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July-Time to buy energy stocks, at least that is what this analyst with an excellent track record is saying. He notes that prices usually rise from July to October. This year the rally started in June probably due to those recent acquisitions and continued high oil prices:
NEW YORK (Dow Jones)--Last summer, just weeks before Hurricane Katrina slammed into the U.S. Gulf Coast, Walter Zimmerman made a bold prediction: the price of natural gas would rise 50% and set record highs in the fourth quarter.
Zimmerman, an analyst with the brokerage and consulting firm United Energy, didn't justify his call by citing gas storage levels, economic growth or even assumptions about hurricane activity. Zimmerman is a technician, a species of analyst who relies exclusively on past price patterns to foresee future movements, while ignoring the fundamentals of supply and demand that most analysts use to predict the market.
"I don't make the news," Zimmerman, 55, said recently from his small office in Jersey City, N.J. "But this system was saying something will happen that's going to cause a major panic."
Zimmerman had told his clients on Aug. 16 that gas prices would peak at $15.27 in the fourth quarter.
Moods Move Markets
Despite the uncanny accuracy of his forecast, Zimmerman says his system doesn't predict hurricanes or any other event. What it does predict, he claims, is the market's mood, which can swing wildly between hope and fear, often ignoring weather and other fundamental indicators.
'Patterns Repeat Themselves'
Zimmerman's analysis of the energy markets begins with the observation that the price of most energy commodities has a distinct seasonal trend. Since the early 1980s, prices have tended to rally between December and late April, sink until July, rally until October, and fall until December. The exact dates of the peaks and troughs vary depending on the specific energy commodity.
Overlaying these seasonal variations are multi-year time cycles that
Zimmerman says skew the impact of the seasons. For example, he posits the existence of eight-year and 13-year cycles that govern the crude oil and petroleum product markets.
Currently, the eight-year and 13-year cycles are in a rare moment where they're peaking together - an event that happens only once every 38 years - leading to an environment that's maximum bullish and should last until the beginning of November, Zimmerman said.
"Fundamentally, prices should not be this high," Zimmerman said. "The fact is, these markets are not rational. They're emotional and right now they're swimming in a sea of fear."
Zimmerman sees the potential for a super-spike in crude and petroleum product prices in late October. Only starting in 2007 will the fear that's saturated the oil market begin to dissipate, he said.
"It won't be safe to not be long until we're past that October window," he said.
DWSN, Another oil seismic service stock I like. Not growing as fast as TGE because they are larger (12 crews vs 7 crews). DWSN has a mkt cap that is 35% larger than TGE, but total revs last qrtr were 40 mil vs. 15 mil for TGE and profits were 4.3 mil vs. 2.8 mil for TGE. DWSN also has no debt and stockholders equity at $109 mil vs. $30 mil for TGE.
I expect DWSN's margins to continue to improve as they renegotiate older contracts for their services. DWSN was also just added to the Russell 3000 which should bring continued interest from index funds.
OT: France and Apple,
France certainly has a knack for coming up with more ways to make me not like them. Here they are legislating away Apple's technology rights for music downloads to its ipod:
French lawmakers dealt a serious blow to Apple's dominance of the online music market today by voting to break the exclusive link between the company's iTunes internet music store and iPod players in the country.
Currently, software included in tracks downloaded from the iTunes site prevents them being played on anything but an iPod. The music players' massive popularity has, in effect, made Apple's system the global standard for the rapidly expanding digital download market.
Apple says it sells more than 3 million songs a day on iTunes. In some markets it accounts for more than 70 per cent of online music sales.
The French move, prompted by fears of an American company building up a potentially unassailable monopoly position, could radically shake up internet music sales by forcing Apple to open up its copy-protection technology.
For the first time, the draft legislation could let consumers download music directly to their iPods from stores other than iTunes, or to rival music players from iTunes France.
The French Culture Ministry has urged the rest of the European Union to follow suit.
EZM...Last day of the quarter which I believe means that today's closing prices for Zn and Cu will determine the amount of their hedging losses when they are calculated for the next 10Q. For Q2 they are better off if metal prices drop today. Zinc is down a bit and copper is up a dime (so far today).
OT...Sheesh, I guess this means that my favorite Uncle- make that former favorite uncle, Mr. Buffet decided to leave me out of his will. It was bad enough when Howard Hughes dis-owned me.
HOM- Dick...According to HOM's own PR, they paid a 7% commission for the private placement. I'm not sure what the average commission is but I'll take your word that it is 7% (not including the warrants for 125,000 shares that the firm was also given). But, the offering was announced before the market opened on 11/23/05. The previous day, HOM had closed at $6.60, so those investors also bought the stock at a near 17% discount plus they recieved a free warrant to buy another .2 shares at that discounted price. Looking at the list of investors who bought stock many were employees or family of employees of Sanders, Morris and Harris. There were a bunch of funds (how many of those are hedge funds?)on the list as well. No doubt they were clients of Sanders. It's all in the filing for anyone who is interested.
Bottom line, the placement cost HOM and its stockholders much more than 7%. I also agree with you about the lack of value in a recommendation from a firm whose bread is buttered by the company it follows. I have one word for investment bankers like Sanders: GRRRR!!!
Here's HOM's PR from then:
The offering consists of 4,850,000 units at a purchase price of $5.50 per unit, with each unit consisting of one (1) share of common stock and a purchase warrant exercisable for a 0.20 share of common stock. If the offering closes, the company will issue to the investors, an aggregate 4,850,000 shares of common stock and warrants exercisable for an aggregate 970,000 shares of common stock. The warrants, if issued, will be exercisable immediately, have a five-year term, and have an exercise price of $5.50 per share. In addition, the company will issue to the placement agent, Sanders Morris Harris Inc., warrants exercisable for 125,000 shares of common stock. The placement agent warrants, if issued, will be exercisable immediately, have a five-year term, and have an exercise price of $5.50 per share. In addition, the placement agent will receive a fee equal to 7% of the gross proceeds of the offering.
