Small cap resource stocks have been absolutely trashed over the last 12 months. Many companies are running out of cash as well as credit and some are closing their doors. It’s Darwinism at its’ finest. The strongest companies, those with world-class management, strong balance sheets, and access to capital will survive and prosper. Those with little cash on hand, shaky prospects, and inexperienced management will disappear.  And now is the time to take positions in the most promising leaders who are positioned to directly benefit from the ongoing financial chaos.

A merger and acquisition mania is now underway. Take a quick look at some recent announcements:

• Canadian Gold Hunter (CGH:Toronto) is taking over Sanu Gold (SNU:Toronto).
• ATW Gold (ATW:Toronto) is merging with Kinbauri Gold (KNB:Toronto).
• New Gold (NGD:US) is combining their business with Western Goldfields (WGW:AMEX).
• IMA Exploration (IMR:AMEX), Kobex Resources (KBX:Toronto) and International Barytex (IBX:Toronto) are working on a merger.
• Linear Gold (LRR:Toronto) recently acquired GLR Resources (GLR:Toronto) Goldfields Project.
• Geoinformatics Exploration (GXL:toronto) is acquiring Rimfire Minerals (RFM:Toronto).

This is just for starters. The primary point I’m making is that M & A activity is on a massive upswing. This is rapidly changing the complexion of the sector and creating fabulous opportunities for investors.

This environment is ideal for selecting and riding the best run companies as the precious metal bull market continues to unfold. The companies leading the charge in this consolidation will emerge from this process stronger than ever. There are numerous advantages for shareholders:

• A superior management team typically results.
• Synergies are created.
• Overhead costs are lowered.
• The portfolio of properties and projects are increased which improves company diversification.
• More dollars are allocated for the most promising exploration targets.
• Larger companies attract the buying power of heavyweight financial institutions.

“Super Juniors” are being created. Companies with cash are marrying companies with exceptional projects in need of funding for advancement. Producers are gaining access to more reserves. Key technologies are being shared. These are clearly win-win situations.

We have long been acquiring the companies acting as resource consolidators in my Resource Windfall Speculator advisory. They are snapping up distressed bargains across the globe. Cash and connections are tough to beat these days.

Yes, size does matter. So does staying power. Personal fortunes will be made by savvy investors who now hitch their wagons to the talented and aggressive management teams constructing companies that will grow and dominate in the coming years and decades.

There is nothing quite like owning an un-expiring lottery ticket!

Source:  M & A: Resource Style

Shares of Pacific Iron Ore (POC) dropped C$0.20 to close at C$0.29. The junior recently tabled the results from seven diamond drill holes from its Pearson project on Vancouver Island, British Columbia.

Formation Capital (FCO) reported that the record of decision on its Idaho cobalt project has been remanded by the U.S. Forest Service. Formation closed down C$0.125 at C$0.24.

On a rare positive note, Oro Gold Resources (OGR) cut 61.1 metres running 8.5 grams gold per tonne at its Trinidad property some 110 kilometre east of Mazatlan, Mexico. Oro ended the day up C$0.09 at C$0.38.

ATW Venture (ATW) hit 23.7 metres grading 16 grams gold at its Burnakura gold mine in Western Australia. ATW ended the day up C$0.01 at C$0.445.

The market meltdown is continuing, with the junior bourse marking the hardest hit. The TSX Ventures is now within striking distance of its 2002 low of 890. We will see what Tuesday trading has in store.

Source: Resource Stock Roundup Tuesday, October 7, 2008

NEW HIGHS OF NOTE LAST WEEK

Halliburton (HAL)… oil services
Patterson-UTI (PTEN)… oil services
Carbo Ceramics (CRR)… oil services
Atwood Oceanics (ATW)… oil services
Key Energy Services (KEG)… oil services
National Oilwell Varco (NOV)… oil services
Spectra Energy (SE)… gas pipelines
U.S. Steel (X)… you guessed it
Schnitzer Steel (SCHN)… scrap steel
Fluor (FLR)… infrastructure
Quanta Services (PWR)… infrastructure
Crude oil, Natural gas, Gasoline, Corn, Soybeans, Cocoa

