It's Like a Day at the Beach

The listing of BQI (the new ticker symbol for Canwest Petroleum) on the AMEX proved another spark for the stock and helped propel us to new highs. We now feel much more comfortable as we have all of our trades in Canwest in the black now, as we hope that you do as well. We believed that the stock would level out at the $5 level, but we are roughly between $5-$6. Technically, we feel as though we must wait for another "screaming" buy signal before we get on our soap boxes and proclaim the stock undervalued...But long-term the company should put in a stellar performance. With that said, pay careful attention to the winter drilling program as that will be key to help the stock get to that $10 price target as that is the only news we believe will provide a big enough bang to get us there...well anything short of a JV agreement that is.

Canalaska has been a real poor performer lately and to tell you the truth we are not sure that it is going to get any better soon. In fact, it is our opinion that it is going to get worse before it gets better! This does not mean that we want to sell our shares, or for that matter buy anymore...but we want to hold at this point until we see something really special begin to develop. News is that the company has completed about 3 holes at the West McArthur site, which is next door to Cameco's McArthur River Mine, over the past summer and the stock has taken a plunge lower over that time. Usually when someone hits something or drill cores are seen by the workers, word gets around as to what color(s) may or may not have been seen. Also as many of the other uranium miners bottomed out (we are using a major drop in volume as our final indicator for a bottom here, because that is part of our criteria) Canalaska still has not truly hit rock bottom. When volume begins to dry up (although it might never) that is when it will be time to look for another entry point...BUT NOT BEFORE THAT TIME! Also, we are keeping a watchful eye on the Northeast Project, as we have seen that it has been dramatically pushed up the schedule for exploration and drilling...this could potentially be the next significant drill program carried out by the company.

For our financially capable and investor savy investors, we saw the possibility of a trade open today. URE and SXR both stated today that they had raised significant amounts of cash to carry out exploration...in the field and as they used to say "on the floor of the NYSE" (of course this was in reference to drilling for oil and Cameco is the only pure play uranium company on the NYSE, but you get the idea) as well as building their future mines and mine complexes. With this in mind we believe that SXR could potentially be on the prowl, and although their stock is down right now, doing a cash and stock deal at these low prices might actually make sense for them and the shareholders. Same for URE as their stock is nearer its highs than the rest of the sector, we will credit this to a very focused company that seems to have every cylinder running right now. With companies raising money and a lack of projects to truly put it in...SXR has already lined up financing for its mine due in the 2Q of 2007, we believe that this could be the beginning of the next wave of consolidation and the last month could have been the calm before the storm. Sticking to our guns, we see the possibility of using the run-up in Canwest to our advantage right now and developing a trade using that equity. Margin could be used from Canwest shares to purchase shares of both URE and SXR. However, margin is a very dangerous tool to use, so a safe way would be to use only half the available. For instance, if you had say 100,000 in margin, that would be 50,000 in unmarginable securities...so we would think the safe play is to use only 25,000 and that way you can sustain a correction in Canwest while at the same time hopefully riding your shares in the uranium higher. This is in no way investment advice or a recommendation, simply an idea that hit us which we felt compelled to share as it is a trading tool. Please be responsible and remember not to invest what you cannot afford to lose.

On a closing note, I believe that it was previously stated that the next rise in uranium shares would be in waves, with certain players leading the way then followed by the lesser names. If that was not said, that has been our thinking all along, and the first wave has already begun. Today however we say Pitchstone have a really strong day. It had decent volume which escalated as the day went on with a flurry of decent blocks (keep in mind we are referring to decent blocks relative to this particular stock) coming across the tape at the end of the day. As those blocks passed through, the stock also rose in price closing at its high for the day. We tried to buy during the day but the sellers would not sell to the buyers! Finally this stock appears to have wiped out the sellers and encouraged the buyers to come back in, thus creating a seller's market! This is what creates a bull market, but as we believe we are already in one we think that this will help propel the stock to higher levels in the nearer future than we first thought. One day is not enough to pass judgment, but keep a watch on it and should this continue an opportune area is below C$1.35.

Things are Beginning to Add Up

Today we were shocked when we looked up a quote on the Toronto Stock Exchange for SXR. We were forced to refresh the page and then begin investigating how at 10:30 the stock had already traded 4 million shares and not moved significantly in any direction. We have watched in awe over the past few weeks as it seems that all volume has dried up for nearly all uranium stocks and new that 400,000 shares per day was the 3-month average, however recently it has been at about 180,000-380,000 and generally on the lower end of that range. So naturally when we saw this, we were confused. This is significant because someone dumped a block of nealry 3.7 million shares (10x average volume) in one swift trade that was not only absorbed by the market, but successfully absorbed! This is a positive sign where we now know that the stock has had low volume and it is not a lack of buyers, but rather a lack of sellers! Apparently there are some out there who want these shares, and when available they will buy.

