So, let’s look at techniques you can utilize to speculate in the resource exploration sector to  make unfathomable profits.

The vast majority of exploration companies are hazardous to your financial health. The key is to select only the finest companies. And in this sector, that means starting with the most talented and experienced management that are working on highly promising projects.

Your company must also be able to weather most any storm that comes its way. If I’m certain that a resource stock has the required long-term staying power I will put it in the “buy and accumulate” category.  That means I take an initial position, and then happily purchase more shares on any subsequent price weakness that has nothing to do with the company’s overall fundamentals. This is how you make volatility your friend.

You see, resource companies frequently sell off en masse. Healthy babies are routinely thrown out with the bath water. Let’s look at a stock called Impact Silver (AMEX:IPT) that is in the portfolio of my Resource Windfall Speculator service:

In this portfolio, we select stocks that relate to specific commodities that are in long term bull markets. Silver certainly qualifies on that count and we hold six total silver stocks in the portfolio right now.

To tell you the truth, Impact did not appear overpriced at the $1.50 Canadian range in early 2008. However, the global financial crash altered that perception — even though silver performed just fine last year. In fact, silver was up in 2008 and has been up nearly every year this decade. Impact silver has a 52 week high of $0.88 Canadian and a 52 week low of $0.175. How’s that for volatility?

Impact Silver has remained a buy for all of this time, because the company’s fundamentals were just fine. Their silver production and successful exploration remained on track. While the price fluctuated enormously, the value remained intact.

Again, we identify long-term value and take advantage of short-term price weaknesses when it is illogical. Anyone who had the courage to buy Impact Silver near $0.175 Canadian is pretty happy right now with its $.77 share price. That’s a 340% gain. They’ll be even happier when the company far surpasses its previous highs.

Yes, those who bought IPT near $1.50 still have some catching up to do. But that’s okay. If you want to speculate, you must be able to absorb some losses without sacrificing excessive sleep.

Another stock I personally own, Salazar Resources, has a 52 week low of $.12 Canadian and is now trading near $.80. Stock appreciations over the last eight months of 100 – 200% gains are commonplace.

The primary point is that bottom feeders can make astounding profits. We’re staring at another extreme opportunity in the coming weeks for rescuing babies from bath water.

•    Resource stocks are typically weak in late summer because the most influential players are on vacation.
•    Gold and silver get official spankings via government management with predictable regularity.
•    Resource stocks tend to sell off with the overall stock market, which now looks exceedingly vulnerable.

I’m convinced that $1,200 gold and $20 plus silver will soon be the floors under these precious metals. There will be few screaming bargains when these factors are in place. In the mean time we are probably heading for another bout of overall sector weakness that has next to nothing to do with individual company fundamentals. A banquet for bottom feeders is always a special occasion and we will be loading up in my advisory.

Are you hungry?

Invest Resourcefully,

Rusty

Source: A Banquet for Bottom Feeders

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

This from Money Morning:

With BHP Billiton Ltd. (NYSE:BHP), it’s a case of the strong getting stronger and possibly even running away from the pack.

Back in 2001, BHP Ltd. and Billiton PLC merged to form BHP Billiton Ltd., the world’s
leading diversified resources group. And it never looked back.

Now, the lowest-cost natural-resources producer with the broadest portfolio of offerings, BHP superbly positioned itself to weather the current global downturn. Indeed, back in June the company reported its seventh-consecutive year of record profits. Financially, the company is well positioned to maintain its high level of investment in its business.

And because the Melbourne, Australia-based mining giant has so many of its operations in the Pacific region, it is perfectly positioned to continue serving two of the world’s fastest-growing markets: China and India.

The bottom line: BHP is exceptionally well diversified – not only in terms of the commodities it mines and sells, but also in terms of the markets it serves. This has allowed it to minimize the regulatory, climatic and geological risks it faces.

And that diversification is paying off. As millions of people emerge from poverty in Asia and other markets from around the world – led by the creation of a massive middle class in China and fueled by global synchronic growth – the demand for commodities will soar in the years to come. And so will commodity prices.

