This Week’s Commentary – March 17, 2006 – Pinetree, Fronteer, and Uranium

by JDH on March 17, 2007

Well, we had a basically flat week; I’m at the same point this week as I was at the end of last week, up 4.6% on the year. As you can see from the chart on the right hand side of this page, uranium made a new high to $91, so I’m not ready to pronounce the end of this bull market just yet.

As discussed in last week’s commentary, I wanted to diversify out of the pure uranium stocks, and also pick up some junior stocks for purely speculative purposes, on the theory that if the uranium and base metals markets keep increasing, it will be the juniors that become take-over targets. Ever the lazy person, I let someone else do the work. Since PNP.TO – Pinetree Capital Corp. is in the business of researching junior companies, I looked at their holdings, and then picked the four stocks that I thought had the most potential (I already own a number of their holdings, including MGA.TO – Mega Uranium Ltd.,SMD.V – Strategic Metals Ltd., TVC.V – Tournigan Gold Corp. and URE.TO – Ur-Energy, Inc.).

The four stocks I picked, and bought this week (that’s right, I announced them here on Saturday, and then bought them on Monday; I guess if I was smart, I would have bought them on Friday and then discussed them here; oh well, my “front running” skills need some practice), were:

How did I do? Not great.

Global Uranium announced less than great drilling results, so even though I purchased after the the stock tanked, I’m still down 16%. Yikes. I am also in the hole on Independent Nickel (down 9%) and worst of all Tri Origin is down 22% since I bought it this week.

This begs the question: why are you reading a blog written by a guy who clearly has no clue what he’s doing?

On the positive side, these four stocks represent very small investments, each representing about 1% of my portfolio, so big losses have no significant impact on the entire portfolio. However, a loss is a loss, and if we don’t see upticks this week I will be trimming my losses fairly quickly (particularly with Tri Origin).

I bought these stocks on speculation, in the hopes that someone else might buy them, and it appears that may be happening.

Kilgore Minerals Ltd. (KAU.V), down 7% since I bought it, was halted all day Friday. As I write this on Saturday afternoon I can’t find any reason for the halt. However, as cis106bre pointed out on the Buy High Sell Higher Forum, there is a speculation that Bayswater Uranium may be buying Kilgore. Interestingly, both Bayswater and Kilgore were both halted “Effective at 5:55 a.m. PST, March 16, 2007” on the TSX. You can see the halt notices on the TSX web site for Bayswater and Kilgore. It may be just coincidence that they were both halted at the same time. Presumably we will find out more next week. If a takeover is in the works, my strategy, which looks really stupid today, may look less so next week.

Pinetree Capital Corp Speaking of Pinetree, we had an interesting discussion about Pinetree this week on the Forum. The discussion centered around Pinetree’s Net Asset Value, which is the sum of all of it’s investments. Most mutual funds, which is sort of what Pinetree is, trade at or below their NAV. Pinetree, at $22.27, is trading at more than double it’s NAV, which is probably in the range of $6 to $10 Canadian (they don’t publish a complete list of their holdings, so it’s impossible for me to calculate the NAV on a daily basis. They are due to release results soon, probably this week, which will contain their NAV up to the end of the last quarter). This begs the question: is Pinetree worth more than it’s NAV?

Obviously I believe that it is, or else I wouldn’t own it. I am willing to pay a premium to have Pinetree management evaluate companies and decide when to buy and sell. If you have $100,000 to invest, it’s not practical to try to take positions in 50 different companies. However, if you have $1,000,000 or more to invest, it may be possible to simply watch what Pinetree buys, and then purchase those stocks yourself (which is basically what I did with the four stocks mentioned above last week). By buying the stocks directly, you pay market value, but no premium.

The other reason for owning Pinetree is that if some big mutual fund company, or investor, decides they want to get into the uranium/base metals business, buying Pinetree would be an easy way to buy a portfolio of companies. That would certainly be worth a premium, particularly since Pinetree owns shares in companies that are not traded publicly.

Of course the other down-side to owning Pinetree is that the CEO is currently the subject of an Ontario Securities Commission Investigation, which can’t be good for a company. Also worrisome is that our old friend Mr. Dines is a big supporter of the company (I’m not giving away any secrets here; he has recommended Pinetree publicly many times). What happens on the day when Mr. Dines says to sell? The stock will drop like a stone. It therefore behooves us to take profits all the way up.

The bottom line for me is that the Pinetree Chart still looks good, and since it is being added to the TSX index on Monday there are now more buyers. For now, I’m holding. You can see the chart here.

Fronteer Development Group Pinetree’s strength on Friday was due in part to it’s inclusion in the Toronto Stock Exchange S&P/TSX composite index starting on Monday March 19. Also to be included is FRG.TO – Fronteer Development Group Inc., one of our perennial favorites. In percentage terms Fronteer is my biggest winner (up over 100% since I bought it) and I added to my position this week. Being added to the index is good news; also the chart looks great:

Fronteer Development Group

The recent pullback has not violated any long term trend lines, and the spike in volume on Friday (see the blue arrow) led to the largest volume day of the year as index fund managers began adding it to their portfolios. I still like it, and I’m still holding.

What’s ahead from here?

I don’t really know. The price of uranium keeps making new highs, so I can’t see the bull market in uranium shares ending anytime soon. I think a pop over the $100 mark may start generating some real media interest, which should finally put these stocks on the map. That will be the time to start taking some serious profits.

However, we all remember the big correction we experienced in 2006. May was a horrible month last year; I lost 26% of my portfolio value. (I still ended up 94% on the year, but I would prefer to avoid a similar fate this spring). Have we already had the early year correction? Or are we still waiting for the big one? I don’t know, but I’m keeping a close eye on everything; if we have a significant down period (say more than six days) I will certainly start doing some selling.

I still plan to keep a cash balance roughly equivalent to my gains for the year, so once I’m up 10% I plan to hold 10% of my portfolio in cash.

As always, please post your comments at the bottom of this post, or post your thoughts on the Buy High Sell Higher Forum, and good luck this week.