HOM... bbotc, I agree and in a word it "stinks". Michael Chadwick is a Sr. VP with Sanders, Morris and Harris and has also been on the BOD of HOM since 1/03. This comes from a 424B3 filing by HOM on 1/9/06:
The selling stockholders acquired the shares of common stock offered by this prospectus, including those issuable under the warrants, from Home Solutions in a private placement of 4,850,000 units, consisting of 4,850,000 shares of common stock and warrants exercisable for 970,000 shares of common stock at a price of $5.50 per unit, and placement agent warrants exercisable for 125,000 shares of common stock, which was closed on November 30, 2005. Home Solutions is registering the shares of the selling stockholders pursuant to certain registration rights granted to them under registration rights agreements entered into in connection with the transactions described above. Sanders Morris Harris Inc. acted as the placement agent in the private placement and in consideration of its services, received a placement agent fee equal to $1,867,250, placement agent warrants exercisable for 125,000 shares of common stock, and reimbursement of expenses incurred in connection with the private placement.. Sanders Morris Harris Inc. is an investment banking firm, a registered broker/dealer and member of the NASD. Certain of the selling stockholders have accounts with Sanders Morris Harris Inc. Michael S. Chadwick, a member of the Board of Directors of Home Solutions, is the Senior Vice President and Managing Director of Sanders Morris Harris Inc.
HOM-They report remodel work on a % completion basis so even if their projects for the government are slow pay, I would assume that HOM is still recognizing revs and profits from the projects they are doing for them.
Also interesting how analyst earnings estimates are changing for HOM. According to Yahoo, just in the last 60 days, estimated earnings for HOM have changed as follows:
Q2 estimate has dropped from 11c to 7c
Q3 est. has increased from 15c to 20c.
Q4 est. has increased from 15c to 26c.
That all seems rather backloaded to me. Also worth noting that the only analyst who still follows HOM is Sander, Morris and Harris (SMH). A SR VP with SMH is also a director of HOM. HOM paid that firm $2 Mil last year and also gave them a boatload of warrants according to stocklemon.com. Maybe stocklemon is making all that up but I really doubt it (and HOM never disputed that either)
I would really have to say "caveat emptor" with this one even with its recent sell-off.
TD-AMTD Sam, I just logged on and did a trade without a problem (about time). Btw, I put an order in to buy some more IAIC. I'm surprised that this one keeps getting weaker with the positive guidance mgmt has provided.
O&G Acquisitions- Wonder who will be the next acquisitions in the oil patch? Oil companies are flush with money and willing to spend it on the right target. Recently, there was an announcement to acquire MVK at a big premium. Now, Houston-based Anadarko will pay $16 billion in cash, or $70.50 per share, for Oklahoma City-based Kerr-McGee. That represents a 40 percent premium over Thursday's closing price of $50.30 on the New York Stock Exchange.
Anadarko also will pay $61, or $4.74 billion, to buy Western Gas Resources, an independent natural gas explorer, and will assume $560 million in debt. That cash offer represents a 49 percent premium over the company's closing stock price of $40.91 on Thursday."
TDameritrade..Apparently a lot of former TDW clients are locked out of their accounts. Just take a look at AMTD's message board and here's an article:
Access Issues Snarl TD Ameritrade Site
By Lauren Rae Silva
TheStreet.com Wall Street Reporter
6/21/2006 9:27 PM EDT
Click here for more stories by Lauren Rae Silva
Some clients of the new TD Ameritrade (AMTD:Nasdaq - commentary - research - Cramer's Take) are livid.
For the past three days, as the company merges the TD Waterhouse login page with the Ameritrade online login page, a number of former Waterhouse account holders have been unable to log on to their brokerage accounts. While the company concedes to a technical snafu, Waterhouse customers are getting antsy, and threatening to change their accounts.
Daniel Croker, who has been with either Ameritrade or TD Waterhouse since 1997, is also planning on moving his funds out of TD Ameritrade.
"Earlier this week, they had some kind of change and admitted that they have a problem, but it shut me out for one whole day and part of another day," Croker said. "So I'm pulling most of my funds out and putting them in Scottrade."
A spokeswoman for the company said that, in migrating to the new system, some Web pages stopped automatically storing the clients' passwords, so some people are unable to access their account. The company said it was taking a number of steps to fix the problem, including implementing software overnight Wednesday that should eliminate the issue. It has also listed troubleshooting information on the Web site for those who cannot log on, and is trying to contact those who are affected.
The company does plan on making reparations for those who have been unable to log on to their account. In fact, Croker was granted 10 free trades on his TD Ameritrade account for the hassle. But the reimbursements will vary, the spokeswoman for the company said.
"We are working with clients on an individual basis," the spokeswoman said. "We are taking into account the individual situation and helping them the best we can."
Ameritrade agreed to buy TD Waterhouse for $2.9 billion about a year ago and the firm has gradually been merging the two Web sites. It has not yet merged the two trading platforms, according to the spokeswoman. This mix up was only due to the combination of the login pages on the Web site.
TDAmeritrade-Another logoff day for this former TDW client. Anyone know another way to get in? I did fire off this email to the CEO, maybe the squeaky wheel will help:
JoeM@tdameritrade.com
Mr. Joe Moglia
CEO
TDAmeritrade
Greetings,
My inability to sign on to TDAmeritrade is really getting old. Yesterday, I was able to finally sign on by using an old link from TDWaterhouse. Today, this is gone and I am automatically redirected to TDA's new site. It says my session has timed out after I try to sign on. It amazes me that you did not ensure that the bugs were worked out before doing the conversion to a common platform (or atleast continue to provide a link to your old platform for those of us who are locked out).
I also don't appreciate the new commission schedule. While my commissions have not gone up they are now no better than every Moe and Curly with a $5,000 account. I have over a XXX account and have been active for years. I have been eyeing Scottrade and others that offer $7 commissions.
I also realize that calling in to place orders is an option. I have tried that as well but got tired of jammed phone lines.
Thank you for listening.
Cliff
#XXX
BWLRF..Art, New York Mine??? I'm not aware of any interest BWLRF has in that area. Breakwater has three producing zinc mines: the Myra Falls mine in British Columbia, Canada; the El Mochito mine in Honduras; and the El Toqui mine in Chile. The Company is developing the Langlois mine in north western Quebec, Canada, which should be operational by year's end.
