Macro View Of The Markets

Salida Capital Quick Quote



1. The housing crisis in the US is deflationary
2. It will be met with unparalleled monetary and fiscal stimulus
3. The end result will be another round of reflation
4. This will eventually lead to an even more inflationary environment
5. Supply constraints on most commodities will keep long-term prices higher than consensus estimates
6. Hard assets will eventually get a re-rating as their earnings power relative to the overall market is recognized and as investors buy them as an inflation hedge.

-- Courtesy Salida Capital Commentary For July 2008

The guys over at Salida Capital have returned a compound annual rate of return of 51.50% since inception in 2004 in their Multi Strategy Hedge Fund and those kinds of numbers make me pay attention. As for the summarized version of their macro view quoted above, I shall take the easy way out and say that I agree wholeheartedly.

Private Placement – Crescent Resources Corp. (CRC: TSX-V)

Official Website: http://www.crescentresourcescorp.com/

Company Profile

Crescent is active in South America on two highly prospective fronts: the Oviedo Uranium Project in Paraguay, where Crescent has had early success with the drill; and the Matupa Gold Project in Brazil, where both Crescent and previously Rio Tinto have drilled exciting gold intercepts.

Event

On July, 25, 2008 - the TSX Venture Exchange Daily Bulletin reported that the TSX Venture Exchange had accepted for filing documentation with respect to a Non-Brokered Private Placement announced November 19, 2007 and December 14, 2007 by Crescent Resources Corp.

Details of the Private Placement

Number of shares: 3,758,000 shares
Warrants: 1,879,000 share purchase warrants to purchase 1,879,000 shares
Number of Placees: 14 placees
Purchase Price: $0.25 per share

Private Placement Participants

Gregory R. Davis for 40,000 shares (Vice President Business Development of Crescent Resources Corp.)

Michael J. Hopley for 100,000 shares (President & CEO of Crescent Resources Corp.)

Gary Bogdanovich for 100,000 shares (Investment Advisor at Haywood Securities)

Amanda Halliday for 300,000 shares (probably, but dont hold me to it, a relative of Don Halliday - one of the founders of Crescent Resources and currently Vice President Corporate Development)

Passport Materials Master Fund LP (John Howard Burbank III) for 1,700,000 shares (San Francisco based hedge fund run by John Howard Burbank III)

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

So Do Your Own Due Diligence !

Buy, Sell or Hold Andina Minerals (ADM: TSX-V)

Key Facts

- Approximately 79 million shares outstanding

- Share Price (July 25, 2008) closing = $3.20

- Market Capitalization = $253 million



Andina Minerals recently released a revised NI 43-101 complaint resource estimate for the Dorado zone of its Volcan project in Chile.

- A 126% increase in the measured and indicated resources category from 2.93 million to 6.62 million ounces of gold (241.7 million tonnes grading 0.85 grams per tonne gold).

- Decline in inferred resource category to 2.76 million ounces of gold (95.4 million tonnes grading 0.90 g/t Au), a reduction of 1.43 million ounces as a result of converting inferred resource ounces to the measured and indicated category

- In total, the resource at Volcan now stands at 9.4 million ounces of gold, an increase of 32% from the previous resource estimate of 7.1 million ounces.

One of the most important tidbits of information that can be taken away from this revised resource estimate, in addition to the increased ounces is the increase in grade. There was an 8% increase in the grade of measured and indicated resources (from 0.79g/t to 0.87g/t) and a 17% increase in the inferred grade (from 0.77g/t to 0.9 g/t). The increase in grade is important because it leads to decreased operating costs.

Since the Dorado zone is still open at depth and in several directions and results from the Ojo de Agua zone are still pending, one doesn’t have to go far in assuming that Andina will soon (within the next 12 months) prove up a 10 million ounce gold resource. In fact, at a 0.3 g/t cut-off, the Dorado zone resource has already surpassed the 10 million ounces. Furthermore, Andina’s discovery costs have been $5/oz thus far – amazing isn’t it? With companies like Kinross, Barrick Gold and Yamana also exploring in the Maricunga gold district, Andina is surely in the sights of a number of majors as a takeover candidate.

