To read/download Mr. Don Coxe's June 2009 Edition of Basic Points Click Here
Basic Points June 2009 BMO CM
Thursday, June 11, 2009
Don Coxe Basic Points June 2009
Don Coxe Basic Points June 2009 - Who Will Really Lead the Global Rescue?
To read/download Mr. Don Coxe's June 2009 Edition of Basic Points Click Here
Basic Points June 2009 BMO CM
To read/download Mr. Don Coxe's June 2009 Edition of Basic Points Click Here
Basic Points June 2009 BMO CM
Friday, May 15, 2009
Why Gold and Silver Bullion Should Be In Your Portfolio
In it's annual report, which was filed on May 4, 2009 Sprott Resource Corp. (SCP: TSX) CEO Kevin Bambrough outlined his rationale for purchasing 40,475 ounces of gold bullion at a cost of C$968/oz and 852,478 ounces of silver bullion at a cost of C$12.75/oz in Q4/08.
Bambrough writes:
"The following actions of governments around the world and the state of the global fi nancial system support this approach:
• A large number of fi nancial institutions around the world are insolvent. The extent of toxic debt around the world is unclear, but the estimates keep rising each day. Although the focus to date has largely been on U.S. banks, the problem is clearly global and it is spreading beyond banks to insurance companies, pension funds, endowment funds and other entities.
• Governments around the world are prepared to absorb the losses of many insolvent fi nancial institutions, either through outright nationalization of such institutions, purchases of their underperforming assets and/or capital injections. These actions have dramatically increased global public debt and will continue to do so. In the case of certain large fi nancial institutions located in smaller countries, their liabilities may be too great for their host countries to absorb, in which case larger states will be called on to assist.
• Governments are committed to massive stimulus spending on infrastructure projects and to support industries, such as the automobile industry, which are unable to survive in their current form without government assistance. This spending will further increase public debt.
• Revenues for all levels of government have fallen and will likely continue to do so. Governments are unlikely to cut costs to match their revenue declines. The result will be a further increase in public debt.
Management believes that these government actions and the state of the global economy generally will make it increasingly diffi cult for governments to fi nance their borrowings, as lenders begin to question how such borrowings will be repaid. Ultimately, this should result in higher government borrowing costs, which would be crippling, and/or increased monetization of public debt and a corresponding decrease in the real value of fi at currencies. Such prospects support the Company’s holdings of gold and silver bullion and management believes that, in time, a greater number of people around the world will increase their holdings in gold and silver bullion as they begin to lose faith in fiat currencies. Such a loss of faith should, in time, be supportive of commodities and real assets generally, as holders of low-yielding debt instruments, both private and government issued, exit such instruments and move to hoard commodities and real assets."
Click Here To Download The Sprott Resource Corp. Annual Report
Bambrough writes:
"The following actions of governments around the world and the state of the global fi nancial system support this approach:
• A large number of fi nancial institutions around the world are insolvent. The extent of toxic debt around the world is unclear, but the estimates keep rising each day. Although the focus to date has largely been on U.S. banks, the problem is clearly global and it is spreading beyond banks to insurance companies, pension funds, endowment funds and other entities.
• Governments around the world are prepared to absorb the losses of many insolvent fi nancial institutions, either through outright nationalization of such institutions, purchases of their underperforming assets and/or capital injections. These actions have dramatically increased global public debt and will continue to do so. In the case of certain large fi nancial institutions located in smaller countries, their liabilities may be too great for their host countries to absorb, in which case larger states will be called on to assist.
• Governments are committed to massive stimulus spending on infrastructure projects and to support industries, such as the automobile industry, which are unable to survive in their current form without government assistance. This spending will further increase public debt.
• Revenues for all levels of government have fallen and will likely continue to do so. Governments are unlikely to cut costs to match their revenue declines. The result will be a further increase in public debt.
Management believes that these government actions and the state of the global economy generally will make it increasingly diffi cult for governments to fi nance their borrowings, as lenders begin to question how such borrowings will be repaid. Ultimately, this should result in higher government borrowing costs, which would be crippling, and/or increased monetization of public debt and a corresponding decrease in the real value of fi at currencies. Such prospects support the Company’s holdings of gold and silver bullion and management believes that, in time, a greater number of people around the world will increase their holdings in gold and silver bullion as they begin to lose faith in fiat currencies. Such a loss of faith should, in time, be supportive of commodities and real assets generally, as holders of low-yielding debt instruments, both private and government issued, exit such instruments and move to hoard commodities and real assets."
Click Here To Download The Sprott Resource Corp. Annual Report
Tuesday, April 28, 2009
Don Coxe Basic Points April 2009
Don Coxe Basic Points April 2009 - Where Will America Go to Grow?
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BMO CM Basic Points April 2009
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BMO CM Basic Points April 2009
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Friday, April 03, 2009
Don Coxe Basic Points March 2009
Don Coxe Basic Points March 2009 - The ObamaMama Bear Market?
To download Mr. Don Coxe's March 2009 Edition of Basic Points Click Here
**Hearty Thanks: Reader Bill S.**
To download Mr. Don Coxe's March 2009 Edition of Basic Points Click Here
**Hearty Thanks: Reader Bill S.**
Thursday, January 15, 2009
Jennings Capital Oil and Gas Focus Picks for 2009
continued ...
