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    Tuesday, December 27, 2005


    Thoughts for 2006

    Pundits often post their thoughts for the coming year. I'm going to do the same but with a twist. I'm going to limit my comments to those that I actually have a position in.

    1. NASDAQ tanks - inverted yield curve, bull market long in the tooth, crazy valuations, presidential cycle, fed tightening all portend an economic slow down which will almost certainly drag the NASDAQ down
    2. Silver rises - silver demand has not been met by mine supply for decades, there is less silver in the ground than any other metal, silver is consumed by industrial processes, inflation. These have been the case for some time so I expect this to continue crawling in my direction
    3. Oil doesn't drop - No big oil discoveries in decades, reserves have not been replaced by majors for a decade, Saudi Arabia has no more light oil, Alternative sources will come online but only at high prices. Canadian Oil Sands (COS.un COSWF) reaches a yield of 10% on today's price.
    4. Lead (the metal) doesn't drop more than 10% - China, India, Brazil continue to grow at very high rates and consume lead products (cars, batteries), lead in deficit, decline of the dollar. Ivernia (IVW) does well in this environment.
    5. Uranium doesn't drop - High oil prices, increasing energy demands, Uranium is the cheapest source of energy, Uranium in deficit. STM doubles and is probably bought out (I'd rather it wasn't!)
    6. Coal doesn't drop as much as the experts expect - Coal is the second cheapest source of energy, coal is required to produce steel, over production of steel requires more coal (steel can drop and coal increases), supply constraints due to infrastructure, Australia is closest to China and India, developing technologies like hydrogen and coal gasification support coal demand. Felix resources up.
    7. The drop in the NASDAQ scares the market and everything drops for a while and then commodity stocks revive without a revival in the NASDAQ.
    8. US Rates peak for this cycle and fall from that peak, USD falls against Canadian dollar, USD falls against AUD.

    I'm sure I’m going to be right in these calls just not sure that it will happen over the next 12 months. The only time based position I have is in my QQQQ puts which expire in Jan 07, I'll probably buy more expiring in Jan 08. There is a chance that the drop in US markets will create a gun shy environment for stocks and even though commodities will outperform, commodity stocks will not. That is the second most likely scenario.

    Worst case scenario, NASDAQ rises, commodities fall signficantly, USD rises against all currencies. Quite unlikely.

    What do you think will happen to the 10x upside of Strathmore if they do eventually get bought out?
    I cant see them getting bought out at a premium above 100% and that might be optimistic. Thats why i'd rather see them develop thier own properties. At around $5-6 I would pobably be happier.
    Hi good news on strathmore today.
    how do you seeing this affecting your target price?
    Hello again,
    I see they have retained national bank, as advisiors, think an offers on the table?
    Dave, Thanks for your comments. Obviously adding resource increases my valuation but I already value the company above $10 so I'm not even going to rerun the numbers until we get much closer to that number. As for retaining an investment bank, I think STM has been clear they are looking for a buyer. I think it's all about price. I bought this hoping that they would bring their properties to production themselves. If they do, then there is probably a doulble in STM each year for 3-4 years. A buyout probably won't happen at a premium above 100%. Mind you that's around $4.50 right now. Someone is getting a great deal if they buy out STM and then bring the properties to production. (BTW my $10+ was based on much lower uranium prices as well as lower reserves).
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