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OIL/ENERGY STATISTICS BULLETIN and Canadian Oil Reports
P.O. Box 189, Whitman, MA 02382.
1 year, 24 issues, $185.
Modest profit-taking in Canadian
oils presents a buying opportunity
John McGilvray: "Most oil stocks reacted this past fortnight to the weakness in oil prices and, this time, the Canadian oils were no exception. As we have said on many occasions, however, an oil price in the current middle to upper 20s range, for West Texas Intermediate crude, is a good thing for the industry, Canadian producers included. Therefore, since we see little danger of a crash in oil quotes and the outlook for natural gas remains bright, we regard even modest spates of profit-taking in the Canadian oils as buying opportunities.
Talisman Energy (NYSE: TLM, $38.82; TSE: TLM, $57.00) continues to meet with success as a gas finder in the Monkman area of northeastern British Columbia, where the company recently completed two more natural gas wells. One of the wells, a 9,570 foot probe in which Talisman has a 73.05% interest (slightly over 19% is held by Burlington Resources), tested at 24 million cubic feet a day and has been brought into production at a rate of 20 MMcf/d. The second well (shared 50/50 with Burlington) was drilled to a total depth of 12,034 feet and tested at 37 MMcf/d and is currently producing 22 MMcf/d. Talisman has earmarked C$40 million of this year's capital spending budget for the Monkman area, which will allow it to participate in a total of five wells. The company's holdings here are already sending an average of 85 MMcf/d gas to market, 10% its North American volume, and that contribution certainly appears to be headed considerably higher. Talisman is still an excellent intermediate and longer term growth buy.
Canadian Natural Resources (NYSE: CNQ, $32.55; TSE: CNQ, $47.85) said recently that it will be shutting-in oil production from its Ninian South platform in the North Sea until about the middle of this month in order to perform maintenance. Canadian Natural took over as operator of this facility, which yields about 18,000 b/d to the company, in December of 2002 and it was not unexpected that it would have to do some updating and repairs. The curtailment, which began in the latter portion of March, is expected to have no impact on the company's ability to meet its overall production guidance for the first quarter of between 235-240 thousand barrels of oil and liquids per day and 1,300 to 1,320 million cubic feet of natural gas per day. Canadian Natural's shares have withstood the mild profit-taking that has impacted the group since we recommended the shares and it is our view that the stock is well within buying range for new investments.
Shell Canada (TSE: SHC, $48.07) said last week that production from its Muskeg River bitumen mine, which was interrupted by a fire in January, has been resumed. This facility is part of the Athabasca Oil Sands Project (AOSP) which is still expected to yield 155,000 barrels of bitumen per day before this year is over. At full production rates, in fact, this facility is expected to be capable of supplying a full 10% of Canada's oil needs. This should help keep Shell Canada's shares performing in the steady, if unspectacular, fashion for many years to come. We continue to recommend Shell Canada to conservative energy investors."
THE DINES LETTER
P.O. Box 22, Belvedere, CA 94920.
1 year, 17 issues, $195.
Gold: Normal Hegelian shakeout over?
James Dines: "No one has more faith than the person who plays a slot machine.
The essence of the nature of beauty is its elegant fragility, easily tipped off its high-wire balance by either bug-eyed anger, or glazed-over indifference. Just as a Monarch butterfly's "color" came off on to a child's curious fingers before microscopes unmasked their wings' scaly beauty, and their extraordinary migrations were only recently discovered by humans, so too, there is an elegant beauty concealed in the stock market's internal dynamics.
For example, the countertrend action between the stock market and gold echoes to us the contrapuntal elegance of a Bach fugue, but it is never noticed by television and media coverage. Edson Gould, one of your editor's mentors, spoke about the incredibly intricate harmonics of the stock market's internal rhythms, a complexity entirely invisible to the superficial observer. Recent gold action has been a splendid example of subtle DIGROC's regal existence, proving that the stock market is not a slot machine, or some kind of tawdry numbers game that is a function of nothing but random chance.
