Gold stocks support TSX, energy a drag, oil levels surge; N.Y lower on jobs data

Gold stocks support TSX, energy a drag, oil levels surge; N.Y lower on jobs data
14:39 December 2, 2009, EDT.
(Canadian Press)


TORONTO - Technology and gold stocks helped keep the Toronto stock market on positive ground at mid-afternoon Wednesday amid disappointments surrounding jobs data and a slow start to the U.S. holiday shopping season.

The S&P/TSX composite index was up 44.5 points to 11,751.8 on top of Tuesday's 260-point surge which sent the market to its highest close this year.

The Canadian dollar was off 0.18 of a cent at 95.36 cents US.

Energy stocks were the major weight after data showed that U.S. crude stockpiles rose 2.1 million barrels last week, against a decline of 1.3 million barrels that had been forecast.

The energy sector was down almost one per cent and the January crude contract fell $1.67 to US$76.70 a barrel. EnCana Corp. (TSX:ECA) fell 1.36$ to $56.27.

The gold sector was the leading advancer, up 2.3 per cent. Bullion moved further into record territory partly because of inflation fears but "I think the whole gold thing really is in large measure totally related to the U.S. dollar," said Fred Ketchen, manager of equity trading at Scotia Capital.

The December contract on the Nymex gained $12.90 to US$1,212 an ounce. Barrick Gold Corp. (TSX:ABX) climbed $1.83 to $50.03 and Goldcorp Inc. (TSX:G) advanced $1.41 to $48.31.

Investors also took in dull news from the employment and retail fronts.

Ahead of Friday's release of November jobless figures, the U.S. ADP National Employment Report said that 169,000 private sector jobs were lost in November. While showing another month of declining job losses, investors had been looking for a drop of 148,000.

"It all falls apart if you don't get jobs to come around," said Bill Stone, chief investment strategist at PNC Wealth Management in New York.

The ADP jobs report is often used as a gauge for Friday's monthly unemployment report from the U.S. Labour Department. Economists estimate that Friday's government non-farm payrolls report will show that 114,000 jobs were lost in the U.S. during November.

Meanwhile, new U.S. holiday shopping figures offered more evidence that confirms a modest start to the holiday shopping season. ShopperTrak says retail sales for the three-day holiday weekend rose 1.6 per cent. At the same time, customer traffic slipped 1.1 per cent compared with last year.

Elsewhere on the TSX, the December copper contract was ahead two cents at US$3.23 a pound after jumping 10 cents in the past two days and the base metals sector rose 0.66 per cent. Teck Resources (TSX:TCK.B) was ahead 86 cents to $37.87 while Equinox Minerals (TSX:EQN) gained 19 cents to $4.39.

The tech sector rose almost one per cent as Research In Motion Ltd. (TSX:RIM) climbed 86 cents to $63.47.

Financials were down slightly a day before earnings from National Bank (TSX:NA), TD Bank (TSX:TD), CIBC (TSX:CM). Royal Bank (TSX:RY) issues earnings on Friday and Scotiabank (TSX:BNS) next week.

It's expected that the markets will be generally pleased with results after Bank of Montreal (TSX:BMO) delivered a solid report last week that beat expectations and featured lower loan-loss provisions.

"BMO set a good tone because it was stronger, considerably stronger I think than what most analysts were forecasting," added Ketchen.

"We have dealt with the risk in the industry pretty well."

The TSX Venture Exchange moved 9.19 points ahead to 1,459.68.

New York markets turned mainly lower with the Dow Jones industrial average down 24.7 points to 10,446.9.

The Nasdaq composite index moved 8.1 points higher to 2,183.91 and the S&P 500 was off 0.6 of a point to 1,108.25.

In corporate news, Agrium Inc. (TSX:AGU) is taking steps to remove directors at CF Industries Holdings' (NYSE:CF) who have been blocking the Canadian fertilizer company's hostile takeover bid for the Illinois-based company. Agrium says it will nominate a slate of directors for election at CF's 2010 annual meeting and has challenged CF's current board to allow shareholders to decide whether they want to accept the takeover offer worth about $4.95 billion. Agrium shares rose $2.35 to $62.05.

Potash Corp. of Saskatchewan Inc. (TSX:POT) will be restarting operations at its Sussex-area mine Sunday following a temporary shutdown, but there is no certainty how long the work will last. Demand for potash is still weak globally and little product has moved out of the province, mine general manager Mark Fracchia said in an interview Tuesday. Potash shares ran ahead $5.34 to $127.

Canadian National Railway Co. (TSX:CNR) is offering to send just the issue of wages and benefits to binding arbitration in an effort to settle a strike by the railway's locomotive engineers. Ottawa has introduced back-to-work legislation to end a second CN strike in as many years. CN shares dipped 81 cents to $55.50.

