloomberg) “Corn and soybeans have rebounded as reduced crops yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.
The worst rout in the history of commodities may be ending, signaling a replay of the 2006 tumble that preceded a doubling of prices in the next 17 months as measured by the Standard & Poor’s GSCI index. Only this time, the driver is supply cuts rather than increasing demand.”
At least that’s what Bloomberg’s is saying today about the commodities sector, and needless to say we hope they are right. Meanwhile, as a sign of the times, the Financial Post today on it’s business section front page there is a huge picture of Tiny Blue Note’s mining operations in New Brunswick... they’re big, but at these zinc prices they are in a lot of trouble. Already two base metal mines have shut down operations in the last month, and one wonders which one will be next.
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David Pescod's Late Edition August 26, 2008
Bridge Resources (BUK-V) $0.95 +0.010
It was arguably one of the biggest oil and gas targets to be drilled this year, and yet one look at the chart of Bridge Resources, (BUK-V) tells you that in this market there is a lot more fear than greed, and there was never any anticipation or excitement in the market before results did come out on their Piper Play.
I guess the good news is the well costs less than expected and came in almost 5 days to a week before schedule. But then when the well comes up with nothing to show for itself, that’s the disappointment.
The market reaction is what you would expect to not hitting a 400 to possible 500 million barrel play, which was the Piper Play in the North Sea. What next for Bridge, which remember has a fair chunk of shares outstanding, (close to 100 million shares with a bucket of warrants).
But its interesting to finally see some analysts step up to the play and give their thoughts on what’s next for Bridge because they do have a long list of plays out there.
Analyst, Alexander Kline, of Blackmont Capital writes, “Last Friday Bridge announced that it had completed the Durango project debt financing facility with Royal Bank of Scotland, and that it had been granted field development approval for Durango. Other operating, and financial initiatives that were announced include: 1) conversion of the US$10 million short-term debt facility into a 5-year, US$20 million convertible note; 2) confirmation that first production out of Durango will take place in Oct/08; 3) purchase of natural gas hedging contracts; & 4) decision to reinvest a substantial portion of Durango cash flow into the six well drilling program scheduled for 2009. This will include one gas development well, 3 gas exploration wells in the Southern North Sea Area (Aspen, Trent & Tyne) & 2 exploration oil wells in the Central North Sea area.”
Bridge has a total of 20 blocks, comprised of 6 in the central, and 14 in the southern North Sea according to Analyst Kline. His target is $1.25.
Oilexco (T-OIL) $14.40 +0.31
Sterling R esources (SLG-V) $ 2.20 +.19
Western Zagros ((WZR-V) $ 2.52 +0.12
There is a list of analysts that think we should be buying oil stocks right now, such as Josef Shachter, Don Coxe, Jeffery Rubin, and so forth.
There’s others that think with the credit crisis, and worldwide economic slow down, we have got three months to pick up oil and gas stocks. Of course there is still a few, suggesting that oil is on its way to $80.00. But, when we look and see most oil gas companies are now trading at levels a year ago when oil was $72.00 a barrel there should be little down side from these levels, so we bet on oil being between $100.00 and $125.00. That’s why we are buying, we’re a big buyer of the sector where in many cases it’s averaging down.
Today Josef Schachter, is on BNN, and if you need some hand holding he is the one to do it. Particularly if you own some natural gas stocks which has seen gas prices plummet, his stance on oil for the coming winter is aggressive. His stock picks are; Number one Oilexco (OIL-T); Number two, Sterling (SLG-V), and Number three Western Zagros (WZR-V).
Maple Leaf Foods MFI $7.99 -0.81
It’s been hard to miss the bad news out of Maple Leaf Foods anywhere in North America over the last few days, as some of their food has apparently created an outbreak of listeriosis, a condition that the Dow Jones describes as being caused by bacteria that is particularly harmful to the elderly, the very young and pregnant women lead to recalls of varies deli meats produced at one of it’s 24 plants. The Dow reports that the outbreak is has been linked to four deaths, and dozen’s of illness in Canada. Because the symptoms can take up to four months to materialize the full extent of the out break isn’t yet known. So far, Maple Leaf suggests that it will cost them 20 million dollars in this quarter for the recall of meats, clean up of the plant and reimbursement. They also suggest the company may incur further costs such as increased advertising. You would expect the chart would be something like this over the last few days.