For example, our IWB on 25 Mar 03 signaled an end to the brief gold Consolidation that had lasted around two months. The very next day, leading Wall Street broker Salomon Smith Barney flashed a sell signal on the golds, warning that there was "no reason for investors to buy at this point." They specifically outlined the risk that Barrick might drop to 17, Newmont down to 30, and Placer down to 10, which mystified us because all three stocks were already below those prices. In any event, the point is that the next day gold stocks uncannily had a strong rally! Classic DITPON.
If the gold Consolidation is ending, then it would be reasonable to expect the stock market to move down, although approximately rather than with mathematical precision. Since we don't expect the S&P 500 Average to get much above the 900 area, and it is already around 880, we are looking for a gold Bottom somewhere near these levels and, in fact, it might have already been reached in March. Keen observation reveals that the press and media are not only pessimistic on gold, but continually report on how much it is "down from its high." This is an interesting Mass-Psychological phenomenon, a bullish one, because we count how far gold has risen from its low at $256.25 on 20 Feb 01. Higher gold prices have already produced stellar earnings gains by Newmont Mining, and any further rise in the gold price back toward the high which we expect should lead to dazzling profits for that Sector later this year.
The chart of the AMEX Gold Bugs Index shows the track record of the gold bull market since it began in 2001. There have been three Consolidations, as marked, the bottom of which has each time been an attractive buying opportunity for those who did not follow us into them at rock bottom (lower left). What also strikes us about this chart is the generally flat appearance of recent months, precisely echoing the flat action of the Dow-Jones Average! In other words, DIGROC is at work here, and we need to wait for the decisive Breakout also. Nobody knows for sure whether up or down, but we are confident that there will eventually be a Major gold bull market carrying to stratospheric heights. Why?
Because gold is a currency as well as a mere commodity. The entire world is now on a fiat paper-currency system, and every time in history that that has been tried it has ended in the destruction of that currency. Why? Because politicians would rather run the printing presses than raise taxes, to get reelected, and so they continue to run them faster and faster, resulting first in an inflation and then a commensurate deflation. Every economist in the world is talking about how "inflation is under control." We disagree entirely, and believe that these are the early stages of an oncoming deflation, of which Japan's economic crash was a harbinger. In the deflation of the 1930s, gold-mining shares had historic rises even as the crash was wiping out nearly all other investors. We consider it prudent to include precious metals in all portfolios, along with cash, awaiting developments.
Such as? War news might do it, perhaps defeat of Iraq spurring a stock-market rally and a setback to the golds but as long as golds don't get below their March lows we would be reassured. Where that victory rally is halted will be important to our upcoming analysis but, for the moment, we see no reason to alter our ultra-conservative counsel."
THE LYNCH INTERNATIONAL INVESTMENT SURVEY
431 136th St., Belle Harbor, NY 11694.
1 year, 52 issues, $175.
The Precious Metals Corner
Walter Lynch: "Gold was equally volatile rising to US$335 early in the week, and then settling back to US$329.60 at midweek. The fall came as the dollar strengthened and oil prices fell, reflecting good news on the war front. As we said last week, this US$329 - $335 range is profitable for quality gold producers.
Rock Fall Hits AEM and Share Price
Agnico-Eagle Mines Ltd. (NYSE AEM $10.78) reported this week a rock fall in two production stopes at its LaRonde gold mine. The fall occurred above Level 215 at a depth of about 7,050´ below the surface. There were no injuries and no equipment was damaged. The company advises that underground and mill operations have not been interrupted and reserves were unaffected.
The rock fall of an estimated 30,000 tons occurred when a pyramid shaped stoping sequence was routinely being developed in order to distribute and relieve rock stress. You can imagine the pressures at that depth. Early estimates of the incident's impact on 2003 total gold production is a reduction of possibly up to 20%. This is mainly due to the need to replace the higher-grade mining blocks with ore from lower grade areas of the mine.
Management estimates that up to ten large mining blocks on the lower level will have to be mined later rather than as originally planned. A more definitive estimate of the production and cost estimate should be available with the first quarter's results (late April) or sooner, if it is available.
Remedial steps are already in progress. The void is being back-filled with cemented rock fill. The mining method on four blocks needs to be revised to a narrower width to more rapidly establish the pyramid sequence. This approach will reduce tonnage mined from Level 215 until about the end of the second quarter. Wider blocks will then be mined at a later date in the next sequence. There will be no long-term change to the mining method that has been used at the LaRonde since the start-up fifteen years ago.