BWLRF...Bunky, BWLRF has substantial tax loss carryforwards. According to their last 10K, they had $160 Mil in tax loss carryforwards and they had another $229 Mil in rescource expenditures that can be used to shelter income on specific properties. But no, I am not including a tax credit like they had in Q1 to come up with that 10c in eps for Q2.
BWR/BWLRF...Bunky, operational results will be MUCH better in the current qrtr. Here's why:
BWLRF- Breakwater recently reported diluted earnings of 9c for Q1 but that included an income tax recovery credit. Without that credit, they had earnings of 3.5c (Canadian). Annualized and converting to USD, that is a PE of 9. Company also sells at about 4x annualized Q1 cash flow.
1. Last quarter, the company’s provisional liabilities increased from 14Mil to 42Mil. This represents ore/ concentrate that has been shipped and paid for but not yet recorded as a sale since the title has not transferred. Earnings in Q1 would have been much higher had more of this been recorded as sales. BWR actually recorded no sales of copper in Q1, although 3 shipments were made and paid for. In the conf call, mgmt indicated that those 3 copper shipments alone would have increased profits by $10 mil. Those sales will be recorded in Q2.
2. Company mined a lower quality of ore at Myrna Falls in Q1. That will improve in the coming quarters.
3. BWR currently has no hedges on Zinc or Copper, whose prices has exploded in the current quarter. In Q1, BWR received an avg. price of $1.01/ lb for zinc. So far, in Q2, zinc has ranged from 1.20 to 1.60, currently it is over 1.30 That alone should double earnings from Q1. Most of its current hedges on silver and gold expire after the current quarter.
This company could earn 10c in the current quarter and that annualizes out to a PE of less than 3. Looks cheap to me here
TDAmtrade- Thanks for the responses. I still am unable to sign on although I see they have this message on their login page for former TDW people (like me). I hope they get whatever it is, fixed soon:
Former TD Waterhouse clients: Some clients are currently experiencing issues logging on. Please remember, do NOT use dashes when entering your account number (which can be found on your account statement). You may also access your account through our automated phone system at 800-934-4448. We appreciate your patience and apologize for any inconvenience.
TDAmeritrade.. Unable to get signed on with them. Anyone else having problems?
BWLRF- This is my largest position currently. I see very little downside risk at current levels but I can see an easy double from here. I listened to the robtv interview with the CEO again. Lots of good news:
1. Production of their Canadian Langlois mine is now expected to start by late this year instead of mid 2007. There already is $225 Million worth of infrastructure in place there. It will only take about $25 Mil to get it up and running. When they decided to start it up they had calculated that it would provide a 17% Rate of Return based on 1100 tons per day and with zinc at 53c/lb. Now they plan to run it at 2000 tons per day and zinc is over $1.30.
2. They will add a lead circuit at Myrna Falls by the end of 2006. This will get them more money for their copper since an impurity is removed plus they will get substantial additional revs and profits from the lead.
3. They expect production in 2007 to return to the levels they had in 2004 before they closed two mines. That is nearly a 50% increase from current production levels.
4. They expect to have over $100 million in cash on hand by years end and that is after spending $75 million on capital expenditures to increase production and reserves.
5. CEO expects zinc prices to remain strong with increased world demand, especially China and India. As he put it, there will be blips like we have just seen but demand for zinc will exceed supply for quite some time. 60% of Breakwater's production is zinc, followed by Copper, gold, silver and lead.
BWLRF...TD Newcrest recently raised their price target to $2.50C, and gives them a 10% discounted NAV of over $2 using only current reserves. Current S/P is 97cUS (1.07C), which is a PE of under 3 using their estimated 2006 earnings and a PE of 2 using 07 est. earnings. BWR's CEO also did an interview on ROBTV this morning which is worth a look. He expects the company to have $100 Million in cash on hand by year's end after spending $75 million in Capex. They now expect to have the Langlois mine in Canada open by the end of the year. Most of the company's output is zinc followed by copper and that is not hedged. Sure looks cheap to me.
Action Notes Equity Research
Breakwater Resources Ltd. (BWR-T) C$1.25 ....12
BUY (Unchanged);Target: C$2.50↑ (Prior: C$2.00)
Company Profile
Breakwater Resources Ltd. is a Canada-based company engaged in the acquisition,
exploration, development and mining of base metal deposits in the Americas and North
Africa. Breakwater's principal product is zinc concentrate, which accounts for
approximately 82% of total revenue.
Please see the final pages of this
document for important
disclosure information.
Breakwater Resources Ltd.
(BWR-T) C$1.25
Forecast Metal Prices Revised Higher
Event
We have upgraded our base metal price forecasts over the period 2006 to
2010. Our higher metal price assumptions for 2006 to 2010 are being driven
by much higher prices than we anticipated at the start of the year and by our
view that metal supply could remain constrained for the next three years.
Impact
Positive — We remain bullish on the outlook for zinc prices and have raised
our outlook accordingly. The company has significant leverage to rising zinc
prices, which we believe should translate into significant increases in cash
flow, in particular in 2007 as the Langlois mines starts up. Further, we
anticipate that if exploration results around the El Toqui and El Mochito
mines are successful in adding reserves, concerns over the short mine lives of
these assets would be alleviated, resulting in higher valuations. We are
increasing our target price for Breakwater from C$2.00 to C$2.50 and
maintaining our BUY recommendation.
Details
As noted at the end of Q1/06, Breakwater expects that the strong financial
performance in the first quarter will continue into the second, particularly in
light of the fact that the absence of the sales of copper concentrate in the first
quarter will be recognized in the second. In light of the current metal price
environment performance, Q2/06 is expected to improve considerably. This
should continue to strengthen Breakwater’s balance sheet and position the
company to growth. As well, the company is maintaining its 2006 production
guidance of 240.1 million pounds of zinc and 24.5 million pounds of copper.
We would look for zinc production to grow to 325 million pounds in 2007
with the start up of the Lnaglois mine, the mining of higher grade material
from the Concordia zone at the El Toqui mine and continued improvement at
Myra Falls.