For a quick back of the envelope calculation of what Andina might be worth in a takeover, I turn to the recent bid by Kinross Gold of Aurelian Resources in Ecuador, in which Kinross valued Aurelian’s in-ground resource (58.9 million tonnes grading 7.23 g/t gold and 11.8 g/t silver) at approximately $88/oz. Now I KNOW that there are several important distinctions between Aurelian (a stock I own) and Andina, however at the $88/oz valuation, Andina should be worth approximately $827 million (it is currently worth $253 million).

Besides Chile being a lot more mining friendly than Ecuador, Andina has additional upside potential through its 5 million tonne (non 43-101-compliant) sulphur resource, grading about 40% sulphur, which is adjacent to the Volcan project. Sulphur prices have risen from approx. $70/tonne to $700/tonne in the last year as a result of demand for phosphate fertilizer which utilizes sulphuric acid as a principal input.

Another morsel of information I wanted to highlight about Andina is that they have already secured the water rights needed for the Volcan project, at a total volume of 340 litres per second, from a private Chilean company by issuing 6.7 million Andina common shares on May 30, 2008 (share price closed at $3.94 that day). With the going rate for water in Chile being an estimated U$100,000 per litre per second of water and rising, securing the water rights for Andina may have been one of the most brilliantly significant decisions the company’s prescient management has taken.

Subtracting the approximately C$21 million in the treasury and the considerably discounted value of Andina’s sulphur deposit, which I will peg at $30 million, Andina is currently being valued at around $200 million. $200 million for 9.4 million ounces of gold – anyone else see an opportunity here?

Since my back of the envelope calculation wont stand the rigorous due diligence of many, I present below the NAV calculations of RBC Capital Markets analyst Stephen D. Walker.



Upcoming Catalysts

- Andina is planning to begin a Phase V drilling program in October 2008, with possibly 10 drill rigs

- A preliminary economic assessment is slated to begin in the second half of 2008 with results estimated in mid 2009

Analyst Targets for Andina

RBC Capital markets - $5.00/sh

Haywood Securities - $6.00/sh

BMO Nesbitt Burns – “Our valuation for Andina improved considerably with our revised estimates. Andina’s shares are trading at a 48% discount to our 0% NAV estimate of $6.44 per share at our long-term gold price of $725/oz in 2012 and beyond. The discount is 75% to our 0% NAVPS estimate of C$13.03 at a long-term price of spot gold of $949/oz.”

My Take: Both Sprott Resource Corp. (see post below)and Andina Minerals are examples of quality junior resource stocks that have seen their shares prices decline to ridiculous levels as a result of general market malaise. A number of companies like Andina Minerals and Sprott Resource Corp. have shown no signs of fundamental deterioration in their businesses, quite the contrary in fact but relentless selling in a quest for liquidity has resulted in investors seeking safe harbour in large cap stocks. There is likely no rush to purchase shares in either Andina Minerals or Sprott Resource Corp. or any of the other quality juniors that are languishing in the current environment so a prudent purchasing move might be to place bids for these stocks at prices one might consider cheap. Let the share prices come to you – to put it bluntly.

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

So Do Your Own Due Diligence !

Buy, Sell or Hold - Sprott Resource Corp. (SCP: TSX)

Key Facts

- 89,680,224 million shares outstanding + 20,568,214 warrants (3,982,430 Warrants exercisable at $2.50, expiring September 5, 2009 + 16,585,784 new warrants exercisable at $4.25 per share until December 31, 2010)



- Share Price (July 23, 2008 closing) = $2.97

- Market capitalization = $2.97 * 110,248,438 = ~$327,437,860 million

Key Shareholders

Eric Sprott: 3,143,450 shares and 3,143,450 warrants (as of January 2008)

Rule Family Trusts: 6,350,656 shares and 2,941,000 warrants (as of January 2008)

