Quick Facts

One Year Chart (LEA)

Source: www.bigcharts.com

Price (Oct. 17/11):

$0.70

52-Week High-Low:

$1.45 - $0.20

Average Daily Volume:

50-day:            38,900

200-day:          99,800

Shares Outstanding:

19.46 million

Market Capitalization:

$13.62 million

Year-End:

December 31

Symbol:  TSX-V: LEA

Website: www.leaderenergy.com

Viewpoint 

Leader Energy Services Ltd. is based in Alberta and provides well-stimulation services across the Western Canadian Sedimentary Basin. The Company has three core services lines:

1.      Coiled Tubing: a highly versatile product used for a broad range of critical functions during the  completion stage of drilling an oil or gas well; 

2.      Nitrogen Services: used in numerous well stimulation and workover operations; and

3.      Fluid Pumping Services: focused on delivering drilling fluids downhole in conjunction with coiled tubing applications.

Smaller than most of its competitors, Leader Energy has focused on securing a niche position within  the industry by pursuing a strategy that combines quick response time with proprietary innovation in  order  to  meet  the  specialty  needs  of  clients  engaged  in  technically  complex  drilling  activities.  Delivering these services rests on a combination of competencies, including operational positioning close to development areas, capabilities for in-house development, and access to a seasoned and  technically proficient labour force.

In a financial guidance announcement, Leader Energy said it expects revenue for Q3 ending September 30, 2011 to exceed $9.8 million, an increase of more than 50% over the corresponding period last year. These results would exceed internal expectations, and would represent the highest Q3 revenue reported from the Western Canadian Sedimentary Basin in the Company’s 10-year history.

Leader Energy also announced that it expects to place its new 2 3/8” deep-coiled tubing unit and its second fluid pumper into service by the end of October.  By the end of the year, the Company expects to have significantly increased its deep coiled tubing and fluid pumping capacity.

Expecting robust demand for its services through to spring break-up, the Company will be determining additional expansion plans in Q4/2011.

There is some legitimacy to the Occupy Wall Street (OWS) protest movement. However, there does not seem to be, at least not yet, any strategic plan for where this is going, and no organized leadership. Given what has transpired over the past three years, with bail-outs, TARP payments, QE1 and QE2, the high and stagnant U.S. unemployment rate, and the fall-out from the PIIGS in Europe, it is not surprising that some form of civil unrest would manifest itself in America. Since 9/11, in the USA, it has been a decade of lost opportunity. The announced jobless rate of 9.1% is actually around 16% if all those who have given up, and are no longer seeking work, are factored in. So, the mass middle-class has been squeezed while the rich and uber-rich have gone from good to better.

The focus of this unrest has been on the financial sector, where regulators and elected officials are purported to have colluded to inflate, then profit from, an induced credit bubble that soon burst and caused extreme domestic hardships, including lost jobs, lost homes, and lost incomes and savings. At the same time that ordinary American suffered, the corporate bail-outs and elected officials’ unabashed courting of Wall Street for campaign monies has manifested itself in the reaffirmation of the power, both economically and politically, of the financial institutions. No wonder the OWS movement has appealed to such a diverse cross-section of the American public.

The placard signs showing 99% - 1% refer to the concentration of income in America’s now extremely unequal society. There is a lot that is wrong with America. Some of its goals should include promoting foreclosure relief,  implementing a value-added tax (the USA is one of the few leading countries in the world not to have one), applying a financial services tax, and undertaking a complete and comprehensive over-haul of the U.S. tax system, to make it more progressive.

The Obama Administration needs a wholesale shift in public policy from pandering to and protecting the banks/bankers, to lowering unemployment with meaningful and lasting job growth, and to fostering a return to a healthy and profitable U.S. manufacturing industry, with unfettered job creation.

Picture the well-educated, aggressive, up-and-coming junior executive with a regularly rising salary and a handsome year-end bonus to look forward to. For a few years, he has been on a fast track with his firm and, in this time, he has learned to live well, perhaps too well.

Cautious with his earnings when he first started out, the rapid build-up in wealth soon led to reckless, out-of-control spending. Long gone are any savings amassed in more conservative times, and now he is saddled with exorbitant debt. Really living well beyond his means.

He has an expansive, expensive, downtown condo; a fast car (pick one: Porsche; Lamborghini; Ferrari); expensive made-to-measure suits; and a strong penchant for fine dining and exotic holidays.

Unfortunately, our unfrugal friend worked for Lehman Brothers and the September 2008 melt-down saw him lose not just his year-end bonus but, indeed, his job and his means of supporting his extravagant lifestyle. He has a mountain of debt and no quick, easy way to extinguish it.

The point of this staged scenario is to liken it to that of the United States of America, and to many Euro-Zone countries. They have way too much debt, high unemployment, reluctant consumers, hesitant corporate spending plans, and a banking fraternity walking the thin red line.

Within this context, the near-term outlook for equities has to be less than sanguine.

Our recommendation is to sell into a sustained rally and, if you must be in equities and want to ride out the storm, to emphasize only quality. Pick the leading company in the chosen industry.

The markets have been in a funk for the past six weeks, and are now well off their recovery highs that were reached in July. In that time frame, there have been some particularly volatile days, with moves of up-400 followed by down-400, and on share trading volumes that were much higher than average.