Another one of Ron Coll’s colleagues at Jennings Capital is Gregory Chornoboy. Chornoboy covers the oil and gas sector. His two picks are Tethys Petroleum (TPL: TSX) and Calvalley Petroleum (CVI.A: TSX).
Tethys Petroleum (TPL: TSX)
Tethys drilled 9 successful gas wells in Kazakhstan in 2008, discovered the new Tasaran zone and signed the Tajik PSA for an area nearly four times larger than anticipated. Chornoboy writes “Kokbulak prospect is testing now, with results expected before year end, and the Phase 2 compressors are being installed, which will bring production up to 40+ MMcf/d in the new year.” The company has also announced a strategic relationship with a Russian electrical company that could be both a gas purchaser and a joint venture partner in project development.
Catalysts for 2009
- "Start-up of the Phase 2 compressors in January, lifting production to 40+ MMcf/d.
- First results from workover programs in Tajik fields (Q1).
- Drilling the Akkulka deep test into the Jurassic and Triassic zones (results in April).
- Production increase to 60 MMcf/d (and possibly 72 MMcf/d) in Phase 3 (early - mid Q3).
- Continuous drilling of the leads and prospects already identified in Kazakhstan."
Chornoboy has a $3.00/sh target price on Tethys Petroleum.
Calvalley Petroleum (CVI.A: TSX)
Chornoboy expects Calvalley’s Central Processing Facility to start up “imminently” and that should allow production to double. The company’s main draw and risk for that matter is its pipeline project from Block 9 in the Republic of Yemen that would allow it to connect to a third party pipeline system for the export of crude oil production. While the company has encountered some setbacks with the commerical arrangements in shipping oil to Block 18, it is currently in discussions regarding alternatives for marketing and the pipeline. Chornoboy expects some kind of resolution in this matter in early Q1/09 and “procurement and construction to commence shortly thereafter.”
Catalysts for 2009
- "Central Processing Facility start-up allows increase in production to 5,000 Bbl/d (CVI WI) (Q1).
- Calvalley has received the final version of a reservoir simulation, which has been given to its reserve evaluators. This could result in substantial reserve increases in the Company’s 2008 year end reserves.
- Extended production test results from Qarn Qaymah oil discovery (Q2).
- Exploration wells at South Qarn Qaymah and Rashidah (Q1/Q2).
- Progress on pipeline (initial announcement in Q1, and continuous progress throughout 2009).”
Chornoboy has a $3.35/sh for Calvalley Petroleum
To Download The 20 Page Report Click Here
Another one of Ron Coll’s colleagues at Jennings Capital is Gregory Chornoboy. Chornoboy covers the oil and gas sector. His two picks are Tethys Petroleum (TPL: TSX) and Calvalley Petroleum (CVI.A: TSX).
Tethys Petroleum (TPL: TSX)
Tethys drilled 9 successful gas wells in Kazakhstan in 2008, discovered the new Tasaran zone and signed the Tajik PSA for an area nearly four times larger than anticipated. Chornoboy writes “Kokbulak prospect is testing now, with results expected before year end, and the Phase 2 compressors are being installed, which will bring production up to 40+ MMcf/d in the new year.” The company has also announced a strategic relationship with a Russian electrical company that could be both a gas purchaser and a joint venture partner in project development.
Catalysts for 2009
- "Start-up of the Phase 2 compressors in January, lifting production to 40+ MMcf/d.
- First results from workover programs in Tajik fields (Q1).
- Drilling the Akkulka deep test into the Jurassic and Triassic zones (results in April).
- Production increase to 60 MMcf/d (and possibly 72 MMcf/d) in Phase 3 (early - mid Q3).
- Continuous drilling of the leads and prospects already identified in Kazakhstan."
Chornoboy has a $3.00/sh target price on Tethys Petroleum.
Calvalley Petroleum (CVI.A: TSX)
Chornoboy expects Calvalley’s Central Processing Facility to start up “imminently” and that should allow production to double. The company’s main draw and risk for that matter is its pipeline project from Block 9 in the Republic of Yemen that would allow it to connect to a third party pipeline system for the export of crude oil production. While the company has encountered some setbacks with the commerical arrangements in shipping oil to Block 18, it is currently in discussions regarding alternatives for marketing and the pipeline. Chornoboy expects some kind of resolution in this matter in early Q1/09 and “procurement and construction to commence shortly thereafter.”
Catalysts for 2009
- "Central Processing Facility start-up allows increase in production to 5,000 Bbl/d (CVI WI) (Q1).
- Calvalley has received the final version of a reservoir simulation, which has been given to its reserve evaluators. This could result in substantial reserve increases in the Company’s 2008 year end reserves.
- Extended production test results from Qarn Qaymah oil discovery (Q2).
- Exploration wells at South Qarn Qaymah and Rashidah (Q1/Q2).
- Progress on pipeline (initial announcement in Q1, and continuous progress throughout 2009).”