Lundin Family Trusts: 6,580,000 shares and 6,580,000 warrants (as of January 2008)

Assets

- Cash Balance = $33.2 million (as of March 31, 2008) + $90,043,925 raised through the exercise of warrants as of July 7, 2008

- Approximately $102 million SCP should receive from the sale of 17.05 million shares of PBS Coals Corp. Pursuant to the sale, SCP will retain ownership of 27.14 million shares of PBS Coals Corp. (estimated 19.9 percent of the company – valued at approximately $162 million)

- SCP holds approximately 14.8% of High Desert Gold Corporation (or 6 million shares) valued at $840,000

- SCP also holds approximately 14.8% of High Desert Gold Corporation (or 8.6 million) valued at $2,064,000

Total Value of SCP assets = 33.2 million + 90,043,925 + 102 million + 162 million + 840,000 + 2,064,000 = $390,104,000 million

With an asset value for Sprott Resource Corp. totalling $390,104,000 million, the share price should equate to approximately $3.50/share (18% higher than the $2.97 - July 23, 2008 closing price).

Quick Overview of Projects and Investments (slides courtesy SCP presentation from January 2008)

Mantaro Phosphate Project





PBS Coals - PBS Coals Corporation is currently in the process of going public. Agents for the public offering have confirmed and allocated orders for 35,716,000 subscription receipts for a total offering size of $214,296,000 (at $6.00 per subscription receipt).



JBP – Appleton Linear Properties



The JBP Appleton Linear property is located 15 kilometres west of the town of Gander in Central Newfoundland. The property consists of 14 mineral licences (592 claims) for a total area of 14,800 hectares. There have been significant drill intercepts on the JBP Linear Property of up to 11.70 g/t gold over 3.40 metres and significant drill intercepts on Appleton Linear Property of up to 18.46 g/t gold over 8.6 metres and 304.8 g/t gold over 0.6 metres. The JBP Appleton Linear properties bear strong similarities to the Bendigo-Ballarat Gold District in Australia -- an area over 22 million ounces of past gold production. Sprott Resource Corp. can earn up to a 70% interest in the mineral licenses comprising Paragon’s JBP – Appleton Linear Property.

Under the terms of the Agreement, in order to maintain the first option in good standing and earn a 55% interest in the Mineral Licenses, SCP is required to, among other things:

(i) fund a total of $2,125,000 of work costs, or $2,375,000 of work costs if Paragon elects to contribute $125,000 of work costs in the first year, over a period of four (4) years from November 15, 2007 (the “Effective Date”), $375,000 of which is a firm commitment and payable before the end of the first year following the Effective Date; and (ii) make a total of $250,000 in cash payments to Paragon over a period of three (3) years from the Effective Date, $25,000 of which is a firm commitment and payable within five (5) days of the Effective Date.

In order to earn an additional 10% interest in the Mineral Licenses following the exercise of the first option, SCP would be required to, among other things, make a cash payment of $200,000 to Paragon upon electing to earn the second option and pay for the completion of a feasibility study on or before the date that is eight (8) years after the Effective Date. The feasibility study would be completed by the joint venture established by the parties following the exercise of the first option.

In order to earn an additional 5% interest in the Mineral Licenses following the exercise of the second option, SCP would be required to, among other things, pay for the joint venture’s costs incurred in connection with the completion of a positive production decision with arranged financing, which would have to be completed on or before the date that is ten (10) years after the Effective Date.

My Take: I would be putting in stink bids (at prices under $3.00/sh) to accumulate more shares of SCP, if i had any available cash. The stock is cheap, cheap, cheap, has stellar management/backing and has the fortune of being affiliated with Sprott Asset Management, which allows for access and notification of perhaps the best projects and deals in the resource space. The price chart indicates support in and around the $3.00 level, however with the prices of anything and everything declining in the current market environtment, patience just might turn out to be an investor's best friend. SCP is a stock, I would have no qualms holding for the next 3-5 years.

Disclosure: I own shares of Sprott Resource Corp.