China alone has expanded the worldwide demand for steel by an amount that equaled the combined production of Canada and Mexico. Over the past year – from copper to coking coal to crude oil – we saw similarly impressive growth statistics around the world, an uptick that is putting pressure on the capacity of the commodity producers around the world. During that time, BHP’s profits grew spectacularly, but it’s also important to note that the company grew in a very balanced and conservative manner.

At a time that many international banks came close to collapsing and needing recapitalizations, BHP posted a net operating cash flow of  “only” $18 billion. This strong cash flow, combined with a very low net debt leverage of only 22% at the end of June, has allowed the company to maintain its share buyback program and increased value for investors. It’s also allowed for a generous increase in BHP’s dividend, which at Monday’s closing price of $40.40, yields an appetizing 4.06% and that could easily get to the 5%-6% area soon.

BHP’s decision to end its takeover of Aussie mining rival Rio Tinto PLC (NYSE:RTP) was also a good one.  Rio Tinto’s acquisition of Alcan Inc. put Rio in a leveraged position, which increased that company’s credit and business risks. Besides, in a time of low liquidity and scarce financing for deals, the divestments of assets that a merged BHP-RTP would have to complete to receive the needed financing would have so devalued the deal that it almost wouldn’t have been worth doing.

What About the Global Recession?

The recession has greatly impacted commodity prices. Oil has dropped from its record level of more than $147 a barrel in July, to less than $40 a barrel. Analysts are forecasting a near 60% drop in the price of coking coal for next year, as well as price declines of 20% to 30% for aluminum, copper and nickel.

But even with these price declines, BHP’s margins could actually expand in many of its key lines, as marginal players shut off production and BHP’s volumes expand. Cost-cutting, new lower-cost production, and synergies may also offset the adverse effects of falling prices.

Additionally, prices for iron ore and coking coal could actually start to rebound as more governments turn their attention to massive infrastructure projects and the need to diversify energy sources.

For example, BHP is still moving ahead with an expansion in its uranium production, as the company has “so far been able to substantially maintain sales volumes.”

At the same time, the uncertainties with respect to prices are huge.  Currently, from iron ore, to copper and aluminum, price negotiations for next year’s contracts have gone nowhere.  Buyers insist on bringing contract prices closer to the now-lower spot prices, but producers are trying to minimize the damage by waiting for prices to bounce back.

Until that happens, the old contracted prices – which are much higher than the current spot prices – are still in effect for much of BHP’s volume. Of course they will come down, but the real question is by how much.

Why Commodities Could Come Back Faster than Wall St. Thinks

Wall Street estimates have are extremely bearish at the moment. That is reflected in BHP’s stock price, which has been slashed by nearly three quarters in the past nine months.
However, I do not believe any of the current price projections are factoring in the two “mothers of all infrastructure-stimulus plans,” being launched simultaneously by China and the United States. The operative word here is stimulus.  And the focus of these plans is infrastructure, which uses huge amounts of steel, copper and other raw materials.

Also, all of these commodities are priced in U.S. dollars.  And the U.S. Federal Reserve just happened to drop the benchmark Federal Funds rate down to nearly 0.00%, while also shifting its monetary printing presses into overdrive. This is likely to lead to an orderly decline of the dollar, and consequently, a rise in commodities prices.

Other countries are in the same boat – from China, India and Australia, to the European Union, and even to Brazil and Chile. In every case, the central banks are dropping interest rates and bank-reserve requirements, and launching stimulus plans along similar lines, even as their central governments are cutting taxes.

Inflation will be a key result. And a declining dollar and zero interest rates are the winds behind the sails of commodity prices.

My expectation is that demand for steel will surprise analysts to the upside as these stimulus plans start kicking in.  In fact, we have already seen some minor firming of steel prices in China, as well as a solidifying of bulk shipping rates.  Further helped by a weaker dollar and zero interest rates, commodity prices will rebound from this year’s weakness.  This will enable analysts to actually abandon their “end-of-the-world” scenarios for commodity prices as the prospects for higher-negotiated prices increase.

