A Canadian "Hotshot"
Your junior Baltimore-based editor is on a 2-week joyride through the unforgiving wilderness of Northwestern Canada. Addison Wiggin and Eric Fry sent us here to explore the Athabasca tar sands for investment opportunity.
Athabasca, you may recall, is the base of operations for Suncor Energy, a long-time recommendation of Outstanding Investments, which first recommended the stock in April of 2001 at a price of $12.69. The stock closed yesterday at $37.72.
But Suncor, alone, is not what draws us to Athabasca. Rather, our interest lies in the long-term investment appeal of the oil sands themselves. Suncor is but one of the three main publicly traded entities devoted to extracting "syncrude" from the oil sands – the other two being Western Oil Sands, also a recommendation of Outstanding Investments. WTO on the Toronto Stock Exchange) and the Canadian Oil Sands Trust (COS-U on the TSE).
“The oil sand reserve,” as we pointed out in the Rude Awakening column of October 14, 2004, “is massive – currently pegged at 175 billion barrels, based upon current extraction technologies. But few investors or global energy consumers paid much attention to this vast resource…until recently…
“In an era of $50 oil, and increasingly unreliable supply chains, the oil sands of Alberta assume a far more prominent position – strategically and geologically – among the world’s largest deposits. For one thing, $50 oil renders the relatively high-cost production of syncrude immensely profitable. Secondly, as Outstanding Investments argued persuasively in an April 2003 Daily Reckoning essay…
"Since homegrown sources of hydrocarbons are satisfying less and less of our domestic energy needs, we must rely more and more on foreign sources. All else being equal, domestic is better."
Fort McMurray, Alberta, is the oil field’s principal town. We’ll be heading up there tomorrow by bus, along the treacherous highway that killed 6 oil sand contractors last week when a large truck blindsided their bus. Also of interest, Her Majesty, Queen of England and Prince Phillip will be in Fort McMurray at the same time on an official tour to celebrate Alberta’s centenary. We’ll have the full story for you upon our return…
Now it’s time to come out of the closet with the real reason we wanted to come to Canada…
Your editor is fascinated by freight trains; he has hobo aspirations.
He first acted upon his quaint – albeit illicit – form of wanderlust back in 2003 when he arranged a 3-week break from his post on the trading floor at Salomon Smith Barney and flew to Canada in search of freight trains.
The idea was to cross Canada from East to West. We chose Canada over the USA because we felt there was less chance the railroad police there would practice their pistol-whipping on us should we be caught. We came to this conclusion – and it may have been a naive generalization – based on the notion that Canadians are less deranged than Americans, and Canada is not a terrorist target. Besides, unlike in the lower 48, you can’t get lost on a train in Canada. There are only two railroads and they both run east-west.
Crossing the Rockies would be the highlight of the trip. It’s the holy grail of train travel, both in terms of scenery and engineering. There are tunnels shaped like corkscrews, bridges spanning immense rivers and more twists and turns than a bowl of spaghetti.
As it turned out, hopping on a freight train was much harder than we had anticipated, but we did jump one eventually. We nailed a ride on the back of a container car in Toronto and sat there for two days as it rattled across the Prairies at high speed. We were ecstatic. This was pure red-blooded adventure, we loved every second of it, and we still hadn’t even reached the best part! The mountains were going to be incredible, we imagined.
We got as far as Saskatchewan, still a day from the mountains, when we were spotted by the engineer on a passing train. He radioed ahead to the Royal Canadian Mounted Police, who intercepted us up at a small town about an hour later.
The Mounties ordered us not to ride any more trains and threatened us with jail time should we disobey and get caught again. But otherwise, we were free to go. We respected their wishes, and left town the next day on the Greyhound bus.
Looking at the snow-capped peaks from the filthy window of a greyhound bus was a dark experience. It crushed the soul and that day, we vowed to come back in the future and complete the journey by rail.
And that’s the real reason we’re back in Canada two years later…writing to you from the public library in Regina. By the time you read this column, we should be heading westbound on a Canadian freight train.
We just walked from the airport, where we were detained and interrogated for the last two hours, and will shortly be meeting a seasoned hobo who will accompany us on the trip. Apparently they don’t get many tourists in Regina, and when we couldn’t produce an itinerary of the trip or any pre-bookings (we told them we planned to rent a car) they became suspicious.
Anyway, we’ll be wandering over to the freight yards in a couple of hours, and the next time you hear from us, if everything runs according to plan, we’ll have crossed the Canadian Rockies on a westbound “hotshot.”
In the meantime, tune in for your usual dose of investment insight from Eric Fry, in tomorrow’s edition…
By Eric J. Fry
One day after learning that hedge fund managers hate tech stocks, we learned that many lifelong gold bulls hate gold stocks. Our friend Michael Martin, himself a gold bull in his capacity as a resource stock broker, reports that his visit to the New York gold show this week found very few bulls…and a whole bunch of bears.
“Robert Prechter, of Elliott Wave fame, kicked off the conference Monday by advising the audience to steer clear of gold and gold stocks,” Mike reports. “At least he had the decency to conclude his speech by thanking the conference organizers for being open-minded enough to invite him, even though he thinks gold will be in a bear market for some time to come.
“Lifelong gold bull, Ian McCavity, followed Prechter with similarly bearish remarks about gold. However, McCavity does expect gold stocks to rally again within the next few months…just not yet. The next two speakers continued the ‘sell gold’ theme. I was shocked,” Mike confesses. “I’d never been to a gold conference that advised selling gold.”
If gold investors hate gold, should we ordinary investors consider buying some of the stuff?
Maybe, says Jay Shartsis, Michael’s colleague at R.F. Lafferty here on Broad Street.
“Many precious-metals stocks are showing ‘selling climaxes,’ or bullish reversals,” Jay reports. “Hecla Mining (HL), Cambior (CBJ), Glamis (GLG), Kinross (KGC) and Placer Dome (PDG) all registered ‘selling climaxes’ last week. So maybe the precious metals sector is preparing to rally.”
Indeed, the XAU Index of gold stocks has rallied a little already. The index is up 7% since May 15, even though the gold price has gone nowhere. Such “bullish divergences” between the gold shares and gold itself often presage a rally.
On a final bullish note, Jay points out that only 14% of the stocks in the gold sector are presently on point-and-figure chart buy signals, according to Chartcraft.com. “This rare occurrence indicates that the group is quite oversold. This information, combined with multiple ‘selling climaxes,’ suggests this is a good area in which to do some buying.”
Prechter says no; Shartsis says yes…Pick your poison.
WTI NYMEX CRUDE