Meanwhile, this is still a significant company and the brokers have hope. Octagon, Analyst, Robert Gibson, now considers Maple Leaf Foods a buy, with a target of $12.50, and he writes “To be conservative, we have assumed that Maple Leaf will lose all of its retirement home and hospital business, thus we have reduced out 2009 earnings per share estimate...he reminds us that in 2002, “Pilgrims Pride Corp. had a similar issue at one their plants, this stock dropped, and then quickly recovered to about 80 per cent of the price before the before the recall was announced.
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David Pescod's Late Edition August 27, 2008
Coastal Energy ( CEN-V ) $3.00 +0.050
We get a bit of a shock when talking to Randy Bartley, CEO of Coastal Energy when we ask him our favorite question these days...what do you see with oil prices over the next six to twelve months?
Bartley points out to one of the rumors that’s been floating around Texas, for the last few weeks, is that the Americans just might decide to take advantage of the high prices, or for that matter try and force oil prices down by releasing as much as half a million barrels a day of oil into the general markets, from the national reserves.
Yes, that would definitely put a damper on the oil market in the short term don’t you think?
As far as his crystal ball for predicting the price of oil, well it is currently in storage, but he would be quite happy just to see oil stay at it’s current level, as most companies should be able to do quite well at these prices.
If you have looked at the chart of coastal, and spent the last two months at some Tibetan retreat and ignored the world, you might be wondering what the hey happened to the stock.
On the other hand if you have spent the last two months watching the market, you know that it’s been ugly out there, and the credit crises has affected many resource stocks as if they were banks..
However, there have been a few stutter steps with Coastal, because to drill in the shallow waters off-shore Thailand, you still need a rig, and the rig they were supposed to have in July isn’t there and looks like it won’t be.
A replacement from another company has been found, and should be finally turning in late September.
Then we’ll see if Coastal can become the “Oilexco” of South-east Asia, as they have the rig tied up Bartley tells us, for the next two years steady, so they will have ongoing news flow, and hopefully some of the same success as Oilexco.
Coastal has almost 5 years of drilling projects lined up offshore and on shore Thailand, in energy hungry Southeast Asia, and much of it according to Bartley, is of a development nature, and he points to the Bua Ban target and suggests that one alone could see an additional 20 wells.
Current targets for production are 4,000 barrels a day, by year-end, and after that, it depends on drilling success. Meanwhile, Coastal is an intriguing company because of it’s locale, assets, and shareholders.
Bartley suggests they save money because of the large available talent pool in Houston, (which he suggests can save a lot considering costs for the rare qualified people in Thailand) and the same for equipment that needs manufacturing, for some rare or exotic uses. Some could be made in Houston for half the price., and shipped.
Meanwhile, because the company has no assets in the USA, it is listed on the Canadian exchange, with most shareholders being Canadian or European. ….maybe also because we like international adventure….
With a cheap price, and hopefully the adventure about to begin again, we add to our own position...
For those that are new to the Coastal Energy story, it might be timely to take a look at their website. Their address is www.coastalenergy.com
View their latest presentation, which is under media, and its their corporation presentation dated August 08. There is a few corrections that need to be made such as, exactly when they start drilling. But, there is one chart that you are going to find very intriguing, and if your are following this story that’s probably why you are...and that’s the chart immediately above this comment.
The chart shows what the company hopes to see as far as their production, over the coming while, and it shows a dramatic increase in production. I know that’s why we have high hopes for this story.
On Slide 26 they also have an interesting bit of information, which is their reserve values. Their proven reserves per share at this time sits at around $4.33 US dollars per share, but you can work up to their proven probable and possible, which they suggest could be as much as $17.05 a share. Just remember proven, probable plus possible is the same as proven, hoped for, and dreamed of. Until the drill bit says one thing or another, in the meantime, the analysts like the story as Thomas Weisel has it as a top pick, and a $6.35 cent target from the last report we can find, and RBC has them in the same neighborhood with a $6.50 cent target. We hope either one of them might be right...with our bad math that is still a double. Canaccord has a target of $7.50.