We already are seeing increased actions by the Chinese government, which has continued to drop interest rates and bank reserve requirements, and has increased support to consumer lending, as well as the housing sector.  In China, more than any other large economy, government action is crucial, and the direction is in favor of higher economic activity.

At this very low valuation and with a very loose global monetary policies almost certain to give it a tailwind, BHP’s stock has already found some buyers at lower levels and has been able to cross its exponential 200-day moving average to the upside for the first time in this bear market.

It’s a proven fact that recessions are the best times to pick up cyclical stocks for the long term.

No question about this: the recession will end someday.  Many, including the International Monetary Fund (IMF) and myself, expect a pick-up in activity in the second half of 2009.  And stocks typically run some six months ahead of the economy.

Even as we are getting horrible economic news in the fourth quarter, as the full effect of the global paralysis is revealed in economic metrics, we should note that stocks vary according to the second derivative of profits:  In other words, they respond to changes in the rate of profit growth (or contraction).

Right now, market projections in general and in BHP in particular, factor in the full effect of a horrible fourth quarter. But if the first and subsequent quarters, although still bad, are “less bad” than this current quarter, the stock could actually rally from here, while still in the midst of bad news. And this process, while not linear, and mired with confusing volatility, should deliver strong profits.

ACTION TO TAKE: Buy BHP Billiton Ltd. (NYSE:BHP). This is roughly the right time for an investor to pick up BHP shares for the long run, especially ahead of the so-called “January Effect,” if there is one this year. However, the uncertainties remain daunting in terms of commodities pricing, government policies and the global economy.  So it is a good idea to stagger the purchases over the next three months by buying half of your position before yearend and the other half on weak days in the first quarter.  I would wait on most of the others, other than Vale (NYSE:RIO), given their weaker financial position, lower margins and more exposure to price drops in commodities.

Source: Buy, Sell or Hold: Mine Profits From BHP Billiton

This from Money Morning:

Between September 2007 and June 2008, oil prices doubled, gold rose 30% and commodities, in general, advanced by a similar percentage.

So why, six months later, when prices have fallen back below last year’s levels, does everybody think they won’t rise again? The difficulties of extraction haven’t gone away, nor have the prospects of increasing consumption in the faster-growing emerging markets such as China. Yes, the prices of commodities are severely affected by marginal moves in supply and demand, but this is ridiculous!

Rest assured, commodities prices will rebound in the New Year. The reasons will soon become quite clear.

The decline in commodities prices since the summer is broad-based. The Reuters Continuous Commodities Index traded recently at 341, down 25% from a year earlier and off about 45% from its June high. At $48 a barrel, oil is trading at less than one-third of its June high. And gold, which appreciated less than other commodities in the spring, is still down 18% from the $1,000-per-ounce level it reached earlier this year.

Conventional wisdom blames the decline in commodity prices squarely on the global recession. Since the rise in demand from emerging markets – particularly the huge consumption bases of China and India – had caused the previous run-up, it seems natural that the absence of that demand growth would cause prices to decline. After all, that happened in 1982, when a deep recession in the United States spread to a number of other countries. Oil prices plunged from $40 a barrel to a mere $10, breaking the back of the Organization of the Petroleum Exporting Countries (OPEC) in the process.

This time around, however, the math doesn’t seem to work. For one thing, the world as a whole is by no means locked into recession. We in the rich countries think of our economies as spiraling into a deep decline, but the reality is that we may only be witnessing a secular shift caused by the narrowing of income differentials between rich and poor countries as globalization proceeds.

In countries such as China, India and Brazil – three of the four so-called “BRIC” economies – growth has slowed and many are suffering imbalances in their financial structures, but there is little sign of actual decline in any of them. Indeed, if China’s recently announced $590 billion infrastructure investment serves to redirect growth toward domestic consumers, it is possible that the demand for oil and other commodities there may show very little dip at all; it takes a great deal of iron ore and other commodities to produce $100 billion worth of railroads, for example, one of China’s stated objectives.

