Market Outlook:
Gold’s consolidation of more than US$2,000 per ounce continues as bullion has consistently remained above this psychological level since mid-December. A report by the World Gold Council suggests strong fundamental demand will continue to provide downside support from non-OECD (The Organisation for Economic Co-operation and Development) central banks on the back of reserve diversification and ongoing elevated geopolitical tensions. The start of the U.S. Federal Reserve easing will likely drive the next leg of upside, which traditionally has triggered increased ETF demand.
In energy markets, we expect extended OPEC+ cuts to provide ongoing support for oil markets that face the headwinds of demand and incremental production growth from the U.S. In Canada, MEG Energy during its fourth quarter conference call revealed that Trans Mountain on Feb. 29 called for oil to fill the line in April and May. In our view, this signals that Trans Mountain has a high degree of confidence in its targeted second-quarter 2024 start-up timeline. The much-needed spare export capacity will undoubtedly tighten the Western Canadian Select differential.
With the earnings season seeing capex cuts and lower production guidance chipping away at one of the main clouds hanging over natural gas, perhaps the floor for natural gas is firming a bit. Looking back over the last 25 years on a seasonal basis, March tends to be the month where NYMEX gas prices start to improve and continue through the summer months. If you take only the years where NYMEX is less than US$3/Mcf, NYMEX generally increases 40 per cent after that point into winter.
Top Picks:
Headwater Exploration (HWX TSX)
Small cap oil producer with the hottest play in Canada, Clearwater heavy oil. Rare combo of ultra growth, attractive dividend and excess cash for dividend increases or land acquisitions. Growing 50 per cent by 2028 and 10-15 per cent in 2024 alone, while getting 6 per cent yield, expanding inventory (10+ years) and maintaining zero debt for land acquisitions or shareholder returns.
Tourmaline Oil (TOU TSX)
Largest gas producer in Canada (500k, 25 per cent liquids). CEO of the year. Deeply oversold and good time to buy as in historically does well from March until September. Top tier for execution, management, strategic vision, and high-quality assets. The best gas marketing program among peers, California, and LNG deals, which helps offset periods of weak Canadian prices. Over the next five years, they could return 40 per cent of market capitalization through base/special dividends and grow production over 30 per cent under forward prices.
Capstone Copper (CS TSX)
Top junior copper pure play due to growth profile and inflection point in H2 2024. Unhedged. Major shareholder Orion has slowly sold (24 per cent proforma) but stock keeps re-rating even after a recent secondary and $375 million bought deal at $6.30. Current growth is fully permitted and funded with free cashflow in 2024/25. Cheap to peer group due to growth execution risk and geopolitical risk of Chile (taxes and 60 per cent of NAV).
| Disclosure | Personal | Family | Portfolio/Fund |
|---|---|---|---|
| HWX TSX | N | N | Y |
| TOU TSX | N | N | Y |
| CS TSX | N | N | Y |
Past Picks: November 15, 2023
Meg Energy (GRT.UN TSX)
- Then: $26.74
- Now: $29.29
- Return: 9%
- Total Return: 9%
Teck Resources (TECK.B TSX)
- Then: $48.72
- Now: $53.67
- Return: 10%
- Total Return: 10%
Denison Mines (DML TSX)
- Then: $2.29
- Now: $2.59
- Return: 13%
- Total Return: 13%
Total Return Average: 11%
| Disclosure | Personal | Family | Portfolio/Fund |
|---|---|---|---|
| MEG TSX | N | N | Y |
| TECK.B TSX | N | N | Y |
| DML TSX | N | N | N |
Disclaimer
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. You will usually pay brokerage fees to your dealer if you purchase or sell units/shares of investment funds on the Toronto Stock Exchange or other alternative Canadian trading system (an “Exchange”). If the units/shares are purchased or sold on an Exchange, investors may pay more than the current net asset value when buying and may receive less than the current net asset value when selling them. There are ongoing fees and expenses associated with owning units or shares of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in these documents. Mutual funds and investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain statements in this disclosure are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may”, “will”, “should”, “could”, “expect”, “anticipate”, “intend”, “plan”, “believe”, or “estimate”, or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Middlefield Funds and the portfolio manager believe to be reasonable assumptions, neither Middlefield Funds nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.
This material has been prepared for informational purposes only without regard to any particular user’s investment objectives or financial situation. This communication constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described herein is suitable or appropriate for you. Investment decisions should be made with guidance from a qualified professional. The opinions contained in this report are solely those of Middlefield Limited (“ML”) and are subject to change without notice. ML makes every effort to ensure that the information has been derived from sources believed to reliable, but we cannot represent that they are complete or accurate. However, ML assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. ML is under no obligation to update the information contained herein. This document is not to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument.