As management has pointed out, rock falls are part of the normal mining risk. At the LaRonde mine, there have been prior rock falls at the #1 shaft, although production continued there as alternative working areas had already been developed and were mined as the original areas were being stabilized. Development on the current lower levels has been behind schedule due to a mill failure in mid 2002 that stopped the production of backfill material as well as due to the extreme summer heat when working at depth. As a result, alternative areas in the lower mine levels are not yet sufficiently developed for mining.
From the investor point of view, AEM shares lost about US$2 per share on very heavy volume following the announcement. As we write, at midweek, the price appears to have stabilized at about US$10.74 as more gold investors were looking long-term. AEM remains a quality mid-tier gold producer. We recommend maintaining current positions as long as they are in line with the balanced portfolio that we have recommended.
MDG's Year-End Reserve Picture
Meridian Gold, Inc. (NYSE MDG $9.04) recently announced its new reserve and resource picture for the year-end 2002. The proven and probable gold reserves more than doubled to 4.28 million oz. of gold and 32.49 million oz. of silver. The El Peñon mine, the company's key producer, had 1.8 million oz. of gold in proven and probable reserves plus 28.7 million oz. of silver. MDG's 30% share of Jerritt Canyon's reserves totaled only 174,000 oz. The Joint Venture has entered into a purchase and sale agreement that is expected to close this month.
The Importance Of The Esquel Project
Note that 2.3 million oz. of gold reserves are attributable to the Esquel project that MDG acquired in the Brancote transaction. This is the project, which is under a cloud following the local vote against Meridian's development of the property. Right now, MDG has decided to pause in its development process and mutually agree with the governor of the province to: "Stop the last few weeks of exploration drilling, complete the water study underway, re-evaluate the current project with new consultants to address project alternatives within the current Environmental Impact Study and re-address the management of the project by placing MDG's Executive V.P. in overall charge of the project."
These changes are being made in order to build a positive relationship with the local community. Looking at the company's gold reserve picture, you can quickly see the wisdom in this move.
In addition to the reserves, there are measured and indicated resources totaling 2.1 million oz. of gold and 14.6 million oz. of silver in the company's properties. Almost all the silver resources and one-third of the gold resources are at El Peñon with about 15% of the gold and silver resources at the Esquel project. The balance is held at Jerritt Canyon and the Rossi project. Pressure remains on MDG shares due to the Esquel problem as well as the current retreat in the gold price. It would be a major plus for MDG if the environmental problem can be cleared up. The Supreme Court of Argentina could have the final say.
Not Yet Online
In 2002, Apex Silver Mines Corp. (ASE SIL $12.40) aggressively added to its large land position in Bolivia, Peru and Mexico. Its most advanced development project is still the San Cristobal mine on the Potosi-San Cristobal silver belt. The most promising of the recent drilling results have come from the Pulacayo Main Target program on the same belt.
This silver belt has contained the three largest silver deposits in Bolivian history. These are the San Cristobal itself (470 million oz. of proven and probable silver reserves plus 9 billion lbs of zinc), the Potosi silver mine (world's largest underground silver discovery) and the Pulacayo mine where 206 million oz. of silver were mined from 1833 to 1959. In the present drilling program here, four holes returned wide zones of anomalous silver and zinc. The drilling results suggest to Apex that Pulacayo represents an excellent underground target that could be amenable to mechanized bulk mining methods.
In Peru, Apex's property portfolio includes a 4,600 hectare concession in the Otusco District about 40 miles northwest of Barrick's Alto Chicama gold discovery and about 40 miles south of Newmont's Yanacocha mines. Apex's claims contain a low to moderate intensity gold anomaly hosted by the same volcanics occurring at Alto Chicama, Yanacocha and other bulk tonnage gold deposits in that area.
These are all in the exploration stage. Apex's main developed property is the San Cristobal project. In 2002, $5.2 million of costs related to development activities here were capitalized for a total of $94.9 million through year-end 2002. The reserves make the San Cristobal one of the largest projects of its kind in the world. Apex continues to advance the completion of the road systems from the mine to Puerto Patache in Chile for shipment to foreign smelters.