On the supply side, OPEC was full of spare capacity in the 1980s. South Africa and the Soviet Union were still expanding gold production, and the explorations of the 1970s had produced surpluses of many other commodities. But in the past two and a half decades, things have changed.

Oil, for example, remains in short supply. Both deep offshore fields – like those discovered by Petroleo Brasileiro SA, or Petrobras (ADR: PBR), in the Tupi Complex – and the tar sands (like the ones in Canada and Venezuela), are economically unfeasible with oil trading at such a low price. And, if prices remain low, the expansion and exploration of new sources of production will be curtailed even further.

More importantly, though, supply and demand is only one of the reasons commodity prices rise and fall. What really spurred the big price rise in commodities that took place earlier this year was the explosion in the money supply throughout the world.

Money supply, unlike demand, is something that hasn’t evaporated with the economic downturn. In fact, it has actually ramped up. Even though money markets have become illiquid, central banks throughout the world are forcing down interest rates and pumping out liquidity by every means they can think of [Indeed, the policymaking arm of the U.S. Federal Reserve meets today (Tuesday), and is expected to cut rates yet again. For a related story, click here].

Meanwhile, governments everywhere (except Germany) are implementing massive “stimulus packages” that will destabilize budgets and insert huge additional demand into the global economy. Since the governments will have to borrow the money to finance those stimulus packages – and the budget deficits that are inevitable in an economic downturn – central banks will be compelled to pump out even more money to accommodate all the increased debt; otherwise, interest rates would go through the roof and finance for the private sector would become unobtainable, hardly the object of this whole costly exercise.

The future is thus one of rapidly increasing inflation, combined with a healthy recovery in global demand, at least in the emerging markets, as Europe and the United States may suffer deep recessions this time around.

To take advantage of this likely trend, I would recommend a broad portfolio of shares whose prices are closely linked to the prices of major commodities. Among those you might consider:

• Vale (ADR:RIO): As a gigantic Brazilian iron ore producer, Vale will benefit enormously from China’s new infrastructure program (Think of all those steel rails!). The stock is currently trading at just over $12 a share with a Price/Earnings ratio (P/E) of about 7.0 and a yield of slightly more than 1.0%.

• Rio Tinto PLC (ADR:RTP): Another huge mining conglomerate, the long-and-bloody attempted takeover of Rio Tinto by BHP-Billiton Ltd. (ADR: BHP) recently fell apart. At $93, Rio Tinto shares have a yield of 5.8% and a prospective P/E of about 3.0. The company is overleveraged, so somewhat dangerous, but you’d be getting paid for the risk.

• Suncor Energy Inc. (NYSE:SU): The largest pure player in the Canada’s Athabasca tar sands, Suncor’s marginal cost of production from operating facilities is about $30 per barrel and the cost of opening new facilities is about $60 per barrel. It’s currently trading with a P/E of 8.0 but has a yield of less than 1.0%, as it needs all its cash.

• SPDR Gold Trust (NYSE:GLD)exchange-traded fund (ETF): The largest ETF that invests in gold, GLD has more than 750 tons of the “yellow metal” held in trust.

Yanzhou Coal Mining Co. (ADR:YZC): China’s largest coal miner, Yanzhou has a P/E of 4.0, yields 3.5% and enjoys low costs – not to mention a super-close proximity to the gigantic market that is China.

Source: Five Ways to Profit from the New Year Rebound in Commodity Prices

This from Fleet Street Invest:

Just a few months ago it seemed like the whole investment world was jumping onto the commodities bandwagon. Now it seems that they can’t jump off fast enough.

The benchmark Reuters/Jefferies Commodity Index has now fallen by 51% from its peak in July (see chart below).

But as I’ll explain in a moment, commodity prices are set for a rebound. And if you are willing to take a longer term view, this is a once-in-a-lifetime opportunity.

Commodity prices reflect future expectations about the global economy. Less business activity and infrastructure spending means less demand for commodities. And right now the markets are pricing in a sharp slowdown next year.

A big part of the commodities sell-off has been driven by fear. In addition, speculators and hedge funds have been forced to sell to raise cash as markets tumble.