Chornoboy has a $3.35/sh for Calvalley Petroleum
To Download The 20 Page Report Click Here
Wednesday, January 14, 2009
Macro Market Comment - Salida Capital
“The Fed is determined to "win" their war on deflation and reflate asset values, and has the conventional and unconventional fiscal and monetary tools to win, although timing of a global economic bottom is difficult given the unique extremes in policy and the global nature of this deep recession. And there is no free lunch for throwing trillions of stimulus at these problems but it de-risks the economy in the short and medium terms. We believe there is risk in treasuries and the US dollar and have positioned the fund accordingly.
With a weakening Fed balance sheet, low rates, a lower US dollar on the horizon and competitive currency devaluation, we believe hard assets are preferable, gold primarily at this stage of the weakened economic cycle. Energy and base metals to follow in that order. Gold has performed below its potential during the drastic deleveraging of Q4/08 (the last I checked the bank isn't taking gold to settle margin calls...yet). Deleveraging has peaked and is starting to decline, which will both independently weaken the US dollar and remove the overhang on gold.”
Source: Salida Capital Multi Strategy Fund December Performance Report
Odds & Bits: Click here to register for a live webcast with Courtenay Wolfe, CEO & President and Brad White, Lead Portfolio Manager of the Salida Multi Strategy Hedge Fund on Thursday, January 15 at 3:00PM EST
With a weakening Fed balance sheet, low rates, a lower US dollar on the horizon and competitive currency devaluation, we believe hard assets are preferable, gold primarily at this stage of the weakened economic cycle. Energy and base metals to follow in that order. Gold has performed below its potential during the drastic deleveraging of Q4/08 (the last I checked the bank isn't taking gold to settle margin calls...yet). Deleveraging has peaked and is starting to decline, which will both independently weaken the US dollar and remove the overhang on gold.”
Source: Salida Capital Multi Strategy Fund December Performance Report
Odds & Bits: Click here to register for a live webcast with Courtenay Wolfe, CEO & President and Brad White, Lead Portfolio Manager of the Salida Multi Strategy Hedge Fund on Thursday, January 15 at 3:00PM EST
Buy, Sell or Hold Sterling Resources (SLG: TSX-V)
On January 12, 2008 Tristone Capital analyst Toby Pierce released an update on Sterling Resources. Much of the following has been excerpted and/or summarized from that source.
[click graphic to enlarge]
Europe’s dependence on Russia for it’s natural supplies has in recent weeks been highlighted in light ongoing dispute between Russia and Ukraine over gas pricing. In anticipation of European utilities and gas providers turning to additional sources of natural gas supply, Sterling Resources seem ideally positioned to deliver on this prospect. Pierce writes “The company has net best estimate contingent P50 resources of 94 bcf in the Doina development offshore Romania and net best estimate P50 resources of 263 bcf in the Breagh Field in the UK North Sea.” Sterling’s assets, while in need of further development, should in Pierce’s opinion, command a premium in the market place. Furthermore, there is significant exploration potential in Sterling’s asset base and thus opportunities to expand its resource base.
Sterling and its partners are currently in the process on appraising the Breagh fields. Pierce writes “Testing has commenced on the recently drilled 1200 foot horizontal section into the West Breagh well and results are expected in ~2 weeks. The test results of the appraisal well on West Breagh will help the partnership determine potential production parameters. We understand the partnership is looking for a rate in excess of 30 mmcf/d if the total sand interval is tested. With the test results Sterling and its partners will be in a position to monetize either a portion or all of Breagh.”
In December 2008, Sterling announced that it had farmed out 50% of its 65% offshore Romanian interest to Melrose Resources plc in exchange for an initial payment of US $12-million which will be made to Sterling on closing the deal (Pierce expects this to happen in Q1/09) and a further US $12-million will be paid at the time of the Doina area development project sanction or one year from the date of closing, whichever is earlier. Melrose will also carry Sterling for a proportion of their future development costs. The amount of the cost carry will be between US $58-million and US $72.7-million, depending on the gas price achieved for the development project, ensuring Sterling is carried for development activity into 2011. Sterling will retain a 32.5% working interest in the Pelican and Midia Blocks. Pierce considers this a “clearly positive” transaction as it “implies its remaining interest in its Romanian offshore assets is worth at least C$0.71/sh.”
Pierce opines that Sterling is trading at 24% of the company’s break-up value using current transaction metrics (see figure below).
[click graphic to enlarge]
He believes that much of the discount is unwarranted because:
1. Non Distressed Sales of Gas Assets Still Relatively Robust
The recent transaction by which Bow Valley got rid of its Peik Field to Centrica implied a “transaction metric of US$2.17/boe. This distressed sale was at the bottom end of the range for undeveloped assets and clearly reflected the difficult position Bow Valley found itself in.” Given the large size of Sterling’s Breagh and Doina prospects, higher working interest positions and operatorship and as mentioned earlier and the need for European gas providers to procure resources outside Russia means that” Sterling could realize selling its assets would be much higher than we have used in our calculations above (See figure above).
2. In addition to the US $12-million that is due from Melrose Resources plc, Sterling has an agreement under which it may call for a further US $8-million of additional funding in the form of a "top up facility" with Jersey based Gemini Oil and Gas Fund II, L.P., as a supplement to the existing loan agreement with Sterling's UK subsidiary. Furthermore, the company has deferred drilling on its promising Airdh and Midia SE exploration wells, is looking at farming out a portion of its UK offshore assets, including Breagh, and has put up its UK onshore and French assets up for sale.
