June 10, 2008
Greencastle Resources (VGN)
Shares Outstanding: 42,267,005
June 10 Closing Price: 0.325
Near-Term Target Price: 0.60
First Recommended At: 0.15
On a market day like today, it's comforting to own a stock like Greencastle Resources. The "green" in Greencastle is symbolic of the fact this little company is actually profitable and making money every single day, as its wells in Saskatchewan continue to produce at a fervent rate. This is a real company making real money, but there's more to the story here - much more - as investors are now just starting to appreciate. After a strong move followed by a minor pullback last week, Greencastle resumed its advance today and appears to have started a new "upleg". Clearly, it is no longer a question of "if" but "when" this stock, with very strong underpinnings, reaches new all-time highs. Accordingly, we have revised our target price to .60 near-term with the distinct possibility of even higher prices given overall market conditions and company news and developments.
This update focusses on what we believe will be record second quarter earnings for Greencastle, and speculation that it is about to get involved in the Quebec gas play. Please re-read our previous report for additional information on Greencastle.
1. Record Earnings Ahead
On May 29, Greencastle reported a net first quarter profit of $434,539, a whopping 51% increase over the first quarter of 2007. The company retains a sliding scale royalty on all oil production and a 15% royalty on all gas production from the Primate and North Primate properties in west central Saskatchewan. Higher heavy oil prices and increased production contributed to total royalty revenue of $582,457 in the first quarter of this year, an increase of 24% over the fourth quarter of 2007. Starting to get the picture here? The second quarter has been exceptionally strong for heavy oil prices, and new wells continue to come on stream at the Primate properties (as Greencastle itself indicated in its May 29 release). Bottom line: The second quarter of '08 is shaping up to be the best ever for Greencastle, and our prediction is for royalty revenue to slightly exceed the previous record of $636,418 (Q3, 2006).
Investors always enjoy earnings surprises, and Greencastle in our opinion is about to deliver one. We're also excited about the potential earnings impact from its investments - Greencastle participated in private placements with Vast Exploration (VST) and Altai Resources (ATI), at much lower prices than what those two companies are currently trading at. Potential capital gains from these investments are believed to be in the hundreds of thousands of dollars. How does a Greencastle quarter with earnings of $1 million or 2.5 cents per share sound? That's entirely possible.
Greencastle is awash in cash and its working capital, which was over $4 million as of March 31st, should increase to approximately $5 million as of June 30th. With plenty of cash in the bank, Greencastle is aggressively pursuing new opportunities as it recently indicated.
2. Coal and Quebec Shale and Gas Play
In our May 31 report, we told you that Greencastle had applied for coal exploration permits in Saskatchewan. The company is eagerly awaiting confirmation of those permits from the Saskatchewan Ministry of Energy and Resources.
What we don't know for sure, but what we are now speculating on (for good reason) is that Greencastle is also about to get involved in the Quebec gas play in the St. Lawrence lowlands. Rumors are now circulating with regard to this, which perhaps explains today's renewed burst of activity in the stock. Greencastle CEO Tony Roodenburg seems less interested in gold these days and much more interested in coal and oil and gas. His connections with Altai Resources, and the tone of his May 29 news release, leads us to believe he will follow Altai and others into the exciting Quebec gas play.
The Facts Speak For Themselves
- Record-setting 2nd quarter earnings likely after strong Q-1 profit;
- Company pulling in approximately $200K per month in oil and gas royalty revenue;
- Profitable investments in oil and gas companies;
- Aggressively pursuing new exploration and investment opportunities;
- Significant insider buying by company CEO;
- Very strong cash position and no need for stock dilution (financing);
- Market cap still only $14 million!
- Gold properties in Nevada (Battle Mountain Trend) and West Africa;
- Uranium property in Wyoming;
- Very bullish stock technicals
As we stated May 31, earnings and speculation drive stock prices. VGN has both, and today's fresh breakout on large volume suggests VGN may soon challenge its all-time high.
As with all investments, we recommend you do your own due diligence, invest only with money you can afford to lose, and never put all your "eggs" in one basket. Invest wisely, and we suggest taking at least half your profits off the table on a "double".
An additional report on Greencastle will follow in the near future.