However, the underlying supply and demand for some key commodities are little changed from when prices were at all-time highs just a few months ago.

And that means commodity prices could rebound a lot faster than markets are predicting. Let’s look at the supply and demand situation for oil.

Oil will lead the rebound

In July oil hit a record price of $147 per barrel. It has since fallen by 67%. But the International Energy Agency (IEA) forecasts that demand will grow by 0.5% next year, despite the global economic slowdown. That’s because developing economies like India and China are still growing.

In addition, the markets are currently pricing in a substantial drop in demand for oil from developed countries. But the IEA predicts that demand won’t fall that much. Again, this should support the oil price.

At the same time, the OPEC oil exporters’ cartel is getting ready to slash production to boost the price. They will meet in Oran, Algeria on December 17th. Just yesterday the cartel’s president, Chakib Khelil, warned that “the Oran meeting will decide a severe production cut to stabilise the oil market.”

And it’s not just OPEC cutting oil production. Russia’s president says his country may join OPEC in reducing output to boost prices. That is big news. Because Russia is the world’s biggest energy exporter, and this is the first time it is openly talking about coordinating oil cuts with OPEC.

With demand holding up and major oil cuts looming, the recent drop in the oil price just can’t be justified. And now the market is catching on to it.

The price of oil surged by 10% yesterday to $47.98. Our forecast is that it could easily double by the end of next year.

Buying into oil is the first way to position yourself to profit from the rebound in commodities prices.

But there is more to the coming commodities rebound then just oil…

Agricultural commodities are set to follow

A rising oil price will have a knock-on effect on many other commodities. And I expect that some of the biggest moves will be in agricultural commodities over the next twelve months.

Agricultural commodities were the last to join in the commodities rally this decade. There is a good reason for that. The surge in agricultural prices wasn’t driven by the Indians and Chinese suddenly eating a whole lot more. Prices went up because crops like maize and sugar were diverted into use as biofuels (rather than as food) – as the high oil price made biofuels more a more cost-effective substitute.

The relationship between oil and biofuels is crucial. It becomes efficient to produce ethanol from maize when oil is at $50 per barrel. For sugar it makes sense when oil is just $39. The higher above those prices oil is, the more sense it makes to produce ethanol. Now as the oil price rebounds, demand for cheaper biofuel will soar.

Increased production of these biofuel crops will also mean diversion of land and other resources away from the other food crops. That’s why it’s highly likely we’ll see a broad rebound in agricultural prices next year.

Not all commodities are going to be winners

Be aware that the commodities outlook is not universally bullish. Metals, for example, could be in for a lot more pain. But oil and agriculture definitely look set for a rebound in 2009.

U.S. stocks tumbled on Monday as signs of further deterioration in the economy around the world punctured last week’s market enthusiasm, with financial services companies and retailers among Wall Street’s biggest drags.

Major industrial companies also contributed to losses on signs global demand is faltering, leading investors to pare back risk in favor of safe-haven government debt.

With the holiday shopping season under way, investors feared that retailers may turn in their bleakest sales in many years. The S&P retail index declined 4.4 percent.

Department store Macy’s Inc tumbled 9.6 percent.

Consumers made repeat trips to stores and spent more on bargains this weekend, but analysts said the rush is unlikely to translate into a much-needed boost in profit.

“Things are looking quite bleak. Everyone acknowledges that,” said Brian Gendreau, investment strategist at ING Investment Management in New York. “The question is to what extent is that already priced into the markets. Apparently, not entirely.”

The Dow Jones industrial average slid 383.26 points, or 4.34 percent, to 8,445.78. The Standard & Poor’s 500 Index shed 45.94 points, or 5.13 percent, to 850.30. The Nasdaq Composite Index plunged 82.09 points, or 5.35 percent, to 1,453.48.

In the United States, factory activity fell in November to its weakest since 1982, according to the Institute for Supply Management. The data jolted investors who earlier got news of weaker Chinese and European manufacturing activity.