Oil - The Long and Short Story

Oil - The Long and Short Story

The August WTI Crude contract closed at $141.35/barrel today. I beleive that in the short term, oil might briefly touch $150/barrel just cause the $150/barrel mark is a major milestone and psycholigcal barrier however, regardless of whether or not the oil price touches $150/barrel in the short term, I think the next $20 to $25 move in oil will be to the downside. Ideally this should not affect oil stocks as most oil stocks are trading as if the long term crude price will remain at $90 to $95/barrel but if (and when) the oil price corrects $20 to $25 from its current level (of $141.35/barrel), it will drag down with it the share prices of a number of oil companies because markets do not always behave in rational ways. At that time, I hope to be loading up on my favorite oil companies because I beleive in Peak Oil Theory.



The Oil Story Via Charts

The following charts should depict the fundamentals for a multi year bull run in the oil price (keep in mind: there will be short term price corrections but I beleive the trend will reamin upward for many years to come). Charts courtesy the BP Statistical Review of World Energy 2008, Exxon Energy Outlook and US Funds "Where is the Boom and the Doom Presentation".


Quick Overview of the Oil Market


Forecast for World Energy Demand to 2030


Primary Energy Supplies


2007 Oil Consumption Per Capital (tonnes)


Oil - Proved Reserves at the end of 2007 (in thousand million barrels)


Oil - Global Refinery Utilization


S&P 500 Energy Weightings - Unchanged in 10 years

Don Coxe Basic Points June/July 2008

Basic Points [June/July 2008] - Goodbye, Global Savings Glut: Hello, Food & Fuel Inflation



For the Mr. Coxe's weekly Institutional and Client Call Click Here

To download Mr. Don Coxe's June/July 2008 Edition of Basic Points click here

Thanks: Reader Bill

Front Street Capital and Golden Predator Mines (GP: TSX)

On July 3, 2008 Golden Predator announced that it had completed a private placement of 2,500,000 shares at $2.00 per share for proceeds of $5 million.

The private placement was entirely subscribed by Toronto based Front Street Investment Management Inc., a division of Front Street Capital.



About Golden Predator Mines (GP: TSX)

Golden Predator has a number of projects on the go but its Springer Tungsten project is perhaps the most exciting prospect at the moment. The company hope to have the Springer Tungsten mine and a 1300 tpd mill operating by year end 2008.

“Golden Predator acquired the Springer Mining and Milling Complex in November 2006from General Electric Company through a loan facility with Energy Metals Corporation. The Springer Mine is a former tungsten (WO3) producer located in Pershing County, Nevada. Existing infrastructure at Springer consists of a 1,300 foot vertical shaft and mine workings, primary and secondary crushing stations, a small tungsten ore stockpile, 1,000 tons per day mill and sulphide flotation circuit, and a tailings pond. Certain water rights necessary for operation of the Springer mill were also acquired. Golden Predator purchased these facilities for US$4.5 million plus less than $1 million in reclamation bonding obligations to General Electric.

The Springer mine and mill opened in early 1982 at a cost of US$55 million through a joint venture between General Electric and Utah International. It was soon closed in October 1982 due to falling tungsten prices and the facilities have been held on a care and maintenance basis with no mining activities having been carried out since that time.

Historic tungsten resources as calculated by General Electric in March 1983 are 3.59 million tons (3.26 million tonnes) grading 0.446% WO3 for a total of 1.60 million stu WO3 (1 short ton unit - 20 pounds. The identified histroric resources are sufficient for a 12.8 year mine life at 1000 tpd.). These resources are not compliant with NI-43-101 and have not been verified by a Qualified Person. The company is not relying on these resource estimates as being NI43-101 compliant.” (Excerpted from the Golden Predator Mines official website)

Golden Predator is also expecting to have the Taylor Poly-Metallic 1320 tpd mill and Silver mine operating by year end 2009 and the new 1000 tpd Gold mill at Springer operating by year end 2010. Meanwhile, the company currently has a passive income stream from its portfolio of gold exploration proprieties and leases from the Lyle Campbell Trust.