Catalysts Over The Next 12 Months
- Results from the testing of West Breagh horizontal well are expected within the next week to 10 days. Pierce writes “The partners are hoping for a test of 30 mmcf/d+ which if achieved would significantly reduce the capital requirements to develop the field.”
- The announcement of a sale or farm-out of a portion of Breagh, similar to what was done with Sterling’s Romanian assets and the arrangement with Melrose Resources plc. Pierce expects news to this effect before the end of Q1/09.
- Testing of flow rates at the Cladhan prospect and an additional appraisal well or sidetrack, which is expected to occur toward the middle of 2009.
- Sale of its onshore UK and onshore French assets. The sale should further bolster Sterling’s balance sheet and reduce some of the company’s capital commitment in the future.
- Exploration well on the Midia SE offshore prospect. Price writes “A successful well (fully carried by partners) is due to be drilled prior to year-end and would be worth C$0.23/sh unrisked.”
Valuation
[click graphic to enlarge]
Assuming US$50/b oil and US$7.00 mmbtu, Pierce comes up with a core NAV of C$1.86/sh based on C$0.20/sh in cash and C$1.71/sh in undeveloped assets which are made up of primarily Breagh, Cladhan, and Doina. Pierce pegs a C$2.30/sh target price on Sterling Resources.
Disclosure: I own Sterling Resources.
[click graphic to enlarge]Europe’s dependence on Russia for it’s natural supplies has in recent weeks been highlighted in light ongoing dispute between Russia and Ukraine over gas pricing. In anticipation of European utilities and gas providers turning to additional sources of natural gas supply, Sterling Resources seem ideally positioned to deliver on this prospect. Pierce writes “The company has net best estimate contingent P50 resources of 94 bcf in the Doina development offshore Romania and net best estimate P50 resources of 263 bcf in the Breagh Field in the UK North Sea.” Sterling’s assets, while in need of further development, should in Pierce’s opinion, command a premium in the market place. Furthermore, there is significant exploration potential in Sterling’s asset base and thus opportunities to expand its resource base.
Sterling and its partners are currently in the process on appraising the Breagh fields. Pierce writes “Testing has commenced on the recently drilled 1200 foot horizontal section into the West Breagh well and results are expected in ~2 weeks. The test results of the appraisal well on West Breagh will help the partnership determine potential production parameters. We understand the partnership is looking for a rate in excess of 30 mmcf/d if the total sand interval is tested. With the test results Sterling and its partners will be in a position to monetize either a portion or all of Breagh.”
In December 2008, Sterling announced that it had farmed out 50% of its 65% offshore Romanian interest to Melrose Resources plc in exchange for an initial payment of US $12-million which will be made to Sterling on closing the deal (Pierce expects this to happen in Q1/09) and a further US $12-million will be paid at the time of the Doina area development project sanction or one year from the date of closing, whichever is earlier. Melrose will also carry Sterling for a proportion of their future development costs. The amount of the cost carry will be between US $58-million and US $72.7-million, depending on the gas price achieved for the development project, ensuring Sterling is carried for development activity into 2011. Sterling will retain a 32.5% working interest in the Pelican and Midia Blocks. Pierce considers this a “clearly positive” transaction as it “implies its remaining interest in its Romanian offshore assets is worth at least C$0.71/sh.”
Pierce opines that Sterling is trading at 24% of the company’s break-up value using current transaction metrics (see figure below).
[click graphic to enlarge]He believes that much of the discount is unwarranted because:
1. Non Distressed Sales of Gas Assets Still Relatively Robust
The recent transaction by which Bow Valley got rid of its Peik Field to Centrica implied a “transaction metric of US$2.17/boe. This distressed sale was at the bottom end of the range for undeveloped assets and clearly reflected the difficult position Bow Valley found itself in.” Given the large size of Sterling’s Breagh and Doina prospects, higher working interest positions and operatorship and as mentioned earlier and the need for European gas providers to procure resources outside Russia means that” Sterling could realize selling its assets would be much higher than we have used in our calculations above (See figure above).
2. In addition to the US $12-million that is due from Melrose Resources plc, Sterling has an agreement under which it may call for a further US $8-million of additional funding in the form of a "top up facility" with Jersey based Gemini Oil and Gas Fund II, L.P., as a supplement to the existing loan agreement with Sterling's UK subsidiary. Furthermore, the company has deferred drilling on its promising Airdh and Midia SE exploration wells, is looking at farming out a portion of its UK offshore assets, including Breagh, and has put up its UK onshore and French assets up for sale.
Catalysts Over The Next 12 Months
- Results from the testing of West Breagh horizontal well are expected within the next week to 10 days. Pierce writes “The partners are hoping for a test of 30 mmcf/d+ which if achieved would significantly reduce the capital requirements to develop the field.”
- The announcement of a sale or farm-out of a portion of Breagh, similar to what was done with Sterling’s Romanian assets and the arrangement with Melrose Resources plc. Pierce expects news to this effect before the end of Q1/09.