NEW LOWS OF NOTE LAST WEEK

JetBlue (JBLU)… airline
US Airways (LCC)… airline
Continental Airline (CAL)… airline
MGM Mirage (MGM)… casinos
Boyd Gaming (BYD)… casinos
Wynn Resorts (WYNN)… casinos
Las Vegas Sands (LVS)… casinos
Monarch Casinos (MCRI)… casinos
Winnebago (WGO)… RVs
Thor Industries (THO)… RVs
Fleetwood Enterprises (FLE)… RVs
Goodyear Tire (GT)… tires
News Corp (NWS)… media
Hershey (HSY)… candy
Playboy (PLA)… eye candy
American Express (AXP)… credit cards
Capital One Financial (COF)… credit cards
International Gaming (IGT)… gambling machines
Circuit City (CC)… landfill stuffing continues to suffer
Veolia Environnement (VE)… world’s largest water stock
Honeywell (HON)… conglomerate
General Electric (GE)… conglomerate
United Technologies (UTX)… conglomerate
XM Satellite Radio (XMSR)… satellite radio
Legg Mason (LM)… asset management
Callaway Golf (ELY)… golf equipment
Whole Foods (WFMI)… expensive groceries
General Motors (GM)… read the letter from the Chairman
Lead, Nickel

Source: Brian Hunt’s Market Notes Monday, June 30, 2008

But if you must know, global demand is outpacing supply – though not by much. Only a couple of million barrels a day prevents supply from keeping up with demand, but that’s enough to push the price of crude to record prices.

Ah, life must be good in the oil patch. Companies are making record or near-record profits. Don’t look now but the good times may be coming to an end for the miners of black gold.

We’ve already addressed in an earlier article the number one problem of oil companies: raising production. It’s a losing battle. The best fields are past their prime. Once they’re gone, they’re replaced with smaller fields with harder-to-get oil.

It’s like the Boomer generation looking for the fountain of youth. Boomers can slow down the decline here and there. But the fall from grace is inevitable. Oil producers face the same predicament. They can only see maximum rates of oil production in the rear view mirror.

So, what does the other side of oil production look like? It could be worse. So far, falling production plus soaring prices have brought oil companies huge profits.

The oil companies know they’re thriving on borrowed time. And they’re trying to do something about it. Ideally, they’d like to raise production. But at the very least they’d like to find a way to slow the fall of crude output.

To do so, they’re going after oil that a decade ago was beyond their reach. It lies thousands of feet underneath the oceans of the world.

This is new territory for the oil companies. It’s much too early for the oil companies to have a firm idea of what their costs will be. And while they’re pretty sure they have the technology to get to this oil, they’re still not sure how these technologies will work together.

Here’s a snippet of an earnings call by an offshore drilling contractor I caught last week on this very subject.

Analyst
“… the issue associated with the debate out there of drill ships versus semis, is the 8500 series equipment capable of something like offshore Brazil, would there be modifications required? Is there deck load issues? Just expand on the pros and cons and how much more opportunity when people debate this drill ship versus semi?”

Jeff Saile - SVP Operations
“Why don’t you ask a hard question, Pierre. Certainly we can work offshore Brazil. I don’t know if — I think there’s, a lot of that’s to be understood in the future. I certainly think the 8500 can get in there and compete. I don’t think it’s going to compete with a drill ship. It’s going to come in behind these ships when they do some of this. Some of these ships are going to do advanced exploration … the 8500 is certainly equipped to drill. It can drill in 10,000 feet of water. We’re going to have to do minor modifications to it. We’re reviewing that now. It can certainly drill in deeper water. And we can get out there with the equipment on them and drill these ultra deep wells, as well.”

The semi’s they refer to are semisubmersible rigs. They’re floating offshore drilling units with pontoons and columns. They can be anchored to the sea bottom with mooring chains or dynamically positioned by computer-controlled propellers or “thrusters.”

It’s not just the desperate oil majors who are willing to wade into these tricky deep waters. State-controlled oil companies see these basins as their next big money maker.

Deep-sea drilling is the next frontier. And these semis will help make it happen.

They have plenty of drilling to do … in the 30 billion barrel (from early estimates) Tupi basin off of Brazil … to Chevron’s estimated 15 billion barrel discovery in the Gulf of Mexico … to China’s recently discovered offshore field containing perhaps 2.2 billion barrels .. plus others.

These are major reservoirs. If the preliminarily estimated numbers hold up, Brazil’s Tupi would be the third largest underwater oil find ever.

But there’s a fly in the ointment in all of this … costs.

As I said, it’s too early to get a firm handle on costs. But I’ll tell you this much right now. It won’t be cheap.

And it’s getting more expensive all the time.

Petrobras (from Brazil) is hogging the word’s deepwater rigs and singlehandedly causing a shortage of these sought-after rigs. There are only 21 of them in the world. Petrobras is negotiating to lease 17 on top of what it already has to help explore its Tupi basin and nearby fields.

As a result, these rigs are going way up in price. BP leased one for $480,000 per day at the beginning of the year. Now, they’re going for as much as $600,000.

Shallow offshore drilling is also becoming much more expensive. For example, the company in the excerpt above said its jackup rates (jackup rigs operate in waters of 400 feet or less) in Asia went up 5 percent in the first quarter this year (compared to the fourth quarter of 2007).