Top drags included financials, with Citigroup down nearly 9 percent, after an influential analyst forecast more losses for the major U.S. bank. A slide in commodity prices pinned resource stocks in the red, with aluminum producer Alcoa tumbling almost 9 percent.

Among big manufacturers, Caterpillar Inc plunged 8.6 percent, as General Electric slid more than 7 percent.

The market’s slide extended a global equity rout that hurt stocks in Asia and sent European indexes sliding 4 percent or more.

A lower close on Monday would snap a 5-day streak of gains for the S&P 500 stock index. Yields on benchmark 10-year Treasury notes sagged to five-decade lows and prices rose as investors sought the safety of government debt.

Citigroup shares fell to $7.49 on the New York Stock Exchange, while Bank of America slid 8.7 percent to $14.82. The S&P financial index plunged 7.1 percent.

Shares of Caterpillar, a maker of bulldozers and excavators, dropped to $37.33.

Among retailers, shares of department store operator Macy’s Inc tumbled 9.6 percent to $6.71, as those of Wal-Mart Stores , the world’s biggest retailer, shed 3.3 percent to $54.04.

One analyst expected the U.S. credit-card industry to cut $2 trillion in credit lines over 18 months, which would be a severe blow to spending for cash-strapped consumers.

Shares of Alcoa fell to $9.78. Shares of energy companies were another drag as oil prices fell on concerns that the economic slump will hurt energy demand. U.S. front-month crude fell about 8 percent to $49 a barrel.

On Nasdaq, chipmaker Qualcomm Inc was the top drag, falling 6.3 percent to $31.44.

Ellis Mnyandu
NEW YORK, Dec 1 (Reuters)

But still, the merger of two small AIM–listed resource stocks Victoria Oil & Gas (VOG) and Bramlin (BML)may be more than just a case of two drunks leaning on each other for support. Sharing the same chairman, Kevin Foo, they should at least be pretty familiar with one another and the link goes rather deeper than this.

‘Blue sky’ potential

The major shareholder of Victoria Oil & Gas is the Abu Dhabi-based, Noor Petroleum. Not only does Noor know of Bramlin, it is also introducing into the enlarged group the assets of Falcon Petroleum (PFC). Victoria has signed a twelve month option to acquire the latter, which consist of exploration licenses over 45,000 sq kms of land in Mali and Ethiopia.

This adds some ‘blue sky’ potential to the group. But the more immediate areas of interest are Victoria’s operations in the former Soviet Union and those of Bramlin in Cameroon. The share price of Victoria today is just 6p. But back in 2006 they hit 260p after independent consultant, DeGolyer & MacNaughton, estimated that its West Med project in Siberia contains 1.1bn barrels of prospective recoverable oil equivalent, mostly in the form of gas.

The shares became a great favourite of private investors, but this reserve estimate was subsequently reduced by 9% putting the shares into a tailspin from which they have never recovered.

West Med is located in the Nadym-Pur-Taz region of Western Siberia. Along with the Yamalk region of Russia, this is the heartland of Gazprom and holds approximately 20% of the world’s proven gas reserves. West Med lies next to the super-giant Medvezhye field and about 120km from Urengoy, the largest gas and gas condensate field in the world.

This clearly has massive potential but production is some way off. Victoria has appointed GeoDynamics to conduct a passive seismic survey this winter focused on a new target location, and then drilling of the next exploration well is not expected until 2010 with a further two wells scheduled for 2012.

Jackpot potential put off course – but new deal could produce cash flow

So although Victoria may eventually hit the jackpot here, for the time being it is costing it money and its plans have been blown badly off course by the suspension of production at its Kemerkol field in Kazakhstan. This 65 sq km license area to the east of the Caspian Sea was put into production in March 2006, and in the first half of this year it produced thirty thousand barrels.

However, in a stark illustration of the perils of doing business in the region, Victoria then faced a challenge to its title to Kemerko, a challenge that was upheld by a regional court. Victoria has taken the matter to Kazakhstan’s Supreme Court and hopes for a ruling very soon. In the meantime, it has countered with its own action for breach of warranties against one Olga Elfteriadi. It is claiming $14.75m – the original cost of the license – as well, possibly, as the $23m that it has spent developing the field.