- Testing of flow rates at the Cladhan prospect and an additional appraisal well or sidetrack, which is expected to occur toward the middle of 2009.
- Sale of its onshore UK and onshore French assets. The sale should further bolster Sterling’s balance sheet and reduce some of the company’s capital commitment in the future.
- Exploration well on the Midia SE offshore prospect. Price writes “A successful well (fully carried by partners) is due to be drilled prior to year-end and would be worth C$0.23/sh unrisked.”
Valuation
[click graphic to enlarge]Assuming US$50/b oil and US$7.00 mmbtu, Pierce comes up with a core NAV of C$1.86/sh based on C$0.20/sh in cash and C$1.71/sh in undeveloped assets which are made up of primarily Breagh, Cladhan, and Doina. Pierce pegs a C$2.30/sh target price on Sterling Resources.
Disclosure: I own Sterling Resources.
Tuesday, January 13, 2009
Westjet Airlines Q4 2008 Earnings Preview
On January 12, 2009, Starmine, the company known for ranking the accuracy of sell-side analysts released its Earnings Surprise Forecast for Q4 2008. This feature focuses on stocks that Starmine predicts will experience an earnings surprise in the upcoming reporting season. This is done by quantitatively analyzing the earnings estimate accuracy of sell-side analysts and using that data to creating SmartEstimates. StarMine SmartEstimates predict future earnings more accurately than consensus estimates by putting more weight on the recent forecasts of StarMine's top-rated analysts.
Among their Positive Predicted Surprises, Starmine lists Westjet Airlines (WJA: TSX), American Science & Engine Inc. (ASEI: NASD), Copa Holdings (CPA: NYSE), Ship Finance International Ltd. (SFL: NYSE) and McDonalds Corp. (MCD: NYSE)
Given that Westjet is the sole Canadian feature – I shall highlight the reasons for it’s inclusion in the Starmine Positive Earnings Surprise Forecast for Q4 2008.
For Q4/08, the consensus EPS as indicated by Starmine is C$0.29.
The StarMine SmartEstimate is C$0.38, a predicted surprise of 29.8%.
Highlights Of Analyst Notes
5 Star Ranked analyst Jacques Kavafian of Research Capital who has a StarMine “Bold Estimate” of C$0.42 (EPS) for Westjet’s Q4/08 claims that “airlines are a call on the economy and a put on oil, implying that a weak economy may negatively impact airline stocks, but lower fuel prices will compensate for lower traffic.” Kavafian also mentions the highlest load factor in the airline’s 12 year history.
4 Star Ranked analyst David Tyerman of Scotia Capital also has an Q4/08 EPS estimate of C$0.42 for Westjet.
Westjet is scheduled to report it Q4/08 earnings on February 10, 2008.
Source: Starmine (click here to read about the other mentioned companies)
Odds & Bits: I am in no way affiliated or compensated by Starmine - just thought i'd point out this feature.
Among their Positive Predicted Surprises, Starmine lists Westjet Airlines (WJA: TSX), American Science & Engine Inc. (ASEI: NASD), Copa Holdings (CPA: NYSE), Ship Finance International Ltd. (SFL: NYSE) and McDonalds Corp. (MCD: NYSE)
Given that Westjet is the sole Canadian feature – I shall highlight the reasons for it’s inclusion in the Starmine Positive Earnings Surprise Forecast for Q4 2008.
For Q4/08, the consensus EPS as indicated by Starmine is C$0.29.
The StarMine SmartEstimate is C$0.38, a predicted surprise of 29.8%.
Highlights Of Analyst Notes
5 Star Ranked analyst Jacques Kavafian of Research Capital who has a StarMine “Bold Estimate” of C$0.42 (EPS) for Westjet’s Q4/08 claims that “airlines are a call on the economy and a put on oil, implying that a weak economy may negatively impact airline stocks, but lower fuel prices will compensate for lower traffic.” Kavafian also mentions the highlest load factor in the airline’s 12 year history.
4 Star Ranked analyst David Tyerman of Scotia Capital also has an Q4/08 EPS estimate of C$0.42 for Westjet.
Westjet is scheduled to report it Q4/08 earnings on February 10, 2008.
Source: Starmine (click here to read about the other mentioned companies)
Odds & Bits: I am in no way affiliated or compensated by Starmine - just thought i'd point out this feature.
2009 Base Metal Sector Outlook - Jennings Capital
continued ...
Coll’s colleague Peter Campbell’s two picks in the Base Metals sector are Globestar Mining (GMI: TSX) and Consolidated Thompson Iron Mines (CLM: TSX).
Globestar Mining (GMI: TSX)
Globestar’s primary asset is the Cerro De Maimón open pit mine in the Dominican Republic, which was commissioned in September 2008. “The mill processes sulphide and oxide ore at 2,000 tpd. Start-up of the 1,300 tpd sulphide plant has gone smoothly and concentrate is being produced. An initial 2,000 tonnes of concentrate was shipped on November 5 and another 2,000 tonnes on November 12, 2008.” Globestar currently delivers weekly shipements of approximately 1,000 tonnes and Campbell expects the company to declare commercial production in January 2009. The company has also completed construction of a 700 tpd oxide plant which is currently being commissioned. Campbell expects an announcement regarding the pouring of gold and silver bars shortly.