We last looked at sector performance about two months ago. Since then, the percentage gains are all lower compared to a year ago, and there are even sectors in negative territory. There are also some significant drops from the 2011 highs.

Canadian Performance: In terms of sector rotation over the past two months, Health-Care held onto the top spot, but is tied with Telecommunications (both +12% Y/Y).  Materials rebounded from sixth to third (+11% Y/Y). Utilities held onto fourth (+8% Y/Y). Information Technology, Energy, and Consumer Discretionary  fared the worst. These three sectors also declined the most from the 2011 highs. The “safer” sectors fared best: Telecommunications, Utilities, and Consumer Staples.

U.S. Performance: The U.S. performance is quite different. The biggest divergencies are Consumer Discretionary and Telecommunications. Materials and Energy have stood up well, although Energy has shown a sharp contraction from its high for the year. The strong performance by Consumer Discretionary reflects the propensity of those people with wealth to continue to spend lavishly. Financials is the only sector down from a year ago, and also had the largest drop from the 2011 high. The U.S. banks continue to cause concern, largely owing to their considerable loan exposure to Europe.

The next chart shows the trend in the price of natural gas since the March 2009 lows.

After reaching a high of US$6.47/mmbtu in early January 2010, the price retreated to the March 2009 US$4.00/mmbtu  level around which it has since oscillated.

While we remain bullish on the long-term future prospects for natural gas prices, we are always trying to find reasons to suggest the near-term outlook is equally bullish. This is difficult given the shale gas conundrum.

However, there are a number of reasons to take a positive stance on natural gas. Longer term, the conversion of coal-fired generating plants to natural gas is obviously bullish. Also, President Obama has encouraged the development of natural gas to lessen the U.S. dependence on foreign oil. The U.S. also approved the export of liquified natural gas to markets where prices are much higher, which could, in turn, drive up domestic prices. With gas prices moribund and oil prices rising, many industry participants have switched their drilling focus from gas to oil, such that the lesser emphasis could shrink the gas glut and raise prices .

We may be wrong, again, in predicting that natural gas prices are going to raise themselves from  their doldrums. But, we think that this, so far, hot summer could surprise investors with some startingly high levels of natural gas use and concomitant lower inventory levels.

Most of the “gassy” stocks are under-performing, and have been for quite a while. Next thing you know, the stock prices are up 20% and the rally is on!

UPFRONT

NSGold Corporation is in the “sweet” spot. Its exploration and development activities are focused on the investment darlings of gold and silver. 

Two of the Company’s seven projects - Mooseland (gold) and Dios Padre (silver) - are standouts. Upcoming NI 43-101 resource estimates (Mooseland in Q2/2011 and Dios Padre in Q1/2012) could increase investor interest in NSGold, and provide an impetus for higher stock prices and the achieving of our 12-month Target Price.

If NSGold makes a final decision to develop the Dios Padre property, which is in a highly-visible Mexican mining district, it eventually could garner the Company sufficient attention to become a takeover candidate.

RECOMMENDATION

We are issuing a Speculative Buy rating on NSGold Corporation (“NSGold” or the “Company”) with a Target Price of $0.95 per share. The shares are suitable only for risk-tolerant investors. 

The forthcoming resource estimates and further exploration of the Company’s two key projects should be strong catalysts for a higher stock price.

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By Bob Weir

Viewpoint 

Innovente Inc., a Quebec-based company, markets a process (the SHOC™ process) that turns organic waste into biomass with a high calorific value. The Company recently completed a 4,600 square meter facility (a BEFOR plant) to produce biomass pellets, and purchased a 5MW cogeneration plant, to be relocated to Quebec, to generate electricity using the biomass pellets. This cogen plant is expected to be on stream and producing electricity for Hydro-Quebec, under a 25-year supply contract, by December 1, 2012.

Innovente hopes to build and operate at least ten BEFOR plants, some with cogeneration facilities, over the next ten years. A key challenge for the Company will be to arrange financing for future facilities (approximately $7.5 million for a BEFOR plant and $17 million for a co-generation plant).

The SHOC™ process uses a number of different types of organic waste such as manure, agricultural sludge, forest residues, municipal sludge, pulp and paper sludge, and crop waste. In its initial stage, the carefully-controlled bio-drying process reduces the moisture content of the material from about 65% to 50%. The final drying process reduces the moisture content to approximately 15%. The dried organic waste is turned into biomass pellets which are sold under the name BEFOR. These pellets have a high calorific value and can be used for the production of either electrical or steam energy. The Company estimates that the SHOC™ process uses only about one-sixth of the energy used in conventional fossil fuel-based drying techniques, thus providing its process with a significant competitive advantage.

Innovente has a short history as a public company. It was incorporated in 2004 and went public in late 2010. The stock is closely held and the share float is small. Average daily volume since the stock began trading on the TSX Venture exchange is 8,100 shares.

The Company’s three potential sources of revenue are:

(1)    Revenue from the reception of organic waste.
(2)    Revenue from the sale of BEFOR pellets. 
(3)    Revenue from the sale of electricity or steam from cogeneration plants when they are built.

Bob Weir is Managing Director, Research Services of eResearch