Victoria is confident of winning the day, but the court action has meant that it has had to suspend production at Kemerkol. So one attraction of the deal with Bramlin is that it with it a property that should soon be producing some cash flow. This is Bramlin’s Logbaba project, which is located within the eastern suburbs of Douala, the economic capital of Cameroon.

Not yet on City radars

Four wells were drilled here by Elf back in the 1950s, all encountering gas. An evaluation of only a small section of the area by RPS Energy in July found reserves with a net present value of $169m. Given that industrial users sit almost on top of the field and otherwise have to pay about $23/mcf for imported gas from Equatorial Guinea, they should certainly be prepared to pay the $15 proposed by Bramlin while the task of supplying them should be neither too difficult nor expensive. Bramlin has already signed some letters of intent with customers and plans to start drilling early next year with first deliveries scheduled for late 2009.

With Victoria issuing 163 million new shares to acquire Bramlin, the new group will still be valued at only £26m, just over half the £50m value at which City investors are perceived to take an interest in small companies.

However, Victoria has raised the possibility of acquiring further distressed oil and gas companies, while its share price could of course rise depending on progress in Cameron and the Former Soviet Union. But with many of Victoria’s shareholders suffering from burnt fingers they are unlikely to take too much on trust.

This one has not yet got the credentials that make it a good “bounceback belter” candidate for 2009 – not like the three I’ve just uncovered here.

This from Penny Sleuth:

Question: Where is the price of petroleum going?
Eric Sprott: Long term, up… I can see it hitting $200 or $300 or $400 a barrel.
— Barron’s, Aug. 18, 2008

Eric Sprott runs the Sprott Offshore Fund, a fund that’s delivered sizzling returns of 32% per year since 2002. Certainly, timing is important, as 2002 was the last great bottom. Even so, it’s not so easy. Lots of people have done a lot worse than average 32% since 2002. Sprott, a 63-year-old billionaire, has been on the money when it comes to calling the resource markets. That’s his meal ticket, and his fund is loaded with resource names.

Of course, with oil down more than 40% off its July high and the whole resource market in the tank, it seems outrageous to think that oil could hit $400 per barrel, as Sprott says in his Barron’s interview. I choked on my bagel as I was reading it one Saturday morning.

The point, though, is not really what anyone thinks the price of oil may or may not hit. The point is that the fundamentals of the resource markets still look good on a long-term basis. Sprott points to the continuing depletion of big oil fields and the difficulty increasing production. “We spend more and more every year and get no more net production,” he says. He continues:

“And the list of countries whose oil production has peaked keeps growing, including Russia, which for eight consecutive months has had year-over-year declines. Companies have the same problem. The latest results from Exxon showed that its production was down about 3%.”

Oil is still immensely profitable to produce. If producers could economically up production, they would. In fact, many resource companies are making good money. They’ve got good balance sheets. They own things that are hard to find and reproduce. I think we’ve got to stick with the names even though the price action in the last few months has been horrible.

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It’s happened before… It could happen again… But hurry, you only have a few hours left to cash in before it’s too late…

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It’s a tough market right now. There is no way around that. Even those of us who stayed away from the imploding financial firms and avoided housing bubble stocks still got hurt. Even as we stuck with companies loaded with tangible assets at cheap prices, we’ve watched many of them just get even cheaper.

But we can’t give up the quest. Mostly, because getting through the valley will mean making a lot of money on the next ascent. I keep thinking how we’ll look back on this time one day and marvel at the prices some stocks traded at. We’ll wonder why we didn’t pick up some of Stock X when it was trading for one-fifth of the price.