We have increased our zinc price forecasts for both 2006 and 2007. Our
higher price forecasts reflect higher than expected year-to-date prices in 2006
and our forecast for the market to be in substantial deficit in each of the next
two years. We have raised our 2006 zinc price forecast to US$1.32/lb (from
US$1.11/lb) and our 2007 forecast to US$1.50/lb (from US$1.20/lb).
The LME cash zinc price has averaged US$1.19/lb year-to-date, and
US$1.49/lb quarter-to-date. The zinc price peaked at US$1.72/lb in mid-May
Metals & Minerals
Recommendation: BUY
Unchanged
12-Month Target Price: C$2.50↑
Prior: C$2.00
12-Month Total Return: 100.0%
Market Data (C$)
Current Price $1.25
52-Wk Range $0.32-$1.69
Mkt Cap (f.d.)($mm) $571.4
Dividend per Share $0.00
Dividend Yield 0.0%
Avg. Daily Trading Vol. (3mths) 3,318,430
Financial Data (C$)
Fiscal Y-E December
Shares O/S (f.d.)(mm) 457.1
Float Shares (mm) 380.0
Net Cash ($mm) $14.2
Net Debt/Tot Cap nmf
NAVPS (current)(f.d.) $2.04
Estimates (C$)
Year 2004A 2005E 2006E 2007E
EPS (basic) 0.06 0.03 0.36 0.57
EPS (basic)(old) 0.06 0.04 0.24 0.43
CFPS (basic) 0.14 0.12 0.53 0.81
CFPS (basic)(old) 0.14 0.14 0.36 0.61
Valuations
Year 2004A 2005E 2006E 2007E
P/E (basic) 20.8x 41.7x 3.5x 2.2x
P/CFPS (basic) 8.9x 10.4x 2.4x 1.5x
Supplemental Data (C$)
Year 2004A 2005A 2006E 2007E
ZInc (US$/lb) 0.48 0.60 1.32 1.50
Zinc (MM lbs) 350 296 244 340
All figures in C$, unless otherwise specified.
Cliff Hale-Sanders, CFA
Action Notes May 29, 2006
Equity Research 13 of 54
before succumbing to a sharp correction along with the rest of the commodity sector during the week of May
15. Despite the correction, we remain very bullish on the outlook for zinc prices over the balance of 2006 and
into 2007 based upon our expectation that zinc supply is remarkably constrained by a lack of new supply over
the next several years and our belief that zinc inventories could drop below critical levels during Q3/06. We
note our revised metal price forecasts below:
Exhibit 1. New base metal price forecasts and previous price forecasts 2006E-2010E
Old New Old New Old New Old New Old New Old New
Zinc (US$/lb) $1.11 $1.32 $1.20 $1.50 $0.90 $1.20 $0.75 $1.00 $0.65 $0.85 $0.50 $0.60
Copper (US$/lb) $2.13 $2.80 $1.75 $2.25 $1.35 $1.75 $1.10 $1.50 $0.95 $1.25 $0.95 $1.10
2006 2007 2008 2009 2010 Long Term
Source: First Call, TD Newcrest
Valuation
Breakwater currently trades at 3.5 times our 2006 EPS estimate and 2.4 times our 2006 CFPS estimate. This
compares to its small-cap peer group average of 7.8 times 2006 EPS estimates and 8.3 times 2006 CFPS
estimates.
Justification of Target Price
We have increased our target price for Breakwater to C$2.50 from C$2.00 and we are maintaining our BUY
recommendation. Our target price is based upon 2/3 of our NAV and 1/3 of a 5.0 times multiple to our 2007
CFPS estimate. We view this as appropriate given the short mine life of two of the company’s operations
based upon current reserves. Our estimates have been raised as a result of our higher zinc price forecasts for
the 2006-2010 period, offset to a degree by our stronger Canadian dollar forecast. Based upon our higher
long-term zinc price of US$0.60/lb, we have increased our 10% discounted net asset value for Breakwater
from C$1.37/share to C$2.04/share. Our NAV assumes current reserves only.
Key Risks to Target Price
The key risks to Breakwater achieving our target price are actual commodity prices relative to our forecasts,
potential operating disruptions, foreign exchange rate risks, environmental risks and the degree of success in
replacing resources to extend the mine life of its operations.
Investment Conclusion
We remain bullish on the outlook for zinc prices and have raised our outlook accordingly given Breakwater’s
high degree of leverage to zinc prices. We have increased our target price for Breakwater to C$2.50 from
C$2.00 and we are maintaining our BUY recommendation.