Lastly, the management team at Golden Predator Mines is the same one that assembled in two years time, a portfolio of more than 100 uranium projects in the western United States under a company called Energy Metals. On August 10, 2007, Energy Metals was acquired by Uranium One for $1.9 billion dollars.



About Front Street Capital



Front Street Capital manages around “2.8 billion in assets among various long/short equity strategies, mutual funds, limited partnerships and trusts. Front Street Capital partners are the largest investors in each of the products, with over $250 million invested.”

Front Street Capital provides investment management services to Ceres Global Ag Corp., Renaissance Global Resource Fund, CIBC Energy Fund, CIBC Precious Metals Fund and the CIBC Canadian resource Fund.

A description of Front Street Capital would be remiss without mentioning Norm Lamarche.



Norm’s biography as presented on the Front Street website is as follows:

“Norm Lamarche: established Tuscarora Capital Inc., one of Front Street Capital’s two founding companies, with Gary Selke in 1996. From 1987 to 1995, Norm was a portfolio manager with Altamira Management Ltd., where he managed Altamira's AltaFund Investment Corp., Altamira's Resource Fund and the Orbitex Resource Fund, and was responsible for the equity component of Altamira's Balanced Fund.
Norm has earned a reputation as the “best mutual fund manager you’ve never heard of” (Globe and Mail), managing the #1 and #2 fund in Canada over the last 15 years. Norm is a partner, co-chief investment officer and VP of the Firm, as well as a Management Committee member.
Norm currently manages seven top performing funds that consistently outperform their benchmarks and the competition, including the Front Street Growth Fund (formerly Front Street Small Cap Canadian Fund), Energy Growth Fund and the Mining Opportunities Fund. He has also managed the highly successful Front Street Flow Through Partnerships.”

On a personal note, I’m a very close follower of Norm’s monthly commentaries, which get posted to the Front Street website towards the beginning of each month. Norm’s track record is simply stellar and I pay a great deal of attention to his thoughts. Being the ‘resource guy’ at Front Street, I surmise that purchasing shares in Golden Predator were his decision. Norm’s investment in Golden Predator is a superb endoresement for the company (in my humble opinion) – thatswhy I figure its time to put Golden Predator on my watchlist.

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

So Do Your Own Due Diligence !

Coal Stocks, Outlook and Charts

Coal

Earlier this week (on July 2, 3008), coal for delivery to Amsterdam, Rotterdam or Antwerp with settlement for next year dropped 13% or $27.50 to $190 a metric ton, making it the largest decline in more than 3 years.

With the power outages in South Africa, Europe’s principal source of power coal constricting supply in the face of insatiable demand from Asia, the coal price had risen 36% since June 2, 2008. Amid speculation that the rally of the past four weeks was overdone, coal stocks worldwide faced a massive liquidation.

For example, in Canada, shares of Fording Coal, the Canada’s largest producer, closed down $15.60 or 16.2% at $81.70 on July 2, 2008.

Furthermore, Western Canadian Coal fell 10.7% or 96 cents to $8, and Grande Cache Coal declined 15.9% or $1.36 to $7.21. (Source: CBC Money )

Erstwhile, in the United States Arch Coal closed down 17.2 percent at $62.21, Consol dropped 14.6 percent to $95.57, Massey fell 18.9 percent to $74.87 and Peabody Energy was down 9.3 percent at $77.90. (Source: Reuters )

In response to the sell-off, on July 3, 2008 Citigroup analyst John Hill puts out a research note saying:

“We see the recent 10 – 18% correction in the equities to be excessive, in response to a downtick in European spot from records. This seems profit-taking amid a deteriorating economy, and the "End of the beginning, not the beginning of the end." Coal has benefited from structural change, with historically isolated/fragmented regional markets linking up and "going global." Mine shortfalls, transport constraints, thin stockpiles, and voracious BRIC-country demand suggest that this process has several years yet to run.”

