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Issue 34, August 20, 2010

Endeavour Financial (EDV, TSX)

In another couple of weeks, the summer doldrums of 2010 will conclude just after the Labor Day weekend in Canada. Traditionally, once the promoters, brokers and venture capitalists are back from their summer breaks the market at large gets back to business.

How the market will respond in September is up for debate. Some gurus are suggesting that there is $2 trillion dollars of potential investment capital sitting on the sidelines right now waiting for some indication that the economy has turned around.

However, if we are looking at either deflation or inflation, the common denominator is high Federal debt which has been driving gold for 9 years now. Since that scenario isn’t about to change in the foreseeable future, gold equities remain a logical choice.

One company which I believe is well positioned for a breakout over the next 12 months with the help of growing gold production is Endeavour Financial (EDV, TSX).

We have been following this company for years now and have enjoyed profit taking opportunities of up to $11. On February 4th of this year we got back into EDV at $1.73. On April 9th I suggested taking some profits at $2.42 (+42%).

What sparked Endeavour’s upward price move was the successful implementation of their new business model. Having had numerous success stories as a resource merchant banker, last year EDV’s management decided to take their in-depth mining knowledge and transform the company into a gold producer.

Earlier this year, Endeavour invested in two West African gold producing companies: Crew Gold and Etruscan Resources, both of which have done exceedingly well since Endeavour’s involvement.

Earlier this week the management of Crew Gold issued a news release which reviewed the financial condition and the results of the company. The Endeavour magic seems to be working as the net profit of Crew was $21.6 million for the six months ending June 30th, 2010. This is a far cry from the net loss of $7.8 million they took over the same period last year.

Crew has committed to a $75 million capital program that will be undertaken to further the efficiencies of their LEFA mine. Moving forward, Crew is destined to be a fantastic growth story.

Endeavour also recently partnered with Severstal, a large Russian company, making them the two largest shareholders in Crew Gold. Both Endeavour and Severstal have similar visions of increasing Crew’s value and moving forward with the LEFA project.

Severstal has been buying up Crew Gold shares on the open market, now owning 50.2%. There has been some speculation that they will make an offer to Endeavour for their 43.2% interest at a significant market premium.

We’ll have to see how it all plays out but no matter how you look at it, this is a win-win for EDV by holding onto a growing gold producer or selling out at a significant profit.

This leads me to this yesterday’s news that Endeavour has successfully acquired the remaining 45% of Etruscan Resources (EET, TSXV) common shares that it does not already own.

Etruscan has been exploring for gold in Africa for 15 years and now holds one of the largest land positions in West Africa covering some 9,000 square kilometers. Within these lands are some very prospective gold belts known as Mali, Burkina Faso, Cote d’Ivoire and Ghana where Etruscan has advanced stage and Greenfield exploration projects.

The Burkina Faso project began its gold production in February 2008 and is now producing 80,000 ounces per year. At Cote d’Ivoire, Agbaou Gold is a feasibility stage project where engineering studies foresee production at 77,000 ounces per year over a 9.1 mine life.

I would expect that Endeavour will move toward getting Etruscan’s gold production up to 160,000 in due course.

In a short period of time, Endeavour has transformed into a gold producer although the market still views and values it as a merchant banker. Well, as they say, “the proof is in the pudding” and gold production with cash flow will trump their old valuation where it was all about the Net Asset Values of the assets they had positions in as a banker.

The next 12 months should be interesting. With a potential buyout of their Crew position by Severstal, EDV would have cash on hand to fast track Agbaou and look toward purchasing other West African gold producers. One such company that has been bandied about on the street is Avion Gold who in July reported year-to-date production of 46,700 ounces. This company has the potential to ramp up to 200,000 ounces annually.

Whatever happens, Endeavour is transforming into a serious mid-tier gold producer. Once the market re-evaluates Endeavour’s new business model we could be seeing a double with EDV over the next 12 months.

Petromanas (PMI, TSXV) Blue Chip CEO Joins PMI

To be honest, I never get too excited about news announcements introducing a new CEO of a Venture-listed company that only trades for pennies.

But we are talking about Petromanas Energy Inc. (PMI, TSXV) – one of the most talked about speculative oil exploration plays to come along in quite some time. And nothing about their story has been small, low-key or penny stock-like. Not the giant sized oil and gas prospects that may hold upwards of 6 million barrels of oil or the $29 million investment by George Soros.

So is it any wonder then that PMI’s new CEO comes from the oil majors, where market caps are in the billions?

Glenn McNamara has over 30 years of oil and gas exploration and production experience in

Canada , the USA, South America and the Asian Pacific region. His resume includes senior executive positions with Exxon Mobil, the world's largest, publicly-traded international oil and gas company. More recently he was the president of BG Canada and responsible for all aspects of BG Canada's business, including developing a growth strategy for western/northern Canada and Alaska.

Now it’s not everyday you’ll find a well-paid, high roller exec like McNamara leaving a major like BG Group and joining a junior company with zero production. However, this move does speak volumes about what McNamara feels is the potential of PMI and why others like George Soros and a growing number of investment gurus are joining the shareholder ranks.

The hiring of McNamara is one of the last key pieces of the puzzle to move Petromanas toward a potentially successful oil company.

The company is well cashed up with the recent completion of an oversubscribed $75 million private placement last month for a cash total of $90 million.

What McNamara brings to the table is his technical and management experience which will ultimately help PMI as they move toward drilling some of their deeper prospects. I can see a time when PMI will joint venture with a major company like the Exxons or BGs of the world who will want to participate in Petromanas’ high potential prospects.

Seismic work is currently underway to help define the best drilling targets for their 2010 drill program. The next big news should be the seismic completion.

PMI is a buy under 40 cents.