Campbell expects the US%69 million Cerro De Maimón mine to produce “25 million lbs of payable copper, 19,000 oz of Gold and 450,000 oz of Silver per year for each of the first three years, and approximately 25 million lbs of copper, 7,000 oz of Gold and 400,000 oz of Silver per year for an additional six years.” Based on the already mentioned Jennings Capital base metal forecasts for 2009, Campbell estimated 2009 EPS of US$0.08 and 2009 OCFPS of US$0.21. That would mean that shares of GlobeStar currently trade at a low 6x 2009 EPS and 2x 2009 OCFPS! Campbell’s target price for Globestar Mining is $1.70/sh.
2009 Iron Ore Pricing
The iron ore price is negotiated annually between Compania Vale do Rio Doce (NYSE-RIO) and a large Chinese steel producer, usually Baosteel. Iron ore is priced on a benchmark system and the “negotiated reference price is for the supply of iron ore fines f.o.b. Brazil.” Other suppliers of iron ore usually follow this benchmark price with minor adjustments. “A similar process is also in effect for other iron ore products such as lump ore and pellets. However, lump ore and pellets normally trade at a more-or-less fixed premium to the price agreed to for fines.”
The reference price for iron ore has steadily increased over the last five years and last year, Australian producers separately negotiated an 85% increase, a departure from historical norms. “Current (i.e. 2008) pricing for iron ore fines f.o.b. Brazil is US$1.344 per DMTU (Dry Metric Tonne Unit). By way of example, emerging Canadian iron ore producer, Consolidated Thompson Iron Mines Limited’s concentrate grading 66.5% iron would sell on this basis for US$89.38 per dry tonne. In years previous to this recent upswing in prices, annual benchmark price changes averaged ±5%. However, the period of rapidly increasing benchmark prices may be over.”
Campbell believes the slowing global economy and worldwide declines in steel demand and output have darkened the outlook for iron ore prices. Campbell’s forecast for iron ore prices is shown in the figure below.
Consolidated Thompson Iron Mines (CLM: TSX)
Consolidated Thompson Iron Mines Limited is developing the Bloom Lake iron ore mine located near Labrador City, Quebec. The project, consisting of an open-pit mine and concentrator, is on schedule to commence production by the end of September 2009. The concentrator is expected to produce 8 million tpa of iron ore concentrate grading 66.5% iron. The company has signed an off-take for all of its concentrate with Chinese company Worldlink Resources Ltd., a subsidiary of Worldlink International (Holding) Ltd.
The company has also singed a rail haulage contract with Quebec North Shore & Labrador Railway which covers haulage for the Company's concentrate production from Wabush Junction (near Labrador City) to Sept-Îles Junction, approximately 400 km away. The only shortcoming is a 31 km rail line that is required from Bloom Lake to Labrador City to connect to the QNS&L railway. However, Consolidated Thompson does have an arrangement with a third party to build and operate the connector line. Environmental approval to build the line has been received, and the Company has advanced C$51 million to the third party for capital to build the rail link.
While the company does have enough funds to sustain construction till Q2/09, it will require additional debt financing to complete the project. In late October 2008, Consolidated Thompson announced that it had received term sheets for debt facilities in an aggregate principal amount in excess of US$250 million which according the the press release, the company expected to be finalized shortly. Meanwhile Campbell is of the opinion that the “Company needs less than $200 million to complete the project.”
Campbell models an average EPS of $0.90 and a CFPS of $1.16 per fully financed, fully diluted share discounted to 2009 at 12%, for the first four full years (i.e. 2010 to 2013), of production. That would mean that Consolidated Thompson currently trades at 1.0x EPS and 0.8x CFPS.
In Campbell’s model, he assumes a 20% decrease in the benchmark price of iron ore for 2009, and incorporates a further 5% decrease in the benchmark for the subsequent three years. His long term benchmark price is US$0.922/DMTU. Campbell’s target price for Consolidated Thompson is $5.00/sh.
oil and gas picks to follow ...
Coll’s colleague Peter Campbell’s two picks in the Base Metals sector are Globestar Mining (GMI: TSX) and Consolidated Thompson Iron Mines (CLM: TSX).
Globestar Mining (GMI: TSX)
Globestar’s primary asset is the Cerro De Maimón open pit mine in the Dominican Republic, which was commissioned in September 2008. “The mill processes sulphide and oxide ore at 2,000 tpd. Start-up of the 1,300 tpd sulphide plant has gone smoothly and concentrate is being produced. An initial 2,000 tonnes of concentrate was shipped on November 5 and another 2,000 tonnes on November 12, 2008.” Globestar currently delivers weekly shipements of approximately 1,000 tonnes and Campbell expects the company to declare commercial production in January 2009. The company has also completed construction of a 700 tpd oxide plant which is currently being commissioned. Campbell expects an announcement regarding the pouring of gold and silver bars shortly.