In 2002, Apex had a net loss of $8.3 million ($0.23 per share) compared to a net loss of $8.1 million ($0.23 per share) in 2001. Revenues were primarily interest received. Cash and cash equivalents at year-end rose to $44.1 million (+$2.5 million). Total debt was reduced to $770,000, a rarity in any industry. As a matter of policy, the mine will not be brought into production until silver and zinc prices strengthen. They will not give their products away.
Apex is a well thought of developing silver situation. However, until it is actually onstream, conservative investors must recognize the risks still involved and consider it a speculation."
GOLD NEWSLETTER
2400 Jefferson Hwy., Ste. 600, Jefferson, LA 70121.
Monthly, 1 year, $198.
Apollo Gold: Mid-tier producer
With growth potential
Brien Lundin: "I've been looking for a mid-tier producer with growth potential to add to our stable, and Apollo Gold Corporation (TSX APG C$3.43; 866-801-0782, www.apollogold.com) fits the bill perfectly.
The company produced 154,860 ounces of gold last year from its two mines in Montana and Nevada, and just announced a doubling of its reserves. That was an impressive achievement, in that much of the year was devoted to acquiring and financing the mines, and then getting them back in shape for full commercial production.
Apollo's team of highly experienced mining industry professionals purchased the mines early last year, while the company was still private, from investment bankers who had become reluctant owners after the previous owners defaulted on loans. After raising C$23 million of new equity, Apollo began trading on the Toronto Stock Exchange last July.
At the time of the purchase, the mines had ore reserves of only 385,800 ounces of gold. In more than doubling the reserve to 940,800 ounces, Apollo's management has satisfied the objective they had when they bought the projects. Apollo now has two mines that promise reliable, long-term production, forming the basis from which management plans to build a leading mid-tier gold producer.
The Apollo management team is well qualified to do the job. The president, David Russell, was the chief operating officer of Getchell Gold, until Placer Dome bought that company for $1.1 billion in 1999. Dick Nanna, vice-president of exploration for Apollo, held the same position with Getchell, and directed the exploration program that led to the discovery of one of North America's largest gold deposits.
Llee Chapman, CFO for Apollo, is a CPA who had important roles in three major mine start-ups. The former CEOs of both Getchell Gold and Amax Gold are among the high-powered directors backing the management team.
The bottom line: Apollo is a 200,000-ounce producer that is on track to double its gold production over the next three years, from projects already in hand. Further upside will come from the highly qualified and aggressive management team, which is as committed as ever to the continued growth of the company.
Apollo offers just what I was looking for in a mid-tier producer exposure to gold and growth. Trading significantly off its recent highs, and with much of the risk removed, the current share price represents a buying opportunity that we should take advantage of."
INTERINVEST REVIEW & OUTLOOK
P.O. Box 1585, Boston, MA 02104.
Monthly, 1 year, $125.
Correction has run its course
Dr. Hans Black: "We have been encouraged (or lucky, some might say) to see that gold has followed the script we have detailed in this letter over the past several months. The price of bullion has corrected off the peak in early February, near $390, and is now trading closer to $325. For the moment the news from Iraq is improving and the fear that was so prevalent in many markets in gradually dissipating. This means lower prices for bullion, at least for a while, until investors realize that we are entering, or have indeed entered, a more dangerous era with an increasing number of problems. In time, the debts that many of the world's nations are now printing should generate an inflationary situation that will in turn drive precious metals higher. To summarize, it is likely that the correction that began early this year has largely run its course in terms of price, but not in terms of time.
We continue to accumulate precious metals shares on further price weakness, which we fully anticipate even though the bullion price may remain more stable. We continue to like such companies as Newmont, Placer Dome, Eldorado and Cambior."
SUPERSTOCK INVESTOR
1900 Glades Road, Suite 441, Boca Raton, FL 33431.
Monthly, 1 year, $395.