Action Notes May 29, 2006
Equity Research 14 of 54
Breakwater Resources (BUY; 12-month target price C$2.50)
Ratio Analysis 2003A 2004A 2005A 2006E 2007E ## 2003A 2004A 2005A 2006E 2007E
Net Income (C$mm) 5.5 23.6 12.5 162.5 261.7 ## Average share price (C$) 0.53 0.48 1.14 1.14
EPS (f.d.) (C$/sh) 0.03 0.06 0.03 0.36 0.57 ## S/O (mm) 211.4 408.5 447.1 456.0 456.0
P/E (x) 11.0 8.2 15.4 2.9 1.8 ## Realized Metal Prices & Costs
Operating CF bf. ch. in WC (C$mm) 12.6 56.2 22.7 241.8 370.0 ## Zinc (US$/lb) 0.38 0.48 0.59 1.32 1.50
CFPS bf WC (C$/sh) 0.06 0.14 0.05 0.53 0.81 ## Copper (US$/lb) 0.81 1.30 1.61 2.80 2.25
P/CF (bf. ch. in WC) (x) 4.8 3.5 8.5 1.9 1.3 ##
Dividend (C$/sh) NA NA NA NA NA ## Production
Dividend yield NA NA NA NA NA ## Zinc (mmlbs) 3 27.6 3 50.1 2 74.4 2 43.2 3 25.2
LTD/Total capitalization 15% NA NA NA NA NA Copper (mm lbs) 7.4 1 7.7 1 8.0 1 7.8 2 4.3
Income Statement Items (C$mm) Silver (000 ozs) 2,019 2,018 2,448 2,279 2,161
Total revenue 210.1 295.0 282.9 487.2 664.2 ##
Operating costs 185.7 221.0 211.5 222.4 268.5 ## Additional Ratio Analysis
Depletion & amortization 23.3 27.6 30.7 34.9 46.4 ## Net interest coverage (x) NA 8.8 42.0 NA NA
Exploration - - - - -## Profit margin 12% 25% 25% 54% 60%
SG&A 5.1 9.0 8.6 8.6 8.6 ## ROE 3% 8% 4% 29% 29%
Interest expense (11.3) 3.7 0.5 - - ## ROA 5% 17% 8% 50% 45%
Other 2.6 5.1 12.1 9.6 1.9 - EV/EBITDA (x) 4.2 3.1 3.5 1.2 NA
EBITDA 16.7 59.9 50.7 246.6 385.2 ## Net Debt/Equity 7% NA NA NA NA
EBIT (6.6) 32.3 20.0 211.6 338.8 ## Book value (US$/sh) 0.54 0.35 0.36 0.71 1.29
EBT 4.7 28.6 19.5 211.6 338.8 ## Free cash flow (US$/sh) 0.01 0.08 (0.04) 0.37 0.78
Taxes (recovery) (0.8) 5.0 7.0 49.2 77.1 ## Zinc Production Profile
Effective tax rate NA 18% 36% 23% 23% ##
Minority interest - - - - -##
Equity earnings - - - - - -
Reported net earnings 5.5 23.6 12.5 162.5 261.7 ##
Adjusted net earnings 5.5 23.6 12.5 162.5 261.7 ##
Reported EPS (C$/sh) 0.03 0.06 0.03 0.36 0.57 ##
Adjusted EPS (C$/sh) 0.03 0.06 0.03 0.36 0.57 ##
Cash Flow Statement Items (C$mm)
Net earnings 5.5 23.6 12.5 162.5 261.7 ##
DD&A 23.3 27.6 30.7 34.9 46.4 ## PIE CHART
Deferred taxes (1.1) - 1.7 34.8 59.9 ##
Equity earnings - - - - - -
Other (15.2) 5.1 (22.2) 9.6 1.9 -
Operating CF bf. ch. in WC 12.6 56.2 22.7 241.8 370.0 ##
CF from operating activities 13.4 56.2 22.7 241.8 370.0 ##
CF from financing activities (6.0) 9.8 22.3 - - ## NAV Analysis
CAPEX (10.6) (23.7) (39.0) (74.6) (16.0) ## NAV 10%
CF from investing activities (10.6) (23.7) (39.0) (74.6) (16.0) ## Operation C$/sh
Net change in cash (3.2) 42.3 6.1 167.2 354.0 ## Bouchard-Hebert 0.00
CFPS bf. ch. in WC (C$/sh) 0.06 0.14 0.05 0.53 0.81 ## Myra Falls 0.78
Balance Sheet Items (C$mm) Bougrine 0.00
Cash 6.4 12.7 18.7 186.0 540.0 ## El Toqui 0.48
Current assets 68.2 116.9 116.9 284.1 638.2 ## El Mochito 0.25
Property, plant & equipment 107.3 153.1 165.2 204.9 174.4 ## Langlois 0.52
Total assets 175.6 287.5 357.2 564.1 887.7 ## Subtotal 2.03
Short-term debt 10.3 - - - -##
Current liabilities 32.0 80.3 72.5 72.5 72.5 ## Balance Sheet Items
Long-term debt 15.5 1.4 5.1 5.1 5.1 ## Cash 0.06
Total liabilities 29.9 65.8 121.9 166.3 228.2 ## to be converted warrants 0.02
Minority interest - - - - -## Non-Cash WC 0.05
Shareholder's equity 113.7 141.4 162.7 325.2 586.9 ## LT-Debt & Closure Provision (0.11)
Working capital 36.1 36.6 44.4 211.6 565.7 ## Total NAV/FD share 2.04
Company Profile: Breakwater Resources Ltd. is a Canadian-based company engaged in the acquisition, exploration, development and mining of base metal deposits in the Americas and
North Africa. Breakwater’s principal product is zinc concentrate, which accounts for approximately 82% of total revenue. Breakwater also produces lead, copper and gold concentrates, with
silver as a by-product. Breakwater currently operates five mines located in Canada, the United States, Tunisia, Honduras and Chile. Annual production in 2005 is estimated at around 300
million pounds of zinc, 22 million pounds of copper and 2.3 million ounces of silver. Production levels relative to past periods have declined as two of Breakwater’s mines were closed in
2005 as ore reserves were exhausted. As such, the company has commenced a program to increase its overall resource base in the coming years.
0
50
100
150
200
250
300
350
400
2002A 2003A 2004 2005 2006 2007 2008 2009 2010 2011 Zinc Production (
mm lbs)
Bouchard Hebert Bougrine El Mochito
Langlois El Toqui Myra Falls
Source: Company reports, TD Newcrest
May 29, 2006
Action Notes Equity Research
gas/oil price disconnect..Rogue, Odds are excellent that the author will be right that NG will catch up with oil prices. If one compares their futures prices over the next two years, they are all inside the normal range of relative prices in his chart. For example, jan08 future price for NGas is 11.05 vs 71.70 for oil.
Also, there is a premium for oil since much of it comes from parts of the world that are unstable. NG does not have nearly as much premium since so much of it comes from domestic sources. BTW, I really like NG companies such as CHK. The insiders there continue to buy boatloads of stock as well.
Where did all that metal go? Interesting that with the recent swoon in metal prices, that LME inventories have taken a dive. Apparently, some end users were happy to use the recent sharp sell-off to buy more product. Copper and nickel inventories are back to new lows, zinc and aluminum inventories are on their march back down as well. We'll see if this translates to an updraft in stock prices for EZM, HBM, NXG, BWLRF, etc.
http://www.kitcometals.com/charts/lmewarehouse.html
G H L T.pk... I posted about this apparent scam 3 weeks ago since it was right in my own back yard. Their business site was vacant when I went to visit it, it has no listing in the local phone directory and yet it was valued at $100 Mil plus.
Funny thing is that after an initial dive the stock is nearly 50% higher than it was then I last posted. I also just noticed that the stocklemon group that has been blasting HOM of late even blasted G H L T at the end of May and provided an online pic of their nonfunctional operations.
