The Beginning of a New Run
Wednesday, July 12, 2006

It finally appears that the bottom has been hit in the microcap resource stocks as we have risen above the previous highs set from the old lows. It also seems that the companies themselves believe that their stocks are becoming fairly valued because in the last week one of our favorites, SXRuraniumone, has been out purchasing properties for cash and STOCK! Although we would hope that they would use cash to purchase these properties it appears that the uranium patch has caught fire and equity will now be a required element in any transaction involving physical assets as it was during the last boom in Internet Stocks. We feel that the SXR is issuing stock because first it must and second they feel that the dilution to current shareholders will be offset with future events that will be coming up. Remember that this company will be opening a mine in Africa and is the next mine in Australia that will receive approval. In previous posts we stated that we believed that the next wave of producers would join Cameco (CCJ) as the elite companies in this field through their production and then acquisitions and it appears that this is exactly what is happening. Take note that Paladin (PDN.TO) recently made a purchase of an Australian Junior and these recent moves by SXR seem verify this previous notion.

Keeping with that idea it seems that Ur Energy (UREGF in the US and URE.TO in Canada) is running on all cylinders right now. They have the stock price up from US$1.73 where we recommended it to a recent US$2.23 which is up 29%. These guys will become a dominant player as they will be pumping uranium out of the ground in 2008 through their in-situ leaching process. They keep expanding their holdings and resources in Wyoming and this asset in the US will undoubtedly become worth more than foreign holdings as it will be viewed as a safe investment.

On really no news we have also seen Pitchstone Exploration take off from its lows at C$1.30 to a recent C$1.74 a 31% increase from the bottom. If SXR is serious about locking up real estate for uranium exploration we truly believe that this would be a very good target to take out. They would lower future expenses related to their Joint Venture and also take control of the SXR shares and options they have already paid Pitchstone (PXP.V). Regardless of a takeover from SXR though, we still believe that Pitchstone is in a very sweet spot in the Athabasca Basin which can only be matched by a few other companies.

The past week I have been confused as to why Canwest (CWPC) is down. Logically one understands that they apparently disappointed the market with Management's Reserve Estimate, but we must point out that 250 million barrels of oil is no joke. When one also considers the fact that they drilled 19 holes and were only able to use 13 holes for the Reserve Estimate, then we must check the market's logic because that is roughly 19 million barrels per successful drill hole. The fact that this drill information is on 1/2 of 1% of the total land they possess is of no significance in our opinion, but we do believe that the company will find over a billion barrels IN THE WORST CASE SCENARIO on their land.

On a more positive note Cameco has rebounded strongly as the Uranium stocks have gotten a second wind, precisely as we thought would happen as we recommended a look at the December '06 Calls then at $5.60. We now see that they closed today at $9 for a gain of 61% on paper. We will hold onto this contract as we believe it becomes worth more as the confidence in the sector increases thus increasing the premium for the contract itself...at least until November when the premium begins to evaporate as the option nears expiration.

CanAlaska resumed drilling at West McArthur and will need to play catch-up in order to complete the holes they did not get to last year due to inclement weather...or lack thereof to be honest. Also keep an eye on the NorthEast Project. They will begin drilling on this vast track situated just outside the Basin and this is the project we believe that the Chinese were interested in only a few months ago...if they have good news on this project it could bring in a ton of the Chinese money that they seem so willing to throw at energy companies these days.

In other news it seems that the Canadian Dollar has fallen below the US$.90 level and is now hovering around the US$.88 level. The Australian Dollar seems to be recovering to the all important US$.75 level and as it rises we expect that it will be fueled in part by the resource stocks rising in conjunction.

We also believe that as Australia's resources become more in demand so will their currency (same case with Canada) so we view these currencies as crucial to our foreign investments because each percent that they rise they will add significantly to our positions and form a second trade for us.

Currently we still feel as though we should be adding to our “Future Blue Chips” so we like CWPC and SXR at these levels as we expect them to begin acting well after the market figures out in which way it wishes to move. Much of this depends on the US Federal Reserve, but we feel that resource stocks are the place to be as the US$ has steadily declined in response to the Fed hiking rates...this is not usual, so we expect that the US$ will decline thus forcing up our stocks and the prices paid for their resources, not to mention the currency exchange rate.