My exposure to coal comes via an investment in Sprott Resource Corp. (SCP: TSX), which in turn owns a 37.5% interest in a Vancouver based company called PBS Coals Corporation (PBS Canada). PBS Canada owns a 59.6% indirect interest in PBS Coals Inc. (PBS). PBS, together with its affiliates, produces approximately 3 million tons per year of primarily high quality, low volatility metallurgical coal in Somerset Country, Pennsylvania. PBS and its affiliates have operated open-pit and underground coal mines for more than 20 years, and have long standing relationships with many of the most significant global consumers of metallurgical coal. Production is sourced from 9 operating underground and open-pit mines and treated at its wholly owned Shade Creek processing facility.

According to BP's Statistical Review of World Energy 2008, in 2007, world coal consumption grew by 4.5%, much higher than the 10 year average. Coal was the world's fastest growing fuel for the fifth consecutive year.



World's Proved Reserves at year end 2007

Farallon Capital and Antares Minerals (ANM: TSX-V)

On July 2, 2008 Farallon Capital Management, L.L.C. and certain investment funds and an affiliated entity managed by Farallon Capital Management, L.L.C. announced that “they had increased their proportionate holdings in the common shares of Antares Minerals Inc. by an additional 7,510,900 common shares and 1,630,450 common share purchase warrants of Antares in a series of transactions.”

“Based on Farallon's understanding that 50,550,284 common shares of Antares were issued and outstanding immediately prior to the June 30, 2008 transactions described herein, Farallon's common shareholdings now represent approximately 39.9% of the outstanding common shares of Antares on an undiluted basis (representing an increase of approximately 5.3% from the previous report issued by Farallon on October 31, 2006) and 42.2% assuming exercise of all warrants currently held by Farallon.”



About Antares Minerals

Antares’ primary properties are the Haquira copper project in Peru optioned from Freeport McMoran, the 50:50 Rio Grande copper-gold joint venture in Argentina with Mansfield Minerals and the Cristo de Los Andes project, which is located only 10 km to the south of Haquira Project in Peru. Antares has an option agreement with Minera Phelps Dodge del Peru S.A.C. to acquire a 100% interest in the Haquira project by completing optional payments totalling US$15 million over a five-year period.

Most recently, Antares released a scoping study for the copper oxide Haquira Project that outlined an after-tax NAV8% of $225 million at a $2.00/lb cu price based on 1.6 billion pounds of the 2 billion pound copper resource. The company’s current market capitalization is 192 million. Throw in current copper prices of $4.00/lb and the stock looks very cheap here.

Other statistics from the scoping study include:

After-tax IRR of 25.9% for base case with $2.00/lb Cu

After-tax NPV of $224.4 million for base case with $2.00/lb Cu and 8% discount rate

Initial capital expenditure of $301 million (includes 25% contingency)

11 year mine life with average annual production of 109 million lbs Cu cathode/yr

Early higher grade starter pit facilitates project payback in 2.9 years

Cash operating cost averages $1.09/lb Cu over life of mine (including royalty)

Average annual revenue of $220 million - average annual after-tax profit of $46 million

Strongly leveraged to price of copper (based on $1.75-3.00/lb)

o IRR ranges from 17.9%-52.9%

o NPV (8% discount rate) ranges from $115.4 – $660.3 million

Open-pit, contract mining, SX-EW operation mining average of 50,000 tonnes ore/day

Pre-feasibility study initiated with potential for significant project optimization

Antares expects to announce a resource update that includes the sulphide part of the resource in the third quarter of 2008. Expectations point towards a doubling of the resource to 4 billion pounds.

About Farallon Capital Management

San Francisco based Farallon Capital is the world’s fifth largest hedge fund, with an estimated $30 billion in assets under management. Farallon’s investment strategies include restructurings and value, merger/arbitrage, special situations, real estate and credit instruments.

As far as I know, Farallon does not have substantial investments in any other junior Canadian resource stock. In that regard, make what you want of their investment in Antares Minerals (ANM: TSX-V). I take it as a positive sign.