After getting blasted with some of my metal and oil picks of late while the general market has also been hammered, I can't believe that this one is at another new high..
http://www.stocklemon.com/05_31_06.html
Of course, skillz and I can always be wrong too.
CFK...Wade, The professionals only see higher prices for NG ahead. Here's a link to futures prices over the next 3 years or so..They only go up from here. Hurricane season has only just begun and prices could go crazy over the next few months.
I am not saying it is time to buy CFK now, but the time is coming sooner rather than later...of course skillz and I can always be wrong too.
http://futures.tradingcharts.com/marketquotes/NG.html
HOM-Wade, Do you know why Home Solutions (including subsidiaries such as PW Stephens) and ARH are not listed among the licensed contractors in Louisiana? I'm sure there's an answer and you may know why as a DD investor there, but it does seem rather odd to me.
http://www.lslbc.state.la.us/findcontractor_name.htm
HOM, Point well taken, tbills. I pasted it from a yahoo post. But if did own stock in HOM, I would have an interest in contacting First Dallas to confirm one way or the other. Here's the phone number and analyst's name for anyone who cares to do so:
Home Solutions of America, Inc. (HOM) June 7, 2006
(HOM/AMEX: $7.94) Christopher R. Terry
2905 Maple Ave • Dallas, Texas 75201 • (214) 954-1177 • email: cterry@firstdallas.com
First Dallas Securities, Inc. and its officers and employees may have an interest in some or all of the securities mentioned herein. The
information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not
purport to be a complete analysis of the security, company, or industry involved. All views expressed in this research report
accurately reflect the research analyst’s personal views about any and all of the subject securities. While First Dallas Securities does
not provide investment-banking services, the research analyst’s compensation is not directly or indirectly, related to the specific
recommendations or views expressed by the research analyst in this research report. Additional information on the securities
mentioned is available on request.
HOM- Sanders Morris raised their rating but as stocklemon points out, they are hardly an unbiased reference as they recently received $2 Mil from a recent HOM offering. Interesting that, according to Yahoo, there are two analysts who follow the company. The other analyst, First Dallas securities just dropped coverage of HOM with this statement:
(And no, I don't see a press release on this one, like I did with Sanders "upgrade".)
We are dropping coverage of Home Solutions of America, Inc. (HOM). While feeling HOM is operationally sound, we are dropping coverage based inadequate control of corporate governance. We are not concerned over the legality of the Company’s assistance in the creation of American Renaissance Homes, but are concerned with the issues of subsequent stock sales by management following the announcement of HOM’s relationship with ARH. We feel the Company’s capital structure and business opportunities are sound. However, we are removing the Company from our coverage universe due to our lack of confidence in management’s recent judgment concerning corporate governance.
HOM..That is how I recall the insider rule for this. If the insider makes a profit, it has to be paid back to the company if the insider buy and sell occur within 6 months of each other. I'll bet that doesn't happen very often. So that's about a $200K hit that Fradella just took to buy those shares back. IMO, he should concentrate on running the business, not trading his stock.
The transaction should close without a problem that I can see. Interesting read in the prospectus. Tandem earned 93c/share last year. The buyers are getting themselves a very good deal. There was a value analysis as to what Tandem is worth in the market place based on comparables. The average value that they came up with is 157% more than they are paying for Tandem. Of course, the public stockholders are getting a substantial premium compared to the insiders who hold 85% of the shares. So we actually come out alright as well.
HOM- Insider trades. I understood that there are rules that required insiders to wait 6 months before they switched from selling shares to buying shares and vice versa. With HOM, the CEO was selling shares last month at higher prices and now he just bought many of them back at a lower price. I didn't think he could do that. Does anyone know what the rule is here?
800america.com..Pappy, I sure wish I had noticed your whistle-blowing posts on RB. I got stuck with 2000 worthless shares back in 2002 when the SEC halted all trading on this one after they discovered that the whole company was a sham. The CEO was a felon who "made up" all his numbers out of thin air. I hope his lying rotten a** is still sitting in prison somewhere. I chalked it up to an expensive lesson learned. I thought the numbers seemed almost too good to be true and it turned out that they were.
HOM, Stocklemon makes some excellent points. Years ago, I had a position in American Eco where Frank Fradella comes from. Fortunately, I bailed when it became apparent that the rosy projections were not working out. Irregardless of that, HOM is a construction company but trades at an extremely rich valuation for that. P/S ratio is 5 and P/Tangible BV is about 9. Positive Cash flow is only 20% of income. Even IF they do make their rev and income projections, this one would still be no bargain. And now the insiders have been on a selling spree. Caveat emptor!
Why commodities are going much higher and equities are entering a bear phase. Interesting read. The complete article is available at http://www.silverstockreport.com/email/Clydes_speech.html
>>Who’s recommending caution and much lower returns from stocks going forward? John Templeton, Carl Icahn, Allen Abelson, Mark Faber, Bill Gross and Warren Buffett: just to name a few. Buffett currently holds $47 billion in equities and $45 billion in cash. He must be having a tough time finding those bargains from Omaha.
There has never been a ten year period in history when valuations have been as high as they are now and where the broad stock market indexes out performed money market funds – never!
I expect a moose market, not a bull or a bear but a moose, rhyming with the period of ’66 to ’82 where the market went nowhere.
I believe the paper bill market has ended and the stuff bull market has begun.
Between 1966 and 1982, equities gained nothing while the GNP gained 330%. The DOW went from 1000 to 875. From 1982 to 2000, the GNP gained 170% and the DOW rallied from 875 to 11,700. Currently the DOW is trading over 11,000, about a 25 P/E ratio. Between now and 2015 if the GNP gains 100% and earnings gain 100%, then the DOW could be at 10,000, trading at 10 times earnings. During the past 5 years the S&P is up 5%. And at that rate of compounding, you will have to work till you die.
During the last stuff cycle equity mutual funds were in a dead zone while stuff; raw materials, art and real estate had super returns.
In 1966 oil was $2.90/barrel and rallied to $28/barrel. Gold was at $35/oz and rallied to $850/oz. The average price of a home increased 180%.