Water utility takeover candidates
Charles LaLoggia: "The following water utility takeover targets are still recommended, and should be viewed as a "portfolio" of low risk, high-yield takeover targets: Connecticut Water (CTWS: buy up to $28), Middlesex Water (MSEX: buy up to $28), Philadelphia Suburban (PSC: buy up to $25), and Southwest Water (SWWC: buy up to $12.35). Note: CTWS split 3-for-2 on Sept. 7 and PSC split 5-for-4 on Dec 1: SWWC paid 5% stock dividend on Oct. 22."
FREEMARKET GOLD & MONEY REPORT
P.O. Box 5002, North Conway, NH 03860.
1 year, 20 issues, $260. Interim Bulletins included. www.fgmr.com
Gold prospects remain bullish
James Turk: "The gold mining stocks as shown by the XAU Index remain in an uptrend.
Notwithstanding this uptrend, there are some bearish factors on this chart. The XAU has fallen back below its 200-day moving average. Also, that average itself is beginning to turn lower. Nevertheless, there are more reasons to be bullish about this chart than bearish.
Aside from the uptrend line, the mining stocks are forming a "head & shoulders' reversal pattern. Further, this pattern is establishing a multi-year base for the XAU, which appears to be nearing completion. In other words, I expect the `right shoulder' to be completed some time this year, which will occur when the neckline of this `H&S' pattern in the 88-to-90 area is finally hurdled.
As I said in a recent letter, "We may see some more building of the `right shoulder' before we again start to head higher." And that building is evidenced by the pullback to the uptrend line over the last few weeks. Will that uptrend line hold?
Only time will tell. The XAU still has a lot of work to do before we can sit back and relax. And when it comes to markets, as we known, anything can happen. But for now the prospects for the gold mining stocks remain bullish, and we will continue to accumulate the gold mining stocks while this base is being built."
FULLERMONEY
Ste. 1.21, Plaza 535 Kings Rd., London SW10 0SZ, United Kingdom.
Published monthly, single issue £35. www.fullermoney.com.
The next big move for gold
will be on the upside
David Fuller: "A contributing factor to gold's pullback was the hike in margin requirements for U.S. gold futures contracts, which capped the rally. This looked gratuitous, especially as margin requirements for stock market futures were never increased during the bubble. Since talk of a gold bubble at $389 was risible, many bullion traders interpreted the margin increase as a warning shot by the Fed. They could be right. Nevertheless, gold's chart action is not at all unusual. Following breakouts from bases, prices often return to the upper side of the pattern during a ranging phase that I describe as the first step above the base. These patterns can take months to form, before the bull trend is resumed. Gold is unlikely to be an exception as dealers are wary following the margin hike and large pullback. If the margin rate is not now reduced, with bullion $50 lower, traders will have another reason to conclude that the Fed is not friendly to an appreciating gold price. Whatever, there is a secular trend at work, which neither the Fed nor any other government agency can prevent, although they can micromanage it. My long-term script for gold is unchanged. A 10 to 20-year bull market has only just begun. There will be long periods of ranging during the early years, in line with most secular trends. The chart will show a series of steps, with most occurring at higher levels than the previous trading range. The biggest gains are achieved towards the end of bull markets. The bullion price should eventually reach levels several times higher than we see today.
Price Of Crude Oil Could Decline Below $20
Three anomalous and related factors have aggravated economic problems during a period of monetary stimulus the high price of oil, events related to UN resolution 1441 and concern over terrorism.
Of these oil is both the most volatile and most important. Oil has been a problem for the global economy since mid-2000, when it first moved above $29 (NYME) a barrel. While there was some respite a year later as the price fell back towards $15 it then rose again due to OPEC cutbacks, a build-up of U.S. strategic reserves, the Venezuelan strike and hedge longs prior to the war for regime change in Iraq. Predictably, the war premium contracted sharply once the military move against Saddam Hussein commenced, because there has been no major disruption to supplies. Also, the Venezuelan production crisis appears to have ended, and the supply of oil from that country is rising.
However, the price of crude oil is unlikely to fall in a straight line, especially as it will take time to achieve regime change in Iraq given the surgical nature of this military campaign, in order to limit infrastructure damage and especially civilian casualties. Nevertheless I have long maintained that the price of crude oil would decline to $20 shortly after regime change has occurred, and that it could even reach $15 within another 6 months.
Needless to say, an oil price below $20 would remove a very serious problem for the global economy."
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