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David Pescod's Late Edition August 28, 2008
Hathor Exploration (HAT-V) $4.04 +0.43
In the waste land that is the junior mining sector these days, there is one twosome that stands out, and that’s Eric and David Coffin of the Hard Rock Analyst...the Josef Schachter of the mining sector. They have managed in a market that has only gone one way to find two of the big winners of the last while and play it perfectly.
When we last visited with them Hathor (HAT-V), was the one story to be watching they suggested. So it was interesting yesterday to have some incredibly bullish news announced by the company, but because 25 of North American leading mining analysts were at the time visiting the property, there was no way to get news from any of them.
Today however, the Hard Rock Analyst is out. And Eric Coffin writes. “Although there have been continuing issues with holes veering off course and not always hitting the target or hitting the target where intended few would argue that the summer program has been anything but a great success. It’s been the “little drill program that could”,.
Also we note in their Special Delivery was their comments on hole MWNE-37 whose results should be out shortly, but I suspect speculation about that hole and others will now become even more interesting. Meanwhile, their thought, that the mining sector might be basing...is hopeful!
If you have a technical bent, the Coffins say visit the Hathor website and look at the pictures of the cores for
the hole MWNE-37. The Coffin brothers address is hardrockanalyst.com
Sterling Resources (SLG-V) $2.19 -.07
Every decade or so you go through a market like we have experienced in the last few months...and its never fun. Usually this presents an opportunity, and as we have been writing the last few weeks are hoping it’s an opportunity to scoop some oil and gas stocks cheap, if not dirt cheap we have an abused margin account to show for it, and one of our guides in this adventure has been Josef Schachter, whose been fabulously right over the last few years on predicting this commodities market.
Heck it was 8 or 10 weeks ago that he even suggested almost 90 per cent of his oil and gas stocks were getting just a little bit rich in valuations. Having said that though we wouldn’t be surprised if he himself was shocked at how big a correction we had in the last while. Meantime, you probably saw him on BNN on Tuesday, and he is absolutely bullish on the oil and gas sector again, and yesterday the monthly work he puts out for Maison Placements hits the street, and at least with Schachter there is one good thing about it…there is no doubt where he stands anymore!
The headline from his research was “Current Bull Market Correction in Commodities Is Over.” He also writes, the latest corrective phase from the S&P TSE Energy Index high of 470 is over, load up the truck, new all time highs expected first half of 09.” He makes his point in this report “The fundamental commodity story remains very bullish, the demand for energy is rising materially and adequate new supplies are not being found and brought on. Until much larger capex is seen and the large companies such as ExxonMobil start spending more money on exploration than they do on dividends and stock buybacks this problem will not be solved.”
One sector of oil and gas that has really been swacked has been natural gas, which saw its price run to $13.00 mcf but recently has gone off a cliff, as mild weather through North America and drilling success in many of the shale plays has made for one heck of a correction. Schachter points out “if we follow normal injection levels from this point, we will have only 3.3 5 TCF in storage in early November versus 3.5 4 TCF last year. “
He also points out that it has moved the ratio between oil and gas to 14 to 1 and he points out that we have been at 10 to 1 a number of times the past year, and he suggests that if oil prices lift to new highs this implies a near doubling of natural gas prices.
He points out his long term target remains 8 to 1 as clean air issues favor natural gas.
Of his top picks for this month on the domestic side, Schachter goes with Delphi Energy (DEE-T), and being mainly a natural gas story his faith with the sector remains solid. As far as his international pick he goes with Sterling Resources (SLG-V) a stock whose shares has plummeted like many others over the last two months, falling from $3.25 to under $2.00.
But the reason a person always looks forward to his research is his high impact drilling watch list , which is appropriate for only those who are looking for adventure and with eyes wide open to the fact that these are high risk, high reward plays. If they hit, it could change your life style, but the odds are that it won’t.
Again he reiterates the potential for Sterling Resources as it is currently is gearing up for more exploration in the North Sea. He writes, the 210-29/30 project with a 40 per cent interest, if successful Schachter, suggest it could make a potential difference of $10.00 a share to Sterling.