That’s the sheer greed part of it all. But the quest is built on firmer ground. We hold to the theory that value wins out. Wide gaps between stock market prices and business values eventually close. We take it as a given that we won’t be able to time the tops and bottoms. So we play a probability game. We bet on probable winners in the full knowledge that some won’t work out. But we choose to stick with them as long as our essential theses remain intact…

Source: $400 Oil! Get Ready for the Coming Rally in Resource Stocks…

Sherritt International posted third quarter earnings of $133.1 million, or $0.45 per share, up from the $65.4-million or $0.28 per share tallied in the same period a year earlier. Falling commodity prices have the company looking at reducing its capital spending. Sherritt ended the day up C$0.53 at C$4.60.

The fifth set of diamond results from underground bulk sampling of the Orion South kimberlite, within the Fort a La Corne joint venture in Saskatchewan resulted in the recoveries of 330.54 carats from 2,809.11 dry tonnes of kimberlite. The largest stone tallied 15.86 carats. Shore Gold, with a 60% interest in the project closed flat at C$0.57.

Trading below cash in the till, Western Uranium got a boost after announcing a 1.5 metre drill intercept running 12 grams gold per tonne at its Kings Valley uranium project in Nevada. Western ended the session at C$0.80 for a C$0.20 gain.

Stornoway Diamond came out with a positive economic study on its 50% owned Foxtrot property in north-central Quebec. The Renard pipe hosts 11.6 million indicated tonnes grading 60 carats per hundred tonnes plus another 7.2 million inferred tonnes grading 63 carats per hundred tonnes. Stornoway ended the day up C$0.04 at C$0.14.

Nevsun Resources added C$0.19 to close at C$0.65 as a falling United States dollar had investors thinking that Nevsun’s Bisha gold rich massive sulphide in Eritrea was undervalued.

The junior market may have formed a bottom at around the 800 point mark with the United States Federal Reserve cutting interest rates by 0.5%, which helped boost commodity prices. We will see what Thursday trading has in store.

Source: Resource Stock Roundup Thursday, October 30th, 2008

“I woke up this morning and everything was green – not the trees but the gains on my emerging market portfolio.”

Up, up, up, with the exception of the iShares MSCI Turkey Invest Mkt Index (NYSE:TUR), which was down 5.67%.

Some of the highlights include the HANG SENG INDEX (^HSI) up 12.82%. The RTSI INDEX (RTS.RS) jumped 18.2% after Putin approved nearly $10 billion in bailout loans – most of them going to his billionaire pals who made extremely bad bets on the markets.

The JAKARTA COMPOSITE INDEX (^JKSE) increased 5.41%. The TSEC weighted index (^TWII) was up 6.21%. And the IBOVESPA SAO PAULO (^BVSP) market gained 5.94% after taking a tremendous beating.

Does this mean it’s time to get back into emerging markets?

Probably not.

But it does indicate some rationalization between the skyrocketing prices during the so-called commodities supercycle and the new everyday reality of emerging nations facing a raw reality head-on.

Maybe you can call it sort of a fiscal post-pubescent coming of age, where enormous subsidies and reserves from natural resources will give away to the promise of responsible stewardship by business and government.

Of course, no one really enjoys being responsible for very long, and the whole stupendous spectacle will cycle up all over again.

That said, we should really be looking to China as the bellwether for a sustained emerging market rally. The country is now dealing with the backlash to a global credit crunch, post-Olympic slump and credit and currency problems.

Inevitably, China will pull itself up by the bootstraps and continue the march toward its own economic Manifest Destiny.

Naturally, an upswing in oil, natural gas and metals will also help determine an emerging-market recovery.

In the meantime, though, we have to follow the credit, because that’s what these countries need to normalize their economic progress.

The International Monetary Fund (IMF) will make available as much as $100 billion to countries battered by the financial crisis.

During the past few years, emerging markets have avoided the IMF because of restrictions that are imposed with the loans. These often include budget cuts and interest-rate increases. When these countries get in bed with the IMF, fiscal responsibility is the first order of business.

Countries such as Brazil, Mexico and countries of the former Soviet Union would be likely candidates for IMF infusions.

In the end, don’t get your hopes up high for any emerging market bubbles in the near term. On the other hand, if you’re looking for a return to long-term fiscal responsibility (and the inevitable bubble) keep on your eye on these up-and-comers.