Campbell expects the US%69 million Cerro De Maimón mine to produce “25 million lbs of payable copper, 19,000 oz of Gold and 450,000 oz of Silver per year for each of the first three years, and approximately 25 million lbs of copper, 7,000 oz of Gold and 400,000 oz of Silver per year for an additional six years.” Based on the already mentioned Jennings Capital base metal forecasts for 2009, Campbell estimated 2009 EPS of US$0.08 and 2009 OCFPS of US$0.21. That would mean that shares of GlobeStar currently trade at a low 6x 2009 EPS and 2x 2009 OCFPS! Campbell’s target price for Globestar Mining is $1.70/sh.
2009 Iron Ore Pricing
The iron ore price is negotiated annually between Compania Vale do Rio Doce (NYSE-RIO) and a large Chinese steel producer, usually Baosteel. Iron ore is priced on a benchmark system and the “negotiated reference price is for the supply of iron ore fines f.o.b. Brazil.” Other suppliers of iron ore usually follow this benchmark price with minor adjustments. “A similar process is also in effect for other iron ore products such as lump ore and pellets. However, lump ore and pellets normally trade at a more-or-less fixed premium to the price agreed to for fines.”
The reference price for iron ore has steadily increased over the last five years and last year, Australian producers separately negotiated an 85% increase, a departure from historical norms. “Current (i.e. 2008) pricing for iron ore fines f.o.b. Brazil is US$1.344 per DMTU (Dry Metric Tonne Unit). By way of example, emerging Canadian iron ore producer, Consolidated Thompson Iron Mines Limited’s concentrate grading 66.5% iron would sell on this basis for US$89.38 per dry tonne. In years previous to this recent upswing in prices, annual benchmark price changes averaged ±5%. However, the period of rapidly increasing benchmark prices may be over.”
Campbell believes the slowing global economy and worldwide declines in steel demand and output have darkened the outlook for iron ore prices. Campbell’s forecast for iron ore prices is shown in the figure below.
Consolidated Thompson Iron Mines (CLM: TSX)
Consolidated Thompson Iron Mines Limited is developing the Bloom Lake iron ore mine located near Labrador City, Quebec. The project, consisting of an open-pit mine and concentrator, is on schedule to commence production by the end of September 2009. The concentrator is expected to produce 8 million tpa of iron ore concentrate grading 66.5% iron. The company has signed an off-take for all of its concentrate with Chinese company Worldlink Resources Ltd., a subsidiary of Worldlink International (Holding) Ltd.
The company has also singed a rail haulage contract with Quebec North Shore & Labrador Railway which covers haulage for the Company's concentrate production from Wabush Junction (near Labrador City) to Sept-Îles Junction, approximately 400 km away. The only shortcoming is a 31 km rail line that is required from Bloom Lake to Labrador City to connect to the QNS&L railway. However, Consolidated Thompson does have an arrangement with a third party to build and operate the connector line. Environmental approval to build the line has been received, and the Company has advanced C$51 million to the third party for capital to build the rail link.
While the company does have enough funds to sustain construction till Q2/09, it will require additional debt financing to complete the project. In late October 2008, Consolidated Thompson announced that it had received term sheets for debt facilities in an aggregate principal amount in excess of US$250 million which according the the press release, the company expected to be finalized shortly. Meanwhile Campbell is of the opinion that the “Company needs less than $200 million to complete the project.”
Campbell models an average EPS of $0.90 and a CFPS of $1.16 per fully financed, fully diluted share discounted to 2009 at 12%, for the first four full years (i.e. 2010 to 2013), of production. That would mean that Consolidated Thompson currently trades at 1.0x EPS and 0.8x CFPS.
In Campbell’s model, he assumes a 20% decrease in the benchmark price of iron ore for 2009, and incorporates a further 5% decrease in the benchmark for the subsequent three years. His long term benchmark price is US$0.922/DMTU. Campbell’s target price for Consolidated Thompson is $5.00/sh.
oil and gas picks to follow ...
Friday, January 09, 2009
January Early Warning System
+1.39% is the gain recorded in the first five trading days in January ...
History foretells -
As go the first 5 days
So goes the month of January
As goes January, so goes the year.
All three were a 100% accurate last year.
Here's hoping for a repeat performance !
Source: Jory Capital Technical Review
History foretells -
As go the first 5 days
So goes the month of January
As goes January, so goes the year.
All three were a 100% accurate last year.
Here's hoping for a repeat performance !
Source: Jory Capital Technical Review
2009 Base Metal Sector Outlook - Jennings Capital
On December 15, 2008 the analysts at Jennings Capital released their Focus List for 2009, highlighting their top picks in each sector under coverage.
As the prices of base metals cratered in 2008, inventories started to build as a consequence. Furthermore, as the effects of global economic downturn caught hold, demand for all commodities weakened. Beginning with Nickel which hit a high of US$23.00/lb in 2007 and fell to US$4.00/lb in late 2008, Copper hit US$3.95 in Q2/08 and ended 2008 at US$1.40/lb, erstwhile Zinc declined 56% in 2008 to close at US$0.50/lb and Lead was down 60% to close at US$0.45/lb. Not to be left out, Aluminium was down 50% in 2008 touching US$0.70/lb and Uranium was down 25% to US$55.00/lb. As a result of these swift and drastic price declines, shutdowns of unprofitable mines accelerated, new projects were being delayed and inventory levels were being built up. Loofking forward, analyst Ron Coll opines, “As supply moves back into balance with demand in 2009, while China & the USA stimulate their economies with massive infrastructure funding, the prices for base metal commodities should recover.” Coll also notes that some of the benefits of the current crisis impacting the resource sector include “lower cost of fuel, energy, reagents, consumables, machinery, parts and transportation; availability and cost of geologists, engineers, consultants, operators and skilled trades people; the availability of large mining and processing equipment and a significant reduction in delivery lead-times.”