In 1982 the stuff cycle ended and the great paper cycle began. In 1982, the public had 14% of their liquid assets in equities. The Business Week Magazine cover reported “The Death of Equities”. The P/E ratio was 7. Stocks were dirt-cheap and stuff was very expensive. Brokerage firms were selling real estate and oil and gas partnerships. 1982 was the beginning of a great bull market in paper.
By 2000, the DOW was up over 10 fold. The cost of one dollar’s worth of earnings (the P/E ratio) has risen from 7 to 44, and the public had 57% of their liquid assets in equities. The Time Magazine cover featured “The Committee To Save The World: Greenscam, Summers and Ruben”. Brokerage firms were selling tech and dot coms with no earnings. The paper bull market was ending. Paper was very overpriced and over owned. The Dow could be in a trading range of 7,000-11,000 for years.
Stuff, from 1982 to 2000, was in the dead zone. Oil went from $28/barrel to $26/barrel. Gold went from $850/oz to $280/oz. The average price of a house had increased 1.2% per year by ‘2000. Stuff was a bargain.
In the next 10 years paper could be a trading market while stuff is in a bull or buy and hold market.
Change is a way of life. You either accept changes or make changes.
Capitalism is sweeping the world.
Capitalism is easy to understand. It’s nature with a balance sheet. If you’re wrong, you go broke instead of being eaten.
Three basic things make up an economy; labor, natural resources, and capital. There is a surplus of well educated labor.
30 years of restrained and neglected natural resource supply is being overwhelmed by demand.
The longer things remain stable, the more likely they become unstable.
Peace put 2 ½ billion people in the world labor market. India and China alone contain over 2 billion consumers. Suppose each of the 2 billion people consumes a mere quart of gasoline per week as their economy booms; that’s an additional 1.7 million barrels a day, new demand that is sure to increase price. Today, China is booming. They have declared the national bird to be the construction crane. Last year China’s factory floor produced 50% of the world’s cameras, 35% of the TV’s and 30% of the refrigerators sold worldwide. In the last five years china went from exporting oil to the second largest importer in the world. The Chinese will go from walking, to bikes, to motorcycles, and to autos. They will need oil and gas, chemicals, forest products and metals. At 80 cents per hour they are deflating manufacturing costs, but as they become more successful, they will throw away their bicycles and buy motorcycles and eat better, increasing the demand for raw materials.
China and India are transforming their economies from poor agrarian nations to the newest industrial powers, replete with heavy industries, mass transportation and higher education. Rising from these giant new economies will come millions of new consumers, the very people who are already straining the natural resources of the earth.
In 1900, the US started to industrialize. We were using one barrel of oil per person per year. By 1970, we were using 27 barrels per person. In 1950, Japan started to industrialize, they were using 1 barrel per person. By 1970, they were using 17. In 1965, South Korea started to industrialize. They were using one barrel per person per year. By 2000 they were using 17. Today, China uses 1.3 barrel per person per year and India uses .7.
In 1950, Japan per capita income was 18% of the US, today it’s 96%. In 1965, South Korea’s per capita income was 16% of the US, today it’s 56%. India and China have 2.5 billion consumers, 9 times the US. The US uses 25% of the world’s energy, China and India use 2%. India and China have 280 people per car. The US has 2 people per car.
Real incomes are just beginning to rise to levels that create large demands for consumer goods. Between 1950 and 1970, Japan’s urban population increased 70%. Personal consumption increased 600%.
China currently is 40% urban, 60% rural. The US is 97% urban and 3% rural.
China has 20% of the world’s population and 7% of the world’s land. China’s grain imports will grow from 14 million tons today to 57 million tons in 2020.
Today, 1 billion people consume two thirds of the world’s raw materials. 5.6 billion people consume the other third and they are becoming more successful.
There is no need to connect the dots, they over lap.
Lead times to create raw materials are measured in years. In Canada $80 billion in infrastructure has been committed to production of the tar sands. The goal is to produce 3 million barrels a day by 2015. At $60, oil is a bargain liquid. It costs 10% less than bottled water; it’s one-third the cost of milk, one-fifth the cost of beer, and only 2% of the cost of Jack Daniels. Phelps Dodge is planning to open a new copper mine in 2007. It took 12 years of paper work to receive federal approval. Currently oil companies who search for oil at great risk earn 9 cents per gallon. Government, at no risk, makes 51 cents per gallon.
In the US, half of our energy problem is government regulations. The only place oil companies are allowed to drill for oil is next to a dry hole. The only place you can build a refinery is nowhere.
Demand for raw materials has increased. In many cases, the capacity to produce raw materials has declined dramatically in the last 20 years. Tops and bottoms are creatures of extreme. Markets rise above all expectation and then go higher and then fall further than common sense suggests. The most desirable investments for the future might not be in cyber space but back to the basics.
By the end of this bull market in commodities, there will be a bounty on caribou, you will be able to see an oil rig from every beach and they will be digging a copper mine in Barbra Streisand’s yard.
As you climb the ladder of financial success, check to make sure it’s leaning on the right wall. I believe raw materials will be one of the best investments for the next 10 to 15 years.
Long-term, the future is very bright because man has been succeeding in bringing about change for the better since he or she first emerged from the cave. Big problems usually disguise big opportunities.
Governments and central banks are completely incapable of keeping tomorrow from coming.
In the next 12 months, let the winds of change fill your sails. Thank you.
Clyde C. Harrison
Brookshire Raw Materials
510 Diamond Lane
Cary, IL 60013 USA
847-516-2826
charrison@brookshirerawmaterials.com
ZNCM, I can see what you guys like about this one, but aren't you concerned that nearly 2/3s of its revenues are coming from just one customer, Brink's Home Security? If they decided to buy elsewhere, ZNCM would really be hurting.
BWLRF showing good life today as it should with zinc prices flirting with record highs. I'm looking for very strong #s next quarter as this miner has no hedges in zinc or copper. I think it could earn 10c next Q and I also see the analysts have recently raised their forecasts as well to an avg of 8c. Best part is that high zinc prices will likely continue to be with us for a long time as demand is expected to exceed supply for the next couple of years and inventories continue to shrink.