My hypothesis here is that all the current investors who are in these stocks understand the fundamentals and have the financial heft to have survived the past downturn. Remember, I have said all along that we could not have another significant upturn until we shook all the weak hands out of the market. We think this explains what now appears to be the suckers rally that took place nearly 2 months ago, the subsequent fall and now the lack of trading in these stocks. We do not believe that the stocks will go up dramatically just through these smart investors buying, but rather through the masses rushing back into the very same stocks that they rushed out of soo quickly and abandoned trading in for the past quarter.

We also have been going through some papers that have been sitting around for some time now, and decided to act upon these 'leads'. We had an interview with Neal Froneman, who happens to be the CEO of SXR, saying that his company was very interested in another aquisition that made sense in the United States. We found this interesting as it supports our thinking that Cameco and SXR and those future producers group would become major players in the uranium patch. However, we were intrigued to see that he seems almost more interested in adding good managements teams and, much more importantly, good geologists. UR Energy and Strathmore were mentioned as potential buyout targets, which make sense as it seems that SXR is interested in adding ISR capable teams to its line-up. SXR is a traditional mining company and seems to possess the knowledge in open pit mining, but it is my opinion that they realize that they will need highly capable ISR knowledgeable individuals to bring Honeymoon online. What better way to do that through an aquisition that also adds some great properties that will soon be producing in the near future? I cannot think of one and if you can please leave a note in the comment box, because that could be the next big 'thing' in the uranium industry. We are not sure about the possibilites surrounding this, but we will be looking into this further and shall revisit the topic at a later date.

A Week In Review...

So as we thought CWPC exploded to the upside on positive news...well lots of positive news. On Monday they received approval by the minority owners of Oilsands Quest to purchase the remaining shares and combine the companies. Then on Wednesday the company announced that they had purchased the overriding royalty on the Saskatchewan land, thus giving investors an idea of the value of their discovery. The company paid $20,000,000 for the rights to the 2.5% royalty (roughly $8,000,000 for each 1%). This puts a total value of $800,000,000 on the project, and keep in mind that these guys do not buy anything unless they are getting a deal. This only set the stage for Friday, because this is when the company indicated that they had received approval on their application from the AMEX for listing its shares (this will begin on August 24). This was the event that we had been anticipating for the entire summer and ended up being the catalyst for a much bigger event that day. As trading went on during the morning the stock approached the $4.60 level which had been a major resistance level for the stock. Then Briefing.com highlighted the company as a stock on the move and that set off the fireworks. the stock then shot through the resistance level within minutes and was off to the races the rest of the day. The stock tried 2x to move through the $5 barrier but could not. Our belief is now that the fresh blood has arrived in CWPC after this initial flurry of news and we will now see a pause (most likely with some consolidation) in the share price. We see that $4.60 as the current support, and believe that the new range forming will be $4.60 to $5.

Our gains from Pitchstone and SXR have all but disappeared and we recently put our money where our mouth was. We doubled our holdings in SXR already and will anxiously await to increase our holdings by up to another 50%, should current market conditions prevail. The reason we are purchasing SXR aggressively is due to the fact that it has hit a major support area that it has recently bounced off of nicely and over the past year was what kept the stock from going higher on numerous occassions. Our experience tells us that this indicates that the stock will move in one of two directions...up or down. However, we feel as though the general direction will be up because that is what the evidence is screaming at us. Uranium keeps setting new highs (as you can see if you use our user friendly links to the right) and will continue to for many years as new nuclear reactors are planned throughout the world and yet excluding the 3 mines due to open in the remainder of 2006 and early 2007 and possible 5 in 2008, there are no others due to open in the near future. SXR will be opening one of these mines in 2Q of 2007 and will simultaneously become one of the worlds largest uranium producers. So they will be selling a product that each day could possibly be worth more and more.

Our research is also telling us that Pitchstone is nearing (if it has not already arrived at) a buying point. We think that C$1.20 to C$1.40 is the area to accumulate shares and that C$2 is an area to begin taking considerations to unload some shares in (for short-term traders). However, we cannot recommend buying Pitchstone at a time when you can get a soon to be world class company such as SXR at the same discount. And keep in mind our prediction that SXR will buy Pitchstone at some point in the future.

We believe that the uranium industry as a whole is also almost through with its consolidation as we said before at this level. Before we recieved what appears to be a suckers rally, but now we should see the real deal because we have finally built that solid foundation to build upon. Our thinking follows the events we are seeing as well. CWPC built up its foundation and then took off on news, and this should happen with Uranium, especially now that M&A activity appears to be picking up once again. "All things Athabascan" was used by Mr. Gartman to describe the bull market in tar sands earlier this year, but we believe that investors will begin to shift to the "All things Saskathewanian" (that may not be a word, but we are using our writer's license to now coin it) school of thought. We have been proclaiming this publicly for the past 7 months, but have been following our thoughts much longer than that by investing in these stocks with our personal capital.