Enbridge Inc. (TSX:ENB) shares were off 38 cents to $46.14 even as it announced it will increase its quarterly dividend by 15 per cent to 42.5 cents per common share, payable on March 1, 2010. The Calgary-based pipeline operator and natural gas distributor also says its adjusted operating earnings are expected to be 12 per cent higher in 2010 than in 2009.

EAST ASIA MINERALS and BRETT RESOURCES

With so many thousands of gold exploration companies
out there and so many of them with way too many shares
outstanding, it’s hard to stand out in the sector. One key is
coverage by newsletter writers and more importantly, ana-
lysts.
East Asia Minerals for instance had been a big favourite of
the Coffin Brothers and to start with, their pick did quite well.
Lately however, it’s done next to sweet nothing. Despite the
fact they once again, announced more of the same—huge
widths of low grade gold on their Miwah project in Northern
Sumatra, Indonesia.
Now that is changing for East Asia Minerals as Wendell
Zerb of Canaccord starts publishing on the company and
writes, “Miwah represents a high-sulphidation epithermal
gold environment with characteristic vuggy silica alteration
that spans more than 1 km2.” Got that?
Zerb continues, “We believe the Miwah area represents a
large epithermal mineralized system that has potential to
host multi-million ounces of gold. The South Miwah and ad-
ditional feeder structures could expand the scope of miner-
alization to include a higher bonanza-grade compo-
nent.” (Zerb tells us a sweet spot would definitely help the
project economics).
Zerb continues, “The company has initiated a 45-hole
infill program at Miwah with the intention of outlining a NI 43-
101 mineral resource by mid-2010.” Zerb has a target of
$4.00.
Meanwhile, Zerb also initiates coverage on another story
that hasn’t received a lot of attention in the markets...until
lately. Brett Resources was one of the favorites of John Kaiser
and Kaiser, editor of the Kaiser Bottom Fishing Report which
is always interesting reading, had suggested Brett was one
of the stories that he thought down the road could see $5.00
to $10.00. Zerb has a more modest target of $3.25.
Zerb writes, “Brett’s Hammond Reef is being advanced as
a potential large, low-grade open pit gold operation.” (In
northwestern Ontario near Atikokan). “The company re-
cently released a Preliminary Economic Assessment (PEA)
relating to the Hammond Reef project that estimates an af-
ter-tax net present value (NPV) of US$413 million for the
project using a 5% discount rate at a base case of $825 gold
over a 14-year mine life.”
“They suggest in the first six years production averages a
big chunk of 460,000 ounces per year at total cash cost of
$360/ounce…”

STERLING RESOURCES
(V-SLG)
$1.71 +0.02
XCITE ENERGY
(V-XEL)
$1.73 +0.08
Now that oil seems to be in that $70 to $80 range,
one area of the world is probably going to start attract a
lot more attention...the North Sea. This is an area of the
world which involves pretty steep upfront costs for all
those expensive offshore platforms and for all those
expensive British tradesmen.
Once you’ve got production on stream, the British
government has some pretty tasty royalties that are
actually encouraging oil production...unlike Alberta,
where they seem to be encouraging oil and gas compa-
nies to move to BC or Saskatchewan.
Some analysts such as Warren Verbonac of Octagon
Capital suggest a basket of plays in the North Sea such
as Sterling Resources, Xcite Energy, Antrim Energy (AEN)
and Ithaca Energy (IAE), but not everyone has got all
that much money to have a piece of everyone and
heck—there are other areas of the world to explore.
Our preferred way is simply hoping Sterling (the top
pick of Kevin Shaw of Wellington West) and Xcite En-
ergy is the way to go. As we get closer to work actually
starting on the Xcite Energy play in the North Sea, we
expect more analysts to start publishing on it and more
people to discover the play.
On November 27th, Arbuthnot Securities out of Brit-
ain publishes a report on Xcite Energy and frankly folks,
Xcite will be one of the more exciting stories in the next
few months as we have written up that they’ve got an
awful lot of balls in the air as far as financings, when to
get started, joint ventures with service companies, you-
name-it. Management here might actually earn their pay
in a big way (and today, management makes us an even
bigger fan as they set options that are at current
prices...instead of what you usually see in the markets
with directors giving them scads of stock at huge dis-
counts and usually much more than they deserve).
The most intriguing thing about the Arbuthnot report
is they are suggesting this stock will be a three-bagger
if not better.
Analyst Dr. Dougie Youngson writes, “XEL is ex-
tremely undervalued. The company is currently valued
at c.$0.40/bbl, which in our view is derisory. Given the
current oil price of c$80/bbl and XEL’s asset base
status, we would expect the market to value the com-
pany today in the region of $2-3/bbl.”
Youngson continues, “Bentley is one of the largest
undeveloped oil fields in the UKCS. If it can success-
fully covert the resource base into reserves, XEL will
become the third largest (in terms of asset size) inde-
pendent oil company active in the UK North Sea.