Coll’s top pick in the Base Metals sector is Mercator Minerals (ML: TSX). Mercator’s primary focus is increasing the production of copper and the resumption molybdenum and silver production at the 100% owned Mineral Park Mine located near Kingman, Arizona. The company recently completed the Phase 1 Expansion at the Mineral Park Mine and a ramp-up to full production (30,000 tpd) is anticipated by early Q2/09, producing 36 million lbs of Copper and 4.3 million lbs of Molybdenum in concentrates. Coll states that “Production could increase in 2010, to 50 million lbs of Copper and 10 million lbs of Molybdenum with the completion of the Phase II Expansion.”
Coll forecasts 2010 EPS and CFPS of US$0.32/share and US$0.58/share, respectively. If Coll’s forecasts turn out to be accurate, that would mean Mercator Minerals is trading at 1.2x forecast 2010 EPS and 0.7x forecast 2010 CFPS. Cheap, Cheap !
Mercator’s proven and probable reserves stand at 520 million tonnes averaging 0.13% Copper and 0.04% Molybdenum (1,386 million lbs of contained Copper and 343 million lbs of contained Molybdenum), sufficient for more than 20 years at planned production rates. Some of the catalysts for the company in 2009 would be: “the successful ramp-up to Phase I capacity of 30,000 tpd; recovery of Copper and Molybdenum prices from the current lows ($1.35/lb for Copper and $10.00/lb for Molybdenum); and the completion of the Phase II Expansion to 50,000 tpd (annual production rate of 50 million lbs Copper and 10 million lbs Molybdenum/year) by year-end, 2009.” Coll’s target price for Mercator Minerals is $2.50/sh.
more picks to follow …
As the prices of base metals cratered in 2008, inventories started to build as a consequence. Furthermore, as the effects of global economic downturn caught hold, demand for all commodities weakened. Beginning with Nickel which hit a high of US$23.00/lb in 2007 and fell to US$4.00/lb in late 2008, Copper hit US$3.95 in Q2/08 and ended 2008 at US$1.40/lb, erstwhile Zinc declined 56% in 2008 to close at US$0.50/lb and Lead was down 60% to close at US$0.45/lb. Not to be left out, Aluminium was down 50% in 2008 touching US$0.70/lb and Uranium was down 25% to US$55.00/lb. As a result of these swift and drastic price declines, shutdowns of unprofitable mines accelerated, new projects were being delayed and inventory levels were being built up. Loofking forward, analyst Ron Coll opines, “As supply moves back into balance with demand in 2009, while China & the USA stimulate their economies with massive infrastructure funding, the prices for base metal commodities should recover.” Coll also notes that some of the benefits of the current crisis impacting the resource sector include “lower cost of fuel, energy, reagents, consumables, machinery, parts and transportation; availability and cost of geologists, engineers, consultants, operators and skilled trades people; the availability of large mining and processing equipment and a significant reduction in delivery lead-times.”
Coll’s top pick in the Base Metals sector is Mercator Minerals (ML: TSX). Mercator’s primary focus is increasing the production of copper and the resumption molybdenum and silver production at the 100% owned Mineral Park Mine located near Kingman, Arizona. The company recently completed the Phase 1 Expansion at the Mineral Park Mine and a ramp-up to full production (30,000 tpd) is anticipated by early Q2/09, producing 36 million lbs of Copper and 4.3 million lbs of Molybdenum in concentrates. Coll states that “Production could increase in 2010, to 50 million lbs of Copper and 10 million lbs of Molybdenum with the completion of the Phase II Expansion.”
Coll forecasts 2010 EPS and CFPS of US$0.32/share and US$0.58/share, respectively. If Coll’s forecasts turn out to be accurate, that would mean Mercator Minerals is trading at 1.2x forecast 2010 EPS and 0.7x forecast 2010 CFPS. Cheap, Cheap !
Mercator’s proven and probable reserves stand at 520 million tonnes averaging 0.13% Copper and 0.04% Molybdenum (1,386 million lbs of contained Copper and 343 million lbs of contained Molybdenum), sufficient for more than 20 years at planned production rates. Some of the catalysts for the company in 2009 would be: “the successful ramp-up to Phase I capacity of 30,000 tpd; recovery of Copper and Molybdenum prices from the current lows ($1.35/lb for Copper and $10.00/lb for Molybdenum); and the completion of the Phase II Expansion to 50,000 tpd (annual production rate of 50 million lbs Copper and 10 million lbs Molybdenum/year) by year-end, 2009.” Coll’s target price for Mercator Minerals is $2.50/sh.
more picks to follow …
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