Right now our overall advice is to accumulate on dips and ride out all sideways motion. Patience is a virtue and all investors must possess it in order to achieve truly stellar returns.

OilSands Meeting Today

For followers of Canwest, today is a very big day. Today is the day that shareholders of Oilsands Quest should approve the merger between the two. It should be noted that Canwest has a majority stake in Oilsands Quest, however they also need a majority of the minority shareholders to go along with their plan in order to receive approval. Should this merger go through it will allow the combined company to consolidate the Firebag East project into one company and allow for the full value to be recognized. It also forms a more liquid investment for those longtime holders of Oilsands who, as it was described to us, are well-off investors who had substantial networths. This is why we believe that approval of this merger and the subsequent chain of events thereafter will allow for a short term gain of 15% to the upside. The approval itself we believe could be worth this alone, but we expect that when the company begins trading on the AMEX under the name of Oilsands Quest that its 3 underwriters for the last issuance of shares (in Canada it must be noted) should all give this stock a buy recommendation or at least initiate coverage on it. Should any one of the brokerages initiate converage it will at once put this stock in a prestigeous class...the ones with analysts following them. This will reassure some funds and individuals to invest in its securities as it is deemed "investable".

We also expect to hear news coming out after the listing as we have stated all along. We believe that management wants to make a splash once they have landed on a major exchange, and this is the reason behind the lack of news recently. Over the last few months they have been holding back some gunpowder to use once they felt it could be maximized to add shareholder value is the way we view it. Other events to look forward to include what will happen with their efforts to add more land, Pasquia Hills, and their other tar sands project known as Eagles Nest. We fully expect the 15% move upwards and stand by our price targets set forth at the beginning of this year.

Unrecognized Value

Today we have read all about BP closing its Prudhoe Bay operations in order to repair an oil pipeline, and watched as oil prices climbed $2 to finish just below $77 per barrel. Now we understand this to be a short term blip and that eventually that production will return to the supply of crude, but until then we should have elevated prices. It is thought that through the numbers supplied by OPEC and other supplying nations that crude supply has between 1-2 million barrels per day of extra capacity (than is demanded). This takes nearly 25% of that capacity off-line, which is probably an understatement because conventional thought is that many nations have overestimated their potential output. Take into account that we have a war in the Middle East right now (on terror at this point but with the potential to escalate into region warfare as it is getting ever harder to distinguish between some organizations and political states). So it is our assumption that oil will be pegged at around $80 per barrel for some time, and the reason we believe that oil companies are extremely undervalued.

Case-in-point: LUPE.ST has been trading within a trading range and seems to be stuck. In all honesty the company has not moved forward with their adding reserves through the drill bit as they had hoped, but they have been adding producing assets at a staggering rate. Also, they are a PRODUCER of oil and not an explorer putting 100% of their eggs into one basket. The company is diversified across many fronts (geographically and E&P-wise). This stock is undervalued in our opinion as it has seen its fortunes dwindle as oil has powered to new highs recently. We want to keep an eye on LUPE.ST as we see the potential for it to break out and make another run into the 100s should it be able to break through and hold the $K 90 mark.

Another company to look at is Talisman Energy which has been a staple of our personal portfolio for many years. TLM is undervalued due to its ties to Sudan years ago and the political and legal liabilities that are attached to that since sold asset. The company has been approached numerous times over the years with buyout offers, none of which were accepted because management felt that they were not high enough to entertain as well as their belief that they could add more value through their management of the assets than the purchasing company's management. So far this logic has proven true and set a precedent for potential buyers: Don't go to management unless you have a superior proposal to our current management's ability to run the company. Personally, as a shareholder, I would prefer that management keep control of the company and keep adding value as they have over the years. However, I am perfectly aware that should it happen, management will have an offer on the table that they think is more than adequate. As a shareholder it is nice to know that you are not employing sell-outs to run the company, but concious individuals that will only bring a proposal to you when they realize that the return offered in the buyout is far greater than they themselves can earn you. This is another diamond-in-the-rough company that should see some action to the upside, especially with prices as high as they currently are and their continued push into tar sands and alternative energies.

We hold by our belief in uranium, and in no way want to scare you from the future windfall profits from our investments made today, but diversification is very important. These two companies would sure look nice along with Cameco and SXR as the cornerstones of our energy portfolios. We would be acting as responsible investors to spread the risk out among our speculative plays, but even more responsible to accept gains we know are less than we could have made in order to have a fallback plan. Now do not missunderstand what we are saying, because although these two plays are safer, we still believe that they will yield a significantly higher rate of return than the market over the years, just not as high as our junior urnium plays. There is a price to pay for a safety net however, and in this case the price is not too high.