IAC Charts

[ItsAllCyclical]

CWPC article

Gaps down 10% this morn on this? What a hype job w/no institional support.

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Casey Research Special Bulletin: Collateral Damage
May 17, 2006

CanWest is having a bad day. Here’s what we know.

Last Friday we received a call from a reporter from Forbes working on a story that, reading between the lines, seems to question whether or not the CanWest concession is, in fact, a legitimate oil sands play.

The nub of the issue, as we interpret it, has to do with one of the early investors in the company, back when it was early stage with a dream and a prayer of finding bitumen in Saskatchewan. (An entity owned by us, DCDG, LLC., was also an investor at that stage, but only with an inconsequential position -- view the company's SB-2 Registration Statement by clicking on this link: http://www.sec.gov/Archives/edgar/data/1096791/000114420406014740/v040271_424b3.txt).

While it is only conjecture at this point, our interpretation is that Forbes is about to do one of its famous attack pieces on this particular financier (who has nothing to do with the day to day running of CanWest, by the way) and by extension CanWest. Looking at today’s price action, we can only surmise that word of the pending article is getting around and those in know are trying to get out while the getting is good. In the same way that CWPC has risen in near meteoric fashion, it now looks set to come off substantially. Remember, the reverse side of a hockey stick is just as steep as the front.

What’s the smart move here? Run for cover, or view the sell-off as a buying opportunity?

After listening to the reporter, we believe his initial understanding of the CanWest property is a misunderstanding. Starting with the fact that the financier in question is simply just another investor in the company, and has nothing to do with its management. While many reporters write their stories in their minds before setting a word to paper, then ignore everything except confirming facts – and that well may be the case here – our sense is that this particular reporter is doing his homework. Hopefully between now and press time he’ll get the data he needs to clear up his concerns. If not, and if CWPC is painted with the same negative brush as the companies actually managed by this individual, then the fall-off in CWPC that began today could continue until after the full impact of the article is felt, which will be after it hits the stands in a week or so.

While the prudent thing to do is to pull your original investment out of the stock, and that is a perfectly reasonable thing to do, after double-checking our original work, we remain confident in the company’s new management team and the merits of its underlying assets. As a result, we’re holding on to our shares, and will look upon any continued fall out from the Forbes article to create an excellent speculative opportunity for a second bite at the apple.

Let me stress again that this is still largely in the realm of conjecture. At press time the reporter was still very much in research mode, so there is a good chance he’ll discover the CanWest story, as attention-grabbing as it has been, is completely legitimate and will leave it out of his broader story. In which case, we would expect to the stock to rebound, high and fast.

If you sell now, and some newer subscribers may even be selling at a loss, and there is no story, then you could well miss the turnaround and have to buy back in at higher prices. If he persists in putting CanWest into his story, and the stock takes a further hit as a result – possibly sending it below the $6.00 mark -- then buying more makes a lot of sense to us.

As with all investments, whether you stay, go, or buy more will be more a function of your psychology and personal financial situation than anything else. As just mentioned, we are confident enough in our work that we are holding, and will look to buy with both hands once it looks like CWPC has bottomed.


We’ll keep you posted on this drama as it unfolds.

David Galland
Managing Director
Casey Research, LLC"