On their East Breagh it could make a difference of $4.00 a share, on the West Breagh, $3.00 a share, or the Breagh area $3.00 a share. As far as the potential for what Sterling stock could do if their Doina project in Romanian is successful, well that would be simply appealing to your sense of greed… and we wouldn’t dare do that. But that’s why you should read this report.
(If you would like a copy of Josef Schachter’s Report email Debbie at debbie-lewis@canaccord.com)
One stock he started talking about that was one of his top picks on BNN, is Western Zagros (WZR-V), a company that is currently drilling in Kurdistan, and does have a lot of stock outstanding, over 200 million shares. What’s interesting is that they are working in Kurdistan (and one better be aware of their geography before you venture into this story, because of the political implications ), but of interest is that they are involved in three plays over the next while. Each of which could be worth up to $4.00 a share for the company, and he gives them an 80 per cent chance of success on each of the plays. This is a very oil rich area of the world, where there are oil seeps that go to surface, which tells you there is lots of hope here.
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David Pescod's Late Edition August 29, 2008
Antrim (AEN-T) $2.81 +0.110
It feels like just the other day, the oil and gas patch was a fun place to be. Oil prices were over a $100.00’s, and people cared about the stocks. Ah, the good old days.
Now it seems everyone expects $50.00 oil, and that oil was yesterday’s fuel, oh well, we’ll have our time again. Meanwhile, in the good old days Peter Hodgson, of Sprott Securities, was one of the hottest stock pickers out there when resource stocks mattered. He was on BNN yesterday, and picks Antrim Resources, as his top pick.
The chart shows you how Antrim has fared over the last while, and its like a handful of those places in the North Sea that don’t have much news flow in between wells.
On the other hand Antrim is roughly twelve months away from cash flow, and its going to be significant. There are analysts that are looking for much higher numbers on Antrim when we get closer to cash flow, but in the meantime we have to give management of firms Antrim, Ithaca, and a few others, an F on their report card for not keeping their treasury’s topped up at good prices.
Antrim, had to do a financing not to long ago at a fraction of its previous price, and Ithaca, got financed at such delusory rate, it has turned many investors off its story.
Yes, we have averaged down on Antrim, and are about to on Ithaca despite concerns about management.
Sterling Resources (SLG-V) $2.28 + 0.09
The stuff that you see to the right, we’re told is really, really , really exciting stuff. Needless to say, unless you are in the business of interpreting seismic it looks like gibberish. But, apparently to the trained eye this is what looking for oil and gas is all about. You see the names on the slide of five apparently common Romanian women’s names and those are the targets in the Black Sea for Sterling Resources.
Sterling’s Investor Relations guy, George Kesteven, suggests that new technology transferred from the North Sea has been found quite useful in Romania, and Sterling which had been quiet for much of the first part of the year, now is going to have a slew of results to talk about over the next twelve months. Ana- 2 should have results on their Black Sea play around Sept. 17th, while the big East Breagh play in the North Sea should have results around September 25th.
Sterling is one of Schachter’s top picks.
OIL $115.69 +.10
NATURAL GAS $7.98 -.07
Yesterday, we were just biking off to work (yes biking, in search of the perfect body ) when the rain hit, so so much for that idea. You have to be flexible, so into the car but only after checking the latest weather report.
You guessed it, zero percent chance of rain according to the weather report we checked. It seems only weather people can get away with this, although come to think of it, there’s a lot of stock analysts lately making weathermen look good.
The point is that for natural gas and where it’s going to be next in North America is very much dependent on weather (plus some surprising additions to production from shale plays.)
Yesterdays surprisingly large addition to natural gas reserves were double what is normal this time of year, and saw gas prices stumble a huge 10 per cent. (it was a sign of a mild summer.)
What next for natural gas? Well as we said, it depends on the weather , and right now those with gas stocks are probably hoping that Gustav becomes a hurricane, and a nasty one, and heads into the Gulf of Mexico with vengeance. With roughly 16% of all natural gas produced in the USA in the gulf, a nasty storm could shut down some of those big platforms for a while, and make a difference….or not
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