10 November 2005

Oil Sands Pile-on - Cramer's Two Cents

Cramer's got his own left-field Fort McMoney play. I thought I'd note it on the blog. Below is the excerpt from the Mad Money recap:

Oil in Alberta

Cramer is short-term bearish on oil, believing that the commodity is headed to the low $50 range from Tuesday's price of roughly $59.

But, as long as oil is over $35, he said, the oil sands of Alberta, Canada, "are going to be very profitable."

Cramer believes that "one of the least visible and best plays on the oil sands in Alberta" is Birch Mountain Resources (BMD:Amex - news - research - Cramer's Take).

Cramer said that although the mineral exploration and development company has rights to a million acres "full of mineral wealth," which "if it pans out, will be huge," the company also stands to benefit from the supplying of the infrastructure build-out and the processing of the oil sands.

The company is expected to supply quicklime, a necessary material for the processing of oil from oil sands, said Cramer.

Even though Birch Mountain won't start making quicklime until 2007, "when they do, they're going to own that business," he said.

Birch Mountain can ship quicklime for $85 per ton less than can competitors because they're the closest to the oil fields, he said.

Additionally, Birch Mountain should do well supplying aggregate for the build-out of the oil sands infrastructure such as processing plants and roads.

Be careful buying shares of Birch Mountain, though, said Cramer. It's a small, thinly traded company. He would recommend using limit orders.

I checked Morningstar for BMD's free cash flow numbers. Consistently negative cash flow of $1.7M-1.8M per year for the last few years.

This could be an interesting, purely-speculative play, even though the Mad Money-watching yahoos pushed the stock up. I'm thinking there's plenty of time to play wait-and-see with BMD. Cramer pointed out the 2007 date for quicklime production; that's an eternity to me.

I'll be patient and wait for the Mad Money viewers to get bored and move onto Cramer's next idea. In the meantime, I'm adding BMD to the Stock Watch List.

1 comment:

Anonymous said...

BMD - Comments

I have been in and out of this stock tree times. The reason I am so nervous about this stock is that there is nothing going on. As far as I can see they have no contracts of supply with any of the major firms and yet the stock has tripled from the Canadian price of 18 months ago. Even when they get into production we have no idea of their profitability. This stock is like rolling dice. The only question is who is buying the millions of shares every day.