Here is why I think 10c could happen which works out to a PE of 3.5:
http://www.investorshub.com/boards/read_msg.asp?Message_id=11139006&txt2find=bwlrf
EZM..You're welcome, Hog. BTW, there's a Yahoo poster who is coming up with earnings of 85c-90c for 2007. I listened to the recent CC, filings, PRs and info available on their website and filings. I toned down that poster's copper price projection for '07 to what the company could theoretically tie up TODAY in the futures market, bumped up overhead costs to better reflect the costs of running two mines (adding Aljustrel) and raised the tax rate (EZM will pay Canadian and Portuguese taxes). Still, my bottom line number at 68c is still fantastic. Yes, my boat is loaded in EZM as well. Also BWLRF. I see that zinc is opening up 8c this morning also!
Another possibility is that EZM could be bought out at a higher price with those kind of earnings coming and long-life mines in a stable area.This possibility was also discussed in the recent CC. Management noted that the would rather "dine out" for other companies but that they also could become "dinner" themselves for someone else. They did say that no one has approached them to date.
EZM is poised for terrific numbers in 2007. I estimate they will earn nearly 70c, which gives them a forward PE of a little over 3. This assumes that copper prices will average $3.20/lb in 2007 and zinc will average $1.50/lb in 2007. They could actually lock in those copper prices right now in the futures markets since that is the average price of copper futures over the course of the year in '07.
Here's how I see it:
Company expects to produce 193 Million lbs of copper in '07. 9% of that is hedged at $3/lb.
176 mil lbs x $3.20/lb= $563 Million
17 mil lbs x $3/lb= $51 Million
Total= $614 Million
Production costs are estimated at 80c/ lb
193 Mil lbs x$.80= $154 Million
Estimated 2007 Copper operating profits= $614-$154=$460 Million
2007 Zinc production is estimated at 148 million lbs. Company estimates their production and smelter costs net of byproduct credits to be 46c/ lb. At a selling price of $1.50/ lb they would make $1.50-.46= $1.04/lb.
Estimated 2007 zinc operating profits=$1.04x 148 Million lbs= $154 Million
Together, copper and zinc would produce $460+$154=$614 Million in operating profits.
Now deduct overhead and other expenses:
Depreciation and Amortization= $40 Mil
General and Administrative=$15 Mil
Exploration= $10 Mil
Interest= $5 Mil
Total overhead= $70 Million
$614 Million- $70 Million= $544 Million- net profits before tax.
Deducting an estimated 30% for taxes and this is only an estimate (Canadian company with some credit for foreign operations)
$544 Million - 544x.3= $381 Million
Assuming 560 Million diluted shares, that works out to 68c/ share of fully diluted earnings in 2007. That is a PE of 3.4
Please feel free to point any errors that I may have made in these calcs.
Copper Gains on Speculation That Demand Will Outpace Supply
May 25 (Bloomberg) -- Copper rose on the London Metal Exchange on speculation that production may not meet demand this year because of strikes and declining output at some mines.
Mexican miners yesterday began a blockade at Grupo Mexico SA's Cananea copper mine, the country's largest. There's been a strike at La Caridad mine, Mexico's second-biggest, for two months. Codelco, the world's No. 1 copper producer, yesterday warned production will decline this year and next. Demand will rise 5.2 percent this year, HSBC Holdings Plc said yesterday.
``The fundamentals of copper are very supportive,'' Roy Carson, a London-based metals analyst at Triland Metals Ltd., which trades on the floor of the LME, said today by phone. ``Codelco will produce less and strikes are still on.''
Copper for delivery in three months on the LME advanced as much as $150, or 1.9 percent, to $7,980 a metric ton. The contract was $140 higher at $7,970 as of 9:26 a.m. in London, taking its gain this year to 81 percent. Copper reached a record $8,800 May 11.
Codelco, which supplies about 11 percent of the world's copper, yesterday said its output this year will be 1.713 million tons, or 0.6 percent less than last year. Production next year will be 1.652 million tons, Codelco forecast.
Copper prices have also gained because of increased interest from hedge, index-tracking and pension funds.
U.S. and European pension funds have shifted about 5 percent to 10 percent of their assets out of stocks and bonds into commodities indexes over the last several years, John Tumazos, a New York-based analyst at Prudential Equity Group, said in an interview yesterday.
Copper Forecast
HSBC, Europe's largest bank by market value, raised its average copper price forecast for this year by 40 percent to $2.80 a pound.
``High metal prices reflect ongoing inflows of speculative money,'' HSBC analysts led by Paul McTaggart said in a report yesterday. The bank estimates about $100 billion will be invested in commodity indexes by the end of 2006, compared with $10 billion at the end of 2003.
Copper inventory monitored by the LME fell 475 tons, or 0.5 percent, to 105,750 metric tons, the exchange said today in a daily report. Stockpiles, which have risen 19 percent this year, are still equal to less than three days of global usage.
Aluminum for delivery in three months rose $10, or 0.4 percent, to $2,750 a ton on the LME. Nickel slipped $400, or 1.8 percent, to $21,600 and lead fell $10 to $1,105. Tin dropped $100, or 1.2 percent, to $8,000. Zinc gained $45, or 1.3 percent, to $3,510 a ton.
Copper..Interesting that the front month May contract actually closed at a new all-time high today. Those copper stocks have more catching up to do.
http://www.nymex.com/cop_fut_spot.aspx
Metals- WOW...Just noticed that metals are up huge today. Zinc is up13c, copper is up 32c and May futures are up over 40c. That puts them back into striking distance of all time highs. Metal stocks are making a nice comeback today but they are much further away from old highs. Hopefully we will stay in rally mode there for awhile.
G H L T-Just a follow up to this pinkie without financials and a $90 mil mkt cap that just gave such rosy forward guidance with 7000% increase in profit and 78% NET Profit margins. Since they are in my neck of the woods in Bremerton Wa (no address at their website but I found an address from the pinksheets website). I drove out to 5869 W. Werner Rd. Their are two small warehouses (maybe 1200 sq. ft each with one man offices in front. One of them had a "For Rent" sign on it and the other looked like a coffee distribution company but nobody was there and the doors were locked.
Len can zap this post but since it was recommended by someone, I thought some might be interested. I would run fast from this one.